Is the Housing Boom Over?

by Bill Staton, MBA, CFA

Mary Tunstall Staton, MBA and Bill Staton, MBA, CFA Photo credit: Tom Covington.

Even though some sort of bubble / mania / craziness / irrational exuberance seems obvious in housing markets across the U.S., and people of all stripes seem to be becoming real-estate barons practically overnight with no previous experience, if this is THE actual peak, it probably represents the first time (at least in the last 100 years) when THE peak is talked about and written about almost everyplace.

The peak of the U.S. stock market in late 1999/early 2000 was only obvious to a few keen observers such as us. Few were warning about a bubble then, but that is certainly not true of real estate today in this country, especially housing prices. It is possible that all these disparate observers have picked the top, but based on our knowledge of economic and market history (which we believe is extensive), that's extraordinarily unlikely.

Our contrary thinking runs in the same path about interest rates. For close to two years, we (and almost every economist, money manager, financial writer we know of) have been thinking interest rates are going to rise. That remains true now for them, but we have major doubts that rates are going to rise anytime soon. In fact, there's an excellent chance they'll go lower still.

The Economist suggests, "Think the unthinkable: America's long-term bond yields may be heading down, not up." HSBC's chief economist foresees (assuming anyone can do that) the yield on 10-year Treasuries dropping at least another half point sometime next year. Stephen Roach of Morgan Stanley, a reformed bond bear, agrees. Fed Reserve Board chairman Alan Greenspan has suggested, in his own obtuse way, that long-term yields might remain low for a surprising amount of time, even assuming the economy continues to grow.

The July 11, Barron's interviewed three "consensus-bucking seers" who say, "The great bond bull market, which started in 1981 with yields at record levels, isn't over yet." The trio asserts that the fall in long-term bond rates "reflects sea changes in U.S. and global economic dynamics that could persist for years". For numerous reasons they opine that an integrated global market such as today's existed from 1871 to 1949 "when long-term Treasury bond rates averaged 2.8% [vs. about 4.5% today]; annual inflation, 0.7%".

The more we think about it and examine the evidence with a jeweler's eye, the more we're coming to believe they're on the money.

Bill Staton, MBA, CFA, America's Money Coach ®, is chairman of Staton Financial Advisors LLC (a money management firm serving high-net-worth individuals and small businesses whose clients have never had a down year). Bloomberg magazine recently named Staton Financial one of America's "Top Wealth Managers". He leads Lifetime Riches seminars, is a professional speaker, and offers FREE trial issues of Bill and Mary Staton's E-Money Digest / Guided Portfolio Service at http://www.billstaton.com/ezine.htm. You can receive Mary Staton's FREE Weekly On Wealth (WOW!) email newsletter at http://www.billstaton.com. Please email Bill with questions or comments at bill@billstaton.com.

This article is reprinted, by permission, from Mr. Staton's article in Information Line, a monthly newsletter published by Asset Strategies International, Inc., which offers strategic commentary on topics such as precious metals (including numismatics), foreign currencies, and overseas asset protection. Authored by ASI's two owners, President, Michael Checkan, and Executive Vice President, Glen Kirsch, Information Line is a valuable resource for overseas investment strategy development.

What the Mutual Fund Salesman Forgot to Mention.

by Paul Woods, President & CEO of Odyssey Advisors, LL

How sales charges, high fees, and excessive diversification will have you working way too long.

"Exchange-traded funds or ETFs target all segments of the equity market. Many have extremely low expense ratios and these are the perfect way to participate in the most attractive segments of the stock market with low expenses that leave more money in your portfolio to benefit from compounding."

Paul Woods, President & CEO of Odyssey Advisors, LLC.

This article is directed to people likely to work at least another decade before retiring and whose goal is to accumulate the necessary assets. The bottom line is that, if you want to enjoy retirement, you'll have to invest in stocks. At present, bonds and money markets offer a return that's barely above the real inflation rate, so an investment in these means you'll probably end up eating cat food when you stop working. Investing in stocks means dealing with volatility and some ugly years, but that's the price of being able to maintain your lifestyle when you retire.

It's an open secret that men have generally been more inclined to deal with this risk than women, who tend to invest more conservatively. The significantly lower returns of bonds and cash coupled with longer life spans means that too many women outlive their money and spend their retirement living modestly. According to the U.S. Census Bureau, 17.3 percent of nonmarried elderly women (widowed, divorced, or never married) are living in poverty today. This statistic is too high, so we're going to attempt to raise the comfort level with equities by de-mystifying the stock market and identifying it's more attractive segments.

A Short Primer on Common Stocks
Most of the time, stock market investors appear to chase more fads than the fashion industry and it's fair to ask whether there are investment themes that stand the test of time. As it turns out, there are two relatively simple concepts that make up most of what you need to know to become a successful investor. What you need to remember can be summed up in 12 words, SMALL IS GOOD, BIG IS BAD, VALUE IS GOOD, GROWTH IS BAD.

Ever worked for a big, dumb, bureaucratic company that thinks they can shrink their way to prosperity if they fire enough people? It shouldn't be much of a surprise that smaller companies are better investments. In this case, when we refer to small or big, we're referring to the total market value of the shares of stock outstanding. In other words, it's the amount that would be paid to buy all the shares in the open market, also known as the market capitalization. Companies in the stock market are then divided into the following four groups:

Biggest companies a.k.a. "Blue Chips" = large capitalization
Medium-sized companies = midcap
Small companies = small cap
Smallest companies = microcap

The second measure is based upon an accounting measure of the value of the company known as book value. Interestingly, this is a valuable measure in spite of the fact that the accounting value of a company rarely has much to do with the real value. When the price of the stock is compared with book value per share, we get the following:

Companies with a below average stock price/book value = value stocks
Companies with an above average stock price/book value = growth stocks

At present, our benchmark for price to book value is the S&P 500 Index. Based upon today's (9/27/05) closing price, the price to book ratio is 2.87. As a result, this is considered the current dividing line between value stocks and growth stocks.

If you're getting the impression that successful investing isn't exactly rocket science, you're right. As companies get bigger and more bureaucratic, they become less attractive investments. Also, companies whose stock is cheap relative to the underlying assets outperform companies that are expensive. Sounds too simple? Here's the data from Ibbotson Associates/University of Chicago:

Compound Annual Returns 1928-2004
Large Capitalization Stocks (S&P 500 Index) = 9.96%
Midcap Stocks = 11.39%
Small Cap Stocks = 11.70%
Microcap Stocks = 13.14%
All Growth Stocks = 9.01%
All Value Stocks = 12.55%

This isn't to say that growth stocks and large cap stocks don't have their moments in the sun, such as the 1990s. However, if you focus on smaller companies and value stocks whenever you're asked to make an allocation to your 401k or company retirement plan, you'll probably be able to retire sooner.

Diversification
A common mantra among professionals is the need to diversify. In this context, you need to understand that one of the most important functions of diversification is to protect investment professionals from lawsuits. This country has a legal system that allows anyone to be sued for just about anything and some investors inevitably morph into victims whenever the stock market goes down. With the current oversupply of lawyers, someone will always take their case. Professionals know they can be sued for a lack of diversification, but rarely for too much diversification.

The result is that too many people in our industry recommend portfolios that are absurdly over-diversified. There are a handful of stock market segments that offer attractive returns with moderate risk over time and too many other segments that offer unattractive returns, too much risk, or both. For an investor that wants to retire sooner rather than later, a little bit in every segment of the stock market means only average returns at best. Deduct high sales charges and expense ratios, and the road to retirement gets a lot longer.

Another unfortunate reality is that the stock market is currently infested with too many inexperienced hedge fund managers. Many haven't yet figured out how companies play the game of managing earnings expectations and react to almost every announcement by shooting first and asking questions later. In their world, a conservative forecast is the same as a downturn in the business, and taking a stock down 40% because earnings per share missed by a penny is a rational response. The result is that any stock can be nuked in a heartbeat, so you'll save yourself a lot of aggravation by starting with mutual funds.

Mutual funds will give you diversification, which is useful for controlling risk. However, diversification isn't a panacea for transforming unattractive investments and it's very important not to get too carried away. Limiting your investments to funds that target the most attractive stock market segments will allow you to capture the higher returns these offer over time while diversifying away some investment risk.

A Short Primer on Mutual Funds
The universe of mutual funds is divided into open-end funds and closed-end funds. Open-end funds include those with sales charges known as load funds and those without sales charges, known as no-load funds. In addition to the sales charges, all funds also have imbedded fees that are deducted from the cash in the funds. Most commonly, these are investment management and administrative fees. When all fees other than sales charges are combined, the result is known as the expense ratio which is expressed as a percentage. To calculate its impact, multiply the expense ratio by the value of your portfolio. Even though you won't receive a bill or see it disappear, that's the amount that will be taken out of your portfolio every year by the fund management company.

In an open-end fund, investors continually buy or sell shares when they add or withdraw their money from the fund. Open-end simply means that the total amount in the fund can rise or fall as investors add or withdraw funds. Open-end funds are required to establish a daily price for shares, called the net asset value or NAV, and are required to buy and sell shares at the current NAV daily.

In a closed-end fund, capital is raised through an initial public offering, and the proceeds are then invested in securities that meet the investment objectives in the fund's charter. The shares trade on the New York Stock Exchange or American Stock Exchange just like stock, and like stocks, investors pay a commission when these are bought or sold. Supply and demand determines the price of the shares, although the price is still generally tied to NAV per share.

A good general rule of thumb is that the folks selling and managing mutual funds are going to get you one way or another. Mutual funds that have high sales charges usually have relatively low (under 1%) expense ratios. No load funds or closed-end funds usually make up for the lack of a sales charge with high expense ratios (over 1.25%). However, there are more than a few Gordon Geckos out there that manage to combine high sales charges with high expense ratios.

In the last few years, a new type of closed-end fund has emerged that no rational broker or mutual fund salesman is going to recommend. They're called exchange-traded funds or ETFs and target all segments of the equity market. Many have extremely low expense ratios and these are the perfect way to participate in the most attractive segments of the stock market with low expenses that leave more money in your portfolio to benefit from compounding. Here's an overview of some of the choices available http://www.ishares.com/fund_info/equity.jhtml.

Nickels, Dimes, and Serious Dollars
A new client recently came to us for an evaluation of his proposed portfolio. He had been sold a family of open-end mutual funds with high sales charges, but those charges had run out and his broker was no longer being paid. Not surprisingly, his broker found a whole new family of funds that were touted as a huge improvement over his current portfolio. These new funds targeted the large capitalization segment of the stock market and were a particularly egregious example of high sales charges of 5.5% coupled with a high expense ratio of 1.30%.

To see how this alternative stacks up against an exchange-traded fund, we'll use the S&P 500 Index and start with 1972. In the real world, you're going to pay at least pay an expense ratio and maybe a sales charge. We'll use the DJ iShares S&P 500 Index (symbol IVV) with an expense ratio of .09% and deduct these expenses from the historic returns on the S&P 500. We'll also deduct a 5.5% sales charge and a 1.30% expense ratio from the same returns. Once this is done, we'll compare the growth of $1.00. Remember that a sales charge of 5.5% means that your portfolio has to increase by 5.82% to get even which is the return on 94.5 cents getting back to $1. With the open-end fund, we'll start the portfolio at 94.5 cents while the ETF portfolio will start at $1.00.

Growth in a Dollar 1972-2004 Using Exchange Traded Funds With .09% Expense Ratio
S&P 500 Index = $34.53

Growth in a Dollar 1972-2004 With 5.5% Sales Charge and a 1.30% Expense Ratio
S&P 500 Index = $22.63

What this illustrates is that a fairly small difference in expense ratios coupled with eliminating the sales charge can make a dramatic difference in the size of your nest egg at retirement. In this case, reducing the expense ratio by 1.21% and eliminating the sales charge increases the size of the nest egg available at retirement by over 53%. I'm sure your nephew who sells mutual funds is a nice guy, but is he THAT nice a guy?

Portfolios
To take this a step further, we created two separate portfolios. One is the classic professionally managed and diversified portfolio with growth stocks, foreign, large cap, and midcap. The other targets the attractive segments of the stock market. The difference in compound returns for these portfolios was less than 2.5% per year. That doesn't sound like much, but compounding that additional return from 1972 roughly doubles the amount available at retirement as you can see from the following:

Growth in a Dollar 1972-2004 Using Exchange Traded Funds
Portfolio of MicroCap, Small Cap, REITs, & Value = $72.70
Portfolio of Large Cap, MidCap, Foreign, & Growth = $37.20

If you're interested in creating your own portfolio, here are the exchange-traded funds used in the above example. The only caveat is that most of these funds didn't exist in 1972, so the growth in a dollar was calculated using the index total returns from Ibbotson Associates and deducting each fund's annual expense ratios.

Portfolio of MicroCap, Small Cap. REITs, & Value
Russell MicroCap Index Fund - Symbol IWC, .60% Expense Ratio
S&P Small Cap 600 Index Fund - Symbol IJR, .20% Expense Ratio
Vanguard Index Trust REIT Vipers - Symbol VNQ, .18% Expense Ratio
Russell 3000 Value Index Fund - Symbol IWW, .25% Expense Ratio

If You Don't Want to Manage Your Own Portfolio
Until recently, our firm has always been reluctant to add mutual funds to client portfolios. We have bills to pay also, and by the time our management fee is added to the fund's expense ratio, there didn't appear to be enough left for clients to earn a decent return. However, that's changed with exchange-traded funds.

We still haven't found a convincing reason to invest in foreign stocks, so our investments are limited to segments of the U.S. equity market. Instead of keeping an allocation locked in place, however, our allocations change as interest rates rise and fall and as the economy gets stronger or weaker. By investing aggressively when the chances of a high return are greater and investing defensively when the environment is likely to be more difficult, we think we can add enough value to offset the management fees.

We introduced our Equity Allocation Portfolios in May 2005 and the track record so far is short but encouraging. If you don't want to manage your own portfolio and have minimum liquid assets of over $100,000, please feel free to contact us.

Paul Woods is the President & CEO of Odyssey Advisors, LLC, an independent investment advisory firm specializing in equities and fixed income. He can be contacted at www.odysseyadvisors.com or 310.568.4700.

Information has been obtained from sources believed to be reliable however Odyssey Advisors LLC does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this material and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.

Leave Your Job, Not Your 401(k).

By Maya Patel.

Discount Brokerages Make Rollover IRAs Easy.

It is important to be long-term greedy with 401(k) money. Choices you make today impact your future financial security. Thus, when changing jobs, carefully consider what you do with your 401(k) money. The options are to leave the money in your former employer's plan, roll the money to your new employer's retirement plan, take a cash distribution or move the money to a Rollover IRA. Three factors to consider when weighing your options are: determine the present and future tax consequences of each option; reflect on the option that best complements your other retirement accounts; evaluate how much control you will have over your money with each option.

Leaving your 401(k)
By leaving your 401(k) money in your former employer's plan, it continues to grow tax deferred and maintains the ability to roll over later. You also avoid income taxes, penalties and a 20% government withholding of withdrawals.

There are drawbacks. Investment choices are limited to the employer's plan. Most employers pre-select the mutual funds available in their 401(k) plans. This relieves you from screening numerous funds, but also limits your investment selection. The employer's plan may further hinder flexibility by limiting withdrawals and exchanges between investments. Some employers require a rollover if your 401(k) is below a specified amount at the time of your departure.

Taking It To the New Job
If you roll over 401(k) money to the new employer's retirement savings plan, you face the same issues as leaving it with the former employer. However, there are two additional benefits. Tracking your retirement assets becomes easier and you may be able to borrow against your 401(k).

Cashing Out
The most tempting option is to take a cash distribution. However, the costs outweigh the benefits. You are able to use your money immediately, but incur losses due to the 20% mandatory withholding and 10% early withdrawal penalty. The intangible losses are the flexibility to move into a qualified plan or IRA after 60 days and the money is no longer in tax-deferred status.

RollOvers
The final option is a Rollover IRA. A rollover is a tax-free movement of cash or other assets from one retirement plan to another. A Rollover IRA provides flexibility by allowing you to invest money however you deem appropriate and by providing you with control to invest and access your money without going through a 401(k) provider. The IRA assets can be rolled back into a 401(k) or converted to a Roth IRA at a later date.

There are also drawbacks to this option. You cannot borrow against the assets and there is no special distribution alternative, such as net unrealized appreciation (NUA) treatment for distributions of company stock or forward averaging.

Many of the discount brokerage houses offer Rollover IRA plans. Schwab, E*Trade, Harrisdirect, Ameritrade and TD Waterhouse¹ offer these services on their websites.

Ameritrade offers a Rollover IRA and enables you to apply online. Their Amerivest center (located under the Portfolio Investing link), helps you determine your risk tolerance, diversify your assets, choose ETFs (Exchange Traded Funds), monitor your portfolio's performance and easily make changes when needed. Once your account is set, the site provides extensive information on portfolio investing and Exchange Traded Funds (ETF). It also makes it easy to trade by outlining your investment choices, providing analysis tools and excellent execution.

E*Trade offers a Rollover IRA account and instructions for opening one can be found on their website. They do not visibly provide a number to reach a rollover specialist, but their online information is very extensive.

The form to open a rollover account is most easily found by typing in a prompt in the search box. E*Trade provides a comprehensive section on frequently asked questions about Rollover IRA Accounts. The site provides an informative outline of their Rollover IRA plan by listing account minimum and maximum guidelines, stock trading commissions, account features and eligibility requirements. There is widespread information on the website that is accessed most easily by using precise searches.

HarrisDirect's Rollover IRA will complement E*Trade (once the E*Trade acquisition is completed). A link to their application, recent articles on retirement plans and guidance on the nature of IRAs and your investment options are available on one page. They also provide an asset allocator to aid in determining an asset allocation mix for your portfolio, based on factors such as investment objective, risk tolerance and investment time horizon. In addition, HarrisDirect offers a FundCenter, which is a source of 9,000 mutual funds.

HarrisDirect helps you make informed decisions as you take control of your 401(k) by providing ongoing news and articles in their Education Center.

Schwab offers two options to help you through the rollover process. They provide a retirement specialist to explain your rollover choices. You can begin the process of opening a Schwab Rollover IRA account over the phone, and set up an appointment with an investment consultant. The other option is to apply online.

Schwab also provides a range of investment choices. To help you explore equity opportunities, they provide Schwab Equity Ratings, multiple research perspectives, screening and monitoring tools, portfolio alerts via email and extended hours trading. Schwab Equity Ratings is their approach to evaluating stocks that may be right for you. To help you easily choose mutual funds, Schwab provides a list of pre-screened, no-load, no-transaction-fee funds. In addition, Schwab offers fixed income investment options.

They provide research and guidance on their website. Schwab displays links to articles germane to the various investment products and services. The website is user friendly and easy to navigate.

TD Waterhouse will enhance Ameritrade's site (once the Ameritrade acquisition is completed). Ameritrade has impressive products to offer, and TD Waterhouse has a detailed Rollover IRA section with brick-and-mortar offices, where you can speak with investment professionals one on one. The online articles provide you with a background for commonly asked retirement questions. The tools and calculators help you actively plan your retirement. One of the unique features of TD Waterhouse's Rollover IRA is that there are online seminars to help you better understand your options. The site also offers a glossary of terms to make it a truly "do-it-yourself" 401(k).

When you are faced with an unexpected decision of what to do with the money in your former company's 401(k), rest assured there are options. The Rollover IRA account is one option, and it is offered by the discount brokerage houses. They provide you with flexibility and control over your money. They have made the rollover process easy by providing online applications and access to rollover specialists. The accounts are effective because they allow you to invest beyond the scope of the limits of your previous employer's 401(k) plan, while providing you with support and guidance.

Maya Patel is an associate in the Debt Capital Markets Group at Harris Nesbitt Corp. She focuses on the origination, structuring and execution of high yield and investment grade public and private debt financings, as well as private equity transactions. Previously, she was an analyst in the Leverage Finance Group at Citigroup Global Markets. Email: maya.patel@harrisnesbitt.com

Important Disclaimer: NataliePace.com does not act or operate like a broker. We are a media and information center. This article is intended to provide current news, and, thus, to give investors a competitive edge in their personal decision-making. The publicly traded companies mentioned in this article are not intended to be buy or sell recommendations and/or endorsements. ALWAYS do your research and/or consult an experienced, reputable financial professional before buying or selling any stock.

Best NYC Hotel For Executives:

By Natalie Wynne Pace, CEO, NataliePace.com

Le Parker Meridien and Norma's Restaurant (for the 2nd Year in a Row)

Le Parker Meridien offers the ultimate NYC experienceÑbreathtaking views, mid-town access, beautiful clientele, stunning interior, with delicious, tongue-in-check surprises at every turn and the best breakfast in town.

Le Parker Meridien's Lobby.

Once in a lifetime, you've got to stay at the Plaza, just to hear the clippity clop of horse-drawn carriages outside your window, have the best view of Central Park and don gloves for traditional afternoon tea, ala the children's book star, Eloise. Equally important, is the Waldorf=Astoria weekend, replete with gracious, efficient staff, Cole Porter's piano and the lively NYSE stock ticker circling the great bar and restaurant, the Bull and Bear. So if you're traveling to New York City for a once-in-a-lifetime occasion, pull out your credit card, and book a reservation at one of these landmark hotels, and plan on paying richly.

If, however, you want the ultimate executive NYC experience (minus all the pomp and circumstance or fancy dress code), that is chic, with hip surprises at every turn, Le Parker Meridien is THE place in NYC. Their motto is "uptown, not uptight." Rooms have views of Central Park (walking distance), in this central mid-town location. Le Parker Meridien also has the best gym of any hotel in America, and one of the only pools in an NYC hotel. You can dine on the best breakfast on the planet. There is a burger joint that feels right out of Saturday Night Live (and has been known to have SNL players eating there). The French bistro and bar is moderately priced and delicious.

Just when you think that Le Parker Meridien couldn't possibly have more to offer, you find out the high-speed Internet connection is FREE, and better yet, easy to connect to, with an IT support staff that can trouble-shoot connectivity problems without wasting your entire day. For the business executive, and really most travelers these days, Internet connectivity is a deal-breaker. Le Parker Meridien's service is the most reliable of any hotel in NYC that I've stayed at, and the per diem savings really beautifies your bottom line.

Your Le Parker Meridien experience is designed to be delightful and memorable from the moment you hit the elevator with Charlie Chan on the monitor, to the moment you place your Fuhgetaboutit sign on your hotel room door, to the delectable breakfast fare at Norma's (best breakfast in NYC)É To book a reservation, call 212.708.7460 or visit the hotel online at www.parkermeridien.com.

Norma's: the Best Breakfast on the Planet (located in New York City).
The morning I visited this often-awarded brunch scene, I was tempted to settle for my usual, a stack of nirvana, also known as the "Light and Lemony" pancakes, which are memorable enough to make me PLAN a trip to NYC just to get my regular fix of them. Victoria Barr, Le Parker Meridien's Director of Sales and Marketing, was adamant, however, that I try the house specialty--Waz-za.

Norma's doesn't make the decision easy. Everything looks so strange and enticing, and the selections appeal to every side of your fantasy. After swooning over Norma's signature shot of smoothie (using seasonal, fresh fruit), how do you choose the second sensation? Hudson Valley Duck Confit Hash or Banana Macadamia Nut Flap Jacks or Granny Smith Apple and Red Pear Crepes?

It's like having one man walk into your life who cuddles, whips up gourmet meals and plays flute and piano duets with you, and another who salsa dances, throws you over his shoulder and knows the exact spot on your neck that sends chills up your spine. Just how are you supposed to choose between the two? Do you want dessert for breakfast, or something utterly decadent, that you might not be able to stomach in daylight? (err.. we're back to talking about Norma's here.) So, Waz-za is like a crème brulee waffle parfait (Don't ask, just try it, it's the house specialty for good reason) and the Foie Gras French toast is É pretty much the way it sounds, only, surprisingly compatible given its name. The egg bread, asparagus, mushrooms and brown stock are delightful, though quite robustÑdefinitely more for the steak and eggs lover or for the late brunch.

My business associate and I did something society allows, in food at least. We chose BOTH and then split them in an orgy of decadence not often seen among business associates. (We ate freely off of one another's plate, abandoning all attempts at manners.) Forget about those over-priced breakfast buffets in your five-star hotel, and take a break from the daily NYC bagel. Get over to Norma's on West 57^th Street. If you're still in the Parker Meridien neighborhood at lunchtime, you have to try the Burger Joint. No, the Burger Joint doesn't serve salad or anything else besides burgers, fries, shakes and ketchup. Don't ask. Yes, you might see a star or two. Norma's at Le Parker Meridien. 118 West 57^th Street, NYC, NY 10019-3318. 212.245.5000.

Euro Traders Signal Decline in Interest Rates (Down the Road).

By Kelley Wright, Managing Editor, Investment Quality Trends Newsletter.

Kelley Wright, Managing Editor, Investment Quality Trends Newsletter

Ronald Reagan must be rolling over in his grave. The hearty band of revolutionaries that swept into office in 1995 using the Gipper's mantra of smaller government and fewer taxes has been replaced with the invasion of the body snatchers. To be sure this current version of the majority in the lower House is artful in the use of camouflage, insisting on having the "R" after their names and holding the line on taxes, but when it comes to spending even inebriated mariners have cause to blush.

Drunken sailors are at least true to their nature; we expect them to cavort and carry on. Purported fiscal conservatives, however, don't have a leg to stand on when they behave like the lot that was tossed overboard to make room for this current group of charlatans and power addicts. Oh for a viable alternative!

The ultimate insult to the legacy of the Gipper is that his alleged successor has accomplished what all the jawboning by the esteemed Chairman of the Federal Reserve Open Market Committee could not; the raising of the long end of the yield curve.

Just when the bond markets had decided to sit out the drama while the Greenspan Fed raised short rates until the bubble de jour was burst and then rush in with a massive round of rate cuts, the top of the ticket uttered the nine words that sent shudders through the bond trading pits; "We're from the government and we're here to help."

It appears that the Federal checkbook that never closes is a horror too terrible for the bonds to imagine, thus the exit from the long end of the curve. So what does this have to do with stocks? Only everything. When the interest rate on treasury notes and bonds is at the lower end of the range, the total return potential for high-quality stocks with an established dividend is extremely competitive, particularly on an after-tax basis. Logically, when the interest rate on notes and bonds is at the higher end of the range the competitive advantage for those stocks dissipates and the shares will struggle.

This explains the current bear market in the financials, which suffer first and presage a general decline. Within those depressed shares lies opportunity, however, and the wait won't be too long.

***

My technical guru Scott D. called me on Wednesday with an interesting observation. The euro dollar market is one of the largest markets in the world and unusual activity in a specific contract at a specific strike price and month will often signal a change in the major trend. It appears that in the three-month Euro dollar options that all is normal, until the December 2006 96.25 calls. Specifically there is seven to nine times the open interest (volume) in that one option at that one strike (price) than in any other options at any other strike.

Without getting into too much inside baseball, when traders purchase calls it typically means they believe that the price of the underlying security will rise in price and so they want to lock in the current price while it is low. So, when traders buy calls on fixed income instruments they believe those instruments will rise in price. Now remember, when fixed instruments rise in price their yields decline. So if traders want to lock in the price of the December 2006 three month Euro dollars at 96.25, it means they believe those contracts will appreciate and interest rates will decline, about seventy five basis points or three quarters of one percent to be specific.

The underlying value of these options contracts is into the trillion of dollars. The amount spent on purchasing these options is into the billions of dollars. This is to say this isn't idle speculation; these are some of the savviest traders in the world telling us they see another big decline in interest rates, a little down the road perhaps, but backing up their opinion with a very significant financial outlay.

The benefit of this information to the Trendphile is this; our system is working. The Undervalued category is overweight with financial issues (AIG, BAC, C, MAFB, ONB, and WM) as capital has abandoned those shares from fear of inflation and rising interest rates. Do not be surprised to see some more names fall from their Rising Trend back to the Undervalued area as well, Popular (BPOP) comes specifically to mind, as does Synovus (SNV).

Our system is working because it is identifying the historically repetitive area of undervalue in the very high-quality companies that meet our criteria. Are we early? Yes, but then again we always are. As bottom-up value investors our system works because we are early.

In February of 2003 we featured Nucor (NUE) when it fell into the Undervalued category. Some subscribers hooted and hollered that a steel company would never provide a return of any consequence. By the time we issued a sell on NUE (at Overvalued) the stock had split twice and returned roughly one hundred percent. A similar situation exists today with Florida Rock (FRK). This is a stock we first recommended at Undervalue in late 2003. As with Nucor, FRK has also split twice and has recently moved to Overvalue. We had hopes the company would raise their dividend but they haven't and as long time subscribers know the rules are the rules.

I can see Granite Construction (GVA) another stock we recommended at Undervalue when it was $17, completing its journey to Overvalue in the not too distant future unless their Board raises the dividend.

It is when the situation appears bleak or the prospects unlikely that opportunity is most present. It takes courage to defy the conventional wisdom and ignore the hysteria to snap up a value when it is handed to you; thus the designation of the enlightened investor.

Investment Quality Trends (at IQTrends.com) is rated the #1 Top Performing Newsletter for five-year, ten-year and fifteen-year risk-adjusted returns by Hulbert's Financial Digest.  That's no small feat, considering the Wilshire 5000 has posted negative annualized returns of -1.4% for the past five years, while Investment Quality Trends has booked an impressive, annualized 15.90% gain. If you are interested in accessing Mr. Wright's newsletter and to post those kinds of gains yourself, go to www.IQTrends.com. 

Business Tip: Be Sure You're Charging Enough Money!

By Chellie Campbell.

Chellie Campbell

Entrepreneurs love to get new clients for their business. You work hard developing your skills and marketing yourself and the payoff comes when someone says, "Yes, they want to hire you." Then comes the negotiation regarding fees. It's been said that the number one reason small businesses go under is because they don't charge enough money to meet their expenses, salary and benefits, and still have a profit. Here are some guidelines to ensure that you take everything into consideration when pricing your services:

1. Calculate your "profit price." Create a monthly operating budget for your business that factors in all your costs including overhead, sub-contractors, taxes, salaries, marketing expenses and every variable you can think of. Factor in irregular expenses that occur annually or quarterly such as insurance expenses, annual tax preparation fees and Christmas gifts. Don't forget repairs and maintenance and an allowance for refunds or bad debts. Total all these expenses and then add an additional 5% for contingencies (because you will have forgotten something!), and an additional percentage for your profit. Now add in your income goal, which would be equal to the salary you would be paid if you were employed by someone else, plus fringe benefits, including a retirement plan. Divide this total by the number of hours you want to (or are willing to) work each month and that will tell you the hourly rate you must charge for your service.

Examples:
Expenses: +5% +10% +Income Goal =Total / Total Hours =Hourly Fee
$2,000 +$100 +$200 +$3,750 =$ 6,050 / 130 = $ 46.54
$2,000 +$100 +$200 +$5,000 =$ 7,300 / 130 = $ 56.15
$3,000 +$150 +$300 +$10,000 =$13,450 / 130 =$103.46

Now your question might be whether or not this hourly rate is competitive for your type of business. The rule of thumb is to be priced in the "high middle" range of your competition. If your income goal calculation puts your hourly fee too high, then you must trim expenses, work more hours, reduce your income expectation, choose another line of work with a higher profit potential or get very creative!

2. Remember that time doesn't always equal money. When calculating your "profit price", don't forget that you will work a number of hours "on" your business but not "in" your business. That means that not all of your time is billable to a customer. There is your administrative time writing letters, doing budgeting, billing or accounting and marketing time making phone calls, going on appointments, attending networking meetings, etc. Entrepreneurs are often overly optimistic about the number of hours each week they can work on client business and perform all these other tasks, and therefore overestimate their income potential. Or they find themselves working too many hours each week and then burning out. Make sure to take this into account when figuring your "profit price". Raise your price rather than increase the number of hours you're willing to work, or find someone to delegate to.

3. Marry your "profit price." That is, be faithful to your income goal and avoid the temptation to lower your fees to your absolute bottom line in order to get business. Yes, you work hard marketing in order to find someone who wants to hire you and you are anxious to make the deal. But everyone knows the cheapest price doesn't equal best quality. You will find that the clients who are shopping for the lowest fees are the most difficult and demanding to work for, and you will spend more time than you will be paid for on their work. Stand firm on your "profit price" and you may have fewer clients initially but they will be higher quality clients--easy to work for and happy to pay you. And it often happens that the higher your fee, the more respect you get. Sometimes you can eliminate yourself from consideration by a client because your rate is priced too under market. The prospective client might then assume that you are either new at this, not good enough, or in financial trouble. A friend of mine started a home-based business doing computer consulting. When she called a friend to solicit business and told him her price of $50 per hour, he told her that he could not recommend her unless she charged at least $90 per hour. She understood then that he could only refer his customers to a top-notch professional and that such a professional would charge this kind of fee.

The time and care that you invest in pricing your services will pay off handsomely as you start to meet and then exceed your income goals. You are successful and you deserve it!

Chellie Campbell is the author of "The Wealthy Spirit: Daily Affirmations for Financial Stress Reduction".  She created and teaches the Financial Stress Reduction® Workshops on which her book is based in the Los Angeles area and gives programs throughout the country. Her free e-newsletter is available at www.thewealthyspirit.com. Permission granted for use on NataliePace.com.

Rich CEO (Chief Everything Officer).

By Natalie Pace.

6 Secrets of Wealthy, Over tasked Women.

Natalie Pace Founder & CEO, NataliePace.com

Do you feel like the Chief Everything Officer? You're not alone. If you've got kids, chances are that you are juggling nine jobs (chauffeur, accountant, chef, bottle washer, tutor, janitor, psychologist, Dr. Mom and then whatever day job you have), while only getting paid for one. So, it's easy to understand why, at the end of the day, watching Desperate Housewives sounds more relaxing than reading Peter Lynch, or why, at the nail salon, you can't resist getting your Jen/Brad/Angelina fix. Money, Fortune, Forbes and NataliePace.com aren't lying around most beauty parlors any way.

The good news is that there is room in your schedule, believe it or not, for you to become richer than you are today. You don't have to be a Constant Gardener to keep the weeds from overrunning your flowerbed, but you do have to turn on the garden hose occasionally and make sure someone trims back the kudzu. Plants die when they are left unattended. So, how's your portfolio looking these days?

1. Care About Your Money
This basic concept is one of the most fundamental differences between wealthy people and people who are losing money in their 401K. Throw aside those old prejudices that only the rich get richer, and start adopting some of the sound thinking that makes that the case. Rich people care about their money. Now, you might say you care about your money, but when is the last time that you checked your investments? (And yes, that brokerage statement that you avoid opening each month is really you ignoring your money.) Are you chasing after real estate today, just like you chased after stocks in 2000? If you cared about your money, you'd pay attention to it, instead of chasing fads, or buying lotto tickets, or playing the slots in Vegas, or praying for a windfall from God.

Perhaps the first place to start is to replace the phrases "retirement plan" and "brokerage account" with the word "investments." Your retirement plan sounds like something that can be looked at tomorrow, and your brokerage account sounds like a bunch of numbers that you have to audit, while your investments are things that can bring you rewards. In fact, the more you learn about investing, the more likely that you will start reaping the harvest. Opening the statements of your investments then becomes more of a delight than a chore.

So, how do you start really caring about your money? Start by doing a little homework BEFORE you let anyone else tend to it. You wouldn't give your child over to a nanny without checking her references and giving her an outline of your parenting philosophy, so why blindly hand over the other most important aspect of your life - your nest egg - to just anybody (even if they are related to you)?

2. Learn the Basics
In the past, if you didn't worry about your retirement plan, that was okay. The company handled it for you and guaranteed you pension in your golden years. That's not the case today. Today, most Americans direct their own 401Ks. If you invest and lose your retirement, it is your problem. There are no guarantees, outside of the government's safety net, which is going to be less than what you were counting on. You don't hear many people bragging about the size of their government subsidy.

People have all kinds of excuses for not taking charge of their investments. They're afraid of upsetting a spouse. They don't understand it any way. They don't have enough time to deal with it. They're afraid they're not going to be good at it. Imagine thinking that you could take a cooking class and would still never prepare a delicious meal. The odds of earning returns in investing are great, especially over the long term, and increase with your level of aptitude, confidence and experience.

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I can guarantee you that if you thought there was a winning lottery ticket inside your brokerage statement, that would be the FIRST piece of mail you opened each month. Do you see how differently a wealthy mindset works?

Convince or trick your mind into understanding that you CAN do this and that the result will be MORE MONEY. Then put aside the gossip rags (at least once a month) and grab a money magazine. Order a Peter Lynch book online.

Be careful and choosey with money seminars (both free and paid) because the motivation for most seminars is not to get you rich; it is to sell you something. You have to be very careful about the source of your information. Top-ranked stock newsletters (especially those ranked by Hulbert's Financial Digest) have proven track records and can be a source of good information. The price that you pay to get quality research and data should pay off, whereas free information might actually end up costing you an arm and a leg.

3. Pay Yourself First.
Chances are you are already diverting some of your salary directly into an IRA and/or 401K, but are you putting aside enough? As a general rule, men are counseled to set aside 10% of their salary, while women, who live longer, should put aside 12%. Direct this percentage (more if you're making up for lost time) directly into your IRA, your 401K and/or your brokerage account each month first, before you pay any bills. An auto-deduction is best, so that you don't even have to think about it.

Many employers will match part of your contribution to your 401k, so take full advantage of that free money. Most company-provided 401Ks have more limited options as to what you can invest in and how often you can change your allocations. It's important to make the proper choices when you sign up, and to consider this to be an account where you take a longer view and have more limited access to the money. Note that there is usually a pre-tax benefit to investing in a 401K as well.

Consider putting any remaining percentage of your 10-12% monthly personal tithe directly into your brokerage account Individual Retirement Account, especially if you want to work some of your money a little harder, with the goal of higher returns. (This is where a subscription to a reputable stock newsletter can be very valuable, especially if you're just beginning to make your own investments.) As the balance in this account grows, this money could become a future down payment on real estate.

If you're not willing to work this account or if you'll be tempted to spend the money on bills or travel, this is probably not a good option for you. If you can't handle the freedom of the brokerage IRA, sticking with the restraints of the employer-provided 401K is probably a better choice, and you'll avoid the quarterly fees that apply to inactive accounts. (Maya Patel has listed some of the brokerage IRA options in her article this month.)

4. Investing 101: Portfolio Diversification.
One of the most important considerations in your investment strategy and retirement plan is to get the portfolio diversification right. Your certified financial partner should personalize your portfolio to match your risk tolerance and life goals, in addition to diversifying it. There is a general guideline, however, from which to start. (Many online discount brokerages have surveys to help you personalize your diversification plan, if you're doing it on your own.)

As a general rule, take a percentage equal to your age and put it in a SAFE place, where there is no chance that it will go down. Safe means savings accounts, money markets and Treasury bills. (You can lose money in bonds, so they are not 100% safe.) 401ks allow you to allocate a portion of your plan to the money markets. Just do it. This allocation strategy allows you to take on more risk /reward when you are younger (and are safeguarding just 20% of your portfolio) and to protect more as you get close to retirement (when you will be protecting over 60% of your money).

The rest of the 401K plan should then be diversified across different sectors of the stock and bond markets. You don't want to have all of your eggs in any one basket, whether it is an individual stock or a large cap blue chip. In general, exchange-traded and index funds are more popular today than mutual funds because the fees are lower. Read up on which funds are attracting the smart money. Don't just take a shot in the dark. (Paul Woods has a great article on funds in this ezine.)

5. Don't be too Quick to Trust.
There is a world of difference between a well-regarded media source that is known for high standards of journalism, and a press release, which is written by the company's marketing and public relations staff. There is a night and day difference between junk mail on penny stocks and top-ranked, subscription-based stock newsletters, whose returns are tracked by respected, independent organizations, like Hulbert's Financial Digest. There is an entire life behind the article that is missed when you just read the headline.

Oftentimes, the most important facts lie on page 13, while the headline has been written to attract your eye. The press release is the company's story, while the article brings in outside experts--both critical and supportive--and an independent view of the facts, taken in a broader context. (PRNewsWire, BusinessWire are news releases, not articles.) The penny stocks/junk emails tout one of the riskiest plays in investing, that of companies that don't make the grade or meet the standards to trade on the big boards--NASDAQ, NYSE and the American Stock Exchange. Stock picks made by television pundits are only as good as their track record. The sound bytes may sing to you, but that doesn't mean that it isn't a Siren's song. Check their track record, and if they are not tracked by a reputable organization, at least track their picks on your own for a year before following their advice.

6. Choose the Right Partner, not the closest breathing human. Don't let your husband, your wife, your cousin, your best friend or the guy behind the counter take control of your future, until or unless they have proven themselves OVER TIME to do a great job for other people without any complaints to the National Association of Securities Dealers (NASD). This is a tough one because a lot of people associate allowing their partner to invest their money as a show of love. Love is love and money is money. You can't send love off to the bank to pay your mortgage and, money can't buy you love. Everyone benefits when you're happy, and you're not going to be happy if your dreamboat loses your nest egg.

Remember that brokers are different from gardeners. They are not paid to make your garden beautiful. They are paid on commission, i.e. when they sell you something. Money managers are more like gardeners. Their fees are typically tied to performance. However, money managers are only available to individuals who have more than $100,000 in their portfolio. Be very careful when selecting your financial partner. With brokers, as with husbands, it pays to pick a good one.

Online discount brokerages have made it easier than ever to manage your own retirement plan with their Rollover IRAs and now, more than ever in history, you have instant access to all of the news, research, information and SEC filings on companies. The information you need to succeed in investing is available at the click of a fingertip. Chances are that you are spending more time thinking about your account than your broker any way. It may well pay off for you to take a more active role in helping it grow.

Other articles of Interest:

Beautify Your Bottom Line. By Natalie Pace. Gains are Good in your 401K and Easy as 1-2-3, When You Tap Into Your Feminine Side, and Forget about Mind-Numbing Charts.

Brokers and Lovers: It Pays to Pick a Good One. by Natalie Wynne Pace, CEO & Founder, NataliePace.com.

Leave Your Job, Not Your 401(k) by Maya Patel. Discount Brokerages Make Rollover IRAs Easy.

What the Mutual Fund Salesman Forgot to Mention by Paul Woods. How sales charges, high fees, and excessive diversification will have you working way too long

News Corp. Takes on Cyber Space With Acquisition of Myspace.com

by Natalie W. Pace, CEO and founder, NataliePace.com.

Article and stock report card.

Natalie W. Pace #1-ranked Stock Picker

Brad Greenspan, the former Chairman and CEO of Intermix and the largest non-insider shareholder, intended to throw a wrench into the News Corporation acquisition of Intermix, the parent company of MySpace.com, by offering his own higher bid of $13.50 per share. The move was on behalf of FreeMySpace.com, an LLC set up to convince shareholders that MySpace should remain independent and publicly traded. However, on Friday, September 30^th, 2005 at 3:00 p.m., over 72% of the Intermix shareholders, who voted or gave proxy, approved the News Corp. acquisition, according to David Scott Carlick, the managing director of Vantage Point venture partners and a Board Director of Intermix Media. News Corporation confirmed, in a press release, that Fox Interactive Media, Inc., a wholly owned subsidiary of News Corporation, completed its acquisition of Intermix on Friday at 7:00 p.m.

So, what happened with Greenspan's offer? In an epic war of words, the former CEO and Chairman of Intermix and the current Intermix Board of Directors unabashedly aired dirty laundry in public to justify their divergent positions. The Intermix Board of Directors discredited Mr. Greenspan's offer, although it was $1.50 per share higher than that of News Corp., citing uncertain financing for the deal, not enough cash liquidity and internal "morale issues" associated with accepting an offer from Mr. Greenspan, who was forced out of the company in late 2003.

In a company-issued statement on Wednesday, Intermix said, "In late 2003, when Mr. Greenspan was relieved of his duties as Chairman and CEO of Intermix, the company was struggling with an accounting restatement, SEC investigation, NASDAQ delisting and numerous related class actions lawsuits." The Board is confident that they have provided significant value to Intermix investors and that the majority of shareholders see the value in the News Corporation acquisition, calling Intermix "one of the great turnaround stories."

Indeed, when News Corporation came calling, the company had just been slapped with a lawsuit for AdWare and SpyWare by Eliot Spitzer's office and the Intermix market capitalization had sunk to $137 million. In light of the lawsuit, lack of investor confidence and reduced cash position of Intermix, the News Corporation offer of $629 million (including the buy out of preferred shareholders and unvested stock options) was considered by many financial professionals at the time to be generous. According to one investment-banking executive, who spoke under anonymity, "Having a stable bidder at a price that was high for the time was a good deal."

Mr. Greenspan, along with at least two other shareholders who have filed lawsuits against the executives of Intermix, strongly disagrees. According to a proxy statement filed with the SEC, John Friedmann, Ron Sheppard and Brad Greenspan have each filed class action law suits against Intermix executives charging them with, among other things, self-dealing, failing to obtain competing bids and accepting an inadequate price for the company. According to Mr. Greenspan, "The company has been nonresponsive, has not submitted documents to move the [bidding] process along, and has continued to push the deal with News Corp. We believe that is because of the sweet deal for the management and insiders at the company."

Mr. Greenspan asserts that MySpace.com currently competes with the top properties online and could command a market capitalization on par with its competitors. "Nielsen NetRatings reports an almost doubling of online display advertising for Myspace.com from 6.3% in May up to 12.4% of all online advertising impressions delivered online in August," Mr. Greenspan said, noting that "users now spend more time viewing MySpace.com than almost any other web site online."

Comscore Media Metrix statistics verify that Myspace's rankings are indeed competing with Yahoo, MSN and Google, ranking above Google in both minutes per visitor and total pages viewed. Nielsen NetRatings verified that Myspace scored 12.4% of all ad impressions in August 2005.

Source: ComScore Media Metrix

Google is currently valued at $86 billion. Yahoo, the number one Internet site across the board, is valued at $47 billion. So, did the Intermix Board of Directors short shareholders by pushing a deal valued at $629 million? Jodi Seidler, an Intermix shareholder who planned to vote against the News Corp. acquisition, believes the deal "is definitely undervalued." While Jodi understands why Greenspan's offer was rejected, she had hoped for a better deal to come through. "My hope and my feeling is that someone else will come through. I think it's a really hot property to sell short, " she said in an interview on Wednesday, before the acquisition became final.

One thing for sure, there hasn't been such a battle over who gets to own the hottest property in cyber space since the Trojan War. News Corporation's acquisition of Intermix and Myspace.com proves one thing. The executive team at News Corporation is truly one of the most efficient conquerors on Wall Street and in cyber space. AOL ended up costing Time Warner billions in time and money. The top executives lost their jobs and the share price still hasn't recovered. eBay acquired Skype for $4.1 billion. Yahoo purchased 40% of Alibaba.com for $1 billion. News Corporation swallowed up one of the biggest players online for just $629 million.

Click here to see the News Corporation New Media Stock Report Card. You'll see why News Corp. is the hot, undervalued corporation in New Media, with a dinky market capitalization of just $17 billion, compared to Yahoo ($47 Billion), Google ($88 Billion), Microsoft ($276 Billion), Time Warner ($85 Billion) and eBay ($56 Billion). Ross Levinsohn, the new President of the newly formed Fox Interactive Media predicts that with "a few shrewd investments, we can quickly become one of the most exciting and innovative destinations on the web."

Myspace was certainly proof that News Corp. is committed, shrewd and fast. Shareholders law suits over the acquisition are still being pursued. The acquisition is final, but the story may not be over yet.

Expect for investors to start seeing the FIN presence soon. Yahoo, the number one destination online, will also be added to the NataliePace.com Hot News on Cool Stocks list.

Other articles by Natalie Pace.
The Next Google. 4.1.05
News Corp: a Collection of Creative, Energetic Executives. 3.1.04
7 Reasons Why News Corp. Stock Rocks. 3.1.04

Debt-Rich America.

Americans are now spending more than they are earning, and personal savings is a negative number. Is that a temporary dip or are we courting disaster?

James R. Barth, PH.D., Senior Finance Fellow, Milken Institute

The August 2005 Bureau of Economic Analysis (US Department of Commerce) statistics show a negative ratio, -6%, of consumer spending to personal savings. At the same time, gas prices are rising, and there is worry about the consumer's wallet being stressed too much to continue to fund the U.S. economy. For answers, we turned to Jim Barth, the Senior Finance Fellow at the Milken Institute (a global economic think tank).

Mr. Barth has extensive background on the world economic stage. He was the international team leader of a group advising the People's Bank of China on banking reform in China. Previously he served in the Congressional Budget Office for thrift supervision and was a political appointee under Presidents Reagan and Bush, for regulated savings and loans and thrift supervision in the late 1980s.

NataliePace.com -- This month's BEA statistics show a negative ratio, -6%, of consumer spending to personal savings. Are you concerned about a debt-rich America? If people aren't saving and everything costs more, how are they going to pay their bills?

The BEA statistics measure income and consumption of individuals. The difference between what people are spending and earning is saving, according to their statistics. Another broader and more important measure is the net worth of individuals.

If, for example, I own a home and that home increases in value, that is an increase in net worth. That increase in net worth represents savings. So it may be that I am currently using all of my income and borrowing to consume more, but nonetheless I'm better off because my home is increasing in value. I can borrow against the value of the home or sell the home and downsize. A lot of people are hoping to do this when they retire. They can downsize, sell the home, purchase a condo or rent, and with that appreciation maintain a fairly decent standard of living. That appreciation is not captured in the national appreciation and product accounts.

That assumes that home prices will remain high and/or increase. There is a lot of talk of a bubble in real estate. What if real estate prices fall unilaterally?

We'd be really in trouble if there was no increase in home and stock values. Then you would find that not only are people consuming all of their income and then some, but also their net worth isn't increasing.

The bears point to Japan, which experienced a serious decline in both home value and stock prices in the late 1980s, and still hasn't recovered.

It was in the late 1980s, 1991 or so, that Japan had serious financial difficulties in the banking sector. Real estate started to go down dramatically. For a decade or longer, Japan's financial system was in terrible shape. With respect to the US, there are a couple of potential problems. People are able to consume more than their income might indicate. People are taking on more risk. Home prices that have gone up a lot may go back down. It's fine as long as prices go up.

Is there a housing bubble, in your view?

People have identified areas where there are housing bubbles. Some people mention San Diego, parts of Texas and Miami. If one borrows too much, one may have trouble repaying the loan. Historically, home prices tend to go up over long periods of time. We're talking localized when we talk of bubbles. If an individual wants too maintain a standard of living, they cannot rely excessively on home price appreciation. That is really a potential problem. We have had individuals who decided to retire in 1999 and 2000 based upon the increase in stock prices. Some found that their portfolio was worth a lot less. Some couldn't maintain the standard of living they desired, and had to go back to work. Perhaps houses won't keep appreciating. People may be assuming that they can retire based on increases that are not achievable.

Are you worried about the aggressive growth of hybrid loans and sub-prime risk that some of the banks are taking on?

Homes are more expensive. If interest rates were to go up, there is concern that people may have trouble repaying. When you tie in payments on mortgages, higher interest rates and energy prices, there is a potential problem down the road, unless we see appreciation in stocks and homes and the energy costs go down. If one takes an optimistic view, things don't look all that bad.

And we haven't even mentioned the pension problems. Many of the companies founded before 1980, when benefits-based pension plans were the norm, are having trouble meeting their pension obligations. General Motors and Delta come to mind. The defense industry, airline industry, and auto manufacturers are all cited as prone to risk here.

We probably need more consolidation. All of the airlines were running on bloated costs. Now what's happening, by filing for bankruptcy, a lot of the airlines can lower their costs and hopefully return to profitability.

By sloughing off their pension plans and reducing benefits and salaries, which affects workers.

The government's Pension Benefit Guarantee Corporation is in the business to protect people's pensions. What we've seen, and this ties into savings, is that individuals are now more responsible for what happens to their retirement funds. Individuals have to make decisions about what happens to their pension plans. They can't be guaranteed any longer. Retirement plans depend upon returns in the stock market. Under defined benefit plans, individuals knew the minimum amount that they would receive. That's no longer the case. The investment returns can be negative, not even just being low. So that too means that individuals have to become more financially savvy. It shifts the responsibility for what happens to the individual, which may not be a source of optimism when it comes to the savvy of individuals. Many just choose 50% bonds and 50% equity, and they sometimes don't make changes and rebalance their portfolios.

Workers are overwhelmed with all of the information out there, and often have difficulty discerning sound from risky information.

It can be overwhelming. When you think of the mutual funds and tax implications. It can be overwhelming even for a knowledgeable individual.

As an aside, English professors may not even have the knowledge to make great decisions. It's not even a matter of formal education.

What do you consider to be the bare bones foundation of sound investing?

There are two guiding principles that work in investing. The first is, over longer periods of time, stocks outperform bonds and corporate bonds outperform government bonds. When you are young, weight one's portfolio toward stocks. When one is closer to retirement, one wants to do the opposite, weighting towards bonds and risk-free bonds. When one is older, life expectancy is shorter and one wants to be sure one doesn't lose one's retirement funds by being over invested in the stock market. US treasury securities are risk free.

The second guiding principle is diversification. Don't put all of one's eggs in one basket. One wants a portfolio of assets - stocks, bonds, bonds that are risk-free, stocks that are less risky than others and pay dividends. In addition to that diversification, invest in different assets. A home represents some diversification. Try geographical diversification, i.e. going into different industries and also into countries, like emerging markets - some of the former Soviet countries from Eastern Europe, and some of the Asian countries. That would include China.

Do you think many too investors, spooked from the Internet crash of 2000, are now placing all their bets on real estate?

Unfortunately for a lot of people, the biggest asset they hold is their home. There is a lot riding on their home. Some people, who rely more on their home, have to be careful and not borrow too much and run the risk that the value won't increase. People who are more diversified don't have to worry as much about a decline in home values.

With the price of gas weighing on everyone's wallet, analysts have expressed concern about consumer spending.

One has to be somewhat concerned that saving is now negative by a small amount. It has been trending down over the past 20 years. It was about 10% about 20 years ago. It went down too 5% about 10 years ago. If it were not for the increase in net worth, then one would be more concerned, but it is looking at the two together that is more important.

Rising interest rates could double a person's mortgage payment. People are already paying twice as much for gas than they were two years ago.

Overall, in the aggregate, I do not think there is a calamity on the horizon. Some individuals may not fare as well as they expect. Individuals are vulnerable if they are borrowing too much. Individuals who have more net worth and more diversified portfolios can be less concerned.

What will happen to these beleaguered corporations, like Delta? Don't new corporations, with 401Ks and more conservative health benefits, have a distinct advantage? Jet Blue comes to mind.

Unfortunately, some of the older firms will be replaced by newer firms. It's individuals caught in the middle that's the problem. If you're older, there's not much you can do. You might find it difficult to retire or you might already be in retirement and find that your income is wiped out. That's where the government comes in and provides a safety net. It's not too high to induce people to engage in too risky activity.

So, basically it's down to individuals to get savvy about their money and to reduce their risk through diversification and proper asset allocation.

Probably there's not enough of that done by enough individuals. Everyone needs to look farther ahead. Individuals who get a college education are looking ahead. People earn more and are better prepared for retirement with an education. We are not realizing that we are going to be living a lot longer than our parents. People can expect to live into their late 70s today. At the turn of the century, life expectancy was 50. People didn't have to worry about retirement. The last day on the job might be the day before they died. People in 1900 weren't thinking about defined contribution plans. Now people who retire at 60, may have 20 years in retirement. Those years have to be supported by retirement plans. If an individual is 25-30, they have to be looking ahead and saying, "What can I do today to support my retirement years." You can't assume that your pension plan will support you in the lifestyle that you want in retirement years.

And health costs are risingÉ

When people get older, frequently, that is when a lot of health costs are incurred.

Any last comments?

People lost homes in New Orleans, and for many of them that was their main asset. For them, it is still not clear who is going to cover that loss. Is the home fully insured? What about the goods within that home? Is the government going to cover it? Retired people especially have to worryÉ

It's one thing to be diversified in stocks and bonds, but in a home, you don't have geographic diversification. Your porch isn't in Central US and the living room in New Orleans. The home is all one entity and one location and if your area is susceptible to hurricanes and tornadoes and earthquakes, that's an additional risk. You have to think about insurance. Those individuals are more susceptible to loss than other individuals. Not everyone wants to move from Los Angeles and New Orleans to MontanaÉ

No, they don't. In fact, at a community dining table at a local Santa Monica restaurant, a local was overheard claiming, "I think living and owning in Santa Monica is priceless. There is no price that is too expensive. We are living in the heart of the watermelon." Everyone at the table agreed. Few would have, however, during the Los Angeles riots of 1992. Or the Northridge Earthquake of January 13, 1995. Or the Malibu fires of 1994. There was a mass exodus out of the region, and real estate was available at the lowest prices in 20 years.

Trick or Treat?

by Natalie Pace, top-ranked stock picker, per TipsTraders.com

Will Ghouls and Goblins Haunt the Street or Will Bewitching October Be Sweet?

(Note: These are not buy/sell recommendations. Always consult a certified financial professional before buying or selling stock.)

Bewitching October is the month that has the dubious honor of hosting the worst market days on record-- Black Thursday (October 24,1929) and Black Monday (October 19, 1987). Alternatively, when October is not spooking investors, it can provide the delightful treat of being the first month of the annual Santa rally, where historically the majority of the annual market gains are to be enjoyed.

In short, you don't want to send your kids out unattended this Halloween. Even if the Wall Street ghouls only prey once every 48 years, the scars last a lifetime. Additionally, with all of the risk in the markets these days (rising interest rates, inflation, terrorism, high P/Es, not to mention floods, fires and locusts), you don't want to be overexposed in equities, especially when the money markets are giving up bond-like returns at no risk. Make sure you understand diversification, ETFs, 401ks, et al. and are practicing sound modern portfolio theory to reduce your risk. If you don't have a clue what I've just said, there are at least two articles in every NataliePace.com ezine devoted to educating investors. Print them out and read them once or twice in place of reports on Hillary Clinton's alien lover. (The pictures of our contributing writers are hot, by comparison!)

Following are average monthly returns from March 1971 through October 2003, provided by Odyssey Advisors (www.OdysseyAdvisors.com).

By month, average returns were as followsÉ

Stats, Facts, Quotes and Educational Information:

1. Risks in the market. Plenty. "Too many borrowers, lenders, consumers, bankers, bond investors, stock investors, hedge funds and pension funds are taking on more risk than they should. And the end, when it comes, won't be pretty." Jim Jubak, "Airlines and the Epidemic of Risk."
2. Wal-Mart faces Congress and International Labor Rights Fund. The New York Times reported on Monday, 9.19.05, that Wal-Mart is being sued by ILRF, accused of permitting sweatshop conditions at factories in foreign countries. Congress, led by Representative Sherrod Brown (Ohio Democrat), is looking into Wal-Mart's history of taking out local businesses, low wages and skimpy benefits. All that and pressure on earnings from higher transportation costs, higher health care costs and potentially weakening consumer spending. Wal-Mart should ultimately survive these storms, but investors may end up seasick.
3. Katrina donations. Beware of scam artists pulling the purse strings of your charitable heart. Do not respond to emails asking for contributions to organizations that you have never heard of. Donating your time may be the best thing you can do. There are a lot of churches and communities housing evacuees that need help distributing clothes, food, etc. and relocating families. If you do not know a local organization that is helping evacuees, NataliePace.com is donating 25% of our subscriptions in October to CoAbode.org, an organization that is helping to find transitional housing for those displaced. Go there to give, to refer and/or to find out how you can help in your area.
4. Great gains, like great championship teams, are a mix of strong offense and outstanding defense. Hunker down and get your defensive game on. Don't worry about getting too fancy. Make sure you've got a strong position in cash. Most Americans have less than 1% in personal savings. If this is you, meet with your financial planner now on how to increase your money market position and better protect your nest egg from a downturn in any of the asset classes - real estate, stocks and/or bonds. With rising interest rates, rising gas prices, rising property taxes, rising home costs and increased inflation, chances are you are paying more for basic necessities. Don't bet on things getting cheaper in the near future.
5. Semi-Annual Meetings with your Financial Planner. While retirement plans are where you want to take a long-term view toward profits, you do need to adjust to current market conditions and to change your portfolio to suit your lifestyle, your age, your risk tolerance, etc.
6. Cash is King. In 2000, cash was the top-performing asset, and with rising interest rates, you can ensure bond-like returns with money markets (from interest), at no risk. If you haven't applied the lessons learned in 2000 about not having all of your eggs (retirement plan) in one basket (all mutual funds), you are just as vulnerable today to a market downturn as you were then.
7. September and October. September is traditionally the worst performing month of the year in the stock markets and October is the month that can be the most challenging (the month of Black Monday, the 1929 crash, etc.). Research your fave stocks now, but don't be in a rush to buy, especially if the company is trading at its 52-week high. It might pay to wait for a buying opportunity. (No one has a crystal ball.)
8. Brokers: It Pays to Pick a Good One. For tips on finding your perfect partner, read the article online at www.NataliePace.com, in the archives, Volume 2, issue 4. If you have more than $100,000 in your retirement plan, you might qualify for professional money management. Get recommendations from friends, or go to the websites of IQTrends.com, BuyBackLetter.com and/or OdysseyAdvisors.com for more information on professional money managers.
9. Profit-Taking. You'll notice that we've sealed in a number of our picks, and kept open companies that are value-priced and/or still have upside based upon being concentrated in favored sectors, like energy, technology, biotechnology and metals (not metals manufacturing). The companies that we report on in this column are for that small percentage of "trading" in your portfolio, not for the entire nest egg. This is the Michael Jordan part of your portfolio that scores and scores and scores. Winning the game also means diversifying and protecting. You definitely do not want to be day trading with all of your retirement plan.
10. Myspace.com and Intermix Media, Inc. Fox Interactive Media, Inc. ("FIM"), a subsidiary of News Corporation NWS, completed their acquisition of Intermix and MySpace on 9.30.05. For more information, read the article in this month's ezine.
11. 14 BIG WINNERS, which keeps us at #1 in Annualized Returns (according to TipsTraders.com). This hot news article still has the proud honor of featuring fourteen companies that have posted positive gains, versus five that have gone south. Of the five that have gone south, we are most concerned with Krispy Kreme and are monitoring that distressed company closely. Turnarounds are difficult to stomach, even the turnaround of the most popular sweet on the planet. OSIP, IMCL and LVS - in our view, these are all great companies with great products and/or leadership. Sometimes it takes awhile for the rest of the investment world to realize that. Jet Blue was taken off because airlines are in disarray with high fuel costs. Love the airline, but this is a sector in serious trouble.

Bottom Line: NataliePace.com is providing you with news and important information, but you need to consult your financial planner to determine your best strategy for using the information. That will depend upon your age, your retirement plan, your risk tolerance and portfolio diversification. The stock portion of your portfolio is a higher risk classification, where you ideally seek to gain higher returns. As the NASD said in a recent investor alert, don't bet the farm on the stock market. NataliePace.com is NOT a brokerage and doesn't operate or act like one. We are an online media service with a mission of providing the news and information you need to make better choices in business, investing and personal prosperity.

Full disclosure: I have listed the companies that I own under the column "NP OWNS?"

Hot Stocks
Investors who "never pay retail," note that highlighted stocks are trading at their 52-week lows or near the price featured in NataliePace.com's article. It may be a good buying opportunity. The companies that are listed below which are not highlighted may not be in a good buying range, but they (outside of KKD, which might be a real dud) are poised to continue performing well. There are never any guarantees in life, and all stocks are risk-based investments.

 Stocks in Profit-Taking Range. Note: We may still like these companies (as we do Genentech and Google) for the long term as companies, but are taking profits before sell-out September and/or bewitching October. We may look to add some of these great companies again, if the price point should become attractive. In a market of modest gains but high volatility, profits are made in shorter windows.

Advanced Micro Devices closed out 8.15.05 at $20.85, with 74.3% gains.
Genentech closed out at $80.92, with 328% gains. (Current price: $84.21)
Google closed out at $292.72, with 193% gains. (current price $316.46)
Pixar closed out at $51.67, with 21% gains. (current price $44.51)

Please note: NataliePace.com does not act or operate like a broker. We are a media and information center. This article is intended to provide current news, and, thus, to give investors a competitive edge in their personal decision-making. The publicly traded companies mentioned in this article are not intended to be buy or sell recommendations. ALWAYS do your research and/or consult an experienced, reputable financial professional before buying or selling any stock.

Hurricane Katrina: Rebuilding Lives For the Homeless.

CoAbode.org Single Mothers House-sharing

Single mothers who have lost housing in New Orleans and the Gulf States region are encouraged to sign up to CoAbode.org's mom-matching service.  There is no cost to register, and the evacuee can begin searching immediately for a family in an area of their choice (by city or zip code).  There is a free link on the home page of CoAbode.org's web site.  Please forward this information to any person or organization that might use this benefit. CoAbode.org encourages the continued outpouring of support and is helping people to organize local help for the displaced families of New Orleans and the Gulf States regions who were wiped out by Hurricane Katrina.

Search your heart and your giving fund for the amount that feels right to you and know that each dollar you donate to CoAbode.org is tax deductible, and will be directed toward assisting the Hurricane Katrina evacuees in finding housing. Also, please forward this email to others who would be interested in supporting a non-profit organization that assists struggling (many times impoverished) families, where single women are raising children on their own, as is the case with so many of those who have been forced to leave New Orleans.

Calendar:.

Don't Miss NataliePace.com's online chat with Paul Woods, a gala with Hillary Rodham Clinton and the California State of the State Conference.

NataliePace.com's calendar features Networking Luncheons, Conferences, Galas, Chats, Teleclasses and other special opportunities! Check out what's happening online at the Calendar section of the NataliePace.com web site

VISION: To build a global community of investors through a worldwide website, seminars, radio, television and print partners.
GOAL: To provide high-quality, first-run, ethical financial news, information and education, presented in an entertaining format, across all media (television, radio, print and online).
MISSION: To provide the news, information and education investors need to make better choices and to make investing as much fun as shopping.
PHILOSOPHY: Member Mosaic. Piecing together a more complete picture of the publicly traded company, one tile at a time, by valuing firsthand consumer experience, conducting evaluations of the executive team and lining up the numbers of the publicly-traded company with its competitors in a Stock Report Card.
For more information on NataliePace.com contact us at www.NataliePace.com, info@NataliePace.com, P.O. Box 1350, Santa Monica, CA 90406-1350 or 1-866.476.7442 (toll-free telephone number).

NOTICE: NataliePace.com is NOT a stock brokerage service, and does not operate or act as one.