FINANCIAL PLANNING: A survey of more than 1,000 financial decision makers with household incomes of $75,000 or more revealed: -- 31 percent feel an increased need for advice from a financial professional. 63 % of those who feel an increased need to talk with a professional have yet to do so.

BONDS AND DYING. Something new for me- a death put. If you buy a bond and DIE, the company will buy back the bond at par. But you have to die- you cannot put the bond back to the company while you are alive.

BOND COMMISSIONS: They were about 0.7% for newly issued muni bonds; 1% to 2% for bonds on the secondary market; under 1% for Treasuries and 2%+ for corporate bonds.

BUY AND SELL: In the long '90s boom, the proportion of "sell" recommendations put out by Wall Street houses declined from 9 percent of all research reports to 1 percent and has only modestly rebounded since.

The only difference between a rut and a grave is the depth.

RETIREMENT: (ING) A majority of Americans are unprepared for retirement, even though some have done a good job of accumulating assets. And, successfully planning and preparing for a comfortable retirement has become a sensitive issue for many Americans, given challenging equity markets and weakened economies.

69% of 50-70 year-olds do not have a plan for their retirement paycheck and approximately 75 percent of respondents either do not understand, or haven't considered, how to successfully plan for the withdrawal of their retirement savings -- and maximize the options available to them to best meet their personal needs.

"Americans have become conditioned to think that by building a retirement nest egg they are financially prepared to retire, but there's more - a comprehensive retirement plan does not end there. "The retirement paycheck is a monumental issue because according to our research, 86 percent of Americans expect to have a comfortable retirement."

They emphasized that individuals need to plan how to best convert their nest egg into a long-term income stream they won't outlive. The consequences of careless decisions stemming from inadequate planning can undermine years of successful scrimping and saving.

Baby Boomers Need A Wake-Up Call on Retirement Readiness - "Roughly a decade ago, Baby Boomers heard the wake-up call about the need to take personal responsibility to accumulate savings for retirement. However, if Boomers think that saving is all they need to do to retire ready, then it's time for another wake-up call. Individuals also need to take responsibility for planning their retirement paycheck."

Industry data shows that there are approximately 14 million households in the U.S. with between $100,000 and $1 million in investable assets with many of those households nearing retirement and looking for a helping hand.

Insufficient planning and consideration for the impact of taxes, accessibility, and diminished growth potential can significantly compromise an individual's retirement experience. "Mistakes can be costly and painful -- consider a person who retires at 62, transfers $250,000 to a bank savings account in a lump sum from their 401(k) plan and unwittingly suffers a major tax penalty -- and loses a sizeable portion of their life's savings. It likely took that person many years to accumulate those assets, but they would likely lose more than a quarter of their savings because of one uninformed decision. Americans need to plan and get the help they need to prepare for their retirement readiness."

Part of the problems is the inability of the retiree or their adviser in using a financial calculator. See next

NEVER BUY STUFF AT A BANK. NEVER BUY STUFF FROM ANYONE WHO CANNOT USE A FINANCIAL CALCULATOR. A friend of a friend called me regarding a variable annuity that she had just purchased at a bank. It was obvious that she had no idea how it worked. She just told him that she wanted $400 a month for 7 years. So for a 1.5% load, she went into about 5 funds. In less than 20 days ago she lost over $4,000 on a $51,000 investment. (You do not put money into a declining market that is still highly volatile- and while a war is imminent.) She sent me the contract to review. It did have a 5% guarantee if the account did not perform. She thought that was great. But here is the kicker- even you get guaranteed amounts from an annuity during the earning period- you have to know if the subsequent payout rates are viable. So I did the numbers based on her actuarial lifetime. If she had $71,000 when she annuitized and her lifetime was 10 years, the return was only going to be $48,000. Sure if you live a LONG time, annuities may work. But considering the actuarial odds, this is yet another sucker bet. The agent kept saying that she was also going to get an additional 10% the first six months. But it wasn't in the contract. So no 10%.

NEVER GIVE MONEY TO ANYONE ANYPLACE WHO DOES NOT HAVE AND CANNOT PROPERLY USE A FINANCIAL CALCULATOR.

FORECLOSURES: (Mortgage Bankers Association ) During April, May and June, 1.23% of mortgages — about 640,000 — were in the foreclosure process. That's the highest rate in its 30 years of tracking. A year earlier, not even 1% of mortgages were in foreclosure.

DIVORCE- (College for Divorce Specialists ) Getting divorced costs an average of $20,000. That $20,000 includes legal fees, appraisal costs and court-filing fees.

It has nothing to do with the financial screwing by your spouse. That’s extra.

"It never ceases to amaze me how potential can be chiseled into a lame excuse for lack of action."

Doug Firebaugh

JUST ANOTHER REASON WHY NOT TO USE MEDICAID FOR LTC- Forty-one states are cutting their Medicaid programs this year. Medicaid enrollments jumped in most states, because the struggling economy created poor families in need of health coverage. At the same time, the economy reduced the tax revenues that state governments had to spend on the program. The Kaiser report stated that 18 states planned cuts to Medicaid eligibility, but only three made deep cuts this year. Total state tax collections fell by 6 percent last year and declined in every quarter, even as spending grew by 1.3 percent. Medicaid and other health costs like employee health benefits account for 30 percent of state spending and grew last year by 13 percent, the largest increase in a decade. Such growth is unaffordable and unsustainable.

DEDUCTING POINTS ON A LOAN (WSJ) The general rule of thumb is you may deduct all the points you paid in the year you paid them, as long as you meet several qualifications, such as if your loan is secured by your main home and if you use your loan to buy or build your main home. For the rest of the fine print, see IRS Publication 936, which has a summary on page six.

But you aren't always required to follow this rule. In some cases, even if you qualify to deduct your points in the year you paid them, it may be better to spread out your deductions over the life of the loan.

Suppose a couple paid 1.25 points late one year on a mortgage to buy a home. But like most taxpayers, they discovered they were better off taking the standard deduction for that year, instead of itemizing. (The standard deduction is a flat amount based on your filing status.) Thus, the couple would prefer to take the standard deduction for that year and spread the points over the life of the loan. That's okay, the IRS said in a private-letter ruling.

That's an important choice to keep in mind since about seven out of every 10 federal income-tax returns claim the standard deduction, instead of itemizing. Remember that if you take the standard deduction, you can't deduct your interest costs for that year.

Here is an example from Ernst & Young: Suppose you took out a 15-year loan on Jan. 1 of this year and you paid $2,700 in points. Also let's assume that it's better to take the standard deduction this year than to itemize. In 2003, if you itemize, you could deduct $180 of those points ($2,700 divided by 15) as mortgage interest. And you could continue to deduct $180 each year for the rest of the loan's term. "When you pay off or refinance the loan, you can deduct the points remaining, if any, in that year."

What about a home-improvement loan? The IRS says you may fully deduct those points in the year you paid them as long as you pass various other tests listed in Publication 936.

The rules are different with points you pay on a loan secured by your second home. In that case, you generally must deduct the points over the life of the loan.

That same general rule applies with refinancings: Generally, those points aren't deductible in full in the year you paid them. Spread them over the life of the loan.

But there can be exceptions. If you use part of the refinancing proceeds to improve your main home and if you meet all the other criteria listed in IRS Publication 936, then you can fully deduct the part of the points related to the home-improvement work in the year you paid it. As for the rest of the points, deduct them over the life of the loan.

For example, if half of the loan is attributable to home-improvement costs, then half of the points would be currently deductible.

Accountants indicate some people make a costly mistake when they refinance several times. Suppose you are refinancing for a second, third or even fourth time. In that case, be sure to deduct any points from the earlier refinancing that you haven't yet deducted. The same idea applies when you sell your home and pay off the mortgage; in that case, any points you haven't yet deducted would be deductible for that year.

Here's an additional wrinkle: Real-estate agents say sellers sometimes pay points for the buyer in order to facilitate the deal. In such cases, the buyer reduces the basis of the home by the amount of the seller-paid points -- and then the buyer gets to treat the points as if he or she paid them. The seller can't deduct those points as interest, but they are "a selling expense that reduces the amount realized by the seller," the IRS says.

All God's children are not beautiful. Most of God's children are, in fact, barely presentable.

Fran Lebowitz

DOES YOUR BROKER OWE YOU MONEY? - Daniel R. Solin, a securities lawyer, is the author of a new book by this title. Solin claims that "investors have been sold a bill of goods by the brokerage community and they are paying the price for it. Brokers routinely ignore basic principles of portfolio management...and instead put investors into risky, high cost and unsuitable investments." In essence, people should not use brokers at all...they, "add cost and subtract value."

ALWAYS GOING UP: Medicare's 40 million beneficiaries will pay higher premiums and deductibles next year, on top of a slim cost-of-living adjustment for 2003. Seniors' monthly premium for physician services will jump 8.7% to $58.70 in 2003, the federal government said on Friday. The deductible for hospital inpatient services will rise 3.5% to $840,

The Part A deductible that seniors pay covers up to 60 days of inpatient care. For longer stays, beneficiaries must pay an additional $210 per day through day 90 and $420 a day after that. Those amounts are 3.4% higher than this year's rates. Seniors also can expect to pay more out-of-pocket for care they receive in nursing homes. The daily co-insurance rate will rise more than 3.4% to $105 for services received from days 21 through 100. Only beneficiaries enrolled in traditional Medicare pay the Part A deductible.

LTC AND MEDICAID: (LTC Bullet) “Through Medicaid, we do two wonderful things for people who need long-term care (LTC). First, we all pay taxes so that indigent people can get commercial LTC that they otherwise would not be able to afford. We should all feel proud to contribute to that cause.

Secondly, we provide support to people who are NOT indigent. If people were to sell their homes in order to pay for LTC, and then were to recover, they would no longer have a home to return to. To avoid such an undesirable result, we give loans to these people, advancing their LTC costs, with the intention of recovering when their estate is settled.

Not only do we pool our money to provide a loan to such people, we provide that loan on an interest-free basis! It is a long-term loan as it does not require repayment until the care recipient dies. And, if the recipient's spouse is living in the house, the loan does not have to be repaid until (s)he dies. If disabled or minor children live in the house or if adult children who were care-givers for a couple of years live in the house, the loan continues until they die or sell the house.

It is wonderful that we provide such loans, but such loans should be provided OUTSIDE the Medicaid program. When we do it through Medicaid:

o Loan recipients feel the sting of being "on welfare." These people have been independent since their youth and have saved in order to maintain their independence. Why should they be placed on Medicaid when they are not indigent?

o Being on Medicaid, they are restricted to Medicaid-certified LTC providers. They cannot select the facility of their choice; nor can they have a private room; nor can they select an assisted living facility, commercial home care or reward relatives or friends for providing care.

o LTC providers, such as nursing homes, are paid the government Medicaid reimbursement, which is inadequate.

Medicaid reimbursements under-pay LTC providers for the cost of LTC. When state budgets are tight, as they are now, legislators and governors propose slashing such payments even further. Meanwhile government pushes provider costs upward with a variety of mandates, such as quality controls, mandatory staff training, etc.

Because of low reimbursements, LTC providers cannot afford a competitive salary. So when they train staff, the newly-trained staff quit, securing higher-paying jobs in hospitals or elsewhere. Such vacancies not only reduce the quality of care in the facility, but the facility incurs cost seeking and hiring a new employees, who typically are less experienced than those who left.

The best staff leave, as they are most in demand. But, providers get stuck with their hiring mistakes. Surely, they should fire these weak performers, right? Unfortunately, it is not easy to fire anyone when you are understaffed! Of course, as time goes on and they suffer 100 percent annual turn-over, the labor pool quality of care-givers, deteriorates. Even outstanding nursing home management has an extremely difficult time providing excellent care in such an environment.

Private-pay LTC recipients in Medicaid-certified facilities get "taxed" in three ways to support this system: 1) they pay income taxes to support Medicaid; 2) they pay higher fees to LTC providers because of cost-shifting; and 3) they suffer from inferior care in facilities which have many clients "on Medicaid".

Therefore, some savvy private payors now refuse to enter Medicaid-certified facilities. Instead of being seen as a badge of honor, "Medicaid certification" may be viewed as a public announcement that cost transfer will occur and that care might be inferior.

Another problem occurs when we, the tax-payers, try to recoup our loan. Various parties bewail the plight of "poor Sarah" who wanted to leave her house to her children, but whose estate had to sell the house because it was partially encumbered by a government lien. Of course, recouping payments from the "indigent" sounds questionable. However, those people were not "indigent." The critics never mention that we all gave Sarah a long, interest-free loan and all we are trying to do is to recover the principal (no interest) so that we can lend the money to someone else.

So, how can we get ourselves out of this mess? One key tactic would be to stop putting people on Medicaid if they have assets which could fund their LTC. Instead, such loans could be government-backed, but financed privately. This simple change would have dramatic impact:

a) Such care recipients would no longer feel the indignity of being "on welfare".

b) As they are using their own funds to pay for care (via the indebtedness), they would have flexibility to purchase the kind of care they want.

c) Many more care recipients would remain "private payors" rather than being on Medicaid. Providers would benefit from the resultant higher fees.

d) The additional provider revenue would lead to reduced cost transfer from Medicaid LTC recipients to private-pay clients and/or improved care.

e) Because fewer people will go on Medicaid, tax-payer money will be saved. We could afford higher reimbursements for Medicaid patient care.

We need to continue to provide LTC to the indigent, but we should attempt to improve the quality of care. This can be accomplished indirectly if we continue to provide loans to people who need LTC but lack liquid assets, but do so through a private lending, government-backed program rather than through Medicaid.

OBVIOUS REACTION: (USA Today) Those that have been laid off or fired in this recession are experiencing depression, substance abuse, anxiety disorders, suicidal thoughts and marital woes. New Mexico, which posted the largest jobless rate increase from a year ago, saw the number of suicides in 2001 reach an all-time high.

Chicago-based ComPsych experienced a 35% jump in calls from workers citing financial issues as a source of stress. Overall calls to the employee assistance provider are up 10% in 2002. Use of antidepressants grew 12.8% in 2001.

And for those that are still working- a New York Times/CBS News Poll found that American workers were more anxious about the economy than at any time since 1993. A survey in October found that 56 percent of Americans considered the economy fairly bad or very bad. Thirty-nine percent said they thought the economy would get worse, 46 percent expected the economy to remain the same and 13 percent predicted it would get better. This pessimism was fed by numerous factors, including the corporate scandals, lingering effects of the Sept. 11 attacks, Wall Street's woes and worries about a war with Iraq.

With 70 percent of respondents saying the economy is worse than two years ago, this pessimism has influenced feelings about job security. Slightly more than half of those polled said they were very or somewhat concerned that in the next year they or someone in their household might be out of work or looking for a job.

While some of this pessimism has lessened as of December, the underlying factors still exist. I am still waiting for the Christmas sales. Maybe it will be good- Wal Mart had record spending- but was it at the expense of the other non discount stores? Will we have to invade IRAQ? A terrorist attack on Christmas or New Years Eve day could mark further turmoil nationally. Like I said, if we get past Christmas and everything is copacetic, maybe, just maybe the market might look better.

FROM A READER: 1) What licensing requirements are there for a fee only comprehensive planner? Would you recommend a fee structure based on a flat fee against a investment management fee based on assets allocated and monitored?

2) Is there one or two software options that stand out for comprehensive financial planning?

My reply- A fee only comprehensive planner requires registration as a Registered Investment Adviser and, in about 32 states, a separate license as a life insurance adviser (or similar).

Whether one or another fee service is better than another depends on the quality of the service. I have no idea what might be involved at this point

As regards software- I think almost 'advisers' have opted to use that instead of their brains. Look at this-

"I have been studying software provided by major mutual fund and software companies and have found that it reflects remarkably few of the lessons learned after decades of the development of financial theory and its implementation by and for large institutional investors." -Bill Sharpe

James Martin CFA,- "While I don't dismiss asset allocation, I do dismiss a mindless black box computer model trying to optimize what today's proper portfolio mix should be. Somehow by dumb luck, or perhaps divine blessing, I learned that the financial markets are nothing more than a confluence of human emotions. And no black box model, no matter how many variables are in its multivariate time series, will replicate and anticipate the collective mind of the market.

The problem is many advisers view asset allocation as a crutch- a substitute for hard work. Or perhaps they simply don't have the confidence in their decision making. Wall street has done a great disservice selling the concept of asset allocation to the public along with the proliferation of thousands of redundant mutual funds. Mean variance optimization is a concept applicable only to institutions with indefinite life spans, not to individual with finite goals. I argued that modern portfolio theory was an equally incorrect because its entire backbone was supported by the specious assumption that historical cross correlations between asset classes would hold and repeat. Even back then, they (professors) knew that correlations and betas were not stable. Hence, trying to build an optimal portfolio using numerous asset class is a lesson in futility. It is a constantly moving target.

So, we design asset allocation strategies based on needs and liquidity constraints, tax efficiency and that ever subjective "emotional risk tolerance". (But) people never get a true understanding of risk until after they have been through it.”

These comments are in direct correlation to the comments from Bill Jahnke in Investment Advisor-

"Asset allocators view their primarily job as getting a client into an asset allocation solution and advising the client not to abandon the asset allocation solution in volatile markets. But if the fixed asset allocation solution is not right for the client and is inflexible in the face of changing economic opportunities, what is the service worth? Asset allocators claim their advice is designed to benefit the client. But it appears that the advice is really designed to benefit the advisor; the investment process is simplified, and the business risk associated with managing the client's asset allocation is minimized. The asset allocator only needs to provide a package of marketing materials, educate the client on the rewards of diversification, administer the risk tolerance questionnaire, set up a "normal" asset allocation policy, collect the quarterly fee, and advise the client to "stay the course" in volatile markets.

Asset allocations claim there is an effort by elements of the financial services industry to undermine their message. They argue that investors are being bombarded to buy into the hottest performing asset classes. Much of the financial planner's efforts are directed at combating a financial service industry that has found it easier to sell past successes and hot new ideas than to sell undervalued investments. It is little wonder that many investors tend to buy high and sell low. The problem is not, though, a sufficient defense for the allocator position that investors should "stay the course" regardless of the state of the economy and asset valuation levels. The view that there is nothing to be gained by an ongoing evaluation of investment opportunities and the positioning of client portfolios in response to those opportunities is extreme and dangerous. The fact that assessing further prospects is difficult and subject to error is no defense for not doing it. Given that most allocated investment solutions are poor interpretations of investment theory and have little to do with meeting financial objectives, the advice to "stay the course" is especially hollow."

If you are using a broker dealer, you are also opting for a broker with a series 7 license. They have never been taught the fundamentals of investing and therefore are limited in their ability to do anything properly for you.

Personally, I am always ready to learn, although I do not always like being taught.

Winston Churchill

CAREGIVING: (Caregiving Magazine) “One care professional said that all of her skills and knowledge went out the window when she first became her mother’s caregiver. I bring this up because I think it is important for all professional caregivers to realize, when dealing with new family caregivers that most of us have never before been called upon to perform the duties demanded upon us by caregiving. When we get that middle of the night phone call, we do not possess the skills and professional training to understand much of what is asked of us. No matter how long you have been in the field and what your knowledge base, when it comes to your own loved ones, professional objectivity and training does not easily even shield you from the pain.”

PRODUCTIVITY (Greenspan) Over the past seven years, output per hour has been growing at an annual rate of more than 2.5% on average compared with 1.5% during the preceding two decades.

"At minimum ... it seems reasonable to conclude that the step-up in the pace of structural productivity that occurred in the latter part of the 1990s has not, as yet, faltered

To be distinct you must be different. To be different, you must strive to be what no one else but you can be.

Alan Ashley-Pitt

RETIREMENT: (USA Today) Even with the stock market's recent rally, many retirees are looking at staggering losses — and no time left to recoup. Now, they're deciding how to revise their retirement plans.

Even those not on the cusp of retirement will feel the effects of their decisions: Spending less could dampen an already weak economy. Working longer could make jobs harder to find. Younger investors can still dream. It's much harder for older ones, now.

Investors far from retirement have decades to work off the losses that the bear market has doled out. But those approaching retirement have big holes to mend in their portfolios: The bear market has ripped the Standard & Poor's 500-stock index for a 41% loss since it began in March 2000, the stock market's worst decline since the Great Depression. The wildly popular Nasdaq 100 tracking stocks, or Qubes, are down 79%.

An investor planned on 9% annual growth from his mutual fund portfolio — a mildly conservative estimate, as the stock market has averaged a yearly gain of 10.1% since 1926. But he didn't count on taking such shattering losses as he approached retirement. "What we thought would be a $750,000 nest egg at this point is now a shaky $370,000.

I have some empathy for these people- but not that much. That said, a lot of my attitude is expressed to the industry overall for perpetuating a myth that the market rolls merrily along- and taking most of the consumers with them with this misapplied optimism. Everybody has to have been aware of 1973/74. But when I taught it in the 90's, effectively nobody paid any attention to me.

LOSS AVERSION.(NY Times) This refers to the fact that you have to pay people much more to get them to part with something than they would pay to acquire it. Look at some of those losers in your 401(k). Would you rush to buy them at their current price? No? Then cold-blooded economic analysis says you should sell them. But as Mr. Khaneman and Mr. Tversky point out, few people actually do so.

THE DOLLAR STAYS STRONG (NY Times) The United States has about a 21 percent share of the global economy, but it has accounted for fully 40 percent of the real growth that has occurred since 1995.

That imbalance might be O.K. if the extra growth were financed mostly by Americans themselves. But the United States, with its growing government deficits and its anemic household savings, is barely putting aside any savings right now. As a result the United States will consume "a substantial three quarters" of the savings of the major industrial countries of the world this year.

And here is a commentary about the efficient market. The international economy is not in sync. The dollar will DROP. You can bet the farm on that statement- but by how much and when is the question. If you invest without that grasp of the fundamentals, you'd probably lose your shirt. And a lot more. That's the difference between theory and practice. The dollar's drop is preordained. But, like the stock market, you rarely can gauge the perfect time for its change.

If you put tomfoolery into a computer, nothing comes out of it but tomfoolery. But this tomfoolery, having passed through a very expensive machine, is somehow enobled and no-one dares criticize it.

Pierre Gallois

the limitation on the annual benefit under a section 415(b)(1)(A) defined benefit plan remains unchanged at $160,000

the limitation for defined contribution plans under section 415(c)(1)(A) remains unchanged at $40,000

the annual compensation "limit for" determining plan benefits under section 401(a)(17) remains unchanged at $200,000

the annual contribution amount that employees can make to 401(k) plans under section 402(g)(3) will increase from $11,000 to $12,000

additional 401(k) contributions that can be made by individuals age 50 or over under section 414(v)(2)(B)(i) will increase from $1,000 to $2,000

The Social Security Administration has announced that the maximum amount of earnings subject to the Social Security tax will increase from $84,900 in 2002 to $87,000 in 2003.

Of the approximately 155 million workers who pay Social Security taxes, roughly 9.7 million people will be affected by the higher wage base.

REAL ESTATE BUBBLE: The red-hot U.S. real estate market is vulnerable to a rise in interest rates and ongoing absence of a federal backstop for terrorism insurance per Moody's Investors Service. Property investments and bonds backed by commercial real estate loans have fared strongly this year, earning anywhere between 9 to 14 percent, despite a sluggish economic recovery and upswing in vacancies. However, Moody's cautioned that 40-year low interest rates and the fervor to invest in a sector perceived safer than stocks have masked the risks and distorted the values of real estate.

CHILDREN (WSJ) According to the U.S. Department of Agriculture, a child born in 2001 will cost a middle-income family $170,460 over the next 17 years, figured in today's dollars WITHOUT college.

AARP calculates that as of 1998 the typical household headed by a 62- to 74-year-old had total assets, including home equity, of $148,100. In other words, couples spend more money raising a child than they manage to amass by the time they retire.

IT’S NO BETTER WITH MEDICARE: (WSJ) physicians who serve Medicare patients would see their payments cut by an estimated 4.4% next year -- adding to a 5.4% reduction this year. Unless the payments formula is fixed, Medicare rates by 2005 will return to what they were in 1991- and overhead costs have risen about 40%.

Another survey by the independent Medicare Payment Advisory Commission showed "a seven percentage-point drop in the number of doctors taking all new Medicare patients from 1999 to 2002.

SOCIAL SECURITY: It will increase 1.4% in January and average $13. This will get a lot of elderly mad though the low inflation makes up for some of it. However that is more than offset by the high cost of medical treatment and prescriptions.

ENTREPRENEURS: (USA Today) For the first time in more than 50 years, entrepreneurs are failing to lead the United States out of recession, government data suggest.

That differs from the past. In the previous nine recessions since 1948, self-employment rose as laid-off workers started companies.

Health costs. Many would-be entrepreneurs say they can't afford to start a company because employer health insurance premiums are so high; they've jumped 12.7% in the past year.

Financing problems. Many firms begin with less than $20,000, often borrowed with credit cards, the source of 39% of small-business loans, Federal Reserve data say. But consumers have piled on debt, hobbling their ability to finance a start-up. Consumer debt payments in last year's fourth quarter were 8% of disposable income, the highest in 16 years. Venture capital is also scarce. VCs pumped $5.7 billion into start-ups in the second quarter, down 53% from a year ago.

Scandals. Would-be entrepreneurs might be hesitant because CEOs are in the doghouse amid alleged wrongdoing at Tyco, WorldCom, Enron and others.

EFFICIENT MARKET?: Burton Malkiel admitted that psychological factors affect the stock market and that markets overshoot, creating bubbles such as the Internet technology craze of the late 1990s that lifted stock prices to untenable levels. However, he said, “none of the patterns that have been discovered have been dependable, many have self-destructed as soon as they have been discovered, and many aren’t economically meaningful.” “The stock market is far less predictable than many of my academic colleagues have asserted. While the market is not statistically a perfect random walk, in my judgment investors would be very well-advised to act as if it was essentially unpredictable.”

Malkiel gave a few examples of alleged predictabilities that, he said, on closer reflection don’t hold up. One is the popular suggestion that growth stocks perform better over the long haul than value stocks. Even if it were true for a period, he said, there could be two explanations. One is the behavioralist explanation, which is that investors are overconfident in their ability to predict growth stocks and therefore overprice growth stocks. The other is the belief that efficient-market proponents hold – that if there’s a pattern for some time, it could be because the value stocks are actually riskier. In other examples, Malkiel noted that patterns in stock prices that get chalked up to investors being exuberant or pessimistic could simply be the adjustment of stock prices to economic conditions. For those in the efficient-market camp, however, the most convincing proof of the efficiency of the market is the fact that professional portfolio managers cannot consistently outperform the market.

And of course investors know which funds will beat another- "investors do not know in advance which managers will rise to the top. The 20 best performing funds in the 1970s, which doubled the returns of the S&P 500 index, underperformed the index in the 1980s, noted Malkiel. The 10 best in the 1980s underperformed in the 1990s. Those who managed the best funds in 1998 and 1999, which did three times as well as the S&P 500 index over the same period, were “written up in Money magazine as the genius portfolio managers,” said Malkiel, “and in 2000 and 2001 it was fly now, pay later, because they did three times worse than the index.”

On the other hand, Richard Thaler mentioned Bob Schiller, whose book Irrational Exuberance argued forcefully that prices were not rational during the Internet bubble, called the confusion about this “one of the most remarkable errors in the history of economic thought.”

Both professors agreed that stock market bubbles eventually deflate but that it’s difficult to predict when that will occur. Similarly, they noted that it’s hard to take advantage.

What troubles Malkiel most as a proponent of efficient markets, he conceded, “is that when the market got it wrong, the market was not giving the right signals to businesses about what the true cost of capital was – and we had an enormous overinvestment in not only Internet companies but the telecommunications structure to make the Internet run.” About 95% of the long-distance fiber is currently unused. “We had a tremendous misallocation of resources.

For Thaler this misallocation of capital is a big iceberg. “The fact that it’s hard to predict prices and that most money managers don’t earn their fees do not tell us anything about whether the capital markets are doing a good or bad job of allocating capital,” he said. “We know there was a $7 trillion mistake in the late 1990s.” He doesn’t think the government or any other entity could do a better job of allocating resources, but that doesn’t mean the market is efficient.

My comment- overall, the market is very efficient. It may be immediately but it may also take a day, week, year or more. I certainly believe that, at some point, perhaps, if necessary over a long period of time, there is absolute efficiency. Take for example the 1990's. Everybody had the same info- but the value of the market was undeniably skewed. That's because the market, at times, is almost totally emotionally driven (IPO's and tech stock) and may not make any current sense. Finally it makes a move towards rationality- hence the downturn to something more logical. There is currently another overreaction but, at some point, it will correct to proper efficiency. Sometimes, however, you only know after the fact.

NURSES: Nursing Homes Struggle With Too Few Nurses, Aides for Growing Elderly Population": The article examines the lack of qualified caregivers available in nursing homes in Pennsylvania and nationwide. Although experts predict that the number of individuals ages 85 and older will double by 2030, the "pool of younger females who traditionally have served that group of elderly ... is stagnant". A recent survey by the federal government found that less than one in 10 nursing homes employ the "optimum number" of nurses and aides

Gol’ Dang that’s high: The government has indicated that third quarter productivity growth was an amazing 5.1%. Other numbers

 The services sector expanded for a 10th straight month, as a sharp increase in orders in November fed into the strongest spurt of activity in six months.

The Commerce Department said factory orders rose 1.5% in October, after falling in both August and September.

The 5.1% growth is way beyond the second quarter’s 1.7% rise and is clearly unsustainable in the long run. That said, it sure beats looking at a paltry increase to begin with. As regards the market and investing, I will point out the recent speculation in technology stocks and wondering if another bubble exists. The NASDAQ Composite has risen over 30% since its low of October 9^th. How is the world is that possible given the absence of other fundamentals?

We haven’t even gone past the possibility of war with Iraq and the weapons inspectors just started. And although the Christmas spending looks exceptional at this point, there are weeks left to go before there is any firm position that the consumer is still spending freely.

I simply do not have the comfort zone for equities that many analysts are identifying. To the contrary, a Merrill analyst noted the dangerous signal that speculation is “alive and well” and actually, as of 12/4, reduced his recommended exposure to stocks and increased his bond holdings. He also said that speculative behavior is typically marks "the end of a market cycle, not the start of a major bull market."

For the record, I am not adverse to the equities but have long felt that the use of high yield bonds funds- good ones like Vanguard- may provide better returns in the first few months of a recovery- maybe longer. In fact, there is a lot of commentary that bonds could outproduce stocks for the next few years- even as long as a decade. That means that stocks might not produce anything greater than 6%- a far cry from the euphoric 90's and even the 9.4% annualized 50 year return of the 1980's.