~*Revealing and Getting Rid of Scams | Creating Honest Sustainable Wealth | Offering Happiness, Safety and Legitimacy*~

Tuesday, 29 June 2010

The mindset of a property millionaire

By Sherry Koh

19 properties in Malaysia.

1 property in Singapore.

Properties worth more than RM22 million (S$9.4 million).

Five-figure positive cash flow.

Those figures belong to Milan Doshi, a property and stock investment guru who have made his millions over a course of more than 20 years.

In his recent Property Intensive workshop, Doshi posted an interesting question, "Which would you rather be? A debt-free beggar or a financially free billionaire?"

For most people, the answer would be the latter but they might be doing the opposite, which is to earn as much as possible to pay off debts.

Doshi highlighted that the old school of thinking is to not borrow money or borrow as little as possible and return it soonest possible. His thinking is, "The more you borrow, the richer you get."

He also advises investors to analyse the advisor before analysing the advice. For example, one might make the mistake of taking financial advice from people who sell investment products rather from successful investors.

He also said that it is likened to getting advice from university professors who might not have personally put the theories they teach to the test in the real life situations.

He also said not to be deceived by looks as some people who are poorly dressed are rich and vice versa, which explains why Doshi was simply dressed in a t-shirt and pants.

These are some highlights from a handout that Doshi shared in his property intensive preview.

Have a firm idea on your financial goals.

Otherwise, you won't know which direction to head to.

Some examples of financial goals include knowing the number of properties to invest in, your desired passive income, investment strategies you want to apply, and so on.

Individuals who are less than 35 years old should focus on maximising their earning potential as they are at the prime of earning age.

Invest in low-risk commercial properties that give high returns of over 8% per annum, with low entry costs.

For beginners, it's advisable to start investing in apartments of condominiums.

This is because it's easy to achieve zero or positive cash flow every month, as compared to landed house.

When you get married, don't buy a dream home right away.

Instead, it makes more sense to buy an investment property and rent a home for the first 10 to 15 years of your married life.

Instead of buying costly high-end residential properties, you could invest in commercial properties.

This will give the best of both rental returns and capital appreciation.

It's always worthwhile to pay a premium and buy the best properties in great locations.

Savvy investors creatively buy one property a year or even one every few months with little or no-money-down.

Most people's financial goal is to retire debt-free at age 65.

Smart investors aim to retire at age 45 or earlier, by accumulating good debts of at least RM3 million via property investments.

You focus on hitting a certain net worth instead of generating passive income.

For example, when you retire debt-free, you must have RM1.8 million in fixed deposit at 2% per annum in order to get RM3,000 per month.

Instead, one might be able to get the same amount of passive income by investing RM500,000 in properties.

Friday, 25 June 2010

Unique Job Search Tactics That Work

by Laura Rowley

Gail Neal worked for 12 years placing laid-off workers in new jobs before she got her own pink slip in March 2008. That September, she found a commission-only job selling cemetery plots, an industry she thought would be recession-proof. She was wrong.

"With the economy the way it was, people were doing direct cremations," she says. She persisted for more than a year before launching a new job search. At a networking event, she heard about an ad sales job at a Detroit radio station. She sent a cover letter and one-page resume in a pretty, invitation-sized envelope with a gold sticker, which got the manager's attention. She was hired a few weeks later.

"I'd worked in job placement for long time but did the same thing everyone else does -- sent out a plain resume based on knowledge of a job opening and made phone calls," she says. "I didn't stand out. The competition is such in this area that you've got to do something very different."

Doing something very different seems to be the name of the game in a job market in which unemployment remains stubbornly high. Nearly a quarter of hiring managers say they are seeing unique tactics by candidates -- up from 12 percent in 2008, according to a recent survey by

Coffee-Cup Creativity

Sometimes these gimmicks work: One in 10 managers surveyed said they have hired someone who used an unusual stunt to get their attention. Consider Alec Brownstein, the 29-year-old advertising copyrighter who got a job by targeting the names of a few creative directors he wanted to hire him, and paying $6 for a Google ad that would appear when those individuals Googled themselves. It read: "Hey, Googling yourself is a lot of fun. Hiring me is fun, too" and linked back to his Web site.

"I thought it was brilliant," says David Perry, managing partner of Perry Martell, an executive search firm in Ontario, Canada. "But he did something that most people who are job hunters don't do -- he had focus. When looking for a job, you need to know who you want to work for and what you want to do, and that means spending the time to identify and research your top 20 employers instead of going to the job boards to click and apply all day long."

Jeff Donaldson, a former Chrysler engineer with two decades of experience, worked with Perry on "extreme networking" after taking a buyout from the automaker last summer.

"The technique that paid off was writing a smart letter in email and snail-mail form," Donaldson says. "I chose 20 people I was friendly with who might be in a position to help me, including people who owned their own companies and executives that I had worked with who would be in a position to affect the decisions of others. I asked them to forward the letter if they knew of somebody who might be in a position to help -- trying to grow exponentially the number of people who knew I was looking for a job. I expected most people to set it aside and shrug their shoulders, but what I found was they were more than happy to help."

Six weeks later, Donaldson found a three-month contract job in his field, which has been renewed several times. "You can't do what everyone else is doing and expect they are going to find you, even if you are the most qualified candidate," he says.

Perry's firm also assisted a Pennsylvania banker who was laid off after three decades with the same firm. He had sent out 1,500 resumes and landed just three interviews and no offers. Perry suggested the client focus on a dozen companies, and find and contact former employees through LinkedIn or Facebook, letting them know he was interested in working for the firm and asking if they would be willing to discuss its issues and challenges.

The banker then crafted a cover letter outlining how he had solved similar issues in his career, and sent it with a one-page resume in a Starbucks coffee cup through Fedex, so the target would have to sign for it. Within 30 minutes of receiving delivery confirmation by email, the banker called and asked if the recipient would meet him for coffee to talk about how he could help the company.

"The whole point is to get them to agree to have coffee, not an interview," Perry says. "An interview request automatically makes the (recipient) uncomfortable because there's an expectation of a job offer." The banker sent the coffee cup to 10 companies, got eight interviews and six offers in five weeks.

Knowing the Limits

Other career experts warn that extreme gimmicks can backfire. "There are bad ways to get noticed and good ways to get noticed," says Cynthia Shapiro, career strategist and author of "What Does Somebody Have to Do to Get a Job Around Here: 44 Insider Secrets."

In her book she notes some flops -- resumes on pink paper; singing telegrams with lyrics about the candidate's qualifications; a resume tied to a bottle of champagne; and even a job seeker who sent his resume by homing pigeon.

"The number one thing in this economy is to look confident, and you can't look confident by sending singing telegrams," Shapiro says. "A hiring manager's job is on the line every time they recommend someone. I'm a laughingstock if I bring the singing telegram guy in for an interview. If he's that desperate I'm going to assume he's unemployable."

She suggests job seekers post articles on a LinkedIn group frequented by potential employers, or volunteer for the board of an industry association. "If someone sees your face or name in a professional capacity, that's great way to get noticed," she says.

Moreover, attention-getting stunts may also distract a job seeker from focusing on the hard work of networking, says John Challenger, chief executive officer of Chicago-based outplacement firm Challenger Gray & Christmas.

"People can spend a lot of time trying to stand out when all the needles in the haystack look the same -- rather than focus on constantly going out and seeing people," Challenger says. "Nobody wants to do that. You get rejected all day long. It's a lot more fun to sit around and come up with something really inventive or creative. But you have to realize you're not going to find your job by getting into that haystack. You find jobs through other people."

Once Gail Neal got her foot in the door at the radio station, she focused on ways to add value. Neal noticed the station had numerous advertisers in the security category -- alarms, gun stores, surveillance-equipment companies. One afternoon while doing laundry, she got on her cell phone and cold-called firms in the security business, asking if they had ever considered radio advertising.

"I kept dialing until I found three businesses who agreed to appointments," she says. She brought the leads to the second interview, which sealed the deal.

Seven months later, Neal is creating events, promotions and other new sources of revenue, along with selling "plain vanilla commercials," she says. "You've got to do something that makes you stand out and show you can shine." For more job-hunting tips, see my blog.

How to Get the Salary You Want

by Joe Light

A tight job market might have taken away some jobseekers' leverage in a salary negotiation, but that doesn't mean they should roll over and accept the first offer, says New York-based executive coach Rabia de Lande Long. To get the top compensation possible—without putting a sour taste in your potential employer's mouth—take these steps.

1. Do your research.

It used to be hard to find out what your coworkers and other professionals in your industry get paid. But now, several resources have attempted to opened that black box, says Ms. de Lande Long. and give salary ranges to expect based on a job seeker's position, location, and experience. Employees at the actual company you're applying to might have also posted their salaries at

2. Don't give out the first number.

You'll be pressured to do this through the application process. "What's your salary requirement?" "What salary range are you looking for?" "What do you get paid now?"

Whatever you do, never give out the first number, says Ms. de Lande Long. If your answer is too high, you might not make it to the next stage. Too low, and an employer will either think you're not qualified or desperate. So, if possible, write "NA" on applications.

If you're pressured to say how much you make during the interview process, try giving your "total compensation," which many large employers will break out for you on the company's internal human resources website. If your current employer doesn't do that, just spell out your salary, benefits, bonuses, and anything else your current employer offers, says Decatur, Ga. career coach Walter Akana. If the new company doesn't offer some of similar benefits, the HR manager will know that your new salary would have to be bumped up to reflect that, he says.

If the interviewer still presses for a required salary, try giving a range of $15,000 rather than a specific number, Mr. Akana says.The low amount should be the minimum you'd be happy with and the high amount should be what would make you happy.

3. Don't lie.

"It's so easy to get someone in HR to verify a salary, even if they're not supposed to," says Ms. de Lande Long. Even if you make it to a job offer, the false salary could come out during a background check, which could result in an outright retraction of the offer or at least upset an employee's new boss. "And from that point onward, you might face trouble in negotiations not just with your new employer, but with everyone in your industry who has heard. Word gets around," says Ms. de Lande Long.

4. Don't take the first offer.

Most employers expect candidates to try to negotiate. So they leave room in the first offer for a raise, says Mr. Akana. If possible, try to arrange a face-to-face meeting with the hiring manager rather than someone in human resources. The hiring manager is more likely to be flexible, says Mr. Akana.

Say that you're flattered to have an offer and really want to join the team, but that there are a couple specific items that you're sure you could resolve if you put your heads together," says Mr. Akana. Despite the pressure on salaries during the downturn, a good rule of thumb is to ask for a 10% higher salary, says Ms. de Lande Long.

If the hiring manager says budget restrictions keep him from going as high as you'd like, it might be that the position is "graded" to be within a certain salary band by HR, says Mr. Akana. It's worth asking if the boss can ask the appropriate person for the job to be re-graded. The worst he can say is no.

5. Once that's locked in, go for other benefits.

Despite what you might have heard, many benefit packages aren't flexible, says Ms. de Lande Long. So, while it's worth asking, it might be difficult to modify the health plan. Your success in getting more vacation days depends on the employer, says Ms. de Lande Long.

Your potential boss might be hesitant to give you more days if it will make other employees think they're being treated unfairly. Instead, focus on things that are easy for the employer to provide, such as a work-from-home arrangement for one day a week, if the employer has made such arrangements in the past, says Mr. Akana.

If you still feel your package is too low, ask if it can be reviewed again in six months. "That way, you can show them that you're worth the money," he says.

Tuesday, 22 June 2010

How to ride an up-and-down market

By Adam Lashinsky

FORTUNE -- Volatility in the stock market is a lot like turbulence on an airplane: scary, nausea-inducing, and, if at all possible, best to ignore. Just as a plane almost certainly will land safely despite the uncomfortable bumps, the market usually rises over time (the gruesome past decade notwithstanding). Yet while for the vast majority of investors the sensible thing to do in the face of choppy markets is nothing at all, some yearn to seize the day. After all, seesawing prices can mean opportunity.

By that measure there has been plenty of opportunity of late. The Dow Jones industrial average (INDU) registered triple-digit gains or declines 22 times between April 20 and June 9, the most since the financial crisis of late 2008. Here, then, are three approaches to volatility that anyone can take -- provided you have the stomach and the attention span to do so.

"Rent" your stocks

One way to profit in unstable markets is to sell call options on shares you already own, a strategy that Jon Najarian of online brokerage likens to earning extra cash by "renting out" your stocks. (Such options, sold through brokerages such as Schwab, are available only on the most widely traded stocks.) Selling a call option means you collect a fee for granting another investor the right to buy your shares at an agreed-upon price. That's a particularly lucrative approach right now, Najarian says. Volatility has spurred increased demand for call options, sending their prices up 20% in recent months.

For example, imagine you own 100 shares of McDonald's (MCD, Fortune 500) stock, which was trading at $69 in early June. At that price, you're already receiving a 3.2% annual dividend; Najarian says you can earn an additional 1.7% return per month by selling the call options. Here's how it works: Let's assume you think fair value for the stock is $70. So you sell call options at $70. If the stock stays below that level, you'll collect $120 per month in fees as long as the contract runs (typically a month) and can hold it as long as you like. The potential hitch: If McDonald's shares jump, say, to $75, the buyer can purchase your shares at $70 and you give up some of the gain.

Bet on volatility itself

Stock market turbulence has a gauge colloquially known as the "fear index" and often referred to by its ticker, the VIX (more properly, it's the Chicago Board Options Exchange Volatility Index). The VIX comprises a variety of options contracts that reflect how much options investors believe the S&P 500 stock index (SPX) will move -- either up or down -- in the next 30 days.

Investors can buy an exchange-traded note (similar to an exchange-traded fund) that aims to make money off moves in the VIX. The iPath S&P 500 VIX short-term futures ETN (VXX) mirrors the VIX and rises when options investors take out the most insurance against a falling stock market. Tom Lydon, a wealth adviser in Newport Beach, Calif., and publisher of the website ETF Trends, recommends a specific strategy for playing it. "If it's above its 50-day moving average, you buy," he says, because the trend favors increased volatility. "If it falls below the 50-day moving average, you sell."
0:00 /3:02Are stocks the best retirement bet?

Making such a bet on volatility, it should be emphasized, is antithetical to a buy-and-hold philosophy and should be used with extreme caution. For starters, a volatility investor has to monitor the position constantly. For roughly a year before this spring, volatility was tame, and VXX got hammered, losing more than 50% of its value as the stock market smoothly soared (see chart at top of page). Moreover, VXX uses borrowed money to juice its bets, so it swings even more wildly than the market. On the day in late May that Lydon shared his strategy, the S&P was experiencing a moment of euphoria, up nearly 3% for the day. VXX, by contrast, was off 8%.

Lydon suggests staking no more than 3% to 5% of your investable assets on such a gambit. In an unstable market a small volatility position will help make up for losses elsewhere; in a placid market the money lost will be an acceptable hedge.

Stay the course

Even if you don't try to exploit volatility, at minimum you shouldn't run from it. "In general, when the public gets scared, that's the time to take advantage of volatility if you've got the intestinal fortitude," says Najarian. "At the very least it's a signal to not get out of the market, because investors inevitably bail out at the bottom."

Put differently, one response to volatility is a non-response: not so much ignoring it but acknowledging that today's big move is transient and realizing the truism that your long-term investments will pay off (if done prudently) -- in the long term. Indeed, chaotic markets provide a strong rationale for that venerable staple of investing wisdom: dollar-cost averaging. If you regularly contribute to, say, a 401(k) that buys a few shares of an index fund every two weeks, you may find yourself occasionally buying on an upward spike, but you are almost equally guaranteed to benefit from the downswings too.

Air passengers are sometimes mystified at the calmness of pilots during a rough flight. But professionals have a better sense of what's worth being afraid of. Regular investors may never achieve that steely calm. There's no reason, however, they can't learn to tolerate, if not enjoy, the ride.

--Reporter associate Doris Burke contributed to this article.

Elon Musk, PayPal Pioneer, Is Paper-Rich, Cash-Poor

The funny thing about Elon Musk is that he does sort of remind you of Tony Stark. Minus the Iron Man suit.

Like the fictional Mr. Stark, Mr. Musk seems like the kind of guy every Silicon Valley hopeful wants to be. For starters, he’s a rocket scientist. No, really: he helped design the Falcon 9 booster used by NASA. He also helped create Solar City, a leader in solar power. And he helped dream up the Tesla, the electric car that made electric cars sexy. No wonder the film director Jon Favreau modeled his ├╝ber-capitalist superhero on Mr. Musk.

There is just one small problem: Mr. Musk says he is broke.

Come again? Mr. Musk is a member of the PayPal Mafia — those serial entrepreneurs who, for a time, looked like the Brat Pack of the Valley. He made a fortune as a co-founder of PayPal, the e-commerce payments system. Not so long ago, he had more than $200 million in cash. Not bad for 38.

Now Mr. Musk, who is in the middle of a divorce, says his account is empty. Actually, less than empty. He says he invested his last cent in his businesses and is living off loans from his wealthy friends. He subsists, according to court filings, on $200,000 a month and still flies his private jet.

“About four months ago, I ran out of cash,” Mr. Musk acknowledged in a divorce court filing that was widely circulated among the West Coast digital elite.

It was quite a revelation, one that laid bare an uncomfortable truth in the world of venture capital: high-tech entrepreneurs who look rich are often relatively cash-poor, at least next to their glittering images. Mark Zuckerberg may be a billionaire when, or if, Facebook goes public. Larry Ellison, the founder of Oracle, lives like a king. But most of his wealth is tied up in Oracle stock. Mr. Ellison lives in part off loans.

People like Mr. Musk may have redefined what it means to be rich, particularly young and rich. But somehow, many of these seemingly successful people live on the financial edge, waiting, hoping for the next deal to unlock their next fortune.

Mr. Musk’s financial situation is coming to light because he is in the middle of a messy divorce. He ran off with an actress, Talulah Riley — paging Mr. Stark — and his wife, the fantasy novelist Justine Musk, wants the house, alimony, child support and $6 million cash. She also wants a cut of Tesla Motors and a piece of Mr. Musk’s stock in his rocket company, SpaceX.

“Is that what I deserve?” Mrs. Musk wrote on her blog in a post titled “Golddigging.” “I don’t know. Who exactly deserves that kind of wealth? But based on our life and history together, is that reasonable? I think so.”

Mr. Musk told me in an interview that he put his last $35 million into Tesla, which only two years ago was on the edge of bankruptcy. That depleted virtually all his “cash reserves.”

“That was my choice,” he insisted.

Faced with what he characterized as “liquidity issues,” he said: “I could have either done a rushed private stock sale or borrowed money from friends.” He chose to hang onto his stake — a decision that is likely to make him a very wealthy man. In two weeks, Tesla is scheduled to hold an initial public offering of stock that is expected to value the company at about $1.4 billion. Mr. Musk may be broke, but, as he said to me with a laugh, “My assets are huge.”

The revelations about Mr. Musk’s personal financial problems stunned many in the industry. Wall Street spent years courting him. The Energy Department had given Tesla — which has sold its $100,000 electric sports cars to the likes of Larry Page, the Google co-founder, and George Clooney — $465 million in low-interest loans.

The whispering among Mr. Musk’s detractors began almost immediately. If Mr. Musk cannot keep himself solvent, how can he be trusted to run a billion-dollar enterprise? And what about Tesla’s financing, which had long been based on his largess?

In case you are wondering, neither Mr. Musk nor his wife says he is claiming poverty because of the divorce. She characterizes him as a billionaire, “albeit with cash/liquidity issues,” which, she says, “ I would work with him to work around.”

Mr. Musk’s personal fortune is not just a matter of pride. A business is hanging in the balance. Tesla’s loan from the Energy Department requires Mr. Musk to hold at least 65 percent of Tesla. If he cashed out early, that loan would technically go into default.

Tesla, for its part, has tried to quiet the talk of Mr. Musk’s troubles. In an amendment to its I.P.O. filing, the company said: “We do not believe that Mr. Musk’s personal financial situation has any impact on us.”

Tesla went on to say that his divorce — and his postnuptial agreement (he and his wife agreed to a divorce arrangement after they were married that she is contesting) should have no impact on the company. “We also do not believe that Mr. Musk would have to liquidate a significant percentage of his holdings in order to satisfy any settlement reached in connection with such proceedings,” the company said.

An earlier filing might have been a telltale sign about the financial problems to come: Tesla disclosed that it had begun reimbursing Mr. Musk for his use of his private plane, justifying the cost by saying, “By paying only the variable expenses of Mr. Musk’s private airplane, consistent with the reimbursement policy in place, we will recognize a cost saving as compared to the customary practice for an initial public offering road show.” Before this, Mr. Musk paid for the plane himself.

It is quite a comedown — probably only temporary — for Mr. Musk, a South African native who made his first fortune in 1999, when he sold Zip2, a dot-com publishing business he had started with his brother, for more than $300 million. (The New York Times Company was a licensee of Zip2.) From there he went on to, an online payment service that grew into PayPal. PayPal soon got scooped up by eBay for $1.5 billion. Mr. Musk walked away with about $200 million after selling his stock.

In 2002, he started Space Exploration Technologies, or SpaceX, with the none-too-grand visions of making a business out of flying people into outer space. The company also has a contract with NASA worth at least $1.6 billion to take over many of the duties of the space shuttle program, which is being phased out. Just two weeks ago, SpaceX completed a successful launch of its Falcon 9 rocket at Cape Canaveral. The company had its third year of profitability in 2009.

Mr. Musk declined to comment on the public offering for Tesla — the company is in a quiet period — but if it goes as planned, he will cash out about $21 million and still own more than 65 percent of Tesla. He can use the money, if only to pay the bill for his divorce and reimburse his friends.

“It is pretty aggravating,” he told me, referring to the rumors floating around about him. Hey, even Tony Stark has bad days.

One Big Thing We Don't Know About Stocks

Carl Richards is a certified financial planner and the founder of Prasada Capital.

The only reason we invest in stocks is to earn more than we would get from cash or bonds. The amount you are supposed to earn by taking the additional risk of owning stocks is called the risk premium. If you don't get paid more for taking the risk, you should put your money in bonds.

Over the last 207 years you got paid 2.5 percentage points more each year (on average) to invest in stocks than you did in bonds.

But you know what they say about statistics, right? In the real world, we have to deal with the fact that like all averages, this one has some serious problems. Sometimes the risk premium is higher than 2.5%, and sometimes it goes away or is hugely negative (say, in a bear market).

Until recently, most of us thought of bear markets as those three to five year periods where you grit you teeth and hang on. But recent experience is more painful than that.

In an article by Robert Arnott in the Journal of Indexes, he highlights multiple 20, 30 and even 40 year periods where we would have been better off in bonds. In other words, the risk premium did not exist.

This starts to get ugly when we admit that we have no idea when these types of prolonged bear (or sideways) markets are coming. Where are we right now in the cycle? I have no idea, and I wouldn't bet my life savings on anyone who claims to.

So earning this mythical risk premium of 2.5% is largely a function of timing, and it's not the kind of timing we can control. This is the purely random luck kind of timing: When you were born, when you sell your business, when you retire or receive a large lump sum to invest. And if the risk premium is a function of timing, and timing is a function of luck, it doesn't take much to realize that earning the mythical risk premium is a function of pure luck, too.

This is why so many of us who have been investing for 15 years feel like we are about back where we started, even if we did everything right ( assets allocated, properly diversified, didn't bail out at the bottom and so on).

Let me clear, I am not saying that the risk premium is dead, or that we should run out and sell everything. But I am suggesting that with the Dow bouncing around 10,000, it might be time to consider what you define as long term. Ask yourself if you can you live through a prolonged period where you earn no risk premium at all, and make adjustments accordingly.

Friday, 18 June 2010

The Happiness of Choosing Wisely

by Laura Rowley

I stopped at my local bookstore last weekend to meet Columbia University psychologist Sheena Iyengar, whose book -- "The Art of Choosing" -- I reviewed in a recent column. A petite brunette with a lyrical voice, she signed the hardcover for me, and next to her signature, wrote: "Choose when to choose."

I thought about that statement later when I received a letter from my bank stamped "ACTION REQUIRED." It explained that under new federal rules, banks can no longer automatically cover overdrafts and charge (exorbitant) fees for the privilege. After July 1, consumers must opt in and agree to overdraft protection, otherwise the ATM or vendor may deny the transaction for insufficient funds.

"If you're like most consumers, you rely on your ATM or debit card to save the day," the letter stated. "However, what do you do if you do not have sufficient funds in your checking account?"

Apparently I'm not like most consumers (at least in the bank's view) because I don't rely on my ATM card to "save the day." I rely on a budgeting program that helps me balance the money that flows in and out, so my financial boat is pretty steady. Despite the screaming caps, no action was required.

The Necessary Work

But building wealth usually does demand action, and conscious, consistent discipline. It's the culmination of decisions made over and over every day -- to uphold a set of values, live within one's means, save and invest, and strike that delicate balance between carpe diem (seizing the day) and robbing from tomorrow. Some people approach their finances casually, carelessly and unconsciously with regard to every offer that might be thrilling at the moment -- but that ultimately can shatter the things one values most.

"The beauty of choice is it gives you the power to think of your future as changeable," says Iyengar. "It's the only tool you have that enables you to think about and act upon how you're going to go from who you are today to whom you want to be tomorrow. Framing your life in terms of choice is both empowering and burdensome."

The changeable future was on the mind of a young bank manager I met last week when I went to close an account and shift the money to one that offered higher interest. When he found out I write about personal finance, he asked for advice. He lives with his fiance; both were a few years out of college with student loan and credit card debt. He felt he had a handle on his money, and he wanted to set up a joint account for shared expenses. She resisted, and he suspected that her spending outstripped her income. When she returned from the mall, he said, she would try to hide the shopping bags.

After we talked about which debts to tackle first, I suggested he and his fiance sit down separately and make a list of the things they wanted most in life. What did they value, what were their fervent hopes and dreams for their lives, their biggest aspirations? Then come together and identify where the lists overlap, I said, and answer three questions: When do we want to achieve these goals? What will they cost in money, time and energy? How much do we need to save in 10 years, five years, next month, next week and today to reach them?

Earning Success

When we drill down deeply into values and priorities, we might be lucky enough to hit something that's true and authentic, that's a reflection of who we really are and how we want to show up in the world. Connecting to what is most meaningful and purposeful becomes a source of conviction in a world of ubiquitous temptation. It provides the energy and the inspiration to choose when to choose.

A few weeks ago a friend told me that her daughter and son-in-law were thinking about starting a family. The daughter told her mother that even if she wanted to quit work and stay home with her kids, she couldn't afford to, because they had created "a certain lifestyle." Having a parent stay home with children is indeed a luxury in a world of stagnating wages and rising costs. But for a high-earner to sacrifice the choice, before the fact, on the altar of a certain lifestyle, struck me as a form of economic Stockholm syndrome: Emotionally bound to a material status, the captive becomes one with the captor.

"Modern individuals are not merely 'free to choose,' but obliged to be free, to understand and enact their lives in terms of choice," writes Nikolas Rose in his book, "Powers of Freedom."

"They must interpret their past and dream their future as outcomes of choices made or choices still to make. Their choices are, in their turn, seen as realizations of the attributes of the choosing person -- expressions of personality -- and reflect back on the person who has made them."

It takes courage and imagination to be the architects of our lives, to choose when to choose and be accountable for the sum of our efforts. But there is no happiness that compares with earned success, as Arthur Brooks, president of the American Enterprise Institute, wrote in a recent essay:

"Earned success is the creation of value in our lives or the lives of others. It is what drives entrepreneurs to take risks, work hard and make sacrifices. It is what parents get from raising happy children who are good people. It is the reward we enjoy when our time, money and energy go to improving our world."

In other words, ACTION REQUIRED.

Central banks join the gold rush

Annalyn Censky

Foreign governments have been getting in on the recent gold rush, driven by continued fears about Europe's debt crisis and the pace of the global economic recovery.

Those concerns have been propelling the precious metal to record highs over the past 18 months. In fact, gold posted a new intra-day high Friday, when it reached $1,260.90 an ounce. A day earlier, it reached a fresh record high closing price of $1,248.70 an ounce.

Last year, foreign central banks were net buyers of gold for the first time since 1997. India, China and Russia have been the biggest buyers. And more recently, the Philippines and Kazakhstan jumped into the fray with big purchases of the precious metal during the first quarter, according to data released by the World Gold Council Thursday.

What's behind the buying binge?

Each country has its own unique reasons, but there are a few broad trends that unite them all, said Natalie Dempster, director of government affairs for the World Gold Council.

Like many individual investors, foreign governments prefer to spread their wealth around to decrease their risk.

The U.S. dollar is typically the main reserve asset because it's considered to be more stable than other holdings, while the euro comes in as the second most popular reserve currency. But gold is not far behind. The precious metal plays an important role as a hedge against inflation, which could devalue paper currencies.

Unlike paper currencies, gold has a tangible value and that value is not dependent on any one country's economic policies.

When the financial crisis drove down the dollar's value in 2009, and Europe's debt woes pushed the euro to fresh four-year lows earlier this month, investors and foreign central banks flocked to safe-haven assets like gold.

Add rising deficits in both Europe and the United States to the mix, and currencies have become increasingly questionable assets, said Jeffrey Nichols, managing director of American Precious Metals Advisors and senior economic advisor to Rosland Capital.

That's why it's no surprise that foreign central banks overall have turned from sellers into buyers of gold in the last year, he said.

Who's buying gold?

Russia and Kazakhstan: As far as public records show, Russia appears to be the largest buyer of gold among central banks so far this year. In the first quarter of 2010, Russia's central bank increased its gold reserves by 26.6 metric tonnes, or about $1.2 billion at today's price, according to World Gold Council data. That's in addition to the 117.63 tonnes that Russia added in 2009.

Russia has been adding to its gold reserves steadily for more than three years, partly through buying its own domestic mine production. It considers gold both a symbol of prestige as well as a way to bolster the country's credit worthiness, Nichols said.

Kazakhstan, the third largest buyer so far in 2010, has a similar strategy, although at a much lesser level. The former Soviet-controlled country bought 3.1 tonnes, or $137 million, of the precious metal in the first quarter.

Philippines: After Russia, the Philippines falls a distant second as a buyer, after purchasing 9.6 tonnes, or about $424 million, of gold earlier this year.

The Philippines also buys its domestic production as a way of supporting local industry and as an inflation hedge, but its reserves usually fluctuate more than Russia's because the country often sells it at a later date on the open market.

India: While India has yet to publicly announce any major gold buys this year, the country bought a massive 200 tonnes, or what amounts to about $8.8 billion at current prices, from the International Monetary Fund in November.

The move, which multiplied India's reserves by 55%, was seen as a way for the country to diversify its reserves and reinforce the perception among Indian consumers that the metal is a reliable and safe asset, the World Gold Council said.

China: China is considered a stealth buyer of gold, said Boris Schlossberg, director of currency research at Global Forex Trading. As the world's largest producer of the metal, China often buys gold from its own mines and doesn't report those sales publicly. But in April 2009, China did admit to having added 454 tonnes, or a 76% increase, to its reserves since 2003.

Analysts suspect the country is continuing to buy gold and could in fact, be the world's largest buyer consistently. It simply doesn't reveal it's pro-gold stance proudly, however, because China is also the world's largest holder of U.S. Treasurys.

Announcing an aggressive gold buying spree is not in China's best interest because, for one, it might push gold prices higher. Secondly, it could devalue the U.S. dollar, which would subsequently lessen the worth of the country's portfolio of U.S. government bonds, Schlossberg said.

Thursday, 17 June 2010

Learn The Number One Secret To Long Term Investing

by Hank

Here it is, and I’m giving the secret away to you for free! The #1 secret to long term investing is…
Ignore the stock market!

Wasn’t that easy? Thanks to the twenty-four hour news cycles and a million cable television channels, investors are glued to the ticker tape of stock market results. How did the Dow Jones Industrial Average do this week? It does not matter. Or, it should not matter to you if you are a long term investor. In fact, I hope the market heads lower (in the short term) because I want to buy some cheap stocks.

Our Best Friend…Time. If you are decades away from retirement, what do you care about the market’s movement this week. I care where the market is going to end up in the year 2040, not 2010. In fact, given the historic average rate of return (approximately 8% annually), the Dow Jones would double in the next nine years to over 19,000. The best thing that young investors have going for them is time and compounding interest. There will be exponentially more money in retirement when someone can start investing as early as possible. Waiting even just four years to begin investing can cost someone hundreds of thousands of dollars in retirement.

Make It Automatic. Make your investments automatic. Do not try and time the market. There have been academic studies that show people lose almost 5% in potential returns by trying to time the market. Instead, you should continue to buy a set amount of money through dollar cost averaging or systematic investing which invest a set amount of money every month regardless of the stock or mutual fund’s price. So, in some months, you will buy more shares when the price of a stock is lower and less when the price rises. Thus, you will reach and average share price that is your cost basis smoothing out the bumps in the road. Hence the name….dollar cost averaging. If you make your investing automatic, you will not worry about how bad or good the stock market’s indices are doing.

Stop Watching TV. I recently stopped watching the news, both financial and regular news. It just upsets me because of all the negative stories on the news broadcasts. I really think that my outlook on life and disposition have greatly improved after I stopped watching the news. The oil spill in the Gulf of Mexico is a horrible travesty, but there is not much we can do by getting worked into frenzy about it. The same can be said about watching the stock market swing up and down in the short term. I heard someone make a great analogy for the stock market. Investing in the stock market is like walking up a flight of stairs while playing with a yoyo. You know that the overall market is eventually going to head high (towards the second floor) because the market has returned 8% to 10% historically over its long lifespan. But, in the short term, the market is constantly going up and down like the yo-yo on its way to the top.

It takes guts to not watch the stock market when so many of your hopes and dreams for a secure future and retirement are relying on it and its success. But, if you are young and have a long time horizon before retirement, time is your best friend. Time is on your side. But, you need to make time work in your favor by investing now.

Avoiding a Death Sentence

by Mark Hulbert

The Dow Theory jury is still out.

But we at least know more than we did as recently as late May. According to one of the three Dow Theorists I monitor, precise parameters are now established for what the bull must now do in order to avoid a death sentence. The second of these Dow Theorists appears to agree.

The third member of the jury, however, has already said he is voting for that death sentence.

So the bull market has its work cut out for it to keep even this shred of hope alive.

The Dow Theory, of course, is the oldest market timing system still in widespread use today. Although its adherents don't always agree on its interpretation — as is the case now — the Theory has received an academic seal of approval for having beaten a buy-and-hold in the past. So it behooves us to pay attention to what the Dow Theorists are saying.

You might wonder why there is any room for disagreement in the first place. The reason is that the Dow Theory's creator — William Peter Hamilton, who introduced the approach in numerous Wall Street Journal editorials over the first three decades of the last century — never codified his thoughts in a set of complete and precise rules.

Consider the three Dow Theory preconditions for a sell signal. Though they are clear enough as far as they go, they still leave an enormous amount of room for interpretation — especially in the definition of "significant" in Step #2 below:

• Step #1: Both the Dow Jones Industrial Average (NYSE: ^DJI - News) and the Dow Jones Transportation Average (NYSE: ^DJT - News) must undergo a correction from joint new highs.

• Step #2: In their subsequent "significant" rally attempt following that correction, either one or both of these Dow averages must fail to rise above their pre-correction highs.

• Step #3: Both averages must then drop below their respective correction lows.

Consider how these rules applied to the situation immediately after the so-called "Flash Crash" in early May. Following the lows that both the Dow industrials and Dow transports hit on May 7, both indexes rallied — gaining 5.0% and 8.4%, respectively. But in that rally, neither average was able to surpass its earlier highs. And then, on May 20, both proceeded to break below their May 7 lows.

Richard Russell, editor of Dow Theory Letters, interpreted this sequence of events to unambiguously satisfy all three steps of this sell-signal process. Writing after the market closed on May 20, he wrote: "The curse, it is cast. ... [The breaking of the May lows] means that the primary bear market is resuming. The monster is creeping toward Bethlehem."

And in the several weeks since then, Russell has become even more apocalyptic in his pronouncements.

But Jack Schannep, editor of, and Richard Moroney, editor of Dow Theory Forecasts, argued that the market's rally off its May 7 lows was too short to count as "significant" — it lasted just three trading sessions, in fact. On their interpretation, therefore, the market throughout May was stuck in the correction that constitutes Step #1 — two steps shy of a sell signal.

What about this month's rally, which began on June 7? After Tuesday's impressive triple-digit increase, that rally has now lasted six trading sessions and tacked 6.0% onto the Dow Industrials and 10.6% onto the Dow Transports.

Schannep, for one, thinks that's enough to be "significant." On his interpretation, that therefore starts the clock ticking: If both averages now proceed to close above their highs of six weeks ago, then the bull market will receive another lease on life.

But if they fail to surpass those highs and then close below their June 7 lows, then Schannep (and perhaps Moroney) would join Richard Russell in declaring a primary bear market to be in force.

In the meantime, according to this interpretation, the market is in the "no man's land" between reconfirming the previous bullish signal and declaring a fresh new bear market signal.

This indecision will no doubt frustrate investors who want black-and-white certainty in their market timing judgments. But, given recent volatility, it is a situation that is likely to be resolved in the very near future.

Fasten your seatbelts and hold on for the ride.

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
Copyrighted, MarketWatch. All rights reserved. Republication or redistribution of MarketWatch content is expressly prohibited without the prior written consent of MarketWatch. MarketWatch shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

With Bears Making Headlines, Time to Get Bullish?

Josh Lipton

Bears are growling on the cover of BusinessWeek.

In the latest issue, our colleagues there assembled a cast of prominent grizzlies that rose to fame in the market crash of 2008 -- including stockbroker and author Michael Panzner, NYU professor Nouriel Roubini aka Dr. Doom, and veteran investment guru Gary Shilling -- to trace the development of their outlooks and where they see the economy going from here.

The cover story notes that as the markets now show fresh signs of panic, much of it emanating from the debt crisis across the pond, the spotlight is swinging back toward these bearish forecasters.

"Their moment could be coming back around," the article emphasizes.

(After sifting through the article, if you're looking for more optimistically inclined analysis, check out twin op-eds in the Wall Street Journal: Bob Doll's "The Bullish Case for Equities" and Alan Reynolds' "Don't Believe the Double Dippers.")

Of course, as Ed Yardeni of Yardeni Research points out, the Magazine Cover Indicator has often provided a great contrarian signal for investors. In other words, magazine covers boast a rich and long history of directing investors in exactly the wrong direction. The renowned strategist provides us with a few examples:

1. A famous example is a 1979 cover of BusinessWeek titled "The Death of Equities." On the other hand, Yardeni notes, the magazine had several alarmist cover stories about the subprime mortgage market that were spot on. The old BusinessWeek was acquired by Bloomberg on December 1, 2009. So the new BusinessWeek may, or may not, be a good contrary indicator, he says.

2. The February 7, 2009 cover of Newsweek declared "We Are All Socialists Now," though it was hedged with a subtitle: "The Perils and Promise of Big Government." The global sovereign debt crisis started last November in Dubai and spread to Europe, starting in Greece last December.

3. On April 19, 2010, Newsweek ran with the title, "America Is Back: The Remarkable Tale of Our Economic Turnaround." The S&P 500 peaked on April 23.

So, there's evidence to suggest that when a prominent national magazine offers us a financial trend -- be it bullish or bearish -- it can work for investors as a contra-indicator. In fact, as our own Kevin Depew reported in Real or Ridiculous? The Magazine Cover Indicator, eggheads have actually proven it.

In 2007, three professors of finance at the University of Richmond conducted a study -- "Are Cover Stories Effective Contrarian Indicators?" -- analyzing companies that were the subject of cover stories in BusinessWeek, Fortune, and Forbes magazines between 1983 and 2002 for stock performance 24 months prior to and 24 months after (i.e. 500 business days on either side of) the date the feature story was published.

See also, "Can You Outrun the Bear?"

CliffsNotes version: A positive cover story typically marked the end of a stock's outperformance of the broad market. A negative cover story, if it didn't actually mark the end of a stock's underperformance of the broad market, at least marked the point where investors short the stock should cover their position.

Alec Young, S&P's equity strategist, tells us that he does think the Magazine Cover Indicator can generally work as a helpful metric for investors.

"It is a behavioral finance tool," he says. "By the time something makes the cover of a magazine, it is well priced into the market. It has validity."

However, Young doesn't think we can employ the indicator for the recent BusinessWeek cover. The market gurus cited in the article are smart secular bears making long-term bets, he argues, and it's too soon to dismiss their arguments. More to the point, right now, bearishness doesn't abound in the canyons of lower Manhattan.

"The markets have been pretty positive over the past 15 months," he says. "It's only in the past two months that we have had a correction."

While we had him on the phone, we also took the chance to ask Young for his own two cents on the market. The strategist describes himself right now as "moderately optimistic" with a 12-month forward target for the S&P of 1270.

"Recent data show signs that, yes, there are challenges to the global recovery, but a double-dip is pretty unlikely," he says, noting, "We are getting more confident that we have transitioned from a correction environment to more of a trading range."

On the sector level, Young remains Overweight Health Care and Technology. Investors can play along by putting money to work in exchange-traded funds like the Technology Select Sector SPDR (XLK), which includes holdings like Apple (AAPL), Cisco (CSCO), Google (GOOG), Hewlett-Packard (HPQ), and Intel (INTC).

Nothing contained in this article is intended as a solicitation for business of any kind or for investment in the firm.

Tuesday, 15 June 2010

Leverage, Baby!

by Jane J. Kim and Jeff D. Opdyke

It would be the height of foolishness to load up on debt now, right?

Just look at the news these days. Homeowners are being foreclosed on at a record clip. Governments around the world are lurching toward insolvency. Job growth in the U.S. remains feeble at best. And at the center of the global economic storm are bad loans, which promise to weigh on consumers, businesses and governments for years if not decades to come.

And yet—and yet!—the cold clarity of financial analysis points to an inescapable conclusion: There has never been a better time for people to borrow money, whether to buy financial assets or boost cash reserves.

For sophisticated, disciplined investors who have lived and invested within their means—and perhaps decried the bailouts being lavished on those who haven't—this is your time to take advantage. Not only are interest rates just about as low as they can get, but future inflation could erode the paper value of loans, making debt even cheaper over the long run.

The first step involves making peace with the idea of taking on new debt at this perilous moment in global economic history.

It isn't an easy concept to embrace. While the inflation scenario seems likely over the long term, there is a small but growing chance that the global economy could suffer from the opposite problem, deflation. Japan could be the template for the kinds of problems facing the U.S. and other advanced economies: years of tepid growth and falling asset values and prices.

That would make new debt more expensive over time, not less so. It would also mean that the job market is headed for a longer slump than even the direst estimates now suggest.

Then again, the moments that seem the bleakest often turn out to be inflection points. Alan Greenspan has famously said that the worst of loans are made at the best of times. The opposite holds true as well.

Most important, "there's nothing inherently wrong with leverage," or borrowed money, says Christopher Jones, a New York financial planner working with high-net-worth clients. For people with the capacity to take on debt, who understand it and can tolerate the risk, "now is an ideal time to leverage cheap dollars to buy into areas that can produce much higher returns over the longer term," he says.

Mr. Jones is advising clients who can afford to pay cash for a home to take out a mortgage instead and invest the funds in a diversified portfolio. "If you look at where the market is now and where it could be five to 10 years from now, the return potential is significant," he says. Ideally, investors would want to borrow at rates below 5% and invest the money in a well-diversified portfolio aiming to return 8% a year over 10 to 15 years.

"You don't want to be borrowing money and going to Vegas with it," Mr. Jones says.

There are many ways to exploit leverage smartly right now, from simple and safe to complex and risky, on loans big and small, for consumers and investors alike. Here are a few.


Nationwide, loans on 30-year fixed-rate mortgages were about 4.9% on June 10, down from 5.3% in January and within a few hundredths of a percentage point of a 50-year low, according to HSH Associates, a financial publisher in Pompton Plains, N.J.

Moving out on the risk curve can yield even bigger savings. Amy and John Rydland of North Pole, Alaska, used a riskier adjustable-rate mortgage, or ARM, to upgrade to a bigger home in Colorado Springs, Colo., a city to which they are in the process of relocating. Last month, the Rydlands locked in a 3.875% rate with no points on a 5/5 ARM with Pentagon Federal Credit Union in Alexandria, Va., which serves military members.

But unlike typical ARMs, whose rates can reset every year, the Rylands' loan adjusts only every five years, with each adjustment capped at two percentage points and a lifetime cap of five points. The low rate "gave us more choices with the houses we had to choose from," says Ms. Rydland, a 41-year-old housewife with three kids whose husband, John, is a lieutenant colonel in the U.S. Air Force. "Being military, we don't stay in one place very long, but this is a move that we're hoping to maybe stay a little bit longer."

Ms. Rydland says she was careful to find a mortgage that would limit her interest rate risk. Because the mortgage has a lifetime cap, the highest her rate could jump would be 8.875%, and that couldn't happen for at least 15 years.

Wealthier homeowners also are getting a break on so-called jumbo mortgages—or first mortgages that exceed $417,000, the limit in most of the country for mortgages to qualify for government backing. Rates have been falling steadily in recent months after having jumped significantly during the financial crisis.

Average rates on 30-year jumbo loans are now 5.7%, compared with 6.14% in early January, says Keith Gumbinger of HSH Associates. "The competition is starting to show again," he says.

The savings can be significant: On a $500,000 30-year fixed-rate jumbo loan, a one-percentage-point decline in mortgage rates to 5.7% from 6.7% a year ago can cut $324 off the monthly payment, Mr. Gumbinger calculates.

Investing the Proceeds

Wealthier investors who already have built up considerable equity in their homes might even consider—gasp—a cash-out refinance. Yes, this sort of behavior is what got so many people in trouble during the housing bubble. And, yes, leveraging a home to the hilt can be dangerous because if home prices continue to slide, you could owe more on the house than it is worth.

But people who have a potentially profitable use for that money—preferably an investment—could come out ahead using this strategy. A borrower who takes out a mortgage at 4.5% is essentially borrowing money for free on an after-tax, after-inflation basis, assuming he or she is in the 33% marginal tax bracket and inflation returns to its long-term average 3% or more, says Greg McBride, a senior financial analyst at "That's probably the best example of how those who are well positioned can utilize the low-rate environment and leverage up their financial return prospects," he says.

If that hypothetical investor were to take out a $400,000 loan at 4.5%, he would come out ahead if his portfolio makes more than 3.015% a year after taxes, says Terry Siman, a wealth adviser in Spring House, Pa. If you assume 2% a year is lost to taxes, such as capital gains, dividends and interest income, then the portfolio needs to return 5.015% annually to break even. "Anything better than that and you're in a winning situation," says Mr. Siman.

Skip Fiore is a Waretown, N.J., director of a digital print-manufacturing company nearing retirement who is looking to rebuild a nest egg devastated by the stock-market collapse. He has no mortgage on his $1 million home, so he is in the process of taking out a $300,000 mortgage at a fixed rate of 4.75%, and plans to use the money to invest in his portfolio. "Fundamentally, it was cheap money," he says. "And it was cheap money that could be used to supplement a depressed retirement portfolio."

The risk, of course, is that the investment returns will be lower than the new mortgage interest rate. Investing in bonds probably wouldn't make sense, says Mr. Jones, the financial planner, because Treasurys or high-quality corporate bonds aren't yielding enough to offset the cost of carrying the debt.

Also, investors who are borrowing against their home can't invest the money in municipal bonds and get both an interest-tax deduction for the home-equity loan and the tax-free income from the municipal bonds. "There's no double dipping," says Mr. Siman, who is working with Mr. Fiore to rebuild his nest egg.

Mr. Jones suggests using home-equity money only in a well-diversified equity portfolio split among U.S. and international markets.

Within the U.S. portion, he suggests buying equal amounts of U.S. large growth, U.S. large value, U.S. small growth and U.S. small-value and real-estate investment trusts. On the international side, he suggests equal helpings of large growth, large value, small growth, small value and emerging markets.

Marc Schindler, a certified financial planner in Bellaire, Texas, is encouraging clients to consider "pulling equity from their home with the idea they can invest and generate better returns."

Margin Loans

Investors also can lever up their investment portfolio through a margin loan from a brokerage firm. These are loans in which investors buy stocks by borrowing up to 50% of the value of the securities in their brokerage portfolio. Margin balances at E*Trade Financial Corp., which charges between 3.9% and 8.1%, have jumped to about $4 billion at the end of the first quarter, from $2.44 billion a year earlier.

The money is getting cheaper: Fidelity Investments offers a rate of just 3.75% for margin loans over $500,000, down from 4% last year.

But be warned: Margin loans can be hard to understand. They also pose the risk of a "margin call." That is when the value of your holdings falls so far that the firm demands you raise the level of cash in the account.

A margin call can be particularly problematic on extremely volatile days like the "flash crash" session of May 6. If your account value falls far enough, fast enough, your brokerage firm could forcibly sell your shares to raise capital in the account, or require you to deposit money immediately.


Rates on auto loans are near all-time lows. Big banks, such as Bank of America Corp. and J.P. Morgan Chase & Co., are offering both new and used car loans with rates below 5%. Typically those types of rock-bottom rates are usually only offered by dealers or manufacturers' financing arms, says's Mr. McBride.

Car makers have been emphasizing 0% and low-APR loans instead of cash-back incentives in recent months, prompted in part by Toyota Motor Co.'s big push in March to offer 0% financing, says Jessica Caldwell, senior analyst at, who notes that average APRs in May were 4.65%, compared with 5.87% a year earlier.

Mr. Schindler, the Bellaire, Texas, planner, has gotten into the leverage game himself. Though he routinely pays cash for used, late-model high-end cars at as much as 50% off the original sticker price, he recently borrowed money to buy a new Honda Odyssey minivan for his wife because the 1.9% interest rate "is really cheap and lets me put my cash to work" in the markets.

Credit Cards

Credit-card companies are still figuring out ways to get around new legislation that aims, among other things, to rein in abusive lending practices by forcing companies to limit their interest-rate increases on existing balances.

Meanwhile, issuers are quietly ramping up their 0% financing offers to woo new customers. Direct-mail offers to consumers are up 83% in the first quarter, according to Mintel Comperemedia, a market-research firm. Terms are getting longer, with an estimated 40% of offers during the second quarter promoting an introductory rate for balance transfers of 13 months or longer, up from 20% at the end of last year.

About six months ago, Richard Eisenberger of Lakewood, N.Y., took advantage of a 0% balance-transfer offer for 12 months and parked the borrowed funds in a savings account that now is yielding about 2%. While the 40-year-old information-technology professional says he isn't making much at current rates—probably a couple of hundred dollars—"I didn't have to do much for it."

Mr. Eisenberger, who doesn't have any other debt except for a mortgage, plans to pay off the balance in full at the end of the introductory period. "It works for me," he says. "I figured it's worth at least trying."

—Jason Zweig contributed to this article.

Lots of Bears a Reason to Buy? No, Says Strategist

There are so many bearish calls and so much negative sentiment that now is the time to buy stocks, some analysts and strategists have advised. But Philippe Gijsels, the head of research at BNP Paribas Fortis Global Markets, thinks the opposite is true.

Many investors missed the 2009 rally because they could not see a reason to buy, and those trying to buy the market now risk the same fate in the opposite direction, Gijsels told

"There are certainly more bears than a couple of months ago," he said in a telephone interview. "However, we should also not forget that the rally from the March lows last year was the most hated and non-believed rally in history."

"At the end of 2008 and the beginning of 2009 we started talking about positioning for an explosive rally," Gijsels said. "As the rally started in March, there were few people who got on board. Fund managers were underweight equities and were forced to play catch-up as they tried to buy the dip that never came."

The only time we saw too many bulls during the 2009 rally was when it came to an end in April of this year, according to Gijsels.

"The market then finally saw a capitulation to the upside at the end of April 2010 when we saw the longest winning streak since 1986 with minimal volatility," he said

"Algorithmic trading certainly played an important role," Gijsels explained. "People kept buying the momentum to the upside with a tight stop. When the inevitable correction hit, stop after stop was triggered and we got a mini crash."

He said that the 20 trading days before the drop were "probably the only time during the entire rally from the March lows when we saw a lot and probably too many bulls"

This Is a Bear Market

Gijsels remains bearish and sees a number of reasons to stick to his guns.

"I see quite a lot of market participants who talk about economic figures and corporate figures still being strong, which are, to a large extent, rational arguments," he said.

"The only problem with these figures is that they give a rear view mirror perspective. They give us a valuable inside about the past, but fail to answer the question how much the economies in the US and even more so in Europe will slow down in the second half of the year and going into 2011," Gijsels said.

What of those who say valuations are cheap? He has less sympathy for this argument.

"If we compare the price earnings valuations with the recent past, markets look attractive. However, when we look at stock market history, we see that valuations follow a regime switching pattern. A P/E of 15 can be the average for 15 years and it can drop to an average 8 for the next 15 years," he said.

"Unfortunately you never know in what regime you are investing. And if people start to use bond yield/earnings yield arguments as an argument to buy this market, I invite them to look at this indicator in Japan over the last 20 years."

When investors start hating equities with a vengeance it will be time to start looking for bottoms but that is not yet the case, according to Gijsels.

"The chances are real that this rally is just another bounce in a larger downward move. Remember that we typically get the strongest up days in down markets. Thursday's action was a good example," he said.

We could see further gains of this nature over the coming days but Gijsels predicted that it would be difficult to break through 1,100 on the S&P 500.

"The damage to the indices and many individual charts is quite substantial. I also do not see a lot of leadership, only bounces in stocks and sectors that have been taken down the most. A new bull market needs new leadership and that is for the moment nowhere to be found," he said.

The 11-Year Itch: Still Stuck at Dow 10000

by Jason Zweig

Will Dow 10000 turn out to be a long replay of Dow 1000?

Last week, the Dow Jones Industrial Average rose above 10000—again. Since March 16, 1999, when it first touched 10000 in intraday trading, the Dow has bounced over that threshold and back 63 times. This Friday, the index closed 219.6 points below where it stood exactly 11 years ago.

This isn't the first time stocks have been stuck on a seemingly endless pogo-stick ride. On Jan. 18, 1966, the Dow hit an intraday high of 1000.50. It broke through the four-digit barrier three more times that January and February, then faded. The Dow cracked 1000 again in 1972 and 1976, then fell back both times. Not until December 1982 did the Dow finally hurdle above 1000 and stay there.

Wall Street veterans even coined a term for the market's behavior: "quadraphobia," or the fear of a four-digit closing value for the Dow.

Of course, financial history doesn't repeat itself—and even when it rhymes, the sounds can be almost unrecognizable. Inflation, at roughly 7% annually, was much higher from 1966 to 1982 than it is today, devouring all the return on stocks. And during the 1970s, according to an analysis for The Wall Street Journal by Wharton Research Data Services at the University of Pennsylvania, the Dow captured only about 15% of the total value of U.S. stocks, versus 30% today.

Still, a look back at Dow 1000 may still help us think a little more clearly about Dow 10000.

During the bull market of 1982 through 1999 that separated the two periods, computers and the Internet took off and interest rates fell. Those forces lowered the cost of research and development, enabling U.S. companies to innovate at a remarkable rate.

But, the Wharton research shows, the periods before and after that—Dow 1000 and Dow 10000—feature falling rates of corporate investment in innovation. During the Dow 1000 period, the stock market stagnated because the economy and most businesses were stagnating, too.

Yet investors, spoiled by the strong growth of the 1950s, had driven stock prices up to 18 times earnings at the beginning of Dow 1000. Likewise, in 1999, as the Dow crossed 10000, the price/earnings ratio of the market rose above 33—double its long-term average. High expectations are one of the main foundations of low returns.

Investors need to remember that stock markets can go nowhere for ages, as they did in the U.S. from 1929 to the end of World War II, in Germany from 1900 through 1957, and in Japan since 1989. In my view, it is likely that U.S. stocks and bonds will underperform their long-term average returns for years to come.

But as likely as that scenario is, it is far from certain.

Just when almost everyone had concluded that Treasury bonds had to lose value, they gained 3% in the past month alone.

And back in 1982, just as the index lifted its head above 1000, the Dow had plenty of doubters. One told the Journal, "Investors have begun a state of euphoria and complacency." Another dismissed "the likelihood of a sustained recovery any time in the foreseeable future."

While it could be years before the Dow rises durably past 10000, no one will see it coming when it comes. So, just as I wouldn't advise anyone to be 100% in stocks, I wouldn't advise most people to have 0% either. And I think it is imperative to have a third to half of your stock money outside the U.S., where other markets—and currencies—may do better.

In November 1963, with the Dow at 740, the great investor Benjamin Graham declared that "in my nearly 50 years of experience in Wall Street, I've found that I know less and less about what the stock market is going to do but I know more and more about what investors ought to do."

Graham went on to counsel that investors should never have less than 25% or more than 75% of their money in the stock market—and that they should move toward the maximum as the market falls and toward the minimum as it rises. In late 1964, with the Dow just below 900, he advised keeping no more than 50% in stocks, and he reiterated that sentiment eight years later. My hunch is that he would probably say much the same around Dow 10000 as he did around Dow 1000.

Saturday, 12 June 2010

Why the worst isn't over yet

by Duff McDonald

FORTUNE -- Economists, as you have likely heard, are enjoying a bit of a renaissance these days. With a startling new piece of economic news emerging on a near daily basis -- Greece is going under! No, it's Spain! China is in the midst of a housing bubble! China is our savior! -- there's been a surge in demand for those who would purport to tell us what it all means.

If, like us, you don't like your economics dry-as-dust, the man to turn to is David Rosenberg, chief economist and strategist at Canadian wealth management firm Gluskin Sheff. Rosenberg's daily missives (which you can sign up for on the firm's web site) both inform and entertain, while at the same time scaring the bejesus out of you.

Rosenberg, you see, is an unapologetic bear. He's no perma-bear -- the man was a bullish for most of the 1990s -- but his reading of today's data leaves him no choice but to continue sounding the alarm in the face of those who would have us believe the worst is past. We caught up with Rosenberg yesterday afternoon to get his read on Dow 10,000, Ben Bernanke, and the future of gold.

The last several days have been spent crossing and re-crossing what the papers have taken to calling "the important psychological level" of Dow 10,000. Is it important to you? Should it be to us?

Dow 10,000 has absolutely zero meaning, except that maybe it has more zeroes attached to it than any other level we're going to see anytime soon. If you're a real investor, a much more important number is 943 on the S&P 500 which is a 50% retracement of the bear market rally. That's a real technical level, whereas Dow 10,000 is nothing but a number. But you're right -- 10,000, 11,000 or 9,000 are very popular with the media. But anybody who looks at specific numbers is using technical analysis, where there is as much a chance of a zero as any other number.

You make the distinction of a secular bear market versus a correction. Unfortunately, you think we're in the former. Why?

The markets move in primary trends. Just as in life and with the seasons there are cycles when it comes to investing. It has always been such. From 1948 to 1956, there was a secular bull market. From 1956 to 1982, a secular bear market. Then, and this is what most people remember today, from 1982 to 2000, we had a wonderful secular bull market. You can go back further if you like.

The equity market peaked in inflation-adjusted terms in 2000. We had a roughly eighteen-year bull market. And today, we are 60% of the way through a secular bear market. In a secular bull market, corrections are buying opportunities for long-term investors. It's quite clear after the fact that 1987 was one of the best buying opportunities of the last century. Who knew there were thirteen more years to go in the bull run? People who paid attention to history, that's who.

The difference in a secular bear market is that rallies are to be rented and not owned. It doesn't mean you can't have them. We have had rallies of 100% since this one began. But you also have wrenching volatility.

One final point: In a secular bull market, the equity market does not go to a new low in a recession. In a secular bear market, it does. If you pay attention to the historical record, you can see we're still in the jaws of a secular bear market in equities. Trade accordingly.

You paid Ben Bernanke a backhanded compliment when you cited his "brilliance as an (academic) economist," and suggested it was time that he "climb down from his ivory tower." You were reacting to his comments on Wednesday, when he said that "private final demand" was finally playing a part in the recovery. You say he's smoking something up there in that tower. What's he missing?

Look, if you put three economists into a room, you would be lucky to get four opinions. Your conclusions are driven by your assumptions. Still, I was very struck by his comment about private final demand. What is he looking at? I see consumer spending sputtering, the housing market turning down sharply, and private payroll growth falling off a cliff. I'm just not seeing what he's seeing. Then again, arguably, he has more contacts than I do. That's why I brought up the comment he made in 2007 that all would be good with the economy, and that the effects of the subprime market would be contained. Beware of brave prognostications.

The Fed's balance sheet has gone from $850 billion in mid-2007 to $2.3 trillion today. Is there any way for this to end other than badly? Say, for example, with runaway inflation?

This is all part and parcel of the post-bubble credit collapse. The Fed has been aggressively expanding its balance sheet, in the process boosting the monetary base. Ordinarily this would be inflationary, but because banks are not relending that money, it has not been. In fact, overall credit is declining. If and when we embark on the next credit creation cycle -- which is probably many years away -- this monetary inflation will probably result in real inflation. But not until money moves off of bank balance sheets and into the real economy.

You don't normally offer up asset allocation advice. But how about giving us some. What would you recommend for an investor today?

Be very defensive. I would be 30% equities, 50% bonds, and 20% cash.

What about gold? Don't you still like gold at $1,220 an ounce?

Gold is in a secular bull market, but that's a very crowded trade right now. It has moved so parabolically that it could correct 10% without violating any trend lines. Long-term, though, I am sticking with my prediction of $3,000 an ounce.

If Gold's Too Pricey, Other Commodities are a Steal

by Myra P. Saefong

With its record-high prices and reputation for volatility, gold may no longer be a bargain — but a few other commodities might be a steal.

Of course, traders probably need a little convincing.

"As attractive as the story is for gold, there is no guarantee of safety," said John Person, president of "Prices can and do fluctuate wildly."

The most-active gold futures contract hit a record close of $1,245.60 an ounce Tuesday — the highest since gold futures starting trading on Comex in the 1970s.

And it wasn't too long ago when gold prices tumbled around $250 per ounce in less than 14 trading days in October of 2008. More recently, prices dropped nearly $180 from peak to trough in December 2009 to February of this year, Person said.

"These wild swings can give the faint-of-heart investor less comfort than what they are looking for," he said.

Instead, investors can consider other commodity investments, but shouldn't expect to find any "substitute" to gold.

As a hedge against political turmoil or lack of faith in paper currency, "there are no true alternatives since gold is in a league by itself," said Sam Subramanian, editor of AlphaProfit Sector Investors' Newsletter.

People invest in gold for different reasons at different times, he said. It's used as a "portfolio diversification tool," an inflation hedge or as a hedge against a declining dollar.

Right now, "gold is the only asset up-trending in the world of any market, commodity and currency," said Cary Pinkowski, chairman of CP Capital Group. "It will remain this way until governments solve their debt problems and create true visibility into economic growth and surpluses every year."

Out of reach

But with gold at record-high prices, it's certainly not cheap.

And "problems in Greece have created a new environment of fiscal austerity, which implies a deflationary environment and eventually rising interest rates" which would be "the kiss of death for gold," said William Gamble, president of Emerging Market Strategies.

Besides, "my rule of thumb is short anything at an all-time high and go long when there is a new low," he said.

Ned Schmidt, editor of the Value View Gold Report, even goes as far as saying "investors should not be buying gold," given the "untenable current price level and growing risk of a technical failure."

Many investors and analysts would say that's blasphemy.

"Gold is the only metal that is truly money," said Brent Cook, author of the investment letter Exploration Insights, adding that "all the rest are commodities" and "silver is a hybrid." See last month's story on silver, gold's 'ugly sister'.

Even so, gold isn't the only metal to choose from and invest in. "Alternatives should be considered," Schmidt said.

Metal picks

Among the choices, there's rhodium.

Investor activity in this "rarest of precious metals" is low, "giving it considerable price appreciation potential" as investors move into the metal, said Schmidt, adding that's what lifted prices to about $10,000 an ounce a few years ago. Kitco Metals Inc. said it reached that record price in 2008.

The current rhodium price is around $2,600 per ounce, though Schmidt said a "reasonable immediate target" for the metal is $6,000.

For those interested in physical ownership, Kitco offers what it calls a "rhodium sponge," a grayish fine rhodium powder bottled in 1-ounce, 5-ounce and 10-ounce containers — and right now, "it is pretty much the only way to invest into physical rhodium," said Jon Nadler, senior analyst at Kitco.

He warns, however, that before investing in the metal, people should realize that rhodium prices are "quite illiquid" and it's "inadvisable to actively trade" it given its volatile price movements.

Uranium's another potential pick. Prices have dropped about 70% from their highs in 2007. Read more about uranium and how to invest in it.

"The demand curve for uranium is very attractive with all the new nuclear plants being built and in the planning stages," said Chris Mayer, a contributor to The Daily Reckoning and editor of Capital and Crisis. "My bet is that the price of uranium tracks higher over the next several years."

Rare earths are also a good prospect. "These obscure metals are so critical to our modern world that they are as strategically important as oil, copper, uranium, natural gas and coal," Tony Sagami, editor of Asia Stock Alert, said in a May newsletter.


Then of course, it's hard to see how you can go wrong by investing in life's essentials.

"One arena to enter this time of year that has stellar performance is in fact within the agricultural complex," said's Person.

The factors driving the food sector, which include corn, wheat and soybeans, are the loss of agricultural land to development and rising worldwide incomes, according to Sagami, who's also president of Harvest Advisors.

"The first thing a family that rises out of poverty [does] is to increase the quality of their diet, mainly by adding more protein," he said.

Wheat, corn and soybeans have "all completed breakdowns from higher price levels and have moved into often quite rewarding lateral patterns," said Schmidt, who's also editor of the Agri-Food Value View report.

Futures prices for all three saw record levels in 2008 on the Chicago Board of Trade.

Soybeans, once the sales of the South American harvest are completed, will be in a short supply situation until the fall of 2011, said Schmidt. And "wheat, which could produce the most dramatic price gain in the next year, has less than four months of supply globally."

Scott Capinegro, president of Barrington Commodity Brokers, said corn would be his "first buy" given all the demand that could develop from China and ethanol, but he also warned that it would be best to buy corn after the harvest pressure is over with. "Crop conditions are great right now and we may see record yields."

Quenching thirst

Then there's the stuff we drink.

"If oranges were a bird, they would be on the endangered species list," said Todd Hultman, president of, pointing out that oranges for juice are grown in basically just two places in the world — Florida and Brazil.

In Florida, commercial orange groves occupy the smallest amount of areas since 1986 and the crop is "under attack from citrus greening disease, hurricanes and the occasional freeze like Florida experience in January," he said.

Also, the U.S. Department of Agriculture said late last year that Brazil's orange juice exports in 2009-2010 will be the lowest in eight years, Hultman said.

And even more essential to life is water.

"Some are starting to refer to water as 'blue gold' because it is something that people will pay any price for it they don't have any," said Sagami.

He mentions three water exchange-traded funds as a means to invest in the sector — the First Trust ISE Water Index Fund (NYSEArca: FIW - News), Claymore S&P Global Water Index ETF (NYSEArca: CGW - News) and PowerShares Water Resources Portfolio (NYSEArca: PHO - News).

But despite all the choices out there, some investors say they really don't want any commodity other than gold right now.

"Assuming we are going into a future riddled with fiscal and monetary uncertainty ... and you told me I couldn't own gold, I'd rather own a portfolio of high quality blue chips and real estate properties before a bushel of wheat, corn, or a bunch of cows," said Ed Bugos, director of mining finance at Strategic Metals Research & Capital.

Myra P. Saefong is MarketWatch's assistant global markets editor, based in Tokyo.

Thursday, 10 June 2010

Correction expected in Singapore’s property market: industry players

Industry players have said Singapore’s property market is in for a correction in coming months.

Tell-tale signs include a plateau in home prices and a drop in transaction volumes.

The Singapore Institute of Surveyors and Valuers said there were 899 caveats lodged for condominiums in the first three weeks of May.

This compares with 3,060 for the whole of April.

New condominium projects are still doing well. But property agents said home sales in the secondary or resale market have dropped by up to 20 per cent recently.

Dennis Wee Group said buyers are becoming more cautious, going by sales figures in May.

Chris Koh, director, Dennis Wee Properties, said: “Instead of seeing a 30 per cent increase in transactions as the month before, I only saw a marginal 3.5 per cent increase. A lot of buyers are pulling their handbrake, what they feel today is that the seller is asking for too high a price, and if I am not in a hurry, why not sit and wait.”

Industry data from the Singapore Institute of Surveyors and Valuers showed sales falling across various districts as of mid-May.

The prime districts of 9, 10 and 11 recorded a 76 per cent drop, while the downtown city area saw the sharpest decline of 88 per cent.

Analysts also expect transaction volumes to fall by 5 to 10 per cent due to the upcoming World Cup season, which begins on June 11.

Meanwhile, ECG Property said it now takes longer to close a transaction. It was about 45 days before, but it takes up to 80 days now.

Industry players expect the market correction to last between three and six months, and some said home prices could trend down by 3 to 5 per cent on average during this period.

Eric Cheng, CEO, ECG Property, said: “Some of these prices are over book keeping value, whereby some banks may not even match some of the asking price today. That also shows that these prices could be a speculation price instead of a true reflection price. I think the market is going through a slight correction.”

Analysts said prices may also be capped by more land supply due to be released by the government.

Other risk factors include volatile stock markets and the European debt crisis.

Source : Channel NewsAsia – 9 Jun 2010

Goldman Sachs Revives an Old Tactic: Keeping Quiet

Goldman Sachs has decided to keep a low profile in response to harsh criticism and a subpoena fired at the company by the Financial Crisis Inquiry Commission yesterday.

On a conference call with reporters following the announcement of the subpoena, the chairman of the commission, Phil Angelides, angrily accused Goldman of "deliberately and disruptively" trying to thwart the commission's investigation by dumping billions of pages of documents in response to requests for information.

Goldman (NYSE: gs) offered up only the blandest and most tepid denial. "We have been and continue to be committed to providing the FCIC with the information they have requested," Goldman said in a statement.

Goldman is deliberately under-reacting to the public pillorying served up by Angelides, a person familiar with the thinking at Goldman says.

This response stands in marked contrast to Goldman's sharp and lengthy response to the fraud lawsuit filed by the SEC in April. The same afternoon that the SEC lawsuit became public, Goldman vowed to "vigorously" contest the SEC's claims and described the lawsuit as "completely unfounded in law and fact."

Back in April, this kind of combativeness was new for Goldman. It was followed shortly by chief executive Lloyd Blankfein saying that the firm's longstanding strategy of not engaging with the public or responding to criticism was "probably a mistake."

Has Goldman had second-or third-thoughts about it's PR strategy?

Goldman's response to the SEC's suit was so blunt that it is believed to have angered regulators, pushing the two sides further apart and perhaps delaying a settlement. It was a gamble for Goldman and one that may have backfired. Certainly, the public perception of the firm does not seem to have been improved by Goldman's combativeness.

Now Goldman seems to have retreated once more to non-engagement.

Certainly, they have offered nothing to match the cleverly planned and cutting sound bites offered up by Angelides and FCIC vice-chair Bill Thomas.

Inside of Goldman there is certainly anger at the way the FCIC is characterizing the company. But they are doing their best not to let anyone know about that anger.

Beware of Fake Rallies

Simon Maierhofer

Bear markets are smart. The job of the bear is to separate as many investors from as much of their money as possible. The bear knows this can't be accomplished if everyone knows he's around.

To get the job done, the bear 'kills with kindness.' To make a major decline seem more like a correction and buying opportunity, the bear generously provides rallies, mainly larger one-day gains. This keeps investors believing that the bear is not in control - which is what it wants.

Trojan horses would be an apropos description of such rallies. The chart below provides a visual of those Trojan horses. Notice that despite big rallies, the trend of the market has been unmistakably down.

The biggest on-day gain this year came right after the May 6 flash crash and lifted the Dow (DJI: ^DJI) by 405 points. Wall Street viewed that as a bullish signal.

On May 14, the ETF Profit Strategy Newsletter warned investors: 'History tells us, this it not bullish. We've found 16 instances where the DJIA rallied 400 points or more, 12 of them hit during the post-2007 decline, most of them in September/October 2008.'

Since then, the S&P (SNP: ^GSPC) has fallen as much as 10%, small caps (NYSEArca: IWM - News) have fallen as much as 18.7% and mid caps have fallen as much as 21.15%.

After forecasting a fall below the May 6 low of S&P 1,066, the ETF Profit Strategy Newsletter sent out the following note on May 20: 'We do well to remember that this period of time (September/October 2008) hosted some of the most powerful counter trend rallies ever recorded. There is a chance that we will see similar explosions' to the upside over the next days and weeks. If we do, we view them as opportunities to add more short positions.'

There were three days where the major indexes rallied more than 3% since, yet the indexes are close to their lowest level in over six months.

Similar to the January - April 2010 period, rising prices are likely to lull investors to sleep once again.

Asleep at the Wheel

No doubt the financial media played a big role in lulling investors asleep. The April issue of Newsweek exclaimed: 'America is Back.' But Newsweek wasn't alone. Below are headlines from April 26, the day the S&P peaked:

Bloomberg: 'U.S. stocks cheapest since 1990 on analyst estimates.'

Bloomberg: 'Biggest banks are back as JPMorgan, Citigroup turn corner on credit crisis.'

Wall Street Journal: 'Consumer mojo lifts profits.'

Wall Street Journal: 'Technical analysts see room to roll.'

Jon Markman on Yahoo Tech Ticker: 'S&P could hit 3,000 by 2020.'

On April 7, the Wall Street Journal touted: 'Dow 11,000 is only the beginning.'

Quite to the contrary, the ETF Profit Strategy Newsletter went out on a limb and noted on April 28: 'With various sentiment gauges having reached multi-year extremes and Investors Intelligence bullishness at 54%, the potential exists that Monday's high - which was only one point short of the 61.8% Fibonacci retracement at 1,220 - marked a significant top.'

Since then, the major indexes have lost over 10%, the most since the beginning of the post March 2009 monster rally. In fact, the S&P is trading at the same level today as it did on August 28, 2009. The last 19 trading days erased over eight months of gains. Wow!

How much lower can stocks go? You may want to sit down for this one.

There are different methods to determine the markets outlook. Historical precedents and technical indicators are two we'll discuss here today.

Major resistance - the 200-day moving average

Some swear by moving averages - especially the 200-day MA - others dismiss it as a lagging indicator. However, it's not important what you or I think, it's important what the big players think.

And the fact is that many institutional investors base their buy/sell decisions on the 200-day moving average. A solid close beneath the 200-day MA often triggers sell orders across the board.

On Thursday, the S&P 500 (NYSEArca: SPY) closed below the 200-day MA (1,102) for the first time in 216 trading days. This is bad news, especially since there was no resistance. Once below the 200-day MA, the S&P fell another 3% in one day.

To make matters worse, the S&P has attempted to break above the 200-day MA four times, and failed. The last attempt was met with a 55 point decline.

The Nasdaq (Nasdaq: ^IXIC), one of this year's leading performers (at least for the first four months of year), also closed below the 200-day MA, as did the Financial Select Sector SPDRs (NYSEArca: XLF - News) and Technology Select Sector SPDRs (NYSEArca: XLK - News).

In short, breaking below the 200-day MA is bearish, but it doesn't tell us how far stocks will fall. We'll have to look elsewhere for that.

Historical Extremes

There were literally dozens of sentiment and technical extremes that occurred right around the April 2010 top. These extremes moved the ETF Profit Strategy Newsletter to point out on April 16 that 'historically, there has rarely been a more pronounced sell signal. Aggressive investors may choose to act on it.'

ETFs recommended included the Short S&P 500 ProShares (NYSEArca: SH - News), UltraShort Financial ProShares (NYSEArca: SKF - News), UltraShort Dow30 ProShares (NYSEArca: DXD - News) and many others.

Due to the markets recent performance and ability to reach multi-decade extremes it becomes fairly easy to isolate historical precedents.

From October 2007 to March 2009, the Dow Jones (NYSEArca: DIA - News) dropped 53.77% or 7617 points. The only historic parallel that measures up to this kind of drop is the 1929 decline, which reduced the Dow by 48%.

The 71.15% rally from March 2009 to April 2010 can only be compared to the September 1929 - April 1930 rally, which lifted the Dow 49% in a matter of eight months.

This 8-month counter trend rally inspired the same kind of optimism we saw just a few weeks ago. Below are some comments and headlines taken from early 1930.

Beware of false optimism

Irving Fisher, Ph. D. in Economics: 'For the immediate future the outlook is bright.'

Harvard Economic Society: ' There are indications that the severest phase of the recession is over.'

Andrew Mellon, Treasury Secretary: 'There is nothing in the situation to be disturbed about.'

Julius Barnes, head of Hoover's National Business Survey: 'The spring of 1930 marks the end of a period of grave concern. American business is steadily coming back to a normal level of prosperity.'

Just a few weeks after the above assessments/forecasts were spoken, the Dow started its long and painful descent - it dropped an additional 86%.

Of course, Wall Street always says, 'This time is different.' Historic patterns show us that exactly this frame of mind has proven fertile soil for declines that are not different at all.

Motivated by this spirit, the biggest Dow percentage gains were recorded during the Great Depression and the September/October 2008 meltdown. The 'this time is different' spirit is most pronounced during periods of big declines and lure investors back into stocks just to experience yet another beating.

Once bitten, twice shy?

Great Depression historian and author John Kenneth Galbraith described the allure of a rally market during the 1930s as follows: 'The worst continued to worsen. What looked one day like the end, proved on the next day to have been only the beginning.

Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few people as possible escape the common misfortune. The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. The bargains then suffered a ruinous fall.

The bear market was a remarkable phenomenon. The ruthlessness of its liquidation was, in its own way, equally remarkable.'

The market decline from 1929 - 1932 erased 29 years worth of gains. In March 2009, the market had erased 10 plus years worth of gains. According to some research, the decline of industrial production and world trade during the first nine months of the post-2007 bear market has been more pronounced than during the 1930s. Unemployment has hit the highest level since the 1930s.

Based on the giant gyrations of the post-2007 bear market, there is a good chance that more than 29 years of gains will be erased.

Goldman Sachs Information, Comments, Opinions and Facts