While there may be some reasons to feel encouraged by the Nasdaq Composite’s heavier volume reversal after 5 consecutive down weeks, it is still early to say that we’ve seen the start of a meaningful summer rally. The Dow Industrials have suffered their sixth straight weekly loss. In the weeks ahead the picture will become more clear to us, but thus far the S&P 500 Index and Nasdaq Composite have not been able to make a meaningful statement since they’ve both been re-testing their September 2001 bottom and 1998 lows.

Some attributed the Nasdaq’s bounce to window-dressing, or the usual end of quarter portfolio adjustments that take place. Another contributing factor could include short covering. Whatever the case may be, it was another ugly quarter. According to data provided by Lipper, the fund-analysis firm, as of 6/26/2002 the average U.S. stock mutual fund had skidded 13 percent in the second quarter.

At month’s end there were also confirmed reports of a coordinated currency intervention by a combination of the Federal Reserve, the European Central Bank (ECB) and the Bank of Japan. This provided a lift to the US dollar and resulted in subsequent weakness in gold. America’s corporate-malfeasance boom has sent foreign investors scurrying for the exits, and sent the greenback deeper into the red. Sadly enough, a ruling by a federal court in San Francisco regarding our "Pledge of Allegiance" makes the currency itself seem at risk of being ruled unconstitutional.

Consumers are carrying record amounts of credit card debt, while the number of defaults and bankruptcies are running at record levels. Sure enough, it looks like our government is running on the same path.

Observers believe the government will record about $150 billion in red ink this fiscal year, following a $127 billion surplus in 2001. Tax receipts have plunged 19% thanks to lower capital gains realizations, lower profits, lower marginal rates and flat income growth.

The NYSE Financial Index also managed to bounce in the 550 area that served as support in January/February. Readers hear us regularly mention that the financials are considered an important leading indicator for the overall health and direction of the market. That they’ve not been knocked back to their September lows is a point that is at least worth mentioning.

HMOs have been one of the market’s few bright spots so far this year, but a number of HMOs have fallen on heavy volume in the last week of June, driving the HMO Index under its 50-day moving average. Another bright spot this year has been gold, but recently gold stocks have started to drop. This may be an indication that the dollar and stocks may be getting ready to bounce.

It’s not easy offering investment advice in the toughest market in years, and against a rising tide of skepticism about the quality and integrity of Wall Street research. With WorldCom being only the latest company involved in what we’d have to call a troubling wave of accounting controversies, investor confidence has clearly been eroded. The sad truth is that it has been the very high degree of confidence in the US equities markets that helped them to continually attract investment dollars from around the globe.

For many years the perception that our market is the most stable and well regulated welcomed global investors. This was a good thing that once worked in everyone’s favor, however we now see too much of a good thing coming back to haunt us again. Instead of helping to fuel the biggest rally in market history, foreign investors are now helping to drive the declines to record levels by either shying away or pulling their money out.

While Securities & Exchange Commission chairman Harvey Pitt insists that trust will return to our equities markets, Federal Reserve chairman Alan Greenspan keeps also insisting that the economy is improving. Both men are older and more well-connected than I am, so let’s assume they are right! An influx of massive amounts of overseas wealth into our markets could conceivably help provide a jaw-dropping boost to stock prices, but restoring faith in our markets won’t likely be a task that is accomplished very quickly. Yet, almost everyone agrees that this is a wound that eventually will heal itself.

In hindsight, it would have been a good idea to sell almost every tech stock after the market ran a fantastic sprint in early 2000. One wouldn’t have had to even wait for the first dramatic breakdowns in March to walk away a winner. I’m sure that many people would admit that they intended to sell, but when the market started to crack they still had doubts that it was truly the end of the phenomenal bull market. Hindsight has a magical way of making that appear so obvious now.

But if you are reading this article, you are probably looking for ways to get ahead of the curve and make the most of the market in the years to come, right? Obviously you don’t drive down the interstate staring only in the rear-view mirror. You look ahead!

When you look back at the summer of 2002 several years from now, there is a reasonable chance that you could find yourself saying things that are the exact opposite inverse of what we now can say with hindsight about early 2000: "Things were horrible, with numerous corporate accounting scandals, SEC investigations, fear of more terrorism, and the threat of nuclear war in several parts of the globe. The market had fallen an exaggerated amount, and it was obvious that much of the risk had already been eliminated by that", one might be able to say.

Now I’m not saying to rush out and buy up all of those stocks you’ll find overflowing the bargain basket right now! In fact, I am still somewhat amazed when I receive phone calls from clients who are considering buying into the latest disaster story on the hopes it will bounce back. I understand the human emotions that make everyone want to try to take advantage of an apparently good deal, but fifteen years of experience as a licensed representative has also taught me a lot about the odds of success. They are slim if you are picking a beaten down stock trading near its historic lows, and much better if you are picking one trading near all time highs. If hearing that makes you confused or frightened, and you still want to bottom fish, you’re talking to the wrong person. I don’t go for it.

Along the way over the years I happen to have inherited the accounts of numerous former stockbrokers. (Not just some of their customers, but I actually hold the accounts of several former brokers who were not able to make it through this challenging phase of the business.) One of them came to my office a couple of weeks ago and wanted to buy some WorldCom at $1.40. I had to do an awful lot just to talk him out of it, and the next day when it was $1.50 he called me and was pressing me to buy it for him again. I had to scream at him and flatly refuse to let him do the trade. For the past couple of days, when I have tried to call him he hasn’t answered his phone (he has caller ID). He should be thanking me, but I wonder if he might have bought it through another broker. Maybe that might explain why he doesn’t want to talk, as it is strange how the more you tell some folks not to do something, the more they want to do it.

The most important thing to look for is the areas of market strength. Leadership will eventually show up in some growth areas, and when it does I want you to be ready. Don’t let fear keep you paralyzed on the sidelines the same way that greed kept many investors in a lot of their over-inflated internet stocks when the market had topped out.

It recently broke out from an 8-week flat base on three consecutive days of heavier than average trading volume. Institutional interest has risen from 129 to 175 funds holding an interest between June of 2001 and March of 2002. Sales revenue increases have been between 32% and 49% in each one of the past eight quarterly comparisons versus the year earlier, and during this time period its quarterly earnings per share increases were between 33% and 83%.

Leadership has also been clearly evident in similar issues including Career Education Corp. (CECO), Strayer Education Inc. (STRA), Education Management Inc. (EDMC), and Apollo Group Inc. (APOL). Confirmation from within the sector is a nice reassurance that the industry environment is a favorable one.

We all know that making enough money to pay all of our expenses while at the same time saving enough for our retirement can be a difficult task, let alone saving for a vacation!

This month I will offer you some more tips and other ways to save money, with examples on how reducing unnecessary expenses could help you fund your next vacation, or more importantly, fund your retirement account! So grab some paper and a pencil and follow me!

Have you ever really calculated how much money you spend on a daily basis for products that only offer you instant gratification? Take your daily cup of coffee or can of soda from a vending machine, for example. Or how about those cigarettes? Doing without them would help your financial health as well as your physical health!

Just recently, I met a young couple and they were telling me how difficult it is for them to save for retirement and simultaneously save for their overdue vacation. During the conversation they both lit a cigarette and started puffing away their frustrations! I spoke up (after coughing a few times) and asked them, "How long have you both been smoking?" They answered, "A pack a day for about 5 years". Now, you and I know that 5 years is not a very long time. I meet people who have been smoking a pack a day for more than 20 years (and believe it or not, they’re still breathing!)

I immediately took out my calculator and did the math for them. Figuring that each pack over the past 5 years was $3.00, here’s what I came up with:

By now their eyes were getting very large and I could sense that they were feeling a little depressed.

I mentioned to them that this was just the approximate amount of money that they have spent on the cigarettes for those years. It did not take into consideration how much it would amount to if they had invested that money into a Mutual Fund, or any other investment.

Let’s take this example a few steps further down the road and see what the difference might mean to them over their lifetime. Take note that we won’t increase the cost of the cigarettes or include taxes or any other expenses in this example. In fact, we’ll take 1/3 of what they were spending and imagine they invested just $30.00 per month. The following table shows how much they would accumulate if they were to invest this money in a vehicle that gives them a nominal return of either 5% or 10%.

You can see that this would make a very important difference in their retirement years, and certainly provide them the funds necessary to enjoy a very nice vacation! If they knew it meant a half-million dollars to them, don’t you think they’d quit smoking?

(* Note that income taxes may be due annually on the interest earned even though the money is not a part of your "disposable" income. That is why the money you are saving long-term for your future should be invested inside of an IRA account, so it will grow tax-deferred! In this example the interest was compounded monthly. That doesn’t mean $30.00 was added and a full 5 or 10% was paid on the balance saved each month, it means that either 5 or 10% was divided by 12 and then paid on the balance saved as $30.00 was added to the total each month.)

It is said that Albert Einstein was once asked what the most powerful force in the universe was, and his answer was "the power of Compound Interest". Hopefully this example helps you better understand the time value of money. It is very important to realize that there are a wide variety of ways to save for the future and reach our financial goals in life. Don’t let bad habits take over or get in the way, but instead, build good habits that will help you become financially independent! If you wish to succeed, then you must set up a budget and plan it out ahead of time. Set your goals and put a price on them. Then sketch out the course you need to take in order to obtain that goal or dream. Remember, investing for your current and future goals will enable you to enjoy life and have peace of mind!

In October 2001, President Bush signed the USA Patriot Act (the Act), which requires all financial institutions to create and/or update their anti-money laundering (AML) procedures and training initiatives. Most brokerage firms and banks already had their garden-variety money laundering policies established. In an effort to thwart terrorism in the states, firms must take further, more stringent measures to ensure that the monies held at their institutions are not being used for anything other than investments or personal use.

Now, I’m fairly certain that most if not all of the financial firms in the United States will adhere to or make a best effort to not be negligent toward the rules and procedures. I can only imagine the fate of a firm failing to comply, but the government has already indicated that federal charges would be brought against the firm and those responsible for the firm’s AML procedures. At this point you might be wondering, "What rules is he talking about?" The rules are not yet set in stone until the US Treasury Department provides its final report, but they are fairly simple and can provide a very complex issue for the larger firms.

Simply put – if you, your neighbor or anyone else transfers funds from one account to another account, via fed funds or wire or cash or securities, it will be scrutinized based on the amounts and frequency. If there are multiple transfers or withdrawals between accounts, especially accounts with different names, the accounts will be reviewed, watched and heavily scrutinized. If an account is opened at a firm in the United States for an account owner with an address of a country other than the United States, the account owner and purpose of the account will be scrutinized. Also, the account opening procedures at firms will require more information than required in the past. Furthermore, traveler’s checks, money orders or cash/currency will draw even more scrutiny as they are one of the more commonly utilized conduits for laundering currency; most brokerage firms will not accept cash, traveler’s checks or money orders.

According to certain documents related to the Bank Secrecy Act, banks already scrutinize activity involving transactions of $3,000 or more but their defensive actions will become more prominent. Going forward, the grounds for suspicious activity can be an amount as low as $2,000 based on deposit and withdrawal history as well as frequent or excessive fund transfer activity, and financial institutions are supposed to "red-flag" round-dollar transactions between $2,000 and $10,000 amounts. Another red flag would be the immediate deposit and withdrawal of funds in an account. Therefore, anything that may be deemed as ‘suspicious activity’ could easily be reported to the "proper authorities." In this case, "proper authorities" could mean the US Treasury Department, Securities and Exchange Commission or a myriad of other agencies depending upon the size and scope of the suspicious activity. Some firms may even contact the clients and request specific information which will probably be requested in writing and signed by the client, affirming the information.

You may also begin to hear more about these fancy little acronyms such as FinCEN, BSA, OCC and OFAC to name a few. FinCEN is the Financial Crimes Enforcement Network of the Treasury Department. BSA is the Bank Secrecy Act; OFAC is the Office of Foreign Asset Control and OCC is the Office of the Comptroller of the Currency. I can see it now… close your eyes and think about this for a moment.

You decide to buy a car so you have some money wired or transferred from your savings account to your checking account and then cut a check two days later to the person selling the car. A month later you go on a vacation to Europe – you pull some cash out of your account and purchase some travelers checks. The banks look at your activity and deem it to be suspicious and call on the "proper authorities" and they conduct an investigative search and find out that you left the country after all of the indeterminate activity. Upon returning to your home from your vacation there are federal agents at your house ready to conduct a search because of the "activity" displayed by you and in your accounts. Now I understand that might be getting a little overzealous with my imagination but it seems that things are getting a little absurd.