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 Paul@investfortomorrow.com.


Until next time…

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

Follow us on Facebook at www.facebook.com/heritagecapital 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 http://www.irs.gov/.

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.

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.

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 Paul@investfortomorrow.com.


Until next time…

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

Follow us on Facebook at www.facebook.com/heritagecapital and on Twitter  @Paul_Schatz

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 http://www.charitynavigator.org/.

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.

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.