trying to stay on message,nothing like a little excess stimulatio

September 16, 2004

Hello,

Yes it is certainly true; more people now read these emails than watch CBS news with Dan Rather. The last couple of weeks have been something. Dan Rather seems to be doing more to single handedly sink the Kerry campaign than even John Kerry himself. Maybe it is just me but when you start putting Theresa Heinz Kerry out there as your spokes person from “lost in space” it suggest things are in a little bit of disarray. Meanwhile the al Quada backed Chechnya rebels have declared war on school children. Not on you and me but on our children. This leaves me with the question of the day, while Bill Clinton was in the hospital; does that make Al Gore the acting former president?

In Barrons I believe the term used was,” The current recovery has been largely a false one-unduly influenced by the “steroids” of excess stimulation”. The Wall Street community still continues to be very much divided over weather the economy is good or bad. Critics point to the accommodative FED (low interest rates), tax cuts (we can’t afford) and out of control deficit spending from Capital Hill. They warn of huge federal deficits, social security and Medicare meltdowns. And of coarse new job creation (payrolls) continues to be below previous expansions. For those of you over the age of 18 you have probably heard all this before.

History tells us however that this is not the only time that excess stimulation has had an effect. In the previous administration there was no recognition of the, peace divided (end of the cold war), the stock market bubble (creating excessive capital gains and capturing excessive capital gains taxes), massive accounting fraud, that accounted for excessive profits and excessive hiring from companies such as Enron, WorldCom, Global Crossing and so on. Coupled with Al Gore’s creation of new industry called the “internet”. Where English majors could make mid six figure salaries right out of college? All these events could clearly be defined as “excess stimulation”.

How does one really make money in mutual funds, it seems many small investors are still very confused and are still looking for a magic bullet. Folks there is no magic bullet .Most of the fund ratings are based on past performance, which as they say in the prospectus is no guarantee of future performance. Most performance is independent of and does not correlate with the level of risk an investor is willing to take. The risk level is based on investment style and asset class that the fund operates in. Most fund investors perceive volatility as risk. Volatility and risk are not a constant. Risk levels can increase and decrease overtime, with changes in markets, maturity of companies and industries. The key is to establish a plan of long term dollar cost averaging with your assets spread out over several different types of funds. Consistent contributions regardless of market conditions force investors to buy low .Even a simple asset allocation model also forces investors to buy low instead of chasing the latest investment craze and as they say in the business buy low and sell high.

James

"Knowledge is, in every country, the surest basis of public happiness." --George Washington