Thursday, April 28, 2011

Stock Market Building Towards THE Peak

(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 I write this Federal Reserve Chairman Ben Bernanke is just beginning his first ever, "official" press conference. As savvy as he is, (remember his first 60 Minutes interview right at the bear market low?) I doubt that we will hear anything unexpected in his remarks or his answers to media questions.

The latest bull run in stocks that began on March 16 remains alive and well. A few weeks ago, I offered that since we saw some of the key indices making new highs, that boded well for the others to play catch up. Since then, the Dow Industrials, Dow Transports and S&P 500 have scored fresh highs with the Nasdaq 100 a few cents away.

On the flip side, volume remains woefully pathetic and eventually that's going to matter. Sector leadership is very good, BUT the key financial sector is behaving very poorly. With the indices at new highs and this group in a downtrend, something has to give sooner than later.

So far, nothing has changed in my thinking that a possible significant peak is building sometime this quarter. Besides what I've already mentioned, I am focusing on the junk bond and small cap areas where the first sign of evaporating liquidity should be seen.

The initial decline from any major top is going to look exactly like every other small pullback, only in this case, the next rally will fail short of new highs and a sharp, relentless decline will ensue. As always, we will take it one step at a time and do our best to protect the gains we've been fortunate enough to make.

I hope that none of you are sitting back, complacently believing that we survived 2008 and all is good in the world. That we are on the cusp of another decade long bull market to untold riches. In case you haven't realized it, the stock market (and many, many, many mutual funds) is at the same level it was 12 years ago! That's essentially 0% return on your money BEFORE inflation! So factoring in that pesky inflation thingy, you end up with a significant loss.

I urge you! I beg you!! You have a plan in place in case you get into a car accident. You have a plan in place in case your house burns down. Don't sit back and hope that everything works out with your money. Now is not the time to procrastinate. It's the time to put a plan together. Investors don't plan to fail; they fail to plan!

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

Friday, April 22, 2011

Alert! Alert! Alert! Bubble Warning

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

One of the recurring themes of the past year has been about investment bubbles, how difficult they are to confirm and even tougher to profit from. We've talked about cotton and sugar and coffee and gold.  And maybe next week, we'll do a review and see where they all stand.

Today, I want to share some very brief thoughts and pictures of silver and you some questions. Looking at the chart, from $26 to $43 an ounce in three months, what do you think? Bubble?

How about the chart below with a longer term view?  From $18 to $43 in 8 months.  Bubble?

And now, from the 2008 bottom.  $9 to $43. What do you think?

Bubbles don't appear overnight. They require a confluence of fuel factors, a perfect storm if you will.  First, they usually have a foundation from which they are built. That’s followed by a long-term bull market.  Once there is widespread acceptance, we typically hear that “this time is different” when it comes to overvaluation.

The experts rationalize why conventional thinking no longer applies now and how we have some sort of new paradigm in the making. Just think back to the spring of 2008 with peak oil and how we should expect crude to remain forever high, right before it went from $147 to $35. Remember how they argued that since no one is creating any more land, housing prices would never really decline? And oh those dotcom stocks!  I vividly recall being told it was no longer about earnings; it’s all about EYEBALLS!

When looking at commodities, as I have mentioned before, they behave the opposite of stocks.  Commodities tend to make long, multi-year bottoms or foundations that scrape along, while their peaks are very violent, emotional affairs. Take a look at the monthly chart of crude oil below. That is about as classic and textbook a case of building a foundation, the bubble and the collapse.

Let’s turn back to silver.  How does the chart below look for a long-term foundation?  1990 to 2002!  That was followed by a “nice” bull market to the 2008 peak and subsequent collapse. Now, it’s truly become a bubble with a possible collapse looming.

Just because an instrument is exhibiting bubble type behavior doesn’t mean it must end right away or in total disaster, but the odds certainly are heavily in the disaster direction.  Every now and then, we will see a security go vertical up the right hand side of the page and then enter a trading range where it generally goes sideways, but bounces from one price to another.  That kind of digestion usually does not end in implosion. 

The most difficult thing about bubbles is that they are incredibly challenging to pick the top.  Investors often get burned several times being early. But once they roll over, there usually isn’t time to get onboard.  Remember what John Maynard Keynes said? “The market can stay irrational longer than you can stay solvent.”

I’ll continue to keep an eye on silver and other instruments that exhibit bubble behavior. Just be careful if you trade or invest there!
FYI, I will be on CNBC’s The Call on Thurs., April 28 at 11:05 p.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 @Paul_Schatz

Friday, April 15, 2011

Bull Market Long in the Tooth, but...

(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 first three months of 2011, the S&P 500 gained 5.40%, certainly not too shabby.  For the third time since the 17% correction ended in July 2010, we saw a healthy, needed and somewhat expected 4-8% pullback as you can see from the chart below. These digestive periods have followed very strong rallies that needed a pause to refresh, much like after eating an enormous meal. The brief bouts of weakness allowed the market to rest, re-gather itself and shakeout the weakest investors, which is necessary to begin a new leg higher.

 At the risk of getting too technical, you can also see the dark blue line, which represents that average price of the last 50 days, orange line, which is 89 days and light blue line, which is 150 days. The November 2010 4-8% pullback kissed the dark blue line. The March 2011 4-8% pullback visited the orange line. The natural progression calls for the next significant decline, which could begin later this quarter, to come down and say hello to the light blue line, significantly below current levels but rising every day. 

The bull market turned two in early March and continues to surf a tsunami of liquidity perpetuated by Ben Bernanke & Co. The Fed's quantitative easing part II of buying U.S. Treasury bonds did not change, but that is scheduled to conclude in June.  Interestingly, the only real period where the Fed wasn't pumping a torrent of money into the system was last spring, which coincided with a 17% correction! 

As I've mentioned before, there will be unintended consequences and benefits from all of the Fed's actions.  A powerful bull market in stocks and bonds have made most people very happy, but far less are enjoying the reflation of commodities with energy prices soaring day after day, week after week and month after month. 

The closer we get to what I see as a potentially bull market ending period, mid May to mid June, the more volatility should increase and more cracks should appear in the foundation of the markets. We are already seeing pathetic volume and some more significant technical damage to a few of the major indices. 

I am keenly watching the performance of junk bonds and the small cap stocks for signs of liquidity leaving as well as sector leadership during rallies.  I am concerned that two key sectors, banks and semiconductors, do not behave well, but I also don’t want to jump ship before it’s really necessary. Sometimes, the market will fool the masses and right itself on a dime and soar to new highs.  That’s what makes certain periods much more difficult than others, especially those in aging bull markets.

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, April 7, 2011

Real Estate Season is Here

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

Thank you for the flood of emails from last week’s piece, The Man Who Changed My Life.  It was one of the more enjoyable posts I have done.  Surprisingly, the majority of replies were from folks requesting more information about Sloo and what he said that was so bad I couldn’t sleep.  They wanted to know how they could have me manage their money based on Sloo’s forecasts.  The problem is that is the post was done on April 1, otherwise known as April Fool’s Day!  Sloo Flipra spelled backwards…
Before I get into this week’s real content, I want to share something else.  Having essentially lived in the greater New Haven area my whole life, except for college and five years on Wall Street, I have been so fortunate to have friendships from nursery school, some 40 years ago.  I still have pictures from my three and four year old classes with Joanna Katz, Lauren Farber and Elisa Scholson, all friends to this day.
Lauren sent me an email last night about a bike ride she is doing. Sadly, she was diagnosed with a brain tumor and is now trying to raise money to help find a cure.  If you are so inclined, please click on the link for me information on you can help the cause. Brain Tumor Ride.
And now, on to the topic at hand.
It’s that time of year again.  The birds have flown back for the warmer months.  Local golf courses have put the pins back in the greens.  There are buds on the trees and bushes.  Ski areas are closing and the Yankees have taken the field.  It’s also the beginning of prime residential real estate season!
As I have done in previous real estate posts, I leaned on my good friend and real estate super agent Judy Cooper for advice.  Similar to last season, it is clearly and unequivocally a buyer’s market.  While the pace at which prices were dropping has diminished, prices remain weak and as I opined in two blogs last year, Real Estate I and Real Estate II, I think it’s going to be years and years for a real, sustainable recovery to take place.
We have less competition in lending and banks are much more stringent in putting their money to work.  The employment numbers remain at very elevated levels and I do not believe the unemployment rate will get back to the “normal” zone until after the next recession.  Finally, mortgage rates are at historically low levels.  Best case scenario, they remain there, which would not help the refinance boom.  Worst case, rates begin to rise and become an anchor on any real estate recovery for some time.

Nonetheless, each year, roughly one million new homes are needed to satisfy demand.  When things were humming along in 2005, the U.S. had roughly a six month supply on the market.  In the darkest days of 2009, that figure had ballooned to about 24 months.  The last figures I saw still had the supply at more than 12 months.
Those of you, like me, who are in the market for a new house should feel okay, not rushed or pressured.  We got lucky and sold our house last summer to a family who needed to close in a very short period of time.  My wife and I made a deal that I would agree to find a larger house for our larger than expected family if she agreed to sell first and rent.  That would give us a significant advantage coming buying time as we would have cash on hand with nothing to sell.

So here we are.

As I mentioned before, since my entire professional life revolves around making informed, non emotional decisions concerning money, I took a page from the business and created a quantitative model that values local real estate.  Obviously, it can’t take into account intangible items like the immediate need to buy or the lack of a catalyst to sell.  But overall, it’s usually within 5% of the transacted price. 
Although the season is young, it’s unfortunate to report that sellers have come out from the long winter hibernation as though it was 2005 all over again.  Some of the homes I have personally seen make me wonder if folks are caught in a time warp, overly medicated or living on Mars.  As a previous seller, we clearly thought our house was worth more than it was.  That’s the emotional attachment.  But very quickly after we listed, Judy Cooper came back to us and advised reducing the price if we were serious about selling.  So we listened and the rest is history. 
Sellers like we have experienced are part of the problem, not the solution.  The system remains full of inventory and desperately needs to be flushed before real stability can set in.  With the recent housing numbers opening the door for a double dip housing decline, buyers need to be very careful letting emotion enter into the negotiations.
Two vital stats I strongly suggest using are the listing price divided by the either the town’s assessed value (usually 70% of appraisal) or listing price divided by the appraised value.  Additionally, I would keep a close eye on the listing price divided by the square footage.  Of course, the condition of the house can add or subtract from these figures, but at least they give you a general apples to apples comparison.

I asked to offer advice for both buyers and sellers on the whole home buying/selling process.
Here you go…

For sellers:

1) Trust your Realtor! Choose someone who has experience, knowledge and has a 'complimentary' personality. If necessary, interview several to find the one who clicks best.
2) Let him/her explain how the price was arrived at....with lots of comparable homes, etc.
3) Stay unemotional!! The market sets the price a seller will receive. After 5-6 weeks, take a look again at your listing it realistic? What feedback have you received? Revisit the price and see how many other houses have gone under deposit if yours hasn't.
4) Stage your house to make it looks its best.
5) Have a pre-listing inspection so you know what you're dealing with before the buyers tell you.
6) The first offer is usually the best...and if you don't accept it, you're essentially saying you would buy your own house back at that price. The question is: would you???

For Buyers:

1) Trust your Realtor: interview several to make sure they have experience, knowledge and a personality that clicks.

2) Learn the market. Go to open houses in the towns that interest you. Get a list from Town Hall of all houses sold in the past year for comparative purposes.  Be especially interested in recent sales on streets you are looking at. 

3) Prioritize your needs. Are hardwood floors more important that the location of a neighborhood? Learn the difference between cosmetic and structural changes when you see a house you like.
4) Get a pre-approval letter from a reputable lender BEFORE you start looking so you don't have unrealistic expectations.
5) The primary consideration in choosing a house is (yes!) LOCATION!! Neighborhoods trump main roads, level lots trump houses set down from the road or those on a steep driveway.

6) Do not negotiate with emotion--be willing to walk away.
7) Offer the seller non financial items of value: a closing date that suits their needs (if it doesn't impact yours), etc.

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

Save the Date: It's Financial Literacy Month

NEW HAVEN - Higher One, a financial services company based at Science Park, is hosting "Tips and Tools for Becoming a Financially-literate College Student" at 6 p.m. April 13.

The event takes place at the main branch of the New Haven Free Public Library, 133 Elm St.

Admission is free.

Wednesday, April 6, 2011

3 Ways to Pay Your Federal Income Tax

If you owe taxes but can’t pay the full amount by the April 18 deadline you should still file your return on time and pay as much as you can to avoid penalties and interest. You should also contact the Internal Revenue Service to ask about alternative payment options.

Here are three alternative payment options you may want to consider:

1. Additional Time to Pay.
 Based on your circumstances, you may be granted a short additional time to pay your tax in full. A brief additional amount of time to pay can be requested through the Online Payment Agreement application at or by calling 800-829-1040. Taxpayers who request and are granted an additional 60 to 120 days to pay the tax in full generally will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time.

2. Installment Agreement.
 You can apply for an IRS installment agreement using the web-based Online Payment Agreement (OPA) application on This application allows taxpayers who owe $25,000 or less in combined tax, penalties and interest to self-qualify, apply for, and receive immediate notification of approval.

You can also request an installment agreement before your current tax liabilities are actually assessed by using OPA. You may complete and submit a Form 9465, Installment Agreement Request, make your request in writing, or call 1-800-829-1040.

For balances over $25,000, you are required to complete a financial statement to determine the monthly payment amount for an installment plan.
3. Pay by Credit Card or Debit Card.
You can charge your taxes on your American Express, MasterCard, Visa or Discover credit cards. Additionally, you can pay by using your debit card. However, the debit card must be a Visa Debit Card, or a NYCE, Pulse or Star Debit Card.

To pay by credit card or debit card, contact one of the service providers at its telephone number or Web site listed below and follow the instructions. There is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee or flat fee. If you are paying by credit card, the service providers charge a convenience fee based on the amount you are paying. If you are paying by debit card, the service providers charge a flat fee of $3.89 to $3.95.

Do not add the convenience fee or flat fee to your tax payment.

The processing companies are:
Link2Gov Corporation:
888-PAY-1040 (888-729-1040)
RBS WorldPay, Inc.
888-9PAY-TAX (888-972-9829)

Official Payments Corporation
888-UPAY-TAX (888-872-9829)

Friday, April 1, 2011

The Man Who Changed My Life

(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 the past 23 years, I have been fortunate enough to make some truly outstanding market calls. Buying at bottoms, selling at tops. Forecasting major economic changes. Identifying bubbles right before they burst. It’s been one heck of a run. What I never shared before was that I had help, serious help. My whole life, I have always been a believer. When I found time to sit around and watch TV, I gravitated towards those infomercials and bought and bought and bought. From Ginsu knives to the juicers to abdominal machines to weigh loss without work, it’s all been through my house.

While travelling through Europe in 1987 as a student, I met a mysterious man named Sloo Flipra who changed my life. If you saw him, you would not have believed it. At first, it started out as casual conversation on a train about secret societies and how governments are just puppets for the real folks controlling the world. I was more than curious. I was captivated. He seemed to know everything and I mean EVERYTHING. He told me the hidden truth about world leaders being assassinated and the myriad of cover ups for things that were really going on militarily. He clued me on the manipulation in the financial markets and economy. He even offered that his sports predictions were more than 80% accurate. He discussed things that would only be credible in a Tom Clancy novel.

But it wasn’t just the past. He gave me a laundry list of forecasts and predictions for the coming years. I was hooked! We exchanged names and addresses and vowed to stay in touch. When I called my parents the next day and told them about the man I met, my mother asked me if I was taking drugs. My father thought a cult had snatched me up and I was brainwashed. “How much money did you give him?” my father demanded. “Nothing” I told him. “He didn’t ask for anything”.

After the exchange with my parents and getting back to my life, the bloom was off the rose and I didn’t pursue speaking with my new friend. That was until October 1989 when the stock market saw a mini crash after hostile, leveraged buyouts of United and American Airlines came crashing down. Panic hit Wall Street that this Blue Friday was going to lead to another Black Monday.

I received a note in the mail that said something like “#2 off the list”. During the summer of 1990 as the Dow was making new highs above 3000 for the first time ever, a note arrived that said “#4 off the list”. This time I paid attention and found the laundry list of predictions my friend from the train had made three years earlier. #5 was war in Iraq. When Saddam Hussein invaded Kuwait in the summer of 1990, I sent my friend a letter asking to meet. All I got in return was a note that said Dow 2400 this year. Two months later, the Dow saw its bear market bottom at 2350.

At the same time George Bush I’s approval rating was approaching 90%, yet another note arrived that said something like “Bush goes home a loser in ‘92”. This was beyond eerie. It was like having your own crystal ball. But I also became a little freaked out that this man could be in danger and I wouldn’t be far behind.

Although the curiosity was killing me, I stopped reaching out and after a few more notes, so did he. When I moved out of Manhattan in 1993 as the Yankees were decade long doormats, my friend’s final note at that time was filled with names of minor league players in the Yankees farm system, Jeter, Williams, Rivera. He said “rings, rings and more rings. The glory years are coming back shortly.” And he was right yet again as a dynasty was born.

One of the unfulfilled items on his huge list, which I am only mentioning the really big ones, predicted a decade long boom in the global financial markets, capped off by Dow 10,000. Not surprising, check out the chart below.

I don’t want you to think he mostly mentioned market related items. He gave me tons about politics and a few sports related items and entertainment and science, much of which I did not understand. He knew I was a golfer and told me a Cardinal would soon dominate golf like nothing since Nicklaus. Obviously, that became Tiger Woods.

Finally, after years and years of no contact, I sent my friend a letter in late 1999. Usually, I would hear back right away, but this time, there was no reply. Maybe he moved? Maybe he was ill? Maybe he passed away?

It took three months, but he finally did write back, wondering why I stopped communicating and why I was back. I think he was hurt. By this time, I had matured a lot (or at least I thought so) and figured this guy was my goose that laid the golden eggs. I had to capitalize on his gift.

I also wanted to dispense with the letter writing and either use the phone or email. When I asked about email, he told me to look at the original list from 1987 where it said electronic mail delivery will rule the world. Just incredible! We began to communicate fairly often via email. In early 2000, he told me to buy real estate for the run of a lifetime. He said that a multi-year bear market was about begin, led by the most horrific blow up in Internet stocks. Multi-year? Since I entered the business in 1988, the longest bear market had been measured in months. He was talking years.

During the election of 2000, when we did not know who our next leader was going to be, my friend emailed me and said “Bush I calls in favors for Bush II”. Another comment said, “Madoff a fraud”. At that time, I only knew Madoff as a legitimate securities market maker, nothing of the other business he was building.

The glaring miss my friend had was 9/11. It totally blindsided him and I think that caused him to retreat. In some way, I think he thought he was partially responsible for not being able to see it ahead of time and alert the authorities, which he had done for some of the previous threats against our country.

Over the next few years, he had little to forecast. He barely left his house and didn’t say much in our emails. When stocks bottomed in 2002, he said nothing. No warning about the Iraq war. No comments about housing or mortgages or leverage. He basically retreated into a shell and I figured he would never make a prediction again.

That was until late 2007 when I received an email that said “sell everything; don’t question; don’t ask questions; don’t contact me”. After almost 20 years of beyond belief predictions, I was in a total panic. My first reaction was nuclear war. What the heck does he see happening in 2008?

In early 2009, guess who emailed me?  “Safe to go back in the water. 100% on the way”.

Just last week, my old friend emailed me again with an updated photo of himself. This time, it was a laundry list of market predictions, global events, natural disasters and the Final Four results. I have not slept since and I am really shaken up. What should I do?

The final item on his list simply said, “Check the date of this blog entry”. The world is such a serious place. I hope you enjoyed reading! I’ll be back next week with usual commentary. I think it’s time for some real estate comments as the spring season is upon us.


FYI, I will be on CNBC’s Squawk on the Street on April 5 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