FREQUENTLY ASKED QUESTIONS

Q: What guides your overall investment outlook? It seems like The Wall Street Digest holds a fairly optimistic tone in both bull and bear markets.

A: One thing about the stock market has always remained true:

“There will always be bull markets followed by bear markets followed by bull markets.” - Sir John Templeton

The bear market that began in March of 2000 ended on March 12, 2003, with astonishing profits ready to be made by investors who demonstrated a willingness to go back into the market while others remained sitting on the sidelines in fear.

Interestingly, our most recent and painful bear market followed the longest bull market in history. That major bull market began in August of 1982 with the Dow Industrial Average at only 777. Falling interest rates and declining inflation ignited the first leg of that bull market. Sound familiar?

The second leg of the most previous bull market began in the fall of 1989 with the collapse of communism when the Berlin Wall was torn down. Most nations in Europe and Asia switched from a Cold War political strategy that spent billions on defense to an economic strategy as a means to produce continuous economic growth. Properly executed, this strategy builds the wealth of a nation and the net worth of its citizens by producing a stable economic environment. The collapse of communism was the single most important economic event of the 20th Century.

The third leg of what is generally recognized as our most historic bull market of all time began in 1994 when Congress ratified the North American Free Trade Agreement (NAFTA) and the General Agreement on Trade and Tariffs (GATT). Falling trade barriers and the elimination of tariffs produced faster economic growth around the globe. The ratification of NAFTA and GATT was the second most important economic event of the 20th Century. And, on July 28, 2005, Congress passed the Central American Free Trade Agreement (CAFTA).

When The White House and Congress refused to regulate the Internet, America raced into The Information Age. An explosion of technology accelerated economic growth and stock prices exploded in 1995, 1997 and 1998. Despite our current financial crisis, the USA is—and will continue to be—a high technology, computer, software, information, Internet-based telecommunications economy.

The Internet has changed the way the world communicates and conducts commerce around the globe. An explosion of Chinese logging onto the Internet will eventually free China from the shackles of communism and corruption. The explosion of eCommerce has already accelerated global economic growth.

Q: Why is it that when short-term interest rates fall, long-term rates do not necessarily fall? Please explain the relationship between the two and any correlation, if such exists.

A: Thirty-year bond prices and, hence, yields, are set by the free markets, not the Federal Reserve. Bond prices change minute-by-minute—even, second-to-second—depending upon supply and demand. Changing economic conditions around the globe cause bond traders to sell if they feel various events are inflationary. Selling bonds will push bond prices lower. As a result, yields move higher to compensate for the loss of value caused by perceived inflationary event. If traders feel various events are positive for the bond market or non-inflationary, bond yields will fall and bond prices will go up. Market interest rates have a historic tendency to rise in the first quarter and then fall for the balance of the year.

The Federal Reserve has no control over 30-year bond yields. The Fed uses the Federal Funds Rate (the overnight lending rate between banks) to execute monetary policy. If the Fed wants to tighten monetary policy for the purpose of slowing economic growth, the Federal Funds Rate will be raised. If the Fed wants economic growth to expand, the Federal Funds Rate will be lowered—as we experienced from 2001 to 2003, where the resulting one percent Fed Funds rate remained until the Fed again began raising the Fed Funds Rate in quarter-point increments in late-2004, and ending two years later in late-2006.

The current financial crisis has caused the Fed to aggressively lower rates again.

Q: Please explain the meaning of the Sales and Earnings percentages in your Buy Signal Bulletins. For example, does Sales 57% and Earnings 200% indicate a feasible increase in stock value?

A: A recommended stock and its symbol followed by Sales 57% and Earnings 800% indicates that the Company's sales were up 57% and earnings were up 200% for the most recently reported quarter. Sales and earnings results are from several sources, including The Wall Street Journal, Investor's Business Daily, Bloomberg, Zacks' Investment Research and Daily Graphs. These figures are usually adjusted minutely from time-to-time after an accounting firm audits the Company's figures.

Q: You list a date on each of the stocks in your "Recommended Stocks" list. Is there some place I should be reading for the most current recommendations, or are the recommendations sent via e-mail? And if so, how often are e-mail notices sent out?

A: You should make it a point to read The Wall Street Digest as soon as possible after we send you an e-mail notice that the newest issue is available online. (A link to our home page is always included in the "Current Issue Now Online" message.)

Subscribers to the online version of The Wall Street Digest receive a Hotline Update via E-mail every Tuesday and Friday by 6:00 p.m. EST. Interim Hotline Updates are sent whenever the Dow Industrial Average closes 300 points or more in either direction in a single session. In addition, Special Investment Alerts are sent to advise subscribers of outstanding buying or profitable selling opportunities that may occur outside of our normal Hotline Update E-mail schedule.

If you are traveling or unable to gain access to your E-mail account, you may call The Wall Street Digest's Telephone Hotline. The Telephone Hotline schedule is identical to our E-mail and Web site Hotline Update schedule. The Telephone Hotline phone number changes from time-to-time; however, subscribers to The Wall Street Digest may call 941-954-5500 for the current number.

Q: How do you recommend starting an investment program? By purchasing stocks only as they are recommended or by investing in the "Recommended Stocks" list, regardless of how long it has been since they were initially recommended?

A: In order to become fully invested, new subscribers may purchase stocks from the "Recommended Stocks" list in the current issue of The Wall Street Digest and from the "Great Stocks to Purchase Now" recommendations shown in The Digest and also released on our Hotline Updates and Special Investment Alerts.

IMPORTANT NOTE: Never take new equity positions during volatile market conditions without first consulting the current issue of The Wall Street Digest and, most importantly, all subsequent Hotline Updates and Special Investment Alerts. We will always keep you informed as to our latest recommendations in these important updates.

Q: I notice your information on the "Recommended Stocks" list shows the date the stocks were recommended and the purchase price. Where and how do you list current recommendations?

A: We recognize your need to know about new stock recommendations in a timely manner. Our Hotline Updates and Special Investment Alerts will always keep you informed of our latest recommendations.

Q: When you recommend that certain stocks be bought on "pullbacks," exactly how do you define a pullback?

A: Purchasing shares on pullbacks means to purchase or add to your holdings anytime the recommended stock experiences a pullback in price. For example, any day the Dow drops 100 to 200 points or the Nasdaq drops 90 to 100 points in the middle of a bull market would be a great buying opportunity for investors.

IMPORTANT NOTE: Never take new equity positions during a bear market, a major correction in a bull market or whenever other volatile market conditions exist without first consulting the Hotline Updates or Special Investment Alerts for our current recommendations.

Q: I'm considering borrowing money from a bank to fund an IRA. Is interest paid on a loan to fund an IRA tax-deductible?

A: Not to my knowledge, but don't let that stop you. Everyone should have an IRA. Be sure to fund your IRA on the first day of every year.

Q: Why do you publish comments from other publications in The Wall Street Digest? Do you agree with their opinions? Please explain the significance of these opinions.

A: Unless otherwise stated, The Wall Street Digest agrees with the views of quoted publications. Our policy of quoting other financial publications helps to more fully describe the condition of the markets and the economy. Hopefully, this will help you make better investment decisions.

Q: You often refer to the MZM or the M3 money supply. What do these terms mean?

A: The M3 money supply is the broadest category of the nation's money supply, i.e., a combination of all of the nation's money supply, including the M1 supply (money in circulation, such as cash and checking accounts), the M2 supply (90-day Treasury notes, etc.), and the MZM supply (cash and money at zero maturity). As a rule, the higher the number, the less liquidity, so the M3 money supply also includes all debt (mortgages, credit cards, loans, etc.).

Q: What is the Smart Money Index? Can it actually move the market?

A: The Smart Money Index is one of the market's most reliable technical indicators. Watch what the Smart Money is doing and you can easily forecast where the stock market is headed.

The Smart Money does not buy or sell stocks at the opening bell. Traders reacting to what happened overnight in Asia and Europe account for most of the needless volatility in the futures before the market opens. Over the long-term, events that unfold in Europe and Asia have very little influence on corporate profits in America. The bottom line for American investors is rising corporate sales and profits. Most everything else is noise.

Very often, economic news is inaccurate, or has very little effect on corporate sales and profits. Even so, market volatility is caused by emotional, knee-jerk reactions of traders in the trading pits. During the day, the stock market either over-reacts or reacts improperly to the news. Stock prices usually fall between 11:30 and 2:30 EST because the traders go to lunch and leave the market vulnerable to the short sellers. If stock prices are falling between 3:00 and 4:00 EST, you know that the Smart Money is selling and it is time for you to run for cover. If stock prices are rising relentlessly between 3:00 and 4:00 everyday, a bull market is underway.

The Smart Money waits until 3:00 to either sell or bargain hunt. You've heard the expression, "Never fight the Fed." The same warning applies to the Smart Money. If you are buying when the Smart Money is selling, you are on the wrong side of the market. This is always very costly.

The Smart Money Index is explained in detail in Don Rowe's special report, “The Smart Money Index has a Perfect Record of Correctly Forecasting Every New Bull Market!”

Q: Can you explain why exchange-traded funds have become so popular?

A: Say you want to own a lot of stocks, but don't have the time to carefully track each of them. Also, you know the cost of multiple trades can add up quickly.

In the past, your best bet was to purchase a mutual fund. Thanks to the emergence of exchange-traded funds (referred to as ETFs), however, investors now have a better, more efficient way to invest in groups of stocks.

Many ETFs track an index, giving people access to a big basket of stocks. For instance, the Standard and Poor's Depositry Receipts are based on the S&P 500 indexes, the Diamond Trust on the Dow Jones Industrials, and the QQQQ on the Nasdaq 100. The ETF universe also includes bonds and commodities, as well as funds that track other countries' indexes.