Thursday, December 31, 2009

Winter Storm Preparedness

As another storm rages toward the Northeast, there are some household items we should make sure to be equipped with today, the predicted point of arrival.

The Great Atlantic & Pacific Tea Co. Inc. (A&P) sent me a release with some recommendations and a link to an online guide that will help you identify supplies for your home and car that will help keep you safe at the turn of year and throughout winter 2010.

The company operates 435 stores in 8 states and the District of Columbia under these trade names: A&P, Waldbaum's, Pathmark, Best Cellars, The Food Emporium, Super Foodmart, Super Fresh and Food Basics.


Here are a few things to keep on hand:

  • Shovel

  • First-Aid Kit

  • Flashlights

  • Battery-powered radio

  • Extra batteries

  • Bottled water

  • Canned foods such as soup, vegetables and fruit

  • Battery-powered can opener

  • Blankets

  • Matches
Feel free to e-mail me with items that are on your list at fiscallyfit.register@gmail.com and we'll share them with other readers in a later post.

Have a safe New Year's Eve and a Happy turn of the New Year!

Friday, December 25, 2009

Year-End Portfolio Games

(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 we approach year-end, there are always "tricks and games" to be aware of in the financial markets as traders and portfolio managers square up their books and close the year early or use the lull in liquidity to play some games that ordinarily wouldn't fly.

Tax loss selling is common among investors this time of year (and during the fourth quarter as a whole) as they seek to sell losing positions for the potential tax write off or equal out winners and losers. This is usually more pronounced when the market has had a September/October correction or has been in a downtrend for most of the year. Typically, the worse a stock has performed and the more widely held, the more susceptible it becomes to tax loss selling.

What's different this year is that we all know the capital gains tax will be rising in the years ahead, whether that begins at some point in 2010 or for the start of 2011. So some investors are seeking to take whatever gains they have in 2009 for a known tax rate versus waiting until next year with uncertainty.

The January Effect is also a popular short-term trading strategy this time of year. It can be interpreted two ways. One is that small cap stocks tend to outperform their large cap brethren in January. Taking advantage of this can easily be accomplished by either buying a small cap index ETF or mutual fund. Additionally, a bit more complex, an investor can buy the aforementioned ETF or mutual fund and sell short an equal amount of a large cap index ETF or mutual fund.

The other January Effect trade involves buying beaten down stocks in mid December that make new 52 week lows in the fourth quarter, i.e. great tax loss selling candidates! Besides individuals selling them for tax reasons, institutions like mutual funds, pensions and even hedge funds do the same, but also do not want to show these disasters on their year-end reports to investors if they disclose their holdings.

The key here is to make sure the stocks trade enough volume that the institutional players will be able to buy them in early January when they have plenty of time to reward them, as well as confirming each company has sufficient cash to last them well into 2010. Stocks get beaten down for a reason, so the significant cash position will hopefully keep them in business, at least during the trade. This trend typically performs better with either a September/October market correction or downtrend lasting most of the year.

Finally, the January Barometer, made famous by Yale Hirsch of Stock Traders Almanac fame, simply says as goes the month of January, so goes the whole year. Over the years, Yale and his son Jeff also created the early warning January Barometer, which says as goes the first five trading days of the year, so goes the rest of the year. You can learn more by Googleing or buying their book from Amazon.

Stocks are now in an extremely bullish time of year. Depending on which index you use and what time period, the stock market has a roughly 75% chance of heading higher during the last 10 trading days of the year. Conspiracy theorists would argue that the decline we saw last week was nothing more than manipulation to allow smart money to buy stocks at cheaper levels for an easy trade.

While I don't buy it, that would be interesting to see the market close at its low last week and then head sharply higher to the end of the year. We'll see, but that coincidence would be "curious".

Whatever holiday you celebrated, I hope it was enjoyable, peaceful and safe!

Please feel free to email me with any questions or comments at Paul@investfortomorrow.com.

Until next time…

Paul Schatz

Friday, December 18, 2009

Ben Bernanke… Hero to Goat to Hero to ???

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



Earlier this week Ben Bernanke was named Person of the Year by Time Magazine, a shocking choice to me. It has nothing to do with whether he deserved it or not, but rather how wide the pendulum has swung since he was first appointed in 2006. I’ve long written about Bernanke as the perfect person for the times. As many people already know, Bernanke is best known for his exhaustive study of the Great Depression and the massive mistakes we made to perpetuate the economic collapse.



Helicopter Ben, as he was labeled, joked that the government should have dropped $100 bills from helicopters to flood the system with enough money to get people spending again to stave off deadly inflation. Anyway, Bernanke was instantly popular after his January 2006 confirmation during the height of the bull market. The higher stocks and credit climbed, the more kudos given to his Fed.

And when the credit markets began to rollover in 2007, Bernanke boldly stated that the Subprime Crisis would be contained and no recession was on the horizon, comments he would later regret more than Tiger Woods’ transgressions! As 2007 continued unfolding, Bernanke’s popularity began to wane as hedge funds were going bust and the mortgage debacle became more serious.

During 2008, Bernanke was blamed for keeping rates too high in 2007 and severely underestimating the depth of the credit crisis. But he was also given credit for his creative and outside the box strategies in attacking the various crisis with the force of an atomic bomb. And now, we’ve seen somewhat of a polarization with some folks seeking to anoint Ben, while others wanting to stick him with pitchforks. Just watch the Senate confirmation hearing and that said it all!

I truly find it fascinating that Bernanke’s influence has filtered all the way down to “Main Street” being chosen as Time’s Person of the Year. That is extremely unusual. And from my seat, not a positive sign at all. In the early 1990s, I studied the research of Paul Macrae Montgomery of Magazine Cover Indicator fame, market analyst and fellow money manager from Virginia, who examined all Time covers since the 1920s and concluded that by the time people or companies or events made the covers of the most widely read and popular publications, the party (or trend) was just about over (or about to begin if the cover was negative).

Further, he determined that once the magazine cover hit, whatever trend was in place generally continued for about a month before reversing. And one year later, he concluded that roughly 80% of the time, investors would have been profitable by fading or going opposite the magazine cover. This is commonly referred to as contrarian investing. You can Google Mr. Montgomery for more details if you’re interested.

Academics are quick to dismiss this type of analysis as bunk, but to me it’s definitely more than just coincidence. There is a classic book written by Charles Mackay called "Extraordinary Popular Delusions and the Madness of Crowds" that discusses this in great detail. Oh yeah… it was written in 1841 and still is viewed as a masterpiece!

Back in December 1991, Ted Turner graced Time’s cover as Man of the Year, yet all his stock could muster over the next year was -7% in a generally up stock market. At the end of 1997, Andy Grove, CEO of Intel was featured in the same fashion prompting that stock to do absolutely nothing for eight months.

The most famous (or infamous) Person of the Year was Jeff Bezos, CEO of Amazon, in late 1999. As you can see below, that stock peaked at $113 and collapsed 87% to $15 one year later!
















Time named President Bush in December 2000 to its cover and one year later, the market was still much lower.



Finally, in late 2007 Vladimir Putin was “The Man”. In Amazonesque fashion, the Russian stock market didn’t exactly reward investors (although not many markets did in 2008).
















So now we have Fed Chair Ben Bernanke on the cover of Time and named Person of the Year. His reconfirmation was just passed by the Senate Banking Committee with the full Senate scheduled to vote (and confirm) in early 2010. Bernanke is on record as saying he did what he did, sometimes with disgust (AIG, Merrill) because he didn’t want to be the Fed Chairman who presided over the second Great Depression. Additionally, President Obama is on record as crediting Bernanke and the Fed from rescuing the financial system and economy from falling into another depression.

Based on the very positive nature of Time’s declaration, Bernanke’s and Obama’s comments, it is more than likely, roughly 80% according to Montgomery, that we are near a peak for Ben Bernanke, the Fed as a whole and possibly the financial markets. Although I certainly hope it’s wrong this time, no one should effectively manage money based on hope.

Please feel free to email me with any questions or comments at Paul@investfortomorrow.com.

Until next time…

Paul Schatz

Monday, December 14, 2009

Check Out IRS Publication 17

The Internal Revenue Service has created a guide to help taxpayers get a jump on filing their 2009 federal income tax returns and navigate tax breaks provided under the American Recovery and Reinvestment Act of 2009.

The 308-page guidebook is accessible at IRS.gov and is named (in short) "IRS Publication 17."

You can click through more than 6,000 interactive links for answers you may need on your tax questions.

“IRS Publication 17, Your Federal Income Tax Guide, is your ‘tax encyclopedia’ for all your tax planning and tax return filing needs," Connecticut's IRS spokesperson Gregg Semanick said Monday. “Publication 17 summarizes the tax changes for 2009 and 2010 to ensure you do not miss out on entitled tax credits, deductions and benefits.”

The book offers details on how you can take advantage of new tax-saving opportunities, such as the making work pay credit for most workers, American opportunity credit for parents and college students, energy credits for homeowners going green, first-time homebuyer credit, sales or excise tax deduction for new car buyers, and the expanded child tax credit and earned income tax credit for low- and moderate-income workers.

Publication 17 has been published annually by the IRS for more than 65 years and has been available on the IRS Web site since 1996, Semanick said.

How to Get It:

Go to http://www.irs.gov/and enter “17” in the search box in the upper right corner of the home page.

Those who do not have access to the Internet can call 1-800-TAX-FORM (829-3676) to request a free copy from the IRS. Printed copies will be available in January 2010.

Wait, There's More:

Besides Publication 17, IRS.gov offers other helpful resources for those doing year-end tax planning.


Many 2009 forms are already posted, and updated versions of other forms, instructions and publications are being posted almost every day. Forms already available include Form 1040 , short Forms 1040A and 1040EZ , Schedule A for itemizing deductions, the new Schedule L for those increasing their standard deduction by real-estate taxes paid, sales or excise taxes on new car purchases or a net disaster loss, and the new Schedule M for claiming the making work pay credit.


Also, visit the American Recovery and Reinvestment Act of 2009 Information Center for a variety of recovery-related videos, podcasts, tax tips and answers to frequently-asked questions (FAQs).

Friday, December 11, 2009

Gold...Bubble or Continued Bull Market?

(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

Friday, December 4, 2009

Dubai Default... Crisis Part II Or Overreaction

(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.


photo
























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

Thursday, December 3, 2009

Credit Card Approvals Still Elusive

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.

Here's the Skinny on the Expanded Homebuyer Tax Credits

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

Friday, November 27, 2009

The Coming FDIC Crisis

(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

Friday, November 20, 2009

Up or Down from Here? YES!

(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!

Thursday, November 19, 2009

Department of Homeland Security Tips for Safe Holiday Travel

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.

Winter Auto Safety Can Drive Down Costs

The goal for every driver should always be to arrive at his or her destination safely and without interruption.

Yet, the winter brings extreme weather including snow, sleet, and freezing rain - all of which create driving challenges, including an increased risk of accidents.

In addition to remaining alert on the road, the best way to maintain vehicle safety and avoid winter accidents is to make sure your car is protected through proper maintenance. Another aspect of protection is to make sure your auto insurance policy is up to date and includes the right types of coverage.

To help you drive with peace of mind this winter, Carin Stepeck (pictured above), vice president The Hartford Financial Services Group talks with FiscallyFit about tips to help people protect themselves on the road and save a few dollars in the process.

Be on the Defense
Drivers should consider taking a defensive driving class as winter weather approaches. Stepeck said classes are a way to brush up on ways to respond in dangerous conditions.
Remember to keep a safe distance, position mirrors adequately and know your state's laws of the road.
For example, she said, Connecticut's "Click It or Ticket" campaign reminds motorists of laws requiring drivers and front-seat passengers to fasten their seat belts, as well as rear passengers ages 4 to 16. The fine for violation is $37.

Take Care and Repair
According to the Car Care Council, more than 5% of all vehicle accidents result from underperformed vehicle maintenance.
The Hartford is advising drivers never to skimp on routine vehicle service.
"Ensure the battery is working well and that the connections are clean and corrosion-free," Stepeck said, adding that car owners also should check anti-freeze levels, keep the gas tank at least half full and maintain proper tire pressure.
"As the temperature drops, the tires lose pressure," she said.



Peruse Your Policy
Review your coverage to see if you qualify for important auto policy features, such as accident forgiveness. If you have this feature and are involved in an accident, it won't count against you and your rates won't increase.
Stepeck said The Hartford applies accident forgiveness in the case of a driver's first accident and afterwards, will guarantee the workmanship on covered repairs for as long as the affected driver owns the vehicle and chooses a certified repair shop.
Company statistics show a 6% to 8 % increase in the occurrence of accidents during the winter season, with most of them happening early on, she said. "I think that the winter can come upon us fairly quickly and we're not at all prepared," Stepeck said.

Park It
This may sound simple, but the best way to keep your car in working condition is to not drive it when the weather turns really ugly. It's best to stay safe at home than risk damage to your car, or worse. "If you do have the flexibility, stay put," Stepeck said. "It will definitely reduce the chances of getting involved in an accident. We realize not all our customers have the flexibility."

More information about decisions related to auto insurance policies can be found at a resource site offered by The Hartford.

Saturday, November 14, 2009

Recall Alert

Consumers should stop using recalled products immediately unless otherwise instructed.

The U.S. Consumer Product Safety Commission has issued the following recalls:

1. Treestands by Gander Mountain Co.

Name of Product: Hang-On Fixed Position Treestands
Units: About 13,000
Importer: Gander Mountain Co., of St. Paul, Minn.
Manufacturer: StrongBuilt, of Waterproof, La.
Hazard: The clasp may open unexpectedly if the strap is fastened incorrectly, causing the treestand and user to fall to the ground.
Incidents/Injuries: Gander Mountain has received two reports of consumers falling while using the treestands: one sustained unspecified injuries and a second person sustained a broken pelvis and broken arm.
Description: Gander Mountain is recalling the 2008 model GMT101 and 2008 model GMT103 Hang-On Fixed Position Treestands. The recalled treestands have wire mesh on the base of the platform to the top of the footrest and a Gander Mountain logo on the front of the seat. In addition, the seat has a camouflage pattern that is branded "AP" and "REALTREE". Model GMT101 has "Steel Hang-On With Foot Rest" printed in large bold print on the exterior of the box and the GMT103 has "Large Steel Hang-On With Foot Rest" printed on the exterior of the box. This recall does not affect the 2009 year models GMT101 and GMT103 Hang-On Fixed Position Treestands manufactured by Rivers Edge.
Sold at: The treestands were sold only at Gander Mountain stores from July 2008 until July 2009. The GMT101 was sold for about $60 and the GMT103 was sold for about $80. Manufactured in: China
Remedy: Consumers should immediately stop using the recalled treestands and return them to Gander Mountain for a refund, exchange for a 2009 model or a store credit.
Consumer Contact: Gander Mountain at (888)-542-6337 Mon.- Fri. between 8 a.m. and 10 p.m and Saturday and Sunday between 9 a.m. and 8 p.m. EST or visit www.gandermountain.com


2. Backpack Blowers by Homelite

Name of Product: Homelite Backpack Blowers
Units: About 85,000
Distributor: Homelite Consumer Products Inc., of Anderson, S.C.
Hazard: The fuel tank can leak gasoline, posing a fire hazard to consumers.
Incidents/Injuries: Homelite has received 18 reports of fuel tanks leaking gasoline including one report of minor skin irritation.
Description: This recall involves the Homelite Mighty Lite backpack blowers. The blowers are red and black.
Product Model: Manufacturing Date Codes Range UT08580: ATK1820001 through ATK3659999 UT08580A: ATL1530001 through ATL3669999, ATM0010001 through ATM1749999 The model number and manufacturing date code are printed on the blower's data label which is located on the red plastic housing above the choke knob and adjacent to the fuel tank. Products with a green "dot" on the outside of the package or the letters "CA" embossed on the fuel tank are not included in the recall.
Sold at: Home Depot stores and various retailers of refurbished products including Direct Tools Factory Outlets, CPO Homelite, Gardner, Tap Enterprises, Isla Supply and Heartland America stores nationwide from September 2007 through October 2009 for between $90 and $140.
Manufactured in: China
Remedy: Consumers should stop using their backpack blowers immediately and contact Homelite for the closest dealer location to schedule a free fuel tank replacement.
Consumer Contact: Homelite Consumer Products, Inc. at (800) 242-4672 between 8 a.m. and 5 p.m. EST Mon.-Fri. or visit www.homelite.com

3. Bicycles by Easton Sports

Name of Product: Bicycles with EA30 Stems
Units: About 6,400
Importer: Easton Sports, of Scotts Valley, Calif.
Hazard: The bicycle stem can crack and cause the rider to lose control, posing a risk of serious injury if the rider falls.
Incidents/Injuries: The company received a report of a stem breaking, causing a minor injury to the rider.
Description: This recall involves all Raleigh 2007, XXIX 700c MTN, RX1.0, Diamondback 2007, Mission, and Sortie bicycles with EA30 stems. The EA30 stems are black with white-and-gray graphics and feature a four-bolt stem face cap."EA30" is printed on the stem. EA30 stems sold as aftermarket items are included in this recall.
Sold through: Independent bicycle dealers nationwide from August 2007 through August 2009 for between $500 and $1,200. Aftermarket stems were sold from August 2007 through September 2009 for about $30.
Manufactured in: China
Remedy: Consumers should immediately stop riding the bicycles and contact any authorized Easton Sports for a free replacement stem.
Consumer Contact: Eason Sports toll-free at (866) 892-6059 between 8 a.m. and 5 p.m. CT Mon.-Fri. or visit www.eastonbike.com

The U.S. Consumer Product Safety Commission is charged with protecting the public from unreasonable risks of serious injury or death from thousands of types of consumer products under the agency's jurisdiction. To report a dangerous product or a product-related injury, call CPSC's Hotline at (800) 638-2772 or CPSC's teletypewriter at (800) 638-8270.

Friday, November 13, 2009

Bond Market ABCs

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


In the media, we often hear that the stock market was up or down a certain amount of points. By “the stock market,” reporters are usually referring to the Dow Jones Industrial Average, an index of 30 very large companies that are supposed to represent the economy. I’ve never believed that was an accurate representation of the market since 30 mega cap stocks often don’t tell the story beneath the surface.

As a professional investment manager, we often compare our returns to the S&P 500, which represents the 500 largest companies in the U.S. and the most widely used benchmark in the industry. There are plenty of other indices that investors watch, from the small cap Russell 2000 to the large cap Russell 1000 to the all inclusive Wilshire 5000. Just remember that the Dow Jones Industrials may not always be the most accurate.

When we hear about the bond market, people are usually referring to the treasury bond market, those instruments issued by the U.S. treasury and backed by the full faith and credit of the U.S. government. And they come in all maturities from 3 month treasury bills all the way out to 30 year treasury bonds. Over the past decade or so, the benchmark bond has become the 10 treasury note. We often hear that the bond market lost a certain amount, like ¼ point, forcing yields higher. Remember, and this is the most confusing part to understand, when bond prices rise (good if you own bonds), bond yields fall and vice versa.

Unlike stocks, where most of the indices generally trend in the same direction, but to different magnitudes, bonds are all over the place. Besides treasuries, there is the government and agency bond market, which includes issues from Fannie Mae, Freddie Mac, Ginnie Mae, Federal Farm Credit and so on.

Next we have the municipal bond market, which acts much differently than treasuries and govies. The muni market is more economically sensitive than the previous two as it relies on the financial stability of the issuing entity. If tax receipts are on the rise, the price of those munis will likely rise as well. When the local economy falters or collapses, muni bond prices will as well since that local issuer may have trouble paying interest or repaying principal.

The last major muni bond crisis occurred during the fourth quarter of 1994, known as the Orange County Crisis. Orange County California began investing their money in non traditional instruments that took on significantly more risk than what was generally accepted to increase return. It worked without a hitch until some of their cutting edge strategies began to fail miserably. Once that little snowball rolled over the edge, it grew and grew rapidly, leading to an early December 1994 bankruptcy filing that sent shockwaves through not only the muni bond market, but the entire financial system.

Beyond the municipal market, you may have heard about the investment grade corporate bond market. These are bonds issued by companies, from IBM to GE to Microsoft, and carry a credit rating of BBB- or better. This market typically does not behave like any of three bond markets already mentioned, but does have some similarities with the stock market.

At the end of the food chain, there is the high yield or junk bond market, which is made up of companies with credit rating worse than BBB-. These usually have the highest risk of default, but also tend to offer the greatest reward. Legendary financier and former Drexel Burnham Lambert superstar, Michael Milken, is credited with really creating the modern day junk market from almost nothing into trillion dollar machine. If you know the story, he also was convicted of insider trading, securities fraud and racketeering as Drexel collapsed in early 1990. After being released from prison, he continued his philanthropy through the Milken Foundation and Milken Family Institute and remains a huge supporter of medical research. (Sorry for the digression)

Junk bonds usually behave more like stocks than any of their fixed-income counterparts. During massive bull market rallies in stocks, like we’ve been seeing since March and again during 2003, junk bonds offered comparable returns to stocks with much less volatility and downside movement. In fact, in 2009, many of the popular junk bond funds have outpaced their equity brethren!

When trying to determine if investment grade and junk bonds are cheap or expensive, many people turn to what’s called spreads. Analysts measure the difference in yield between the bond and a treasury instrument like the two year, five year and 10 year note. The smaller the spread, the less an investor is being compensated for taking on the risk of a non treasury issue.

In early 2007, the spread between treasuries and junk fell to an all-time low, meaning that investors were not worried about the companies defaulting and just wanted to reach for the most yield possible, forcing junk bond prices higher and higher. As we know, those bubble investors were severely punished with prices falling 30, 40, 50 and as much as 80% in less than two years!

Conversely, earlier this year and in early 2003, with the financial markets and economy in collapse, junk bonds spreads widened to levels never before seen. Astute investors picked up bonds yielding 15-20% and have been immediately rewarded with prices rallying as much as 50%!
If you have any questions or comments about any of the equity or fixed income indices or markets mentioned, feel free to email me at Paul@investfortomorrow.com

Friday, November 6, 2009

Bernanke & Co. Have Their Hands Full

(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.

Wednesday, November 4, 2009

U.S. Senate Votes to Expand Homebuyer's Tax Credit and Extend Unemployment Benefits

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 Announces $2.7 Million in Savings

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.

Sunday, November 1, 2009

Kids’ Allowance: The New Normal

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.

Friday, October 30, 2009

The Stock Market Pullback: A Primer

(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.

Thursday, October 29, 2009

Don't Burn Your Cash Buying Firewood

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.
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· 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.

Here's a Scare: Ghosts, Goblins and....Lawsuits on Halloween


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.