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RATE HIKES ARE WATERSHED, EXPERT SAYS

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In retrospect, we'll probably see that the Fed's recent interest rate hikes were a watershed for both the bond and stock markets, says Laloggia's Special Situations Report (P.O. Box 167, Rochester, NY 14601). "The extreme weakness in utility stocks since last September is a warning that rates are going much higher than expected. We're now on the other side of the financial watershed. At best, we expect a choppy, trendless market with a downside bias. At worst we could experience a severe downturn."

- Columbia Growth Fund, which has appreciated an average 18.2 percent annually over the past 15 years, takes a strict top-down approach to stock-picking. First it decides which sectors will benefit most from the near-term economy, then it buys stocks in those sectors that have dominant positions, increasing product demand and strong unit-sales growth. It prefers paying a premium for top companies than bargain-hunting for average companies. Recent favorite stocks: Circus Circus, Abbey Healthcare, Toys R Us, Medtronic, UST, Hewlett-Packard.- Very few mutual funds invest exclusively in real estate stocks. Of those that do, even fewer invest extensively abroad. One that does, Evergreen Global Real Estate, has risen 45 percent in the past five years in a generally shaky real estate environment. Evergreen believes foreign real estate stocks have a lot of profit left in them as foreign economies rebound from recession. Among its favorites: Kampa-Haus (Germany), Maculan-Holding (Austria), Asiatic Development (Malaysia), Tachihi Enterprise (Japan), Shangri-la Asia (China).

- Since 1980, 1,600 firms have appeared on Forbes' annual list of America's best small companies. But only six have appeared five or more times. All six sport returns-on-equity of at least 12.5 percent over the past 12-month and five-year periods. And the earnings of all rose at least 10 percent in the past 12 months. The six: Forrest Labs (10 years), Arnold Industries (nine years), Tootsie Roll (eight years), Frontier Insurance (seven years), Heartland Group (seven years), Nichols Research (five years).

- Interest rates have risen to the point where long-term Treasury yields are now 50 percent higher than their 67-year average, while inflation, at 3 percent, is about normal for the same 67-year period. This means real yields, the amount left after inflation, are comfortably above their historic average, says Babson Funds chairman Brad-lee Perry. "Bonds are better buys than many investors believe."

- Felix Zulauf, of Zulauf Asset Management in Zurich, is bearish on the U.S. dollar vs. the German mark because he believes American and German fiscal policies have different objectives. "Germany's priority is high long-term interest rates and a strong currency to satisfy foreign backers of reunification. America's priority is keeping rates as low as possible to stimulate the economy."

- Freebie of the Week: According to a recent survey conducted by Liberty Financial Cos., 88 percent of American children learned everything they know about money from their parents. To help this educational process along, Liberty has produced a 50-page booklet crammed with helpful, easy-to-read basic financial information for kids. For your free copy of "Young Investors: Parents' Guide," call Liberty at 800-403-KIDS.