Friday, March 25, 2011

All Paths Lead Toward 13,000

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

In Libya Like Egypt, I offered the following two scenarios for stocks.

Scenario A (in light blue on the chart below) - Stocks have a rough morning on Monday but the selling does not accelerate and the market begins to gather itself after the Fed meets on Tuesday. New 2011 highs are seen in April.

Scenario B (in light purple on the chart below) - Stocks open lower on Monday, accelerate during the day and close below the lows of last Friday, March 11. In that case, the 4-5% pullback ends up being 7-9% and we see a bottom by the end of March. From there, new 2011 highs are made later during the second quarter.

So now we know that scenario B is occurring with A already being eliminated as you can see in the chart below. So far, the market seems like it really likes the purple path as it sold off almost exactly to the bottom of the arrow and has now bounced smartly.

So, why am I not totally convinced? I don't like the fact that there have been so many up days that have seen all of the upside at the open and the market spent the rest of the day going sideways. That's not really strong conviction from key players. When I am bullish, I like when stocks open down or flat and spend the day rallying to their highs in the final hour of the day. But maybe I am being too hard on the market.

While I continue to believe that the stock market will see more new highs next quarter, (how could you not with the continued torrent of liquidity being pumped in by Bernanke & Co.) I do not have a strong opinion (as hard to believe as that is) that it's straight up from here. Rather, as you can see from the final chart below, I offer two possible paths with the same outcome.

If the green path appears to be favored by the markets, we should see lots of choppy moves in the coming week or so before breaking higher. In this case, we will likely stick with our current portfolios, which were increased to maximum equity exposure last week to go along with the maximum commodity holdings we’ve had all year. If the orange path takes hold, there may be some short-term trading opportunities. As always, we will take it one day at a time and see what the markets bring us.

FYI, I will be on CNBC’s Worldwide Exchange on March 30 from 5:35am to 5:55am.

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

Conn. IRS tax assistance centers offer Saturday hours

Taxpayers having difficulty visiting an Internal Revenue Service Taxpayer Assistance Center during weekday business hours can visit an IRS office on Saturday from 9 a.m. to 2 p.m. in New Haven at 150 Court St. or Hartford at 135 High St.

This will be the IRS' final Saturday Open House during the income tax filing season to provide free assistance to taxpayers who need help filing their tax returns. Help with account questions, such as collection or examination issues, is also available during the Open House.

“We are opening our doors on Saturday, March 26, to help taxpayers who may not have a chance to seek assistance during the work week,” said IRS spokesperson Gregg Semanick. “If taxpayers need help preparing their tax returns or have an account question, we encourage them to visit one of our open houses.”

The IRS offers assistance at 97 locations around the country. A complete list of places is available online at

In addition to IRS help, community organizations partner with the IRS.
Volunteer Income Tax Assistance (VITA) programs assist people who earned $49,000 or less, and Tax Counseling for the Elderly (TCE) programs assist individuals age 60 and over with their 2010 income tax return preparation and electronic filing. Many of these sites have Saturday hours, while others offer assistance at various times during the week. Taxpayers can call 800-906-9887 to find local partners.

Thursday, March 24, 2011

Stratford woman sentenced for misuse of veteran's benefits

David B. Fein, U.S. Attorney for the District of Connecticut, announced that Ellen Pack, 64, of Broadbridge Road, Stratford, was sentenced by U.S. District Judge Janet C. Hall in Bridgeport to 2 months in prison, followed by 2 years of supervised release.

Pack was convicted of stealing U.S. Department of Veterans Affairs disability benefits while acting as a fiduciary for an incompetent military veteran. Hall also ordered her to spend the first 3 months of her term of supervised release in home confinement and to pay a $2,000 fine.

According to documents and statements made in court, Pack in 2006 and 2007 served as a fiduciary for a military veteran who was a patient at the Veterans Affairs Hospital in West Haven. As part of her fiduciary duties, Pack received funds from the Veterans Affairs department meant to be used solely for the veteran’s care and benefit.

Instead, Pack used significant portions of the monthly benefit payments, totaling more than $30,000, to pay for various items and expenses for her own use.

On July 27, 2010 Pack pleaded guilty to one count of misappropriating U.S. Department of Veterans Affairs disability benefits.

This matter was investigated by Special Agents of the Department of Veterans Affairs Office of Inspector General. The case was prosecuted by Asst. U.S. Attorney Douglas P. Morabito.

Friday, March 18, 2011

Japan... Buying or Selling Opportunity

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

Last weekend, I was riding the chairlift my ski friend Don and he asked/stated that it seemed like a good time to short the Japanese stock market. My response was that I would rather look for the panic buying opportunity. I think that struck him as odd. Let me explain.

When major news, earnings, economic, geopolitical, etc. hits, there is typically an immediate reaction in the financial markets, and many times an overreaction. Think of the initial shock of the event. Apple blows out on earnings and the masses all want to get onboard. Unemployment comes in much worse than expected and everyone wants to sell. Lunatics fly planes into buildings. I think you get the picture.

Once the news is in the public domain, there is no longer an edge. All of the available news is factored into the market, at least for the time being until the situation takes a big turn. Intuitively, most investors react to news and investor with the news, i.e. selling into bad news and buying into good news.

After 23 years in the business, I don’t have all the answers and still have loads of question, but I have learned to buy when no one else wants to and sell when it seems idiotic to do so. Sometimes, I am early and other times I am spot on. But I live to invest with the minority. In more technical terms, it’s called mean reversion; buying into weakness and selling into strength.

So after my conversation with Don last weekend, let’s say you wanted to sell short the Japanese or even the U.S. stock market. We can use the exchange traded fund (ETF) that Ishares has on the MSCI Japan Index. It closed at 10.80 into the weekend as you can see from the chart below.

But it’s now Sunday and you would have had to sell short at Monday’s opening price, 9.86. At that point, the ETF was down 8.70% for the day and 15.21% since the peak. For me, that’s an awful lot of price to give up in order to put a trade on. Now, if the events in Japan ended right there, the ETF would have likely rallied, but if things got out of control, the ETF would likely head much lower.

As you can see from the chart below, Japan did head lower right at the open Tuesday morning to 9.32, but closed the session above 10. And as I write this Thursday evening, it closed the day at 10.10.

It’s still too early to know the final outcome, but from my seat, I would rather look for signs of panic selling to buy in to than try to hop on board a moving train that’s long left the station.

I vividly remember the events after 9-11, waiting for the markets to reopen. When they finally did and I was looking to buy, that first down day of roughly 500 points saw very little panic. It was probably the most orderly 500 collapse in history! I went home that night with a bad feeling that serious pent up selling was coming. And although I was looking to commit cash and buy, I was still sitting on investments that would certainly get hit in the coming days.

In that case, it took about five trading days for true panic to set in, coincidentally as I was on my second bachelor party trip in two weeks. Waking up in Wisconsin to find the early indication of the Dow down another 500-700 points was definitely unsettling! But it also smacked of real despair and investor capitulation. You could have shorted our market any time during those first five days and you would have been ok for a few days. But once the market turned, stocks launched higher more than 20% in just a few short months. Again, I would rather digest the news, wait for my spot and go against the crowd.

FYI, I will be on CNBC’s The Call on March 24 at 11:05am.

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, March 17, 2011

Donating to Japan relief efforts? Screen carefully

 In the wake of the massive earthquake and tsunami that devastated northern Japan, people around the world and in Connecticut are opening up their hearts and wallets to help those who survived the devastation.

The Connecticut Department of Consumer Protection is urging residents around the state to diligently and carefully check out charities before making a monetary donation toward relief efforts.

“The devastation is overwhelming and the losses, both personal and economic, move us to donate quickly and generously,” Consumer Protection Commissioner William M. Rubenstein said. “But because scam artists are adept at exploiting disaster for personal gain, I urge you donate carefully, so that your kindness and generosity are not exploited.”

 Rubenstein suggested taking the following steps:

Donate to well-known, established charities.
This is the best way to ensure that your donation is used appropriately. Establishing an effective, efficient new charity following a crisis is nearly impossible. Find a charity with a proven track record in providing disaster relief on a massive scale, one that has worked in Japan and other affected regions.
One source for checking out the details about a charity that you are considering is

Specify that your donation is for this crisis in Japan.
Do not send supplies unless a charity specifically requests them. Otherwise, there may be no system to receive, organize and distribute your donation.
Avoid responding to e-mail and telephone solicitations on behalf of supposed victims.
Unless you personally know someone in Japan, anyone contacting you in this way is most likely part of a scam.

Delete unsolicited e-mails and don’t open attachments.
Never respond to unsolicited emails and don’t open any attachments to these emails even if they claim to contain pictures from Japan. The attachments may be viruses designed to steal personal financial information from your computer.

Beware of copycat organizations.
Criminals are likely to set up bogus sites to steal the identities and donations of generous, unsuspecting individuals. When giving online, be sure to find the charity’s legitimate website. Again, you can access links to each bona fide charity’s sites from the Charity Navigator site referenced above.

Remember: social media sites also require caution and scrutiny – Twitter, Facebook, YouTube and blogs about the disaster include emotional pleas for donations. Do not blindly give via these vehicles. As with any charity, investigate the groups behind such pleas to ensure that they come from a legitimate organization.

“The outpouring of concern and support for those affected by this tragedy is enormous, but unfortunately, so is the potential for fraud,” Rubenstein said. “We all must take precautions to ensure that the generosity of Connecticut residents is not abused."

Suspicious solicitations can be reported to your local police department and to the state Department of Consumer Protection at 1-800-842-2649.

"Anyone caught engaging in fraudulent activity will be prosecuted to the fullest extent of the law,” Rubenstein said.

Tuesday, March 15, 2011

Financial Empowerment: Hip-Hop mogul Russell Simmons raps on serving the unbanked

Philanthropist and author Russell Simmons built the Phat Farm fashion empire into a revenue generator that topped $300 million and he managed rap stars before hip-hop was a lucrative genre within the music industry. Yet, he saw what he describes as a "white space" that no one was cultivating, while others saw these artists as risky. (Photo credit to Gerald Janssen)

Simmons took the leap and formed Def Jam Records in the 1980s, bringing into the mainstream hip-hop greats such as The Beastie Boys, Whodini, Public Enemy, LL Cool J, Ludacris, DMX, Jay-Z and his brother, Joseph Simmons or "Run" from the group Run DMC.

He spoke with me briefly Tuesday, during a stop along his bus tour in New Haven. Simmons visited with more than 800 students at James Hillhouse High School, followed by a reception and book signing at The Rodrick Gilchrist Fashion House in the Westville neighborhood.

In his latest book "Super Rich: A Guide to Having It All," Simmons we don't need money or toys to be happy.

"So rather than any state of material abundance, Super Rich actually refers to living in a state of consciousness where you're able to see the miracles of life unfolding in front of you all the time," the 'godfather of hip-hop' says. "That's right, when you're Super Rich you'll be able to see that happiness is actually a state of needing nothing."

Listen below as he expounds on how entrepreneurship has enabled him to both fill a societal need and satisfy personal passions "There's always something missing," he says, among other things:

One of Simmons' latest endeavors is UniRush Financial Services, a company that provides pre-paid debit cards, money transfer services and helps consumers with building credit histories, as well as creating and managing personal budgets.

Just as he previously noticed voids in the music and fashion industries and established businesses to address them, Simmons felt compassion for the unbanked and developed online services to help them achieve financial literacy, while providing tools that enable them to better manage their finances.

Listen to him talk about how that evolved here:

No Surprise: High Debt = Low Savings

It does not surprise me that America Saves and Experian® found in a recent survey that individuals with credit card, payday loan, and other high-cost consumer debt are more likely to have difficulty saving.

“High cost consumer debt can be a financial nightmare. Regular contributions to a saving account can help consumers avoid the need for this type of credit,” Nancy Register, America Save's national director, said in a statement.

The results showed that these consumers are more likely to use credit to pay an unexpected expenditure, than those without this debt. The survey also revealed that 16 percent of Americans have very expensive payday, car title, or pawnshop loans.

Maxine Sweet, Experian's vice president of consumer education, said cleaning up and paying off debts can have a positive impact on credit scores. When consumers can save, unexpected life events won't send them spiraling into a crisis, she said.

Over half of those surveyed who receive a paycheck (55%) reported having difficulty saving a portion of each paycheck. The percentage of moderate-income households ($25,000-50,000 annual incomes) receiving a paycheck who reported this difficulty (69%) was exceptionally high.

About two-thirds of those with credit card debt (66%), but less than half of those without this debt (47%), reported difficulty saving a portion of their paycheck.

America Saves and Experian plan to raise awareness about and encourage positive saving habits by using  educational materials promoted through the America Saves national network.

Individuals and families will also be encouraged to save automatically through regular transfers from paychecks or checking into savings, officials said.

Friday, March 11, 2011

Bubbles & Collapses Make The World Go Around

(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 few months, I have written about securities that were very extended on the upside as well as the downside, bubbles versus collapses. Before I get into a new security, which is actually an old one discussed last year, let's take a quick peak and see where they stand today.

The series began with Gold Nearing A Rally, where I showed examples of how gold behaves during a bull market with strong rallies followed by long trading ranges and more upside. We left off with the chart below that offered a likely path.

And today, you can see below that gold behaved as it was supposed to, by rallying smartly to the old and now new highs. As I tweeted and posted on Facebook, I do not believe now is the time to throw caution to the wind and buy gold. The “easy” was made off that low. This textbook behavior is good to see, but far from guaranteed each time. Every once in a while, the market will throw your forecast for a loop, just to keep you honest.

The gold post was followed up by one on Treasury bonds, So Bad, They Are Actually Good, where I opined that there were so few bulls left, and T bonds had been pounded so hard, it was actually bullish. Below you can see the chart at that time.

Today, as you can see below, bonds rallied nicely and have recently pulled back to a point where risk can be identified and contained by the 2011 low. Until proven otherwise, the path should take them higher into next quarter.

On the flip side, cotton has been in bubble land for a while as I wrote about in HUGE Bubble In The Making.

Once again, cotton MAY be peaking, but after being burned so many times, who is going to stick their neck out and become overtly bearish? That's the exact making of a bubble and why so few people actually profit from the first and most severe leg down.

I am going to finish this piece with the U.S. dollar, which I wrote about late last year. As you can see from the chart below, when the masses were uniformly bullish at 90%+, the dollar fell hard. Who was left to buy? Conversely, with less than 10% bulls, the buck rallied with few left to sell.

Today, the dollar is back to being the second most unloved investment after Treasury bonds with less than 10% bulls for the second time this year. It's hard to find many folks who believe it has any chance of rallying over any timeframe. As usual, I am taking the other side, having turned long-term bullish in early 2008 and continue to believe the greenback is in the early stages of a major, multi-year bull market. Of course, I will temper that view when rallies become overloved and unsustainable.
As I finish typing this, the stock market remains under pressure on geopolitical concerns from the Middle East. I do not believe this is going to be a large decline and should wrap up this month. The market has come very far in short order and it is overdue for the pause to refresh.

On a technical basis, as you can see from the chart below, the S&P 500 has been a pattern called a triangle, which is essentially a compression of volatility. This usually leads to volatility expansion, which is what we are seeing right now. Once the bottom of the triangle is exceeded and a rush of fear hits the market, I would expect the bulls to begin to fight back and rally to ensue.

FYI, I will be on CNBC’s Squawk on the Street on March 15 at 9:35 a.m.

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

Thursday, March 10, 2011

4 ways to find free tax help

The Internal Revenue Service offers free assistance by computer, telephone and in person. The IRS can also help find free tax preparation sites for those who qualify. Here are four ways you can get the information you need to file your tax return.

1. The IRS website is a one-stop shop for a wide array of tax information.
You can even prepare and file your federal tax return through Free File, a service offered by IRS and its partners who make available free tax preparation software and free electronic filing. But you must go through to use Free File.

2. Taxpayer Assistance Centers.
When you believe your tax issue cannot be handled online or by phone and you want face-to-face assistance, you can find help at a local IRS Taxpayer Assistance Center. Locations, business hours and an overview of services are available at Just go to the Individuals tab and click on the link for Contact My Local Office in the left tool bar section under IRS Resources.

3. Community Resources.
Free tax preparation is available through the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly programs in many communities. Volunteer return preparation programs provided through IRS and its partners offer free help in preparing simple tax returns for low-to-moderate-income taxpayers.

For a list of the 2011 VITA sites you can visit, or call 800-906-9887. You may also call AARP — the largest TCE participant — at 888-227-7669 (888-AARPNOW) or access to find the nearest AARP Tax-Aide site.

4. Telephone.
Call the IRS Tax Help Line for Individuals, 800-829-1040, to get answers to your federal tax questions. To hear pre-recorded messages covering various tax topics or check on the status of your refund, call 800-829-4477. TTY/TDD users may call 800-829-4059 to ask tax questions or to order forms and publications. To order free forms, instructions and publications call 800-829-3676.

Financial workshop coming for college-bound upperclassmen

NEW HAVEN - Higher One invites college-bound high school juniors and seniors in New Haven and their parents are invited to a workshop on Wed., April 13 from  6-7 pm, at the main branch of the New Haven Public Library, 133 Elm St.

Mary K. Johnson, financial literacy and consumer advocacy manager at Higher One, will present “Becoming a Financially Literate College Student.” She will also announce a new scholarship opportunity available only to New Haven high school seniors who attend the workshop.

This workshop will offer students tips on avoiding the traps of overspending and credit card debt that can have painful consequences both during college and after graduation. Attendees will learn how to stay financially afloat with good money habits, including choosing and managing a bank account and creating a budget they can live with.

Parents will gain insight into the financial issues that college students must cope with for successful outcomes.

Those who attend this training will be eligible for Higher One’s $500 New Haven Community Book Scholarship. Guidelines and application forms will be available at the event.

With operations in New Haven and Oakland, Calif., Higher One provides a full array of financial services including refunds, payments and electronic billing to almost 700 institutions of higher education. The company also provides nearly 5 million students nationwide with a smart new way to manage their student loans and college expenses. Find out more at

Advance registration is required for the free workshop. Sign up online at or by calling the library at 203-946-8835.

Friday, March 4, 2011

Huge bubble in the making

(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 went into detail on how depressed the Treasury bond market was and how it was almost impossible to find any bulls in So Bad They Are Actually Good . That led me to the contrarian conclusion that treasuries were likely close to at least a short-term, if not longer-term, bottom.

This week, I am going to go to the opposite end of the spectrum and talk about bubbles. In my Shockers 2011 issue, I spoke about cotton, sugar and coffee being in speculative bubbles that would end very poorly. Let's go into the charts for a peak in cotton. I'll come back to sugar and coffee next week.

The key thing to remember about bubbles is that they always last longer than anyone believes. Declines that appear to be the bubble bursting tend to end and another, even more parabolic, move begins until finally the whole thing comes crashing down. Positioning to profit on the collapse is very difficult since, as we've all learned and heard from John Maynard Keynes, "the market can stay irrational longer than you can stay solvent".

Cotton is a VERY volatile commodity that's known for dramatic, often straight up rises and gravity defying declines. The chart below doesn't even begin to describe the craziness until you pay close attention to the scaling on the right. 30 to 90 and back and back. Try living through that!

Now, multiple moves from 30 to 90 can certainly be classified as bubblesque.  But what happened next is unbelievable! From the crash low in 2008 at the far left of the weekly chart, check out where cotton is today.  200!!!

Zeroing in a little more, you can see a daily chart below.

I vividly recall thinking that cotton was heading for a grand collapse from the 150 level in November. All the signs were there!

But someone forgot to tell the commodity!

So once again, cotton has all the signs of a bubble bursting. And in hindsight, it will be clear as day. But how many times can the bears afford to be wrong and totally blown out of the water? That's exactly why bubbles are so easy to spot but so hard to profit from on the way down. They never make it easy!

I stand by my shocker that the bull market in cotton will end very poorly this year, whether the collapse is starting right here and now or later during the first half of 2011.

FYI, I will be on CNBC’s The Call on March 9 at 11:05am

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