"Neither a wise man nor a brave man lies down on the tracks of history to wait for the train of the future to run over him." ~ Dwight D. Eisenhower

Bonds don't get all the media attention that stocks do. The last 20 years have marked the greatest bull run in U.S. bond market* history. In 1982, yields on long term, 30 year bonds were around 15%. Now they are around 5%. That's an enormous decline in bond yields and corresponding rise in bond prices. If an investor had locked in such bonds in 1982 they would be receiving a 15% cash return for each of the last 20 years and this would continue on for the next ten.

I think we're at the exact opposite extreme in bond market conditions today. Then, inflation was running out of control at a 12-15% annual rate. Fed Chairman Paul Volker vowed to kill it. He cranked short-term interest rates up to 20%, the let economy drop into recession, and eventually broke the back of inflation. Today, inflation isn't a problem. Deflation may even be the bigger risk. Japan has unsuccessfully tried to escape from its deflation trap for the past 12 years. Fiscal and monetary policies here seem to be actively pursuing courses which can prevent deflation from taking hold in America. Short-term interest rates at around 1%, the lowest they've been since the Kennedy years. Fed policy, and that of Washington politicians, is now clearly to inflate.

The bond market loved Volcker's war on inflation. Inflation is the biggest enemy of bondholders because over time it reduces the purchasing power of fixed income investments. How will bonds perform in a pro-inflation market environment? Not well.

The great bull market in bonds could now be doomed. However, while the bull market in bonds is nearing an end, it is not there yet. Timing is the big issue. The transition from fighting inflation to encouraging it takes time to develop. We're not yet clearly out of the recent recession. And if our economy falls back into another downturn, bond prices could be supported for awhile longer before inflation reignites.

Bonds, together with real estate, were popular investment choices last year. Watch out for what's most popular. The inflation clock is running. What should bond investors do? At a minimum, watch bond market rates closely, and when they begin to rise again, shorten maturities. It's the long bonds that have the most price risk.

If Your Wallet Is Stolen: More Steps To Take Now

I was just sent some additional information and action steps that may be helpful if your wallet is ever stolen. We've all heard horror stories about fraud that's committed on us in stealing a name, address, Social Security number and credit cards. Here's some critical information to limit the damage in case this ever happens to you or someone you know:

• We have been told we should cancel our credit cards immediately. But the key is having the toll free numbers and your card numbers handy so you know whom to call. Keep those where you can find them easily.
• File a police report immediately in the jurisdiction where it was stolen, this proves to credit providers you were diligent, and is a first step toward an investigation (if there ever is one).
• Call the three national credit reporting organizations immediately to place a fraud alert on your name and Social Security number. The alert means any company that checks your credit knows your information was stolen and they have to contact you by phone to authorize new credit.

Equifax: 1-800-525-6285
Experian (formerly TRW): 1-888-397-3742
Trans Union: 1-800-680-7289
Social Security Administration (fraud line): 1-800-269-0271

• The next time you order checks have only your initials (instead of first name) and last name put on them. If someone takes your check book they will not know if you sign your checks with just your initials or your first name but your bank will know how you sign your checks.
• Put your work phone # on your checks instead of your home phone. If you have a PO Box use that instead of your home address. If you do not have a PO Box use your work address. Never have your SS# printed on your checks --you can add it if it is necessary. But if you have it printed, anyone can get it.
• Place the contents of your wallet on a photocopy machine, do both sides of each license, credit card, etc. You will know what you had in your wallet and all of the account numbers and phone numbers to call and cancel. Keep the photocopy in a safe place. Include a photocopy of your passport when you travel either here or abroad.

"There are some people who live in a dream world, and there are some who
face reality; and then there are those who turn one into the other." ~ Douglas Everett

Evaluating Market Valuation Levels

The domestic stock market as defined by the S&P 500 Index* has traded within a wide range since the sharp decline last fall.  Economists generally believe the economy will continue to recover with corporate profits rising accordingly.  Unfortunately, by most traditional valuation measures this index for the largest capitalized stocks in this country remains at lofty levels, especially in light of current (3/31/02) data on revenues, profit margins and depressed earnings:

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