(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

As I begin to write this, the Federal Reserve just announced that the Fed Funds rate (short-term interest rates) will remain as is, in the range of 0% to .25% for an extended period. It’s the same message Bernanke & Co. have sent for almost the past year. Borrowing is essentially free to banks as Japan did for years and years and years, hoping to stimulate loan demand, money velocity and credit growth. As you may know, it’s been 20 years of poor economic growth and deflation in Japan with no end in sight. They are an aging and non growing population with a dim future.

While I totally agree with the Fed on their interest rate position, it’s FAR from enough to get us out of crisis mode for more than a few months or quarters. As I mentioned in a previous post, there have only been two real periods of deflation in the modern world, the 1930s and Japan over the past 20 years. The 1930s were “cured” with the outbreak of World War II as we shifted to a war time economy. In Japan, the government has tried almost everything with no meaningful results and no end in sight.

That’s why the Fed has thrown the textbooks out the window and show almost no concern about any inflation problem. We already have a successful modern day model from the Volcker Fed days to fight inflation. They have nothing to go on to fight deflation.

People have been outraged at the profits being reported by some of the financial companies. But in the Fed’s eyes, giving them free money to either loan out or buy low risk, higher return securities was the only way to help them repair their decimated capital bases over a period of time without injecting another trillion dollars directly into the banks. It’s no secret that the Federal Deposit Insurance Corp. is essentially broke and Bernanke & Co. couldn’t let any of the major banks force the FDIC to make emergency arrangement with U.S. Treasury. It’s bad enough now that the FDIC is going to force banks to pre-pay future fees; can you imagine the cost of bailing out Citibank and/or Bank of America?

Over the years, I’ve written my fair share of critical articles on the Fed, especially Alan Greenspan who I believe was a major contributor to the stock market crash of 1987. For all his supposed brilliance, from my seat, he left rates way too low for too long and choked off growth for too long on the opposite side. In less than 15 years, the Greenspan Fed presided over the crash in 1987, Long Term Capital debacle in 1998 and the dot.com bubble/bust in 2000.

Anyway, not to let you think I can only be critical, I think Sheila Bair, chair of the FDIC, has done an absolutely outstanding job and continues to offer creative, non partisan solutions to some of our financial woes. And since January 2008, I give Ben Bernanke et al very high marks for their handling of one of the worst financial crisis’ in history. I don’t agree with everything they’ve done, but it’s not like there’s a roadmap to follow. Prior to January 2008, I often referred to Bernanke as Rip Van Bernanke, as I was convinced the man was asleep at the switch during the very early stages of the crisis when sub prime was the main issue. I still remember his 2007 commentary about sub prime being contained and no recession was on the horizon.

Getting back to the current Fed’s behavior, it’s unlikely that rates are going up any time soon, but remember that the Fed only controls very short-term rates and affects products like your home equity line. Longer-term rates are a function of supply and demand along with inflation and are determined by the “free” market. In normal times, mortgage rates are a function of the 10 year treasury note, however, the Fed has been buying all kinds of mortgages during their quantitative easing process to put more money into the financial system.

While I would love to have been a fly on the wall during all those scheduled and emergency Fed meetings from 2007 through today, I certainly don’t envy the position they are in. They have been forced to pick their poison in what is almost guaranteed to be a very rough and rocky road for the foreseeable future. But it almost feels like this is why he was put on earth, for his lifelong academic study of the Great Depression to be put to use. I often wonder if Ben Bernanke would have taken the job had he known beforehand what he was awaiting him.

U.S. Sen. Christopher Dodd's office announced late Wednesday that the Senate passed legislation to extend the $8,000 tax credit for first-time homebuyers and create a $6,500 tax credit for so-called "move-up" buyers who purchase before April 30, 2010.

Qualifying move-up buyers are those who already own a home that has been their principal residence for 5 years or more; are 18 years or older; have incomes of up to $125,000 for an individual tax return or $225,000 for a joint return. The homes must cost less than $800,000 and homebuyers with binding contracts as of April 30 will also qualify for the credit if they complete the transaction within 60 days.

Dodd, a Democrat representing Connecticut, was an original co-sponsor of the bill, which would provide 14 additional weeks of jobless benefits for Connecticut workers.

"This is a double victory for families in Connecticut," Dodd said. "Extending unemployment insurance benefits will help Connecticut families make ends meet in a tough economy. And thousands more middle class Connecticut residents may now be eligible to take advantage of the successful homebuyer's tax credit. By helping unemployed workers keep from falling further behind, and helping middle class families get ahead, we're taking positive steps to get our economy back on track."

Dodd was joined in announcing the Senate action by U.S. Sen. Johnny Isakson (R-GA) .

Members of the military, military intelligence, and foreign service who are on qualified extended official duty are not subject to the recapture fee and individuals who have been deployed overseas for 90 days or more in 2008 or 2009 can claim the credit through April 30, 2011.

Connecticut Health Care Advocate Kevin Lembo announced Wednesday that his office saved consumers $ 2.7 million through the third quarter of 2009.

The office saved $700,000 for consumers in the third quarter alone, officials said.

“Our office continues to provide the most cost-effective consumer assistance on health insurance issues in the state of Connecticut ," Lembo said. "The diligent staff, their dedication and personal attention to consumers and their perseverance make a difference.”

While OHA does not measure the success of its efforts solely in consumer dollars saved—the office has a legislative policy function and works on state and federal health care issues that impact Connecticut’s health care consumers—the amount saved for consumers is an indicator of the level of demand for and success of OHA’s intervention.

Referrals to the Office of the Health Care Advocate come from previous satisfied consumers of OHA services who go on to refer a friend or family member. So far this year, OHA has worked on 2,476 cases, and projects a 50% year-end increase in cases over 2008, Lembo said.

“The true measure of our value comes from the repeat referrals we get from providers, legislators and consumers who come away very happy with and thankful for our efforts ," he said. "We don’t win every case, but consumers know that when they come to OHA we exhaust all avenues to address their concerns.”

Lembo expects the demand for the office’s individual case work to rise pending substantive health care reform: “We are committed to bringing back to the legislature our long-advocated changes in state law on utilization review, as well as our initiative on post-claims underwriting, which protect consumers from unfair denials of coverage and rescission of their insurance policies. These reforms are long overdue. It is long past time that the playing field is leveled to give patients and their families a fair shot when they go to battle with their insurer.”

Last year the office saved consumers over $5.2 million in denied claims or services by health insurance companies that were ultimately reversed in the consumers favor.

Consumers who are experiencing difficulties in getting needed health care, whether it’s the inability to find a provider or the denial of medical or mental health or dental treatment, may call OHA at 1-866-466-4446 for free and confidential expert assistance.

Anton Simunovic, a father of six from Norwalk, Conn. has ditched piggy banks.

He’s come up with “ThreeJars,” a new online service that teaches children to earn, use or donate money and track their activity along the way.

Sounds like the early pinning of lessons in personal finance doesn’t it?

Well - Simunovic wanted to give families a resource that makes it easier for parents to monitor household finances, while teaching children how to responsibly manage money and help their fellow man, or animals or the environment at the same time.

Using ThreeJars, kids divvy up their allowance, or other money they have earned, into virtual jars representing three categories and actions: Save, Spend, Share.

Parents guide them in their decisions on how much to stash away, how much to spend and how much to give to a cause they select. Each month, children may choose among four new organizations to contribute to and they can help direct donations made by ThreeJars.

Some examples include Save the Children, The Nature Conservancy and the Whale and Dolphin Conservation Society.

“It’s 100 percent safe,” Simunovic said. There are no advertisements, no outside links “and no bullying,” he emphasized. “I have six kids, so for me it’s a deal.”

Save, spend, share are values he said he wants his children to have as they experience life.

“Kids are learning that money is an infinite resource. When using their own money, they are much more thoughtful. It turns into better decisions,” he said.



We Care.
We care about your children as we care for our own - a lot. We all want a better future for our kids, and we owe it to them to show them the right path.
----The ThreeJars Team


The site does not act as a bank or a custodian of a family’s money. Parents hold the cash and demonstrate for their children how to reconcile the financial records online. “Everything’s very organized. It’s very convenient,” Simunovic said. “It’s really the child that’s making all the decisions, but the parent is in control.”

It also is up to the parents to pay the interest that accrues on the virtual accounts.

The site has been about two years in the making. Families are allowed a free trial for 15 days and after that, membership is $30 per year per family.

“The 2008 meltdown taught us about the need to be financially self-reliant. ThreeJars is an empowering and fun service which gets kids thinking more positively about their own money,” Simunovic said.

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

I had originally intended to follow up last week’s post on deflation with one on inflation. But in light of the emails I received about the posts prior to that and the stock market’s recent behavior, I decided to postpone the inflation piece until next week and talk about what’s more relevant now, the market’s pullback.

On Oct. 22, I contributed with an article entitled, "Storms Brewing for the Stock Market," that was followed up with another one on Oct. 16 called, "The Dow at 10,000: Is It Time to Celebrate?" My thesis was consistent in both posts, calling for the largest decline since the rally began in March during the second half of October into early November. Once started, it should chop 7% to 17% off of the major indices, which is 700 to 1700 Dow points. With stocks coming under the most pressure since early March, a number of folks emailed me to discuss the reasons behind the decline and if I saw a change on the horizon.

Let’s start with the decline. Generally speaking, I refer to anything less than 10% as a pullback or counter trend move. Once we hit 10%, I will call it a correction. There’s no science or textbook to back this up. It’s just what I’ve been doing for most of my 20+ year career. And you are welcome to use your own labels.

During bull runs, like the one we’ve seen since March, short-term pullbacks can and do occur at any time. They typically last anywhere from a few days to a week and cut several percent off the major indices. This type of decline is the most difficult to forecast. A former boss of mine used to say that during the strongest markets, you should use any back-to-back bad market days to add to your position since it’s unlikely to get much more than that.

Once a bull run begins and is confirmed, a topic for a different day, it is HIGHLY unusual for the market to pullback more than a few percent for the entire first leg higher. A new bull run always begins with a heavily oversold stock market and the initial days of a new bull run are usually dismissed as nothing more than a bounce in an ongoing bear market. When that “bounce” doesn’t stop, but powers ahead with force, bears throw in the towel, forcing even higher prices. Realization sets in that that something has definitely changed and investors look for any opportunity to get on board.

The last three major bull runs, beginning in October 1998, March 2003 and March 2009 saw near vertical rallies at the outset from several weeks to months. To go a step further, it’s VERY unusual to see a 10% decline during the first 9-12 months of a new bull run. If we do end up seeing a correction in 2009, that would be a very worrisome sign for the long-term sustainability of this bull run.

Getting back to the topic at hand, 10% declines typically do not come out of thin air. The market has a habit of warning investors several times before weakness sets in, but few heed those warnings. I often refer to the chance of a correction as a window of opportunity. It takes a lot to open that window and once open, the market must act or the window will close until next time.

In September, historically the weakest month of the investing year, some small cracks began to appear in the pavement that caused me to worry. But the market would have to rally hard in early and mid October for my forecast to have legs. And rally it did! From the Oct. 2 bottom to the peak on the 19th, almost every day was a winner for the bulls, on the surface.

Underneath the surface was a different story. A month in advance, I called for the ultimate high to come during the week of Oct. 12, my window of opportunity. That period held interest for me because a number of market cycles were showing peaks then. It was also the week of options expiration, where stocks often trend in the same direction as the previous four weeks but reverse soon thereafter. On top of that, it was the first big week of Q3 (third quarter) earnings reports. Last quarter, stocks were soft into that week, but turned around on a dime, rallying strongly for the rest of earnings season. Back to back, powerful earnings rallies are rare so the odds favored at least a pause in the rally, if not full reversal.

To really see weakness so early in the new bull run, many other ingredients are necessary. Volume - the horsepower of the market’s engine - should be exploding higher, but it’s actually receded during the last leg of the rally. Sector leadership, the lifeblood of a bull run, began to show tiny cracks in early October, saw large holes form as semiconductors, telecom, and networkers are all rolling over in tech land. With the homebuilders exhibiting smart money selling for a few months and biotech, transports, industrials and materials all underperforming and rolling over, there's not much left to hold stocks up.

One of my favorite market expressions: “The most bearish thing a market can do is go down in the face of good news,” has been ringing true since earnings season started. Bellwethers like Intel, JP Morgan, Apple, Microsoft and Amazon all beat earnings expectations by a wide margin, yet all the market could muster was a brief rally early in the day before serious selling waves hit.
Sentiment, the number of investors exhibiting or expressing firm opinions on the market’s direction, had become very positive, which typically is a sign of an uptrend about to reverse. Conversely, after a significant decline in stocks, investors become very negative, usually after they’ve already sold, setting up the market for a reversal.

Finally, at the end rallies, we normally see the major indices, like the Dow, S&P 500 and NASDAQ hold up in price, while the internal measures of these have deteriorated. To use a military analogy, the officers and ones in charge continued to battle and show a brave face, while the troops turned tail and retreated. While price last showed strength a few weeks ago, the number of stocks going up fell off dramatically along with the volume in those stocks.

The first leg of my forecasted correction is clearly here as stocks have been hit with the ugly stick for four straight sessions. The initial decline usually sees the weakest selling waves as bulls have not yet abandoned ship and bears are not yet convinced that this is anything more than a routine pullback in an ongoing bull run. The market is now supposed to try and stage a brief rally, lasting one to three days to relieve the very short-term oversold condition. If it does, I fully expect that rally to fail and lead to much lower prices in November. If a rally does not materialize, the market is in much worse shape than it appears and we will likely see the larger end of my 7% to 17% correction range.

It’s too early to forecast when this period of weakness will end, but my first read would be mid-November to early December. This is all healthy and normal and should lead to an entire new leg higher to the rally that began in March. I do not believe the bull run has ended, but we will let the market tell us that for sure.

Before finishing up, I want to add a few personal words. I happen to enjoy forecasting the financial markets very much. I love to compete and the market is the single most worthy foe. At the end of every single market day, week, month, quarter and year, I get to judge how I did in black and white. I may be a really great guy or complete jerk, but the market doesn’t care. The numbers are the numbers and I accept it.

I tell new clients all the time that when I am on target with my forecasts, they will likely think I am a genius, only to die by that same sword when the market turns on a dime. Short-term forecasting can be tough emotionally as the market does its best to confound the masses. When I manage portfolios for clients, I employ non-emotional, very powerful and robust models that dictate what to buy and sell along with when. It’s comforting when the models match my own forecast, as they have this month, but in the end, we rely on our time tested models first and human forecasts second.

Thanks for reading all the way to the end of this long posting. I hope you learned just one new thing that may help you in the future. Please feel free to email me any questions or comments to include in future articles (Paul@InvestforTomorrow.com).

Assuming nothing earth shattering occurs in the market, I hope to talk about inflation and why it’s one of last things I am worried about in the near future.

With colder weather ahead, high fuel prices and the popularity of energy-saving stoves and fireplace inserts, demand for firewood is high. The Department of Consumer Protection is offering some simple tips for getting a fair load of quality firewood without getting burned.

· Before you buy firewood or bring it home yourself, check with your community to see if there are any restrictions about where it can be placed on your property, how close it can be to adjoining properties and how much you can have.

· Buy your firewood from Connecticut wood dealers who are in the business of supplying firewood. Don't burn construction scrap or wood from other questionable sources. It’s strongly recommended that you buy Connecticut grown wood -- importing firewood from other parts of the country could easily import invasive pests like the Asian Longhorned Beetle and Emerald Ash Borer. The Connecticut Agricultural Station has information about identifying these pests and others at its website: www.ct.gov/caes. Please call 203-974-8474 or email caes.stateentomologist@ct.gov if you run across the Asian Longhorned Beetle.

· The price per cord of wood varies, depending on whether you are buying green or dry firewood. Green firewood is wood that has been recently cut and is still too wet to burn well. Dry, or seasoned, firewood has been stacked and dried for a period of at least six, but preferably twelve months. Green wood also creates creosote buildup in your chimney, while dry firewood burns efficiently and does not promote creosote buildup. If you're buying for this winter, you must get seasoned firewood. Oak, maple, elm and other hardwoods burn longer, generate more BTUs of heat and produce longer lasting coals.

· If you burn wood, particularly soft wood, you should get your chimney cleaned and inspected each year.

· The best way to know you're getting a fair price per cord is to check prices with multiple wood dealers in your area. It's also a good idea to ask friends, family and neighbors where they get their wood and how much they pay per cord. Currently, seasoned firewood in Connecticut is selling about $220 a cord, depending on the type of wood and area of the state.
-more-

· Know the length of wood that your stove, fireplace or fireplace insert can burn. The standard length for firewood is 16 inches, although some larger wood-burning units can take wood as large as 20 inches or more. Make sure you ask for the length you need when ordering firewood.

· Understand what a cord of wood is. A standard cord is a stack of wood that measures 4 feet high by 4 feet wide by 8 feet long and totals 128 cubic feet in all. Regardless of whether you order your wood chopped into lengths that will fit your stove or fireplace, once it’s delivered and stacked, a full cord will still measure a total of 128 cubic feet.

· If possible, go to the wood seller, check out the wood, load it and take it home yourself. Have firewood stacked on pallets to keep it off the ground.

· If you have firewood delivered, be home when it arrives, pay a little extra to have it stacked upon delivery, and then measure it. If you ordered a full cord and it isn't 4 feet high, 4 feet wide and 8 feet long or a total of 128 cubic inches, don't pay for it until the full cord is provided.

· While it can be difficult to tell whether you got a full cord from your wood dealer until you actually stack it, in general, two full-size pickup truckloads of wood equals one cord, and four compact pickup truckloads of firewood equals one cord. Remember, however, it must be stacked before it can be accurately measured.

· Because burning wood cleanly to minimize negative effects on air quality impacts is important, the Department of Environmental Protection (DEP) recommends using wood burning stoves that are of latest possible technology, are well maintained and in good working order. Anyone considering outdoor wood burning furnaces should be aware of all state and local regulations governing their use. Additional information on air quality aspects of wood burning can be found at: http://www.ct.gov/dep/cwp/view.asp?a=2684&Q=321780

· Further information about purchasing firewood can be found in the Forestry section of the Department of Environmental Protection’s web site at: http://www.ct.gov/dep/cwp/view.asp?a=2697&q=322792&depNav_GID=1631&depNav=

· Finally, consumers who cannot resolve a dispute with a seller about a firewood delivery are welcome to contact the Department of Consumer Protection at 860-713-6168 or 1-800-842-2649.

As families are transforming themselves into witches, ghosts, headless horsemen and superheroes for the much-ballyhooed Hallow's Eve, homeowners should be making sure their property is safe for these visitors of the night.

Allstate Insurance Co. released some precautions that could prevent an angry parent from filing a lawsuit. Sooo, there's more to do than just buy candy and stuff it into seasonal fluorescent green, orange and yellow packages.

“Homeowners need to realize they can be held liable should a trick-or-treater be injured on their property,” said Meredith Joseph, Senior Communication Consultant, Allstate. “Each October we invite all of the neighborhood children onto our property and drive on crowded neighborhood streets. We need to be extra vigilant about safety during this time and we also need to make sure we have the right amount of insurance protection.”

Check your Outdoor Lighting: Make sure your property is adequately lit before trick-or-treaters arrive.

Inspect Your Property: Make sure the path to your door is safe. Look for cracks in the sidewalk and loose stair railings. Remove any obstacles that can lead to a trip or fall.

Watch the Decorations: Make sure Halloween decorations are not obscuring walkways and causing hazards. Use artificial lighting instead of candles to reduce the risk of fire-related accidents. If you do use candles, make sure you extinguish them before going to bed.

Drive Carefully: With nearly 25 million families participating in trick-or-treating each year, neighborhood streets are going to be crowded. Use extra caution while driving and if you are planning to drive, steer clear of alcohol.

Keep Your Pets Inside: Even if your dog enjoys the parade of children that arrives on your doorstep each year, the neighborhood children may not enjoy meeting your family pet.

Allstate also recommends that all homeowners contact their insurance agent before Halloween and make sure they are adequately covered in the event someone is injured on their property. While a homeowners policy provides a level of liability protection, it may not be sufficient protection if injuries are severe. A personal umbrella policy works with the homeowners liability coverage and provides additional protection.