y investment philosophy is very simple. You have to roll with the economic punches and be very careful of the playing field because the political-economic policies that have been in place for the last 34 years are very flawed. These trends and events have made an investment climate that deserves caution.

On specific investments such as stock and bond selections, I believe in the following: Diversification, using conservative parameters for evaluations, and paying attention to company or economic statistics and not management. I like to see both growth and value in an investments future.

I have learned the hard way that being patient, not overpaying for an investment and admitting mistakes early are very good guidelines. The real work is looking for winners…. and to do so one must always stay with winning managements, winning companies, and winning industries.

As far as today’s investment environment, there should be no doubt about future financial trends.  The basic fundamentals are simple:

• Excessive budget deficits
• A weak dollar
• Trade deficits approaching $700 billion
• Artificial low interest rates
• An expensive war on terrorism

These are all going to create investment problems and opportunities in the future. Many of the above factors reinforce and cause some of the other factors to exist.

The U.S. economy is still chugging along, but this is due to the artificial low interest rate environment created by the Federal Reserve Bank to keep the wheels going, until after the 2008 elections.  When interest rates are this low, they have nowhere else to go but eventually up.

Interest rates are being artificially kept low by unusually strong Fed intervention. The Fed now has a massive $652 billion U.S. Government Security Portfolio. This was purchased with created money, a privilege they have been granted by politicians. Money creation from nothing is always a disruptive monetary mechanism and in the long term always creates inflation.

Low interest rates caused by decades of monetary injections in the U.S. may still move the economy along and help corporate profits for a few more years…. but this has been an artificial stimulant….and the hangover will be much higher interest rates and  inflation.

The solution is to be conservative with your money. Even with a lot of horrible things going on politically and on the economic front, the world still turns, people still have to get up in the morning and eat breakfast…. so the guys making the corn flakes make money and they go buy gas and the gas station owner buys golf clubs and the golf club manufacturer pays people at the plant and they stay at the Hilton and the Hilton replaces the pillows and the pillow maker takes his pay and goes to the movies… etc.etc.etc.

So don’t worry about the economy falling apart… it will slow down, but keep going. But be very careful of where you invest your money. Real estate is most likely overvalued and a product of artificial low interest rates. The name of the game now is to intelligently invest but keep a high priority on wealth preservation.

Kenneth J. Gerbino