MOODY'S REVIEW

February 2000

COMMENTARY ON INVESTMENT AND PLANNING ISSUES

ERROLD F. MOODY JR.

MASTER OF SCIENCE IN FINANCIAL PLANNING

LIFE AND DISABILITY INSURANCE ANALYST

REGISTERED INVESTMENT ADVISER

WWW.EFMOODY.COM

CONTRARIAN INVESTING?: Total foreign investment in Russia sank more than 30% for the first nine months of 1999. You go ahead and invest- I'll wait. Same comment about gold.

MORE BAD INSURANCE: John Hancock will pay $713 million to settle its 1997 class-action lawsuit over deceptive sales practices. Add this to Met, New York Life, Pru and on and on. And people wonder why I tell them not to buy insurance from an insurance agent. It should be obvious by now. What to do? Read my article, Who Can You Trust.

POLL: Pew Research Center for People & the Press asked how people felt about what has gone on this century. It showed that almost two-thirds of the people say their families' lives have improved since the 1950s. But they also note there has been an absence of morality, a loss of innocence and a lack of trust in others.

FREE??: Interesting- A survey compiled by the Heritage Foundation and The Wall Street Journal rated Hong Kong as the world's freest economy. Singapore and New Zealand as the world's second and third freest economies. Bahrain, Luxembourg and the United States tied for fourth place. "The annual study ranks the freedom of national economies on the basis of trade, tax, government intervention, banking and monetary policy, capital flows and foreign investment, wages and prices, property rights, regulation, and black market activity."

GULF WAR: Many people expected this, myself included. I could not believe that all these sick soldiers were lying or malingerers. "Brain scans of soldiers who believe they suffer from Gulf War illness indicate their brains were damaged by chemical exposure during the 1991 conflict."

WANT TO LIVE LONGER??: People who don't smoke and who maintain low cholesterol and blood pressure levels can live about 6 to 9 1/2 years longer than those less careful about their health. Of course one of the reasons might be that you don't go to  the hospital and face this- Medical mistakes kill anywhere from 44,000 to 98,000 hospitalized Americans a year.

INCREASED LIMITS: Freddie Mac will increase loan purchase limits by $12,700, bringing the mortgage loan limit to $252,700.

OLD: An estimated 22 million American households are already involved in eldercare and is expected to double in the next 20 years. (SF Examiner) Nearly 70% of elderly Americans voted in 1996 compared to only 33% between ages 18 and 24 (though I am not sure that statistic has changed very much over the last 50 years.).

VIATICAL SETTLEMENTS: (Gloria Wolk) Viatical settlements provide cash to terminally ill people who sell their life insurance for a percentage of the death benefit. "Patients are extremely vulnerable to abuse. They sell their policies to get funds to stop foreclosure of a mortgage, buy medical care, purchase a van that carries a wheelchair. But sometimes, after signing over their last asset, they don't get paid in full. Or their confidentiality rights are violated. That is why viatical licensing is so important. Patients need protection."

Wolk's concern is that most patients know little about viatical settlements. "Few are aware that under federal law, patients who want tax-free viatical settlements are required to sell to licensed companies." "Illegal companies may deceive patients into selling to them. They are far greater in number than licensed companies, and since it is far more expensive to operate legally, this could destroy the legitimate industry." "But if licensed companies fold, that won't end viatical settlements. "People who are desperately ill become financially desperate. If patients have no recourse but to turn to untrustworthy companies, they will do so. The issue now is to get the truth out, and to recognize that there are viatical companies that strive to operate responsibly, ethically, and within the law."

PERPETUATING A FRAUD. American Express, Prudential, Merrill Lynch and numerous other Broker Dealer, Insurance and Financial Planing  firms promote simple financial plans through numerous offices in California. And literally all are in violation of state law whether they cost $250 or $2,000. It also includes those prepared by CPA's.

This situation is not only true in California but in almost half the states. The IAFP, ICFP, Board of Standards, NAPFA, AICPA know of this but will not enforce ethical guidelines. The attorney for the Board of Standards told me directly years ago the Board will NOT enforce an ethical violation unless preceded by an legal one. (That's NOT ethics)

Why this comment again? A noted planner was asked to speak to a group of graduating Personal Financial Planners (University of California designation) at UCLA and asked all of them- including a number of B/D firm reps- about their current practices. Literally all were violating state law and he told them- and the instructor- so. Doesn't say much to me about competency, ethics or knowledge. Or the next group of Certified Planner's.

ABUSED AND POOR: This makes sense. A very significant percentage of welfare women were sexually abused as children.

GET OFF YOUR BUTT!!!: (Harvard-affiliated Brigham and Women's Hospital in Boston) The health care costs that result from inactivity costs the national bill, conservatively, at $24.3 billion. And all of those costs could be avoided if people who are inactive now did the minimum recommended by the federal government - 30 minutes of moderate activity on most days of the week. Inactivity accounted for 22% each of coronary heart disease, colon cancer and osteoporotic fractures, as well as 12% of diabetes.

CAREGIVING: (National Center for Women and Aging at Brandeis University and the National Alliance for Caregivers) Two-thirds of those acting as caregivers for elderly relatives lose out at work by forgoing promotions, pay raises and training opportunities, the average loss over a lifetime was $659,139 in wages, pension and Social Security benefits. 69% reported arriving late or leaving work earlier than normal. 67% reported taking time off during the day to attend to an elderly dependent. 64% reported they used sick or vacation days to act as a caregiver. 22% took a leave of absence and 20% reduced their career from full to part time. 29% had passed up a promotion or training assignment and 25% had refused a transfer.

75% of caregivers are women.

According to a gerontologist, the lost worker productivity due to caregiving is estimated between $11 and $29 billion annually. It will get worse.

GUNS: Firearms kill more people between the ages of 15 and 24 than all natural causes combined.

HP12C: I have a very caustic commentary on the inability of advisers in using a financial calculator at my site. From a software developer who read my comments about the mandatory ability came this- "Glad to see some sensible advice from someone, for a change! I am a software developer and it amazes me that there are so many people out there who refuse to attempt learning anything. They want "the computer" to do all the work. Your point was well made that if you do not understand the process, you have little chance of realizing when something subtle has skewed the results..."

KIDS: Doesn't look good for many. (AP) "Grinding poverty, violent crime and absent parents" are just some of the major obstacles our children are facing. The most critical threats are abuse and neglect at home, substance abuse, teen pregnancy, inadequate child care, lack of health care, poor schools and dangers in the environment.

As I have repeatedly stated, there will be a major social uprising between the haves and have nots by 2010. Part of the problem is addressed above. Part is the fact that there is a further separation of social schisms due to the ability to have and use a computer or not. It may make The 60's look tame.

ANOTHER OLD RATIO?: Blue chip stocks are now selling for 2 times annual sales- more than double the normal ratio.

Is this just another ratio, formula, statistic- such as the unemployment rate- that is no longer valid? Could be, but don't be lulled into thinking that all past data is worthless. So how do you know what is good, bad or indifferent? READ! And that means you have to read the material from the FED.

INTERNET SALES (Deloitte and Tuoche) "59% of online shoppers are women, continuing a trend of more women buying online. More than half  of the shoppers surveyed are married and are between  the ages of 30 and 49. Online consumers are expected to spend about 20% of their holiday budget on the Internet."

LONG TERM CARE: I teach long term care including the requirements of Medicaid. The law states that if you go into a home (no spouse), then you would have to spend down to the minimum assets base of $2,000 and retain only about $50 to $100 a month in income. Some very poor people might have to do this, but the LTC Center notes this- "The reality is that most seniors qualify easily for Medicaid nursing home benefits, regardless of income or assets, without drawing on or spending down much, if anything. The often-quoted limit on assets of $2,000 is meaningless because Medicaid recipients can also retain a home, business, car, personal property, and many other assets of practically unlimited value. Income is not an obstacle either. In three medically needy states, Medicaid programs place no limit on the amount of income recipients can receive as long as their medical expenses (including nursing home care) are high enough. In income cap states, with a $1,500 per month income eligibility limit, people can siphon off any excess income into Miller Trusts to qualify for Medicaid immediately. Even those few who do spend down to qualify for Medicaid (only 10-25% of Medicaid nursing home recipients begin as private payers) may have impoverished themselves artificially, with the help of professional Medicaid planners, instead of paying for long-term care out of pocket. Assets worth hundreds of thousands of dollars are easily (1) converted to exempt status (such as a home, business or automobile), (2) sheltered in annuities or special trusts, and (3) divested by means of creative strategies that evade anti-asset-transfer laws and regulations.

Poverty program? The most that can be said is that Medicaid was intended to be a poverty program and some of the basic eligibility rules continue to lend themselves to this misconception. The reality is far different in reality."

But the issue is still this- Medicaid pays far less for coverage per patient. You have a definite chance to get substandard care simply because the facility has less money and less staff. It's a simple fact of business- not necessarily a reflection of the attempt of the staff to do good. In other words, if you have money, buy quality care. So buy a policy if you can afford one.

ONLINE TRADING: The SEC is now supposedly stating that such firms may be a legal responsibility to make sure that investments are suitable.

Give me a break. The SEC does not know what "suitable" means in regards to investing since they have NEVER required a broker or supervisor to know the fundamentals of investing through licensing training. NEVER!. Such fundamentals include alpha, beta, diversification, correlation, standard deviation, Sharpe ratio, etc. Sure, some say that they learn that by experience. Fine- the same way a doctor learns surgery because he learned to whittle wood as a boy scout.

AIDS- 70% of AIDs infection is in Africa. 33.6 million are infected worldwide and the rate is climbing.

CUDDLE: Project Cuddle- 888 628-3353- for parents who feel they must get "rid" of a child. Provides help for pregnant women and young girls and caretakers who can help infants.

"The Internet has rapidly become capitalism's great equalizer, giving even individual investors of modest means access--free in some cases--to the kind of information that until recently was the province of Wall Street's financial elite. And it not just about access. It's about speed . . .

Of course speed and access to reams of information can't make up for bad judgement."

Fortune

WET INK AND VIATICAL SETLEMENTS: I recently had a conversation regarding an elderly woman (85) and her cousin (age 89) who were approached by an insurance salesman to each purchase a new $1,500,000 life insurance policy but then turn around an sell it to a viatical company immediately thereafter without ever making one payment. She was going to get a five figure sale/settlement and was delighted- that is until she saw an article saying it was illegal. First of all, everyone must understand that there must be an insurable interest when you initiate a life insurance policy. Yes, she had indicated that it was for estate purposes and that her daughter would get the policy upon her death- but that was fraud. There was no intent on her part for this to happen- it was all a deception to sell the policy for the money. The life salesman tried to justify that it was legal in that the companies have not put anything in their contracts that they can't be sold right away. That is true- they haven't yet, but in the near future it will be included. It's also the fact that they don't want to aggravate an entire audience that don't (normally) like life insurance anyway. Per (FSO)- Fake life insurance claims are on the rise, yet there are few convictions for fraud. Insurance companies prefer to refuse to pay suspicious claims and hope the claim is abandoned, as opposed to the expense of pursuing the guilty parties.

AIDS: Only 16 of the 35 member states of the Pan American Health Organization screen all their blood samples for hepatitis and the AIDS virus. The only countries complying so far are the United States, Canada, eight Caribbean states and six Latin American countries.

BABY BLUES: (AP) Newborns have incredibly poor eyesight that depends on brain stimulation to sharpen. Now a study suggests infants' brains are so flexible that just an hour of visual stimulation can jump-start that process. A healthy adult's vision is about 40 times better than a newborn's. That's one reason baby mobiles are sold in sharply contrasting patterns - those are easiest for infants to spot. Over the first 6 months of life, infants' vision improves fivefold as their brains are stimulated to establish the neural network necessary to see.

HMO's: Not only did California institute the ability for consumers to sue their HMO',s but so did Illinois. A judge wrote, "Where an HMO effectively controls a physician's exercise of medical judgment and that judgment is exercised negligently, the HMO cannot be allowed to claim that the physician is solely responsible for the harm that results." Watch for wholesale changes in philosophy nationwide in 2000.

TRUST AND TAXES: IRA's and taxes: (FSO) "The IRS recently ruled that IRA owners who were defrauded by their investment advisor in the course of an IRA rollover are liable for taxes on the amount of the stolen IRA assets. In addition, any of the IRA owners under age 59-1/2 are also liable for the 10% premature distribution tax. "

I, obviously, feel sorry for these people. But they universally lost money because they trusted their adviser. Don't trust anyone without first confirming competency. Then you can try the trust.

WHO MAKES REVERSE MORTGAGES? There are now three major reverse mortgage lenders. FHA (Federal Housing Administration), a part of the U.S. Department of Housing and Urban Development (HUD), has originated more than 32,000 HECM (Home Equity Conversion Mortgages) since 1989. Fannie Mae (also known as the Federal National Mortgage Association) has bought most of these FHA reverse mortgages which have a $208,000 maximum amount in high-cost urban areas.

WOMEN: Nearly 600,000 women each year in third world countries die to complications from pregnancy and childbirth. And  while women live longer than men, it wasn't so in America around 1900 because of complications in birth. The World Health Organization said three U.N. agencies and the World Bank were dedicated to seeing that all women have access to a skilled attendant and a functioning health system.

INTERNET: Five U.S. cities have reached 50% Internet  penetration among adults -- Washington D.C., 59.9%; San Francisco, 56.1%; Austin, Tex., 55.5%; Seattle-Tacoma, at 53.3 % and Salt Lake City, at 50%

DOW: Intel, Microsoft, Home Depot and the telephone company SBC Communication were added to the Dow Jones industrial average replacing Sears Roebuck, Goodyear Tire & Rubber, Chevron and Union Carbide. Intel and Microsoft will join International Business Machines and Hewlett-Packard as the four technology components.

It will make the DOW more reflective of current economic forces. It may also make it more volatile due to the inclusion of more technology and less heavy manufacturing.

OLD TV: 40 million retirees spend an average of 43 hours per week watching TV.(SF Examiner)

INTERNET: The searchable Web consisted of 800 million pages containing more than 6 trillion characters.

HEALTH INSURANCE: (AP) "Companies that provide coverage have started to shift more insurance costs to their employees, reduced benefits for mental health care and limited assistance to retirees. The failure of small and medium sized employers to add coverage is one reason the number of Americans without health insurance has increased from 39 million in 1994 to 44 million in 1998, benefits experts say. Though more Americans are working today, many of the new jobs do not include insurance benefits."

So what's my point? Easy- irrespective of the increase in medical costs (which certainly has been a problem) is the neverending analyst review of a company's bottomline- it's return on equity. If a company can reduce costs, it makes its stock look better and it will move up. It will (almost unquestionably) make its executives more wealthy through stock options even though the executive- like its other employees- have to pay more for heath costs. Unfortunately, the average employee- and certainly those in lower paying menial jobs- will not see effectively any increase in stock value since many don't even have a 401(k). As to the increased costs to such people- basically journalists write articles on how coverage is being limited, that the government should take over the problem, while at the same time the readers go out and buy some more of the company's stock since it will go up in value as it continues more restrictive employee benefits. Call it ethical, unethical or whatever- it's just how business works and what stockholders demand of a company if it is expected to grow. Nobody said life was fair.

ASSET ALLOCATION: A prospective client asked how I do allocation. My reply

I have reviewed all the theories in the past and undoubtedly use pieces of each. The difficulty with all static and computer driven allocation models is that they use statistics based on what has happened. The do not- effectively cannot- read the FED and other economic material and determine a current and projected direction.

For example, there was literally nothing that I saw in allocation formats in the late 80's till the mid 90's about using bonds as a large section of a portfolio as a way to generate a gain with limited risk (because the FED was reducing rates). But I did know of major computer allocations that said you should go into bonds in 1994 because of the returns that had happened- this while Greenspan was raising rates. In other words, the program, programmer and "financial advisors" were oblivious to the real world.

What about afterwards? Everyone said to use international stock. For the most part, I didn't. I used U.S. companies. Why? because I read and have little ego in deciding a direction. I simply read and interpret. Am I always correct? Nope. I used a small amount of emerging funds. When Indonesia tanked so did all such funds. Since I saw little positive direction for sometime, I opted out. 10% loss on these funds. Was I wrong to go in? No. But I would have been wrong to stay. But most articles say stay the course because it will come back. Perhaps true, but when.

What about small cap? Done well (supposedly). But are such returns as stated correct? Apparently not since newer studies show that returns were actually overstated. And if they weren't going to go anyplace (because I read), why stay in? So I got out several years ago. Slight gain- but my clients subsequently made a whale of a lot more money by investing elsewhere.

And on and on. National advisors comment about how allocation will reduce risk and increase gain overall. But old allocations showed gold as a 5% to 10% holding. Are they saying that that is still valid? What about Value Stock? Etc. etc.

So, are their drawbacks to using me. Yes. There is only me- I do not have a staff providing various input. My quarterly reports are as simple as could be. They are neither pretty nor involved since you are solely dependent on my ability to read and interpret events.

But, to be candid, I have found very few other advisors that truly do much reading. Basically they focus on computer programs that design a strategy, implement it and adjust per some programmers. Nonetheless, it looks more sophisticated (and costs more too) and far more people apparently like that.

ANNUITY PAYMENTS: "Only 6 percent of annuity owners select an income option, such as payment for life or joint and survivors' lives, for 20 years certain, or for a specific customized period. Nearly everyone who presently takes money out of a variable annuity takes a lump sum or liquidates the contract by systematic withdrawals."

ELDERLY: (FSO) While only 13% of the U.S. population is 65 or older, they control half of the nation's wealth-obviously a good market.

MORE ASSET ALLOCATION: As validation of the necessity to read and reallocate investments as economics dictate- and certainly not to use a status quo is this commentary form Bill Jahnke in an article in Investment Advisor early 1999-

"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."

OBESTY: I have said it before Ad Nauseam- obesity kills. ( Journal of the American Medical Association) "Obesity is a U.S. epidemic that has surged in the past decade and now affects nearly 1 in 5 adults, killing some 300,000 a year. One study by the U.S. Centers for Disease Control and Prevention showed that the number of Americans considered obese - defined as being more than 30% over their ideal body weight - soared from about one in eight in 1991 to nearly one in five last year."

In the Southeast, the obesity rate jumped 67.2% in that time frame, with Georgia leading the nation with a whopping increase of 101.8%. West Virginia led the nation in terms of an overweight population, with an obesity rate of 22.9%. Southerners are less likely to hike, ride a bike, walk or join a health club than their counterparts in the rest of the nation. As a result, Southerners are tipping the scale at more than 30% above their ideal body weight.

MEDICAID CARE: The Center for Long Term Care Financing noted this in regards to a statement that all people who can apply for Medicaid will receive acceptable care. "One of the darkest repercussions of Medicaid planning is that truly poor  people, those for whom Medicaid was originally intended, are sometimes shut out of the better nursing homes nearby because of a limited supply of Medicaid-certified beds. They may have to accept care far away or be placed onto waiting lists for months or even years. How does this happen? Medicaid planners advise clients to hold back enough money to enter a preferred nursing home as a private payer. Nursing homes always have space for private payers who are needed to offset low Medicaid reimbursement rates.  After a few months, the Medicaid planner's client conveniently runs out of money and becomes Medicaid eligible. The result? A senior who artificially impoverishes himself or herself to qualify for Medicaid takes a bed away from a truly poor senior who can't afford such legal maneuvering." Perfectly stated.

LET'S ALL GAMBLE!: (Consumer Federation of America) "One quarter of Americans believe they stand a better chance of getting rich from lotteries or sweepstakes than from saving and investing.. The study suggests that misconceptions about how small amounts of money can grow if invested may prevent some people from taking steps to improve their lot. An analysis of the latest Census Bureau data on household wealth - from 1995 - found the median savings of American families was just $1,000."

MARKET INTERVIEW: Per a request from a journalist at Investor's Business Daily

1. Are more people than ever playing the market?

There are a lot more people playing the market than ever before because 1. there are more people of investment age and more baby boomers needing to save for retirement, 2. A prolonged bull market that has made everyone look good, 3. The reduction of inflation and interest rates means even conservative investors are no longer able to generate any significant return from FDIC obligations as they had done in the early 80's and have needed to look elsewhere even if they didn't bother to do homework, 4. A proliferation of funds all saying that they have the best odds of high returns, 5. Books on how easy investing is for the laymen- even if they are wrong (Beardstown Broads).

2. How much do individual investors let market fluctuations affect their portfolio. I know, for instance, that a study came out last week reporting that individual investors typically are buy-and-hold types. Do you find that to be true as well?

I don't bother with clients that want to bounce around willy nilly. Structural rebalancing is fine and adjustments for economics is fine. But I am not so certain about the general populace doing intelligent investing when they know next to nothing of the fundamentals of investing or how to truly apply the statistics (alpha, beta, correlation, diversification, standard deviation, Sharpe Ratio, probabilities, etc). The early 90's had the least volatility of the market ever. (But it has recently gone in the opposite direction. If we continue to have the significant volatility of most recent, I think the "average" investor may get very "confused" and start to drop some of their investments for cash and other conservative vehicles. I also have some studies that showed that many 401(k)'s had high rates of exchanges last year.) Further, any subsequent "bear" market has bounced back much faster than ever before (probably due to solid economics by the FED and the new technology of the market overall.) When you look at the studies by O'Dean and Barber at the University of California of thousands of investors, there is far more trading than there should be with a significant lowering of return. And they also invest in far more investments than the consumer can understand due to the proliferation of funds, IPO's and stocks (with, again, almost a complete lack of an understanding of investment fundamentals).

3. Even if the majority of individual investors buy and hold, will a prolonged bear, a 20-30 percent drop, have an affect on how individuals go about other things such as spending patterns or continued investment in 401(k)s and mutual funds?

In this regard, let's look at what could really go wrong as identified by a market similar to 1973 and 1974. Losses were sustained "slowly" that finally reached over 40%. This would (obviously) markedly change the influx of investment money but undoubtedly throw prior investors into a major upheaval (or should). William Bernstein has a good analysis of the problems with retirement payouts (see Budget Screwups at my site under Retirement) that clearly shows that most retirement payouts are already overextended given the volatility of the market. If consumers were not diligent, they would delete their retirement funds prematurely- and then they have to sell all of their other assets. Now you have very old people with no ability to earn more income and no assets to sustain them for another 5 or 10 years of life where far more money is needed for health care- even basic living expenses. Does the government have to step in with more Medicaid coverage? Certainly a continued drop beyond 15% of a portfolio AND WITH ASSOCIATED BAD ECONOMICS would call for more conservative investments in 401(k), other retirement plans- literally any investing- followed by a change in retirement capacities for spending. After all, only a fool would let a portfolio drop 40%. Admittedly, the market has always come back. But how long has it taken- at least in the past? And if you were retired while this happened and you did nothing, your entire retirement budget would have been broken for your remaining lifetime.

Sustaining a 15% drop while basic economics are still valid is acceptable but still must be identified in a budget and for growth estimates.

In other words, a buy and hold is a basic format of intelligent investing. By the same token, holding on to investments while the entire market disintegrates is being stupid. And it almost always hinges on the ability and willingness of the investor/consumer to read independent material directly relating to market conditions. That, in my mind, means material from the FED.

Lastly, asset allocation is a basic mainstay of investing. But doing static allocation while the world tumbles around one is folly.

4. What are your expectations for the market in the coming months? Do you think the bear signals will translate into a prolonged bear market? Do you think we'll see another interest rate hike from the Fed?

My expectations hinge on the ability of the FED to control inflation. With Greenspan at the helm and a rational and independent FED, I think that is a definite possibility in doing so for the foreseeable future. (All bets are off he were to die or resign). As such I do not see a bear market. By the same token, I do not see continued returns at 20% of previous years (and have never used more than a 10% return for any of my retirement numbers). There very well might be a hike form the FED, but I don't see the world falling apart in 2000 nor do I see major U.S. corporations going to sleep over the competitiveness of the world.

5. Finally, how would you advise individuals to proceed right now? Should they look to mix their portfolios outside of just mutual funds or the standard S&P 500 stocks? Are there other types of investments that current economic indicators may make more attractive?

I have not changed my basic investment mix. I am much stronger into index funds of larger companies and some with more technology than almost all advisors and have been so for quite awhile (mainly due to reading FED material.) But lets' say I had some investors with "extra" money they wanted to invest "now". I am not going to invest in gold- that has not proved viable for years. As far as small cap stocks, emerging funds as well as many international funds- I'll wait a few months to see if the growth continues. I would almost assuredly be still heavy with U.S. corporations with perhaps a focus on some international areas that have showed most recent promise of finally getting out of recessions (Japan??). But I would not utilize a computer allocation based on someone's age or on past statistics that are no long valid.

As far as individual stocks are concerned- I say again that unless an investor understands what diversification means by the numbers (how many stocks do you need to have in a portfolio in order to insulate it from unsystematic risk), they are playing a game when they haven't even read the rules. It's foolish when you can't even keep score correctly (meaning standard deviation, et al) and may cause severe drops in asset values when one is most unable to assume or sustain such losses.

HOUSING: American Housing Survey

There are 99.5 million occupied housing units with owners living in 65.5 million and renters in the rest

It includes 62.1 million single detached homes, 6.5 million mobile homes and the rest in attached homes and apartments

About 77 million homes are in metropolitan areas and 22 million in rural

The median home size was 5.4 rooms (have had more, half had fewer). Homes were biggest in the midwest- 5.6 rooms; smallest in the east- 5.2. the northeast had 5.5 and the south 5.4

The largest share of homes- 44 million- had one complete bath while 39 million had two or more

Over two million homes lacked a complete kitchen

49 million homes had air conditioning and 25 million had room air conditioning

Warm air furnaces are the most common form of heating in 59 million homes. Second was steam or hot water for 13 million and 11 million had electric heat pumps, 6 million with built in floor or wall units and 4 million with built in electric heaters

Piped gas was generally the fuel for 51 million homes; electricity in 24 million; fuel oil for 10 million and bottled gas for 5 million

286,000 homes had no toilets, 328,000 had not tub or shower and 385,000 were without piped hot water

88 million were connected to a central water supply and 11 million had wells. 77 million were connected to a sewer and 22 million had septic tanks, cesspools or chemical toilets.

SUICIDE: Japan has seen its recession and subsequent layoffs caused  a big increase in its suicide rate (32,863 in 1998 and the highest since 1947). Most of the suicides were due to economic troubles (6,058) and 11,499 were for illness. Males always commit more suicides and this statistic is not surprising- 23,013 were men and 9,850 were females.

SEEING STARS: Morningstar- 72% of last year's fund sales went to funds that had received 4 or 5 stars. Apparently brokers are depending more and more on the stars in their sales.

SMALL BUSINESS: Although U.S. small businesses account for slightly less than 10% of the world's 85 million small businesses, they account for 35% of the $190 billion currently being spent for information technology.

401(k): (Investor's business Daily) The numbers below are from Fidelity's 1998 401(k) year end report but I think is worth reviewing since it covers enough employees and plans so that it might be similar to other large plans. Recognize however that while the numbers are impressive to say the least, many people in our economy do not have any plans at all. Fidelity's numbers cover 5,400 plans with more than 5 million members.

"In its plans, Fidelity found the average account size is now $60,000. That's up from $28,509 in 1994.

The average balance in plans with more than 10,000 members is $76,000.

In plans with 100 to 499 participants, accounts average $37,000 in size.

In between, the average account balance in plans with 2,500 to 10,000 members is $48,000.

The millionaire's club is also growing. About 11,000 plan members overall have $1 million or more in their accounts, up from 10,000 a year ago.

Industrywide, 36 million working Americans have almost $1.5 trillion in 401(k) accounts.

That's a leap up from the $230 billion in 401(k) accounts in 1989.

In plans with up to 4,999 participants, the largest slice of the investment pie is the 29.5% of assets in actively managed U.S. stock funds, according to the Profit Sharing/401(k) Council of America."

YOUR GOVERNMENT AT WORK: (AP) Congress set aside $22.7 million to study chronic fatigue syndrome. But at least $8.8 was spent on other and government auditors say they cannot determine what happened to an additional $4.1 million.

QSB: (Edward Mendlowitz) Owners of Qualified Small Business stock issued after August 10, 1993, can exclude from income 50% of gain realized on QSB shares held for more than five years. But it gets even better- current tax on sales of QSB stock made after August 5, 1997, can be avoided entirely. When QSB shares are held for at least six months, taxable gain on their sale can be deferred by rolling it into an investment in other QSB stock within 60 days. The taxable gain on the sale of the QSB stock is deferred until the rollover investment is sold.

HEART- It's safer to undergo cardiac surgery than to have a heart attack. The risk of not surviving the operation is about 2%. In 1996 5.5+ million Americans had cardiovascular procedures- an increase of 355% from 1979. They'll be about 6 million this year alone.

At least 59 million Americans have one  or more types of cardiovascular diseases, including 50 million with high blood pressure

I FEEL SO OLD (Census bureau): The median age of Americans, the point where equal numbers of people are younger and older, reached a record high of 35.2 years in 1998. That's up from 32.8 in 1990. Utah was lowest at 26.7 years and West Virginia was highest with a median age of 38.6 years (you'd think they'd want to get out.)

EXERCISE: People who do not exercise are THREE times more likely to suffer heat related problems.