Have you been putting money into equities or mutual funds? If you have, you've experienced the strongest bull market ever with a 33 percent jump in 1997 for the third year in a row. However, you would have only seen this if you had picked the top 6 percent, (or 122) of the 2,029 equity funds. The remaining 1,800 funds did not match or beat the returns of Standard and Poor's 500 stock index. If anyone tries to tell you which funds will be the top performers in the future, they must have a crystal ball and can see into the future. I would use caution of such advice. Nor am I going to try and give you that type of advice. However, I can share with you my thoughts of where I perceive the market is heading and possibly what to avoid to keep your investments intact.

Marshall, 52, from Michigan wrote, "I have made a return of over 28% the last four years with my investments, is it time to pull out and place my profit in other investments?"

Marshall's question represents many of the emails I received asking the same thing.

At the end of 1997, there were over 5,000 equity mutual funds, over 40 percent have been launched since 1995. This can be a mind boggling task to sort through all these if you buy them yourself instead of seeking the advise of a broker. Here is a brief description of various funds. Let's assume that you have invested primarily in either the indexed mutual funds or managed mutual funds and not try to wade through the various individual corporation accounting reports.

The following types of funds can either be strictly indexed funds or managed funds. Large-cap funds, usually thought to be the safest, invest in the largest American companies. Usually these funds have a valuation in excess of $5 billion dollars. Mid-cap funds invest in companies with assets between $1 billion and $5 billion. Small-cap funds invest in companies with assets less than $1 billion. Growth-funds invest in companies with rapidly increasing sales and earnings. Value funds invest in companies whose share prices do not fully support the companies strengths. Blend funds invest in stocks that growth and value strengths in earnings. International funds invest in companies in the major world's stock markets and companies, including those emerging in East Asia, Latin America and the Pacific Rim.

Let me say this first. Before you chose a mutual fund to invest in, whether it is a indexed fund or a managed fund, these are the things you should have looked at first. The fund should have been free from no loads or 12b-1 fees, commissions that you are charged when you open or close an account. Some of these funds charge as much as 8 percent, deduct this from what your earnings from the fund and you might have been better in a long term 6 year CD at 7%. Yes, there are still a few of those around. By the way, no-load funds, index funds, over the past three years usually out performed the S&P index, as compared to many of the others that did not. 12b-1 fees, as allowed by the Securities and Exchange Commission allows these funds to cover their advertising and marketing expenditures, which usually run between .25 percent and 1 percent of the value of your fund, and this is a charge that is charged account your account year after year. Over two thirds of these no load funds let you invest with as little as $2,500, as compared to others with require $3,000 to $5000. In addition, investment companies can charge shareholders for overhead costs, salaries, administrative expenses, etc. Finally, we will look at two types of funds, one called index funds, (these are funds that track the S& P index listing and invest in those companies) and the other median managed portfolios, (these are funds managed by broker specialists, picking stocks on their own using the methods above regarding various things they look for within a companies operation, earnings, etc.). Now, that this has been explained, let's look at how these two different types of managed funds have performed over the last 5 years

Large-cap growth index portfolios experienced a 24% return versus a 14% return for the managed portfolios. Large-cap blend index funds returned 22% versus 14% for managed portfolios. Large-cap value index funds return 20% versus 17% for managed portfolios. Mid-cap blend index funds returned 18% versus 13% for managed portfolios. Small-cap growth returned 10% versus 11% for managed portfolios. Small-cap blend returned 15% versus 12% for managed portfolios. Small-cap value showed a return of 14% versus 16% for managed portfolios. And last, international index funds returned 19% versus 13% for managed portfolios.

As you can see, the index fund portfolios out performed the managed funds, all except for the small-cap growth funds. I believe the managed funds out performed here simply because of market changes that occurred, meaning the managed funds had invested in higher risk companies that performed well.

Gloria, 60, from Las Vegas wrote, "How should I invest my retirements, in what percentages and where?

Financial investment experts will argue all the time on this subject. However, most will agree that your portfolio should have at least these three. A large-cap fund, a intermediate-term cap stock fund, a international fund or a small-cap domestic cap fund. What percentages should you have? This is argued also. This is my opinion. I feel to safeguard yourself from what the market has done with wide swings, that the best investment percentage is that you have 60% invested in stocks, mutual funds, and 40% invested in backed liquid assets such as CD'S, Treasury bills or notes, etc. And when you invest in the CD'S, stagger the CD's maturing dates. Say, you have $100,000 for CD's. Invest $20,000 in five CD's at five different places at different maturing dates. This way, you can always shop around for better interest rates. If you have five, have them at five year different maturing dates. This way you will have one a year maturing, allowing you to shop around and increase your net average yield on all of them. By the way folks, this is how banks make investments in Treasury notes and bills, staggered maturing dates. There are a few places still that offer as high at 7% on five year CD's with a $20,000 minimum. By the way, there is one conservative mutual fund that has averaged a 40% return over the last three years, it is the Lindner Dividend Fund. And you only need $2,000 to invest in it. Also, utility funds will be good investments I feel, like the American Gas Index/Rushmore Fund. A $10,000 investment in it 5 years ago would have grown to over $19,600. There is a cash fund, U.S. Global Investors U.S. Government Securities Savings Fund. It holds only qualified U.S. government backed short term money market instruments. Recent 7-day yields on this fund has averaged 5.68%. The extra benefit is that in some states, the income off this is not taxable.

Are your investments safe today in the stock market? Will the Dow Jones hit 10,000? Will there be another Black Friday? I believe the Dow will continue to ride like a roller coaster over the next couple of years. However, I do believe the Dow will plunge at least 2,800 points. I will explain why a little later. Depending what you have, and when this occurs, (concerning when Japan does its' thing and you should start reading more about this if major newspapers will start reporting the facts and not let the International Monetary Fund hold back this news) you could experience a substantial loss. Will it recover? No, the market will adjust itself, despite the high employment, low inflation and high production. These areas will soon be affected in the US because of what is happenning in Japan and the other Asian countries. Here are the major reasons the market is going to take a plunge. The Japan crisis, ( I'll explain more in detail about this a little later in the column) and that the purchase of goods which have increased three fold over the last three years. Consumers however are primarily using credit cards for purchases. Credit card debt is now over 1 trillion dollars. Folks, at some point, this has to be repaid. If it is not, if companies have to write off these credit card balances, this will only mean higher interest rates for consumers and companies at banks. And because Ameriacans will not be purchasing as much because they are trying to pay off their credit card debt, this will slow demand, which will then cause companies to start laying off, the cycle begins. This will then increase inflation and will cause drops in the market.

There are also many other reasons that could impact the market. The impending antitrust legislation against Microsoft is one example. Do you remember when Ma Bell was broken up by the Justice Department? Stocks fell, earnings lowered, people layed off, which caused inflation. And if you don't think that Microsoft does not have the same kind of influence in the world as Ma Bell had, stop and think again. Its' the same thing, just a different needed technology that the world has now become dependent on. When facing something like this, legislation that could affect any stock, my decision would be to sell half the stock, take the profits made off that and invest in something else. As a matter of fact, this I believe is the only way you make money in the stock market. Once you realize at least a 10-15% return on any stock, sell half of it, take the profits and invest in something more liquid like a CD.

There is also one investment market that has made millionaires out of ordinary people that have the uncanny ability to predict what markets will do. They are called futures. Selling short or long, price of a future like soybeans will rise or drop. Again, you've got to have the ability to do this, and if you do, you can expect returns as high as 125%

Is the market is safe? Basically yes, with these exceptions, however, it is going to adjust and soon. I feel the market is going to correct itself slightly before the end of the year, (because of the Japan/Asian Crisis), but another larger adjustment will occur in the spring of next year. I believe what happens to Microsoft will have an impact on the market. As I wrote three years ago, I said that the market would top 8,000 points by the end of 1997. Well, I wasn't too far off. Would I start a mad rush to sell off stocks. No, but I would consider selling a portion of each off and re investing in something more liquid. You might have to take a lower return, but it will be safer that sitting there and losing all of what you have made possibly.

Now, here is the impending Japan financial crisis that will affect us severely that I said I would explain. Sam, 55, from Seattle wrote, "Is it true that many governments, especially Japan own several hundred million dollars in U.S. Treasury Notes and Bills?"

Yes, Sam that is true. And it will be the financial mess that Japan and the Asian community which will cause the Dow to plunge at least 2,800 points in a matter of a day or two. How soon and why? Japan owns several hundred millions dollars worth of U.S. Treasury Notes and Bills, enough to affect the market should they decide not to repurchase even 30% of them. This is just the tip of the iceberg folks. I'll explain a little later about the billions of stock they also own in U.S. corporations. All of these are liquid assets they are going to have to sell off to avert the financial crisis occuring in Japan. By the way, Japan has a large block of U.S. Treasury Notes and Bills coming due this fall. Japan will probably not re-purchase. Also, several other countries, including the financially strapped Asian countries own U.S. Treasury Notes and Bills. In addition folks, due to the financial crisis in Asia, Japan's Finance Ministry has warned that Japanese banks are holding $700 billion, yes $700 billion in bad loans. That is the real danger, I'll explain a little later why. Two Japanese banks are failing every hour of the day. You are not seeing this on the news. But I'm sure you will start to read about it very soon, but you heard it here first in early June. Three high placed Japanese business executive hung themselves because they couldn't pay off the loans. Sakura Bank, approximately 50% larger than Citicorp, ( the largest US bank now), is so insolvent, that Moody's has recently downgraded it to the same status as junk bonds. And you know what happened with the Milken mess a few years ago. Sakura is closing 23 international offices, selling off assets in a desperate effort to forstall this. Three of the other largest Japanese banks are in economic turmoil. The Japanese market has fallen 65% in yen. It's down 82% in American dollars. Japan has cancelled or defaulted on a $2 billion order for planes from Boeing...this is being seen now with the layoffs at Boeing. The only recourse these Japanese banks have to save their failing banks is to sell off liquid assets or get another loan from the International Monetary Fund. (They already got one last fall, it hasn't helped, and now other countries are very leary of loaning or will quarantee any more loans because of the corporations in these countries that have invested heavily in Japan and the other Asian countries that are affected). These include U.S. Treasury Notes, Bills, and U.S. Corporation stock. Japan owns in excess of $300 billion in these securities. What do you think will happen to the Dow when they do this? Stocks, such as IBM, General Motors, and 4 of the other top Dow Industrial stocks will lose at least 65% of their value. When this occurs, I am predicting the Dow will plunge at least 2,800 points within one or two days. So there are the facts, you heard it here first. Like I said, your not hearing this on the network news or CNN because the IMF, International Monetary Fund does not want this information released to the general public. It would immediately start a major worldwide ecnomic crisis. However, they are in my opinion just buying a few more months until the inevitable is going to happen. The Japan market is going to fail, and will bring down the Dow as well. If you don't believe this information, make a few calls on your own. Brokers know this information, but they are not telling their clients. Also, check the status of the Japanese Stock Market. Call a Federal Reserve Bank, ask for the Treasury Notes and Bills department. They can tell you within a few million dollars how much what country owns in U.S. Treasury Notes and Bills and when they are due. Better yet, call each one of these major corporations and ask there accounting shareholders departments how much stock is owned by foreign governments. Some may tell you, some may not. If you own stock in any of the companies I've mentioned, your entitled to this information as a stockholder. This will be the worse day on the Dow it has ever experienced, worse than Black Friday. If you have friends that own stock, you may want to pass this information on to them.

In closing, my best advise is to keep abreast of the news. Sooner or later, the major news networks will have to start reporting these things, it will become to public for them not to report it. Just remember, you read about it here first. However, by that time, it will be too late and many are going to be holding the bag so to speak with investments that have shrunk from 40 to 65%. Depending on how much you have invested in what kind of companies, if you see something that could negatively affect that segment of the market, you might consider divesting yourself of that investment. And watch the consumer spending habit, this will tell you a great deal of where the market is heading. By the way, my knowledge in these areas comes from a previous career in banking for nearly 20 years.

POSTSCRIPT:

I have received many emails from people in areas that cater to the Japanese tourist trade. Below is an example of what many are saying they are seeing. I am posting this to help qualify my information above, since I have also received emails from people stating I don't know what I am talking about. The email is posted as received, unedited ( with the writer' s permission to include it in my column.

Subj: thoughts

Date: 98-06-01 23:12:15 EDT

From: hubert@netpci.com (Hubert Friedle)

To: DLDEWEY@aol.com

Sir,

Living off the japanese tourism industry on this here island gives us a lot of headache the past 6 months, used to 90% year round occupancy for a decade now, a drop to the 60ies is causing havoc, prolonged continuance will cause a calamity. The Korean market is non-existent (from a very strong upwards climb for about 2-3 years, achieving almost 20% share of 3/4mil arrivals per yr ) and japanese tourists spending is reduced to 1/2 of what it used to be. It is clear to me that this is only the beginning, although the Japanese Nation as such is not aware of of what is in store for them. There are the first cases of *real* unemployment, open dissatisfaction with superior officials and/or executives which was unthinkable until now. Japanese are also very xenophobic and cautious, both instances gearing towards strong reluctance to accept changes, stashing away some money for the rainy day to come. The endless price increases of real estate first, commodities following naturally, is finally firing backwards. I recall well my first encounter with the Tokyo Hilton paying for a Heineken in the lobby roughly $ 8.00 years ago. There is absolutely no 8$ value in a bottle of Heineken not then and not now, not for any high-rise building its served in, it is just not realistic.

You will be right - things will come back to earth - but at what cost?

Only now am I in a position to put money into Stock or Funds, but I think I'll hold off for a while, buy some Cd`s instead.

Respectfully -

Cheers,

Hubert S Friedle

Exec. Chef

mailto:hubert@saipan.netpci.com

mailto:hubert@itecnmi.com

PS. The Commonwealth of the Northern Mariana Islands (Saipan) is somewhat part of the US, but only somewhat....

My next column will be about the Web. What is changing, what will it possibly will be like in the future. And are you tired of all that junk mail? I'll have a few ways for you to fight this.