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 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

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

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 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 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, 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

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.


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

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. 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 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. ( ) 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

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 Related Items: IRS YouTube Videos: Recovery: New Homebuyer Credit, November 2009