Financial Regulation Follow Up… Good News!

(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 a follow up to last week's contribution, Financial Regulation...What It Means to You and America, I want to add two follow up points. As you may have read, I was outraged that absolutely nothing was being done to address two of the main drivers of the financial crisis, Fannie Mae and Freddie Mac. It was irresponsible for Congress to totally take a pass on that gargantuan, systemic problem. Thankfully, others felt the same way!

Earlier this week, the Obama Administration announced that a special conference will be held on Aug. 17 at Treasury to specifically address Fannie Mae and Freddie Mac. I fully applaud this effort and hope there will be bipartisan participation to solve this catastrophic mess that could end up costing the U.S. taxpayer almost one trillion dollars!

Judging by what Barney Frank recently said, I expect the implicit government guarantees to be removed in either one fell swoop, or staggered over a period of a few years. From there, it’s likely that the two behemoths would be broken up in some fashion into smaller entities which could not jeopardize the housing market or financial system if they failed.

I also want to mention another piece of the bill that makes perfect sense to me and I wholeheartedly support. It’s placing the fiduciary standard on ALL financial advisors. Although aggressively fought with enormous lobbying dollars by the major wirehouses, like Merrill Lynch, UBS and Citi, the law of the land will now force brokers to act in the same capacity as registered investment advisors (RIAs) by placing their clients’ interests ahead of their own.

(For full disclosure and transparency, I am an independent, fee only registered investment advisor or RIA. The only way I get paid is by my clients. I do not sell financial or insurance products and do not collect commissions of any kind.)

I am sure many of you always assumed all financial advisors were the same, but that was far from true. The change in the law further protects you and increases the duty to which advisors must act. For decades, only RIAs were required by law to put their clients’ best interests ahead of their own. As long as the investment was considered “suitable”, a broker was free to sell it, regardless of size of commission earned, expense ratios or possibly performance.

Fiduciaries, on the other hand, are supposed to sit side by side with their clients without obvious conflicts of interest. Plainly put, fiduciaries are supposed to do right by their clients are have been held to a much higher standard than brokers. With the passage of this legislation, the rest of the industry, more than 90%, will be now held to the fiduciary standard, a huge win for individual investors!

Don’t get me wrong. There is nothing bad about doing business with a broker as long as all of the details are transparent and properly disclosed in plain English. As a client, you should know and understand exactly what you are buying, the fees, expenses, commissions and any penalties. There are plenty of brokers who do it the right way, but also a good number who look out for themselves first.

As I mentioned earlier this summer, I am working on an interview I did with Spencer Tillman, playfully titled, Superman is Alive and Well and Living in Sugarland Texas! I hope to have more details next month.

I am scheduled to be on CNBC’s Squawk on the Street this Tuesday, Aug. 3rd, around 9:35 am.

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

Until next time…

Paul Schatz
Heritage Capital LLC
http://www.investfortomorrow.com/
http://RetirementPlanningConnecticut.com/

7 Debt Managment Tips for College Grads

This year, college graduates are facing a merciless job market and that makes it all the more critical to handle debt advantageously.

According to Freedom Debt Relief, two-thirds of students graduated with some educational debt in 2008, with an average debt of more than $23,000. Since average cumulative educational debt is increasing by 5.6% a year, that total is likely almost $26,000 this year.

The projected total U.S. student loan debt outstanding for fiscal year 2010, when both public and private loans are included, is about $763.4 billion. Put another way, that's $2,704 for every person in the nation.

Those figures do not include other debt, such as credit card debt or loans.

In fall 2009, 84% of students had at least one credit card, and half of them had at least four credit cards. The average undergraduate has $3,173 in credit card debt before even leaving school.

"These statistics make it painfully clear that many college graduates have far more than the average debt," said Kevin Gallegos, vice president of Freedom Debt Relief. "This year’s graduates are entering one of the toughest job markets in our nation's history, and it is crucial that they know what to do to handle their debt in the coming months and years."

Freedom Debt Relief provides consumer debt settlement services and is a subsidiary of Freedom Financial Network, based in San Mateo, Calif. The company is a member of The Association of Settlement Companies and the International Association of Professional Debt Arbitrators.
Here are seven pointers from the company on how to handle debt responsibly:

1. Pay on time.

Paying bills on time is the No. 1 way to build a strong credit rating – and avoid getting into more debt. "The track record graduates establish in the first years of working and paying bills will help build a stronger financial future," Gallegos said. "Setting up a system to support good record-keeping and paying bills on time is extremely important."

2. Be aware of income-based loan repayment options.
Graduates (and students) who are struggling with debt have some options for getting relief with student loan debt if their loans were issued by the federal government program. As of July 2009, an income-based repayment plan caps the amount graduates must pay on student loans at 15 percent of discretionary income. After 25 years, any remaining balance will be forgiven.

If the borrower works in public service, the balance can be forgiven after 10 years.

3. Pay credit card debt first.

First and foremost, use caution when using credit cards, and if already paying off student loan debt, it is helpful to put away the cards completely to avoid racking up more debt. Using cash or a debit card for most purchases helps anyone stay within a healthy budget.

For new grads who have already incurred credit card debt, there is no better investment than paying this debt off, as credit cards typically carry extremely high interest rates (typically 15 percent to 30 percent).

4. Pay other loan obligations next.
After credit cards, graduates should pay other debt -- like personal loans and auto loans -- as quickly as possible. "If you must pay interest, you are better off paying it on student loans, where you can receive a tax deduction, rather than on consumer loans, which offer no tax benefit," Gallegos said.

5. Take tax benefits.
Most new graduates can deduct up to $2,500 per year in student loan interest payments. In 2009, the deduction phased out for taxpayers with annual incomes between $60,000 and $75,000 ($120,000 to $150,000 for those filing joint returns). A tax advisor can help graduates receive all the education-related deductions and credits for which they qualify.

7. Know what to do if paying is not possible.
Students who cannot pay student loan obligations should immediately contact the lender. Many student loans can be deferred for a time, although interest will continue to accrue. Do not stop paying the loan -- this is called "default," and damage from defaulting can prevent borrowers from buying a home or car or getting a job, apartment or insurance for years to come.

Six Tax Benefits for Job Seekers

The top challenge in our economy is getting people back to work.

There are millions of taxpayers taxpayers who are spending the summer months searching for employment, so I thought I would pass along these tidbits from the Internal Revenue Service on job search expenses that can be deducted.

Hopefully, these are helpful:

1. To qualify for a deduction, the expenses must be spent on a job search in your current occupation. You may not deduct expenses incurred while looking for a job in a new occupation.

2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.

3. You can deduct amounts you spend for preparing and mailing copies of your résumé to prospective employers as long as you are looking for a new job in your present occupation.

4. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.

5. You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.

6. You cannot deduct job search expenses if you are looking for a job for the first time.

For more information about job search expenses, see IRS Publication 529, Miscellaneous Deductions at IRS.gov or call 800-TAX-FORM (800-829-3676).

Financial Regulation...What It Means to You and America

(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 expected, financial regulation recently was passed in Congress and President Obama has signed that into law. As I discussed in Politicians Run Amuck… Again, my overall view is that something is better than nothing, but this bill is far, far from perfect. Historically, sweeping reform often comes with unintended consequences and this bill, just like health care reform will have its fair share.

To be clear, I have not read the almost 2000 page bill. My conclusions are drawn from a variety of research and commentary from both sides of the political aisle. I don’t want to rehash most of what I already wrote about, but there will be a few repetitive comments. First and most importantly, shame on Congress for totally and unequivocally kicking the can down the road on Fannie Mae and Freddie Mac. That is appalling! Two of the main ingredients in the financial crisis are passed over? Is Congress kidding, scared of what they may find or helpless?

President Obama pounded the table that “too big to fail” is over and we will NEVER again use taxpayer money to bailout failing institutions. Does anyone really believe that to be the case? You mean to tell me that if J.P. Morgan was on the brink of failure and needed a government backstop, the administration wouldn’t step up? That’s beyond naive to accept. We all know that Uncle Sam, whichever party is in control, would kick and scream but still come to the rescue.

I know what’s in the bill, giving the Fed and FDIC new and extraordinary powers to orderly unwind a failing institution (something I totally favor), but I just don’t buy it in times of crisis. There is no way, in my opinion, that anyone in government could have safely unwound Lehman Brothers to protect the system. And while a “bailout fund” may be created from this bill, who do you really think will end up paying for it? The banks may cut the checks, but that will certainly result from higher fees and charges to us!

The bill does address derivatives, by requiring banks to spin off certain groups under their control and move some trading to exchanges and clearing houses. Longer-term, I have to agree with this as it removes one element of potential financial Armageddon. But it does not come without cost. By spinning off these departments, banks will be required to capitalize (inject money) the new entities, further straining their own capital and reducing the amount of money to lend. That is called credit contraction, something we’ve been unsuccessfully fighting for three years. Less and tighter credit in the system will negatively impact economic growth in the short-term until the banks replenish their capital base.

The bill also limits banks from investing more than 3% of their capital in hedge funds and private equity. This provision was interesting as it suggests that somehow the hedge funds and private equity shops were a cause or accelerant in the crisis, something that is simply not true. I don’t really care if this is law, but like most major changes, it should be phased in over a period of years. I do believe it will end up hurting bank earnings.

FDIC insurance was raised to $250,000, something that I applaud and makes perfect sense. That should help keep or increase customer deposits in banks (CDs, money markets, etc.), adding revenue and strengthening their base.

A new consumer protection agency/department is being created under the Fed as I understand it. Folks, we have enough governmental agencies, units and departments to last 100 lifetimes. We need another one like the Pacific Ocean needs more water! This country will never fully recover from our economic malaise until government begins to shrink and the private sector starts expanding. Interestingly, although auto dealers originate 80% of auto loans, they were exempted from this bill. That’s somewhat dubious from my seat!

I was surprised that few people talked about one of the root causes of the crisis, leverage. Over the years, the banking and mortgage industry have created all sorts of non conventional, fancy, outside the box products that few, if any, really understood or knew how to use. If Congress really wanted to prevent another housing bubble and fix the current problem for the long-term, they should have considered requiring 20% down on all mortgages. Yes, I know that many people could not afford it, but that’s exactly what used to be the norm before we decided that owning a house was part of our right of passage in this country.

In the short-term, it would further depress an already depressed sector, but it would also begin to create a very long-term, stable and constructive housing market for decades to come. Like addressing Fannie and Freddie, this would not be politically popular (so probably very smart!) and therefore not interest the vast majority of politicians only interested in reelection, pandering to the media and special interest.

As I said, overall, the bill is something and it’s probably better than nothing, but by no means the final answer. I believe it is deflationary in the short-term and will lead to further credit contraction and harm to the economy. Financial institutions are creative, cagey and shrewd, employing some of the smartest minds on earth. Longer-term, they will likely adapt and adjust, find loopholes to make up for lost profits. I just hope that we don’t drive too much business to other shores.

I am scheduled to be on CNBC’s Worldwide Exchange this Tuesday, July 27th, from 5:35am to 5:55am.

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

Until next time…

Paul Schatz
Heritage Capital LLC
http://www.investfortomorrow.com/
http://RetirementPlanningConnecticut.com/

Better or Worse to Die in 2010?

(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 stock market continued to rally over the past week and is up roughly 8% from the low on July 1 as I write this. As is usually the case coming off a significant bottom, the “easiest” money has been made with the initial snapback being the most vertical portion of any rally.

With Q2 earnings season coming in full bloom next week, it’s going to be very interesting to see market reaction more than what the actual earnings are. The reports should be fantastic, but the corporate guidance is more important. Stocks certainly could run further in the short-term, but a quick period of digestion is needed sooner than later to keep the nascent rally alive.

In my 11 Shockers for 2010, #7 was that treasury bonds end up as a top performing asset. So far, that asset class is up nicely on the year and continue to behave constructively. As hard to believe as it is, those boring bonds are up more than 10% since the beginning of April and still look appealing into any decent bout of weakness.

Now, on to the unusual estate tax issue…

So far, Congress has failed to reenact estate taxes for 2010, but that doesn’t necessarily mean no tax consequences for heirs in 2010.

Yes, estate taxes and generation-skipping transfer taxes were repealed at the end of 2009. Without Congressional action, they will be back in 2011 at rates from a decade ago of $1 million exempt from taxes and 55% taxes on the remainder. While Congress could pass estate taxes retroactive to January 1, 2010, the more time that passes from the start of the year, the messier that becomes to implement.

Barring new legislation, where taxes still come into play for a 2010 estate is cashing out an inheritance. Items sold from a 2010 estate will be taxable based on their original price. Inherit 1,000 shares of Amazon purchased in 1997 for $18 and sell them today for $130 per share, and you will have taxable gains of $112,000. At the 15% capital gains tax rate, $16,800 could be payable in capital gains taxes on the inheritance. As a result, individuals who might not pay estate taxes under even a $1 million exemption, may find themselves with a taxable inheritance.

The real problem for estates in 2010 will be wills designed to pass as much of the estate through tax free as possible. For example, a will might state that 100% of the estate that could be passed on tax-free be distributed to a designated charity while the remainder goes to the surviving spouse. Today, that could mean nothing for the surviving spouse.

I am scheduled to be on WTNH’s Good Morning Connecticut this Saturday, July 17th, at 7:35 am discussing what investors should do during the second half of 2010. You can view all of our past media appearances, good, bad and disastrous right here.

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

Until next time…

Paul Schatz
Heritage Capital LLC
http://www.investfortomorrow.com/
http://RetirementPlanningConnecticut.com/

Closing deadline extended to Sept. 30 for first-time homebuyer tax credit

The Internal Revenue Service released a statement today saying that taxpayers who entered into a binding contract before the end of April now have until September 30, 2010 to close on the home.

The Homebuyer Assistance and Improvement Act, which went into effect on July 2, 2010, extended the closing deadline for eligible home buyers who entered into a binding purchase contract on or before April 30 and were required to close on the purchase on or before June 30.

Here are five facts from the IRS about the First-Time Homebuyer Credit and how to claim it:

1. If you entered into a binding contract on or before April 30, 2010 to buy a principal residence located in the United States you must close on the home on or before September 30, 2010.

2. To be considered a first-time home buyer, you and your spouse – if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.

3. To be considered a long-time resident home buyer, your settlement date must be after November 6, 2009 and you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased.

4. The maximum credit for a first-time home buyer is $8,000. The maximum credit for a long-time resident home buyer is $6,500.

5. To claim the credit you must file a paper return and attach Form 5405, First Time Homebuyer Credit, along with all required documentation, including a copy of the binding contract. New homebuyers must attach a copy of the properly executed settlement statement used to complete the purchase. Long-time residents are encouraged to attach documentation covering the five-consecutive-year period such as Form 1098, Mortgage Interest Statements, property tax records or homeowner’s insurance records.

For more IRS information about the First-Time Homebuyer Tax Credit and the documentation requirements, go here.

Gold Continues Safe Haven Status

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

Before I get to the theme of today’s post, I wanted to offer a quick stock market update. Several weeks ago in Let's not Forget the Dead, I mentioned that our investment models raised some warning flags and although I still had a generally positive “feel” on stocks, we did some significant selling around Dow 10,400 and S&P 1116 to carry at least 50% (if not more) cash in most portfolios.

That changed last week as the 8-10% decline across the major indices was enough for our models to start putting money back to work on July 1. While I do not believe this is the launching ground to new 2010 highs, the odds do favor a 5-10% rally over the coming weeks as earnings season officially kicks off next week with Alcoa. This is one period where I will be dancing very close to the door and not be overexposed to risk.

Now, on with the “meat” for today…

Although the second quarter of 2010 was not kind to the equity markets, the forces that be rewarded precious metals investors, along with their cousins in the gold and silver mining stock sector. Gold tacked on another $100 plus as fears over a European sovereign debt default saw Euro currency investors run for the exits under the cover of gold and the U.S. dollar. But wait… gold and the dollar rallying together? Don’t they always trade inversely (opposite) like the rest of the commodity space? They usually do during “normal” times, but these times are far from anything “normal”.

Gold and the dollar (including U.S. treasuries) have been some of the few safe havens this year in the financial markets. What’s different now from 2008 is that during the deflationary, panic-driven collapse that hit after Lehman’s bankruptcy, all assets except for the Japanese Yen and U.S. treasuries were decimated, including precious metals. This year, and specifically since the April peak in the stock market, the metals complex was added to the “protected” list.

Although our posture on gold often swings from very positive to very negative (and everywhere in between), we’ve been bullish over the intermediate-term since our contribution entitled Gold Getting Ready for Another Assault. At the same time, and over the past three years, we’ve remained very negative on inflation, meaning that we do not foresee any meaningful rise for the foreseeable future. While that may run counter to your intuitive thinking, gold and the Consumer Price Index (CPI) do not have a very strong historic correlation, which says that gold is not the perfect hedge against inflation.

Since its major bottom in October 2008, gold has rallied roughly 85% without any sign of inflation. At the same time, the dollar is essentially unchanged. We believe that gold’s shine during the attempted, but failed, reflation by the Fed as well as its performance during the current mild deflation continues to indicate a solid bid (underlying strength) beneath the market as global investors seek refuge from paper currencies. Until that sentiment changes with another tsunami of powerful, deflationary deleveraging, precious metals can continue to be bought into normal, routine and healthy bull markets corrections, like the one we are currently seeing.

I am scheduled to be on CNBC’s The Call this Monday, July 12th, between 11:05am and 11:20am. You can view all of our past media appearances, good, bad and disastrous right here.

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

Until next time…

Paul Schatz
Heritage Capital LLC
http://www.investfortomorrow.com/
http://RetirementPlanningConnecticut.com/

Consumer loan delinquencies decline for third consecutive quarter

During the first quarter of 2010, consumer loan delinquencies showed improvement for the third quarter in a row, a sign of continued modest improvement in the U.S. economy, according to the American Bankers Association’s Consumer Credit Delinquency Bulletin.

Released Wednesday, the delinquency bulletin tracks delinquencies in eight closed-end installment loan categories. The composite ratio fell 21 basis points from 3.19% in the fourth quarter of 2009 to 2.98% of all accounts in the first quarter of this year.

The ABA report defines a delinquency as a late payment that is 30 days or more overdue. A closed-end loan involves a fixed amount of money with a fixed repayment period and regularly scheduled payments.

Bank card delinquencies fell more than half of one percent to 3.88% of all accounts which is below the 15-year average  of 3.93% of all accounts. This is the first time since the second quarter of 2002 that bank card delinquencies have fallen below 4% of all accounts.

ABA Chief Economist James Chessen said the improvements reflect concerted efforts by consumers to shore up their finances. “It’s clear that consumer balance sheets are improving. People are borrowing less, saving more and building wealth. These are all positive signs, ” he said.

Chessen added that across-the-board improvements in housing-related loan delinquencies indicate stability is returning to the housing market. “This is the first inkling that stability is taking hold in the housing market, but the pace of recovery will still be long and drawn out,” Chessen said.

Home equity loan delinquencies fell for the first time in two years to 4.12% of all accounts from 4.32% in the previous quarter. Home equity lines of credit delinquencies fell nearly a quarter percent to 1.81% of all accounts from 2.04% in the previous quarter. Property improvement loan delinquencies fell to 1.40% of all accounts from 1.63% in the previous quarter.

“The overall risk in banks’ consumer loan portfolios is improving and will continue to do so,” Chessen said. “Banks are putting losses behind them and following a prudent approach to new loans because the on-again, off-again economy is keeping risk high. Regulators are also demanding that banks remain cautious. With job growth creeping back slowly and personal incomes rising a bit, I’m hopeful that improvements in consumer delinquencies will continue.”

The first quarter 2010 composite ratio is made up of the following eight closed-end loans.

Here is a breakdown of both decreased and increased delinquencies among closed-end loans during the first quarter, according to ABA figures:

Decreased Delinquencies:

· Direct auto loan delinquencies fell from 1.94% to 1.79%.

· Indirect auto loan delinquencies fell from 3.15% to 3.03%.

· Home equity loan delinquencies fell from 4.32% to 4.12%.

· Personal loan delinquencies fell from 3.63% to 3.61%.

· Property improvement loan delinquencies fell from 1.63% to 1.40%.

Increased Delinquencies:

· Marine loan delinquencies rose from 1.63% to 1.93%.

· Mobile home loan delinquencies rose from 3.41% to 3.65%.

· RV loan delinquencies rose from 1.44% to 1.58%.

If you are struggling to pay down debt, the ABA recommends taking action sooner rather than later to resolve problems. Here are some tips:

· 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 Services at 1-800-388-2227.

Politicians Run Amuck… Again

(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 year, I published my Top 9 Tips for the Successful Investor in 2010. Number 6 on the list was "Beware of politicians run amuck". In my wildest nightmares, I never thought it was going to be this bad by both parties. Can someone tell me what the heck in going on with Carolina politicians?

It's certainly not a new story, but what was Bob Etheridge thinking about when he tussled with two college students who were asking him if he supported President Obama's agenda? Has he lost his mind? Who acts like this? And It wasn't too long ago when Rep. Joe Wilson screamed "liar!" during Obama's speech on health care reform. No matter what political party you identify with, no one should behave like that in Congress. And certainly not during our president’s speech. You may not like the man, but the office deserves the utmost respect.

The winner for the truly unbelievable and insane award goes to Alvin Greene. Whether you are democrat, republican or independent, please watch this John Stewart segment if you really want to laugh.

My plan was to spend this contribution on the financial reform bill that was supposed to have been by Congress by now. But Harry Reid came out and said the Senate would not vote until after the July 4th holiday. No doubt in my mind that the dems are having trouble lining up 100% of their own support, let along the few repubs they need to get it passed. It's simply amazing that after Massachusetts elects a republican replacement for Ted Kennedy's lifelong democrat seat, Scott Brown instantly becomes a power broker as he straddles the left/right fence in the Senate.

Let's hope Obama sticks by his word that he will not sign any bill that had to be altered to favor a certain group in any one Congress person's constituency (Blanche Lincoln from Arkansas). Did we not learn from the disgusting backroom deals on health care reform with the Cornhusker Kickback (Ben Nelson) and Louisiana Purchase (Mary Landrieu)? And it's not just the dems. The repubs had their fair share of reprehensible, self serving behavior when they controlled Congress.

Anyway, from what I've read about the bill since I don't know any one person who has read the entire 1800 page document, my initial reaction is that something is better than nothing, but it's far, far from perfect. Congress didn't fix enough of the real problems, yet had no problem using the crisis as an excuse to mettle in areas that were fine the way they were.

I am outraged that NOT A SINGLE THING was done to address one of the main drivers of the entire crisis, Fannie Mae and Freddie Mac. The tab has grown to $500B and counting and far from over. Two years, we were told by Hank Paulson that $100B would likely be all that was needed. I said at the time, this bailout would end up costing the taxpayer at least $1 trillion. And if someone as dumb as me could see that, I am sure the really smart folks knew it too, but figured they would just pull the wool over our eyes, as usual.

I also don't think "too big to fail" was put to rest, or even close. Yes, the FDIC has "new" powers to wind down non bank institutions, but does anyone really believe that it's going to work? That somehow, if Goldman or Morgan Stanley are on the precipice of failure, the government (either party, pick your poison) won't step in for another bailout?

The unpopular bottom line here folks is that capitalism is prone to long periods of boom and spectacular busts. The longer the boom, the greedier we become, the fatter the system gets. And finally, the bloated system blows up to cleanse itself back to fertile ground. Just like what happens during a forest fire. It's a fact of the capitalist system. On the way up, we demand less regulation and government intervention. When the catastrophe hits, the cry is for more government intervention and regulation. It’s a semi-predictable 80 cycle that will happen again. But like the depression, most of us won’t be here to remember and react appropriately.

Our last gargantuan crisis may have been the Great Depression, but those folks also dealt with a banking crisis in 1903-1904 and again in 1907, which paved the way for 20 years of fantastic market growth. By the time WWII ended the two depressions in the 1930s, the economic and financial market ground was so fertile, so drenched in nutrients that we had 30 sensational years to enjoy. The same will come from this crisis, but the ground isn't close to ready for planting.

I'll have more detailed comments on financial reform in the next few weeks when we are sure what bill is actually being passed.

In the meantime, I am scheduled to be on CNBC’s Squawk on the Street, today (Friday July 2) at 9:10am and again on July 7 at 9:35am.

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

Until next time…

Paul Schatz
Heritage Capital LLC

http://www.InvestForTomorrow.com