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       Investor's Insight - Friday, January 20, 2006           
          "A Digest of Investment Opinion From the 
             World's Leading Financial Advisers"


Comment The Post Below...

by Scott Burns

Q: My wife and I have about $320,000 of investments. About 
a third of that amount is invested in two royalty investment 
trusts. One is oil-based, and the other is in natural gas. 
Even after the recent dunking the energy market has taken, 
we are still 20 percent above water on these.

Obviously, we are completely unbalanced in the portfolio, 
but we are addicted to the dividends. I took early retire-
ment at 55. I am now 62 and my wife is 55. The negative I 
have heard from my adviser is we are "heavy into a 
depleting resource."

At our age, I think we will have left this world before 
anyone should worry about the "depleting resource." What 
do you think? -- D.M., Seattle


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A: Actually, you and your wife have a combined life expect-
ancy of 32.9 years, meaning that one of you is likely to 
live that long. So you're not exactly "here today, gone 
tomorrow." In rap star lifetimes, your joint expectancy is 
forever. So you should be concerned about energy depletion 
over the period. 

Fortunately, the news isn't all bad: Higher energy prices, 
within limits, work to increase the amount of recoverable 
energy in a field because it will pay to invest the addi-
tional money to extract more energy.

Another way to rationalize your position is that your 
energy investment is a bond substitute of sorts.

Even so, you've got a very big commitment to energy and 
should reduce it.

Q: It appears to me the Federal Reserve is controlling 
inflation by controlling interest rates. If this is true, 
could a rogue Fed actually induce hyperinflation or de-
flation? -- H.C., Dallas

A: While the Fed is seen as our inflation fighter, it's 
no longer clear whether Federal Reserve actions have much 
effect on inflation as we usually see it. Recent interest 
rate increases may have an effect on asset inflation 
(think houses), but it appears to have little influence on 
the cost of inexpensive foreign goods, which are a source 
of deflation. It also seems to have little influence on 
domestic services, which are a source of inflation.

Our central bank, like all central banks, has the power 
to increase or decrease the supply of money. But I doubt 
we'll ever see a "rogue Fed."

What some fear is a reserve bank that helps the federal 
government finance perpetual deficits by monetizing more 
and more debt. It's notable that Richard Fisher, presi
-dent of the Dallas Federal Reserve Bank, has repeatedly 
stated in speeches that it is important that the Fed NOT 
monetize federal debt.


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Q: My wife and I are having an ongoing discussion about 
the benefits of using a credit card every time we buy 
something. We have been advised that the "free" mileage 
and other related benefits far outweigh the cost of the 
card. I say that it is a bit of a scam. My wife says I'm 
a bit on the wrong side. What do you say? -- R.I., San 

A: If you think of airline miles as a form of currency, 
the currency has been losing its value rapidly. Using 
the currency has become more difficult, and the number 
of miles needed to get a "free" flight has in-

For most people, the value obtained by using a credit 
card is completely offset by interest payments on out-
standing balances and purchases that would not have been 
made if it had been necessary to pay cash, write a check 
or use a debit card.

If you have trouble paying your monthly charges, have a 
lot of consumer debt, or fall short on your savings goals, 
you should reduce or limit the use of credit cards. If 
you pay no interest on credit card debt, have little other 
debt and are meeting your savings goals, your credit card 
is "convenience cash," and you should collect travel rewards.

(Investor's Insight reflects the opinions of experts. It does 
not recommend any specific investments, and no endorsement is 
implied or should be inferred. For more information, contact 
the individual firms cited).



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