The Investment Spa

Come join us at http://LiveWealthyandSmart.com!

2009-12-26T17:58:00.000-08:00

Continue to read Linda P. Jones's insights on her blogs at http://www.ShowMeWealth.com and http://www.LiveWealthyandSmart.com.

Gold Takes a Well-Deserved Rest

2009-12-16T22:35:00.000-08:00

Did you see famous hedge fund manager John Paulson (the one who made $2.7 billion shorting subprime mortgages) is trying to have another awesome trade with gold? He is mostly concerned about our depreciating currency, so much so he is investing $250 million of his own money to start a hedge fund backed by gold. (The last time he launched a hedge fund for a specific purpose was to short subprime). A paltry $10 million minimum is all that's required. I nabbed his Report to Shareholders and posted it on my twitter site for those who would like to see what he has to say (http://www.twitter.com/lindapjones, "profile").

His hedge funds currently own $4.3 billion solely in gold related investments-gold stocks and derivatives. His thesis, in a nutshell, is he sees the dollar continuing to depreciate which will cause gold demand to increase as a hedge, he sees more use of gold as a reserve currency (since no one can print more gold), and its tight supply is anticipated to create escalating prices. He thinks gold stocks are undervalued compared to the bullion and his favorite stocks are AngloGold Ashanti (AU), Gold Fields (GFI), Kinross (KGC), and, of course, GDX the gold mining ETF.

My next issue of the Investment Spa will be the last under this name. I have three new exciting websites I've been working on that I'll be sharing with you next week. I'll continue writing this blog, but will be re-titling it "The Visionary Investor", so watch for it in your email inbox. I can't wait to tell you all about my new focus and how I'll be expanding next year! I think you'll be pleasantly surprised!

Disclosure: I'm long KGC and GDX.

Short Year-End Checklist

2009-12-04T10:26:00.001-08:00

I hope you had a good Thanksgiving! It was a delight to be in Palm Springs with family, and enjoy turkey and all the trimmings, including my sister's fudge and Mom's date loaf dessert. No calories or waistlines were spared at our table!

I can't believe the end of 2009 is approaching already! I've created a short end of the year checklist for you to consider...

1. If you don't already have a fixed rate mortgage, I recommend you get out of a variable rate mortgage and lock in the low rate. 30 year fixed-rate mortgages reached a low of 4.71% recently.

2. Consider taking capital gains this year instead of next year. There are rumors the cap gains rate will increase from 15% next year and will be made retroactive to January 1, 2010.

3. Lighten up on bonds. With interest rates at one of the lowest points in 27 years, the risk of rates rising in the future means we're looking at a potential long-term bear market for bonds, particularly Treasuries. Quite possibly the next bubble.

4. Become familiar with inverse Exchange Traded Funds (ETF's). These are groups of stocks that trade under a single ticker symbol. You can purchase them on the major indexes like the Dow Jones (DOG), Standard and Poors 500 (SH), and Nasdaq 100 (PSQ). You can make $1 profit for every $1 the index declines. There are also leveraged ETF's which will earn you $2 profit (DXD, SDS, QID respectively) for every $1 decline in the underlying index. Cool! I'll be writing more about them in the future.

5. Continue to buy gold and silver on dips! The metals protect your purchasing power against the long-term decline of the dollar.

6. Consider whether you should be converting your traditional IRA to a Roth (must be done by year end). You must have maximum adjusted gross income of $100,000 or less. Talk to your Financial Advisor or cut and paste this link into your browser: http://www.forbes.com/forbes/2009/1214/investment-guide-10-ira-tax-heirs-irs-roth-conversion-question.html?partner=yahoo

Disclosure: I'm long gold and silver.

For my favorite articles and an ETF Guide, check out http://www.twitter.com/lindapjones.

A Moment of Reflection

2009-11-24T13:15:00.000-08:00

As we get closer to Thanksgiving, like everyone, I like to reflect on the past year and all the things I'm grateful for. Of course, good health, family and friends, and financial blessings are things we're all grateful for. But as I think back over the last year, I have to say it's been one of spiritual growth, of stretching my boundaries, and of stepping out into a new world.

To keep growing and learning to me is an "amazement" because we are actually changing and evolving as people. Together.

As the financial crisis unfolded last year and everything we knew was turned upside down, it's caused a re-examination of what's important in life. We're moving from valuing "things" to valuing meaning and purpose. The vulnerable feeling we had when the rug was pulled out from under us makes us reach down deeper inside ourselves for what we value and what we know to be true. It requires a greater understanding of self, and a greater self-trust. A movement away from things that aren't important, to the essentials that are important, and how we want to live our lives.

I'm grateful to have the opportunity to have a moment in your week to chat with you about the economy or markets or stocks, but mostly to stay connected to you at this time and in this way. For as we go forward, we have many new things to learn and experience together. To keep moving forward and growing and experiencing and changing and learning. Together. For that, I am truly grateful.

I wish you a happy, healthy, sacred time with your friends and family this Thanksgiving and always.

Is Gold In A Bubble?

2009-11-20T13:58:00.000-08:00

For those of you who have been reading this blog for a while, you're familiar with my "crush" on gold and silver mining stocks. I've been encouraging you to consider them and many of you have. It shouldn't have surprised me, then, to have someone ask me if gold was too high now? Or, as she said, "Is gold in a bubble?"

My definition of a bubble is something that takes a long-term trend, a nice upwardly sloping curve to the right and begins to spike vertically, usually 40% to 100% in a year. It also coincides with anecdotal evidence like people telling stories at cocktail parties about how much money they've made in the bubbled asset, along with every magazine cover telling you to buy it. None of these things has occurred yet.

Gold has been compounding at 21% a year since 2001 (and yet many still won't consider it a small part of an asset allocation strategy, but they consider allocating 30% of a portfolio to large company stocks in the Dow Jones Industrial Average, which has averaged 0% for 10 years). Perhaps that's the best indicator that gold is not in a bubble yet!

The fact that gold is now trading at over $1,000 an ounce, highlights the fact that paper currency, in the US and elsewhere, has big problems ahead as the printing presses run uncontrolled as never before. The more dollars are printed, the less each one is worth.

The printed money has created liquidity which is finding its way into the stock market. When banks are only paying 1% interest and a 30 year Treasury is paying 4.4% interest, who wants to invest there when the stock market is going up?

Though the stock market has been in an uptrend and on a tear, it advances higher with very little volume, meaning if there is a pullback there is little support of buyers underneath to step in. The only place I feel comfortable is in gold mining stocks at the moment because I don't think they are in a bubble yet. And technical indicators show potential to $1,300 an ounce before I will start to worry.

A week ago, "Son of GDX" was launched, or what's known as ticker: GDXJ, a "Junior" gold stock mining index exchange traded fund (ETF). It's a basket of smaller gold mining stocks that has more volatility on the upside and downside. Maybe a consideration for a small portion of your portfolio?

Disclosure: I own "GDX".

For more information and my favorite articles, check out http://www.twitter.com/lindapjones

A View From Las Vegas

2009-11-12T10:15:00.001-08:00

Last week I was in Las Vegas for an internet entrepreneurs conference. It has been years since I've been to Las Vegas and it was astounding to me how built up it is! The developers really went to town putting up high rises and casinos. It was interesting to see that the strip was crowded and amazingly busy. Although the high-end steak houses were packed and people partied like it was 1999 (and had $100+ seafood platters being delivered to tables all around us), the jewelry and designer clothing stores were absolutely empty...people have their priorities you know!

Back in Palm Springs I went to the outlet mall at Cabazon (doing research for the blog, of course), and found the shops packed - with foreigners! Italian, Korean, French and other languages were heard while they were buying up the designer duds. With the dollar so weak, foreigners can buy a lot of expensive goods for less. Heard about the designer shoe shopping junkets from Europe to New York?

My observation is that we need to look to the strong trends coming in the future and invest accordingly (not in the rear-view mirror). Beginning in 1982, we had inflation peak and it has been in a 26 year, long-term, declining trend (good). Interest rates have declined from 18% to near zero (looked at CD rates recently?). It was this long-term deflationary trend that caused the stock market/financials to boom.

Right now the Federal Reserve is printing money and providing stimulus to re-inflate the economy (cash for clunkers and the home buyer credit, among others). The money has filtered into the economy and provided a higher rate of growth (GDP). So right now, we are near the opposite end of the business cycle that peaked in 1982 and perhaps somewhat close to starting a new trend, eventually: rising interest rates.

U.S. Treasuries are in a pickle because once interest rates start increasing (either as the economy recovers OR to entice more investors to buy our government bonds), since bond values move inversely to interest rates, we could see bond values decline. A way to profit is to buy the inverse exchange traded fund (ETF) with the symbol TBT which increases as bond values decrease. It has tracking error, meaning it does not follow it exactly, but it is a way to profit from a long-term trend of interest rates rising - eventually.

For more information and articles, check out www.twitter.com/lindapjones.

The Great Leveling

2009-10-28T09:41:00.000-07:00

The awaited October correction is here as is the rally in the dollar. Use this time to think about re-positioning your portfolio. As I wrote about in my last column, international stocks, commodities, and foreign currencies are going to be paramount to have in your portfolio to benefit from a weakening dollar. The weakening dollar is going to be the story for the next several years and I believe those who are positioned correctly will make a fortune and those who aren't will suffer. Are you on the right side to profit?

The big picture, as I see it, is about a leveling out of global standards of living. As Americans, our standard of living has been the highest in the world. As the dollar loses value, our standard of living will decline and other countries' standard of living will increase. No one likes to hear their standard of living will decline, but if you know about it you can plan for it. I guess I would call it "The Great Leveling". Other countries have the natural resources that we need to import and, with a weaker dollar, it's about to get a lot more expensive to import our necessities like food and oil.

There's no two ways about it, the cost of food is going up. We're importers of our food and with the dollar's continued weakness, food and all other imports will become more expensive. Time to make a run to Costco with one of those flatbed carts? Pick up some water while you're at it.

As long as we're talking about food, how about agriculture stocks, fertilizer, and farm equipment? I would consider Agrium (AGU), Potash (POT), Monsanto (MON), Caterpillar (CAT) and agriculture ETF's such as DBA, MOO, and RJA. Since agriculture is also priced in dollars, it should increase as the dollar decreases.

Energy also rises inversely to the dollar and stocks like Exxon (XOM), China's 3rd largest oil and gas company CNOOC (CNOC) and Petroleo Brasileiro (PBR) are good bets.

International ETF's such as Brazil (EWH), China (FXI), China A shares (CAF), and Russia (RSX), as well as Africa (AFK), and Africa and the Middle East (GAF) make sense. The BRIC countries have been espoused by the media ad nauseum so I won't go into why I like them, but I will say Africa is poised to benefit from the Chinese buying their resources and also from the price of gold increasing.

Of course, you know metals are my favorite right now and this is a good time to buy the dip before the big super run-up I see coming in gold and silver between now and the end of February. I'm expecting a parabolic move up soon. Great time to buy junk silver coins too.

Longer-term I think water is the new oil (PHO) and timber (to build the emerging market countries' new houses and cities) will be outstanding long term buys if you're patient.

3 Ways to Mega-Profit From a Weak Dollar

2009-10-19T15:57:00.000-07:00

The 3 ways to mega-profit from the declining dollar are:

1) International stocks/bonds. As the dollar declines, that translates into a positive return in currency exchange. If the dollar declines 10% (which it has already this year), that's a positive 10% return for you. That's not even taking into account the foreign markets' performance. If the foreign markets you're invested in rise by, say 5%, add that to the 10% currency gain and that's a 15% total return. It's like being leveraged, but without the leverage of debt!

2) Commodities, especially oil, silver, and gold. Most commodities are priced in dollars, yet they are real assets with prices that are driven by supply and demand. If their price were based only on the dollar and the dollar declined, that would mean, for example, the price of oil would decline. But oil is a limited resource that trades on the basis of supply and demand. Therefore, the price of oil must rise when the dollar declines because given the supply and demand stayed the same, the only thing that changed was the value of the currency. Therefore, the price of oil must rise to compensate for the currency declining. So the price of oil works pretty much inversely to the dollar. It's the same with other commodities like agriculture - wheat, corn, cotton, coffee, etc. That's why we will see the price of food rise if the dollar continues to decline. If there's a bad harvest or a frost on crops, that will drive food prices even higher. For agriculture, I have two favorite ETFs, symbol MOO and RJA, the Rogers Agriculture ETF.

Silver and gold work in the same way. If the dollar is in a downtrend, then the prices of silver and gold will increase. That's one reason I've been persistently talking about the gold and silver mining exchange traded fund (ETF) with the symbol GDX. It's a diversified index of gold and silver mining stocks and it's another way to leverage the dollar declining without the debt. If the cost to mine an ounce of gold costs $400 and gold is selling for $1,000 an ounce, that's a $600 profit. If the price of gold rises to $1,200 an ounce, it still costs $400 to mine an ounce, but now the profit is $800! So you have a way for earnings, and hence the stock price, to increase exponentially from the decline in the dollar.

3) Foreign Currencies. Foreign currencies generally rise inversely to the dollar. The trick with choosing a foreign currency is to invest in countries that have strong economies like Norway or Canada because they are fiscally sound and have small deficits or even surpluses. There are ETF's that you can invest in by country. One example would be the Australian currency ETF, symbol FXA. There, you're getting the currency and the strength of the country's commodities both working in your favor.

Now, for the Daily Double question...how do you leverage the declining dollar the MOST? Combine a strong foreign economy, currency, and commodity. How about Petrobras Brasileiro (PBR) the Brazilian oil company? You get the bump up from the strength of the economy of the country, currency and from oil. Or Australian gold stocks? Again, you get the bump up from the country, currency, and from gold. Pretty cool, huh?

Now do you get why the hedge funds are loaded up with gold and silver mining stocks and foreign oil?

Disclosure: I'm long FXA, GDX, and gold and silver mining stocks.

For my favorite articles and investing ideas, check out Twitter.com/LindaPJones.

Buy Real Assets on Dips

2009-10-12T21:55:00.000-07:00

Gold has moved to an all time high...have you bought mining stocks yet? I urged you to buy them by September 1st, remember? Don't let gold's "all time high" discourage you from buying it on dips. If you adjust for inflation, gold really wouldn't be at its all time high until it reaches over $2,000 an ounce, so its not as expensive as some report. Remember, owning gold is NOT about inflation, but the failing of the dollar as a paper or "fiat" currency. All fiat currencies have failed when the printing presses run too much and devalue them.

Last week the Gulf Arab states, along with China, Russia, Japan, and France met to put an end to dollar-based trading in oil. This week, Russia and China are discussing about 30 contracts in infrastructure, energy (China is the world's second-biggest energy user), mining, transportation, and telecoms - all with the replacement of the US dollar. They plan (with some weak denials) to replace it with a basket of currencies and gold, hence the recent spike in gold and slump in the dollar. This is extremely bullish for gold and, in my opinion, we could see $1,200 to $1,500 an ounce by February or March and $5,000 by 2015. The mining stocks should gain even more than the bullion percentage-wise.

I'm still expecting the crowded trade of shorting the dollar to reverse, albeit temporarily, so I wouldn't be surprised to see the dollar spike up before resuming its downtrend. However, longer term the dollar looks like it's going to be allowed to decline into oblivion since our deficits are exploding. Listen to what hedge fund manager John Paulson (you know, the one who made $1 billion in a year shorting the housing bubble) said about the dollar at a recent conference: “I lost faith in the dollar as a reserve currency for my assets…What I'm looking at is not where gold is going to be tomorrow, one week from now, one month from now, three months from now. What I'm looking at is where gold is going to be vis-à-vis the dollar one year from now, three years from now, five years from now. And I think with a high probability at each one of those points, gold will be higher than it is relative to the dollar today. That probability increases the further out you go. So when I looked at what the risk is, the risk to me is far more staying in dollars than it is in gold at this point."

Other important asset classes to add on dips include commodities and international stocks/ETF's. If the dollar is shunned by foreigners and loses its world reserve status, which I believe is just a matter of time, the price of the dollar will reflect this. Although it appears the price of gold is rising, what's really happening is the value of the dollar is falling in relation to gold. Gold is maintaining its purchasing power and the dollar is losing its. On any temporary dollar strength, it's time to move more of your portfolio out of US dollars. The Yale Endowment is roughly only 13% in US stocks. The growth rates, demographics, and fiscal responsibility are stronger in foreign emerging market countries. Buy REAL ASSETS: gold and silver mining stocks, commodities, and international stocks/ETF's on dips for potential long-term appreciation and iron clad protection of your purchasing power.

Market Ready for a Correction

2009-10-05T12:18:00.000-07:00

After the spectacular gains off the March lows, the market is looking like it wants to take a break. The "short dollar" trade is very overcrowded and perhaps wants to reverse for a bit. The "long stock market" and "short dollar" trade has been a favorite of the hedge funds. It's interesting to note in Goldman Sach's latest poll of hedge funds that the #1 position was gold! No surprise to you, of course.

A dollar rally would send the market down and could also send gold lower, although with China (and India) buying gold any time it trades below $1,000 an ounce it's been called the "China Put". I think any dips in the metals are a gift. If we have dips in gold or silver in October, I suggest adding more to your portfolio. The seasonal time for precious metals is right around the corner in November, and of course with a long-term trend of a weaker dollar (for several more years) due to money printing and reduced foreign demand for our bonds, precious metals have further upside to come, in my opinion.

The stimulus money is finding it's way into the market and has moved markets higher, but what happens next year when the stimulus stops? The stimulus has helped inflate some deflationary trends, but prices are still coming down in retail and rents, two areas of extreme weakness.

I've lightened up on stocks and purchased the double short Nasdaq ETF, QID, and look forward to possibly shorting the Dow, S & P, and Russell 2000 later this week, in anticipation of a move up in the dollar and decline in the market.

Disclosure: Long QID

I "tweet" my favorite articles to www.twitter.com/lindapjones and add additional video content to my blog at www.TheInvestmentSpa.blogspot.com. Check it out!

"Capitalism Has Already Fallen" - Marc Faber

2009-09-23T12:44:00.000-07:00

Money Goes Where It's Treated Best

2009-09-23T09:32:00.001-07:00

The old saying is "money goes where it's treated best". With interest rates on certificates of deposit extremely low (around 1%) and money needing to find a home, the current place money is treated best is the stock market. Never mind that investor's bullishness is now at 47% or that insiders are selling their stocks (instead of buying) 30 to 1, that the p/e ratio on the S & P is in the stratosphere, or that the market is acting very speculative with junk stocks soaring. Money market government guarantees expired mid-September, so they can break a buck again, and even that doesn't sound like a nice home. Enjoy the ride and think about raising some cash in the next week or so. I'm still expecting to see a sell-off in October, but after that for the market to continue to rise through year-end. The stimulus spending is finding its way into stocks and there's not much competition for money to be treated better. At least not yet.

GDX has been up over 15% since the beginning of September, and I think there's a lot more to come. The reason I keep talking about gold isn't because of inflation, it's about the dollar. Our money. As foreigners continue to replace the dollar with the Euro (September 11th Iran became the latest country to refuse to accept dollars for oil and is now requiring Euros. China and Brazil have also bypassed the dollar, Russia's working on it), we have a long-term problem with the greenback. The impact to US citizens will be enormous over the next several years. Having gold in your portfolio will protect your purchasing power.

Is $1,000 an ounce of gold too high? No. First of all the high in gold in 1980 was $850, but after adjusting for inflation equals about $2,000 an ounce today, so we're still well below the high in gold. Second, gold is money, paper is not. Paper is only worth something as long as everyone agrees it is. Since China, Brazil, and Iran have already decided the dollar can lose it's value (and is) because our government is running the printing press, how long before other nations decide they don't want the dollar? It sounds crazy, but there's a paradigm shift happening and the dollar is the focus. The value of the dollar has been tanking this month, but it wouldn't surprise me to see a sharp move up in the dollar next month. Nothing goes straight up or down forever. Not the stock market or the dollar.

If there are any dips in mining stocks, I suggest you buy. In my opinion, this is not a short term move in gold and silver. It's likely to continue, with interruptions, for years as world governments compete for the real currencies, gold and silver, to back their paper. Chinese citizens are buying gold and silver as well as their government. If you don't have any gold or silver in your portfolio, add some on any dips under $1,000 and $17. Soon I expect $1,000 will be the new "floor" for gold.

Don't buy bullion in the form of "paper" like GLD or SLV. You don't really own the bullion. When you read the fine print, they only guarantee you own the paper. GDX is an index of gold and silver mining companies, which are more volatile than the bullion. If the bullion continues to increase, mining stocks are likely to go up more.

I believe there will come a day when perception will change and not just unfriendly countries, but people, will see the fallacy of an inflated dollar.

Disclosure: I own gold and silver mining stocks and GDX.

Check out my favorite articles at twitter.com/lindapjones, click on "tweets". I also update the blog site TheInvestmentSpa.blogspot.com with videos and additional info between emails.

Next Shoe to Drop Says Top Hedge Fund Manager

2009-09-20T11:39:00.001-07:00

"We're At War With China"

2009-09-15T08:23:00.000-07:00

“We’re at war with China”...that’s what an internet security company business owner I met told me last month. He said the Chinese are attacking internet sites in the US to the tune of 200,000 attacks a DAY. The targets? Government sites, banks, the power grid, and water supply. He said our water supply is especially vulnerable because we have a few centralized locations that control the water for large geographical areas of the country. Here’s an article from a year ago in the WSJ that I chose because it explained it well (there are many more recent stories too): http://online.wsj.com/article/SB122930102219005425.html.

Of course it’s no secret that the Chinese are unhappy the US is printing money and essentially devaluing the currency through quantitative easing (running the printing press to create massive amounts of more dollars). They stopped buying longer term Treasuries and are buying natural resource companies to spend their dollars quickly. About a week ago, they gave $50 billion to the IMF to create “Special Drawing Rights”, a basket of currencies they would like to have someday replace the dollar as the world’s reserve currency. They have also arranged with the Russians and Brazilians to trade oil in their local currencies and no longer the dollar.

Last week there was a report that the Chinese are threatening to renege on their derivatives contracts on the COMEX Exchange (commodities). They have accumulated losses and if they choose to walk away, there is nothing we can do.

The Chinese have been buying gold and silver and advertising on TV for their citizens to buy gold and silver (previously it was illegal to own gold or silver in China). They particularly point out how silver is historically cheap relative to gold prices. They have also taken physical possession of gold bullion they stored in London.

Now we hear of a trade war and that the US is placing a tariff on Chinese tires. Do we see a pattern here? Seems like things might be escalating and there’s more behind the scenes than the government or media are telling us. The conclusion is: Buy gold and silver and pick up some extra food and water at the store!

One more observation...with the very low volume and the steady rise in the market without as much as a 4% correction from the March lows, we could be heading for a very sharp correction, likely in October. When some unexpected bad news is reported like a worse than expected unemployment report (by the way, Shadowstats.com reports the real unemployment rate is now 16%. They calculate the rate without all the changes that have been made to the index); or California being downgraded or defaulting; or China defaulting on derivatives, or the swine flu pandemic, or another large bank failing (there are so many potential disasters, it’s so hard to choose just one). The point is, if there are no bids under the market, which there aren’t and haven’t been for a while, any downside pressure is likely to create a doozy of a steep correction, possibly 1987 style.

The dollar has been rapidly declining as I’ve been reporting, and gold has been moving higher. In fact, GDX (mining stock ETF) was up 12% since the beginning of September. Is the run in gold over? Not by a long shot. Once gold bullion breaks above 1037, it’s a breakout of an important trend line and likely to run up dramatically.

Too many people are agreeing that the dollar is doomed. Therefore it’s likely that we have an opposite move, counter to the trend. I’m expecting a spike UP in the dollar in early October, which coincides with the market decline. I plan to lighten up on stocks toward the end of September, but keep the mining stocks or add more.

Disclosure: I own GDX, gold, silver, and various mining stocks

For more information, check out my favorite articles at twitter.com/lindapjones, click on "updates".

The Dollar, Stocks, and Gold

2009-09-03T09:42:00.000-07:00

Gold is starting to rally and is entering its strongest quarter of the year (historically). Usually, the dollar and gold move opposite one another, but right now they are moving in tandem. The money is moving out of riskier assets into safer assets. Is this signaling a possible sharp correction in the stock market coming, perhaps next month?

The volume has been very light this summer with hockey-stick up moves up into positive territory at the end of the day. Just four stocks have accounted for 40% of the volume on the NYSE: Fannie Mae, Freddie Mac, Citigroup, and AIG.

P/E ratios are at extreme highs (not lows as you would expect near the “bottom” of a bear market). Insiders are selling--that’s right selling--their stock in massive amounts. If businesses were improving, insiders would be buying as they usually do at market bottoms. Over 400 banks have quietly closed this year and it’s my belief that many more are underwater due to commercial property valuations taking a plunge. Since they don’t have to mark down the valuations anymore, the banks can still appear solvent even though they aren’t.

So how do I explain the declaration of the “end of the recession?” There was a lot of money pumped into the system that may allow the market to end higher this year. During the Depression, the media declared the “end of the recession” during every bear market rally all the way to the bottom.

Stock prices can go up although their value in dollars is going down. That’s a new concept for most of us. A dramatically rising stock market, but worth LESS as the dollar loses value. Hmmm.

“Real” money is gold, not paper. Paper used to be redeemable for gold, which is what gave it value. Now it’s not redeemable for gold and there are a whole lot more dollars than there used to be, making them worth less than they used to be. Print enough dollars and they become worth less and less. Gold in the ground (mining stocks like GDX) is one way to protect your purchasing power and should outperform bullion. When gold closes over $1,000 an ounce, it’s a huge signal our currency is failing. Today it’s at $988.

Read my favorite articles at twitter.com/lindapjones. Click on "updates".

Disclosure: I am long Citigroup and Gold Miners - GDX.

"The Truth? You Can't Handle the Truth!"

2009-08-28T21:46:00.000-07:00

Here is the pure unadulterated truth about our economy...

The Next Mortgage Crisis

2009-08-28T21:36:00.000-07:00

Must See This Jim Rogers Interview!

2009-08-24T16:53:00.001-07:00

A Great Time to Buy Gold!

2009-08-21T09:36:00.000-07:00

Alongside Jim Rogers and Peter Schiff, two investors who predicted the stock market crash of 2008, now come Warren Buffet and PIMCO making the same predictions as Rogers and Schiff for a weakening dollar ahead.

In a recent NY Times article, Warren Buffet made the following points:

*Congress is now spending 185% of what it takes in

*Our deficit is a post WWII record of 13% of GDP

*Our debt is growing by 1% a month

*We are borrowing $1.8 trillion a year

*$1.8 trillion is a lot of money. Even if the Chinese lend us $400 billion a year and Americans save a remarkable $500 billion and lend it to the government, we’ll still need another $900 billion.

So, where’s it going to come from? Most likely the printing press. And, ultimately, Buffett says, that will destroy the value of the dollar.

What's the major way to protect your portfolio against a falling dollar? Buy gold bullion or gold stocks. I would argue gold stocks because you can get more leverage on the price of gold by buying the stocks. Between now and the end of August is a cyclically low time for the price of gold, so if you see lower gold prices before the end of this month, BUY! (Again, I would stay away from GLD or IAU, gold bullion ETF's, and would purchase GDX, the gold mining stock ETF or precious metals mutual funds, instead).

Lately, there's a full-board media campaign to hype the "end of the recession". Although I'm cautiously bullish on stocks through the end of September, I'm very concerned about a waterfall decline in October/November. There's a lot of bad news that's NOT being reported...more banks are quietly failing...commercial real estate values are tanking and without mark-to-market accounting, more banks are likely insolvent than are being reported...the Chinese and other foreigners have essentially stopped buying long-term Treasuries and the Chinese are spending their dollars on commodities as fast as they can, signaling a serious concern about the dollar...PIMCO just came out and said they predict the end of the dollar as the world's reserve currency. If the dollar declines and foreigners lose money while invested in US stocks because of the currency exchange moving against them, how long before they liquidate their US stocks?

A decline in the dollar also means a potential huge increase in food and energy prices. Our currency will have less purchasing power for imports and they will become increasingly expensive. Has anyone else noticed steadily rising produce prices at the grocery store? What if food and gas were suddenly 30% more expensive? It could happen.

The solution is to tie our currency to gold. It's what keeps government's honest so they can't print unlimited amounts of money. If every dollar is backed by gold, your currency has real value and it's not just a piece of worthless paper. The Chinese are committed to buying gold the equivalent of TWO Fort Knox's (of course, no one knows if Fort Knox has any more gold because the government doesn't allow audits). The Chinese want their currency (yuan) to be part of a basket of world currencies that supplant the dollar as the world's reserve. They are buying gold to back their currency and give it real value. The answer to currency devaluation is to tie it to gold.

Gold is the real "one world" currency. If governments need gold to back their currency, and that is the ultimate answer, then all roads lead to gold being in very high demand.

Gold is also the only asset class with a positive return for 5 years. With the dollar weakening ahead, this is a perfect time to be buying gold. Be sure to add gold or precious metals to your portfolio by September!

Shocking News For Housing Prices

2009-08-13T14:12:00.000-07:00

A Must Read Article by Doug Casey

2009-07-31T12:54:00.000-07:00

Attached is a fabulous article written by Doug Casey, a favorite newsletter writer of mine. Doug goes into great detail about the economy and where it’s headed. It’s incredibly insightful and I couldn’t agree with him more.

One fact he mentions is that the $235 Billion dollars of Treasury bills, auctioned this week, was the cost of the entire Vietnam War...and we sold THAT MUCH debt in ONE WEEK. That annualizes to 12 Trillion Dollars! It’s one reason I’m very uneasy about the future of the dollar and think there is significant risk to holding cash, bonds, and most stocks if, or should I say when, the dollar collapses. Check out the charts Doug shows - it’s downright shocking to see what’s really going on.

http://commoditybullmarket.blogspot.com (copy and paste into your browser if necessary).

Although I am still expecting a possible sharp short term drop in gold prices before a huge run up longer term, (that years from now might compare to the upward volatility of internet stocks in 1999), it’s interesting to note that gold is the only investment in the world that has gone up every year for the past 5 years. You might just get a fantastic buying opportunity in the next few weeks, so nibble now, but don’t dive in yet. My favorite ETF is GDX, the gold mining stocks. I’m not a believer in GLD or SLV or IAU as you are buying just paper, and are not guaranteed to own gold or silver bullion, so my advice is to stay away from those three.

I’m posting articles for those of you who’d like to read more at http://twitter.com/lindapjones. Click on “updates”.

Disclosure: I own GDX

Playbook Through Year End

2009-07-27T10:04:00.000-07:00

Facts for Discernment

2009-07-24T09:25:00.001-07:00

A few interesting things to note:

1) The Moody's/REAL Commercial Property Index, a measurement of commercial real estate property values

like office buildings, malls, etc. was -28.53% year-over-year and -34.83% since the October 2007 peak

in real estate. We've already been through the subprime mortgage crisis, could commercial real estate

problems at the banks be the next wave of the tsunami?

2) In July, the Los Angeles Times reported:

“Trade at international ports is on track to drop more than 10% this year, one of the steepest declines ever, according to a new maritime industry report. Cargo ships will carry 27 million fewer containers by year’s end than they did in 2008 — a reduction roughly equivalent to all of the cargo containers handled by the five busiest U.S. seaports in a typical year, according to London-based Drewry Shipping Consultants’ Container Forecaster Report. ‘There has never been a decline like this before. We have never seen numbers like these,’ said Neil Dekker, editor of the Drewry report. ‘The container industry is looking at a $20-billion black hole of losses. We can expect a lot of casualties.’”
How is real estate supposed to improve if people aren't shopping?

3) Our favorite online shopping mall, Amazon, bought online shoe store Zappos. The Venture Capitalists (VC's) at Sequoia who owned Zappos said they "craved liquidity". Keep in mind, VC's by definition have very high net worths.

4) Next week the Fed is set to auction Treasury notes, bonds, and bills in the amount of 1/4 Trillion dollars.

What's Real Money?

2009-07-16T12:07:00.000-07:00

The DJIA was forming a classic bearish

formation known as a "head and shoulders"

pattern, indicating it was going to move

lower. It was within a few points, but didn't

break the target and here we are in an

up trend for a while.

I'm still very concerned about our government's

massive printing of money and that it is eroding the

dollar's value. Brazil, China, and Russia have made

arrangements to accept payment in

currencies other than the dollar. Even OPEC

wants to be paid for oil in gold, not dollars.

Discussions about another stimulous

package? The first two stimulous packages

(under Bush) and the third (Obama's first) haven't

worked, why would a fourth? They aren't

addressing the issues: broad unemployment, declining

home values, lack of retail sales, lack of credit,

commercial real estate collapsing, etc.

An avalanche of debt can't be solved

by having another avalanche of debt

fall on top of it.

So what to do? Keep buying gold and silver bullion

and stocks on dips. (Don't buy the ETF's GLD or SLV - but

that's another conversation). Gold and silver bullion

and stocks will retain their value as the dollar

weakens over time. Look at it this way, gold is a

universal money. It's held it's purchasing power over

time. It's the dollar whose value has eroded compared

to gold. It's worth less and less relative to gold and

with so many dollars being printed - more than in

the history of the world - it will become the "safe"

currency the world runs to.

Check out my favorite articles posted at http://twitter.com/lindapjones

Time to Go Short and Protect Your Portfolio

2009-07-07T15:38:00.001-07:00

I've posted an excellent video on the website that I highly recommend you watch. It's an interview of David Rosenburg, Chief Economist and Strategist of Gluskin Sheff. He discusses clearly and convincingly why we're likely in a long term bear market, how to determine fair prices for stocks, and when the bear market is likely to end. Definitely worth your time.

Many of the stock market's technical indicators are now blinking "sell" and indicating the stock market's trading range for the last few months is about to break to the downside: a head and shoulders chart formation, oil prices declining $10 a barrel in a few days, the unemployment rate almost to the "worst case scenario" level that the banks used in the stress tests, and commercial real estate delinquencies rising sharply. Right here, the market is returning to the "deflation" trade in full fury and the "green shoots" of recovery have ended up being made of green painted weeds.

As I see it, you have two choices:

1. Do nothing and hope it gets better

2. Do something to protect yourself

With the advent of exchange traded funds, it is now very easy to buy "insurance" for your

portfolio when the market declines. You can short the broader indicies like the S & P

500 (SH) or the Dow (DOG) or even the Nasdaq 100 (PSQ). There are also double

shorts, so for every $1 the market falls, your investment rises $2 (SDS, DXD, QID

respectively).

Something very positive: interest rates have been dropping in the last week and now is a great time to re-fi your mortgage. Quickly.

In my opinion, we are seeing a last leg down on the "deflationary trade" which will drive commodities, metals, emerging markets and most US stocks sharply lower, and treasuries and the dollar higher. Shortly, this will create an unbelievable buying opportunity at rock bottom prices to back up the truck and load it up with metals, oil, commodities, and emerging markets for longer term holds. Longer term we will also see interest rates move upward, the dollar and real estate lower, and Treasury bonds lower.

As I've discussed before, this is not about inflation, it's about the weakening of our currency due to the massive printing of dollars and a monumental change from foreigner's buying our dollars to the Fed buying our dollars. When you print and buy your own money it's called "quantitative easing" and it devalues your currency. Massively.

To maintain your purchasing power and wealth when the dollar begins to decline, it will be essential for you to own gold, silver, commodities, foreign currencies, and mining stocks. Raise some cash now in your account or 401k and wait for a tremendous buying opportunity coming.

The great news is there is a lot--A LOT--of money to be made with the coming volatility and vast market changes IF you're in the right investments mentioned above. The bad news is, for buy and hold stock investors who don't change their strategy, and continue to hold their old portfolios, it will be devastating.

A Dead-On Description of What's Going on in the Stock Market

2009-07-07T15:33:00.000-07:00

Great Video Explains Credit Crisis Simply - A Must Watch!

2009-07-07T06:45:00.000-07:00

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

What's Next for the Stock Market?

2009-06-19T14:58:00.000-07:00

To answer that question, I like to find investors who have the best track record of investing in the stock market and listen to their macro view of the future. My reasoning goes, if they predicted last year's crash in the market, maybe they have figured out the big picture of what's really going on...The investor I look to most for his prescience is Jim Rogers, a billionaire and former partner of famed hedge fund manager George Soros. Under their combined management, their hedge fund, The Quantum fund, returned 4200% over 10 years vs. the S & P 500 Index returning 47% during that time. Wow! I hope that got your attention!!!

So what are Jim Rogers' thoughts about the US stock market, where it's headed, and where the next bull markets are to invest in? Here are some notes I've taken from his TV interviews:

The US dollar is in the midst of a currency crisis. It's is not backed by gold and hasn't been since 1971 and therefore is a "fiat" currency. According to Rogers, ALL fiat currencies have eventually collapsed and he doesn't believe the US dollar will be any different. Even worse, every government in the world is printing money and that has always led to higher prices and inflation. What we experienced last year was not deflation, but forced liquidation due to lack of credit and liquidity. He sees the biggest problems ahead for the US and UK, with higher unemployment and major currency issues causing lower stock markets (hence his favorite investments right now are gold and silver bullion and mining stocks).

What else does he like right now? Cotton, oil, natural gas, farmland, tractors, seeds, fertilizer. Tangible things like commodities, agriculture, precious metals, and sound currencies...more specifically he says silver and cotton are a better investment than gold and oil, but they will do well too. He also likes food stocks since farmers are using land to plant corn for fuel like ethanol, less land will be used for food and cotton. He believes agriculture is one of the best investments for the next 20 to 30 years! Farmers can't get loans to buy fertilizer and plant crops, so food will become more expensive. He also believes that buying China today is like buying the US in 1908 and Sri Lanka is also a favorite country to invest in. He believes the International Monetary Fund (IMF) may sell a lot of gold shortly, and if that happens, it will be the last opportunity to buy gold at a good price in a long time!

He started his own international commodities Exchange Traded Notes (ETN's) in 1997 which are a basket of commodity futures. There is one for metals (RJN), one for agriculture (RJA), and one that combines metals, agriculture, and energy (RJI). He invests in his own funds and has been buying them recently.

For articles about stocks to invest in using some of his major themes, go to my Twitter site at www.twitter.com/lindapjones and view "updates" where I store my favorite articles. If you want to hear more from Jim Rogers, I suggest you search for his videos on Youtube.com. He has lots and lots of TV interviews sharing his thoughts and investment ideas. He's also written a few books. I've just ordered his book "Hot Commodities." I'll let you know what I think and what other ideas he writes about.

Invest Like the Chinese Government?

2009-06-17T19:42:00.000-07:00

Famed PIMCO bond manager Bill Gross says thanks to this increase

in government in our lives "investors should expect considerably

lower rates of return than what they grew accustomed to only a few

years ago."

America is in trouble. "It is probable that trillion dollar deficits

are here to stay," Gross says.

Gross' big investment secret over the last 12 months has been to

invest where the governments invest, only get there first. Looking

ahead, Gross believes big investors in U.S. bonds - like China -

will soon start to spread their reserves into other assets outside

the dollar.

It's a simple matter of diversification. You should do the same,

before they get there.

If you want to know the next bubble, it's the "government" bubble.

The US Govt is spending so much money, it's like an elephant stepping

into a bathtub. It's causing huge changes globally and foreign

investors, especially the Chinese, who own $786 billion of US

Treasuries, don't like the printing presses running so fast. I'm

sure you've heard about Geithner's visit to China and his talk in

front of the university students. When he was asked about the safety

of US Treasuries and the US Government's ability to pay back the debt

to the Chinese, he responded the their money was "safe". The students

laughed at him. (By the way, the Treasury Secretary having to say

Treasuries are "safe" is a huge red flag. When your money really

is safe, the government doesn't have to tell you it is, and if they

have to tell you it's safe, there's something wrong!).

China cannot dump our Treasuries because it would cause the price

to plummet on the rest of their holdings, but they can choose not

to buy them anymore. Hence we have begun to see interest rates

spiking upward to attract new buyers and also to compensate for the

additional risk of inflation due to printing more money. The ultimate

result will be devaluation of the dollar as China chooses other

currencies over ours and invests in commodities instead. The likely

choices for China and others in a similar situation are gold, commodities,

and other currencies that pay interest.

If you have 100% of your cash in dollars - if you own no gold and

nothing that trades outside the U.S. - then you're not diversified

at all.

Staying 100% in the U.S. dollar may have worked out in the past.

But with the mountain of government spending and record trillion-dollar

deficits going forward likely into 2018, tomorrow won't look like yesterday.

You may not be familiar with investing in currencies, few Americans are.

But you'll need to pay more attention to currencies if you want to profit

in the future.

As I've said several times, there are phenomenal money making opportunities

ahead, but not in the traditional way of investing with 100% US stocks.

High deficits mean higher taxes coming. A slow growing economy doesn't

bode well for high profitability of companies. Americans will save more,

spend less, and have less access to credit in the future. If you don't

already own foreign stocks in emerging market countries, who by the way

are in much better shape than the US since they didn't over leverage,

consider buying the BRICK (Brazil, Russia, India, China, Korea and I

would add Canada and Australia). They are naturally resource rich,

have surpluses, and can create demand for their goods domestically

without relying on the US. Also buy oil, natural gas, foreign currencies,

commodities, gold and silver bullion, and gold and silver stocks.

It's likely in the short run, the US Government will intervene and

buy treasuries to keep rates low and help housing recover. You'll

likely have a good buying opportunity this summer. Buy them on dips

and watch especially gold and silver increase up to 30% or more by

next year, and much higher than that in the next five years,

according to many experts.

I couldn't resist adding this funny quote:

"I think I timed this move perfectly. I'm at a last place network,

I'm moving to a state that's bankrupt, and tonight the show is

sponsored by General Motors," Said Conan Obrien on his opening

monologue of the Tonight Show.

Is It Time To Buy Real Estate Yet?

2009-04-29T09:31:00.000-07:00

Home prices fell 2.2% in 20 major cities in February after a 2.8% decline in January, according to the Case-Shiller home price index. Prices in 20 cities are down 18.6% in the past year, compared with a 19% drop in the 12 months ending in January. It was the first time in 16 months that the decline in prices did not set an annual record. Prices fell in all 20 major cities in February, led by a 5% drop in Cleveland.

Is it time to buy? Yes if you plan to buy a house and live in it for 20 years, probably not if you are buying to speculate. Historically, bubbles take decades to re-inflate. Think of gold prices in the 1970's having only recently made new highs or the Nasdaq peaking at 5,000 in the year 2000 and only at 1,700 today. At some point, the market will likely overcorrect and there will be screaming buys to be had for sure, just not yet. However, there may be some great deals in foreclosures. The Bay Area recently auctioned off over 100 foreclosed homes, some of which previously had been sold or appraised for $700,000, with a starting bid of $199,000.

One thing you should be sure to do now is re-finance for a fixed rate mortgage if you don't already have one. Rates are likely to move a lot higher in the future and locking in a 30 year fixed conforming mortgage at the current rate of 5% (or less) and getting out of an interest only adjustable rate mortgage will likely be a smart move.

The End of the "Big Bounce?"

2009-04-19T18:04:00.000-07:00

Hurray! We made it through another tax season! The market continued the 6 week "Big Bounce", and tech stocks seemed to be flying again. It seemed like all the bad news of the last year was just a dream and we were off to the races again and in the beginning of a recovery...or are we? As much as I'd like to think so, I just don't believe it to be true. I think we've reached a temporary stabilization. Interest rates are low, real estate seems to be stabilizing, the consumer is back buying again. But I know and you know that things are not ok, we are not going back to how we were, and the government has tried to help, but has put us on a spending path that is beyond comprehension. (Remember, the government doesn't have any money to spend other than what taxpayers pay for). So what does all this mean for the market?

Let's see where we've been. We've had a waterfall decline in the S & P, followed by a 26% run up in 6 weeks with nary a correction. I bought the SPY (S & P 500 Index) and the SSO's (2x S & P 500) in early March as well as some EEM (emerging markets) and was lucky enough to ride up the rally and make some very nice profits. Tech stocks were going up nicely as were brokerage stocks. I began to feel a little nervous from the sharp rally without any pullbacks. Looking at charts, doing extensive research, and listening to my own gut instinct, I decided things had gotten ahead of themselves, at least in my opinion. It looked to me like a bear market rally and a lot of short covering.

Then on Thursday the report about General Growth Properties (GGP), the largest mall owner in American, declaring bankruptcy sent shivers up my spine--and shockingly there was no negative reaction to it in the market. I have been reading how commercial real estate is beginning to get into financing trouble (have you heard the term "ghost malls?"). They are having some of the same problems we've seen in residential real estate with office buildings and malls declining in value (and being underwater) and banks not wanting to re-finance them.

I made a decision I have never done before...I sold all my equities and went 100% to cash on Friday. I always remember the Wall Street addage, "Bulls make money, bears make money, and pigs get slaughtered." I was beginning to feel a little greedy and pleased with myself. I may be wrong, but I have a strong feeling this market is going to move quite a bit lower in the weeks ahead. Cash preserved today could be used to buy stocks in the future at a much lower price. Even if I'm wrong about commercial real estate (which I don't think I am), I believe we may see widespread panic in the stock market such that we have never seen before. Markets fueled by emotion can move more than we can logically predict. So my advice to you would be to lighten up on stocks here, raise some cash, and prepare for the buying opportunity of a lifetime coming in June or July.

If you'd like to read three excellent articles that support my conclusions, please go to: http://twitter.com/LindaPJones. I've posted them there.

The good news is, I still see tons of money making opportunities ahead. High volatility means there are large amounts of money being made and lost. You want to be sure to be on the right side of the trade! Right now the trade is cash and I may buy some short ETF's tomorrow if the market opens lower, there's high volume, and the uptrend seems to be reversing. Otherwise, I'll wait in cash for the right time.

Roubini Predicts US Markets Will Recover Later Than Expected

2009-04-14T23:29:00.000-07:00

Another must see video...Professor Nouriel Roubini, who became famous for having the most accurate prediction of the full scope of the banking crisis, spoke recently and explained his views on the US and international markets. He says we're in a global synchronized recession and a deflationary environment through the end of this year and possibly into next year. There are more shocks to be revealed, one being some banks will not pass the stress test and will need to be taken over, and another being problems with commercial real estate valuations declining.

If the link doesn't open, you can cut and paste and put this in your browser:

http://www.theglobeandmail.com/servlet/story/RTGAM.20090408.wvRoubini_full0408/VideoStory/Business/News?pid=RTGAM.20090403.wrroubini03

On the positive side, the economy seems to have stopped getting worse for the time being. REIT's are being refinanced (and their stocks are bouncing up strongly), the consumer is spending, and retail inventories are being worked off, which will ultimately lead to greater profitability.

Emerging markets and the BRIC(K) countries (Brazil, Russia, India, China, and even South Korea) are decoupling from the US and their stock markets are having a stronger rebound. On a 6 month return basis they are up 24%, 8%, 21%, 24%, and 4% respectively vs. the S & P 500 Index at -5%. Those countries' growth rates are forecast to be higher than the US, which is anticipated to grow less than 2% annually going forward. Be sure to add a healthy mix of international and/or emerging markets to your portfolio.

The New "Buy And Hold" Strategy

2009-04-08T13:31:00.000-07:00

What a joy it's been to watch the stock market go up again! "The bounce" is so strong we've had the best 4 week performance since 1933! Some of the $7 Trillion on the sidelines will likely find its way into the market sending it higher. I still believe that this is just a bounce, that we will be testing the lows, and we have not seen the worst of this yet, however...

The GOOD news is there are tons of money making opportunities in the "non-traditional" stock market. I'm truly more excited than I've been in a long time! And this has nothing to do with the bounce! More on that in a minute.

The BAD news is the traditional way we've made money in the past is not the way the big money will be made in the future. We were fortunate to have long-term bull markets from 1982 - 2000 and 2002 - 2007. As buy and hold investors, we did very well. But what if we don't have a long term bull market in the near future? What if the economy, housing, and employment, takes a long time to recover? What if the market trades sideways - up and down like it did from 1965 to 1982 - but doesn't break out to new highs? Does our old model of investing, to buy and hold a portfolio of good stocks, still work? I don't think it does in that scenario. We need to own some investments that aren't 100% dependent on the stock market going up!

Let me tell you a story to illustrate this. A few months ago I say a famous billionaire investor, Julian Robertson, on TV. He ran a very successful hedge fund called the Tiger Fund until the year 2000 when he shut it down. He was talking about investing in a "curve steepener" which would appreciate as the yield curve strengthened. Instead of rates on short term and long term Treasury bonds being about the same, creating a relatively flat line on a graph, he's betting that longer term interest rates will increase. With all the government fiscal stimulus, his theory is the dollar will depreciate and interest rates will have to go up to entice foreign investors to buy our government bonds.

I investigated how to invest in the curve steepener and found out it trades on the futures market and it wasn't readily available to the average investor. But what is available is an exchange traded fund (ETF) called the UltraShort Lehman 20+ Treasury ProShare, symbol TBT. When you buy it, it will appreciate if interest rates increase and the 20 year (or longer) Treasuries decline in value. It's an easy way to profit from the dollar declining and interest rates rising! Since interest rates are at 50 year lows, the odds are they won't remain that way forever.

I can't stress this enough: You need to have investments in your portfolio that aren't dependent on the stock market going up!

I believe there are many more ideas like this that will create huge profits in the future. But realize, it's going to take education and change on your part. The old model won't work anymore. It's going to require being somewhat more transactional (I'm not talking day trading) and using things like ETF's to profit. I'm not talking about trading that frequently, but having a new mindset that we can no longer invest and forget about it. It's going to require trend following. The great news is if you weren't aware of it before, you can make lots of money when the market declines using ETF's!

In the future, I'll be talking more about strategies that make money even when the Dow Jones Industrial Averages and S & P are declining and how to profit no matter which direction the market is going!

Bill Gross From PIMCO Talks About the End of Buy and Hold

2009-04-07T19:19:00.000-07:00

A must watch video!

Is This "The Bounce"?

2009-03-10T07:37:00.000-07:00

The stock market sell-off has been brutal. The Dow Jones Industrial Average is down 24% year-to-date...on top of last year's losses. It's enough to get depressed, throw in the towel, and maybe even wonder if the world is coming to an end...Wait! What do I hear? Is it bears turning bullish? Steve Leuthold, manager of a short fund (which makes money when stocks decline), has turned bullish and says a depression is not in sight, that this is a recession not a depression, and not even as severe a recession as once feared. Doug Kass, a manager who has been bearish since last October, has said his indicators are turning bullish: commodity prices are firming, China and emerging markets are improving, consumer credit is at an inflection point. John Najarian, a floor trader, also predicted a sharp upturn in the stock market, that the "bear trade" has become too easy, and an uptrend will be devastating to those who are betting the market will go lower.

It is likely only temporary, but the move up is likely to be sharp, swift, and strong to the upside. I hope this is "The Bounce" we've been waiting for. We could be looking at upwards of 1200 points to the upside! As great as that seems, in my opinion, it is still temporary and we have not seen the ultimate lows in the market. Why? According to a top trend watcher, Gerald Celente, here is another part of the economy teetering on the edge: commercial real estate. It has the potential to be much worse than the residential real estate problems we've seen. When Circuit City and Starbucks, among other retailers, close their stores, who is going to rent the space? The answer is no one. Office space and retail space is going to sit vacant and cause malls and office towers serious problems. Hence, I don't think the worst is over yet.

We need to watch the stock market closely and see if the indicators follow-thru and confirm an up-trend. If so, we'll be looking for indicators approximately one to three months from now that confirm the bounce is over, it's time to get out and get positioned to profit from a downtrend to a new low.

Your Personal Recovery Plan

2009-02-23T20:42:00.000-08:00

It's official and downright depressing...the Dow at its lowest point since 1997. Already off 20% year-to-date. It's enough to make you want to throw in the towel and liquidate everything. Feel like you need to be talked off the ledge too? Here are a few points to think about:

1. Even during the Great Depression the Dow bounced upward sharply...as much as 48% in one month.

2. There continues to be real risks in financials, retail, and real estate. Avoid them if you can. The next leg down is likely commercial real estate. Who is going to rent the empty retail and office space from Circuit City, Starbucks, Lehman Brothers, etc?

3. There are some good performers in sectors like consumer staples, gold, green energy, and pharmaceuticals.

4. Looking at the technicals, the lows are at the bottom support of a channel and it's possible - yes possible - the Dow could bounce up 1,200 points...and that's not a typo! There's so much cash on the sidelines, so much negativity, so much bad news, so much bearishness, those are solid contrarian indicators that we could actually go up sharply from here.

Part One of your Personal Recovery Plan: Don't freeze and keep an open mind. Part two: stay open to new opportunities. Part three: look at what you own in your portfolio. If you wouldn't buy it today, sell it.

Successful Test of the 2002 Lows | Skewed Valuations

2008-11-20T10:52:00.000-08:00

Today the market tested the lows of 2002...and held. Normally, I would have an exclamation point at the end of that sentence, but after the volatility and senselessness of this market, I can only write that with cautious optimism. We are still in a bottoming process, with several tests and bounces off the bottom. That is setting us up for a powerful bear market rally off these lows. Historically, even during the Depression, the market had rallies of 50% off the bottom.

Let me try to explain how unusual current stock valuations are in this way: in order to make back the stock market losses year to date by investing in a t-bill at .o7%, it would take over 1,000 years (according to haysadvisory.com). Yes, that's ONE THOUSAND years. How crazy and out of whack is that? Fundamentals and traditional methods of valuation are so skewed right now...and that is a good example of why we have to sit tight right now, not panic and sell, but wait. This situation reminds me a bit of the economy after 9/11/01 when after the terrorist attacks consumers pulled back from spending and the economy froze. The causes were different, but the effect is very similar. That dismal time passed and this too will pass.

Could It Possibly Be?

2008-11-14T07:45:00.000-08:00

Could it possibly be that we are seeing the beginning of a new leg UPward? Market sentiments are so, so negative, they are incredibly bullish everywhere we turn...consumer sentiment, investor psychology, and media (it was announced that "buy and hold" strategies are dead!). I always say investing is counter-intuitive and nothing feels more "counter" right now than expecting the market to rally in the next week and having a follow through of the 800 point reversal we experienced yesterday. Keep dollar cost averaging in!

2008-11-05T08:47:00.000-08:00

With the election behind us, the markets can now ignore the political rhetoric of doom and gloom and look ahead to provide solutions to real problems. President-elect Obama will have his hands full, but limited resources to act due to an already strained deficit. One thing that is certain: while the economy is not good and the market crashed in October, we are nowhere near Depression levels. GDP is a positive 3% over the last year, unemployment is currently 6% not 25%, and only 4% of mortgages nationwide are late. In the 1930's, 9,000 banks failed and in the last 2 years about 30 banks have failed.

The bad news for the next 6 months is factored in and earnings are going to be dismal through year-end and the first quarter. Consumer spending makes up 2/3 of the economy and with the consumer over-leveraged and worried about employment, discretionary spending has been significantly reduced and is not looking better any time soon.

The market is currently having a nice bounce after a waterfall sell-off triggered by hedge fund redemptions and liquidations. Clients wanting to redeem from hedge funds had to give notice by September 30th in order to receive their funds December 31st and hedge funds were also de-leveraging, creating a double whammy resulting in the waterfall selling panic in October (down 14%). After large drops in the market, we typically see the biggest bounces. This is no exception and volatility is at an all-time high: in October of 2007 the Dow Jones Industrial Average moved 1,708 points, in October 2008 the Dow moved 7,818 points! There were only three days without a triple digit move.

We've rebounded 15% from the lows and I think we'll move higher through year-end. The question is will the economy bottom in the first half or second half of next year? If it's the first half, we may have already come through the worst of it. If it's in the second half, we likely have lower to go, but rather than trying to time the market, let's look at valuation metrics. Right now we are at 11.9 times projected earnings for 2009. At the bottom of the bear market in '02 - '03, the price to earnings ratio was 15.2. If stock valuations just moved up to the levels of the '02 - '03 lows, the market would appreciate by 27%! The key is, you have to be IN the market to get the 27% rebound. The market's volatile gyrations are gut-wrenching to experience, but to sell and try to protect yourself from more downside when the market is ALREADY down is simply locking in your losses with no way to recover. If you haven't sold when the market is high, the time to sell is NOT when the market is down. All you're doing is ensuring you'll miss the rebound. If you sold at the bottom, start to dollar cost average back in over the next year.

We are in unprecedented times and there are no hard and fast rules or repairs for your portfolio, but here are a few tips you can do:

1) Put two years' worth of income in general obligation municipal bonds earning roughly 5.5% tax free if you are in a high tax bracket or if you are retired put it in CD's and ladder them every 6 months. This will help you sleep well at night.

2) Start dollar cost averaging into the market with your 401(K) and continue to make contributions, especially if you are more than 7 years from retirement. You have plenty of time to wait for the market to rebound.

3) Be sure to have small, mid, and large caps in your portfolio. Remember small caps usually lead first out of a recession and perform the best. Most portfolios are too underweight small caps to participate, so be sure you have some in your portfolio or 401(k).

4) Emerging markets also lead coming out of a recession, so you can also begin to nibble there.

5) Japan's Nikkei is selling at a 26 year low and many companies are selling for less than the cash they have. If you have a chance to dollar cost average in, I think the downside is limited and the upside potential is terrific.

6) Continue to live life. Unless you are considering an expenditure that will change your lifestyle, keep the plans you have for special birthdays or anniversaries. Life's too short to cut out the good stuff. Find some other ways to reduce spending, but continue to make good memories and be with your loved ones.

The Bubble Tsunami

2008-10-15T10:11:00.000-07:00

Financial markets recently experienced what is arguably the equivalent of a tsunami. In the last month, Wall Street corporations have gone out of business, been taken over, and accepted government capital infusions; an unprecedented $700 billion rescue plan was passed by Congress; and the G7 coordinated a global rate cut of .50%. By any measure, gargantuan moves of historic proportion by the government to deal with the tsunami.

Financial markets depend on trust and confidence. When financial trust evaporated from even the safest of lenders, such as the bank (FDIC insured) and the government (t-bills), the system essentially shut down and threatened to close the doors of companies that were leveraged and could not quickly become liquid. Cash-on-hand became king. In addition, corporations with exposure to mortgage risk, through leveraged derivatives with questionable value, became targets of short sellers. Trillions of dollars of mortgage derivatives were owned by Wall Street firms and no market existed to peg their true value. Merrill Lynch randomly chose 22 cents on the dollar, but as the the first Lehman auctions occurred, the real value was even more dismal, closer to 9 cents on the dollar.

Yes Virginia, it was different this time. It was a unique type of credit crisis and the fiscal response was also unique, but that's not what's ultimately important, at least now that financial first aid has been administered. What is important--and what doesn't change--is the patterns that occur during times of extreme fear and pessimism. Although the crisis was unique, the reaction to it of extreme fear--the human emotional component--didn't change.

What started out as a dire view of the economic future by a few economists, was fueled by the gasoline from the desperation of the Paulson/Bernanke televised requests for the TARP program, which painted a picture of the next Great Depression. The media ran with it until it has now become the consensus view of where the economy is headed. It has been perpetuated with pictures of soup lines on the cover of magazines, etc. which terrified consumers and caused them to reduce spending, stay at home, use food in their pantry, put off major purchases, cancel trips, cut back on clothes shopping, and reduce expectations for holiday spending. Some people truly do need to be prudent and reduce spending particularly if they are vulnerable to losing their job or work in real estate or mortgage lending, or are over-leveraged. But most Americans are not in foreclosure and are still employed, so for those in good financial shape, it's what some have a called a "psychological" recession. They are financially strong, but emotionally scared. Fear is still at record high levels, as demonstrated by commodity prices dropping, reflecting a concern of a global slowdown and possible deflation.

Here's what I know that's positive: The market is down 46% year to date and is likely nearer to its low, oil prices are cratering which ultimately acts like a tax cut, there is a gi-normous amount of fiscal stimulous coming, interest rates are low, and cash on the sidelines is the highest in twenty seven years. There are also millions of baby boomers wondering if they will "ever" be able to retire and where they will be able to invest and possibly recoup their losses. I don't know when, I don't know at what level on the Dow, but I do know there is a great buying opportunity near. Will we first have another waterfall sell-off as hedge funds continue to liquidate stocks to pay customer redemptions or have we already seen the worst? It's likely we'll go lower after testing the lows around 7800 on the Dow. There may be a lower future entry point of extreme pessimism. I'd do a little careful buying now of choice companies that have been decimated without regard to their fundamentals (and start dollar cost averaging), but save some cash for the buy of a lifetime.

How to Navigate Through Uncertainty and Crisis

2008-09-16T08:57:00.000-07:00

Once or twice a decade there is a financial crisis that is scary enough to make you wonder if you should sell your stocks, liquidate your savings, and bury some cash in the backyard. We are at one of those times. The known financial problems are widespread, but the unknown problems concern me more. Hedge funds have not, in general, made money this year which means there will be an unwinding of hedge fund assets as they close and liquidate positions. The silence from hedge funds so far is deafening. It remains to be seen if hedge funds are the next shoe to drop. We can't control what may happen in the markets, but to sleep better, keep steady nerves and protect your finances in this environment, here are some suggestions for you:

1. Preserve liquidity and conserve cash. It's not yet time to bottom fish for stocks.

2. Consolidate and reduce short term debt ie. reduce lines of credit and pay off credit card balances. De-leverage as much as you can.

3. If you are low on liquidity, apply for a line of credit (to be used only in case of emergency).

4. Refinance mortgages and other long-term debt.

5. Keep credit scores high by paying bills on time.

6. Verify bank deposits are in FDIC insured accounts and that they do not exceed $100,000 in deposits per bank.

7. Reduce unnecessary spending

Important bankruptcies often signal major market bottoms. Lehman Brothers's bankruptcy could be the one. In addition, Fannie Mae, Freddy Mac, AIG, WA Mutual and other financial institutions are having problems. They're all occurring at once which could be a signaling a major bottom. We'll only know in hindsight if this is THE bottom.

GDP is still growing at over 3% and oil prices are actually down year-to-date. These are very positive signs that the economy is still generally in very good shape. In the meantime, upgrade the quality of companies in your portfolio. Liquidity will continue to be challenging, so keep some cash handy. Pay off short term debt and re-finance long-term debt. The home equity line of credit used as an ATM is not a sustainable model.

Is A Market Melt-UP Near? or Why I'm Bullish...

2008-09-01T08:26:00.000-07:00

Credit has gone from being exceptionally loose to excruciatingly tight. Lenders currently have leveraged balance sheets that they are focusing on de-leveraging. The problem is they don't know which loans on their books are going to default and which are going to be ok, so it's hard to make new loans when they're not standing on solid ground. The credit bubble bursting puts a deflationary drag on the economy and, in conjunction with the price of oil declining, will eventually eliminate the inflation trend we've seen recently, although it will take time to come down. The future focus of the Fed will trend toward deflation rather than inflation.

There has been speculation about when the stock market will bottom. We'll see the bottom made in July tested. I still like the higher growth areas of technology and biotech and the stability of consumer staples. Energy will continue to be strong. Financials have too many unknowns to try to bottom fish. It's too late to sell if you already own them, so just hold here.

Below is a chart that demonstrates the average rise in the stock market following the trough of the business cycle. It shows that on average, the stock market bottoms five months before the economy bottoms. It has taken as long as nine months and as short as 4 months, but the vast majority of the time it's been five months.

International is looking weaker to me, once again proving when the US sneezes the rest of the world catches cold (outside of the energy arena). In my opinion, international and emerging markets will continue to slow. I'd recommend a higher allocation toward the US than in recent years.

In 2008 the S & P and Dow are both down -15.4%. However, the MSCI All Country World Index is down -20.4% and Ex-US (world markets excluding the US) is down -23.8%. YTD the US is the 4th best performing market in the world. Latin America is -17.4%, Emerging Markets -23.2%, EAFE (Europe, Australia, Far East) is down -25.6%, Europe -27.2%, Far East Ex-Japan -33.1%.

Investor psychology is very negative right now, which is a very bullish indicator. Hedge funds are heavily weighted to the short side. Stay invested and you will likely see a strong 4th quarter as lower energy costs help boost corporate earnings and the worst of the financial mess is put behind us. Once hedge funds turn bullish, the market is likely to move up sharply so hang tough and don't bail out now!

How to Profit From a Bear Market

2008-08-08T09:38:00.000-07:00

I am cautiously optimistic the market bottomed on July 16th. The market had a phenomenal week as oil continued to decline and the dollar strengthened, the S & P was up 2.9% and Nasdaq was up 4.5%. Exactly the kind of rebound that made it worth staying fully invested and not moving to cash. One study I heard on CNBC said the average return one year after a bear market is twenty-five percent! Wouldn't it be nice if your account is worth 25% more a year from now?!

To bolster your returns after a bear market, look at your asset allocation and pay attention to sector rotation to see if changes are needed. Let me explain. The US economy tends to run in cycles: boom, slowing, recession, recovery. As a result, the market rotates among sectors depending on the economy's cycle. For example, when the economy is booming, the large cap growth (large companies worth $10 billion+ growing fast) tends to perform best because established companies can produce, sell, and distribute more during a hot economy. When the economy is slowing, large cap value (large companies that are stable but slower growers) tend to outperform because of their consistency. When the economy is in a recession, small cap value (small companies worth $300 million to $2 billion) outperform because they are lean and mean and don't have to reorganize or layoff employees to be profitable. When the economy is coming out of a recession and into recovery (like perhaps now) small cap growth (smaller companies with high growth rates) tend to outperform because they are quickest to recover.

To easily understand how to invest in economic cycles, draw a cross on a piece of paper and make four quadrants: Boom, Slowing, Recession, and Recovery left to right clockwise in each quadrant. Think of it like a clock...at twelve o'clock you are between the boom and slowing cycle, at eight o'clock, late in the recovery cycle. If the economy is headed in the recovery cycle now, then the small cap growth sector would be the best one to overweight in your portfolio. The sector opposite the best sector will be the worst performing sector (if small cap vaue is the best performing in a recession, large cap value should be the worst performing). Don't invest 100% into the sector its rotating toward because you always need to own some of all the asset classes. But do tilt your portfolio toward where the cycle is going.

Think of it as "core and satellite". "Core" incorporates the asset classes making up your core portfolio. Portfolios under $500,000 should be diversified across a minimum of four asset classes (large cap growth and value, small caps, and international). Portfolios with $500,000 or more should be diversified across nine asset classes: small cap growth and value, mid cap growth and value, large cap growth and value, natural resources (like timber and oil), precious metals (gold, silver, platinum), and emerging markets (smaller international countries). Portfolios with $1,000,000 or more should add two more asset classes: commodities (farmed goods) and absolute-return hedge funds (hedging strategies to minimize risk and generate consistently positive returns that are not highly correlated with stock market returns).

The "satellite" part is to provide special growth or investment opportunities. It can be individual stocks or exchange traded funds (ETF's are non-managed and non-diversified groups of stocks in sectors and trade like stocks). Look for opportunities to add satellites to your portfolio. There are some great stocks that have been beaten down and are selling at low market multiples. Add some market leaders in technology or consumer stocks that are down in price by 30%. I'd stay away from financials because I don't believe the full extent of their loses are known yet. By peppering your portfolio with stocks that have been sold off but are still market leaders, you are adding a lot of potential upside when the market recovers.

Is Your Portfolio Diversified Enough?

2008-08-04T12:12:00.000-07:00

Studies show investors are two to three times more sensitive to the pain of losing money as to the pleasure of making money. We emotionally feel loss much more than gain.

With the market's gyrations being so gut wrenching lately, have you been able to stay invested in stocks and watch your account decline 5% to 15%? That fluctuation, otherwise called standard deviation, is why you can earn superior returns in the stock market over time (historically about 10% long term). It's not easy to watch your account fluctuate and not feel like panicking, selling it all, and going to cash. But that's precisely why you earn higher returns investing in the stock market...for stomaching the risk. It weeds out the weak and rewards the strong (stomachs!). It's critical to stay invested and not sell during times like these, because it's really too late to sell. All you'll do is lock in your losses and miss the inevitable sharp bounce upward that occurs, like what happened yesterday. The market (Standard and Poors 500) had it's best day since March and was up 3.08%.

One reality check you should make during volatile times is how well are you diversified?

Diversification is about spreading your risk among different stocks, sectors, managers, income vehicles, higher growth stocks vs. slower growing value stocks, etc. It's about owning raincoats and sunglasses in your portfolio...they protect you from different elements at different times. Do you have large cap growth and value stocks in your portfolio? Mid cap growth and value? Small cap growth and value? International? Emerging Markets? Bonds? Real estate? Precious metals? Commodities?

By having some of your money in each of these areas, some of your account will be moving independently of the other areas. For example, in reaction to a report of rising inflation in the economy, precious metals will likely rise and bonds will likely fall. Precious metals like gold and silver keep their purchasing power because they are a substitute for paper currency. Bonds are simply a debt that an entity like the federal government or a municipality promises to repay. As inflation rises, the fixed interest payments you receive from the bond become worth less so the value (price) of the bond falls. It's good to own both bonds and precious metals because trees don't grow to the sky. Nothing continues to go up forever without some "correction" or shift in the value.

The large return in the S & P 500 Index yesterday was from a change in course from the Federal Open Market Committee (FOMC). Instead of being concerned about inflation, they are more concerned about the economy's ability to grow. They are likely to keep interest rates low, in a stimulative mode for the economy, for the foreseeable future.

Being diversified can help to create a shock absorber, reduce risk, and fluctuations in your portfolio. So take a close look at your portfolio and make sure you have all of the bases covered.

Interest Rates|Volatility|Housing Bubble|Stock Market

2008-07-29T10:28:00.001-07:00

The news about the economy continues to sound terrible: more bank failures, financial firms needing capital infusions, increased home foreclosures...it's enough to get really depressed and discouraged about investing in the stock market. Since my goal is to bring you more comfort with investing, I thought it would be a good idea to review why we need to be invested in the stock market and what has happened with real estate.

An important part of investing is learning how to become comfortable with what feels uncomfortable. We should sell investments when it feels like we should be buying and we should buy investments when it feels like we should be selling. In other words, investing is counter-intuitive. I know when I'm worried about the stock market and feel like selling everything we are likely close to a bottom, and when I start writing a daily tally of my increasing account balance and its impact on my net worth, it's time to sell! Unfortunately, most investors want to buy after the market has already gone up and they invest as if they were driving their car by looking into the rear view mirror. In 2000 there were many technology mutual funds with annual returns over 100% and investors looked into the rear view mirror and piled into those funds at the top when it felt comfortable to invest in a fund that had doubled. The reality was they had dramatically increased their risk by buying after it had already increased ten times the average annual return of 10%.

To get higher returns, we must accept risk which is another way of saying a higher level of volatility. That's how and why we get higher returns--by stomaching volatility. What it's not is betting it all on red and spinning the roulette wheel. It's about trying to maximize the upside return while minimizing the downside. It's about putting the odds in our favor. If we don't take risks, we must accept the lower returns of a less volatile investment. For example, if a Certificate of Deposit (CD) offers a return of 4%--a low return because the principal is guaranteed, up to the federally insured amount of $100,000. So we're accepting a low return for no risk and no volatility. Since we don't like losing money, it feels comfortable to have the guarantees of a CD. The problem with having all your money in a CD is if you have twenty years before retirement, you need to have your money work as hard for you as possible to grow your nest egg! You have time to risk a portion of your money and dramatically increase your retirement account. For large cap stocks in the S & P 500 Index, the average annual return has been approximately 10% for the last 70 years. When the average gets much below or above that, there's a tendency to "revert to the mean", or get back on track with the average. Since the stock market has underperformed its average for the last 8 years, the risk is lower and the odds are in our favor that it will perform better in the future.

Let's examine what just happened with real estate. Housing prices recently increased an unheard of 85%! We had eight years of "above the mean" performance. Why was that? A few reasons: low interest rates, easy credit, and full employment. After the tech bubble burst in 2000 and then the attack on 9/11, the Federal Open Market Committee (FOMC) lowered the Federal Funds rate, or the interest rate at which depository institutions lend to other depository institutions, to 1% in June 2003. The Fed Funds rate is the primary tool the FOMC uses to influence interest rates and the economy. Changes in the Fed Funds rate have far reaching effects by influencing the borrowing cost of banks in the overnight lending market and subsequently the return offered on bank deposit products such as CD's, savings accounts, and money markets. Changes in the Fed Funds rate and the discount rate also dictate changes in the Prime Rate, which is of interest to borrowers. The Prime Rate is the underlying index for most credit cards, home equity lines and lines of credit, auto, and personal loans. Many small business loans are also indexed to the Prime Rate. Currently the Fed Funds rate is 2% and the Prime Rate is 5%. When the FOMC lowers rates, it is said to be "stimulating" the economy by making money easier to borrow. When it raises rates, it is "tightening" or slowing the economy by making it harder to borrow.

As mortgage rates declined, real estate prices soared because the lower the interest rate, the more home you can afford, hence it increased demand for homes which sent prices up. Credit was readily available and easy to qualify for--and in some cases, there were loans that didn't even require qualification. Those were "no doc" loans, or loans that didn't require documentation or verification of income, employment, or assets. If you had money for the down payment, that was all that was needed for a loan. Fraud ran rampant as people misrepresented their financial situation in order to buy a home. There were also loans with low teaser rates, interest only features, and negative amortization. Suffice it to say these were situations where the bank enticed people to loan money from them in a way that was very profitable for the bank and not beneficial for the borrower.

When the FOMC raised rates one quarter percent, 17 times, from June 2004 to June 2006 to 5.25% targeting the housing bubble, rates on adjustable rate mortgages, home equity lines of credit, and any loans tied to the Prime Rate increased. People who had been using their home equity lines of credit (HELOC) as a kind of personal ATM, suddenly had dramatically higher monthly payments. People couldn't afford to make their mortgage payments and HELOC payments and houses started going into foreclosure (it only takes about 3 missed payments to cause a foreclosure, although the process can take much longer). Before we knew it inventory increased and there was more supply than demand for housing which sent prices lower. When houses were no longer appreciating, buyers were not willing to buy homes declining in value.

The FOMC then lowered rates seven times by a total of 3.25% to "ease" credit in the economy and provide lower rates on new and existing loans. But demand was gone, inventory increased and home prices continued to decline. The geographic areas that had the most upside appreciation, like Florida, Las Vegas, and Phoenix now had the largest losses, to the tune of 26%. Baby boomers who planned to sell their large homes and downsize pocketing the difference for their retirement account may need to review their plans.

So what does all that have to do with investing in the stock market? It's time to reallocate money into equity (stock) investments. The stock market has underperformed its average since 2000 and therefore is due for a reversion to its mean return of 10%. This is the time to be getting positioned properly to get your money working harder for you. It doesn't feel like a good time to invest in the stock market if you're looking in the rear view mirror at the last eight years. But if we look forward, we are investing after years of underappreciation and therefore are putting the odds in our favor. The economy will come out of its funk, it always does. Consumers make up 70% of the economy and they still need to eat, pay for kids, and spend money.

Consider investing in stocks, a stock mutual fund, ETF, index, or money manager, and talk to your Financial Advisor. Maybe consider a small position in a natural resources fund, a commodities fund, or their stocks. Even if the bear market isn't over, it's historically close to a bottom and you want to be in when it has days of sharp upward volatility. Studies have shown even missing as few as 3 days of sharp upward swings in the stock market can drastically reduce your returns. So if you moved to cash, move back into the market and you'll likely be handsomely rewarded when it reverts to the mean.

What's Your Purpose?

2008-07-25T07:18:00.000-07:00

Over the years, I've read lots of articles about finding my purpose. None of them really helped me find my purpose. Mainly because, I think, they were asking the wrong question: "What is your passion?" One book said that if you found your passion, the money would follow. Ok, maybe I agree with that, but what's my passion? I guess to re-phrase it, what do I like to do? I was usually stumped about right there. Let's see, I like walking my dog, watching decorating shows on HGTV, gardening, and jewelry. Liking jewelry and finding a good wholesale connection led me to have a jewelry company for a little while, until I discovered selling and servicing jewelry wasn't my passion. What else do I like to do? Visit friends, drink a Cosmo, go to Palm Springs. That's all well and good, but it still didn't help me find my purpose.

Since deciding to leave the corporate world, I've been searching for what my purpose is. I even took some classes thinking interior design might be it. Then I realized I wouldn't enjoy decorating in a taste other than my own, or trying to convince a client what "sofa" (couch is not designer lingo) to buy. I also didn't feel a sense of satisfaction or meaning or contribution to the world. So I volunteered at a couple of places. It had meaning, but there was only so much one could do as a volunteer.

How do I find my purpose? I kept wondering. What if it was really a matter of asking a different question? How about, "What are my strengths?" Everyone's strengths are unique and make them who they are. An excellent webcast about finding your strengths is "Marcus Buckingham's Career Intervention" on Oprah.com. Marcus has a six part series about re-connecting with your passion at work. He recommends you focus on your strengths and ignore your weaknesses. You can always delegate your weakest tasks to someone else or find someone who has your weaknesses as their strengths. What are you better at than anyone else? What projects always land on your desk because you're the best at them? What are you complimented about at work or at home? And, I'll add, what fits your ideal lifestyle?

Maybe my strengths are to teach and write. Since I was a young girl, I've read almost every investment book published (at least the bestsellers). I am good at making complex subjects, like hedge funds, simple to understand, so I've been told. Hmmm. Then I went to my fourth Pacific Northwest Writer's conference. I had an idea for an investment book called, "The Investment Spa", a resource for investment education so you're as comfortable investing as you are in a spa. An upscale financial book for investors. The idea received good reception from an agent and an editor of a publishing house. Hmmm. They said a "blog" (short for weblog) was a must. I wasn't even sure what a blog was, but I knew I surely didn't have one or a clue how to create one. Could writing about financial matters be my purpose? Writing and finances were things I loved, had meaning for me, and fit with the lifestyle I wanted: being able to work from home or Palm Springs or anywhere on the planet. A day later, I created my blog, and here I am talking to you. Basking in my purpose.

But what about you? Do you know your purpose? Have you been wondering too? Well, what are your strengths? What have you enjoyed about your career (something drew you to it, even if you're not so in love with it now). What are you better at than anyone else? What makes you, you?

What books are in your bookcase? (I probably could have figured out my purpose by looking at the myriad of books in my bookcase on investing and writing). In what section of Barnes & Noble do you browse books and lose track of time? What magazines do you subscribe to? What websites do you subscribe to? Even if you are on email lists of department stores, it shows you likely have style and are interested in fashion trends. Maybe being a stylist or personal shopper? You like fixing things? Maybe a website about that. The internet allows you to use your creativity and personality (strengths) to set up a business or hobby you'll enjoy. So go look at your email inbox and your bookcase. I'll bet somewhere in there, you'll find your purpose.

How Do I Sell My Home | Real Estate Properties?

2008-07-23T06:58:00.000-07:00

There's so much news about the real estate markets - it's all over the media and everyone's talking about it. You've decided to sell you home or real estate properties and wonder what's really going on in your area. Real estate in some places is regional, and in others, very localized. You want to find out how your local market is doing, how to arrive at the right asking price, and sell your home quickly right? Here's what to do:

Go to a real estate website and look at how many homes are for sale in your neighborhood and/or area. (I go to the Coldwellbanker.com website, click on neighborhood, then choose the county, the area, and the neighborhood). Register your name and address on the website, then choose 5 to 10 homes similar to yours in square footage, number of bedrooms and baths, age and condition (remodeled, partially remodeled, or original condition), and save them in the website's "favorites" area. Note how much they are asking. This will give you a starting ballpark for your asking price and is not an accurate number to rely on to choose your selling price. Every time one of them has a price change, you will be automatically emailed notification. Note what the starting price was and what it is now. I saved some "favorites" in my area on homes priced from $1 million to $1.4 million and recently received emails for $50,000 to $100,000 price reductions.
Call an agent whose 'for sale' signs you have seen in the neighborhood. You want someone who knows, without researching, what houses have sold for in your neighborhood, and specifically what kind of demand and challenges there are. Ask how many homes they have sold (brought the buyers) in the neighborhood recently, not just homes they've listed. Listing agents are sometimes better at getting listings than they are at selling homes.
Some questions to ask the agent are: What is their marketing plan? How will they create an attractive flyer? If your home is higher end, what will the brochure they create look like, do they have a sample, and will they use a special photographer? (Eighty percent of home buyers look at homes on the internet first. The photographs of your house in the listing are crucially important as they will either drive buyers to your home or turn them off before they've even seen it). How much advertising will they do and where? Are open houses part of their strategy and why or why not? What kind of networking do they have with other agents? How many buyers are they currently working with? How often will they communicate with you? Do they stage a home for sale? What suggestions do they have to make your home more attractive to buyers?
Ask the agent to run a competitive analysis or "comp" on what price similar homes in your neighborhood have SOLD for. This may be very different from their original asking price, so be sure to get the sold prices. If the prices were below asking price, how much below?
How long ago did they sell? In some markets, such as in large metropolitan areas, 6 months can be an eternity! Find out the most recent sales prices.
Have more than one agent come to your home and make a presentation to receive your listing. Choose the one who has market knowledge of the area, has a large network of agents they work with (a larger real estate firm is usually better, but there are exceptions), and experience. This is not the time to hire your niece, unless she is the most expert agent in your neighborhood.
Agents are tempted to quote you a high listing number in order to get your listing. While the highest quote might seem to be music to your ears, remember your home will not sell for the price you selected, it will sell for what a willing buying will pay and a willing seller will accept! The most common mistake I see sellers make is thinking the price they set is the price they're going to receive and then way overprice their home. Another mistake is thinking their home should sell for whatever the highest priced home in the neighborhood sold for and totally disregard the differences in condition, floor plan, square footage, property size, market conditions, etc. That was only the price agreed on that particular house by that particular buyer and seller at that particular time and not necessarily what yours will sell for! Overpricing causes a home to sit on the market, get stale, and weaken bargaining power by having to make price reductions. Price it right the first time - based on the sales prices of similar homes sold or slightly below - and you'll have more interest and a quicker sale. Multiple offers have even occurred in slower markets when homes are priced right.
Remember to consider your carrying costs to have your house on the market. For every month it's for sale, subtract your monthly payment from the price of the house because the longer it sits, the more out of pocket you are paying. A house priced at $520,000 with a house payment of $3, 500 a month that sits for 6 months, costs $21,000 to carry just the mortgage and could have been priced at $499,000, for the same profit. And the lower price might have been the difference in selling it immediately - and you being on your way to your new home, instead of in six months of "listed-house worry" punishment!
Try to get your home looking clean, well-maintained, and clutter free. Pack up everything on your kitchen counter except a coffee pot and some flowers. Pack up everything from your bathroom counter except soap. Put away all your personal photos - they are too distracting and also the buyer wants to picture themselves in the house, not be reminded they are in someone else's home. Put away all toys, paint any super bright or super dark wall colors you have a light beige. If necessary and you have time, have a garage sale. If not, order a Pod to come to your home and load extra furniture, Christmas decorations, collections, photos, toys, sports equipment, tv's, extra overflow of office files, books, garage items, and so on into the Pod and store it. You can have it delivered to your new address when you move. (Yes, it interferes with living - unbearably if you have small children. That's why it's even more important for you to price your house right.)
Try to minimize the negatives (outdated elements) of your home. If you have a bathroom that hasn't been updated, what could you do to make it better? Paint the cabinets white or dark brown? Change the handles from gold to brushed nickel? Change out the faucets and lighting? Take down flowered wallpaper and paint it? Small improvements make a big difference. The fewer things a new buyer has to change after moving in, the higher your house will be on their "potential house to buy" list.
Make sure your yard looks manicured. Plant bright colored flowers by your front door for a cheery first impression. Spend a few hundred dollars to get your yard weeded, pruned, plant flowers, etc. If you can't do the work, hire your children or neighbor kids, or ask your neighbor for their gardener's phone number. It could be the thing that brings the buyer into your home and gets you an offer and a SOLD sign in your front yard.
You've got your house and yard looking fabulous and it still hasn't sold? It's overpriced. Go back to step one above and research houses in your neighborhood. Price yours a little less than the competition. This is not the time to be sitting with a listing. House prices may continue to go down for a year or more, so the sooner you sell yours, the better.

Reasons NOT to Fear the Falling Stock Market...and some SPA Comfort

2008-07-21T17:48:00.000-07:00

A survey of women a few years ago indicated a woman's #1 fear about investing is losing money. With the volatility of the markets recently, and the endless bad economic news on TV, I thought I'd address concerns and see if there's any good news out there?

Let's look at the following:

The Dow Jones Industrial Average ended the week up 396 points, or 3.6%. Its 4.9% rise on Tuesday was its largest 3 day gain since March 2003. The Nasdaq was up roughly 2%. NYSE volume topped 7 BILLION shares on two separate days! That's evidence the elephant (institutional investors) is getting into the bathtub.

Another thing to look at is the CBOE's Market Volatility Index or VIX. It tends to show the extremes of fear and greed in the market. There's a saying: "When VIX is high, it's time to buy; when VIX is low, it's time to go". The VIX is extremely high and appearing very bullish right now.

There's a low incidence of call buying, which signals more of the bulls have become bearish and don't believe this rally is the bottom - exactly what we need to see in order for it to happen.

We heard about the failure of the California bank, IndyMac, last week...actually, that's a bullish sign because bank failures have indicated many major market bottoms:

Franklin National October 8, 1974

Penn Square July 5, 1982

First Republic July 28, 1988

Bank of New England January 7, 1991

Pretty accurate indicator, don't you think?

"The Bear Market" cover of Barron's last week is bullish. Magazine covers are typically late and therefore wrong. This week's cover touted buying banks, but be careful trying to bottom fish since many of the loans are adjustable rate mortgages that adjust in 3 or 5 years from the peak of the housing bubble in 2006, and therefore we may not know the full effect on the banks until 2009-11.

Some promising comments from Jeff Coons, Co-director of Research, Manning & Napier Advisors:

"This is a good time to be a contrarian. Think about the investment bandwagon that everybody is crowded on, notably energy and metals and food, with the idea that there is unbridled demand from developing economies. But we see demand destruction occurring every single day, along with evidence of developing economies slowing down. And we are seeing the breaking of subsidies that have led to some of the high demand." Hmmmm.

I hope you can see why the lows in the market may be behind us. If not, it looks like we're close. There's sure to be continued volatility, which always brings fear levels up, but I hope this gives you a little bit of SPA comfort and you sleep well tonight!

Some Ideas to Discuss With Your Financial Advisor:

Value stocks are at historically wide spreads vs. growth stocks (value stocks are really cheap). There may be some good buying opportunities. Perhaps look at investing in an out-of-favor value money manager? What about a Dogs of the Dow strategy? That's where you buy the ten highest yielding stocks in the Dow Jones Industrial Average and hold onto them for a year. Might be timely.

How about buying the tech stock leaders that have weakened recently? Is the internet any less important than before this correction? No. Remember when Microsoft was a volatile stock in the early 90s? The gyrations in tech stocks can be enormous because they attract the speculative gamblers on the upside and downside. If you're buying for the long term, you'll probably be alright.

Look at your asset allocation. How much do you have in small, mid, and large cap companies? Growth and value companies? How about international and emerging markets? Some gold/silver/oil stocks? Look at you asset allocation with fresh eyes. Pretend you are 100% in cash and are building a new portfolio. Would you buy what's in your portfolio now? If not, maybe it's time for some trimming and reallocation to other asset classes or stocks.

See you at the SPA!

WELCOME TO THE INVESTMENT SPA!

2008-07-20T13:02:00.001-07:00

Welcome to my blog! I just returned from the PNW Writer's Conference in Seattle. One of the tips I learned was that authors need to have a blog...so here's mine! I picked the title "The Investment Spa" because I think the desire for financial security is universal to all people. And I can't think of many places that make me feel as comfortable and secure as a spa! :) Besides, SPA stands for the three steps to being financially secure:

Saving and investing

Pre-retirement lifestyle

Aspirations for the future

I plan to give lots of tips on this site, especially when it's feeling uncomfortable to be invested in the stock market. How about last week for example? Was that enough to scare the dickens out of us or what?

A bank failure, a run on banks, panic, foreclosures, layoffs...the news gets worse and worse. Thursday and Friday the market skyrocketed when oil prices came down due to 2 million barrels of extra oil supply (finally). I've been thinking that oil prices would come down due to:

The change in behavior of millions of Americans (after all, we are the biggest consumers of oil). It seems daily I hear stories of someone who sold their SUV or moved closer to their work or the rapid transit. I even saw an electric car on the road last week in Bellevue! That was a first!
The nearness of the Olympic Games in China (there's a mad dash to be ready at all costs and after the start, there should be an economic slowdown there. Kind of their version of what unlimited spending on technology to prepare corporations for Y2K did in the US).
The Chinese stock market is down 50% this year, which, I would think, will impact their pocketbooks.

Anyway, the market was wound up like a tight rubber band and poised to take off once oil prices declined, and sure enough, it did. With the level of fear running so high, I wouldn't be surprised if we have seen the end of the bear market...