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 (

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: Please call 203-974-8474 or email 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.

· 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:

· Further information about purchasing firewood can be found in the Forestry section of the Department of Environmental Protection’s web site at:

· 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.

Friday, October 23, 2009

DEFLATION: The REAL Boogeyman to Fear

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

Over the past year, there has been so much talk about the coming inflationary problem. Some have even speculated that we would see hyper-inflation, like Zimbabwe, Argentina or the Weimar Republic post World War I, where we would need a wheelbarrow full of money just to go grocery shopping. I have not been in that camp. Rather, I am MUCH more concerned about the opposite of inflation, and that is deflation.

In the grand scheme of things, there is a very long-term cycle at play around the globe. If we start with inflation (prices going up and increasing) that leads to disinflation (prices going up at a slower pace). We then move to deflation (prices going down sharply) and finally reflation (prices going down at a slower pace). Our economies and markets tend to function best with mild inflation or disinflation.

At the most basic level, inflation involves too many dollars chasing too few goods, which causes prices to rise. Deflation, however, is too few dollars chasing too many goods. It’s a simple supply/demand analysis. Since late 1998, our economy has struggled with periodic bouts of deflation that really began with the explosion of the Internet. Think about it for a minute. Besides the convenience of shopping from your home or office, why do most people use the Internet? Because it’s cheaper for the exact same product! The Internet has actually caused many goods and services to decline, which is deflationary.

Look at computers, for example. I remember paying $2500 for laptop in the mid 1990s that wasn’t even 1/1000 as powerful as the one I am using right now for less money. Technology is actually a deflationary force that benefits the economy.

If I had to grade it, that sort of deflation would be considered mild or acceptable deflation. The problem we are facing now is much more serious. Every month the government releases a figure called Hourly Workweeks for Production and Non- supervisory Workers, which lets us know the average number of hours worked each week. During economic expansions, that figure tends to rise as companies have more demand and need to produce more so workers work more. It’s fairly simple.

Today, the average workweek is down to roughly 33 hours, which continues to make new lows month after month. Couple that with a dramatic decline in hourly earnings and the U.S. economy is left with wages at 1982 levels. Think about that. The average worker is making the same money as he/she did two decades ago! Since we already know that too few dollars chasing too many goods is deflation, this is not and has not been good news for years.

I have heard all the arguments that the Federal Reserve has printed TRILLIONS of new dollars and that is certainly inflationary. But that doesn’t accurately tell the story. I agree 100% that Helicopter Ben Bernanke & Co. are trying to print their way out of this mess. But they’re not even close. The credit market used to represent more than $50 trillion dollars. Yes, you read that right. $52T. That entire market has essentially been vaporized by the financial crisis. It really doesn’t exist anymore. The alphabet soup of products like CLOs, CMOs, SIVs, CDOs. POOF! Gone. May they rest in peace.

So if the global financial system lost $52T and our Fed, along with the European Central Bank and Bank of Japan printed roughly $10T, that’s still $42T that’s been removed the system, like a giant sucking sound! Try to fathom the global economy losing $42T of spending power. It’s not a pleasant thought! With the banks realizing trillions of dollars in credit write downs and the urgency to raise immediate capital for solvency, that doesn’t support too many dollars (inflation) in the system.

Going a step further, banks have reigned in lending (reducing credit), thereby hampering the economy from a “real” recovery by preventing money from freely flowing. Again, too few dollars in the system is deflationary. I guess this column wouldn’t be complete without mentioning housing, but that really is part of the whole credit market collapse. If the average person’s single largest asset is their house, and prices have been falling for several years, it only adds to the already worrisome deflationary condition.

Deflation is much more difficult to cure than inflation. It’s referred to as a spiral or black hole since once you get into it, gravity pulls you deeper and deeper in. There have only been two examples of this, the Great Depression and Japan for the past 20 years. World War II was the final fix for the Great Depression, but Japan has yet to find a way out. Non-Main Street experts have warned that Japan could actually remilitarize to try to solve their mess.

The most common medicine for deflation is abnormally low interest rates for long periods, coupled with running the printing presses 24/7 and enormously high government spending. In other words, exactly what’s been going on here for the past year. HOPE is one of the worst words to use when it comes to the financial markets or economy. But let’s all do it to make sure that the U.S. isn’t slipping into a deflationary spiral.

Next week: I’ll go to the other side of the spectrum and spend some time talking about inflation and what it really looks like.

Friday, October 16, 2009

The Dow at 10,000: Is It Time to Celebrate?

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

A few weeks ago, I wrote an article here entitled “Storms Brewing for the Stock Market”. The third quarter had just ended and that is always a good time for a quick review of your holdings and investment strategies. With the major stock market indices rallying from the March bottom, almost unabated, I opined that some trouble could be brewing around the corner this month.

To take it a step further and really pigeon hole myself, my analysis concluded that the small pullback that began in late September would soon wrap up and lead to a final, last gasp rally that peaked this week. Thankfully, the market decided to cooperate and the anticipated strength into this week arrived on schedule, thanks to Intel and JP Morgan beating earnings estimates.

So, are storm clouds still brewing or is Dow 10,000 cause to celebrate the all-clear signal? Let’s first analyze the original reasons that caused me concern for the market after this week. First, the two weeks before each earnings season officially begins with Alcoa, stocks tend to see some weakness as companies have a habit of pre-announcing bad news. Once that period ended and Alcoa beat Wall Street estimates, the market breathed a sigh of relief, more money flooded in to stocks and investors became even more positive.

The problem with people becoming very positive or negative (sentiment) on an asset class like stocks is that it typically comes at the end of a move. Right now, sentiment is very bullish on stocks and that’s not been a good sign looking ahead historically. Similarly, small-time traders who speculate in the options market are usually wrong and they’ve been positioning for further strength in stocks, another problem.

Today is monthly option expiration, the single day each month when options expire and no longer trade for that series. Historically, the stock market tends to follow the current trend during the week and reverse the following week. Since the market has been going up since last month, that means this week is generally a positive one, but next week should see some give back.

As I mentioned earlier, Intel and JP Morgan exploded higher after beating Wall Street’s earnings estimates. On the surface, that sounds like a reason to celebrate and expect more gains, but history shows that outsized moves like we saw based on earnings or a major economic release can lead to the end of a rally more than a continuation. Additionally, last earnings season was a blockbuster in terms of stock market performance and that’s rarely repeated back to back. The best the market can anticipate is neutral to slightly higher this quarter.

Total market volume (the number of shares traded each day on the New York Stock Exchange and NASDAQ) which is considered to be the horsepower of the market, has not exploded higher with price. Like a rocket ship running out of fuel before clearing the atmosphere, this is a warning sign.

Mutual funds typically end their fiscal years on October 31. When prices don’t behave as anticipated, mutual fund managers can flood the market with orders in both directions. I rate this more of a wildcard than negative sign.

Before you stop reading and start thinking that the bear market is about to jump out, grab and maul you, I don’t think that’s in the cards. When markets trend strongly in one direction, windows of opportunity periodically arrive to signal a reversal. During the bear market of 2007-2009, these windows arrived no less than seven times before finally taking hold and reversing to a bull market. The other times, we just saw corrective rallies within an ongoing major downtrend.
This month, a window of opportunity MAY be opening for a corrective decline to help the market wash away some of the excess. It would be healthy, welcomed and lead to another rally with higher prices into 2010. My initial read was that IF a correction took hold, it should be in the 8-15% range and wrap up sometime in late October to mid-November.

Before finishing up, as I always do when I have a forecast, I like to take the other side and figure out if and how I will be wrong. After 21 years in the business, I’ve learned the hard way that getting too attached to a certain market roadmap can be hazardous to your portfolio and business. The first that I am wrong will be if we finish the month at new highs with no sign of let up. This week’s rally has been a bit more powerful than I thought it would and maybe that’s the first hint that a full fledged 10%+ correction may not be in the cards. But that will be easy to analyze once we see how the first bout of weakness looks.

The number of sectors leading the market higher has only slightly diminished and that usually does not lead to a significant decline in stocks right away. And finally, the stock market has been closely following the pattern from 2003 when we last emerged from a bear market. After a bottom in March, stocks generally trended higher right into January 2004 with only an early summer pullback in its way. At some point this and all correlations diverge, but until it does, it pays to follow it.

So there you have it. Evidence has mounted that a window of opportunity is about to open for the largest decline since the bull market began in March. I’ll have more to add if and when we see the initial round of weakness, possibly next week.

Thursday, October 15, 2009

IRS Fall Tax Tips

IRS Offers Money Saving & Time Saving Tips

The Internal Revenue Service wants to remind taxpayers that the fall is a good time to conduct a review of their tax situation. Take into account the latest tax changes, check your withholding status and start organizing your records.

Remember to avoid any unsolicited e-mails claiming to come from the IRS. Don’t become a victim of “phishing” scams.

“Some tax breaks and a review of your current tax situation may result in a bigger refund or less taxes to be paid come tax time,” Gregg Semanick, the Connecticut spokesperson for IRS said in a statement. “The Internal Revenue Service offers these tax tips for you to consider.”

Don’t Miss Out on Recovery Tax Provisions

The Internal Revenue Service reminds taxpayers to take advantage of the numerous tax breaks made available earlier this year in the American Recovery and Reinvestment Act (ARRA). The recovery law provides tax incentives for first-time homebuyers, people purchasing new cars, those interested in making their homes more energy efficient and parents and students paying for college. But all of these incentives have expiration dates so taxpayers should take advantage of them while they can. For more information on the Recovery tax provisions, the IRS encourages taxpayers to go to the home page and access the Tax Benefits of the American Recovery and Reinvestment Act of 2009 section.

Educators Should Save Receipts for Tax Break

The IRS reminds teachers and other educators to save their receipts. The Educator Expense Deduction allows teachers and other educators to deduct the cost of books, supplies, equipment and software used in the classroom based on their receipts. Eligible educators include those who work at least 900 hours during a school year in an elementary or secondary school. Worth up to $250, the deduction is available whether or not the educator itemizes deductions.

IRS Offers Help to Small Business Owners

The small business section of provides a one-stop resource for information on starting, operating and closing a business. Whether a person is just considering opening a business or has years of small business experience, IRS provides a wide range of resource tools and educational assistance. The IRS also offers an "A-Z Index for Businesses" to assist small business owners in readily locating desired information. For more information, go to the Small Business and Self-Employed Tax Center on

Check Your Withholding Status at

The Internal Revenue Service encourages taxpayers to take a few minutes to check their withholding to make sure what is being taken out of their paychecks matches their projected taxes. If not enough is withheld; individuals will owe tax at the end of the year and may, in some cases, have to pay a penalty. If too much tax is withheld, they will lose the use of this money until they get their refund.

Individuals should check their withholding if there are significant personal or financial changes in their life. Many of these changes involve the addition or reduction of exemptions or a change in filing status that alters the tax liability, even if there has been no change in income. These changes include: marriage, divorce, birth or adoption of a child, purchase or sale of a new home, or retirement.

Other changes that can alter the amount that needs to be withheld include taking a second job, having a spouse go back to work, or receiving income not subject to withholding, such as rent, dividends, interest, or capital gains.

On-line assistance is available by clicking "IRS Withholding Calculator" on the “Individuals” page. With the help of current pay stubs and a copy of last year’s tax form, users can check to see if they are withholding the right amount. Information from this automated calculator can then be used to revise a W-4 with your employer.

Maintain Good Tax Records

You can avoid headaches at tax time by keeping track of your receipts and other records throughout the year. Good recordkeeping will help you remember the various transactions you made during the year, which in turn may make filing your return a less taxing experience. Remember, good recordkeeping will ensure you do not miss out on any tax deductions. Publication 552 will help you in knowing what records you need.

Don’t Get Hooked by “Phishing” Scams

The IRS reminds taxpayers not to become a victim of e-mail scams, referred to as phishing scams. Recipients of questionable e-mails claiming to come from the IRS should not open any attachments or click on any links contained in the e-mails. Instead, they should forward the e-mails to Remember, the IRS does not send unsolicited e-mails to taxpayers.

Visit Web site provides a wealth of information. You can access tax forms and publications; learn about electronic filing; check the status of your refund; c alculate the amount of withholding on your W-4; and, request an online payment agreement. You can even get information about a career with the IRS.

Best of all, you can access 24 hours a day, 7 days a week.

Recall Alert

The U.S. Consumer Product Safety Commission (CPSC) Thursday announced the following recalled products. Consumers should stop using recalled products immediately unless otherwise instructed.

1. Moser Enterprises Recalls Schwalbe Brand Bicycle Tires Due to Fall Hazard

Name of Product: Schwalbe Ultremo R Bicycle Tires
Units: About 5,000
Importer: Moser Enterprises of Canada
Manufacturer: Ralf Bohle GmbH of Germany
Hazard: The tire layers could separate causing the inner tube to rupture, posing a fall hazard to consumers.
Incidents/Injuries: None reported.
Description: This recall includes Schwalbe Ultremo R bicycle tires. "Schwalbe" and "Ultremo R" are printed on the sidewall of the tires.
Sold at: Bicycle specialty stores from April 2009 through May 2009 for about $75.
Manufactured in: Indonesia
Remedy: Consumers should immediately stop using bicycles with the recalled tires and contact their local bicycle dealer for a free replacement set of tires.
Customer Contact: Moser Enterprises toll-free at (888) 700-5860, between 9 a.m. and 5 p.m. (PT) Mon.-Fri.

2. SI Tech Recalls Diving Suit Hoses Due to Drowning Hazard; One Death Reported

Name of Product: Diving Air Hose for Dry Suits
Units: About 65,000
Manufacturer: SI Tech AB, of Brastad, Sweden
Hazard: The hose contains an insert that can dislodge during diving and restrict air flow to the diver, posing a drowning hazard.
Incidents/Injuries: SI Tech has received six reports of hose inserts dislodging, including one that was involved in the death of a diver in Los Angeles, Calif.
Description: This recall involves a dry suit inflation hose that connects a diver's dry suit to the air supply and allows for the pumping of air into the suit to set up a positive pressure arrangement to help keep it watertight. The hose contains an air flow restricting insert that may be either black, blue or green in color. The batch code is stamped on the threaded metal end of the hose. They were sold with dry suits and also sold separately.
Sold at: Diving equipment retailers and distributors nationwide from July 2006 through February 2009 for about $45.
Manufactured in: Sweden
Remedy: Consumers should immediately stop using diving equipment that contains the recalled low pressure inflation hoses and contact SI Tech for the location of an authorized dealer for a free repair which involves removal of the hose insert, or to receive instructions on how to repair the hose.
Consumer Contact: SI Tech at (877) 348-3529 (anytime).

3. Electra Bicycle Co. Expands Recall of Bicycles with Front Trays or Baskets; Trays and Baskets Can Come Loose and Pose Fall Hazard to Riders

Name of Product: 2009 Model Electra Bicycles with Front Trays or Baskets
Units: About 6,400 (3,000 units were previously recalled in March 2009)
Importer: Electra Bicycle Co., of Vista, Calif.
Hazard: The front tray or basket on the bicycles can come loose and contact the front tire, posing a fall hazard to riders.
Incidents/Injuries: Electra Bicycle Co. has received 15 reports of the front tray or the basket coming loose, including two reports of minor cuts and bruises.
Description: This recall involves the 2009 Delivery 3i, Delivery 8D, Holiday 3i, Holiday 8i and Surf 3i bicycles with front-mounted trays or baskets. The trays have an alloy frame with wooden slats. The baskets are wicker with a removable tote bag. The trays were sold as original equipment on the bicycles and as aftermarket items. The baskets were sold only as aftermarket items.
Sold by: Authorized Electra Bicycle dealers nationwide from October 2008 through August 2009 for between $600 and $750 for the bicycles and about $100 for after-market trays and baskets.
Manufactured in: Taiwan
Remedy: Consumers should immediately stop riding these bicycles and contact an Electra Bicycle dealer for a free inspection and repair of the trays that came as original equipment on the bicycles, or a refund for trays and baskets purchased as aftermarket items.
Consumer Contact: Electra Bicycle at (800) 261-1644 between 9 a.m. and 5 p.m. (PT), Mon.-Fri.

Friday, October 9, 2009

The Rush to Buy GOLD, GOLD, GOLD!

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

Now that gold has exceeded its all-time high set in March 2008, it’s become headline news. The media is just fascinated with the yellow metal. Gold bugs, whose answer to every investment question is “gold”, are screaming the virtues of owning gold from the rooftops, with prices north of $1000 an ounce. But let’s remember that as of today, the price is only up 17% year-to-date, roughly the same as the stock market.

So why all the fuss with gold? Why are investors so hypnotized by it? Does it belong in everyone’s portfolio?

First, let’s discuss how to own gold. For decades, investors were limited to the futures market to speculate on its direction. If people wanted to take possession of the metal, they typically bought coins from private dealers. While both methods are still used today, the explosion of exchange traded funds (ETFs) has allowed individual investors to act more like institutions by purchasing instruments that trade on the New York Stock Exchange with the State Street Global Advisors Gold Trust, GLD, being by far the most popular. It essentially represents 1/10 of the price of gold and trades like a stock on the exchange.

But there are inherent problems with each of the instruments listed above. Futures require a margin account and often trade at a premium to the spot price. That premium is based on the cost to carry the metal, i.e. interest rates and storage fees. Gold coins purchased through dealers also can trade far above the intrinsic or “real” value. When demand is high, like it’s been, some dealers will mark up prices 10-30% above what they are really worth. That’s their commission. And the GLD supposedly holds actual gold bars in safes, but there’s been speculation that it may not be 100% accurate - a topic for a different discussion.

Gold, like other hard assets such as copper, real estate, and oil does not pay interest or dividends. And as history has shown, owning these assets long-term has been a terrible investment. But tactically or more short-term, they have provided some outstanding opportunities.

In 1980, during the last bout of inflation, gold soared very quickly to $900. It then spent the next 28 years collapsing to $250 and rallying to $1000. So holding the metal all that time yielded you basically nothing in absolute terms. If you adjust for inflation of the past 28 years, gold needs to hit $2300 before it breaks even from 1980!

Many textbooks teach that gold is a great hedge against inflation. While it may have worked during a period in the 1970s, that is certainly no longer the case. If you are skilled in math or engineering, feel free to run the correlation between gold and the Consumer Price Index (CPI). You will be surprised to see the failure. Gold has also been viewed as a safe haven in times of crisis. The problem is that too many people never actually researched that theory to see how the metal actually performed. In 2008, a year in which no one on earth can argue we didn’t have a crisis, gold was a safe haven but still lost 5.8% in value.

So the $64 million question then is: Why is gold going up now? Seeking answers from the gold bugs is pointless since they always have reasons to own gold, even as it collapsed from $900 to $250. To begin with, gold does tend to perform well when there is lots of liquidity in the financial system. Liquidity is basically the amount of money available for investment. The more liquidity, the better the investing climate. With so much liquidity, the secondary instruments, like gold, silver, platinum, lumber, etc. end up receiving more dollars than normal. And because those aren’t usually large markets, it doesn’t take a sea of money to move price, like it does in treasury bonds or blue chip stocks.

Since early 2008, the U.S. Federal Reserve rammed short-term interest rates to essentially 0%, making money “free” to banks to borrow. As the crisis worsened they began running the printing presses 24/7 to flood the system with money, along with constructing some of the most creative and cutting edge programs in history to unclog the bowels of the financial system. The U.S. Treasury, not wanting to feel left out, also chimed in with a bevy of programs of their own.

This all led to a tsunami of liquidity in the global markets, which helped establish the market low in March. With the rising tide lifting all ships, gold certainly saw its share of the money. Additionally, many investors, myself not included, saw the torrent of free money in the system as very inflationary. I laughed when I heard people comparing our economy to that of Weimar Republic in Germany post World War I or Zimbabwe where hyperinflation was the order of the day with citizens using wheelbarrows of money to simply go grocery shopping.

I am on record on CNBC, WTNH and in my weekly newsletter that Ben Bernanke and his band of merry men would light up his best cigar, open a bottle of his favorite wine and do a celebratory dance if the Fed could somehow engineer some inflation, which my 6 year old daughter could fix. Bernanke & Co. is terrified of deflation, not inflation and that’s a topic for a different day.

What we’re seeing now is a wave of liquidity, not real, threatening inflation. For me to worry, we would need to see wages growing, not falling as they’ve been for some time. The average hourly workweek is down to roughly 33 hours per week and has been falling for years. That would need to be on the steady to worry about inflation. Global capacity utilization is only at 70%, not even at neutral levels let alone inflationary ones. And unemployment has more than doubled and is about to hit 10%, even by the government’s questionable calculation methods.

There is no real threat of inflation now or in the near future. Those who are buying gold to hedge against it will be disappointed. As I’ve said, gold is rallying along with most other instruments because there is so much money in the system. It’s also been strong because of the weak U.S. dollar. Gold is priced in dollars so currency weakness acts as a tailwind to global commodities priced in dollars, like the metals, energy and agriculture products.

History has shown that the best times to buy gold are when no one wants to own it, usually after a significant decline, like we saw in late 2008. That also coincides with market sentiment showing very few traders positive on the metal. For the past month, the sentiment surveys have consistently shown more than 90% bulls, not usually the time to initiate a position as the end tends to come sooner than later.

Sunday, October 4, 2009

3 Steps, 10 Minutes to Auto Insurance Savings

One area where consumers look to save money when times get tough is automobile insurance payments.

Lisa Lobo (pictured below), vice president of personal lines underwriting for The Hartford Financial Services Group in Southington, Connecticut, has some tips on approaches you can take without eliminating critical coverage from your policy to cut costs in the short run.

Step 1: Think Long-term

Most insurance companies think in the long-term, too, and offer additional benefits to consumers who have been customers for a long time.

Before switching carriers, check with your insurance provider to see if there are special savings for which you currently are eligible or might soon qualify.

Try to avoid losing protections that could put you in a financial hole in the event of an accident.

The most dangerous action a consumer can take, Lobo said, is to cancel or fail to purchase insurance coverage.

Step2: Delve into Discounts

Many auto insurance providers offer group plans from employers or through professional associations, business or alumni groups. "Compare apples to apples," Lobo said.

Some companies will give price reductions on policies that are paid in full, rather than monthly installments and some will break up the year into six-month payment intervals.

There also are family discount options when members of a household insure multiple vehicles under a single plan. Once a child comes of driving age or an aging parent or other relative moves into the household, that could have implications for policies. Elderly parents could receive credits for a limited driving status. "You need to make sure there's appropriate levels of coverage," Lobo said, adding that insurance companies must be notified of everyone who could be driving your vehicles.

"Many companies will rate on mileage and usage," she said. "It's going to depend on whether they're a full-time resident or there only six months of the year."

Providers also offer breaks to customers who enroll in plans for multiple products, such as automobile insurance and homeowner's or renter's insurance. "You can get credits for adding your home to the (auto) policy," Lobo said.

Keep carpooling in mind. Drivers who ride with others to and from work can benefit from low-mileage discounts on their policies. "Be considerate of the way yore automobile is being used. For example, for remote workers, maybe the vehicle isn't on the road as much. That's important because carriers use mileage and the way your vehicle is used for rating," Lobo said. "Working from home might change your usage."

Retired persons could be able to change from business use to pleasure use. "That's really where you want to take an assessment," Lobo said.

Consumers should inquire with carriers about other savings categories as well, such as defensive driver discounts, and reductions for hybrid vehicles or safety features such as daytime running lights. "It's making sure your carrier is aware of all the benefits in your vehicle when you bought it or if you've added something on," Lobo said.

Step 3: Pay Wisely

Don't delay in making payments. Late payments lower credit scores, which leads to more expensive rates.

An option for customers facing financial strain is raise the deductible. For example, if your deductible is $250 and you raise it to $500, then the collision and comprehensive coverage premium could be lowered by 15 to 30 percent, while maintaining protection in case of an accident. You should, however, be prepared to pay the higher deductible amount should something happen to the car and you need to make a claim.

Friday, October 2, 2009

Recall Alert

FOR IMMEDIATE RELEASE October 1, 2009 Release # 10-002

Firm's Recall Hotline: (800) 425-2966
CPSC Recall Hotline: (800) 638-2772

Diving Equipment Recalled by Halcyon Manufacturing Due to Drowning Hazard

The U.S. Consumer Product Safety Commission, in cooperation with Halcyon Manufacturing Inc., on Friday announced a voluntary recall of diving equipment. Consumers should stop using recalled products immediately unless otherwise instructed.

View the equipment here

Name of Product: Halcyon Diving Equipment
Units: About 20,300
Manufacturer: Halcyon Manufacturing Inc., of High Springs, Fla.

Hazard: The over pressure valves (OPVs) in the diving equipment could fail allowing the buoyancy compensator devices (BCDs) and the diver lift inflatable devices to leak, posing a drowning hazard to divers.

Incidents/Injuries: None reported.

Description: This recall involves Halcyon diving equipment including the Halcyon Explorer, Eclipse, CCR35, Evolve and Pioneer Buoyancy Compensator Devices (BCDs) and Halcyon Surface Marker Buoys (SMBs), Lift Bags, Diver Alert Markers (DAMs) Surf Shuttle and Diver Lift Raft Inflatable Devices. "Halcyon" is printed on the diving equipment.

Sold at: Diving equipment retailers and distributors from January 2006 through December 2008 for between $350 and $450 for the buoyancy compensator devices (BCDs) and between $50 and $275 for the inflatable devices.

Manufactured in: United States

Remedy: Consumers should immediately stop using recalled diving equipment and return it to an authorized Halcyon distributor or dealer for a free inspection and, if necessary, free replacement of the overpressure valve spring.

Consumer Contact: Halcyon at (800) 425-2966 between 8 a.m. and 5 p.m. ET, Monday through Friday.

Visit the firm's Web site or email the firm at

Storms Brewing for the Stock 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)

With the month of September and third quarter of 2009 just ending, it’s a good time to reflect on the financial markets and take stock of where we are and where we may be headed. As individual investors, it’s important to stay on top of your portfolios and I usually recommend doing this quarterly with more emphasis placed on the annual review. The vast majority of investors do not want or enjoy valuing their holdings daily, weekly or monthly, and frankly, that’s why you hire advisors. It’s our job to get you from day to day, week to week and month to month.

Since the March 6 bottom in the stock market, we’ve seen a truly historic rally across the board. It’s certainly been “the rising tide lifting all ships”. Unlike previous attempts to rally during the bear market, selling into strength has not been rewarded as the pullbacks have been very brief and shallow. That in itself was an indication that the character of the stock market was changing in April and May.

By the time June came, a very important hurdle was overcome. In most bear markets, rallies do not last more than 11 weeks. Once we got past that point, it was further confirmation that the overall tone of the market had changed from down to at least neutral, if not up. And similar to 2003 when we last emerged from a bear market, the early June peak led to some much needed digestion or consolidation over the next month or so.

Since the last decent low in July, we’ve seen the stock market embark on another nearly vertical run to its mid September high. Similar to what we saw coming out of the March bottom, anyone who sold into the rally was not rewarded and forced to either chase the rally higher or sit uncomfortably with cash during a rising market. As someone who made what I felt were good sales at the time and held some cash, I would much rather wish I had more skin in the game than get stuck during a collapse with too much on the line!

Fast forward to today and for the first time since the rally began in earnest, there are some storm clouds brewing on the horizon. To begin with, several sentiment surveys have come full circle, now showing far too many bulls versus the bottom in March when we saw almost all bears. Similarly, small-time option traders, the ones I commonly refer to as mom and pop, have been exhibiting very bullish tendencies of late.

None of the behavior above can be construed as positive for the market since it usually occurs near market peaks, not valleys. Think of it this way, when everyone is sure of a particular outcome, how often do we see the opposite happen. It’s worse in the financial markets. If the masses are very positive, wouldn’t that mean they already invested and have little cash left to propel things higher? If everyone bought a blue Toyota this year because it got 1000 miles to the gallon and all service was free, who would be left to buy next year?

Besides sentiment not being favorable right now, the stock market has lost “the rising tide lifting all ships”. Typically, as rallies get long in the tooth, we see fewer and fewer sectors keeping pace and leading the charge higher. And those that turned early, say in January or February, will likely turn early before the rest of the market begins to correct. That’s certainly the case now with the Chinese market underperforming. Here in the U.S., the housing stocks, transportation, materials, energy, agriculture, metals and mining have all begun to lag the indices, signaling a “tired’ stock market in need of rest. Should the various technology groups begin to follow suit, it won’t be long before a widespread correction sets in.

Finally, the catalyst for the summer rally was based on earnings that were better than expectations and much “less worse”. With earnings season officially starting on the 7th at 4:00 pm with Alcoa, the likelihood of a repeat performance is remote. At best, history says we can expect a neutral period, but most of the time, following such strength, the next period is weak.

Add it all together and I come up with the best opportunity for a correction since the bull market began in March. If I had a crystal ball, it would say that stocks are in the topping process and should be completed by the 16th. If the correction appears, it should be the most significant since March, taking 8-15% off the major indices. In Dow Jones Industrial numbers, that’s a decline of 800-1500 points that should wrap up sometime in late October to mid November.

For those curious as to why I have such a big range in the numbers, it’s because it’s tough to pinpoint the downside target until we begin to see some weakness and how investors behave. If people use the 8% decline to buy and become even more positive, that opens the window for another 8% lower to clean out the weak-handed holders and get folks to worry more that their recent purchases will be losers. If, on the other hand, after an 8% correction, the media is talking about the end of the bull market and much lower prices to come, chances are the correction is over already.

The good news is that if we see a correction in stocks, it should only serve as a much needed and healthy pause to refresh, with higher prices to come later this year and in early 2010. If by some chance, we get to Halloween without any weakness, the window of opportunity for a significant correction will likely close until the New Year.

Thursday, October 1, 2009

Help for Delinquent Consumers

Consumer delinquency rates in the third quarter hit record highs across the three key categories of home equity loans, home equity lines of credit and bank cards, the American Bankers Association said Thursday.

The ABA’s Consumer Credit Delinquency Bulletin defines delinquency as a late payment that is 30 days or more overdue.

Bank card delinquencies rose 26 basis points to a record 5.01 percent of all accounts. Record delinquency rates occurred in home equity loans - up 49 basis points to 4.01 percent of all accounts – and in home equity lines of credit – up three basis points to 1.92 percent of all accounts.

The association’s composite ratio, which tracks eight closed-end, installment loan categories, also hit a record high at 3.35 percent of all accounts (seasonally adjusted), compared to 3.23 percent of all accounts in the second quarter.

A closed-end loan provides a fixed amount of money with a fixed repayment period and regularly scheduled payments.

ABA Chief Economist James Chessen said in a statement that the high consumer credit delinquency rates represent the cumulative effect of the longest recession since the Great Depression.

“Six consecutive quarters of job losses have taken their toll,” Chessen said. “With jobs lost and work hours cut, it doesn’t take long for the financial pressure to become overwhelming. Falling behind on debt payments is an unfortunate side effect of high unemployment and a frozen job market. The picture won’t change until the labor market improves and the economy picks up steam. This is going to take time.”

Auto loans also saw payment declines, however, there was some improvement in the third quarter.

Direct auto loan delinquencies fell 55 basis points to 2.46 percent of all accounts and indirect auto loan delinquencies – which are on loans arranged through auto dealers - dropped to 3.26 percent of all accounts from 3.42 percent in the previous quarter.

“The good news is that consumers are clearly being more cautious by saving more, spending less and making great efforts to repair their balance sheets,” Chessen said.

A new survey of public views on the economy, released this week, showed that 57 percent of Americans are close to someone who has been laid off, 61 percent report that someone close to them has had their hours or pay cut and 44 percent of all households have experienced one or the other during the past year.

The "Tracking the Recovery" survey was conducted among 802 registered voters nationwide from Sept. 21 to 23 by Hart Research Associates for the Economic Policy Institute, a think tank in Washington, D.C. that researches the impact of economic trends and policies on working people in the U.S. and worldwide.

Donald Klepper-Smith, chief economist and director of research at DataCore Partners LLC in New Haven, said that in the current economic environment, every dollar counts and every job counts.

“As unemployment rates rise and incomes remain stagnant, I think we’re going to continue to see increases in non-performing loans,” Klepper-Smith said.

Here are some tips from the ABA on managing debt:

For homeowners having trouble paying their mortgage, the American Bankers Association "strongly recommends" you consult HOPE NOW, an initiative coordinated between counselors, investors and lenders to help homeowners in distress. Call 1-888-995-HOPE.

For others who are having trouble paying down debts, ABA advises taking action -- sooner rather than later -- to solve debt problems:

· Talk with creditors – the sooner you talk to them, the more options you have;
· Don’t charge more purchases until your problems are solved;
· Avoid bankruptcy – it’s a short-term solution with long-term consequences; and
· Contact Consumer Credit Counseling Service at 1-800-388-2227.

For more information on budgeting, saving and managing credit, visit the ABA Education Foundation’s consumer web page.

Navigating Life, Navigating Insurance

Be it going off the college, getting married, starting a family, buying or junking a car or settling into retirement, insurance needs can change with life's milestones.

Lisa Lobo (pictured at left) , vice president of personal lines underwriting, for The Hartford Financial Services Group in Southington, Conn., has several helpful tips to offer you on savings options and policy provisions to consider with certain life events.

One big influence on insurance costs is when you tend to pay your bills. If, for example, rent or mortgage or utility payments are late, then that will affect your credit score and have a bearing on the cost of insurance policies. Credit scores are factored in when insurance companies determine rates.

So, let's examine some of the changes that can affect your insurance needs.

  • Getting Married. This is an important time for you and your new spouse to take an inventory of individual, joint and new possessions - such as engagement and wedding rings - to make sure these items, and any other high-value possessions or gifts, are protected. "Know what each spouse is bringing into the household," Lobo said. One option is a personal articles floater policy. This is a separate policy from your homeowners or renters insurance that raises the coverage limit for personal items and protects from other potential problems, such as when an expensive item is lost or stolen. "They should consider multi-car discounts on car insurance. There are credits to adding the home to the (auto)policy," Lobo said. "I would suggest that they bring their assets together." Having insurance policies in both names means that in the event of a death, they automatically transfer to the surviving spouse. When it comes to health coverage, Lobo recommended assessing the benefits each spouse receives and whether you want to seek additional coverage beyond those plans.

  • Having a baby. At this point, it's especially important to make sure you have a valid will and expand your life insurance coverage so your child may be provided for if something happens to you, and to ensure that your spouse has the resources to continue to care for your child. "Take stock in everything that you have, and think: If I'm out of the picture, if my spouse is out of the picture, what will the need be?" Lobo said.

  • Sending a Child to College. Once your children head out on their own and prepare for their future careers, there are considerations for automobile, health and renters insurance. Will your children have health insurance through a collegiate plan if attending an out-of-state school or can they remain on a parent's policy during their school years? Will they need renter's insurance for an off-campus apartment? As an example of a savings opportunity, if your son or daughter won't be driving a vehicle while in school, then your premium could go down significantly. "There will be some benefit if your child will have no access to your vehicle or won't be the primary driver," Lobo said. Also, most insurance companies offer discounts for students with good grades.

  • Retiring. The decision to retire affects almost every aspect of life from income and spending to investments and saving to insurance. Driving less could cut costs and some home insurance companies provide automatic discounts for retirees or perks for living in a gated or retirement community. The chance of theft could be viewed as diminished due to greater presence around the home or spending more time at home, Lobo said.
  • Losing A Spouse. This can be one of life's most difficult changes. This grief is intensified when the surviving spouse is forced to take on a new role in managing the family finances. While life insurance is the primary consideration in this situation, it is also important to speak with a financial advisor on any changes that need to be made to your investments. In addition, this is a time to remove your spouse from insurance policies and change beneficiaries if a secondary beneficiary has not previously been named. "You will continue to pay for that spouse until we know they're no longer on the policy," Lobo said.

For auto and homeowners insurance, The Hartford offers trained customer service representatives and resource guide books to assist older adults with managing the financial decisions and changes that result from becoming a widow or widower.

Coming Sunday: Lisa Lobo offers "3 Steps, 10 Minutes to Auto Insurance Savings"