EARNINGS, EARNINGS, EARNINGS: (NY Times) “The earnings game owes its survival to corporate sponsorship, as well as to the support of viewers (or investors) like you. Corporate executives, for their part, are almost compelled to play. Continued earnings growth ensures their company's access to affordable sources of capital. It also enables executives to keep their jobs and collect stock options and other earnings-related incentives. In the 90's, stellar growth even turned a handful of businessmen, like Bill Gates and Jack Welch, into full-blown pop stars, admired and envied by their peers and fawned over by the media.

But executives aren't the only ones playing the earnings game. Over the years, an entire earnings infrastructure has developed, including corporate executives and directors, accountants and analysts, fund managers and kitchen-table stock players. These interested parties play mutually reinforcing roles in sustaining the fiction that continuous profit growth is either possible or desirable.

And it is a fiction. Even in the 1990's, an exceptionally good period for business, only one in eight large companies managed to achieve continuous, year-upon-year earnings growth. According to Credit Suisse First Boston, average earnings growth during the 90's, the up years and the down years taken together, was little better than 7 percent. Nonetheless, most large companies currently predict that their earnings will grow by about 15 percent a year, every year. And no company in the C.S.F.B. study forecasts even a single year of declining profits. As the report concludes, ''the vast majority of companies seek (and plan!) to grow at a double-digit rate, and the vast majority do not.''

The companies that do achieve continual growth aren't necessarily better off for it, nor are their investors. Over the years, economists have come to two widely shared conclusions about corporate earnings: First, higher earnings this quarter do not presage higher earnings next quarter. Or lower earnings, for that matter. In fact, earnings have no predictive value whatsoever. The second conclusion is that rapidly growing profits are not necessarily a symptom of robust corporate health. They're just as likely to indicate a corporate management that is more adept at fancy accounting tricks than at running a business.”

I hope you read the statement about “no predictive value whatsoever” which represents almost an impossibility to pick individual securities with success. I repeat ad nauseam, you have to have about 50 varied stocks now in order to get acceptable diversification similar to the market overall.

CONSERVATIVE: 61 percent of high-income investors surveyed this year said they are unwilling to take substantial financial risk for substantial gain, a 10 percentage point increase since last year. And considering the last couple weeks, I bet it’s now closer to 75%.

BUDGET SURPLUS??: Remember when everyone was projecting a budget surplus forever? Remember the 30 year old pretty boys on CNBC five years ago telling us economic gyrations were a thing of the past? Many people- including analysts and economists- failed to recognize that "stuff happens". While no one might predict something like 9/11, they sure should have realized that recessions are part of the economic cycle. Greenspan was well aware of it when he told everyone about the highs of the stock market and "irrational exuberance".

The Congressional Budget Office now notes that Tax revenues dropped by $24 billion in May from a year earlier, including a $21 billion drop-off in individual income-tax receipts. Spending continues to grow "at a double-digit pace for all major categories except social security and net interest. According to the report, $125 billion of the $286 billion swing can be attributed to higher government spending, including a 10.7% increase in spending on Medicare and Medicaid."

And beat yourself up with this: "A 125-Year Picture of the Federal Government's Share of the Economy, 1950 to 2075," Congressional Budget Office (14 Jun 2002), Presenting a 125-year picture of the financial affairs of the federal government, this policy brief shows the size of the federal budget in relation to the general economy from the middle of the last century through the projected retirement years of the children of the post-World War II baby boomers. According to the projected path for the federal budget shown in this Congressional Budget Office report, outlays for Social Security, Medicare, and Medicaid (based on the current rules for benefits) would nearly double again as a share of GDP by 2035, rising to 14.9%. If spending for all other government activities in 2035 remained roughly the same share of GDP as projected for 2012 (approximately 7%), Social Security, Medicare, and Medicaid would account for almost 70% of all noninterest expenditures. By 2050, outlays for the three programs would equal 16.8% of GDP and by 2075, 21.3%--exceeding the share of GDP now absorbed by all federal revenues.

As a result, U.S. budget deficit will be "well above" $100 billion for the 2002 fiscal year and could even approach $150 billion.

As of July 31^st, there are some that feel we may slip back into another recession (the first ended in January or February). Slow growth is anticipated for the next six months, if not longer.

9/11 COSTS: As we get closer to the one year anniversary, it’s noted that the attacks have cost property insurers more than $20 billion, up 22 percent from an earlier forecast. Total property claims for the attacks on the World Trade Center and the Pentagon will reach $20.3 billion, per the Insurance Services Office Inc. (ISO). That is up from its last estimate of $16.6 billion, made shortly after the attack, as new claims have emerged.

That makes the destruction of the World Trade Center by far the costliest U.S. catastrophe ever, surpassing insured losses from Hurricane Andrew in 1992, which cost insurers $19.6 billion, adjusted for inflation.

LTC: (HIAA) The number of Americans who have purchased long term care insurance more than tripled over the last decade, going from 1.9 million in 1990 to 6.8 million in 1999. HIAA began tracking sales of LTC insurance in 1987. Since then the market has grown annually by an average of 18%. More than 750,000 policies were sold in 1999, up 40% from 538,000 in 1998. In total, 124 companies sold LTC insurance in 1999, with premium volume for policies sold in the individual and group association market totaling about $789 million in 1998- 1999."

LTC FAVORABLE CHANGES - Some long term care insurance companies have instituted favorable changes for their existing business.

Examples include: Adding assisted living facility coverage to policies that had nursing home and home care coverage, but no assisted living coverage when priced. Less frequently, ALF coverage has been added to policies that lacked home care coverage; Broadening the definitions of activities of daily living to include stand-by assistance; Expanding bed reservation coverage to include reasons beyond hospitalization; Lowering existing premiums; Removing restrictions such as 3-day prior hospitalization as well as inorganic mental and nervous exclusions and Upgrading to add home care coverage and assisted living facility coverage (Note that some of the enhancements listed above can have significant premium considerations. So, for example, if a company added ALF coverage that had not been contemplated in the original pricing and at a later date felt that a premium increase was needed, all parties should appreciate that the rate increase might be entirely attributable to the pro-consumer expansion of coverage)

TOTAL POPULATION: All Ages Including Armed Forces Overseas Thousands Source: U.S. Department of Commerce, Census Bureau April 2002- 286,964,000

CBS, NBC, ET AL AND WORLDCOM- They had financial planners saying they held onto the stock even as it plummeted since they couldn't believe the company lied. Then another talked about you need to be diversified and used the old adage, "not putting all your eggs in one basket." What a pile of crap. To discuss diversification without addressing how many stocks you actually need to diversify is a joke. But to even utilize a singular stock as a planner misses the fundamentals of diversification additionally. If you read above, you know you need ____ stock to diversify. Did you remember?

REAL ESTATE (Terri Cullen) The average annual return for apartment investments, including price appreciation and rental income, over the past 20 years has been around 12%, according to the National Council of Real Estate Investment Fiduciaries, an industry trade group in Chicago. That compared with an average annual return of about 9.5% for stocks and 5.1% for bonds, found in a recent study by the National Center for Policy Analysis, a public policy research group in Washington, D.C.

One way to gauge the economic outlook for the region in which you're looking to buy is to track job growth. The Bureau of Labor Statistic's Web site offers a helpful tool here. Its "State and County Employment and Wages" section includes a screen that allows you to track job growth by county (in section 3, scroll all the way to the bottom to select "all industries"). Another screen, found in the agency's "Local and State Unemployment" section, will show you whether unemployment is on the rise in that county.

Vacancy rates for apartment buildings managed by institutional investors rose to 8.91% for the first quarter of 2002, up from 8.16% during the fourth quarter of 2001, according to the National Council of Real Estate Investment Fiduciaries. This is the highest vacancy rate for apartments since 1991.

How to tell whether there's a tenant shortage in your area? The U.S. Census Bureau's Web site offers stats on vacancy rates for 75 of the largest metropolitan areas up to 2001. A quick check of data tracking vacancy rates show Buffalo, N.Y., Birmingham, Ala., Columbus, Ohio, Las Vegas, and St. Louis, Mo., among the cities with steadily rising vacancy rates, while Los Angeles and Fresno, Calif., and Milwaukee, Wis., all have seen vacancy rates decline.

Population growth also can determine whether you'll have difficulty attracting tenants. Check out the Census bureau's population growth estimates for your region. You'll want to avoid any market where population growth is below 1% or declining.”

As a sobering element, however, I offer this. It is true that real estate can offer good returns, but it is NOT liquid. If the economy suffers- remember the Resolution Trust of the 80's?- it may be next to impossible to unload the property and, if the vacancies are too high, you may not have enough money to “make the nut.” Hence foreclosure. With stocks, you just make a singular phone to sell. Also, you can have a lot more headaches with real estate and the issue of tenants not paying, making a mess, etc. Not so with stocks. By the time you add in these issues as a risk factor in ownership, stocks may actually have a higher risk adjusted rate of return.

''It's important to recognize that a bubble can go both ways. 'And what we're seeing now has the nuance of a negative economic bubble.''

Robert Shiller, Yale Economics professor

TOD (Transfer on Death) If you have read my previous commentary on estate planning regarding joint tenancy as a way of distributing assets upon death, you have found that there are a lot of problems. By putting someone else on title, the property is subject to their creditors and other judgements, liens, etc., etc. And the property receives only a one half step up in basis upon death. But it does, at least, avoid probate.

But most states have passed some version of the Uniform Transfers on Death Securities Registration Act. It's viable for securities (including bonds), mutual funds, shares of limited partnerships, and other like instruments and the assets can go directly to the beneficiary without probate while still getting a full step up in basis. Louisiana, North Carolina, Texas and New York have yet to adopt the measure.

TOD's pass outside of a will and are not perfected in every state. It may be preferable to use a trust- a better overall planning vehicle.

DIVORCE: The average woman experiences a 27% decrease in her standard of living following a divorce while a man has a 10% increase.

FIDUCIARY RESPONSIBILITY/PRUDENT MAN/401(K) (CFO Kris Frieswick): Once the debacle of Enron hit, regulators finally took a look at what went wrong- the element of diversification.

Anyway, many are now looking at (or should be looking at) the elements of what was required as a fiduciary. The article in CFO said that a continued risk lies in the interpretations and execution of the most commonly misunderstood words in ERISA: Fiduciary Duty. "Most of the existing ERISA land mines will main after approval of what reform legislation is enacted says the American Benefit Council.

Part of the problem lies in the interpretation and execution of the most commonly misunderstood words in ERISA: fiduciary duty. "Most of the existing ERISA land mines will remain after approval of [reform legislation]. The demands of being a fiduciary "are based on prudence in a given situation, and it's hard to eliminate risk from this kind of fact-specific determination." Indeed, some observers say that Enron's cardinal sin was not faulty 401(k) plan provisions, but rather its alleged breach of fiduciary duty when its executives encouraged employees to hold on to their Enron stock even as the company was heading into bankruptcy.

Most fiduciary breaches are the result of a lack of prudence. "The fiduciaries just don't understand what their responsibilities are." What's more, managers are frequently unaware that they are, in fact, fiduciaries. This misunderstanding leads to most of the violations that can lead to lawsuits.

ERISA states that a person is a plan fiduciary "to the extent that he exercises discretionary control or authority over plan management or authority or control over management or disposition of plan assets, renders investment advice regarding plan assets for a fee, or has discretionary authority or responsibility in plan administration." As such, a person can be a fiduciary whether or not he has been formally named one in the plan document. There are executives and human-resource managers in companies all over the country, she adds, who may have no idea that they are fiduciaries.

Unfortunately, many companies operate under the misconception that by outsourcing plan administration to third-party vendors and a plan trustee, they have off-loaded fiduciary responsibility. Others think that by giving employees a slate of investment options, and letting employees self-direct those investments, they are also off the hook. "Most companies think, 'We've given them these choices, that's all we have to worry about.' That also shows a lack of prudence,"

ERISA mandates that when no plan administrator is designated in a plan document, the plan sponsor is the plan administrator. In this case, the sponsor cannot insulate itself from ongoing responsibility to another party, such as a third-party administrator, Also, where the sponsor or a committee of plan-sponsor employees appoints the plan trustee or investment manager, responsibility for monitoring the performance of the trustee or investment manager ultimately rests with the sponsor or committee making the appointment.

ERISA roughly as the actions a prudent man in a similar capacity would take in similar circumstances. Execution of fiduciary duty in this instance is not just a matter of picking good investment options or a worthy manager (although the chances of anyone raising fiduciary issues are slim if investments are doing well). The law requires that fiduciaries have a sound process in place to make the decisions.

"Fiduciary responsibility is assessed based on process. To meet the prudent-man standard, fiduciaries must make themselves reasonably knowledgeable about the options available, investigate a variety of options and compare choices with competing offerings, and keep detailed records showing how the final decision was made."

(Fiduciaries don't have a clue. Unless you know what diversification is, by the numbers, you are out to lunch in developing any prudent plan).

The duties don't end there. Fiduciaries are also responsible for monitoring the performance of the trustee, investment managers, or investments they have chosen to ensure that they meet certain performance thresholds or match the investment policies outlined in plan documents. It's the failure to execute on this requirement that causes problems for many companies. "A lot of companies say, 'If there's a problem, we deal with it,'" says Turk-Meena. "That's a blatant ignoring of fiduciary duty. There is a monitoring requirement as well."

Once fiduciaries are identified, they must be educated about exactly what their role entails. The general rule is this: fiduciaries are expected to meet the prudent-man standard in the execution of their duties, which must always be conducted for exclusive benefit of participants and beneficiaries. Obeying this rule can be complicated, but companies can take some basic steps that will reduce the likelihood of stepping on ERISA land mines, say experts (whoever they might be).

"It's OK to appoint someone who doesn't have expertise and background in it, but you must make available to that person the resources and people who can help them. If you don't do that, it's an imprudent appointment."

Under ERISA regulations, a fiduciary is relieved of responsibility and liability for any loss resulting from a participant's self-directed investment decision if the employee can choose from a broad range of investment alternatives (at least three meeting certain verification requirements); give investment instructions to buy or sell with a frequency that is appropriate in light of the market volatility of those investment alternatives; and obtain sufficient information to make informed investment decisions.

Nowhere, however, does ERISA require or even encourage employers to educate their employees about making good decisions. Quite to the contrary, ERISA restrictions on "prohibited transactions," or those transactions that ERISA prohibits between a party-in-interest and the plan, have created an environment in which employers are highly unlikely to provide real investment advice or meaningful education to employees. Instead, investment education often involves a lecture on how important it is to diversify your assets into a variety of asset classes, and to minimize risk as retirement approaches. Period.

This tends to result in employees who are, for better or worse, the ultimate buy-and-hold investors. A study by the Employee Benefit Research Institute shows that even during 2000, when equities showed their biggest declines in years, employees did not shift their plan asset allocation out of underperforming stocks. One reason for this, say experts, is that some employees may still believe that their employer would never provide them with a retirement vehicle that would lose money or put their personal assets at risk. This is clearly a hangover from the days when the vast majority of companies offered defined benefit plans, in which employees were guaranteed a retirement benefit of a specific amount upon retirement, no matter what happened to the company or the market.

Some of the proposed legislative changes to ERISA seek to alter the fiduciary liabilities of plan sponsors that arrange for investment advice for their employees. These changes face some of the stiffest opposition of any of the reforms. There is serious concern among some observers that companies would most likely seek this investment guidance from the same third-party investment managers they use for investing plan assets, a situation ripe for conflict of interest--not to mention unintended consequences.”

She provided a good overview- but I have heard a lot of these comments for years. I repeat, how can you know what “prudent” actually means unless you understand the fundamentals of investing? Quite obviously, you can’t. The fundamentals are not taught to brokers and, when taught to others, rarely impart real life applications (includes MSFP, CFA and more). This is not just idle rhetoric on my part. I contacted the Department of Labor in the mid 90's to discuss the issues that were lacking in employee education. Complete waste of time- they had no clue to what I was talking about. Pity- much of the current losses sustained by employees could have been avoided. One journalist for Morningstar said to me “You could have saved Enron employees billions!”

SINGLE 401(K) A business owner earning $100,000 could stash close to $31,000 in his or her retirement plan and take a tax deduction for the whole thing. On top of that, add the ability to borrow money from your own plan. It's not the best move in the world, but not the worst either, since you end up paying interest to yourself. There's no minimum required contribution, either, so if you have a tight-money year you can contribute less than the maximum -- or nothing at all.

COLLEGE LOANS: Interest rates on federally guaranteed student loans dropped about two percentage points July 1, from nearly 6% to just over 4% (USA Today). The interest rate you pay will vary ever-so slightly, depending on when you borrowed the money and a bunch of other factors .

If you've got outstanding Stafford loans or PLUS loans (for parents who help their kids pay for college), consider consolidating those loans and locking in this lower interest rate. You could save some real money over the life of the loan. You can only consolidate federal student loans once, so you're out of luck if you have already done so. Also, if you consolidate now, you're stuck with the rate you get this year for the life of your loan.

LIFE INSURANCE: Fewer than 20 states require criminal background checks and fewer than 10 require fingerprints. That's at least one reason why so much crap goes on in the insurance business and it has such a deservedly bad reputation.

HOMEOWNERS INSURANCE: (Insurance Information Institute (I.I.I.) An extraordinary number of catastrophes, the high cost of home repairs and excessive jury awards due to the emergence of mold claims are pushing the cost of homeowners insurance upward -- an average of 8 percent nationwide in 2002 and a projected 9 percent in 2003.

THIS WILL HURT: 2003 HMO Rates to Increase an Average of 17%. Increases of this magnitude are likely to prompt the development of consumer driven approaches to health care and to accelerate the movement of cost sharing to employees as employers seek to reduce their health benefit costs.

Regional results varied narrowly around the 17% national average. Regional increases are expected to range from a low of 14% in the East North Central region to a high of 19% in the Mountain, South Atlantic, and West South Central regions.

AGENTS LEARN HOW TO PITCH TO SENIORS (WSJ)-- Welcome to Annuity University, the name of a two-day seminar where budding sales people pay $375 to learn the ins and outs of getting seniors to buy annuities. At a training session on how to sell investments, Tyrone Clark offers a key piece of advice on how to sell to senior citizens: "Treat them like they're blind 12-year-olds.

"You'll waste time if you think you can impress them with charts, graphs, printouts or use sophisticated words. "They buy based upon emotions! Emotions of fear, anger and greed."

Actually, I know it works. Annuities, LTC and many other such products are sold, not bought. The agents try to find some way to garner "trust" and from there on in, its pretty simple to sell gullible people. We can say that they agents act unethically- and it’s true as far as I am concerned. But the seniors aren’t doing enough to protect themselves- such as reading. Actually, that’s the problem with most citizens.

AIDS: The number of HIV infected Chinese could reach 10,000,000 by 2010 unless countermeasures are taken.

SMALL CAP INEFFICIENCY (Larry Swedroe) One of the more persistent claims from Wall Street is that the inefficiency of information in small-cap stocks allows active managers to exploit market mispricings and outperform passive benchmarks. It is important to note that part of this claim is true - generally, the smaller the market capitalization, the fewer the number of analysts there are performing research on the company. Smaller companies also have less institutional ownership. The lower level of research being conducted might lead to an inefficiency of information. However, inefficiency of information is only a necessary condition for active managers to be successful. It is not, however, a sufficient condition. The sufficient condition is that the information inefficiency has to be large enough that after all expenses of the effort (including the costs of research, trading costs, and fund operating expenses) there is a positive return (alpha) above a passive investment alternative such as an index fund. Unfortunately, as you will see, there not only is no evidence to support the belief that active managers are likely to add value, there is also no logic to the belief either.

In his famous study, "On Persistence in Mutual Fund Performance," Mark Carhart found that for the period 1962-1993, after adjusting for style (comparing small-cap funds to small-cap benchmarks, value funds to value benchmarks, etc.), the average actively managed fund underperformed its proper benchmark by 1.8 percent per annum. If he had looked at after tax basis the performance would have been even worse. He also found:

There was no persistence in performance beyond that which would be randomly expected - the past performance of active managers is a very poor predictor of their future performance.

Turnover reduced pretax returns by almost one percent of the value of the trade. (1)

A study by Russ Wermers, covering the period 1975-1994, found that on a risk-adjusted basis the average actively managed fund underperformed a proper benchmark by 2.2 percent per annum. Once again, this figure is before the negative impact of taxes. (2)A study by Jim Davis, covering the period 1968-1998, examined the returns of 4,686 funds. Davis sorted the funds into deciles by market capitalization. He found that there was no evidence of any superior performance of active managers.

LIVE AND LEARN? (Roger Gibson) In the 20 years ending in 1999, at the height of the bull market, stocks had experienced only two down years, 1981 and 1990. That was unusual. Data going back to 1926 shows that stocks fell in 3 of every 10 years

WHAT A FARCE: The CFP Board of Standards states that all CFP's have to adhere to a strict ethical guideline. And that it will be enforced. Bat Guano. I received their second quarter Report. There were 9 disciplinary Actions: Civil suits, prison, State order, class action suit, NASD cautionary letter, NASD suspension, NASD arbitration. In other words, and as so stated for years, the Board will NOT institute a disciplinary review unless and until there has been a separate violation identified by a separate entity. Even when they know that the CFP is violating the law. Look at Worth's 250 best advisors in California. Many have been- and are still- in active violation of state law with full knowledge by Worth's editors, the Board of Standards, The American CPA Society, Financial Planning Organization and more. Yet the Worth headline says "In Them We Trust."

As to you use of a CFP as your advisor, tell me why? Absolute expertise? Nope- you can study for the exam in 6 months. Real life application of material- nope. Even the statistics for diversification are out of date. Ethics- not even taught. They have great marketing though.

HONESTY: Bush recently noted that "we expect high standards in our schools, we expect high standards in corporate America as well."

Expectations are nice, but I don't think it will work. The SEC "ordered" the heads of the largest corporations to certify their financial statements. They must sign oaths that they have told the truth. But the "loyalty oath" is generating chuckles from ethics professionals .

"A separate blood oath that the financial statements were accurate, laudable as it may seem, will have little impact on actual veracity. IF someone is going to lie, they are going to lie anyway', Charles Elson, Director of the Center for Corporate Governance. An economist at the Haas Scholl of Business at UC Berkeley called the requirement, "window dressing:" This is more about appearance that a change in substance.

The only thing that will change corporate executives attitude toward accuracy of their financial statements is if a few CEOs go to jail. If you have intentionally lie on a financial statement, you should have potential criminal liability (Ebson)

And here is a quote from US News and World Report : "Toughness is forgiveable and, to some, even admirable. But to break the law? ......corporate shenanigans are one dramatic instance too many of corporate muckety mucks acting as though the rules don't apply to them".

The WSJ declared that the scope and scale of corporate transgressions is greater than anything Americans have seen since the years before the Great Depression. And the list of offenders, from likely to convicted, is shocking...."

But all you have to do is read “What a Farce”. The people with the (supposed) highest pedigree and note that they are illegal, unethical and incompetent. You decide what needs to be done.

INCUBATOR FUNDS (Swedroe) There is another bias in performance data that comes from the use of what are known as "incubator funds." Incubator funds are newly created funds, seeded by mutual fund families with their own capital. The funds are not available to the public. Here is one way the game may be played. A fund family creates several small-cap funds, possibly even under the same manager. Each fund might own a different group of small-cap stocks. The fund family incubates the funds, safe from public scrutiny. After a few years they bring public only the fund with the best performance. Magically, the performance of the other funds disappears. Unfortunately, a recent SEC ruling allows fund families to report the pre-public performance of incubator funds. Thus we have the potential for huge distortion of reality.

ETHICS CODE: An organization that can send you information on how to develop a personal code of ethics and help you get started is Executive Leadership Foundation, 2193 Northlake Parkway, Building 12, Suite 107, Tucker, Georgia 30084.

MORE (LESS) BUDGET: "Absent reform, Social Security, Medicare and Medicaid spending will consume nearly three-quarters of federal spending in the next thirty years. This will leave little room for other federal spending priorities such as defense and education.

By 2020, as more and more baby boomers retire, long-term care spending is projected to nearly double to $207 billion, and could nearly quadruple in constant dollars by 2050. Medicaid paid 45 percent of the $137 billion this country spent on long-term care in 2000. While many people equate "long-term care" with the elderly or disabled, almost 80 percent of the elderly and 41 percent of severely disabled individuals live at home or in community-based settings.

INSURANCE REGULATION. In a consumer survey by ACLI, only one-third (34 percent) of the public is able to correctly identify state governments as the primary regulators of life insurance companies - while 25 percent incorrectly believe life insurance is regulated at the federal level. A similar number - 24 percent - incorrectly believe the life insurance industry is not regulated, while 17 percent said they did not know whether or how life insurance is regulated.

Only one in 10 consumers (11 percent) say they would turn to the state insurance commissioner, regulatory commission or consumer protection agency to resolve a complaint against a life insurer. Almost six in 10 (57 percent) say they would turn to a lawyer or the legal system instead. The second largest group of respondents - 13 percent - would go to the life insurance company itself and work through its chain of command.

A 2000 study by the Consumer Federation of America (CFA) found that more than half of the states - representing 56 percent of the U.S. population - were more than 40 percent below the minimum funding level needed to effectively regulate the insurance industry and to fully protect consumers. The CFA study also found that the state regulatory system overall was almost 25 percent below the minimum funding needed.

All that said, I have actually attempted to get the California Department of Insurance to go against the people directly violating the law. No success and the illegal activity has flourished.

ANNUAL SMOKING-ATTRIBUTABLE MORTALITY: Cigarette smoking is the leading cause of preventable death in the United States and produces substantial health-related economic costs to society (1,2). This report presents the annual estimates of the disease impact of smoking in the United States during 1995--1999. CDC calculated national estimates of annual smoking-attributable mortality (SAM), years of potential life lost (YPLL), smoking-attributable medical expenditures (SAEs) for adults and infants, and productivity costs for adults. Results show that during 1995--1999, smoking caused approximately 440,000 premature deaths in the United States annually and approximately $157 billion in annual health-related economic losses. Implementation of comprehensive tobacco-control programs as recommended by CDC (3) could effectively reduce the prevalence, disease impact, and economic costs of smoking.

You know what, almost assuredly, will end up with more mortality in the future? Obesity!!!!

If you can't say anything good about someone, sit right here by me.

Alice Roosevelt Longworth

PAID CAREGIVERS AND ELDERLY ABUSE: (WSJ) In California, where many aged and disabled people are allowed to pay family caregivers, it's surprisingly common for relatives to take the money and fail to provide the care.

FALLING DOWN: Some 12 million elderly Americans fall down each year, resulting in billions of dollars in medical bills. 25% of the elderly who fracture a hip during a fall -- among the most common injuries -- die within one year, and 75% never regain the quality of life they had before the fall.

P/E RATIO: The International Monetary said that equities appeared overvalued. It said there was a risk of a stock market “correction due to disappointing earnings…not only for the US, but also in other regions.” They reported this in June- seems like they were right on the nose with the drop in July.

The post-war average price-earnings ratio of S&P 500 stocks is 15. But using companies’ own measure of operating profit, that figure is now 26. Adding back in so-called “exceptional” expenses yields a p/e of 41, and adding back the cost of share options brings the ratio to a frightening 50-plus. (Some companies state they will now expense stock options- but most will not). It’s tough to know just where we are but if the market keeps dropping the P/E ratio will get better and cause people to buy.

SO WHAT WENT WRONG THIS TIME? (NY Times) From 1938 on, an investor who bought the stocks in the Standard & Poor's 500 six months before a recession ended, and then held on until six months after the end, always did well. In fact, the return over those years averaged 27 percent, and that figure does not include dividends. And this: whenever the FED drops interest rates as many times as it had last year, the market was almost preordained to grow. Statistically, people should have dumped money in last year and now.

But “figures can lie...” and I saw little to nothing else to support such optimism. Except for some very minor positions, I have used short and medium term bonds funds almost exclusively. No reason to adjust right now.

ACTIVE VERSUS PASSIVE (Swedroe) There will always be some active managers that outperform their appropriate benchmark, even for very long periods of time. This provides hope for believers in active management. Unfortunately, there is no evidence of any persistence in performance beyond the randomly expected. Nor is there any demonstrated ability to identify ahead of time the very few winners. What is even worse is that the evidence over long periods is that the very few winners outperform on an after tax basis by a very small amount, and the losers underperform by a much larger amount, about three times greater. So even if you manage to pick one of the few active funds that outperforms, the odds are great that you will outperform by only a small amount. On the other hand, the odds are great that you will choose an active fund that will underperform by a large amount.

One study found that for the ten-year period 1982-91, on a pretax basis, just twenty-one percent of the funds outperformed their benchmark, Vanguard's S&P 500 Index Fund. The average outperformance was 1.8 percent per annum. The average underperformance was a similar 1.9 percent. On an after-tax basis, however, only about eight percent of the funds managed to beat their benchmark. The average outperformance was now just 0.9 percent, while the average underperformance increased to 3.1 percent.

Keep this in mind: the ratio of about 3.5:1 (the 3.1 percent underperformance divided by the 0.9 percent outperformance) in favor of the underachievers is made all the more significant because there were about eleven times as many losers as winners. Thus, we find that not only are there far more losers than winners, but also that the average size of the underperformance is far greater than the size of the outperformance. Therefore, we need to look at the risk-adjusted odds of outperformance. We can calculate that by multiplying the odds of outperformance by the ratio of underperformance to outperformance. Doing so gives us risk-adjusted odds against outperformance of about thirty-eight to one.

The same study then looked at the ten-year period 1989-98, and found that on a pretax basis, just fourteen percent of the funds outperformed, with the average outperformance being 1.9 percent. The average underperformance was 3.9 percent. On an after-tax basis, only nine percent of the funds outperformed. The average outperformance was 1.8 percent. The average underperformance was 4.8 percent. The risk-adjusted odds against after-tax outperformance are about twenty-eight to one.

HEALTH CARE: (NY Times) A study by the Midwest Business Group on Health representing large employers says that $390 billion a year is being wasted on outmoded and inefficient medical procedures.

The costs pile up from several sources- Among them is the overuse of surgical procedures, tests and medicines; the failure to routinely provide flu and pneumonia vaccines or appropriate tests and follow-up medicines for heart and diabetes patients; and inadequate screening for breast cancer, depression and certain venereal diseases.

"Poor quality in health care costs the typical employer an estimated $1,700 to $2,000 for each covered employee each year. That was about a third of the $4,900 spent for each employee on health care last year.

The federal Centers for Medicare and Medicaid Services projects national spending on health care will soar to $2.82 trillion in 2011, almost double last year's $1.42 trillion. If current trends continue, "the cost of poor-quality care will likely exceed $1 trillion by 2011."

LAWSUITS: (WSJ) -- Last year was a record-shattering year for securities litigation, with 483 outpacing the 201 filed in 2000 and the 207 filed in 1999.

The PricewaterhouseCoopers LLP report says the suits break down into two broad categories; the majority, 308, concern the allocation of shares in initial public offerings, while the remaining 175 stem from alleged accounting abuses.

In the first five months of this year, more than 60% of the 95 suits filed involve accounting issues.

The IPO-allocation suits are directed against technology, telecom and biotech companies, as well as the securities firms that brought them to market. In most cases, they involve allegations of "laddering" -- a common practice during the bubble. In such cases, certain investors promised to buy additional shares of new issues at progressively higher prices, kicking back a percentage of the profits they made on the hottest issues by rewarding the brokerage firms with additional business.

The other cases revolve around questionable accounting practices, particularly improper revenue recognition or artificially inflated revenue. For example, companies, particularly software companies, recognized revenue even though the product never left the warehouse or when it was defective and sure to be returned, according to the suits." If you bought IPO's and/or any individual securities- without knowing the fundamentals of investing (which you don’t)- you were out to lunch

ALZHEIMERS: It is more prevalent among African Americans with estimates ranging from 14% to almost 100% higher than the diseases prevalence among non Hispanic whites.

LYING: Research shows that men lie to validate themselves while women lie to make others feel better. Women are much nicer people

TRUST (Jhn Melchinger)"Trust" is the answer most practitioners give when asked, "Why do your clients, centers and prospects do business with you?" Trust is a good answer, but woefully incomplete if you do not know its nature or how to develop it.

By definition, trust is a firm belief in the honesty, reliability, credibility and integrity of someone. It implies that the person trusted has a duty of care or custody to the one who trusts. The buyer who trusts puts faith in the advisor to act in the buyer's best interests, to be what the advisor claims s/he is, and to be giving competent advice. Trusting an advisor means putting stock in that person's advice. Trust is an action demonstrating faith in another.”

Lovely words but I take a different tack in investing and focus on Fox Muldur’s, “Trust No One.” Never give trust without an extensive amount of homework- i.e., READING!!!

It isn't really important to decide when you are very young just exactly what you want to become when you grow up. It is much more important to decide on the way you want to live.

Golda Meir

UNDERWRITING AND DEPRESSION: Why Can’t Clients with a Depression History Qualify for Preferred Underwriting?:

The short answer is that depressed people experience a death rate twice that observed in the general population from both natural and accidental causes. There are three primary types of depression:

Major Depression - A more extreme version of Dysthymia that can be either unipolar or bipolar. Bipolar is classified as having one or more periods of elevated or irritable mood.

Seasonal affective disorder - Major depression which occurs at specific seasons.

The increased mortality from natural causes is due to common conditions such as heart disease, lung infections and influenza. Accidental deaths are probably related to greater risk taking behavior. Clients with a psychiatric illness are more likely to be either victims or perpetrators of violence and are more prone to abuse alcohol and drugs.

The most serious complication of major depression is suicide. A quarter of all patients diagnosed with major depression attempt suicide at least once and 15% of patients ultimately die by suicide.

Factors associated with a poor risk are three or more episodes, lack of a maintenance dose medication, multiple drug therapy, poor compliance, hospitalization and substance abuse.

Minor depression is usually Table 2 within the first year of diagnosis and standard thereafter. Major depression is usually rated Table 2 to 4 if under good control.