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.


Go UCONN!


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 Paul@investfortomorrow.com.

Until next time…

Paul Schatz
Heritage Capital LLC

http://www.investfortomorrow.com/
http://RetirementPlanningConnecticut.com/

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Top 9 Tips for the Successful Investor in 2010

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

It’s amazing how powerful the turn of the calendar can be.
New Year’s resolutions dominate the landscape with all of the weight loss programs and products at the top of the list. I’ve never been a huge resolution person, probably since there’s just too much I need to change and it’s a little overwhelming!

But each year, I may pick one single project that needs to get done and is manageable. This year, my office resolution is to be paperless by this time next year, not exactly sexy or exciting, but important, nonetheless.

As investors turn the page from the bounce back year of 2009 to 2010, here are 9 items to consider.

1 – Take a financial inventory of your current holdings.
Make a list of all holdings on a piece of paper or Excel spreadsheet of their values at the end of 2008 and 2009. Determine the composition of your portfolio: What percent is in stocks, bonds, currencies, commodities, cash, etc.? Try to understand why something did better or worse than expected and consider adding or withdrawing where appropriate.

2 – Asset allocating among stocks and bonds hasn’t worked well all decade and it’s unlikely to work in the next decade.
Modern Portfolio Theory (MPT) may not be dead, but it’s critically wounded and has hurt hundreds of thousands of retirees this past decade. If your portfolio doesn’t own other assets, like currencies, commodities and protection against inflation and deflation, it’s long overdue!

3 – Beware the “Money Magazine Jinx”.
What worked well in 2009 isn’t likely to be repeated in 2010. When the popular publications like Money and Fortune give kudos to a particular investment’s success last year, it’s usually close to the end. That’s been the case the vast majority of the time in bull and bear markets. Be VERY careful chasing the winners!

4 – After a horrific climate in 2008 where most asset classes were decimated, 2009 was the bounce back year where most people began to feel better and their portfolios stabilized, worst case.
Don’t get complacent and think we’re going to party like it’s the 1990s all over again. It’s going to take years and years to fix all that ails us and we haven’t seen the last trap door or sink hole. Stay active and focused!

5 – State and local tax receipts are falling faster than Tiger Woods’ sponsor list.
Given how the economy fell off the cliff in 2008, this wasn’t hard to predict, but who ever said politicians could effectively budget? States like California, Arizona, Florida and New Jersey have enormous budget deficits, not to mention the trickle down effect to counties and towns. I have grave concerns that a municipal bond crisis isn’t too far off and defaults will follow.

Muni bonds inflows reach record levels over the past year or so as investors chased yields so there’s an awful lot of air to be let out of that market. Be very selective on what you buy and stick with the most pristine municipalities, even if that means lower yields. If you tend to buy bond funds, diligently check how much leverage (borrowed money) they use to juice the yields higher. Nuveen is one company that built a business on it. To paraphrase Mark Twain, be more concerned about return OF principal than return ON principal!

6 – Not a new worry, but the biggest risk to the financial markets and economic recovery is politicians running amuck, especially in a hugely important midterm election year.
The nasty partisan politics we’ve seen is only going to get worse and that’s just not good for investors. Believe it or not, the stock market typically performs best when Congress is split, gridlock.

7 – Don’t be fooled by the temporary reprieve in the real estate market.
It may rally a bit, but the two biggest tailwinds of the past 25 years, declining mortgage rates and easy access to capital, are no longer blowing. With so many potential homebuyers no longer able to secure a mortgage, organic demand will fall for years to come. I think the best case for real estate is flat prices this decade.

8 – With trillions of dollars being printed by the government for a variety of programs, and budget deficits soaring as far as the eye can see, investors should prepare for higher taxes across the board.
By doing nothing, the Bush tax cuts will expire this year and tax rates will rise. But I don’t think Congress will leave it at that. Call them fees or surcharges or however you want to spin it, the government is going to dip into our pockets more than they have in a long time!

9 – If you’re confused, want to bounce an idea off someone or would rather not handle your own portfolio, seek the help of a qualified professional.
Look for someone who offers independent advice as a Registered Investment Adviser (RIA) and not just a product salesperson. An RIA is a fiduciary and by law, must put clients’ best interests first, and follow the prudent man rule. Hiring a professional could be a nice topic for a future entry.

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

Until next time…

Paul Schatz

Ben Bernanke… Hero to Goat to Hero to ???

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



Earlier this week Ben Bernanke was named Person of the Year by Time Magazine, a shocking choice to me. It has nothing to do with whether he deserved it or not, but rather how wide the pendulum has swung since he was first appointed in 2006. I’ve long written about Bernanke as the perfect person for the times. As many people already know, Bernanke is best known for his exhaustive study of the Great Depression and the massive mistakes we made to perpetuate the economic collapse.



Helicopter Ben, as he was labeled, joked that the government should have dropped $100 bills from helicopters to flood the system with enough money to get people spending again to stave off deadly inflation. Anyway, Bernanke was instantly popular after his January 2006 confirmation during the height of the bull market. The higher stocks and credit climbed, the more kudos given to his Fed.

And when the credit markets began to rollover in 2007, Bernanke boldly stated that the Subprime Crisis would be contained and no recession was on the horizon, comments he would later regret more than Tiger Woods’ transgressions! As 2007 continued unfolding, Bernanke’s popularity began to wane as hedge funds were going bust and the mortgage debacle became more serious.

During 2008, Bernanke was blamed for keeping rates too high in 2007 and severely underestimating the depth of the credit crisis. But he was also given credit for his creative and outside the box strategies in attacking the various crisis with the force of an atomic bomb. And now, we’ve seen somewhat of a polarization with some folks seeking to anoint Ben, while others wanting to stick him with pitchforks. Just watch the Senate confirmation hearing and that said it all!

I truly find it fascinating that Bernanke’s influence has filtered all the way down to “Main Street” being chosen as Time’s Person of the Year. That is extremely unusual. And from my seat, not a positive sign at all. In the early 1990s, I studied the research of Paul Macrae Montgomery of Magazine Cover Indicator fame, market analyst and fellow money manager from Virginia, who examined all Time covers since the 1920s and concluded that by the time people or companies or events made the covers of the most widely read and popular publications, the party (or trend) was just about over (or about to begin if the cover was negative).

Further, he determined that once the magazine cover hit, whatever trend was in place generally continued for about a month before reversing. And one year later, he concluded that roughly 80% of the time, investors would have been profitable by fading or going opposite the magazine cover. This is commonly referred to as contrarian investing. You can Google Mr. Montgomery for more details if you’re interested.

Academics are quick to dismiss this type of analysis as bunk, but to me it’s definitely more than just coincidence. There is a classic book written by Charles Mackay called "Extraordinary Popular Delusions and the Madness of Crowds" that discusses this in great detail. Oh yeah… it was written in 1841 and still is viewed as a masterpiece!

Back in December 1991, Ted Turner graced Time’s cover as Man of the Year, yet all his stock could muster over the next year was -7% in a generally up stock market. At the end of 1997, Andy Grove, CEO of Intel was featured in the same fashion prompting that stock to do absolutely nothing for eight months.

The most famous (or infamous) Person of the Year was Jeff Bezos, CEO of Amazon, in late 1999. As you can see below, that stock peaked at $113 and collapsed 87% to $15 one year later!
















Time named President Bush in December 2000 to its cover and one year later, the market was still much lower.



Finally, in late 2007 Vladimir Putin was “The Man”. In Amazonesque fashion, the Russian stock market didn’t exactly reward investors (although not many markets did in 2008).
















So now we have Fed Chair Ben Bernanke on the cover of Time and named Person of the Year. His reconfirmation was just passed by the Senate Banking Committee with the full Senate scheduled to vote (and confirm) in early 2010. Bernanke is on record as saying he did what he did, sometimes with disgust (AIG, Merrill) because he didn’t want to be the Fed Chairman who presided over the second Great Depression. Additionally, President Obama is on record as crediting Bernanke and the Fed from rescuing the financial system and economy from falling into another depression.

Based on the very positive nature of Time’s declaration, Bernanke’s and Obama’s comments, it is more than likely, roughly 80% according to Montgomery, that we are near a peak for Ben Bernanke, the Fed as a whole and possibly the financial markets. Although I certainly hope it’s wrong this time, no one should effectively manage money based on hope.

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

Until next time…

Paul Schatz