Welcome, new readers!  This month we have over 1,600 new readers who came to us by way of mentions in several other newsletters including Bill Bonner, John Mauldin and Gary North.  We hope you enjoy our two monthly newsletters, Forecasts & Trends and Professional Investing.

The economy continues to improve.  Industrial production which has been in a deep slide for over a year and a half turned higher in January and February.  Factory orders were the highest since 1987 in February.  Manufacturing was one of the last sectors of the economy to turn around.  More details on the economy are included inside.

The Fed has switched from an "easing" bias to "neutral."  Yet with the economy rebounding faster than expected, it is almost inevitable that the Fed will begin to gradually raise short-term rates in the months ahead.

The stock markets are trying to respond to all the good news, but this is far from a bull market in earnest.  Despite that, The Bank Credit Analyst, my very best source for economic and market analysis, believes we will be in a clear bull market in equities very soon.  On the other hand, BCA believes the economic revival will be bad news for bonds.  As a result, BCA continues to be bullish on stocks and bearish on bonds.  I agree.

Interestingly, for the first time in many, many years, BCA has turned mildly bullish on gold.  They believe the upturn which began in late January will continue, although not without setbacks along the way.  If accurate, this should be good news for Dorset's  gold/precious metals program.  Most of the new readers came to us as a result of recommendations of Dorset's program in the newsletters mentioned above.

In this issue, we look at some retirement issues, financial planning and investing in general.  Most Americans are behind schedule in saving and planning for retirement, especially The Baby Boomer generation.  Most people don't have a financial plan.  In this issue, we will look at some of the reasons why.  We'll also give you our philosophy about financial planning and how you can make it work for you.

More Good News In March

The good news on the economy keeps rolling in.  The best news came from the manufacturing sectors which have been in a deep slump for over 18 months.  The Institute for Supply Management's Manufacturing Index rose in March for the fifth consecutive month to  55.6, up from 54.7 in February.  Any reading above 50 indicates the economy is expanding. Separately, the government reported that the Industrial Production Index rose .4% in February (latest data available) for the second consecutive month.  Factory orders were the highest since 1987.  In addition, the latest report on business inventories showed a surprising increase.

Many of those who have consistently been negative on the economic recovery have said they would not be convinced of a rebound until the manufacturing sector turned around.  While the manufacturing sector still has a long way to go to get back to where it was 18 months ago, it has clearly turned the corner.

Consumers Continue To Surprise

The other main argument of those who remain negative on the economy is consumer spending.  Due to high debt levels, the naysayers have consistently said that consumer spending could not remain strong.  Well, it has!  Consumer spending rose significantly in January and February (latest data available).  Retail sales rose .3% in February.  Auto sales remained strong in the 1Q, despite the predictions they would plunge when the zero-interest deals started to end. Housing starts rose 7.4% in February.  Personal income rose .6% in February to the highest level since  October 2000. 

The Consumer Confidence Index rose in March to the highest level since 911.  The Index climbed to 110.2, up from 95.0 in February and 84.9 at the low in November.  The point is, consumers are continuing to spend despite widespread predictions to the contrary.

About the only bad news over the last month was a slight rise from 5.6% to 5.7% in unemployment in March, plus a modest drop in sales of existing homes, and a small decline in the index of leading indicators.

The Pessimists' Argument

The pessimists' argument still centers on the belief that US consumers will run out of gas any day now, and the recovery will be aborted.  But remember, they said this throughout the 4Q, yet 4Q GDP was +1.4% (annual rate).  After that number came out, they said it was mostly due to the zero-interest auto loans, and that auto sales would plunge when zero- interest deals stopped.  Well, they didn't.  Ditto for the predicted slump in the housing market.

Just yesterday (April 4), I read a front-page story in the Wall Street Journal which continued to argue that  consumers are going to run out of steam, again, any day now.  They predict that rising interest rates will cause the housing market to dry up.  Rising oil prices are a huge problem, they argue.  They cite the continued weak level of capital and business investment spending, despite the fact that such spending always lags the first phase of an economic recovery.

Finally, the WSJ article concludes its argument with a lame point that Fed chairman Alan Greenspan's health could fail, and his successor might not be so good.  Come on guys!  Why don't these people just say it, "We're pessimists just because we want to be."?

Let's Be Realistic

This recovery is stronger than almost anyone expected back in October and November.  About the only thing that would send us back into recession would be more serious terror attacks in the US.  Even if the situation in the Middle East turns into an all-out war, I'm not convinced that would mean a return to recession in the US, unless there is an oil embargo.  I believe the economic recovery will continue all year and beyond, short of something really unexpected and really bad happening.

On the other hand, I'm not ready to agree with those who apparently believe the economy will expand by 5% or more this year.  I think that is unrealistic, although not out of the question.  We've seen a huge amount of  good news in the last 3-4 months, better than almost anyone expected.  I expect the flurry of good news to cool-off some in the next few months, with the economy steadying at a 2½-3½% growth rate for the year.  So don't be surprised if the economic news is not quite as positive just ahead as it has been for the last several months.  As usual, my views above are very consistent with those of The Bank Credit Analyst in their latest issue.

Interest Rates To Turn Higher

Currently, the Fed Funds rate is 1¾%, which should be looked upon as an "emergency rate" that is no longer appropriate for an economy that is recovering quickly.  Look for the Fed to start raising rates.  Assuming the recovery continues, BCA believes short-term rates will rise to at least 3% in the next few months, and probably to 4-5% by the end of the year.

US inflation has been muted by actual deflation in several sectors of the economy.  As those sectors rebound, the deflationary drag will disappear.  Also, the labor market has remained unusually tight, despite the economic slowdown, and there will be upward pressures on labor costs as the recovery continues.  This, too, argues that short rates will climb more than is currently expected.

Stock Market Outlook

The equity markets have rebounded some as a result of the good economic news, but it is difficult to argue that we are in a new bull market.  The Wilshire 5000, Dow, S&P 500 and Nasdaq have all broken above the major downtrend lines on the charts.  All have broken out above their 200-day moving averages except the Nasdaq which is hovering very near it.  Yet these markets lack momentum on the upside.

BCA believes, however, that the environment is now right for stocks to get going on the upside.  Liquidity is very high now.  There is still a mountain of cash in money market funds, just waiting to get back into equities.  They also believe corporate profits are going to surprise on the upside this year.  "The corporate sector will continue to face some headwinds, but it will not be a 'profitless recovery' as some have feared."

BCA believes we are in a "window" of opportunity in equities which will last from now until short rates climb above 5%.  This is why they are recommending "above average" holdings of stocks now.  As this is written (April 4), stocks are in a correction and have retrenched from their mid-March highs.  If you are still waiting to get back in the market, this may be as good a time as any.

Bonds

BCA believes this same "window" as described above will be a bad period for bonds, especially T-bonds.  With the economy expanding rapidly, with interest rates set to rise and with inflation starting to turn up, they believe bonds will be a tough place to be.  "The improving economy has been good for stocks, but deadly for Treasuries.  Before the cycle is over, yields are likely to move above fair value.  We continue to recommend below-average bond positions."  For those who have core holdings in bonds that they never sell, BCA recommends high quality corporate bonds rather than Treasuries.

The US Dollar & Gold

Predictions of a top in the dollar have abounded over the last year, but the bull market has remained intact.  Despite the slowdown in the economy, money has continued to flow into the dollar.  Perhaps the currency markets anticipated that the US recession would be minor, and most other economies were even worse off last year.  "With the U.S. once again leading the global economy into recovery, it is reasonable to assume the dollar will remain strong.  At the same time,  the dollar's advance is looking tired from a technical perspective." says BCA.

Surprisingly, the BCA editors have turned mildly bullish on gold for the first time in many, many years.  They have not, however, offered any detailed analysis as to why, other than the fact that gold prices have risen above the 40-day moving average.  Fortunately, Dorset Financial Services' gold/precious metals mutual fund timing program doesn't depend on a bull market.

Since my last newsletter, I had my 50th birthday.  Like most people, I suspect, turning 50 caused me to spend some time thinking about my own financial goals and even about my own retirement. While I'm not planning to retire for many years, passing the half-century mark made me consider if I am where I want to be in terms of my own investments, my own financial plan and my own retirement, whenever that will be.  Normally, it is other peoples' investments, financial plans and retirements I am thinking of.

Over the past 26 years, I have talked to hundreds (maybe more) of clients who had just retired.  Without a doubt, the one comment I have heard the most is, "I don't think I have enough money to retire."  Interestingly, I get this comment even from those who had been on a financial plan and had saved exactly the amount they had planned for, or even more.  It hasn't seemed to matter whether the person had a few hundred thousand, or millions, saved up.  I don't ever remember anyone saying, "I have plenty enough money to retire in the lifestyle I want."  The point is, hardly anyone thinks they have enough money to retire when they finally collect that last paycheck.

Living Longer

In most cases, people really don't have enough to retire into the lifestyle they want.  People are living longer due to medical advances.  The retiree may have planned to live 10-15 years beyond retirement, whereas they may live 15-20 years or more.  In many cases, the retiree may have parents who are living beyond their life expectancies and their retirement assets.  In these cases, the retiree may have to dip into his/her own retirement savings to support an aging parent.  This is just one example of how unexpected events can leave you with less money than you need to retire in the lifestyle you planned for.  There are many others.  As a result, many Americans have to keep working well beyond retirement, and this will only get worse.

Business To Retire Into

If you are not retired already, I think it would be wise to assume that you will either want to or have to work beyond your currently planned retirement age.  Some companies allow employees to work beyond age 65, while others do not.

My experience has been that most people who want to or have to work beyond age 65 want to go into  something different.  Yet they don't know what.  I think you should assume today that you are going to want to or have to work beyond age 65, and that you can't or won't want to stay in the same job after age 65.  If so, you should start thinking today about a business you could "retire into."

In the months ahead, we will be writing about businesses and opportunities that you can retire into.  We'll give you many different ideas for things you can do to earn income after you "retire."  Many of the ideas we will write about won't be right for you, but a few of them may be.  In any event, they will make you think and perhaps lead you to an idea for a business or opportunity that is right for you.  Until then, you should be considering the real possibility that you will want to or have to work beyond your "retirement age."

For those of you who are already retired and know what I'm talking about, we would love to get suggestions for businesses people can retire into.

You Need A Financial Plan

Whether you are three years away from retirement, or 20 years away, you need a detailed financial plan.  There are thousands of financial planners around the country.  There are good ones and bad ones.  There are reasons for this, as I will discuss later.

The point is, you need a financial plan and, in most cases, you need a professional to help you with it.  Over the years, we have expanded into financial planning at ProFutures Investments at the request of our clients.  For the benefit of clients and our many new readers, I would like to discuss our philosophy on financial planning and retirement planning and why we are different from most firms.

Introduction

I never intended to get into the financial planning business.  Most of our clients are successful, high net worth individuals who have been investing for many years.  Yet in the early 1990s we began to see study after study which reported that most investors fail to earn returns equal to the S&P 500.  In fact, the studies showed at the time that the average investor made only a fraction of what the S&P made.

In early 1995, I wrote about the Dalbar study.  Dalbar, Inc. is a prominent investment research firm in Boston.  Dalbar reported that for the five years ended 1994, the S&P 500 had returned 12% a year, yet the average mutual fund investor averaged only 2.5% a year in the same period.  Dalbar illustrated that because most investors were switching frequently among equity mutual funds, often buying at tops and selling at bottoms, their returns were much, much less than the market average.

Frankly, I was shocked.  So I wrote about the Dalbar (and other) studies in this newsletter in early 1995.  At the end of the article, I noted how grateful I was to have a large group of sophisticated investors who, I was sure, did not have this frequent switching problem and were probably enjoying returns well above the market average in their mutual fund holdings.

To my surprise, our phones began to ring off the wall.  Hundreds of clients called and wrote, all saying essentially the same thing: No, Gary, I do have this problem; I do switch from fund to fund frequently, often at the wrong time; and I, too, have not made nearly as much as the market average.

Based on that surprising and large response from clients, I focused my next newsletter on the subject of professional money managers known as Registered Investment Advisors (RIAs).  I pointed out to my clients that there are thousands of RIAs out there who have successful performance records that would manage their mutual funds for them.  I offered to launch a new service wherein we would research the field of RIAs and recommend those who we felt were among the best to our clients.  The response was overwhelming.  Little did I know what a monumental and expensive task I had just assigned myself!

Our Business Changed Enormously

The decision to go out and research and monitor RIAs all across the country meant a major change for our company.  But we geared-up, staffed-up and spent a very large sum of money travelling all across the country investigating money managers, most of whom were not nearly as good as they advertised.  As you will read below, this effort led to our ADVISORLINK service for mutual fund managers.

A few years later, our clients told us in large numbers that they would like us to help them with more than just their actively managed mutual fund investments.  They wanted help and advice on ALL, or most, of their investments.  This meant that we had to expand further into financial planning services.

Financial Planning The Right Way

As I said at the beginning, I never intended to get into the financial planning business.  Frankly, I didn't have a very high regard for most of the financial planners I had come in contact with over the years.  As a result, I was not thrilled about the idea of expanding into this field.  Yet, as always, we wanted to help our clients, so we geared-up once again.

Fortunately, there is some very high-powered computer hardware and software that can streamline and optimize the financial planning process, if you have the money to buy it.  With over 10,000 mutual funds on the market, there was no way, in our opinion, that an individual, or even a group of individuals, can sort that vast array of funds to find those who are among the top long-term performers in each of the sectors.

Given our commitment that if we were going to do it, we were going to do it right, we hired several new employees, each of whom had experience in this area, including a Certified Financial Planner (CFP).  In addition, we spent tens of thousands of dollars on sophisticated hardware and software to enable us to efficiently:

1. Determine each client's financial position and their investment goals and risk tolerance;

2. Analyze clients' existing portfolios including each and every investment held;

3. Construct new portfolios that are individually customized to each client's needs and circum-stances; and

4. Continually monitor these portfolios and make changes, if needed, along the way; and

5. Monitor the investment industry continually for new funds, managers and opportunities.

With the experienced professionals onboard, we spent over a year of exhausting research determining which funds and which other investments met our strict criteria for recommendation to our clients.  We believe our service, which is called the DYNAMIC ALLOCATION PROGRAM, is second to none.

Why You Need A Financial Plan

As discussed above, studies have consistently shown for years that most investors do not get the returns they deserve doing it on their own.  Few are willing to spend tens of thousands of dollars on the sophisticated software and hardware we have, nor should they.  Most investors need a professional they can come to trust, who will advise them along the way, suggest changes as needed and give them confidence to stick with a good financial plan for the long-term.

Many times, investors think they are doing "financial planning" when they invest in various mutual funds or stocks, but they usually do so without considering whether those investments complement the others they already have.  It is important to remember that financial planning is a process, not a product.  While financial planning includes investment selection, it is not the only function of such a plan.  As a result, it is important that we discuss the process of financial planning, as we do it at ProFutures Investments.

First, It's All About YOU, Not Us

We believe we are blessed to have the best clients in the world!  We like to have clients who want to have the types of services we provide.  Some don't, quite honestly, and that's fine - we merely hope to find that out at the beginning.  Because we have always been a NO PRESSURE firm, unlike many others, we want to get to know you before we consider a financial plan.

We have over 2,500 clients all across the country and even some overseas.  Most of them we have never met, yet many of them have been with us for 10 years or longer.  I believe this is because of our high level of communication.  We don't have to be right down the street.  We are only a phone call away.

Finally, we believe the financial planning process should be all about YOU and not about us.  Unlike many financial planning firms and brokerage firms, we don't have a company dictated "approved list" which restricts us to only certain mutual funds and other investments.  Often times, these approved lists only include the company's funds or investments.  At ProFutures, we can use virtually the entire universe of mutual funds and other investments.

In addition, we are NOT paid commissions on ANY of the mutual funds or other investments we recommend.  As you will read below, we are only paid by way of an asset-based management fee.

Our Privacy Policy

In order to develop a good financial plan, the investor must share with the planner detailed information about his/her financial condition, net worth, etc., etc.  As a result, it is very important that the planner's firm has a strict CONFIDENTIALITY policy.  Your personal or other information should not be shared with anyone or any entity.

Only a year or so ago, the SEC required investment firms and financial planners to maintain and provide to clients a written privacy policy.  I can tell you, however, that ProFutures has always had a written privacy policy ever since we founded the company in 1984.  Our privacy policy has always been that we will never sell, rent or otherwise share your information with anyone without your prior authorization.  We've never done it, even though our client list and information would fetch a lot of money if we were to rent or sell it.  Your information is safe and confidential with us.

Step One: The Information Process

Our financial planning process begins with you completing our Confidential Investor Profile form.  We designed this questionnaire ourselves, using the combined experience of our professional staff.  With the  Profile, we are able to obtain the amount of information we need to begin to develop a financial plan.

The Profile is where you provide us with your financial information, investment goals and risk tolerance.  It also includes information about your other investments.  Again, this information is confidential.

It is impossible to develop a comprehensive financial plan without a complete knowledge of not only your existing investment situation, but also your future financial goals, time frames, risk tolerance and any special situations that may exist such as a disabled child or dependent parents.

The next step in developing the financial plan is to determine if your stated goals and time frames for reaching them are reasonable and attainable.  Often times, they are not.  If this is the case, we have to discuss other options, which might include a more aggressive approach or considering working beyond age 65 as discussed earlier.

Analyzing Your Current Investments

Many financial planning firms automatically recommend that you sell everything in your portfolio.  Why?  Usually it's because they don't make anything on your existing investments, and they want to put all of your money in their products.  Our policy is different; essentially, "if it ain't broke, don't fix it."  You may have funds or other investments that have performed as well as those we would recommend.  We only recommend changes to a portfolio if we feel it is necessary for diversification, to adjust the risk parameters to be more in line with the risk tolerance of the client, to replace under-performing assets, or in direct response to the wishes of the client.  Our Investor Representatives are on salary, not commission, so there is no conflict of interest on their part. 

As discussed earlier, we have invested significant sums of money in hardware and software to enable us to analyze your financial situation in great detail.  However, this alone cannot suffice, as many investors who have tried impersonal Internet financial analysis websites have discovered.  You need a real person to be your partner since the expertise of an experienced financial planner is also critical to the process.

There are numerous websites that will sell you a "financial plan."  But they cannot give you the critical personal insights that you need to make hard decisions, such as whether you need to adjust your goals, be more  or less aggressive or consider working past age 65.  You need a real person to help you walk through these key issues.  Also, I would be extremely reluctant to give any personal information to a financial website.

Constructing The New Portfolio

Once we have all of your financial information, and we have determined which of your current investments you will keep, we then go to work on the new portfolio.  Remember that we can make selections from virtually the entire universe of mutual funds.  We select only those that have been among the top performers  in their sector over the long-term and have good management.  We may also recommend other "actively managed" investments as discussed below.  We construct each portfolio differently to make sure it is diversified and fits your goals and risk tolerance.

When the plan is complete and the new portfolio has been constructed, we provide you a detailed, written Proposal.  After you have had a chance to review the Proposal, you and your Investment Representative will discuss it in detail.  We make sure you understand each of the investment choices and how they fit in.  In some cases, clients want to make changes - no problem.    We want you to be 100% comfortable so that you are as confident in the portfolio as we are.  Your Investment Representative will spend as much time as is needed so that you are informed and confident.

Putting The Plan Into Action

When the plan is finalized, you establish your own personal account at T.D. Waterhouse, one of the largest broker-dealer firms in the US.  You authorize us to make the purchases (and sales) of the various investments in the portfolio.  You will then receive monthly statements from T.D. Waterhouse showing any activity and the balance in your account.  We also send you a quarterly statement.

At ProFutures, we pride ourselves on keeping the lines of communication open with our clients regarding their investments.  You can call us as often as you like.  Your Investor Representative(s) are happy to visit with you at any time.  Also, the emergence of e-mail is making communication even faster and easier than in the past.  With this relatively new technology, we are no longer limited to leaving messages on your recorder or sending letters that take days to be delivered.  This is especially important should we want to make any changes in your portfolio that need your approval.

Finally, your portfolio must be monitored and re-evaluated on a regular basis.   This is my biggest problem with Internet financial planning/investment websites.  After the initial impersonal analysis, you are left on your own to monitor your results.   The computer doesn't keep in touch with you to see if your personal situation has changed, such as a marriage, serious illness or any other significant change in your financial condition.  We do!

The comprehensive financial plan is free of charge.  The minimum investment for our DYNAMIC ALLOCATION program is only $50,000 which is far less than most planning firms require.  The annual asset-based management fee ranges from 1.25% down to 0.75%, depending upon the size of the account.  To get started, just call us toll free at 800-348-3601.

Why We Are Different - -More Than Just Mutual Funds

Most financial planning firms only offer stocks, bonds and mutual funds that you buy-and-hold for the long-term.  We are one of the few firms that offer  both buy-and-hold and "actively-managed" investments such as professional market timers in our ADVISORLINK program discussed earlier.  Most financial planning firms, and most brokerage firms, shun market timers.  Usually this is because they do not want to spend the huge amounts of time and money necessary to find those market timers who have been successful.

Unlike most other firms, we DO believe in market timing, especially when the markets are as uncertain as they are today.  Unless there is a reason not to, we often include an allocation to market timing in the financial portfolios we recommend.  We know of no other financial planning firm that offers this key component, plus other alternative investment opportunities.  

Continued In PROFESSIONAL INVESTING

Newsletters, Updates & More On Our Website

At ProFutures Investments, we make it as easy and  fast as possible to access our periodic information such as our newsletters, Special Updates, reports and other information.  We immediately post all of this information on our website at www.profutures.com and you can access it at your earliest convenience.

Our monthly newsletters, for example, are posted on our website the very day they go to the printer, thus allowing you to read them a week to 10 days before you get them in the mail.  Plus, we have 2-3 Special Updates per month, loaded with interesting current information on a variety of topics.  All of this information is provided FREE to our clients.

Now I invite you to go to our other free monthly newsletter, PROFESSIONAL INVESTING.