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Stephen Dunphy / Times staff columnist
The Newsletter: Lessons from advisers to the wealthy

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Learn something from advisers to high-net-worth individuals. The biggest decision is not what to buy but how to allocate assets among various investment options. The lesson? Find something you are comfortable with and stick with it.

If you want to play the market, allocate a portion of your total — say 10 percent — and play with that. Leave the rest alone. That's the advice from Mike Even of the Citigroup Private Bank, who said even high-net-worth people often have their money too concentrated in one area.

A typical client might have more than 75 percent of net worth in equities, suffering the consequences of a bad year in stocks. "Wealth is usually made in concentration," said John Fry, Seattle director of investment services. "But it is maintained in diversification." Investors in Seattle may have made money in Microsoft, but they will keep more of it by allocating those assets to other areas — bonds, hedge funds, global investments, private equities and real estate.

High fuel prices are hitting industries, particularly financially stressed airlines. Jet-fuel prices hit 96 cents a gallon in January, up from 84.9 cents a gallon in December. Fuel is the second-largest cost for airlines after labor.

The Air Transport Association, an industry trade group, said the industry uses about 18 billion gallons of fuel a year. That means every 1 cent increase in fuel costs pushes up combined costs to U.S. airlines by about $180 million annually. The fuel cost increase from December to January alone will cost the airlines $1.3 billion more a year if the price holds.

As with gasoline, however, there are no signs of any fuel price cuts on the horizon.

How to read yesterday's final report on fourth quarter gross domestic product beyond the headlines. Real consumer spending was revised upward 0.5 percentage points, but a sizable rise in the GDP "deflator," from a past inflation estimate of 1.2 percent to 1.5 percent, pulled the final GDP back to the originally reported "real" gain of 4.1 percent. The deflator is a good measure of inflation since it is based on actual purchases compared with the survey-based consumer price index.

Of everything in the report, we'd bet on a lot of attention being drawn to the rise in the price deflator, particularly as the upward revision comes so close behind last week's higher than expected increases in the consumer and producer price indexes. But inflation still rose less than the 1.6 percent reported in the third quarter and well below last year's pre-Iraq war induced energy spike to 2.8 percent. "Unfortunately, perception frequently beats out evidence," said Quantit Economic Group of San Francisco.

The inflation numbers should also produce downward revisions to the forecast for the real level of growth in the current quarter, particularly given the increase in energy prices from last quarter. There could be a repeat of last year's first quarter when higher energy sapped consumer spending, resulting in GDP growth of just 2 percent. Given inflation and energy prices, the consensus view of 4.5 percent growth this quarter seems high.
 
Global Insight, a Boston-based economic consulting company, is another forecasting company that does an election model, using economic statistics to predict who might win the presidential election. The model had President George Bush ahead with 56.7 percent of the vote in December. But Global has reduced its economic forecast for 2004, and that pushed Bush's margin to 55.5 percent this month.

Stephen H. Dunphy's columns appear Tuesdays-Fridays and Sundays. Phone: 206-464-2365. Fax: 206-382-8879. E-mail: sdunphy@seattletimes.com

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