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

The following is an article I wrote in my newsletter, Street$marts, last week. For the blog, I had to choose between gold and the topic I actually wrote about, Dubai. I thought the latter was more timely, which is debatable.

Gold and the dollar have been headline news in the financial world for the past few months. Since the metal and most commodities are priced in dollars, they tend to have a strong inverse relationship (move in opposite directions) that has strengthened since the financial crisis began in 2007.

Back in February at $990 and many times throughout the summer, my analysis indicated a negative for a variety of reasons, not limited to the fact that deflation was the real enemy and inflation would not be a problem any time soon. Additionally, far too many investors were becoming almost giddy on the metal's prospects at the same time that smart money was positioning for weakness. Historically, those are some of the ingredients that lead to a substantial pullback, even if the ultimate path is higher.

While gold was being favored around the world, the U.S. dollar became a pariah as mounting trillion dollar budget deficits as far as the eye can see and a 24/7 printing press was certain to equal continued devaluation. But as I saw it, that was the stuff that bottoms are made of. When absolutely no one wants to own something. And I was wrong, as you can see below.

Once gold exceeded the peak it made in March 2008 at $1035, it was difficult to remain negative and a neutral, at worst, stance was taken. So here we are, with the same evidence of an impending decline for months and all we've seen are higher and higher prices with fewer and more shallow pullbacks.













Does this pattern at all seem familiar?

It should! It's the same behavior we saw with oil in 2008 (see chart below), housing and mortgage derivatives 2006, technology in 2000 and dotcoms in 1999. It's called a BUBBLE and one is definitely developing in gold.

The thing about bubbles is that they are incredible to ride, but NEVER end well. They last a lot longer and go much, much further than anyone can possibly imagine. But the steeper the incline, the steeper the decline. Remember when crude oil went from $50 to $147? And then from $147 to $34 even faster as you can see below?

Last week, I said, the best thing gold can do now to preserve its healthy bull market would be to digest its enormous gains over a period of months, sawtoothing its way to the $1000 area before resuming the upward climb in mid 2010. But if we don't see much weakness between now and January, the odds favor an even more powerful, parabolic acceleration to a final peak in 2010 that would likely see $100 move in one day towards the end.

Over the past week, gold has corrected more than $100, taking some of the froth off the market, while at the same time, shaking out some of the weak handed speculators. Only an immediate return above the recent highs would likely reignite the bubble-esque behavior, but I would not rule it out in 2010.

As investors, there are many ways to play the gold and precious metals markets, from liquid to illiquid and from conservative to aggressive. Please feel to email me with any questions or comments at Paul@investfortomorrow.com.

Until next time…

Paul Schatz

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


While the U.S. enjoyed the big Thanksgiving feast and the Cowboys put a licking on the Raiders, the rest of the world was dealing with the latest shoe to drop in the financial crisis. It should come as no surprise that Dubai World is having problems servicing their massive debt. I remember reading an article in late 2006 that 75% of the entire world's construction cranes were on the ground in Dubai: 75%!!!

I would partially accept it if it was Japan after WWII and it was being rebuilt. Or a country the size of Russia embarking on major urban renewal and expansion. But this is a tiny little state. I shook my head when I read about building the world’s tallest skyscraper, something that hasn’t panned out for other countries attempting the same thing. And the indoor ski mountain. But I was in utter disbelief when I saw the palm tree fingers real estate project being developed from the sea. And the thousands of those million-dollar properties waiting to be sold.

Talk about a bubble that was easy to spot and was almost guaranteed to implode. In my "Shockers of 2008" piece, I forecasted the end of the great Dubai experiment. It wasn't too difficult, especially after a good friend said he was hopping on the bandwagon and opening an office there since it was becoming the financial capital of the earth. That was one of my better calls in '08 to balance against two horrendous ones, where I forecasted a new bull market beginning. I also forecasted extreme dollar strength, which worked out well, along with a collapse in commodities. But forecasting Japan to lead the developed markets wasn’t so good. I am just starting to work on some shockers for 2010, which should be out next month.

Anyway, I do not believe the Dubai news is the beginning of a new chapter in the crisis, just the same old story regurgitated in a different part of the world. It has the feel of a remnant or outlier more than anything else. And if it was so terrible to threaten their financial system or economy, I believe the powers that be in Abu Dhabi would use part of their $500B war chest to do an AIG rescue.

Below is my first attempt to post charts in the blog. It’s a 60 minute chart of the S&P 500 trading around the clock. That means that each bar, red or green, represents 60 minutes. Although the U.S. markets were officially closed for Thanksgiving, the S&P 500 futures market continued to trade as you can see by looking at 11/26 on the bottom. In fairly short order, the market fell from 1111 to 1068 (-3.8%) and then rallied back to 1111.

Sometimes, it's better to be lucky than good. Last Wednesday morning before the Dubai news broke, I did CNBC's International Exchange as I do on a monthly basis. (See Clip Here ) Part of my comments focused on a stock market pullback after Thanksgiving. I just didn't think it would literally start with a Thanksgiving Day collapse around the globe and end early Friday morning! Thank you to the folks at CNBC for making that segment into a story on their website.

Since Friday morning, stocks have been in strong rally mode that, frankly, has me torn. With such powerfully poor internals on the holiday shortened trading day, there should be more weakness to follow. But this week has shown very positive seasonal tendencies to make it more interesting. While there “should” be another pullback next week, it’s likely to be shallow and followed by higher prices into year-end.

There's been lots of concern lately that the small cap Russell 2000 and mid cap S&P 400 have severely lagged the large cap Dow Jones and S&P 500. While true, that kind of divergence (all indices not confirming each other's move) can exist for weeks, months and even quarters before it ends up mattering. And I am not worried about it yet. It's just sending a message that liquidity is not as strong as it once was and should be monitored.

In short, the Dubai "revelation" is old news and should not impact the markets much longer than a week or so, if at all. The potential debt default in Greece would be a different story. Too much bullish market sentiment still bothers me, but time is running out in 2009 for the bears to do much damage.

As always, please feel free to email me with any questions or comments at Paul@InvestForTomorrow.com.

Until next time…

Paul Schatz

December and January are traditionally the busiest months for new credit card applications. But with tight credit conditions and lower lines of credit, gaining approval is not as easy as it once was. Lowcards.com has some tips to share with Fi$callyFit readers to help you shop for credit cards.


Shoppers want lower rates for their holiday purchases. Budgeters want lower rates to help keep their financial resolutions.

This year, applicants may be disappointed in the credit card offers they receive from issuers, says Bill Hardekopf, CEO of Lowcards.com and author of The Credit Card Guidebook. "Shopping and applying for cards is not as easy as it used to be. Consumers should now expect higher rates and lower credit limits. Approval is no longer a sure thing," Hardekopf said. "Issuers are struggling to keep profitable, and they are trying to generate new revenue from their cardholders who are finding it difficult to make their card payments."

Still, getting a card with a lower rate can save money on interest and can be worth the effort.


Here are some tips to help with shopping for a credit card:


1. Start with your credit score.
Lenders make their judgment about your credit worthiness based on your credit score. A FICO score of 700 or more is considered very good; over 760 will usually qualify you for the best rates (up from 720 several years ago). A consumer with a score less than 640 will receive high interest rates and limited credit options. Issuers will also use your credit score to determine the features of your card such as the credit limit and balance transfer terms. If you are surprised by your credit score, check it for errors. Correcting mistakes is the fastest way to raise a credit score.


2. Honestly assess how you will pay off the credit card.
You need to take a hard look at yourself to determine what kind of credit card customer you are. Will you pay off the entire balance each month on time or will you carry a balance? This will determine the type of card you need. If you pay off your balance each month, consider a rewards card with no annual fee.
Cash back reward cards are usually the best because you can use cash to purchase anything. Know that issuers have cut back on reward offers - 1% is now the standard amount for rewards of points or cash.
Also, pay attention to the reward tiers. Even though the issuer advertises a 1% cash rebate, it may take a certain level of spending to reach the 1% level. If you carry a balance most months, apply for a card with the lowest possible rate. The less you pay for interest, the more you pay toward your balance and the faster you can pay off that balance. Do not pay a higher rate just to get rewards.


3. Transfer your balance to a card with a lower rate.
Transferring balances between low rate cards was once an easy and profitable game for many cardholders. However, this lost money for issuers and the offers for 0% interest on your balance for twelve months have almost dried up.
This year, balance transfer fees jumped from 3% to 4% and, in some cases, 5%. "This is discouraging news for consumers who are placing hope in balance transfers. However, if your annual percentage rate (APR) has been increased significantly, your issuer may be forcing you to try to find another card with a lower rate," Hardekopf said. "Before you begin the process of transferring your balance to another card, contact your issuer and ask them to lower your current rate. This doesn't happen as often as it used to, but it doesn't hurt to ask."


4. Pick one card and apply for it.
Compare three or four cards. Study the terms and conditions of these cards. Then select the best one and submit an application. "Limit the number of applications that you submit because each application is recorded as a credit inquiry on your credit report. Multiple applications are a red flag that can lower your credit score because people actively seeking credit are typically a higher risk to lenders than people who are not seeking credit," says Hardekopf.


5. Avoid store cards.
Do not apply for a store card just because the store gives you an immediate discount on your purchase. The rates are usually much higher than an average card. If you don't pay off the balance in full the first month, you could pay much more in interest than the money you saved.


6. Pay attention to your rate.
Most rates are now variable and they will increase in the future as the Federal Reserve raises the prime rate.

7. Only apply for credit if you need it.
Do you really need a new card, or can you work with the cards that you have? Most consumers carry too many credit cards which leads to further temptations to spend. LowCards.com ( http://www.lowcards.com/ ) simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.

For more information, contact Bill Hardekopf at 1-800-388-1910 or billh@LowCards.com.

The IRS has issued the following guidance for taxpayers who may be planning to buy their first home or may have lived in their current house as a principal or primary residence for at least five consecutive years and want to buy a new home.

A new law that went into effect Nov. 6 extends the first-time homebuyer tax credit over five months and expands eligibility requirements to existing homeowners.

The Worker, Homeownership, and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase.

The maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary residence during the three years up to the date of purchase.

But the new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.

For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.

A new version of Form 5405, First-Time Homebuyer Credit, will be available in the next few weeks.

A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405.

Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return.

A taxpayer who purchased a home on or before Nov. 6 and chooses to claim the credit on an original or amended 2008 return may continue to use the current version of Form 5405.

Income Limits Rise

The new law raises the income limits for people who purchase homes after Nov. 6.



The full credit will be available to taxpayers with modified adjusted gross incomes(MAGI) up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.

For homes purchased prior to Nov. 7, 2009, existing AGI limits remain in place. The full credit is available to taxpayers with MAGI up to $75,000, or $150,000 for joint filers. Those with MAGI between $75,000 and $95,000, or $150,000 and $170,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.

Several new restrictions on purchases that occur after Nov. 6 go into effect with the new law:

Dependents are not eligible to claim the credit.

No credit is available if the purchase price of a home is more than $800,000.

A purchaser must be at least 18 years of age on the date of purchase.

Members of the Military Members of the Armed Forces and certain federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and still qualify for the credit. An eligible taxpayer must buy or enter into a binding contract to buy a home by April 30, 2011, and settle on the purchase by June 30, 2011. This special rule also applies to certain other federal employees.

For more details on the credit, visit the First-Time Homebuyer Credit page on IRS.gov. Related Items: IRS YouTube Videos: Recovery: New Homebuyer Credit, November 2009

(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 am often asked how I can be positive on the stock market, yet so negative on the economy. As I’ve discussed before, the stock market’s rally is based on liquidity, meaning a tsunami of money flooding the financial system needing to find a home. I absolutely do not believe it’s based on sound and well thought out fundamental policy and systemic changes. This was my main theme in two CNBC interviews. (Click Here to Listen) They are the first two listed on the page.

My ongoing concerns are the same ones I’ve had all along. The global financial system cannot stand on its own two feet without government support, intervention and manipulation. At some point, the free money ride will end without private investment being able to take its place. That’s when the house of cards crumbles again. The Federal Reserve and Treasury used the vast majority of their immense arsenal to stem the tide in 2008 and 2009. I doubt they will be able to have the same affect next time.

One area I want to spend some time on today is the FDIC, the agency that insures member bank deposits, now up to $250,000. Along with Ben Bernanke, I believe Sheila Bair, the FDIC chairman, deserves very high marks for her handling of the financial crisis. When so many “experts” were running around with their heads cut off, she remained firmly in control, offering multiple plans on how to stem the tide and attack the crisis head on. As things began to stabilize her agency also offered some quality suggestions on proposed regulatory reform.

On Nov. 24, the FDIC (Federal Deposit Insurance Corp.) released its Third Quarter Report on member banks. It’s no secret that we are seeing more FDIC-led bank takeovers than at any time since the Resolution Trust Corp (RTC) was created to help solve the S&L Crisis in the early 1990s. So far in 2009, there are 95 insured institutions that have failed in the third quarter alone. Any time the FDIC comes in for a “rescue”, it usually means that its own capital must be employed to shore up the bank’s reserves. With its coffers already stretched to the dangerous level, another major financial problem is brewing.

If I really believed the economy and financial system were healing correctly, I wouldn’t worry so much about the FDIC. But since I don’t, and the number of “problem” banks is up to 552 ($345B) from 416 in June, some drastic measures will likely be taken. First, the FDIC can tap an emergency line of credit with U.S. Treasury, something that Sheila Bair doesn’t seem too keen on doing. Second, the FDIC can issue fixed income instruments, like bonds and notes and borrow from investors.

Currently, the FDIC is requiring banks to prepay the next three years of fees to help shore up the agency’s own capital base without having to resort to more draconian measures. While I applaud Sheila Bair’s efforts at trying to fix this with minimalist intervention, the problem is that the FDIC will take capital from the banks when they can least afford to give it up. The process of recapitalizing banks will likely take a good decade or so, but we’ll continue to see more banks fail along the way. Prepaying fees with so many institutions still capital starved will only make credit harder to come by, which is the perfect segue to the next problem.

Perhaps the most troubling thing about our banking system is that credit continues to shrink at an historic rate. In the very first sentence of the FDIC’s report, they start with the good news that member banks are making a lot of money. How could they not? If you own a bank and can borrow at essentially 0% to either loan out or invest in something paying 2, 3 or 4%, how can you lose? Add leverage into that equation and the banks essentially have a license to print profits in this environment, exactly what the Fed, Treasury and FDIC need them to do.

At the end of the first sentence, they give us the really bad news, “but loan balances declined by the largest percentage since quarterly reporting began in 1984.” According to Casey Research, bank credit has fallen by $500 billion over the past year. Think about it. That’s half a trillion dollars no longer available for lending and growth. It is nearly impossible for the economy to achieve a sustainable recovery without credit flowing freely. Almost every small business I visit or speak to share their frustration in trying to obtain a loan or line of credit. Since small business is the backbone of our economy, this doesn’t speak well for future organic growth.

The FDIC is in a very tough position, but they’re only one of the problems we face. Until we get the financial system stable and entice private capital back in, whatever growth we are currently seeing is only temporary. With state and local tax receipts falling off a cliff, the various governments need to get their own financial houses in order immediately. That means cutting unnecessary spending and keeping taxes as is or cutting them. Raising taxes without real economic growth will have disastrous implications. Tax incentives must be given to small businesses and entrepreneurs to hire workers and encourage growth. With all of our problems, there is one positive thing I am certain about. This country, economy and financial system has successfully emerged from every single crisis in our history. And this one, too, shall pass with time.

I wish you and your family a very happy, bountiful and peaceful Thanksgiving!

Until next time…

Paul Schatz
Paul@investfortomorrow.com

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

Since late September, the common theme in my stock market forecasts has been for a 7-17% decline lasting well into November with varying small rallies along the way. You can click on the following links for more detail. Storms Brewing for the Stock Market The Dow at 10,000: Is It Time to Celebrate? We were fortunate enough to nail the low in early October, the ensuing rally from there and then the final peak mid month. The market cooperated with the roadmap and saw a roughly 7% decline into late October.

In the previous issue of my Street$marts newsletter, I wrote about Dow 10,000... AGAIN?. I talked about a "time to rally", where stocks should bounce, but ultimately fail to exceed the mid-October peak. So far, the Dow, S&P and NASDAQ have all reached higher levels, proving me wrong, while the Russell 2000 Midcap 400 have yet to get there. I concluded that: "IF the market is to remain on the exact same trajectory as we've seen since March, the whole decline is over at roughly 7% and we are going right back to new highs for 2009. You shouldn't be surprised that I do not believe this is the case."

The question I've received a lot lately is, "Is the market done correcting and how high is it going?"

Although at the October low, the stock market had reached some fairly significant oversold readings, I was surprised at just how easily the rally caught fire. I was not expecting to see new highs just yet. By turning so strongly at exactly the moment it was doing the first really wrong thing since the bull run began in March, the market showed a tremendous amount of resilience and pent up demand into weakness. And it's possible that the pullback we saw was it for 2009.

But I am not ready to relax and embrace the rally just yet. There are still some cracks in the pavement that either need time and sideways market movement or another short-term pullback into December to fix. I am still not comfortable with the lack of volume on strong up days. As you know, volume is the horsepower of the market's engine and it's just not confirming the recent strength.

As stretched as stocks were at the recent low, they are now back to stretched again on the upside. This can be seen easily looking at the advance/decline and up/down volume data. While this can persist for days, weeks or even months, the odds favor a resolution sooner than later.

Market sentiment (the number of bulls versus bears) has been moving around like a yo-yo this year. While we saw too many negative investors at the late October low, we're now seeing too many investors positive on the market's outlook. Those indicators are usually contrarian in nature, meaning the majority tends to be wrong at highs and lows.

But I guess the thing that bothers me most right now is that fewer and fewer key market sectors are leading the charge higher. Prior technology leaders, like semiconductors, telecom and networking have yet to eclipse their October highs. The same can be said of energy and homebuilders. This can all be corrected with higher prices, but given the other concerns listed above, I am taking a "prove it to me" approach for a bit longer.

On the flip side, consumer staples, healthcare and pharma all seem to be assuming leadership roles. The problem is that these sectors are defensive in nature/ less volatile/ lower risk profiles and are generally unable to lead the market higher for more than a blip. In the past, they have followed along with other key leadership groups, but not replace them.

As I've mentioned before, this week is options expiration (3rd Friday of every month) when various derivative contracts stop trading. The trend has been for the market to remain in the direction it has been since the previous expiration, which in this case is up. It's also been a trend to see a reversal the next week, so we'll see how the bears react.

IF we get one more pullback, which I lean towards but not as strongly as I did earlier this quarter, I think it will be contained to 5-8% and wrap up by early December. The exciting part is that my models have upward projections to a minimum of 11,000 on the Dow with a chance to see 12,000 by next summer, before the next major bout of nastiness sets up. But we can talk about that in a month or so.

As always, please feel free to contact me directly at Paul@InvestForTomorrow.com with any questions or comments.

Have a very happy and enjoyable Thanksgiving!

Department of Homeland Security (DHS) Secretary Janet Napolitano, Dr. Anne Schuchat of the federal Centers for Disease Control and Prevention(CDC)and Transportation Security Administration (TSA) Acting Administrator Gale Rossides on Thursday jointly issued these steps travelers can take to prevent the spread of the flu.

“Following these simple travel tips will help expedite the screening process at airports and keep travelers healthy and safe throughout the holiday travel season,” Napolitano said in a statement.
TSA Travel Tips

TSA’s holiday travel tips will help decrease the amount of time passengers spend in line at airport security checkpoints, increase the overall efficiency of airport operations and enhance security by engaging passengers in the shared responsibility of watching out for suspicious activity at airports across the nation.

Pay attention to your health before traveling
The best way to prevent the spread of the flu is to stay home if you’re sick or have flu-like symptoms.
The CDC recommends you get both H1N1 and seasonal flu vaccines.

Practice good hygiene while traveling
Cover your mouth when coughing or sneezing.
Wash your hands regularly to help prevent the spread of germs and illness.

Ensure your government-issued ID and boarding pass are out and ready
Getting all travel documents together and ready before you get in line will help security officers quickly verify that you, your identification, and your boarding pass match and are valid.

Wear easily removable shoes and jackets
Wearing footwear that can be easily removed helps speed the process for X-ray screening. Be prepared to remove all shoes, jackets and other outerwear for screening.

Take out liquids and laptops
Remember the 3-1-1 rule for liquids, gels and aerosols at the checkpoint:
3-ounce bottles or less for all liquids, gels and aerosols;
1 quart-sized, clear, plastic zip-top bag; and
1 bag per passenger placed separately in a security bin for X-ray screening.
The liquid restriction applies only to carry-on bags. Passengers can pack larger quantities of liquids and gels in checked baggage.
Be prepared to remove your laptop from its case and place it in separate bin for X-ray screening.

Use TSA Family Lanes if you or your family needs extra time or assistance
Last year, TSA expanded its popular Family Lanes to every security checkpoint in the United States.
Family Lanes allow infrequent travelers, those with small children or passengers who need additional assistance to move through security at their own pace.Officers in these lanes work with passengers to screen medically necessary items like baby formula and insulin.

Keep an eye out for suspicious activity
Transportation security is a shared responsibility. The traveling public plays an important role in keeping holiday travel safe.
Travelers should report all suspicious activities or items to airport security personnel.

Remember TSA’s new Secure Flight program when booking new airline tickets

Fulfilling a key 9/11 Commission recommendation, TSA is working with airlines to implement Secure Flight.

Secure Flight pre-screens passenger name, date of birth and gender against government watch lists for domestic and international flights—making travel safer and easier by keeping known or suspected terrorists from obtaining a boarding pass.

In addition, Secure Flight helps prevent the misidentification of passengers who have names similar to individuals on government watch lists.

When booking airline tickets, use your name as it appears on the government ID you plan to use when traveling—along with your date of birth and gender. Providing this information will clear 99 percent of travelers to print boarding passes at home.

Airlines are phasing in this program; if you are not prompted for this information when booking travel or if there are small variations between your name and your reservation, don’t worry—you will still be able to travel.

For more information on these and other helpful travel tips, visit the TSA's Web site here.