History says the Dow's future looks good with Republican Congress

The Dow has risen an average 10 percent annually when Republicans controlled Congress, as they do now, reports Stock Trader's Almanac Investor newsletter (184 Central Ave., P.O. Box 2069, Old Tappan, NJ 07675). "That contrasts with a 7.8 percent return when the Democrats ran the Hill. When Republicans have control of both the Congress and the White House, the Dow has gained an average 9.3 percent annually, vs. 8.4 percent when Democrats ruled both branches."

-- FPA Crescent Fund is a "moderate allocation" fund. That means it tries to divide some of its risk among different asset classes. But unlike most such funds, Crescent, which has produced 13 percent average gains over the past decade, avoids big blue chips, preferring small companies with very cheap valuations. It also rarely keeps more than 20 percent of its assets in bonds. Recent favorite stocks: Assurant, Big Lots, Charming Shoppes, Ensco International, National Oilwell, Trinity Industries.

-- Susan Kalla of Friedman Billings Ramsey was probably Wall Street's most skeptical telecom analyst in 2000-'01. She rated telecom stocks "underperform" in the fall of 2000, when everybody else was still touting them, and saw them fall 60 percent to 80 percent within a year. Kalla isn't quite as bearish now, but she's not very enthusiastic either. Her two favorite stocks: Cisco Systems, which "still owns the market for routers," and Zhone Technologies, a small company that sells fiber-optic transmission systems to local telephone companies.

-- No smart stock investor likes to pay a lot for earnings. But often such a stretch is more than justified when those earnings are rising exceptionally fast and seem likely to keep rising. Kiplinger's Personal Finance Magazine (1729 H St. NW, Washington, DC 20006) recently recommended the shares of five companies whose high price-earnings ratios it believes are justified by even higher growth rates and very promising niches in their individual industries: Cutera, HealthExtras, Ixia, PetMed Express, TradeStation.

-- If you're considering investing in closed-end bond funds, be prepared for significant volatility, advises Annette Thau, author of "The Bond Book" (McGraw-Hill, $30). "If interest rates rise, such funds suffer a triple whammy. First, the price of individual issues in the portfolio declines as a result of rising rates. Plus the funds' discount to net-asset value widens. And for leveraged funds, the interest cost of borrowing on margin rises. In 2004, as interest rates rose, many closed-end bond funds suffered declines of 10 percent in a matter of weeks."

-- The weaker dollar has accounted for 70 percent of gold's recent gains, says Stephen Briggs, a metals economist at SG Corporate and Investment Banking. "If the dollar turns around, as we think it will, gold prices should sink. Physical demand for jewelry and coins has been falling as the price has risen. Sooner or later this will undercut gold prices, as it's done time and time again."

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Investor's Notebook is a digest of investment opinion from the world's leading financial advisers. 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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