Friday, February 25, 2011

Libya… Like Egypt?

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

For many, many weeks, I have discussed the stock market's need for a pullback. A short-term cleansing to refresh the rally. Unfortunately, far too many others have been talking about it as well, so the market decided not to accommodate, until it wanted to.

Several weeks ago, I offered that the pullback so many were looking for would probably come out of nowhere with some geopolitical event and would quickly lop 4-7% off the major indices. Tuesday was just that day, following more unrest in the Middle East. This time it was Libya with its big supply of oil. Since I have been writing about this pullback since late last year, I certainly deserve zero in the way of credit for it finally happening. I mean, even a broken clock is right twice a day! Call for something long enough and it's bound to happen at some point.

As I've mentioned before, it's still incredible that the Dow has not closed below its 20 day moving average (average price of the last 20 days) since 12/1 as you can see below. That's historic momentum! I am going to go out on a limb and say that the market will not respond the same way as it did with Egypt and this time it will close below the 20 day moving average in the coming week or so.

But at the same time, I also do not believe this is the start of a real correction (10%+ downside). Corrections typically do not start with a bang like we saw on Tuesday, just one day removed from the high. Instead, more significant declines usually start slow and small, building towards the large down days, like snowball rolling downhill and gathering momentum. When is a snowball and market going the fastest downhill? The second before it hits the bottom. In this case, we could (and should) see some more downside, but I don't think it's anything serious, yet.

I'll be watching for signs of sector rotation among leadership, both positive and negative, along with any indication that the emerging markets are ready to percolate again. As the major US indices have steadily marched higher since December, which you see from the above chart, emerging markets, chart below, weighted towards the big countries like China, India and Brazil, have totally lost their leadership role and unable to make upside headway.

Equally as important, the performance of the high yield (junk) bond market must be closely watched after the single most dramatic bull market run in history. For the most part, as long as the high yield market is confirming the rally and outperforming on the downside, the structural bull markets in stocks should continue, for now.

Feel free to email me with any questions or comments at

Until next time…

Paul Schatz

Heritage Capital LLC

Follow us on Facebook at and on Twitter at Paul_Schatz

Monday, February 21, 2011

3 tips to beat sticker shock at the grocery store

Earlier this month the United Nations announced that food prices hit a record high globally and prices are expected to continue to climb to new heights, increasing by 3 percent or more over the remainder of 2011.

And the U.S. Department of Labor's January Consumer Price Index showed food prices rose 2.1% over the past year.

Jeanette Pavini, household savings expert for, offers these three strategies to combat sticker shock when you're out at the grocery store:

Incorporate coupons.

Coupons are almost always available on household basic necessities and these items rotate on sale at most grocery stores. Plan ahead and use coupons on sale items at the grocery store to deepen your savings.

Compare unit prices of package sizes.
One trick manufacturers are using to fight the rising cost of food is adjusting package sizes. Make sure you’re getting what you pay for – the package may look similar to what you used to buy, but the actual volume might not be the same.

Load up on “loss leaders.”
Paying attention to prices and sale ads will help you determine the best deals and steals as you maneuver through grocery aisles.

Wednesday, February 16, 2011

So Bad, They Are Actually Good

(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 haven't written an article about the Treasury bond market in a while, probably because it's been in a very strong downtrend without overwhelming negative sentiment to help turn the tide. That's all changing now.

Since the summer, Treasury bond prices have imploded 14%, and yields have exploded higher by roughly 38%. (Remember, in the bond market, price and yields go in opposite directions) Those are historically enormous moves in such a short period of time, especially since the Fed is supposed to be buying up all those bonds in hopes of keeping interest rates low to help the still crippled housing market

Just like with stocks, commodities and real estate, it's amazing how many people are positive near peaks and negative near bottoms. Market sentiment is usually polarized. So if 100% is the absolute highest number of bulls and 0% is the lowest number of bulls, you can certainly become very interested at extremes above 90% and below 10%.

Would you personally rather buy when almost everyone is bullish or no one is bullish?

Long time readers already know that I am very contrarian in my thinking. Of our nine investment strategies, the majority seek to buy weakness and sell strength, more commonly known in the industry as mean reversion.

Usually, when we are buying into some type of decline, the number of investors with a positive outlook on the investment falls substantially, hence the selling and someone to sell to us. And when we attempt to sell into strength, there are hopefully a vast majority of investors positive, hence all the buying to drive the security up and someone to buy from us. If it was only so easy!

Below is a weekly chart of the 30 year treasury bond. You can see the two times over the past two years when the number of bulls was at least 95%. While it didn't exactly pinpoint THE high, it was fairly close and the turnaround wasn't too far off. It takes a substantial rally to turn that many investors bullish and get their money invested. So who is left to buy?

You can see in both cases, treasury bonds fell very hard soon thereafter. During the second half of 2009 and early 2010, bonds stayed in a wide trading range that was supported three times by less than 10% of investors positive. Finally, a spark ignited the rally to suck in all that money and register 95%+ bulls at the right.
The chart below has been dialed down to a daily time frame and you can see the preponderance of bulls on the far left and subsequent (and current) powerful downtrend that brings us to today. Just earlier this week, the number of investors (actually futures traders) sank to under 10%. This does not mean that bonds must immediately rally. As we saw above, it can be the beginning of a trading range. But history does show that the downside should be limited and the risk/reward now favors the upside.

As I said on CNBC's The Call this past week, treasury bonds are the most unloved investment right now and something that deserves consideration for at least a trade. Maybe this is a major bottom or it's still out there after a rally. It's too early to say. Wouldn't it be interesting if treasury bonds saw a significant low just as Bernanke & Co. ended their purchases?

Feel free to email me with any questions or comments at

Until next time…

Paul Schatz

Heritage Capital LLC
Follow us on Facebook at and on Twitter @Paul_Schatz

Thursday, February 10, 2011

Impending Debt Crisis Needs to be Addressed

(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 my Fearless Forecast and Top 15 Shockers for 2011 already done, we will be heading back to some more “normal” topics. Those two pieces are two of the more enjoyable contributions I do each year, although they are more for fun than education.

This past week, Yahoo! invited me to the NASDAQ Market Site in Times Square to record an interview based on my shockers list. We ended up speaking for almost 30 minutes and they divided the interview into three segments that were posted on Yahoo! Finance. If you want to watch them, here they are:

Look Out Emerging Markets Investors!

2011 Political Shockers

NOT Your Normal Economic Recovery

One of the country’s themes in 2011 is the impending debt crisis. It’s one of the few things both democrats and republicans can publicly agree on! It used to be a question of “if”, but sadly, it’s now a question of “when”. America has been a global political, economic and military power for about 100 years. If this issue is not dealt with seriousness and a sense of urgency, the U.S. will end up being like previous world powers, wounded and no longer able to dominate.

I have heard comparisons to the Roman Empire, but frankly, I am not smart enough for that analysis. The one that does resonate with me is England or Great Britain or the United Kingdom, whichever way you want to discuss that region. During the 1900s, she enjoyed some of the same power status that America has today. But once she fell from grace, her economy never was able to get back to a leadership role. Sure, that economy can grow, but like some other European countries, it’s been sub par growth from being weighed down by fiscal issues.

Anyway, I am sure there are millions of academics that can explain this better me, but I think you get the gist. I came across an interesting example of how much cutting $100 million from the federal budget actually means. The video pokes fun at President Obama, which in this case, is not my intent. It could have easily targeted almost anyone in government the past 10 years and certainly former President George Bush.

Budget Cuts

It does underscore how serious and almost dire our situation is at the current pace. $100mm is almost nothing. Sad but true. The U.S. has reached the point of only painful outcomes. Trying to grow our way out of the fiscal crisis won't cut it anymore.

And as Bernanke has said many, many times, we have to be very careful not to cut too hard initially and bury the nascent recovery. In reality, the government must agree on a plan to cut a MINIMUM of $100 billion a year for the next 10 years, with increasing amounts as the years go on.

And before you assume I am going to slam Obama for this, think again. While his deficit reduction plans have been seriously underwhelming, all I hear is rhetoric from the other side. Although I am a fan of Congressmen Eric Cantor and Paul Ryan, I have yet to hear any substantive and specific cuts their side would endorse.

I think both parties should cease with the nonsense and garbage and offer the American people details. It's laughably pathetic that the vast majority of politicians want to protect social security, Medicare and defense. It's not going to happen! Throw in the amount we pay to service the national debt and there's really not much left to cut.

If you recall the movie A Few Good Men, at the end, when Tom Cruise is questioning Jack Nicholson on the stand. Cruise yells, "I want the truth!", to which Jack replies, "You can't handle the truth". That's where I think we are with Washington. Americans deserve the truth. We have earned it!

Feel free to email me with any questions or comments at

Until next time…

Paul Schatz
Heritage Capital LLC

Follow us on Facebook at and on Twitter at Paul_Schatz

Tuesday, February 8, 2011

Tuesday Tax Tip: 10 tax benefits for parents

Did you know that your children may help you qualify for some tax benefits?

Here are 10 tax benefits parents should consider when filing their tax returns this year:

1. Dependents.
 In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, "Exemptions, Standard Deduction, and Filing Information."

2. Child Tax Credit.
 You may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. For more information see IRS Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit.
 You may be able to claim the credit if you pay someone to care for your child under age 13 so that you can work or look for work. For more information see IRS Publication 503, Child and Dependent Care Expenses.

4. Earned Income Tax Credit.
 The EITC is a benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.

5. Adoption Credit.
 You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. Taxpayers claiming the adoption credit must file a paper tax return because adoption-related documentation must be included. For more information see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6. Children with Earned Income.
 If your child has income earned from working they may be required to file a tax return. For more information see IRS Publication 501.

7. Children with Investment Income.
 Under certain circumstances a child’s investment income may be taxed at the parent’s tax rate. For more information see IRS Publication 929, Tax Rules for Children and Dependents.

8. Higher Education Credits.
 Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar-for-dollar, unlike a deduction, which reduces your taxable income. For more information see IRS Publication 970, Tax Benefits for Education.

9. Student Loan Interest.
 You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions. For more information see IRS Publication 970.

10. Self-employed Health Insurance Deduction.
 If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage after March 29, 2010, for any child of yours who was under age 27 at the end of 2010, even if the child was not your dependent.

The forms and publications on these topics can be found at the IRS Web site or by calling 800-TAX-FORM (800-829-3676).

Friday, February 4, 2011

Top 15 Shockers For 2011

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

Each year, I usually release a small list of somewhat off the wall things that I think have some chance of occurring. Some shockers are repeats. Obviously, I hope that all of the less than positive ones don't happen. This is not my forecast for 2011, which I hope has a better chance of coming true!

Before I get to this year’s list, let’s do a quick review of what I offered last year. You’ll see my comments on how each did in italics.

Last Year’s 2010 Shockers:

1 - At least one major European country defaults on its debt
With so many crises that the ECB had to fight, I’ll put this in the correct column.

2 - The Euro sees a country leave, causing further strains in the union
Very close with Greece!

3 - A municipal bond crisis unfolds in the US
No crisis, but that sector was certainly pounded during the final four months of the year.

4 - Heading into its third decade of deflation and economic ruin, the graying and flat population of Japan begins to open its borders to immigration and remilitarizes, hoping to shock and stimulate their economy
Not yet.

5 - Aided by a resurgent economy, the Democrats retain both houses and Congress and super majority in the Senate
Not even close!

6 - Tim Geithner resigns from the Treasury citing personal reasons to spend more time with his family and embark on a career in the private sector, payback to him for having helped Wall Street "swindle" hundreds of billions from taxpayers
Too bad it didn’t happen.

7 - Treasury bonds end the year as one of the top performing assets
They were sailing ahead up more than 25% during the summer before giving back more than half the gains.

8 - Citibank is broken up and sold off in pieces and loses its name
Not until Uncle Sam goes totally away.

9 - Goldman Sachs goes private since the benefit of being public, added capital and huge leverage is no longer there

10 - Citizens of Iran rise up against their government and begin a revolution. Iran responds by attacking Israel in an ill-conceived attempt at rallying public support behind a collapsing government.
Thankfully no.

11 - The stock market peaks during the third quarter and a new bear market begins.
The stock market saw a significant peak in April, followed by a 15%+ correction, but it was just in the context of an ongoing bull market.

12 – The Jets win the Super Bowl. Hey, I can dream! (actually, it’s San Diego)
Will my Jets ever get back to the party?

So now, let’s roll out the Shockers for 2011!

1 – After toiling in obscurity for more than two years while its energy cousins doubled and tripled, natural gas finally has its day in the sun as one the surprise investments of 2011, almost doubling!

2 – The Euro currency’s quiet bear market reinvigorates itself and heads to new five year lows and towards the ultimate shocker of parity (100).

3 – Under tremendous pressure from both within and the financial markets, Bernanke & Co. do not launch QE3 when it ends in June. Initially cheered by all, this leads to major asset peaks in stocks, commodities and high yield bonds.

4 – Joe Biden suddenly resigns the vice presidency and is replaced by Hillary Clinton, virtually assuring Barack Obama of reelection in 2012.

5 – Riding a renewed wave of cooperation with John Boehner and Congress, Barack Obama’s popularity soars to heights forcing quality republican candidates to withdraw.

6 – Powerhouse countries China and India lead the emerging sector to strongly choke off inflation by raising interest rates and draining liquidity. In turn, the bull market in emerging markets comes to a grinding halt.

7 – Generation bubbles in cotton, sugar and coffee burst, sending these highflying commodities in a tailspin.

8 – Driven by the wildest global weather on record, wheat, corn and soybeans soar to record highs, eclipsing the bubble prices of 2008.

9 – Contrary to widespread, depression like prognostications from Meredith Whitney, the municipal bond market does not collapse in crisis.

10 – The public’s love affair with investment grade and high yield corporate bonds ends.

11 – After two years and almost 100% rally, the public finally plows back into stocks, just like they did with tech in 1999, housing in 2006 and energy in 2008, precisely at the wrong time, leading to yet another case of getting caught holding the bag.

12 – While the economy chugs along during the first half of the year and the unemployment rate slowly declines, the trend sharply reverses during the second half as GDP slows and the ranks of the unemployed rises.

13 – The security no one wants to own, long-term U.S. treasury bonds, sees a dramatic resurgence during the second half of 2011.

14 – Investors infatuation with Apple and Netflix turns to sobs, tears and saturation as the outperformance grinds to a halt and turns rotten to the core as it’s streamed through our living room.

15 – The once storied New York Mets are the doormat of the National League East, unable to win even 70 games as the Red Sox and Phillies dominate Major League baseball.

A little longer than planned, but I hope you enjoy it anyway!

FYI, I will be on CNBC's The Call on February 8 at 9:35am.

Feel free to email me with any questions or comments at

Until next time…

Paul Schatz
Heritage Capital LLC

Follow us on Facebook at and on Twitter at Paul_Schatz

Tuesday, February 1, 2011

Tuesday Tax Tip: Connecticut releases brochure for seniors

The state Department of Revenue Services (DRS) today announced its release of Informational Publication 2010(26) "Connectict Tax Tips for Seniors," which gives pointers on filing state income taxes, as well as sales and use tax exemptions.

 “Most seniors don’t look forward to paying taxes, so the least we can do is give them the information they need. Taxpayers want to do the right thing and having access to plain language information is important. Knowing more is also the way senior citizens can be sure to get the full advantage of available tax relief and pay no more than their fair share,” DRS Commissioner Kevin B. Sullivan said.

Connecticut Tax Tips for Seniors provides information on the state income tax — including no state income tax on Social Security benefits for single filers with an adjusted gross income less than $50,000 or joint filers at less than $60,000, and available credit for property taxes paid locally.

Other information covers taxes on sales and use, estates, gifts, property, and real estate conveyances.

DRS this year is encouraging electronic filing and did not mass mail income tax information packets, Sullivan said, adding that printed material still will be available at libraries and post office branches. "DRS will also send out the materials to anyone who calls us. But this kind of publicity, our tax tips guide for seniors and a special effort to get the word out through local senior centers are among the ways we want to be sure no taxpayer gets lost in the shuffle,” he said.

To obtain a copy of  "Connecticut Tax Tips for Seniors," or find other revenue information, visit