The Contrarian's View

Vol. XV, #7, February 28, 2001

The Contrarian's View is published 11 times per year on a mostly-irregular schedule, and the views expressed are those of the author and editor, Nick Chase. Because nobody can predict the future, results of past suggestions or recommendations are no guarantee of future results. Material in this publication may be freely quoted provided proper attribution is given to its source. Subscription rate: Free on the Internet through the World-Wide Web service at Assumption College. Using your favorite Web-browsing program, Open URL http://nick.assumption.edu. Mailed paper subscriptions, one year for $39 to The Contrarian's View, 132 Moreland Street, Worcester, Massachusetts 01609. There is a limit of 50 paid subscribers at one time; please check for availability before sending any money. Sorry, Visa and Mastercard are not available. Overseas subscription rate, U.S. $54. Unsolicited material sent to us by UPS or by courier other than the postal service is refused and returned to sender! Phone: (508) 757-2881

TAKING FLAK

Nick, I can't believe that after all the years of being a bear you have now thrown in the towel and gone bullish. Coupled with Steven Kaplan's switch from daily updates of his gold page to virtually none, to me this is a classic indication that stocks are gonna plunge and gold is gonna soar.

Go back and reread the last issue. I used expressions like "playable bounce" and "Japanese scenario". These are not the words of somebody who has "gone bullish". However, neither am I a permabear, as many of you who have been reading me only since 1993 might have believed. I call them as I see them. I am not here to perpetually reinforce others' unchanging beliefs.

Dear Nick, Now that you have thrown in the towel and begun acting bullish, the biggest bear market in 70 years is here! I have been one of your biggest fans. How can you let the fans down by turning bullish because you expect the Federal Reserve to bail you out? You're acting just like all the other yahoos who have been getting in the way of value investors by bidding prices into the ionosphere. You're just like the politicians you criticize. You flip-flopped! You waffled! You should be a Senator or Congressional representative!

Markets fluctuate. Up to 1995, I pretty much followed my own "Timer's Trend" (now "Timer's Trend" for the NYSE), but would scurry for the safety of cash when stocks became historically overvalued. If you had been reading me then, you would have found that I tried to ride the bull markets, and stay out of the bear markets and crashes, with some success, I might add. This is classic momentum investing, though with the market as a whole rather than individual stocks. This is what everybody would like to be able to do, and what investment letter writers generally advise their subscribers to do, and there's nothing wrong with it as long as the markets remain within historical bounds. If this is "waffling", I expect to do more of it.

Then came the spring of 1995. I felt the psychology was changing, and the Fed was certainly printing money, but stocks were already ridiculously overvalued on a historical basis, and I felt that it wasn't safe for me to chase them with my retirement funds. So I gave split advice - young folks, go for it, if it turns out to be a mistake you have many years to recover. Older folks, it might be wiser to stay with the safety of bonds and "cash".

At the time, I gave only about 15% odds that we would duplicate the pattern and magnitude of the Japanese bubble. I based these odds on the behavior of the Federal Reserve that I'd observed in the 1950s, 1960s and 1980s (especially the 1980s, with Paul Volcker, who killed off the inflationary expectations of the 1970s). It was inconceivable to me that the Fed would be dumb enough to allow a Japanese-style bubble to occur.... surely they would nip it in the bud, as was done in the 1950s.... though I could be wrong, so I assigned 15% odds for a bubble happening.

But this is not your mother's Federal Reserve. Alan "I never met a printing press I didn't like" Greenspan has made an egregious blunder by first permitting, then feeding, the bubble, a mistake for which we will pay dearly sometime in the future. But not just now, in my opinion.

In late 1996, about the time of Greenspan's "irrational exuberance" comment, I advised, everybody out of the pool, systemic risk is too high, a crash could come at any time without warning. This was actually not a bad call, just early. We did see systemic failures in the autumns of 1997 and 1998, but in both cases the Fed rescues were successful and puffed up the bubble to an even bigger girth. There have also been (as far as I can tell) occasional sudden losses of confidence in the markets that the Fed has, to date, successfully kept from turning into crashes with the buying of index futures.

By 1998, I gave up trying to profit from a crash which surely must be just around the corner, through buying index puts or puts on individual stocks. In January 2001 I gave up trying to profit from a crash or megabear which surely must be just around the corner, by riding bear funds. From these aborted efforts, I have learned, I don't have any idea when "around the corner" will arrive. Neither do you, nor does anybody else. The Fed might fail this time around, and it might not. I think it won't, at least for the short term (up to 9 months). You may think it will. Considering the magnitude of the bubble that's now deflating, and historical precedent, I can't fault you for your point of view, it's a reasonable one to take. I just don't agree.

I must say, I wasn't aware I have "fans". That implies I'm a "performer".... which I am not. Look, what you read here is me investing for my satisfaction. What you do with your money is your own business, and if you're disappointed with what I do with mine, that's your problem.

Let me say a little more about "waffling". When the Fed does finally fail, we (like the Japanese) are likely to embark on a decade, maybe two decades, of really awful returns. There certainly will be some playable bounces in those years, similar to Japan in 1999-2000, and I fully expect to play them (indicators permitting) if I expect to have anything greater than a mediocre rate of return during that dismal period. If it's playable, play it, even if you/we are right about the overall environment. Even during the Great Depression, there was a bull market from 1933 to 1936.

Should cause someone to pause, knowing so many bears are turning short-term bullish, to believe they can "dance with the Fed", before the music stops.

It's the only game in town. The Federal Reserve was established in 1913. Since then, there has been only one time Fed easing has failed to revive the economy.... in 1929-33. But in pre-New Deal days, the Fed was concerned primarily with bank solvency, not managing the economy, and our "money" was gold and silver in circulation. It is in post-Depression times that the Fed has come to (attempt to) manage the economy through the money supply, the setting of bank interest rates, and (most recently) the support of stock prices.

Since the Depression (and skipping over WWII, a special situation), the Fed has never failed to revive the economy with its easing. Got that? Never. We have had a granddaddy bear market without a depression, in 1973-74, and a crash without a recession or depression, in 1987. All of the rescues of the economy have been successful, and all of the rescues of the stock market from the 1987 Crash onward have been successful. With a track record like this, it's no wonder that Greenspan & Co. think they can bail us out of any troublesome situation, and no wonder that investors and consumers have come to believe the Fed is infallible.

Will the Fed fail someday? Of course. Is the failure more likely now that we're in the exhale phase of a giant bubble that's deflating? Probably. Is this the time? If it is, your crystal ball is better than mine. I'm more inclined toward the Fed's rescues continuing to be successful until the day arrives when there's a surprise systemic failure that's too big to bail out, then the world's fiat monetary systems will crumble into a heap of ashes. (One should always hold an "insurance" position in gold.)

From an obstinate bear who has been short and buying puts for the last 10 years which has cost me my entire wealth, my sanity, my health and nearly my (other) career and nearly my marriage, a desperate question: Are you still bullish??

Short-term, six to nine months, yes. Stocks will suddenly explode upward sometime this spring as the Fed's money-printing takes hold. One to two years, don't know. I favor the Japanese scenario that I outlined in the last issue, but it is possible the Fed could reignite the bubble and give us another half-decade of obscenely-overvalued stock prices. Long-term, I remain bearish. Disaster lies ahead, can't say just how many years away, and the more rescues the Fed pulls off in the interim, the bigger that disaster will be.

Now if you think this makes me "bullish", well, I would say you have tunnel vision. My top recommendations are: 1. Get completely out of debt, and build up a generous cash reserve (inflation indexed, if possible) for the hard times ahead; 2. Hold an "insurance" position, up to 15% of your liquid assets, in gold or gold stocks; 3. Dance with the Fed.

Look, permabears, my heart is with you - but for the short term, my wallet isn't. Eventually, you (we) will be proved right. There is justice in the economic world; using the printing press to paper over every financial crisis must someday fail - history says so.

QUOTES FOR THE MONTH

Greenspan & Co. are.... inflating the currency. MZM (money of zero maturity, or what economists call 'cash') has been growing since Dec. 11th at a 21.3% annualized rate. Over the last 6 months, the growth of cash has been running at about 4 times the growth of the economy itself. - Bill Bonner

The Fed is pumping away like crazy and of course everyone is expecting additional cuts in interest rates. Wall Street recovered on Friday [February 23] just on Wayne Angell's prediction that the Fed was going to do another surprise rate cut before they meet next month. Heh, heh...why not just cut rates to 0%? Look how well it worked for Japan... - Marc Sexton

Greenspan is clearly determined not to repeat the "inept" policies of post-crash 1929 (and post-bubble Japan, for that matter). Indeed, he believes strongly that it is much better to strike hard and early to combat developing financial crisis. Greenspan "baby steps" are now reserved only for increasing rates. And, actually, Greenspan has in the past made it perfectly clear that he would aggressively add "liquidity" to dampen the economic impact of a pierced bubble. As stated repeatedly, he (erroneously) believes that it is impossible to recognize a bubble until after the fact, but he definitely has had plenty of time to adopt a strategy for dealing with the inevitable bursting. This exercise has now begun in full force. Greenspan's "Great Experiment" has gone to the next stage, not even waiting for a failure of a major financial institution or even significant economic weakness. He now leads us into dangerous and uncharted waters, apparently determined to avoid recession at almost all costs And while General Greenspan has for years planned, strategized and formulated a careful plan of attack, we have a strong hunch he is not all too clear in recognizing the enemy. - Doug Noland

Mr. Greenspan has received a great deal of credit for masterly engineering the economy's expansion at high rates with minimum inflation-and for the strength in all financial markets. He has become almost a cult icon, idolized by stockholders for providing the background for their financial rewards. Two recent very flattering books about the Fed Chairman make him appear almost as a Pope-like figure, that he is infallible. But Mr. Greenspan gets only the same information everyone else gets, only a day or so earlier. He is human, not infallible, and can make mistakes. - Raymond F. Devoe, Jr.

And the recurring nightmare of Fed governors is Americans will suddenly start to act a bit like the Japanese. Instead of spending more than they can afford, they may begin to spend less than they can afford - which will douse the U.S. economic blaze in a matter of weeks. America's economy and stock market, it turns out, depend upon the willingness of consumers to spend recklessly. Any movement towards prudence, no matter how slight, is likely to cause a collapse of sales, earnings, stock prices, employment, and so on. In short, if Americans started to act like the Japanese, the American economy would begin to look like the Japanese model. - Bill Bonner

The most comparable post-war situation is the bubble economy of Japan in the 1980s, during which a capital expenditure boom (also fuelled primarily by debt) reached an unprecedented 25 per cent of GDP at its peak (whereas during most of the post-war period, capital expenditure as a percentage of GDP in Japan was about half this level).... the unwinding generally persists for a long time and proves surprisingly impervious to repeated interest rate cuts. Is this what lies in store for the US economy? - Marshall Auerback

My problem is this: On balance, the stock market does not represent any value, and I think we are headed toward serious economic trouble. A lot of people who used to be bearish are now bullish, for the same group of reasons.... i.e., the market acts well and the Fed is going to save the day. Nobody is truly bullish for reasons that have to do with investment values. Everyone is just playing the game. I don't like to play the game, I have no intention of playing the game, and therefore it makes no sense to try to find ideas that might be suitable investments for the next couple of years when what everyone else is trying to do is trade for the next three to six months. It's a variation on "I know everyone else is going to be buying them, so I'm going to buy them first." If you are going to play that game, you've got to buy the crazy kinky stuff, and not investment ideas. It makes no sense, given what I think is going on and what's going to happen, to try to find suitable investments ideas, because what people are doing is not investing, they are attempting to trade.... At some point there will be an opportunity to be bullish. However, regarding equities in general, after an epic mania like we've seen, I think it's a fool's game to try to go in and catch a little wiggle to the upside because you're going to be more clever than the next guy. For those of you who don't know, that's exactly what happened to a lot of the smart guys in 1930. They didn't get hurt in the 1929 crash, and they went back into the market thinking that all was well, that the Fed cuts would save the day and they got destroyed in 1931, 1932, etc. I'm not saying that we're going to have that same outcome, but something horrible like that is not impossible. - Bill Fleckenstein

American economists readily discard the monstrous U.S. trade deficit and the steep plunge of personal saving as irrelevant to the economy's health.... Quite a few even hail the trade deficit as an emblem of economic strength and dynamism. Since these people are just as illiterate in history as in theory, it is obviously unfamiliar to them that high-growth economies typically run a surplus in their current account, such as America in the 1920s, Germany in the 1950s-1980s and Japan until the late 1980s. And that has an intrinsic cause: a high level of domestic saving. - Kurt Richebacher

What Roosevelt & Co. did was to implement the reigning illusion of the time: that technology and rational central planning could eliminate uncertainty. Government social programs would replace the chaos of tradition and culture. Keynesian fine-tuning would bring economic cycles under control. And the Federal Reserve would manage the currency and prevailing interest rates to ensure stability in the markets. The result - much disputed by economists - was probably to turn a short, swift market break into the biggest economic disaster of the industrial age...and to burden American society with expensive programs from which we have yet to escape. But here we are, in a new millennium, still counting on a pre-WWI idea -- whose central, hidden tenet is that a man's pockets should be picked by the government in exchange for protecting him from his own imprudence and misfortune.... Rather than let people take care of themselves when times are tough - thus requiring them to save money for a rainy day - the government, and Federal Reserve, have encouraged the illusion of a vast umbrella, shielding the public from any major downpour. Since the Roosevelt era, it is believed, there will always be plenty of jobs...plenty of money...plenty of credit...plenty of food and fuel...plenty of everything - as long as you go along with program. - Bill Bonner

And on Friday [February 23] the U.S. Treasury made a very significant hire when it brought Peter Fisher onto its payroll. Fisher is an executive at the New York Federal Reserve, where he has been described as the financial market's "troubleshooter." He's know as the fixer - the guy who controls a covert organization that's been dubbed the "plunge protection team." - John Crudele

On Wednesday, February 7th, Cisco Systems reacted to the prior evening's release of disappointing earnings by trading 281,300,000 shares, an unbelievable 12,000 shares for every second the trading markets were open. Total dollar volume of shares traded was approximately $8.75 billion, theoretically equating to 31.5% of all GDP generated that day.... Again, the stock market offered solid proof that nothing is more important than the market itself and that the stock market IS the economy. Alan Greenspan has confirmed this notion by aggressively cutting interest rates and continuing to act in the role of messiah for all things financial. However, we believe it is far more important to point out that the actions of the Federal Reserve Board got us to this place via a series of decisions that totally ignored reality and history, not only allowing but encouraging the environment for a stock market mania. The repercussions are likely to be worse than already experienced to date and could unfold over a period of several years to come. - Alan M. Newman

Look at Cisco: 4.8 billion shares outstanding in 1995, 7.2 billion today. A 50% increase. Meanwhile, its profit margin has steadily dropped every year; its return on equity is down by two thirds from a superb 30% in 1995 to a miserable 11% today. No wonder the equity holders are getting a smaller return. The company keeps letting employees buy shares for pennies on the dollar and then split the pot with those who paid full price on an even-steven basis. What a scam. - Lynn Carpenter

If the [Federal] budget numbers were prepared on a GAAP basis, the budget would show a deficit. - Alan Greenspan

Young people today are becoming stupid. They're losing the ability to remember new things, to pull out old data or to distinguish between important and unimportant information. It's a type of brain dysfunction.... Errors may occur in the brain's software that have nothing to do with age, but are related to someone's lifestyle, such as not using your brain enough. - Dr. Toshiyuki Sawaguchi [professor of neurobiology. Hokkaido school of medicine]

POLITICAL QUOTES FOR THE MONTH

For the Clintons, politics has always been a giant cash cow. Before coming to Washington, Gov. Clinton of Arkansas had few assets and earned less than a good secretary does in New York. Today, the Clintons have somehow become multi-millionaires on an after-tax, annual presidential salary of about $125,000, in spite of millions of dollars of legal expenses. They accomplished this feat, let's use the right term, by peddling influence, the Rich case being Exhibit A. - Eric Margolis

It's a good thing that the Clintons couldn't fit the Washington Monument in their trunk. They seem to have walked off with everything else that wasn't tied down in our nation's capital. Apparently, it was not enough for them to establish a bridal-like registry to solicit almost $200,000 worth of china, silver and furniture for their Chappaqua and D.C. mansions. Now, we learn that they also helped themselves to $28,000 worth of furniture donated by public-spirited citizens to the White House Permanent Collection. This is not an ethics violation. This is out-and-out theft.... While public outcry has embarrassed them into paying for half of the gifts, the Clintons have made no effort to return the White House property to where it belongs. The saga of the Clinton departure from Washington now enters another lurid chapter. These gifts are not merely taken from friends anxious to curry favor. This furniture represents a clear theft of public property. It is the exact same thing as if the Clintons had removed paintings from the wall of the National Gallery and packed them in their departing helicopter. - Dick Morris

I love liberals. They put up with this guy through perjury, suborning perjury, obstruction of justice, use of the military to cloud discussion of his problems. He steals the toaster and they say, "that's it, we've had it." - George Will

Thus, if nothing else, the ugly nature of the Clintons' leave taking at least guarantees that the ultimate story of their administration won't end up resembling in any way that cartoon fable concocted by their many court jesters--that so-called Clinton haters (most of whom were simply people with a normal aversion to law-breaking and lying in public office) relentlessly persecuted a flawed but essentially innocent and well-meaning president. Rather, it will be about how liberals allowed their ideological hatreds and fears to so blind them that they ended up being cynically used by an undeniably corrupt man for his own personal aggrandizement. All of which might also helps to explain some of the high dudgeon with which liberals are condemning that man now. Perhaps only now recognizing what they have given up in defending the indefensible through thick and thin, and with a partisan desire to begin taking potshots at the inevitable "ethical lapses" of a new Republican administration, they belatedly seek to reclaim some of their lost moral authority at the expense of their former partner in crime. - Bradley R. Gitz

Those who defended Clinton through his ordeal-by-independent counsel had to perform extraordinary contortions of moral and logical reasoning. The piling-on of the past two weeks is the displaced revenge of those who spent years denying the undeniable and defending the indefensible. It's still not the fashion to talk about this. Notice how, in all this outrage over coffee tables and fugitive tax cheats, the news that Clinton had finally acknowledged lying in a court of law sank almost without a trace. In truth, the manner of the Clintons' departure told us exactly nothing that we hadn't known about them before. Their sudden vilification is just the dropping of the other shoe, the anger and the judgment and the disbelief that were willingly suspended by all who helped shore up his presidency. - Marjorie Williams

I fully understand why you are upset that former President Clinton spoke at one of our conferences. We clearly made a mistake. First, the decision did not receive the proper review within the firm. And second, we should have been far more sensitive to the strong feelings of our clients over Mr. Clinton's personal behavior as President. In the past, we have heard from Presidents Reagan and Bush at our conferences, as well as other public figures across a broad political spectrum, and we have paid them speaking fees similar to what we paid Mr. Clinton. But in this case, we should have thought twice before the speaking invitation was extended. Our failure to do so was particularly unfortunate in light of Mr. Clinton's actions in leaving the White House. - Phillip J. Purcell [chairman, Morgan Stanley Dean Witter. Nick's translation: Please, PLEASE, don't close your account with us.]

A special bulletin came on showing the atrocity at Waco and the children. And his [Vince Foster's] face, his whole body slumped, and his face turned white, and he was absolutely crushed knowing - knowing the part he had played. And he had played the part at Mrs. Clinton's direction.... Her reaction, on the other hand, was heartless. I can only tell you what I saw. - Linda Tripp

You ought to be able to leave your land and the bulk of your fortunes to your children and not the government. - Hillary Clinton

Now a really hard question - how much of George Bush's $1.6 trillion tax cut will come in the first year? The well hidden answer is less than 2% - a measly $31 billion.... In fact, after five years down the merry fiscal path of Bushdom, taxpayers will have received only 29% of the $1.6 trillion promised them. At that level of languor, we ought to make the president pay interest on his promise. Of course, some citizens will do better than others. By the time average Americans have received less than a third of their promised cut, George and Laura Bush will have saved themselves, according to a study by Citizens for Tax Justice, $267,200.In further fact, there is no way anyone can predict with reasonable accuracy what the country's fiscal condition will be ten years from now, so the whole idea of a $1.6 trillion tax cut amounts to a rhetorical fraud, one that our servile and slanted press is quite willing to encourage. - Sam Smith

STOCK MARKET OUTLOOK

By the time the recession is acknowledged, we likely will be at its bottom, or possibly well into recovery.... and the stock market will have discounted this well in advance. We have here the classic setup for an explosive advance in stocks.... even the techs might take an upward bounce.... sometime in the spring: Fed in panic mode and printing money like mad, politicians gearing up for a bigger-than-expected tax cut as they panic over the recession, a pallor of gloom and defeat settling over novice investors (yes, bear markets do exist).

But patience is required; it doesn't happen right away after the Fed starts easing. What we get instead are cross-currents, where pessimism depresses prices while interest in, and accumulation of stocks by the "smart money" (as shown in the strengthening of the advance/decline line, which indicates broader market participation) proceeds undetected. Typically, stocks don't really take off until after the third rate cut (March 20, or maybe earlier). Until then, historically they trade a few percent higher to a few percent lower.... this time around, we got lower.

But make no mistake. we're being set up for an explosive turnaround in the stock market sometime in the spring. You want to be on board before it happens, not trying to catch up. You can position yourself now with relative safety, if you avoid the techs and stick with "old economy" or "value" stocks, because this is where the mania will break out next.

Again, be patient. Historically, the stock market doesn't begin to rise significantly until three to six months after the first Fed interest-rate cut.... that means the blastoff will come in April or May, maybe late March if things run a bit ahead of schedule.

And for you permabears who think that it won't happen, that this time it's different, well, we won't have too long to find out which of us is right, will we?

Longer-term, I still favor a "double-dip" (or maybe even a "many dip") recession scenario as something similar to the 1990s Japanese experience unfolds. But my crystal ball grows cloudy here.... I'll have a better feel for this with the passage of time.

Even though I am short-term optimistic on stocks, I remain primarily a bond bull, as you can see from my TIAA-CREF retirement portfolio. We are, I think, still near the beginning of a multiyear bull market in bonds, perhaps as profitable as that of government securities during the Depression or 1990s Japan.

PORTFOLIO REVIEW

A. "Phoenix" -real portfolio, begun on October 1, 1995.

SUMMARY - "Phoenix":

             Original cost (adjusted):   $ 4,998.21
             Present value:              $ 4,274.34
             Increase:                   $  -723.87  [-14.48%]

The performance of this portfolio and its predecessors ("Hedger's Delight", "Present and Future Income", "Crapshooter's Folly") from January 1987 to the present is -3.03%, for a compound annual rate of return of -0.20%.

COMMENT on "Phoenix": Since the last issue, I put part of the available cash into the Third Avenue Value Fund, as "value" stocks are what I expect will be the next category of stocks to leave their moorings when the bubble reflates (to the extent it does reflate). The remaining cash is waiting to buy a busted-tech fund after the NASDAQ has crumbled to the 1500 region. If the NASDAQ doesn't get that low in the next few months, I may buy in at a higher level. Likely candidate for purchase is the ICON Information Technology Fund [ICTEX].

B. "Professors' Investment Group (PIG)" - investment club portfolio.

SUMMARY - "PIG":

             Original cost:         $ 9,024.00
             Present value:         $15,169.03
             Increase:              $ 6,145.03  [+68.10%]

C. Roth rollover IRA - real portfolio, includes commissions:

SUMMARY - IRA:

             Original (1983-86) cost:  $ 8,326.19
             Present value:            $10,865.80
             Increase:                 $ 2,539.61   [+30.50%]

The performance of this portfolio (including its predecessors) from January 1, 1987 to the present is -0.92%, for a compound annual rate of return of -0.05%.

COMMENT on IRA: There is no change from the last issue.

D. CREF Pension plan; I switch between indexed stock/bond/money funds:

Date           Sold            Bought
13Mar1992          stock @ 56.65      MM @ 13.41
29Apr1992          MM @ 13.48         bond @ 31.19
19Jun1992          bond @ 32.14       MM @ 13.55
29Jun1992          MM @ 13.57         stock @ 56.74
24Jul1992          stock @ 56.76      MM @ 13.61
29Oct1992          MM @ 13.72         stock @ 58.61
23Dec1992          stock @ 61.48      MM @ 13.78
16Jan1995          MM @ 14.83         equity-index @ 26.44
20Jan1995          eq-index @ 26.19   MM @ 14.84
30Oct1997          MM@ 17.24          bond@47.56 (27.17%)
30Oct1997          MM@ 17.24          i-i bond@26.12 (27.17%)
11Feb1998          bond@ 48.84        MM@17.52 (27.17%)
11Feb1998          I-I bond@ 26.23    MM@17.52(27.17%)
16Jun1998          MM@ 17.84          TIAA Traditional (45.87%)
23Sep1999          MM@18.99           I-I bond@27.56 (53.32%)
17-18May2000       rate adjustment to 7.25% in SRA
12-13Jul2000       rate adjustment to 7.5% in SRA
8Jan2001           TIAA Traditional   bond@58.62 [22.77%]
8Jan2001           TIAA Traditional   eq-idx@75.79 [4.56%]
1Feb2001           i-i bond@31.78     eq-idx@80.84 [26.76%]
Values, 28Feb2001: stock, 176.41; equity-index, 73.22; MM, 20.69; bond, 59.31; inflation-indexed bond, 32.37; TIAA current yield in SRA, 7.5% (new money at 6.5% through June 30, 2001)

Gain, 1988: 18.91%; 1989: 14.48%; 1990: 8.28%; 1991: 27.93%; 1992: 10.20%; 1993: 3.08%; 1994: 4.07%; 1995: 4.80%; 1996: 5.28%; 1997: 5.38%; 1998: 5.72%; 1999: 5.12%
Gain, January 1 through December 31, 2000: 9.99%
Total gain since January 1, 1988 (13 years): 216.83%
Compound annual rate of return: 9.28%   (My long-term target: in excess of 10%)
Gain shown excludes the impact of additional monthly cash contributions.
Buying CREF stock on January 1, 1988 and holding it gained 503.36%, for a compound annual rate of return of 14.83%.

As of February 28, the investment percentages (at 2/28 unit values) were as follows: TIAA, 18.629%; equity index, 29.591%; bond, 23.505%; inflation-indexed bond, 28.275%.

COMMENT on NYSE "Timer's Trend": The BUY signal on December 22, 2000 is still in effect.

____________________________ NYSE TIMER'S TREND  _______________________________
Tue 19 Dec 00        .  | #.       |10584.37  +.                 *
Wed 20 Dec 00        #  I  .      {|10318.93  +.          *
Thu 21 Dec 00        .  |# .       |10487.29  +.              *
Fri 22 Dec 00        .  |  .#     }|10635.56  |+.                   *
Tue 26 Dec 00        .  |  #       |10692.44  |+.                    *
Wed 27 Dec 00        .  |  . #     |10803.16  |+                        *
Thu 28 Dec 00        .  |  . #     |10868.76  |.+                        *
Fri 29 Dec 00        .# |  .       |10786.85  |.+                      *
Mon  2 Jan 01        .  |# .       |10606.15  | +                 *
Wed  3 Jan 01        .  |  .  #    |10945.75  | .+                         *
Thu  4 Jan 01        .  |  . #     |10912.41  | .+                         *
Fri  5 Jan 00        .  | #.       |10662.01  | +                  *
Mon  8 Jan 01        .  |  .#      |10621.35  | .+                *
Tue  9 Jan 01        .  |  .#      |10572.55  | . +              *
Wed 10 Jan 01        .  |  .  #    |10604.27  | . +               *
Thu 11 Jan 01        .  |  . #     |10609.55  | . +               *
Fri 12 Jan 01        .  |  .#      |10525.38  | . +             *
Tue 16 Jan 01        .  |  . #     |10652.66  | . +                *
Wed 17 Jan 01        .  |  . #     |10584.34  | .  +             *
Thu 18 Jan 01        .  |  . #     |10678.28  | . +                 *
Fri 19 Jan 01        .  |  #       |10587.59  | . +              *
Mon 22 Jan 01        .  |  . #     |10578.24  | . +              *
Tue 23 Jan 01        .  |  .   #   |10649.81  | .  +               *
Wed 24 Jan 01        .  |  . #     |10646.97  | .  +               *
Thu 25 Jan 01        .  |  . #     |10729.52  | .  +                 *
Fri 26 Jan 01        .  |  .#      |10659.98  | .  +               *
Mon 29 Jan 01        .  |  .  #    |10702.19  | .  +                 *
Tue 30 Jan 01        .  |  .  #    |10881.20  | .  +                      *
Wed 31 Jan 01        .  |  . #     |10887.36  | .  +                      *
Thu  1 Feb 01        .  |  .  #    |10983.63  |~.~~+~~~~~~~~~~~~~~~~~~~~~~~~~*
Fri  2 Feb 01        .  |  #       |10864.10  | .  +        *
Mon  5 Feb 01        .  |  . #     |10965.85  | .  +          *
Tue  6 Feb 01        .  |  . #     |10957.42  | . +           *
Wed  7 Feb 01        .  |  #       |10946.72  | . +           *
Thu  8 Feb 01        .  |  .#      |10880.55  | . +         *
Fri  9 Feb 01        .  |  #       |10781.45  | . +      *
Mon 12 Feb 01        .  |  .  #    |10946.77  | . +           *
Tue 13 Feb 01        .  |  .#      |10903.32  | . +          *
Wed 14 Feb 01        .  |  #       |10795.41  | . +       *
Thu 15 Feb 01        .  |  . #     |10891.02  | . +         *
Fri 16 Feb 01        .  |# .       |10799.82  | .+        *
Tue 20 Feb 01        .  |# .       |10730.88  | +       *
Wed 21 Feb 01        .  &  .       |10526.28  |~+~*~~~~~~~~~~~~~~~~~~~~~~~~
Thu 22 Feb 01        .  &  .       |10562.61  |+.             *
Fri 23 Feb 01        . #I  .       |10441.90  + .         *
Mon 26 Feb 01        .  I  .  #    |10642.53  |+.               *
Tue 27 Feb 01        .  I  #       |10636.88  |+.               *
Wed 28 Feb 01        .  I  .#      |10495.28  | + *-------------------
======================================================================== 

COMMENT on NASDAQ "Timer's Trend": We currently have a SELL signal on February 7, 2001. The NASDAQ remains in bear mode as the techs disappear to near-oblivion.... stay away.

____________________________ NASDAQ TIMER'S TREND  ____________________________
Tue 19 Dec 00    #   .  I  .       | 2511.71 @|~*~~~-~~~~~~~~~~~~~~~~~~~~~~
Wed 20 Dec 00   #    .  I  .       | 2332.78 @|~.~~*~-~~~~~~~~~~~~~~~~~~~~~
Thu 21 Dec 00      # .  I  .       | 2340.12 @|.    -       *
Fri 22 Dec 00        .  &  .       | 2517.02  |.  -                 *
Tue 26 Dec 00       #.  I  .       | 2493.52  |.  -                *
Wed 27 Dec 00        . #I  .       | 2539.35  |. -                   *
Thu 28 Dec 00        .  &  .       | 2557.76  |-                      *
Fri 29 Dec 00        .  I  #       | 2470.52  |-.                  *
Tue  2 Jan 01      # .  I  .       | 2291.86  | -         *
Wed  3 Jan 01        .  I #.       | 2616.69  |-.                        *
Thu  4 Jan 01        .  I# .       | 2556.83  + .                     *
Fri  5 Jan 00       #.  I  .       | 2407.65  |-.               *
Mon  8 Jan 01        #  I  .       | 2395.92  | -              *
Tue  9 Jan 01        .  I# .       | 2441.30  |-.                *
Wed 10 Jan 01        .  |  #       | 2524.18  |-.                    *
Thu 11 Jan 01        .  |  .   #   | 2640.57  + .                          *
Fri 12 Jan 01        .  |  #       | 2626.50  | +                         *
Tue 16 Jan 01        .  |  .#      | 2618.55  | .+                       *
Wed 17 Jan 01        .  |  .  #    | 2682.78  |~.~+~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Thu 18 Jan 01        .  |  . #     | 2678.49  |~.~~+~~~~~~~~~~~~~~~~~~~~~~~~
Fri 19 Jan 01        .  |  #       | 2770.38  | . +             *
Mon 22 Jan 01        .  |  #      }| 2757.91  | . +             *
Tue 23 Jan 01        .  |  .  #    | 2840.39  | . +                *
Wed 24 Jan 01        .  |  . #     | 2859.15  | . +                 *
Thu 25 Jan 01        .  #  .       | 2754.28  | .+              *
Fri 26 Jan 01        .  |  .#      | 2781.30  | .+                *
Mon 29 Jan 01        .  |  .  #    | 2838.34  | . +                *
Tue 30 Jan 01        .  |  .#      | 2838.35  | .+                 *
Wed 31 Jan 01        .  |  #       | 2772.73  | .+              *
Thu  1 Feb 01        .  |  .#      | 2782.79  | . +             *
Fri  2 Feb 01        .  #  .       | 2660.50  | .+         *
Mon  5 Feb 01        .  |# .      [| 2643.21  | +         *
Tue  6 Feb 01        .  |  .#      | 2664.49  | +          *
Wed  7 Feb 01        . #I  .      {| 2607.82  |+.        *
Thu  8 Feb 01        .  I# .       | 2562.06  |+.     *
Fri  9 Feb 01        #  I  .       | 2470.97  +~.~*~~~~~~~~~~~~~~~~~~~~~~~~
Mon 12 Feb 01        .  I #.       | 2489.66  + .            *
Tue 13 Feb 01        . #I  .       | 2427.72  |-.         *
Wed 14 Feb 01        .  I #.       | 2491.40  + .            *
Thu 15 Feb 01        .  I  .  #    | 2552.91  |+.               *
Fri 16 Feb 01      # .  I  .       | 2425.38  + .         *
Tue 20 Feb 01      # .  I  .       | 2318.35  |-.   *
Wed 21 Feb 01      # .  I  .       | 2268.94  |~-~*~~~~~~~~~~~~~~~~~~~~~~~~
Thu 22 Feb 01       #.  I  .       | 2244.96  | .-         *
Fri 23 Feb 01        #  I  .       | 2262.51  | .  -        *
Mon 26 Feb 01        .  I #.       | 2308.50  | .-            *
Tue 27 Feb 01      # .  I  .       | 2207.82  | .-       *
Wed 28 Feb 01       #.  I  .       | 2151.83  | .-  *--------------------------
======================================================================== 

NEXT ISSUE - will appear about March 31.     /Nick Chase