As we begin the new year, we have already been in a recessionary mode for the past two quarters. The stock market which dropped 7.1% in 2001 has already fallen another 6% in 2002. The Federal Reserve has made numerous attempts by dropping rates to head off the contracting stock market. Real budget deficits are spiraling after our government has projected major surpluses for the next decade. Major corporations (i.e., Enron and K-Mart) are in bankruptcy costing millions of investor's pension plans and institutions billions of dollars. Unemployment is soaring and it will most likely continue to soar throughout the year. Yet, we still see the Fed's trying to put a spin on our devastating economy by stating it will turn around by mid year. In my opinion, it is time all investors look at things the way they really are - not the way they wished they were.

As we look at the indicators for the year 2002, Turamali, Inc. continues to believe that a well-diversified portfolio is a must. 2002 should be the least aggressive year we've had in more than a decade for all investors as the probability of turmoil and more bad economic news will increase throughout the first half of 2002 (at least).

INTEREST RATES
Perhaps the most amazing indicator of where investments are headed during 2002 was actually given to us by interest rates in 2001. On January 3, 2001, the federal discount rate stood at 6%. Ten cuts later, the discount rate was down to 1.5% and the stock market dropped over 7%. Think what might have happened to the stock market if interest rates hadn't been brought down in the most abrupt manner in American history. The bond market had a hey day; but unfortunately there's not much room for interest rates to go down. In fact, I believe interest rates will probably have to go up a bit later in the year.

As we watch stocks, in particular, the interest rate factor won't be there to help as it was in 2001. For that reason, I think you will see a drop in the market and I'll elaborate on this a bit more later. In the first half of the year, expect interest rates to remain fairly steady and expect a lot of hype to come out about an improving economy.

The direction of interest rates should be slightly up, unless the economy turns downward much worse than it is now. The prime interest rate and mortgage rates have most likely bottomed.

THE DOLLAR
The direction of the dollar has entered its most important period than anytime in the last 20 years. Oil producing companies are now demanding payment in the EURO. The dollar has dropped against the new EURO and the British pound. These events have helped drive gold upward over $20 per ounce in the past five months. As the Federal Reserve faces tremendous decisions on printing money to monetize the deficits and the cost of the war at a time when Europe is trying to take over as the largest economy in the world. With twelve countries already in the EURO, they only need England to reach the goal of being the largest economy in the world. We believe England will join in by the end of the year. Further, England will make a sizable profit on its currency when it turns it in (by accepting the new EURO as its currency). One of the problems England has had in joining the EURO has been the $1.82 in public and private debt that the new European currency represents while England itself is in much better shape. By waiting, England believes they will make a windfall off of their currency and will actually get the value of their currency based on their public/private debt as opposed to assuming the debt of all the countries. Both the EURO and the British pound should be in every investment portfolio in the form of a foreign CD or in physical currency. (As a reminder, the 12 countries are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Portugal, Netherlands, and Spain. Additionally for your information, the new EURO bank denominations are 5, 10, 20, 50, 100, 200, and 500). In short, we believe the dollar will drop for the first time since 1997.

RECESSION
One year ago as I penned this newsletter, I was predicting a mild recession for 2001. The terrorist's acts of September 11th, however, turned that mild recession into a moderate one - due simply to the tremendous amount of money that is and will be spent in the war. Further, unemployment rose higher than anticipated driving many out of jobs. The recession that is now about three quarters old will most likely continue throughout 2002. The harder job is to try to predict if it will be more of a milder recession or if the economy will turn down dramatically. I must admit that at this point, given the situation in Argentina, the huge budget deficits that were expected to be surpluses just 24 months ago, the situations with Enron and K-Mart, soaring unemployment along with the falling stock market, leads me to believe this recession will turn into one that decreases the growth of our economy 2-3% (which would be classified as moderate). As we watch the confidence of the consumer, this may determine how bad this recession actually gets. Our advice, therefore, is to be very cautious. Lean toward the conservative side in all investment strategies.

STOCKS
As mentioned above, the DOW was down 7.1% for 2001. I believe this trend will continue and my prediction for the year is that the DOW will go down more than 15%. While this might be considered a bold prediction, the factors listed above will impact the decisions made by investors. When Enron's stock dropped from $90 to 26 cents per share, over $66 billion in capital was lost. It is the largest bankruptcy in U.S. history. With K-Mart's filing this week, other corporations will be following suit and bankruptcies may become commonplace. Three other major corporations fell last year that were household names (Bethlehem Steel, Phar-Mor, and Polaroid). In 2002, in addition to K-Mart, I suggest watching Xerox and Ford Motor closely. I read an article recently that stated over 1400 publicly traded companies were on the verge of bankruptcy. It is important to review one's stock portfolio and move into safe areas. One year ago, we predicted corporate earnings would go down and we are predicting again that the same will follow for 2002. Last year earnings fell between 5% to 10% after eight years of positive earnings. This is another factor that will cause the price of stocks to fall. But remember, the key is that the Fed's cannot lower interest rates enough to head off any sell-offs as they did last year. For that reason, we are predicting the DOW will fall in excess of 15%.

ASSET ALLOCATION MODEL
In adjusting C&A's asset allocation model for the first half of 2002, we are assuming a very conservative posture since we believe the probability of a moderate recession is likely during 2002. Remember when building an asset allocation model according to Ecclesiastes 11:2, the mandate is first to be good stewards by diversifying, allowing the time to serve God and not be completely caught up in worshiping our investments. The second, of course, is to make a profit realizing that every area cannot and will not always go in the same direction. The hypothetical asset allocation model below is being offered for the first six months of 2002:

For the next six months, C&A's hypothetical asset allocation model is as follows:
Stocks (U.S. and Israeli only) - 15% to 25%
Gold Mining Stocks - 3% to 8%
Fixed Income (bonds and annuities)- 30% to 40%
Foreign Currency (foreign bonds and physical
currency) - 20% to 25%
Tangible Assets (precious metals, gemstones, rare coins
and historical documents) - 15% to 25%
Cash - 15% to 25%
Real Estate - 10% to 15%

*While the above asset allocation model is designed to help balance risk and give investors security, C&A strongly recommends consulting with your own personal financial advisor before making any type of change to your personal, retirement, or profit sharing portfolios.

FURTHER CLARIFICATION
(1) Stocks - The Israeli situation could change at any time. The stock market is undervalued based on the events of the past 18 months. Turamali, Inc. also believes that other foreign stocks and mutual funds should be considered based on our projection that the European community will get stronger.
(2) Gold Mining Stocks - Every investor should increase his holdings here given the past year's outstanding performance. Many gold mining shares rose 10% to 25%. We continue to recommend American Century's Global Gold Fund at (800) 331-8331, INVESCO Strategic Gold Fund at (800) 525-8085, or Franklin's Gold Fund at (800) 342-5236.
(3) Fixed Income - Part of a fixed income portfolio can be positioned into fixed annuities which are paying 5.5% or better currently. Part should be placed into domestic bonds or domestic bond funds. While interest rates can't fall much further, the bonds and bond funds still offer a deep recession hedge and should be kept in your portfolio.
(4) Foreign Currency - This area may be the most intriguing, as we look at all the reasons the dollar could drop in 2002. In addition to owning the EURO, we also recommend British pounds and possibly Swiss Francs. Investors can also buy foreign bonds by investing in the American Century International Bond Fund (1-800-345-2021).
(5) Tangible Assets - The bulk should be positioned into gold and silver. Turamali, Inc. feels that both gold and silver will enjoy another profitable year. While platinum has dropped back, we do recommend it as a small part of one's tangible portfolio. Maybe the most under rated tangible asset continues to be colored diamonds. These stones are available at "below wholesale" prices which are coming from Israeli cutters who are liquidating to pay bills. We have also seen a small spike in several rare coins and are once again recommending them.
(6) Cash - With all the uncertainty, your cash holdings should be increased until a more clear direction is seen in interest rates, stocks, and bonds. As we mentioned in July, one cannot use standard commercial paper money markets to get higher rates than are generally offered by Treasury bill money markets. Again, keep that cash basket a little higher for the next six months and be ready to take advantage of any market opportunities.
(7) Real Estate - Real estate should continue to represent the same percentage of your holdings as we recommended last year. While real estate is not climbing at the rates of the past several years, there are still opportunities in REITS, select rental properties along with standard duplex investments.

CLOSING REMARKS
Turamali's next newsletter will focus on an in-depth look at tangible assets. It will be published during mid to late March.

Also, as an update on my radio show that has been aired for about six years, we are now negotiating to have my radio show returned to the air by March 1st. As details are ironed out, we'll keep you posted as to when and where it will be aired. I appreciate the calls and notes from those of you who have been missing it!

Finally and as always, for those of you with specific questions regarding the foreign currency and tangible asset areas we handle, please feel free to call to request a 30 minute telephone consultation. To arrange that call, simply phone us toll free at (800) 247-2812 and our receptionist will schedule a mutually convenient time for us to talk.