Are Taxes Just a Waste of Time?

by Dr. Gary Becker, Nobel Laureate, Economics, from his Becker-Posner blog on April 16, 2006.

How 265 billion dollars and 2.6 billion hours complying with 66,000 pages of federal tax rules can be better spent.

Reprint of the blog, "Tax Complexity and the Cost of Compliance."

As my wife and I were recently preparing our income tax data to give to our accountant, I began my annual guess about the cost of complying in the U.S. with the Federal Tax code. But instead of just shaking my head over it, as I usually do, I made a few simple calculations that I will share with our readers. I will also offer some suggestions on how to cut down drastically compliance costs and reduce the negative effect of federal taxes on the efficiency of the economy.

We spent at least 25 hours in 2005 preparing and keeping track of our 2005 income, deductible expenses, and other data relevant for tax purposes. Our accountant spent another 6 or so hours, so together our tax filing used over 30 hours. Last year the IRS processed about 130 million tax returns. If the average filer along with any professional help together spent about 20 hours, 2.6 billion hours would have gone into complying with the 2005 tax code. This may seem huge, but the Tax Foundation put much more effort into their calculations, and finds that about 6 billion hours were spent in complying with the federal income tax code alone.

Businesses spend many more hours than most individuals do, while many filers who primarily have taxes withheld by their employers spent less time because they use the "short" tax form. Still, over half of all filers consulted accountants, lawyers, or other professionals for assistance in preparing their taxes. During the tax season, apparently over 1 million persons work professionally helping others prepare their tax returns.

If we value my 2.6 billion hours estimate conservatively at an average of about $40 per hour because higher income filers and tax preparers spend many more hours in tax preparation than lower income filers, the aggregate cost of complying would be over $100 billion. This is almost 10 per cent of the approximately $1.2 trillion that will be paid in 2005 in federal income taxes. The Tax Foundation concludes that total compliance costs for 2005 will amount to $265 billion, or over 20 per cent of federal income tax revenue.

Even with my lower estimate, compliance costs are big, despite the availability of computer software that greatly helps in tax preparation. The culprit is clearly the complicated tax code that has produced over 66,000 pages of federal tax rules. Of course, these complications are not there by accident, but are the result of pleadings and lobbying (see our discussion last week of lobbying) by special interests for favorable tax considerations. These include efforts by builders and home owners to get the government to allow deductions for interest paid on mortgages, by philanthropic organizations and universities to have charitable contributions deductible from reported income, by state and local governments to allow the deductibility of state and local income and property taxes, by industries lobbying to get accelerated depreciation on capital purchases, and special tax provisions for the oil and gas industry. They also include lobbying by financial institutions to get incomes accumulated in IRA's to be tax free, by employers and other groups that prefer the earned income tax credit over more generous welfare payments, and so on for the many pages in the tax code.

Gary Becker Nobel Laureate, Economic Sciences, 1992; Professor, Economics and Sociology, University of Chicago; FasterCures Board Member

These numerous provisions not only enormously raise the direct cost of tax compliance, but cause many changes in behavior to take advantage of favorable treatments in the tax code. These alterations in behavior, like expenditures on compliance, usually make the economy less efficient, whether because many talented lawyers and accountants spend their time finding tax loopholes, or because too many and very large houses are built to take advantage of the favorable tax treatment of housing expenses, or because of many other changes in behavior.

Complications in the tax code are an excellent example of the conflict that sometimes arises between what is rational at the individual level, and what is rational to society as a whole. Each interest group lobbies to promote the interests of its members, although their interests advance usually at the expense of the interests of others. When many groups succeed in promoting their interests, losers vastly outweigh winners since each group gains from what they do, but loses from what is done to them by hundreds of other powerful interest groups.

There is no magic cure to this problem, at least none that I have encountered. Still, it is valuable to see clearly the problems and how they might be corrected because the future may provide opportunities for reform that are not presently available. A window of opportunity could arise to implement thoroughgoing changes that are not now politically feasible. One example of this kind of process is the voluntary army: a pipedream in the 1950's and 1960's became feasible in the 1970's because of the discontent over the draft during the Vietnam War.

The only way to radically reduce compliance costs is to engage in drastic surgery on the complexities of the tax code. The best approach would be to essentially eliminate all deductions, and have tax rates based just on total consumption, or as a second best alternative, just based on total income. Then compliance costs would be small because taxes owed could be calculated on a form the size of a postcard.

Such a radical simplification is often confused with a flat tax, which is a tax that is the same percent of income at all income levels. But eliminating all special deductions and benefits does not imply a flat tax, nor does a flat tax imply enormous tax simplification. In fact, most people who propose a flat tax really are proposing a progressive tax structure since they want incomes below a certain level to be free of all income taxes, and then a constant tax rate on each dollar of income about this minimum level. One could still have low compliance costs with a greater degree of progression in rates if tax rates started at zero and rose as incomes increased. Most degrees of tax progression are consistent with low compliance costs, although the more complicated the degree of tax progression, the greater the alterations in behavior that reduce an economy's efficiency.

To return to the cost of tax compliance, it is obviously excessive and socially wasteful. It is not easy to be optimistic about the prospects for tax simplification since the fundamental trend over time in the United States has been a steady increase in the complexity of the tax code. But at some future time, concern over the social waste in compliance costs that amounts to between 10 and 20 percent of total revenue produced by the income tax may galvanize American taxpayers into a revolt that, at least for a while, would result in drastic simplifications of the tax code.

Dr. Gary Becker is a Professor at the University of Chicago Graduate School of Business, Department of Economics and Sociology. Dr. Becker won the Nobel Prize in Economics in 1992 for "extending the sphere of economic analysis to new areas of human behavior and relations."

Why give thousands of dollars to insurance companies for medical insurance, when at least part of that could go to your nest egg? Why waste billions of hours on preparing tax returns, when you could fill out a return the size of a postcard? Find real solutions from the doctor of the U.S. economy, Dr. Gary Becker, who will answer your questions one-on-one in the NataliePace.com chat room on Wednesday, May 17th at 8:45 a.m. PST (11:45 a.m. ET).

Yes, you can maintain the security of medical insurance coverage, while giving most of the money to your own nest egg. Yes, it is possible to change governmental policy. Find out how. (Subscribers only. Register Now!)

Affordable Health Care.

by Dr. Gary Becker, Nobel Laureate, Economics, from his Becker-Posner blog on February 5, 2006.

With Health Savings Accounts, You Save an Arm and a Leg, Protect Your A** and Build Your Nest Egg!

A reprint of "Health Care Reform"

Health Savings Accounts (HSAs) were introduced in 2003 to help consumers pay for non-catastrophic health care, and to give them financial incentives to economize on unnecessary medical expenditures. The law allows contributions to these accounts of up to $2700 for individuals and $5450 for a family, as long as their contributions are not greater than the deductible on their health insurance, which is required to be at least $2100 before a person or family is eligible to open such an account. The number of persons with high deductible health insurance has increased rapidly to about three million persons since HSAs were introduced, and some estimates indicate that over one million persons have an HSA.

If a company provides employees with an HSA, the company can deduct the amount they contribute each year from its reported taxable income. Employees do not have to report as taxable income either their employer contributions or their own contributions. As a result, the number of companies offering health savings accounts to their employees has been growing rapidly, especially among larger companies. The well-known companies that offer these accounts include Wal-Mart, Microsoft, General Motors, and Daimler Chrysler.

Companies are attracted by health savings accounts because of their ballooning spending on the medical care of employees. During the flush times in the past, companies like GM offered health insurance coverage that often had minor or even no deductibles. They discovered much to the damage to their balance sheets that employees can find many frivolous ways to spend money on medical care when they do not bear any of the cost. And since employees have become accustomed to this "entitlement", it is hard to raise co-payments when negotiating with unions. So many companies have started offering HSAs in the few years since the present law took effect.

Individuals who take out health savings accounts on their own are at a disadvantage compared to employees since individuals have to contribute after-tax dollars to their accounts. Other tax advantages are common to both individual health savings accounts and those provided by employers. The amount contributed in any year does not have to be spent during that year on medical care, but can be carried over to future years. This distinguishes HSAs from flexible-spending accounts, where contributions in any year have to be spent in the same year. The balance in a health saving account can be carried over to later years without paying any taxes on it, or on the interest earned on these balances. After age 65, dollars in these accounts can be also spent on non-medical items without penalty, but this spending is treated as income and is subject to income taxes.

The President proposed several highly desirable reforms in the system of health savings accounts. Perhaps most important, individuals setting up an HSA on their own would also be allowed to deduct their annual contributions before reporting their income for tax purposes. Since this eliminates one major advantage of employer-based HSAs over accounts set up by individuals, it is an important step in the right direction of leveling the playing field between individual and employer-based health insurance.

This change, if adopted by Congress, would reduce the number of persons without any type of health insurance. For many of them have jobs at companies that do not offer health plans, and they feel the premiums on insurance that they can take out on their own are too high. The proposed exclusion of contributions to an HSA from taxable income would encourage some of these uncovered individuals to buy insurance and set up an HSA. This would reduce a glaring hole in the American approach to health care.

Gary Becker Nobel Laureate, Economic Sciences, 1992; Professor, Economics and Sociology, University of Chicago; FasterCures Board Member

President Bush also proposed raising the ceiling on how much might be contributed each year to a health saving account by tying the limit to the annual deductible in a health insurance policy. This gives families and individuals even greater incentives to economize on their less essential medical expenditures. After all, the purpose of insurance, health or otherwise, is to protect against very large outlays, not against outlays that are more or less expected year in and year out.

Of great importance, Bush also proposed allowing companies to offer employees portable health savings insurance that they could take with them if they change jobs or retire. A major defect in the employer-based health insurance that the United States has relied on since World War II is that employees may lose their company-based private health coverage when they become unemployed, when they retire, or when they change jobs to one of many companies without health insurance plans.

Studies show that this lack of "portability" of health insurance coverage reduces job turnover, and makes the American labor market less flexible and efficient than it could be. Indeed, under the present system, virtually the only way people can be reasonably assured of continued health insurance coverage is by remaining throughout their working career with stable employers that offer health insurance. This "lock-in" effect is undesirable in a dynamic economy where good jobs open up in growing industries, and opportunities in declining industries dry up.

In contrast to employees who continue coverage by remaining with the same employer, individuals with their own health insurance plans sometimes lose coverage after contracting a serious illness, or by making too many claims. For various reasons, it is not possible for individuals to buy long-term health insurance, although what they want is protection against future major medical expenditures since it is uncertain how healthy they will be when they get older.

Bush's proposal to allow employers to offer portable HSAs is an important step toward providing such longer-term coverage for the many men and women who do not continue to work for the same employer, or who want to maintain their health insurance plans after retirement. If the ceiling on how much can be placed in these plans is raised to high enough levels, HSAs could cover all but the medical claims induced by major illnesses. Under present rules, individuals can have a health saving account only if that is combined with a catastrophic health insurance policy.

The President also proposed offering up to $3000 in annual tax credits to help low -income families buy health insurance if they also set up a health savings account. Since tax savings are much less important for lower income families, tax credits seems to be the appropriate way to give poorer families greater incentives to economize on their medical spending. It could also reduce the number on Medicaid since lower income families might prefer to get the tax credit and buy their own health insurance combined with a health savings account.

President Bush has proposed changes in the health care system that initially will reduce tax collections and increase federal spending at a time when the US government is already spending too much and running a sizeable budget deficit. However, by making the health delivery system more efficient, this important set of proposals in the State of the Union address might end up raising tax collections, and certainly would improve the efficiency of the American economy.

Dr. Gary Becker is a Professor at the University of Chicago Graduate School of Business, Department of Economics and Sociology. Dr. Becker won the Nobel Prize in Economics in 1992 for "extending the sphere of economic analysis to new areas of human behavior and relations."

Why give thousands of dollars to insurance companies for medical insurance, when at least part of that could go to your nest egg? Did you know that Òindividuals with their own health insurance plans sometimes lose coverage after contracting a serious illness, or by making too many claims,Ó according to Dr. Becker. Do you want to be someone who gives $6000 or more a year, only to find out that when you really need the coverage, it has been denied? With Health Savings Accounts, You Save an Arm and a Leg, Protect Your A** and Build Your Nest Egg! Find out how from the doctor of the U.S. economy, Dr. Gary Becker, who will answer your questions one-on-one in the NataliePace.com chat room on Wednesday, May 17th at 8:45 a.m. PST (11:45 a.m. ET).

Whether you are the Human Resources person at your corporation, self-employed, under-insured, paying through the nose for medical insurance or just looking for another way to get rich, this chat could provide the information you need to retire rich and early. (Subscribers only. Register Now!) 

Real Estate (REITs) Rules Wall Street, but For How Long?

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

Market Update.

Paul Woods, President & CEO Odyssey Advisors

REITs have outperformed the averages for the last 6 years and are starting to resemble the Ever-Ready Bunny, but the real estate boom is starting to show its age and its fair to wonder how much longer these can keep going. Paul Woods

Well, THAT was a nice change. The first quarter was pretty boring, with no natural disasters, no spikes in energy prices, and no terrorist activity in the sane parts of the world. At the Federal Reserve, the new guy bears a remarkable resemblance to the old guy so far, and interest rates went up again. Meanwhile, the first quarter of 2006 was generally more of the same, with trends already established in the economy and financial markets mostly remaining in place.

What's different is that rising interest rates strengthened the dollar, and it finally rose above year-ago levels. If this continues, a stronger dollar should make comparisons more difficult for international companies and reduce returns a bit on international investments. There also appears to be some divergence among economists and analysts. Economists expect the economy to rebound in the first quarter of 2006 after slowing in the fourth quarter while analysts have revised estimates for the S&P 500 downward in February and March, after increasing earnings estimates steadily in the second half of last year. 

So far in 2006, Real estate investment trusts (REITs) are the top performing equity market segment. REITs have outperformed the averages for the last 6 years and are starting to resemble the Ever-Ready Bunny, but the real estate boom is starting to show its age and its fair to wonder how much longer these can keep going. In addition, the numbers so far also favor small stocks and value while large growth stocks are again the poorest performing segment.

Among industry segments, alternative energy may be in the process of being discovered as these stocks ran away and hid from the rest of the field in the first quarter. In general, however, industrial and resource stocks are continuing to outperform consumer and financial stocks. For reference, here's the market index and industry group scorecard for 2005 that measures price change only and does not include dividends:

Source: Thomson One Financial

In addition, here's the equity market segment scorecard for the first quarter of 2006 with the same caveat:

Source: Thompson One Financial

For the rest of the year, we expect the Federal Reserve's war on inflation in general and real estate in particular to keep a lid on the economy. It's hard to see how Bernanke & Co. can do much about inflation caused by the surging worldwide demand for raw materials and when the latest Fed campaign started, our take was that it would have little impact on inflation but would slow the economy. Sorry to say, we've been right on both counts so far. However, the good news is that it looks as though this cycle of Fed rate increases is about over.

In the fixed income market, yields rose across the board in the first quarter with the sharpest increase on the short end. The Federal Reserve still appears to be doing their best to make the real estate market cry uncle by driving short-term rates well above where they'd be if bureaucrats minded their own business. A cynic might say that another rate increase or two will provide room for the usual drop in interest rates once the next Presidential election nears. In the meantime, we're staying in the intermediate part of the bond market, buying the occasional mispriced bond, and emphasizing quality and liquidity.

Source: Bloomberg LP

For the balance of 2006, inflation probably isn't going away, and companies without pricing power may have continued pressure on margins. The stronger dollar should also make earnings comparisons for multinationals a bit tougher. Bottom line is that earnings should still be okay, but it will be more difficult for companies to blow away estimates as they did last year. However, the good news is that, with real estate under pressure, some investors may decide the stock market looks better in comparison.

Paul Woods is the President & CEO of Odyssey Advisors, LLC, an independent investment advisory firm specializing in equities and fixed income and a monthly contributor to NataliePace.com. He can be contacted at www.odysseyadvisors.com or 310.568.4700. Check NataliePace.com's archived ezines for other articles by Paul!

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.

Copyright © 2006 by Odyssey Advisors LLC

DreamWorks Animation Rewrites the Fairy Tale, Putting Three Women In Charge.

by Natalie Pace, NataliePace.com, CEO and founder

Q&A with Kris Leslie, DreamWorks Animation CFO.

Shrek, the highest grossing animated feature in history Photo courtesy of: DreamWorks Animation

The See Jane Foundation notes that princesses and damsels in distress are still the female du jour in animated films, but oddly, that is not the case behind the scenes at the animated film powerhouse, DreamWorks Animation, where women hold half of the power positions. (Ann Daly is COO. Katherine Kendrick is General Counsel and Secretary, and Kris Leslie is the CFO.) In fact, DreamWorks Animation is the happiest place on Wall Street when it comes to gender equity. Though Catalyst finds that women score for corporations, posting 35.1% higher Return On Equity at the companies with the highest representation of women in leadership positions, most of Wall Street settles for less performance and just 15.7% women in the corporate suite, compared to DreamWorks' progressive 50%.

So, how does DreamWorks Animation make the corporate environment so female-friendly? We asked that and more of DreamWorks CFO, Kris Leslie. Kris is an articulate, educated woman, who is also the proud mother of three boys. With an enviable, high profile job in Hollywood, a stable family and a great figure, Ms. Leslie is certainly in a position to advise other women on how to achieve success in all areas of life!

Natalie: Kris. You are the Chief Financial Officer (CFO) of DreamWorks Animation. You have three boys. I'm guessing that achieving that level of success in career and family takes two lifetimes. How'd you do it?

Coming out of Columbia, you have three choices, investment banking, consulting or treasury jobs. I wasn't willing to work 90 hours a week, every weekend, with all my vacations cancelled at the last minute, so, I went the corporate treasury route. In 1990, I began at Paramount Pictures. I felt like the treasury job would be a lot more interesting at an entertainment company.

You had your first child in 1993. Was that planned?

Yes. I'm a planner. I negotiated very hard for how much time I would have off. I had the first child then, and had my second son two years later.

Same job? Same boss?

No, different boss. But, when my second son was about six months old, the original person who hired me at Paramount had become the COO of DreamWorks. He called me and said, "I have a great job for you. You should come." I thought I'd never move to California. I thought it was too much upheaval. But my father gave me some great advice. He said I was acting like I was 60. "You're young. Your husband's young. Your kids are young," he said. "What's the worst thing that can happen? If you hate it, you can come back."

The message seems to be that you don't have to make a choice between having a career and having a family.

Yes.

You've referred to your boss at that time as your mentor. The difference between the two is that your mentor invests in your success. How do you get the person who gives you raises and promotions to become invested in your success?

Despite my decision that I wasn't going to work 90 hours a week, I probably did for a while or close to it. He was the person who was blind to level. Smart, hard workers got great opportunities. We got invited to important meetings, even if we didn't say anything. It allowed me to show him that he could have confidence in me.

90 hours a week. Let's mention the statistics. You're more likely to get a raise and a promotion, if y you work longer hours and are willing to travelÉ

I don't travel a great deal any more, just to meet investors and the road show. Really, it's incredibly manageable. The hours are not the issue either. I'm home almost every night by 7:00 for dinner.

What time do you get into the office, and do you work weekends?

When you get into the C-level, the hours are not the point. You never leave the job. Before, I worked longer hours, but when I left, I left. The biggest difference now is that the job is 24/7. Weekends, I'm on call. I'm not working, but I'm always available to take a call. My Blackberry and cell phone are an appendage. If I need to make decisions for my family, or if I need to be out of the office, it doesn't matter. But it's a trade-off. I view it as my way of trying to be flexible.

I wrote an article called, "Brokers and Lovers, It Pays to Pick a Good One." How important is it to make the right choice of a life partner and do you have any tips?

There is no way I could have this job without my husband. He is as close to a 50% participant as can be. I say that not because he doesn't try to do as much as he can, but the mother always has more of the responsibility.

Guys don't notice when there is no milk in the refrigerator.

He says, "I do so much. I do more than any other husband we know." And he's right, but here's the difference. He'll take them to the doctor, but he won't think ahead that it's time to go. When I say, "It's time for the shots," he can execute the plan. It's not like he's not capable. It's all about people's expectations. If I were hit by a bus, I'm sure my kids would get physicals every year.

I'm constantly thinking, "They need more fruit." I should learn to make fresh fruit smoothies. People think I'm adding up important numbers in these meetings, and I'm worried if there are fresh raspberries at the Farmer's Market.

You can drive yourself crazy. Did they get peanut butter four days a week and other mothers give them different lunches every day? It's not possible to be a perfect mother. It's not possible to be a perfect CFO. I try to choose what's really important and do those things as perfectly as I can. If they don't get fresh fruit smoothies every day, it's not really that important.

Was there a "do or die" moment in your career, where you had to make a hard choice to get where you are now?

There was. When my third son was born, I got to work and I was miserable. I felt disorganized--that I wasn't doing a good job at home or at the office. I obsessed about it and decided I was going to ask for a flexible schedule. Not work Part-Time, because that wouldn't work, but to work at home one or two days a week. I finally worked up the courage to ask, and they said, "Absolutely. If that's what you need." These were people I had worked with for ten years, and they knew that I would get the job done. If they had said, "No," I probably would have left. The one decision that my husband and I made was that if both of us working was a detriment for the kids, one of us would leave. I would have left, versus him, because, the truth is, I'm a control freak.

The message keeps being, get your boss invested by being a great support team and partner with him/her. If you're just doing the job and clocking in the hoursÉ

I think that's right. I think it's your attitude. I had such an opportunity that it becomes circular. I wanted to do a better job. I was willing to do anything, low-level tasks as well, and I was willing to work when he needed me to. I still took vacations. I have kids, so I was at home at some point, but it's about confidence and trust. It is a risk for someone in that position to say, "OK, you can work from home."

Were you a natural leader as a child?

I guess maybe, yes, but it didn't come easy. My family is very conservative and my mom is a stay-at-home mother. At some level, you always see yourself as right out of college or business school. I'm not sure that is a woman thing. It was very hard to take that last step. Sometimes I look around and think, "All these people work for me!"

What was hard about taking that last step?

Before, there was always someone else responsible. There was still an expert above me who made the hard decisions. When all the eyes in the room are waiting for you to make the decision, that is absolutely terrifying. Once you make a couple and nothing falls apart, then it gets easier.

So how important are bubble baths to maintaining this career/life balance. Sorry, I have to ask. We know you had a few. I mean, you have three kids.

Kristina M. Leslie, Chief Financial Officer DreamWorks Animation SKG

At my worst moment of stress, my husband is amazing. He knows not to say, "Don't worry." That is a non-starter. Obviously I'm worried about it. He reminds me that no one is going to die based upon the decision I'm making. Five years from now, this is not the thing that defines your life. He'll arrange for a night away. He'll call and say, "I got my mom to care for the kids, and we're going to the Ritz over night. We'll have dinner and get massages."

He's pretty good at planning that! Let's talk about the value of education. I want to start very, very early. What was in your kindergarten picture, the one you draw showing what you want to be when you grow up?

I'm sure the picture would have been a mother.

Your dream came true! You are a mother. When did you gravitate to math? You did graduate with a degree in economics.

I was a very good student, and I knew what my strengths were. My decision-making and life are very black and white. I feel comfortable in that setting. I like solving problems where there are concrete answers, as opposed to marketing, my husband's field, where things are more grey.

With preschoolers watching, on average, a video a day, how important is it for animated films to portray girls doing normal things, like math? The See Jane Foundation reports that we've still got far more Little Mermaids than we have Mulans.

There are so many important parts. There are their family situations. Their friends' family situations. But I completely agree with the point, because, at the end of the day, it's important for kids to see all aspects of life.

So, there is room for traditional roles and for career paths. It seems that your message is, "Don't be judgmental. Let women and men have choices."

One of the hardest things is the feedback you get from other women who don't work. They feel a lot freer to say things to me, like, "Your job is so exciting, but I don't know how you can leave your kids!" It would never cross my mind to say, "How can you stay at home? You must be bored out of your mind!" I would never say that!

You know better! You may be bored, but you are busy as heck! Geena Davis, the founder of the See Jane Foundation relates a story from Stuart Little when the Assistant Director was setting up a boat race. There were a bunch of extras. He gave all of the boys the remote controls for the boats, and then positioned the girls behind the boys to clap and cheer. Geena asked him if he would give half of the remotes to the girls. Can you imagine what he said?

(Kris shakes her head.)

"What a great idea!" Geena, with that gorgeous smile, was not intimidating to him, and the A.D. wasn't being malicious. He simply hadn't thought of that, and the minute Geena brought it up, he was happy to create that important moment on film. I remember seeing that scene and thinking, "What a great world we live in that someone has finally let the girls play, too!" Now this is where DreamWorks comes in. No one had to tap your CEO on the shoulder and remind him to give women the remote controls. Three out of six senior executives at DreamWorks Animation are women! What's up with that?

I think our CEO is honestly gender blind. He's about the people and about capabilities and I don't think it ever crosses his mind that we are all women!

So, there's no crying in the boardroom?

It's not a crying bunch.

Do you think that it's important to be gender neutral at work? While you may not cry, do you embrace your feminine qualities at work?

Yes, I think that's important. If I have any weakness, one that keeps coming up is that I'm not assertive enough, that I need to continue to be assertive when people are rude or disrespectful. Entertainment is a tough business to work in. I wasn't raised that way. I think, "Go ahead. Have your moment." But, I'm never going to participate in that sort of behavior.

I get that on television as well. Some of these networks encourage pundits to snap and bite at one another. At some point, the moderator always stops the fight, and then says, "Natalie, what do you think?" At which point, I muster up as much femininity as I can to slide in my sound byte. I think in the combat zone, the voice of calm and grace is important.

Ultimately it's not about gender; it's about behaving professionally. I don't cry at work, but that is because I don't think that is professional behavior.

Have you ever felt like crying?

Yes. Many times. That's when I need to go into my office and shut the door.

Like going in your room when you feel like strangling your kids, right? Or am I the only one who ever felt that way?

No. I've felt that way. This morning, in fact.

What's the most fun thing about being the Chief Financial Officer? Is there ever a moment when you close the door and say, "Yes! Yes!" (Feel free to relate back to the bubble bath question.)

No. I don't close my door and say, "Yes!" But I wanted to do something that is really interesting and challenging. The CFO was a risky job to take. It's very, very challenging.

I'm not sure when DreamWorks will be putting out a Kris Leslie doll, but you are definitely a role model for young women and girls. How do you feel about that?

The world I live in is all boys. To me, one of the most important things I'm doing is to be a role model for my sons. If my sons were here right now, they would think this conversation is funny - that for some people women in important jobs is something unusual. This is all they know: that moms and dads can both have important jobs.

Well, Kris. 100 years ago women couldn't vote. It took 193 years to put women on the Supreme Court. 20 years ago, no woman headed a corporation that she didn't inherit. (Christy Hefner was one of the first female CEOs, as the head of Playboy.) Today, about 13.6% of boards have women, and I'm here interviewing you, the CFO of DreamWorks, who had no affiliation with entertainment when she got her first job at Paramount! We've come some way, and we should acknowledge that. In today's world, we're allowed to do things differently than women were allowed to do even 20 years ago. Can you tell the difference between men who have been dealing with women in leadership positions for a long time, and those who are just getting used to having women at the table?

When we took the company public and went on a three-week road show, during most of those meetings, I was the only woman or one of five women. The CEO and Chairman were both men. A lot of the men, when I would start talking, would immediately be on their Blackberry. But a lot weren't. I do think we've come a long way. When the CEO put me in my position, that was a signal to others.

Is there one final point that you wish to make for women hoping to achieve your level of success in balancing both career and family?

I think one of the mistakes that women make is that they don't ask for what they need. If you are open and flexible, I think you can do both.

This is important. To have the courage to ask, and to make sure that you have built up the trust and confidence of your boss/mentor before you need it, right?

If you are so unhappy that you are thinking you have to work less or quit, you have to ask for a flexible schedule or reduced hours. You're there any way. I know not everybody will have the same luck that I did when I asked, but people today invest so much time and energy in their employees. I've spent a lot of time investing in those people, and I would much rather work with the people I have and trust than to have a hard, fast rule for everyone.

Kristina Leslie has served as chief financial officer of DreamWorks Animation SKG since its IPO in October 2004. Previously, she served in the same capacity at DreamWorks Studios SKG since the fall of 2003. She holds an M.B.A. from Columbia University and a B.A. in economics from Bucknell University. DreamWorks Animation won the first-ever Academy Award® for Best Animated Feature Film with Shrek. Shrek 2 ended its theatrical run as not only the highest grossing animated feature in history, but also the third highest-grossing film of all time.

This excerpt was taken from a keynote luncheon Q&A between Kris Leslie, the CFO of DreamWorks, and Natalie Pace, the CEO and founder of NataliePace.com on March 24^th, 2006, at the Inamed Academy's Women's Leadership Conference in Sherman Oaks, California. Special thanks to the co-chairs of the conference, Fran Lotery and Lois Phillips. If you are interested in attending or sponsoring next year's conference or if your corporation might be interested in promoting women's leadership in a conference of its own, please contact info@NataliePace.com, and we'll put you in touch with them.

My Life as a Corporate Goddess.

by Jane C. Rosen. (Book Excerpt)

"You must be the change you wish to see in the world."
~ Mohandas Gandhi

"There is sexual tension in the workplace. If only we could bottle that energy we'd have enough to light the Strip in Vegas. Or, perhaps women could use it to move a few corporate mountains. Even better, let's shatter the collective glass ceiling once and for all." Jane C. Rosen

 

If the Goddess could share the Acropolis with the great Gods of Greek mythology, then why can't she take a seat alongside the mere mortals of the corporate boardroom? There seems to be plenty of room up there for intelligent leadership, and God knows there are brilliant women leaders ready to pitch in and change the world.

What exactly is a Corporate Goddess? The mere suggestion conjures up images of voluptuous, large breasted beauties wearing silky togas and strappy little sandals, nibbling grapes from the hand of their muscular Adonis-like assistant, while reviewing long scrolls of quarterly financial reports. Nice work if you can get it.

Much like the ancient Greek goddesses who danced in the Athenian moonlight, the Corporate Goddess shimmies her stuff in the office fluorescents. Destined to lead, she does so with her own style, grace and a dash of flair. She is evident in all women who dare to howl at the moon, who can sing "Respect" with the same grit as Aretha, and who have the guts to follow their dreams.

This goddess is a compelling role model for our time. She is the link between our past and present, the universal feminine who once reigned in both Eastern and Western cultures. She defines compassionate leadership as well as wisdom, creativity, joy and sensuality. She evokes personal connections to complex feminine archetypes from our experiences with literature, theatre, philosophy, psychology and anthropology, all of which coincide with today's executive women trailblazers. She is the powerful feminine that compliments the powerful masculine. And just like those statuesque, toga wrapped beauties, she is poised to take her place at the top of the corporate ladder, while looking fabulous, of course.

Think back to all of the women trailblazers who went before us. They struggled to fit into the male-dominated corporate world. Too often they sacrificed their womanly selves to fit into the boys club simply so they could do their jobs. They forfeited their joy, concealed their femininity behind man-like suits, and worked their tails off to pry open a few doors for the rest of us. They gave women an amazing gift and thanks to them we have more opportunities than ever before, and we no longer need to hide the fact that we are women. We should honor them everyday by being the fabulous Goddesses we are and by celebrating that we are uniquely different from our male peers. I say vive le difference and let's dance the leadership tango with a red rose between our teeth.

Granted sexual tension is still alive and throbbing in the work place, bringing with it a truckload of issues. Show of hands, how many times have you felt the eyes of the guys on your ÔAphrodite' as you walked into a meeting? How many times did a client take comfort in your nurturing nature, telling you more than you ever wanted to know about his personal life while the guys on your team stood mute with their Bic in their hand? How many times have the guys stopped talking when you entered the room leaving you to wonder if they were talking about their mistresses and fear you'll tell their wives? Or was it football again and they fear you can't comprehend a first down from a touchdown? Or, maybe, they were planning where to go for lunch and fear you'll want to tag along.

There is sexual tension in the workplace. If only we could bottle that energy we'd have enough to light the Strip in Vegas. Or, perhaps women could use it to move a few corporate mountains. Even better, let's shatter the collective glass ceiling once and for all.

 

Throughout her career, holding executive positions ranging from Director Of Executive Public Relations, Global Project Manager of Senior Leadership Development, Executive Producer, Producer and Director, Jane Rosen was usually the only woman in the room. Her book, My Life as a Corporate Goddess, takes a daring sacrilegious approach to the issues women face, what they've accomplished, what hurdles remain in the climb up the corporate ladder and, how to overcome those hurdles in designer heels.

Rosen is scheduled to read from My Life as a Corporate Goddess at The Forbes Executive Women's Forum at The Breakers Pavilion, in Palm Beach, FL, on May 8. She and 85 Broad's founder Janet Hanson share a 30-minute session preceding the presentation of the annual Forbes Trailblazer Award to Gloria Steinem, co-founder of Ms. Magazine. You can purchase My Life as a Corporate Goddess by Jane C. Rosen NOW at: http://www.mylifeasacorporategoddess.com

Great Mother's Day Gift Idea:

by Natalie Pace, NataliePace.com CEO and founder

ROSE-SCENTED SUGAR SCRUB

Ingredients
4 - 24 oz. packages of turbinado sugar
8 oz. avocado oil
8 oz. almond oil
8 oz. grapeseed oil
4 oz. jojoba oil
4 oz. Vitamin E oil
ý tsp. grapefruit seed extract
3 oz. maraschino cherries (with fluid)
5 drops concentrated rose oil

Puree cherries. Set aside. Mix oils together. Add 5 drops of rose essence, grapefruit seed extract and blended cherries.

Measure sugar in desired container. Pour sugar in a separate bowl. Add oil in a ratio of about 2 parts sugar to 1 part oil mixture. (You want enough oil to cover but not drown the sugar.) Fold the oil into the sugar mixture with a minimum amount of strokes (to keep the sugar granules from dissolving). Pour the scrub into the container.

Decorate the container, and include the recipe when you give the scrub away as a gift.

This recipe uses only the finest oils. The sugar exfoliates the skin, while the oils replenish and soften the skin. Designer scrubs can cost more than $25 for a small container, and they often rely upon inexpensive oil bases (which aren't as luxurious for the skin and leave an oily residue).

I love making a batch of these scrubs for my girlfriends. Let's face it. Mothers work very hard, and deserve to get a great, unexpected gift. And when you spoil your friends with something made with your own hands, they remember it! (Don't forget to make an extra scrub for yourself.)

Peace and love,
Natalie

From Flipping Burgers to Owning Your Own Island.

by Natalie Pace, NataliePace.com CEO and founder.

How tithing 10% to Your Nest Egg will make you a millionaire, even if you're only bringing home $30,000.

Natalie Pace, NataliePace.com CEO and founder

Simple math shows that if you begin tithing 10% to yourself at age 20, you'd be a millionaire by your 51st birthday. That's even if you start investing when you are only making fourteen bucks an hour, and never got a raise or a promotion in the entire 30 years of your career. How's that, you say? Because the stock market has seen 12.5% gains over the last 25 years, meaning your money can do most of the work for you, if you let it.

Here are the basics. Say you make $30,000 annually and each paycheck you pay yourself first, setting aside 10%, or $58/week, for your retirement plan or health savings account. (And here's where your financial planner is key, in helping you decide whether you should be initially plugging money into an IRA, a 401 (k) or a health savings account. Over your career, eventually, it is likely that you'll have all three accounts - and each one of them can be diversified into stocks, bonds and the money market for optimum gain and risk maintenance.) Your first year's deposits would earn $375 on average, based upon the performance of the stocks market, as measured by the 12.5% annualized performance of the Dow Jones Wilshire 5000 for the last 25 years. By year 10, your deposits would total $53,935.71, with gains of $6,741.96. And this is assuming the worst-case scenario, which is that you are still only making $14/hour, still only depositing $3000 per year into your annual fund. Your money has really started to work for you. While you rest easy at night, your money is depositing over twice the amount that you deposit from your day job into your nest egg!

By the time you're 40, assuming you started at the age of 20, you would have a total amount, including deposits and returns, of $229,082.25. That year, based upon the 12.5% average, your money earned roughly as much as you did on the year, bringing in $28,635 in returns. By the age of 45, your money makes almost double your salary, with gains of $57,007.80. At the age of 51, your money is making four times your salary, at $112,517.71 returns on a nest egg valued at roughly $900,000. At that point, flipping burgers hardly seems worth it anymore, and you can retire to that island if you choose to!

So, the numbers work very much in your favor if you start investing early and regularly. So, just do it!

You can open an account with most online brokerages with an initial deposit of $500. Most have a wealth of information on IRAs, 401 (k)s and the popular new health savings accounts (funds that can be withdrawn without penalty before retirement, in the event of a catastrophic illness). For a list of links to major online brokerages, click or access the online discount brokerage listing on the Investor EDU section of NataliePace.com.

So, step one is definitely pay yourself first! Tithing 10% to yourself is the most important career move you can make to a brighter future.

From there, you need a good plan on where to invest. Here's where it gets a little more tricky, but a few important considerations that you need to start researching and understanding.

1. Risk tolerance
2. Asset allocation
3. Diversification
4. Exchange Traded Funds versus Mutual Funds
5. Don't get drunk on headlines and other money-losing propositions
6. Regular check-ups
7. Real estate*
8. Use a small portion to learn on (higher risk for higher gain)
9. Your broker is the most important partner decision you make, outside of your marriage partner

And don't forget that the Dow Jones Wilshire 5000 index (considered to be "the stock market returns") brought in 12.5% over the last 25 years (source: Hulbert's Financial Digest). So, simply investing in the stock market and leaving it there is far more important than waiting until you know everything about stocks and/or getting too fancy about market timing or picking stocks.

So, $3000/year brings you a nest of: (10% of $30,000 annual or $14/ hour)

From burgers to the beach! You've arrived!

Swim with Zillionaire Dolphins and Avoid Zero Sharks and Tuna.

by Chellie Campbell, author of Zero to Zillionaire

Chellie Campbell, author of Zero to Zillionaire

I divide the world into two groups: My People and Not My People. My People are DolphinsÑhappy, friendly, and rich. Not My People come in two species: Sharks who want to eat youÑor Tuna who want to complain to you. You can tell who's who by the way you feel after you've been with them, and the state of your bank account. Dolphins put money in your pocket and a song in your heart. Sharks rob you and leave you bleeding. Tuna cry for you but can't help you. If you want to be wealthy, you have to learn to be a Dolphin and choose your friends and co-workers wisely. Don't borrow from a loan shark. Don't ask unsuccessful people for career advice. Get Zillionaire advice from Dolphins, and you'll become one yourself.

This is how to tell which sea creatures you've been swimming with:

Dolphins: You feel good and you are rich.
Sharks: You feel bad and you are broke.
Tunas: You feel tired but you broke even.

Sharks sneer at books like this one. Why would anyone need a book to tell them how to be successful? Kill or be killed is all you need to knowÑit's survival of the fittest, dummy. Tuna don't read books except as a vehicle to beat themselves up with and cry, "Oh, no, this doesn't work for me, either. Nothing ever works for me." Dolphins value learning and growing; they read books, take workshops, attend classes, listen to CDs, and are always improving themselves and the world around them.

When you learn to surround yourself with Dolphins and avoid Shark and Tuna, you will be richer and happier, and so will your friends. You'll be a Zillionaire among Zillionaires.

Dolphins
Dolphins are friendly creatures; they swim in groups called pods. They are intelligent and communicate with each other. They are playful, jumping for the joy of it in graceful arcs above the waves. They have been known to ward off Shark attacks and protect other fish in the sea. 

People who are Dolphins are generous. They love to share the wealth and always make sure there is enough money left on the bargaining table so that everyone feels they've made a good deal. They'd like nothing better than for everyone in the world to be rich, but they understand that you have to work for it. Because of this, they are wonderful mentors and teachers and are delighted to share their secrets of success with you. They give you honest feedback, but only when requested. When you swim in the company of Dolphins, you feel empowered, energized, and uplifted. You feel better about yourself and the world around you, and you have more money, too. You will always find Dolphins swimming alongside your golden treasure ships.

Dolphins praise you and pay you.

Dolphins play Win-Win.

Sharks
Sharks are eating machines. That is their sole purpose in lifeÑeating. It's not their faultÑthey were born like that. They are big and have big teethÑthe-better-to-eat-you-with-my-dear. They are on the hunt. The music plays "Do-do, do-do" and then they pounce. The world is their oysterÑliterally. They see everyone else in the world as dinner. That includes you.

Sharks are sometimes rich, but don't enjoy their wealth because the word "enough" doesn't exist in their vocabulary. Sharks don't share with anybody, because their constant thought is "Me, me, me, I, I, I" so there is no room at the dinner table for anyone else except on a plate. You will see Sharks swimming alongside pirate ships and black plague ships.

There are two kinds of Sharks: Angry Sharks and Con-Artist Sharks.

1. Angry Sharks. They are completely self-obsessed. They have no empathy for other peopleÑthey just can't tell that you have thoughts and feelings just like they do. You are food. They are angry with life and the world and are going to take it out on you. These sharks tend to scream and yell and throw tantrums in order to get their way. They will tell you everything that's wrong with you if you give them an opportunityÑlike if you say, "Hello." Powered by rage, they are fearsome to behold. They rip you apart right away.
2. Con-Artist Sharks. They are Sharks in Dolphin's Clothing. They pretend to be your friend and imitate Dolphin behavior in order to get close to you. They have charisma, a hail-fellow-well-met bonhomie, and a ready smileÑthere's no such thing as an obnoxious con artist. But look in their eyesÑyou'll see nothing but calculation. They are running numbers, figuring what you are worth and how they can take advantage of you. Their offers sound so fabulous! You suspect maybe they're too good to be true, but what if it really is your lucky day at last and this is a fabulous opportunity for you to get rich?? So you throw your skepticism into Davy Jones' Locker and board their Pirate Ship to search for the treasure. But you're the treasure and now they've got you walking the plank into their jaws. They are your best buddyÑuntil they slowly rip you apart.

After you've been swimming in Shark-infested waters, you feel hurt, wounded, and betrayed. And usually, you are broke, too.

Sharks could pay youÑbut they don't want to. They want all the money for themselves.
Sharks play Win-Lose.

Tunas

Tunas are food for the Sharks. They are the Victims of the Universe, and they wear their martyr crowns and title sashes proudly. They talk endlessly about how awful life is and how badly they've been treated and how it isn't their fault. It's a one-way conversationÑall they want from you is a sympathetic "oh, you poor thing!" now and then.

Tunas complain a lot and don't accomplish much. They would love to share but they can't because they're broke and could you please invest in their business or loan them some money so they can save the world through their non-profit organization? You will find Tunas swimming alongside fishing boats, looking for a handout. They get hauled in instead, and handed out to someone else. They don't get dinnerÑthey are dinner.

Tunas come in two species: Angry Tunas and Timid Tunas.

1. Angry Tunas. They are the "Ain't It Awful" or "Doesn't It Suck" people who complain endlessly about everything. They never do anything about anything, mind you, they just whine and complain. "Life is Unfair" and "What's the Use" are their mottos. Angry Tunas will hurt you almost as badly as a Shark will, but they will do it through passive-aggressive behavior. Their inaction will cost you a contract, cost you a friendship, cost you a fortune. And they will get huffy if you say anything to them about it, because They Are Blameless. Nothing is ever their fault.
2. Timid Tunas. They never do anything either because they are afraid. They mask their ineffectual behavior under the guise of being Self-Sacrificing and Good-Hearted, but really they are just Victims. They justify playing with Sharks saying, "Oh, there's really a Dolphin in there somewhereÑI'm going to help them find their inner Dolphin," meanwhile completely oblivious to the fact that they're missing a fin and the blood in the water is their own. Timid Tunas won't cause you direct harm, but they will make you really, really frustrated.

Both kinds of Tunas end up as dinner. And you'll be in the frying pan with them, salted and breaded, if you swim with them very often. After you've spent some time with Tunas, you feel tired, depressed, and need to take a nap. It's hard to get anything done after that.

Tunas can't pay you. Tunas have no money.
Angry Tunas play Lose-Lose. Timid Tunas play Lose-Win.

Life is great and you can have what you want! But you won't get a great life by crying over not having one. That's a plea for negative attention and I risk my own health and wealth if I swim with you too long.

Dolphins are Your People. Listen. Underneath the noise and squawk of a billion people, Dolphins are singing. Find them and swim with them.

Chat one-on-one with Zero to Zillionaire author Chellie Campbell on Wednesday, June 14^th at 8:45 a.m. PT (11:45 a.m. ET) about how to transform your dream business into a dream come true. Learn how to make the personal changes and personal choices (from affirmations and visualizations to choosing great partners and staff) that will allow wealth to be attracted to you. (Subscribers only. You can register for 90 days free now on the NataliePace.com home page.)

R&R = Energy.

by Gary Kobat.

Recharge the old fashioned way - in a hammock.

M-M and Cary Stratton Recharging Photo: M-M Stratton, Megorama.com

The greatest remedy for being tired isÉ no, not coffee, spinning, alcohol, espresso, chocolate bars: it's rest and sleep. Remarkable recuperative effects are well known about rest and sleep; an area that evidence is not demanded to prove that they work.

We spend about one third of our lives in sleep; without these natural restoratives - health, fitness, and longevity are virtually impossibility. (psst: every bit as essential as air, water, and food.) Did you read that? Every bit as essential. It is in these periods of rest and sleep that the body "recharges" your stores, reenergizes itself, rebuilds, and prepares itself for renewed activity.

You would be making a HUGE mistake to think that your nights are any less significant than your days; at night we may appear to be passive, but in actuality something within us is intensely active, recharging us for the next day. When we are active, we expend energy, when we are passive we rebuild energy. It's interesting, maybe even sad, that we think of energy in its expenditures, never in its accumulation. The body and all of its' organs and processes need to be recharged, just like an electric carÉ. recharging to preserve health, improve your outlook, get the job done, set a personal best.

Rest and Sleep are two essentials of energy, of life, that are beyond description, yet unrecognized by most people. Essentially, sleep is a period of unconsciousness, where rest is inactivity: the curtailment of energy expenditure which permits the body to redirect energies to restoration. Resting or napping is virtually a bad word in this "succeed at any cost" modern mind set. But you know, you've experienced it before, when you close your eyes for a few moments, you "come to" and are refreshed or invigorated; those that can't or don't probably need a three hour nap, or even three days off.

Actor Will Ferrell and life & fitness coach Gary Kobat Finish the 10k in Brentwood, California at a Personal Best Photo Credit: Julia Henderson

Drinking those innocent cups of coffee can take up to 24 hours to pass thru one's kidneys and urinary tract challenging your sleep patterns for days; those who work or sleep in stale air are effected; those who practice infrequent exercise allow waste and toxins to build up and ferment effecting one's sleep; but by far the biggest factor that effects one's sleep, or lack thereof, is poor FOOD choices along with the consistent choice of an overall poor, unhealthy lifestyle plan. The more toxic you are, the less sleep you get, the more toxins in you, the less sleep you get, and the more superwoman or superman choices you make (we call these "withdrawals") without the restoratives to add back, the less you repair or recharge for the long run for that all important day, workload, celebration, family outing, new job, or world class race.

There is really no such thing as oversleeping, the body will not sleep beyond need; consciousness returns when recharging, restorative needs have been met. But under-sleeping, ouch: an epidemic! (talk about sabotaging one's well being) You would never think about living without air, water, or fuel, would you? Why without sleep or rest? Unbalanced rest and sleep are a surefire way to put on weight, feel tired, stressed, moody, invite disease, have poor digestion, impaired elimination, feel anxious and so on. The hours of sleep you get before midnight are the most restful and the most valuable! Women outnumber men, 2-1, for insomnia, and, for sleeping pills.

Here are some common sense rest definitionsÉ.

1. Physical rest:: sitting, laying, no physical activity.
2. Sensory rest:: close the eyes, no activity.
3. Emotional rest:: removing yourself from the ups and downs of political or personal interactions.
4. Mental rest:: detach the mind from intellectual demands.

Remember: resting and sleeping are not a sign of laziness, they are intelligent and productive uses of your time. A rider on the "Tour de France" who gets one extra hour of rest and sleep each night accumulates 24 more hours, or a WHOLE DAY of recovery more than their competitors by the end of the tour.

Your key energy formula? Energy IN less energy OUT.

Review your intake and expenditure of energy daily: It's simple arithmetic. Create an energy balance, an energy inventory, or energy bank account value, just like your bank balance.

What's your energy bank balance today? No balance? Out of energy? Then no spending please: remember, there are no credit cards or lines of credit when it comes to energy.

Have to change some thinking about energy? GoodÉ it just may very well change your life.

Train smart. Live, race. and recover smarter.

A passionate life and fitness coach, world-class athlete, author, and keynote speaker, Gary Kobat works one-on-one with select individuals, customized mastermind groups, and larger goal oriented teams for lasting personal and professional change. If you are interested in joining a group or for a private consultation, email him directly at: gary@e-coach.com.

Investing is Not Surgery. Money is not cancer. Brokers are Not Surgeons.

by Natalie Pace, NataliePace.com CEO and founder.

Why wise, informed, personal, daily, healthy choices keep you fiscally fit.

If I had a dime for every time someone used the metaphor that people do not perform surgery on themselves as an example of why people shouldn't learn about investing, I'd rule the world by now! Yes, I think the average person is too green to perform surgery, but they are not to green to eat right, exercise and stay in shape so that they don't need the surgery in the first place. Investing is not surgery. Money is not cancer. Brokers are not surgeons. Brokers are salespersons, and those who try to make you think otherwise, are not qualified to be a surgeon any way and are trying to sell you something.

How much education and experience does your prospective broker have? What is his/her return rate? How many patients' portfolios have bitten the dust? How long has s/he been in business? Has s/he ever had a complaint filed with the NASD? These and other questions are important to ask of anyone who wants to do surgery on your nest egg (and again, your nest egg needs nurturing and nutrients, not surgery!). To get the list of questions you should be using to INTERVIEW your broker (salesperson), review the article, "Brokers and Lovers, It Pays to Pick a Good One," on the Investor Edu section of the NataliePace.com web site. This is step one in taking charge. Commit to making sure that you have a talented, honest and trustworthy financial planner.

Again, the "investing is surgery" metaphor is a sales sound byte that is intended to scare you into submission, not empower you, and certainly not to enrich you. It's a tactic used to convince you to relinquish control and put someone else in the driver's seat of your money. A Great broker can be an invaluable PARTNER, but there is a HUGE DIFFERENCE between giving them complete control over your money (like you would a surgeon who is saving your life) and between utilizing their information and experience to make better-informed choices about where you are headed, how much risk and return you can expect, and what you are going to invest in.

Quite simply, money is power. If you want to change the world, one of the easiest ways to do that is to put your money where your mouth is. Anyone who lobbied against cigarettes and the tobacco companies would be dismayed to know that they are very likely invested in Altria through the mutual funds in the retirement plan. Anyone who believes the polar ice caps are melting probably cares about supporting "green" corporations and making sure that they are not funding corporations that are gross polluters.

Below are a few of the MAJOR differences between brokers and surgeons, which helps to explain why, even if all you care about is outstanding return on investment, you need to remain in charge of your fiscal health and why you have to be VERY selective to ensure that you have an honest, experienced financial partner who is promoting your best interests.

1. Education: If investing were as difficult as surgery, brokers would go to medical school for seven years AFTER they received their bachelor's degree, like surgeons do. Reality: Brokers do not have to have a Bachelor's Degree, nor do they have to receive any advanced education degree. To receive certain designations behind their name, they do have to pass a series of tests and complete ongoing education. Many people do not realize this and place far too much power in salespeople (brokers are salespeople NOT surgeons) whom they hardly know.
   
   
2. High Turnover: Surgeons don't leave their profession in droves. They have spent years investing in and honing their skills and quite frankly don't know any other professional life. The turnover rate for brokers is very high - during market downturns, as occurred in 2002, brokerages can lose all of the staff on the front line of their offices. Many young brokers try their hand at financial planning because they are disheartened with another career, and a lot opt out of financial services at the first sign of trouble. (So, yes, a key question is how long the broker has been in the field.)
   
   
3. Commission-based compensation: If brokers were surgeons, they'd be paid for saving your life, not according to how many surgeries they sold you. Professions that are highly skilled (doctors, lawyers, architects) are paid by the hour or by the consultation, not by selling you stuff, which is why pharmaceutical companies can't give doctors a commission based on how many pills they prescribe. Brokers (real estate, stock AND bond brokers) are commission-based professionals, and thus the incentive is to sell as much product as possible, NOT to babysit and nurture your holdings into becoming responsible, income-earning grown-ups. Good salespersons (what most brokers need to be) are very different from good financial partners. The slick one that gets you the most pumped up about what they can do for you may not be the person to produce returns and act responsibly with your portfolio. In fact, the honest, experienced professional who really does want to look out for your best interests, is probably bored with the sound bytes, and may be far more humble about what they can achieve. Don't be fooled!
   
   
4. Broker Food Chain: The more experienced and successful brokers move up the ladder to become money managers, vice presidents, analysts and hedge fund managers. If you have a stock portfolio valued at more than half a million dollars, you could qualify for active money management. Many money managers (a higher rung than front-line brokers) have a performance-based compensation structure. When you make money, they make money, i.e. the healthier they keep your nest egg, the more money they make, which puts their incentives in line with your fiscal health. It is imperative, even on this level, to do your homework on the potential money manager, just as if you were looking into the fiancé of your only daughter. Money is not the root of all evil, but the love of money is, and you have to be extra discerning with people who have free access to your cookie jar. Interview them and take your job as their boss seriously.
   
   
5. Healthy Habits: It's easier to take a pill than it is to exercise and eat right, but healthy habits are just that - good for you -- and they enrich and prolong life. The cool thing is that once you get off the couch, you'll find that dance classes are pretty fun, and that your "healthy, exercised" body naturally craves protein, veggies and fruit over chips and chocolate. Likewise, people who exercise their money habits find that they actually enjoy opening their monthly brokerage statements. Each month they get to see how much they've gained! Chances are you spend more time worrying about money than what you would getting smart about spending, saving and investing any way. So, stop mainlining stock charts and watching prices go up and down, and start educating yourself on the fundamentals of sound investing. Choose a Peter Lynch book, and subscribe to a reputable financial publication or stock newsletter. There is a huge difference between the wisdom of a very experienced, very successful professional, like Peter Lynch, and some of the more "popular" pundits, who are loud and assertive, but have never achieved his level of investing success.
   
   
6. Surgeons Promote Good Health. Surgeons see enough disease. They know that there is only so much they can do with their knife, and that healthy habits go a long way to keeping people disease-free and off their cutting table. (Stop smoking. Eat vegetables rich in beta-carotene and protein that is rich in essential fatty acids. Exercise.) If your broker is not giving you great money tips, and is instead trying to convince you that your health should be subject solely to his/her cutting knife, beware! Professionals know that the healthier your money habits are, the easier it is to maintain a strong portfolio. Hypochondriacs and panicked investors are their own worst enemies, smelling disaster at every hiccup and causing disease with stress, worry and by over-medicating. I can't tell you how many people I know who wanted to wrestle their portfolio away from their financial advisors in October of 2002, the 5-year market low. (Many succeeded and lost a lot of money as a result.) Most everyone thought it was only his or her portfolio that was diseased, rather than a flu-rampant winter that everyone had to get through and robust portfolios hardly noticed.

Brokers and Lovers: It Pays t\o Pick a Good One
Now, here's the kicker. Even though brokers are not surgeons, your certified financial planner is the most important choice you'll make, outside of your life partner! (For VERY important tips on how to select your partner in gains, read the article in the Investor Edu section of NataliePace.com!) Please note that online, discount brokerages offer great information for do-it-yourself types who want to go it alone, without a broker.

Check in next week, when we discus a few of the ways that your broker, or online, discount brokerage, can be invaluable.

Can Disney Bring the Magic Back?

by Anthony Diaz

Desperate Housewives Photo Credit: ABC-TV, Disney

Everyone was feeling great with Disney stock up 17.2% year-to-date and dividends up 28.6% since 2003. As I joined my fellow shareholders in a standing ovation at the close of the 2006 Annual Shareholder Meeting, one question ran through my mind: can Disney bring the magic back? One thing is certain. As the Walt Disney Company emerges from the darks clouds surrounding its recent corporate conflict, high-profile lawsuits, and shareholder outcries, it's time to get back to business and get the Mouse House in order.

It was the first shareholder meeting hosted by Bob Iger since becoming CEO on October 1, 2005. Polished, good-humored, and charismatic, he'd been mending fences, establishing and nurturing alliances, and rallying the troops with poise, credibility, and charm. He received considerable praise from investors for his deal to get Disney TV shows on Apple's iTunes, and also for merging Pixar into the Disney fold. While these accomplishments are notable, it's going to take more than a little Pixar dust to address Disney's core operating issues.

Media Networks
Under the leadership of Anne Sweeney, co-chair of Disney Media Networks and president of the Disney-ABC Television Group, this segment has been one of Disney's best performing profit centers, accounting for 43.9% of operating income in their most recent quarter. Quoting Bob Iger from the shareholder meeting transcript published by Disney, "This season, half of the top 10 shows among young adults are on ABC, including such great series as Lost, Desperate Housewives, Grey's Anatomy and Extreme Makeover: Home Edition. And Dancing with the Stars was another great success for us, captivating audiences of all ages."

Disney made a deal with Apple to have commercial-free downloads of some of ABC's biggest hits available for $1.99 each. Since then, the number of ABC shows available in iTunes has grown to more than 60 programs and Disney has enjoyed more than 7 million total paid iTunes downloads, with one million new downloads occurring each week. The iTunes arrangement does have its potential hazards, in particular the problem of piracy where digital-quality episodes can find their way into unauthorized distribution channels including bootlegged DVDs. Soleil Media-Metrics analyst Laura Martin, CFA, said in her research report dated February 6, 2006, "Digital technology, with its ease and low cost of duplication, represents the dark side of technology and a significant challenge to content owners in the form of Intellectual Property Rights (IPR) management." There is also the issue of cannibalization where people switch off their TVs and watch their shows on iTunes, eliminating the cross-promotional opportunities available on the television medium where viewers watch other programs before and after their favorite shows and glean information about other ABC shows, Disney theme park promotions, or upcoming Disney motion picture releases during commercial breaks.

Parks and Resorts
Profit is up considerably in the first quarter of fiscal 2006 as Hong Kong Disneyland posted its first full quarter of operations and the Disneyland 50th anniversary promotion drove business. This segment will face difficult comparisons, however, as the Disneyland 50th celebration winds down this year. The key to continued success is repeat visitation. There were a lot of people who hadn't been to a Disney theme park in years who returned just for the 50th celebration, and these folks need to come back more often and bring their families and friends. An improving worldwide economy should help. Laura Martin told me during a recent interview, "Attendance is highly correlated to global economic health and the value of the dollar relative to other currencies."

Studio Entertainment
This segment has lately been an embarrassment for the Walt Disney Company. In the fourth quarter of fiscal year 2005, it reported an operating loss of $304 million. Things look better in their most recent quarter with operating profit totaling $128 million, but this amounts to a mere 6.2% operating margin. Clearly, this is the segment most in need of improvement. With Pirates of the Caribbean II: Dead Man's Chest slated for release this year, Studio Entertainment should see an upside, but its feature animation, the domain where Disney once stood supreme as the unchallenged champion, has truly lost its luster.

Last year, there were acute concerns that Pixar was going to go with someone else once their deal with Disney expired with this summer's release of Cars. With Iger negotiating an agreement to buy Pixar and integrate them into Disney's animation, worries about Disney in the field of CGI are mitigated. But as euphoric as the reaction to this development has been, it does not come without risk.

After the acquisition, current Pixar CEO Steve Jobs will become a member of Disney's board and be the largest shareholder, owning 6.5% of the company. (Michael Eisner will be the second-largest holder with 1.7% followed by Roy Disney with 1%). The complication in this merger is that Jobs may appear to have greater prominence than Bob Iger, and investors may see Jobs as the one who's really running the show. Given Jobs' stronghold and high profile, Iger and the rest of the Disney board may be getting more than they bargained for if they clash with Jobs.

In summary, Iger has had success as CEO coming out of the gate, but he's only been at his post for a little over six months. Many are seeing the Pixar deal as being just what the doctor ordered to get Disney animation back on its footing, and admittedly, Pixar has had a great run at the box office. But if a Pixar animated film flops, it could derail the Pixar-Disney euphoria. Finally, it will take a delicate balancing act of egos to retool Disney as the Happiest Place on Earth, especially with two new captains of industry, Iger and Jobs, on the same board.

Certification and Disclosures
I, Anthony Diaz, hereby certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific views expressed in this article. I also hereby disclose that I own stock in the Walt Disney Company and have been a shareholder for several years.

Anthony Diaz is the Director of Research at Odyssey Advisors, LLC. He can be reached at 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.

Copyright © 2006 by Odyssey Advisors LLC

An Anatomy of Bear Markets

by Marc Faber

Today, I wish to address the subject of bull and bear markets. This cyclical movement in asset prices, investors will call, when prices are rising, "bull markets" and when prices are declining "bear markets". On the surface this seems simple to understand. The Dow goes up, it's a "bull market", the Dow goes down it's a "bear market". But, in reality, bull and bear markets are far more complex. Let's assume we have just five asset classes. Real estate, stocks, bonds, cash, and gold (or a hard currency for which money supply growth is kept at the rate of real GDP growth leading to stable prices). At present, it is clear that the Fed is printing money. So, all asset prices except bonds will rise in value. But, some asset prices will increase more than others. Since October 2002, the Dow Jones has rallied in US dollar terms, but against gold it has depreciated (see figure 1).

Figure 1: Dow Jones Industrial compared to Gold, 1996 - 2006

Source: www.decisionpoint.com

So, we can say that, yes, the Dow has been in a bull market since October 2002 in dollar terms, but it has been in a bear market in gold terms. This is an important point to understand. In case we should experience continuous monetary inflation, which could lift, over time, all asset prices such as stocks, real estate, and commodities, some asset classes will increase more in value than others. This means that some asset classes while rising in value could deflate against other asset classes, such as happened with the Dow against gold since year 2000. I have pointed out in earlier reports that since 2002, all asset prices rose in value. But recently, some diverging performances emerged. Bonds started to decline and seem to be on the verge of a significant long term break down (see figure 2).

Figure 2: 20 Year Treasury Bond Fund (Leh) iShare (TLT), 2003 -2006

Source: www.decisionpoint.com

I have also mentioned in earlier reports that, in times of monetary and credit inflation, such as we have now in the US, bonds are the worst possible long term investment.

Another asset class, which has recently begun to depreciate against gold are home prices (see figure 3)

Figure 3: US Home Prices in US dollars and in Gold

Source: The Value Gold Report

As can be seen from figure 3, since last summer, home prices while only declining moderately in dollar terms, have declined significantly in terms of gold. So, whereas it took over 500 ounces of gold to buy a typical house in the US last summer, now, it only takes around 380 ounces of gold. In other words, home prices have declined over the last 9 months by 25% against the price of gold!

What I really want every reader to understand is that bull and bear markets are extremely complex and an asset class, which seems to be in a bull market may not necessary be in a bull market when compared to a hard currency such as gold. In this respect the following is also important to consider.

Conventional wisdom has it that a true market bottom, which offers an once-in-a-lifetime buying opportunities, only occurs after a devastating bear market. In this context, the following severe market declines usually spring to investors' minds: the 1929-1932 bear market in US equities; the collapse in the US bond market between 1970 and 1981, when yields on 30-year US Treasuries rose from 6% in 1970 to 15.84% in September 1981 and sent bond prices tumbling; the 1973-1974 Hong Kong stock bear market, which brought the Hang Seng Index down by 90% to its December 1974 low at 150; the great sugar bear market, which sent prices down from 70 cents per pound in 1973 to 2.5 cents in 1985; or the Japanese bear market post-1989, when the Nikkei dropped from 39,000 to less than 8,000 in April 2003. Moreover, major market lows are associated by investors with total despair and panic among market participants, depression in the asset class that was subjected to the bear market, bankruptcies in that sector, and overwhelming negative sentiment.

But, as Russell Napier shows in his recently published book Anatomy of the Bear -- Learning from Wall Street's Four Great Bottoms the key element in undervaluation can also be a period of time "when the advance in stock prices has failed to keep pace with the economic and earnings growth" within the system (The book - an excellent read - is available from Amazon.com or from CLSA directly. Contact victoria.tang@clsa.com).

Napier shows, for instance, that at the market low in 1921 the Dow Jones Industrial Average was no higher than it had been in 1899 -- 22 years earlier -- while nominal GDP had increased by 383% and real GDP by 88%! Similarly, by August 1982, the Dow Jones Industrial Average was no higher than it had been in April 1964, and was down by 70% in real or inflation-adjusted terms. According to Napier, August 1982 represented the fourth-best buying opportunity for US equities in the last century, aside from 1921, 1932, and 1949 (see figure 4). The important message one might take from Napier's book is that it usually takes a long time -- about 14 years -- for stocks to travel from overvaluation to undervaluation, and that the nominal low in stock prices isn't always the best time to buy equities. What is more important is the real level of equity prices and various valuation parameters that indicate deep undervaluation. Thus, while the Dow Jones bottomed out on December 9, 1974 at 570, and stood at 769 at its August 9, 1982 low, in real terms the Dow had lost another 15% since the 1974 low (see figure 4).

Figure 4: Dow Jones Industrial Average in Real Terms, 1884 - 2006

Source: Ron Griess, www.thechartstore.com

I am mentioning this because it is possible that the October 2002 lows for the US stock indices will hold in nominal terms. However, as I have shown above, the Dow has been declining in gold terms since 2000 (see figure 1) and is, in my opinion, likely to continue to do so for many years. As a side, Russell Napier has filled a void with Anatomy of the Bear, since, to my knowledge, it is the first book to trace the swings from undervaluation to overvaluation and back to undervaluation, of US stock prices over the past 100 years. The book also provides much food for thought. If equity prices swing back and forth between overvaluation and undervaluation, other asset markets such as real estate, commodities, and bonds will do the same. Thus, I suppose that, in the same way that US bonds were grossly overvalued in the 1940s, Japanese bonds were grossly overvalued in June 2003, when the yield on JGBs had declined to less than 0.50%. At the same time, the April 2003 low for the Nikkei Index at less than 8,000 may have been the best buying opportunity in Japan of this generation. In fact, the 2003 lows in Japanese equity prices and interest rates have similarities to the 1940s' lows in US equities and interest rates. After the 1940s, US stocks rallied into 1973, but bond prices collapsed into 1981. Similarly, the stock market rally in Japan, which began in 2003, could last for many years and be accompanied by a significant bear market in Japanese bonds, which would drive local institutions and Japanese households out of their overweight bond and cash positions, which benefited during the 1990s' deflation, and into equities and real estate. Moreover, if, as Napier explains, 1921, 1932, 1949, and 1982 provided outstanding buying opportunities for achieving subsequent high returns that tended to last for a minimum of eight years (1921-1929), but usually for much longer (1982-2000), then I suppose that -- taking the late April 2003 low of Japanese equities as a generational low -- the bull market in Japanese equities could easily last until at least 2010 or even longer, and in the process significantly outperform US equities.

Another lesson from Napier's book could very well be that other Asian equity markets, relative to other assets, remain grossly undervalued despite their post-1998 recovery. After all, many Asian stock markets, whether in US dollar terms or in real terms, are still down by more than 50% from the highs reached between 1990 and 1994.

Lastly, if, as Napier outlines, it takes about 14 years for equities to make the journey from overvaluation to undervaluation, the severity of the commodities bear market from 1980 to the turn of the millennium -- about 20 years -- is evident. Put into the proper perspective, in real terms (inflation-adjusted) commodity prices were, in the 1998-2001 period, at the lowest level in the history of capitalism (see Figure 5). And, although I expect some industrial commodity prices will suffer from a significant phase of profit taking in 2006, given the fact that commodity bull markets tend to last anywhere from 20 to 30 years, we may just be at the beginning of an extended rise in the price of natural resources.

Figure 5: Real Raw Industrial Prices, 1800 -2006

Source: The Bank Credit Analyst

There is another point I should like to add to Russell Napier's excellent study, which I strongly recommend investors to read. In a world of rapid monetary and credit expansion, an undervaluation of the Dow Jones might occur, with a Dow Jones at 36,000, 40,000, or 100,000 or more -- a stock price level that was predicted by several analysts in 1999. How so?

At present, the Dow is at around 11,000 and the price of gold is at $590. Let us assume that, as a result of Mr. Bernanke's more efficient paper money printing machine (incidentally, a machine that has been in operation since the formation of the Federal Reserve Board in 1913 and which accounts for the dollar's 92% loss in purchasing power since then), the Dow Jones rises to 36,000 in the next few years. (It won't take another 100 years for the US dollar to lose another 92% of its purchasing power; more likely is 10 to 20 years.) If this were the case, the price of gold could rise from $550 to $3,600, which would bring down the Dow/gold ratio from currently about 19 to 10; or, in an extreme case, gold could rise to $36,000, which would bring down the Dow/gold ratio to only 1 (as was the case in 1932 and in 1980).

Thus, in nominal terms, the Dow would have trebled from the present level, but lost significantly in real terms -- a possibility that I regard as very likely. In this respect, we shouldn't forget that during the German hyperinflation period between 1919 and 1923, share prices rose sharply in paper mark terms but tumbled in dollar terms (then a strong currency), because the rate of the paper mark depreciation against the US dollar exceeded the local share appreciation. Thus, by October 1922, an index of shares in local paper mark terms had increased from 100 in 1918 to 171 billion, while in dollar terms the same index had dropped from 100 to 2.72! Needless to say, the 1918-1923 German hyperinflation was devastating for paper mark cash and bondholders.

Now, I am not necessarily predicting that we shall soon experience hyperinflation rates in the US, but when the Dow Jones and the US housing market will decline by 10%, it is very probable that Mr. Bernanke will put the money printing presses into high gear in order to fight asset deflation. So, US asset prices including homes, stocks and bonds could depreciate in real terms and against precious metals.

Still, as I indicated last month, aside from bonds, all stock and commodity markets seem to be now overbought and vulnerable to a sharp correction. In fact, whereas I am extremely negative about bonds in the long term, I believe that for the next three months or so, bonds could actually outperform equities and also commodities. From figure 6, we can see that equities have formed a rising wedge against bonds since 2005. More often than not, a rising wedge leads to a sharp downside reversal. This would not necessarily imply that bond prices will rally much, but the wedge might be broken on the downside by a sharp downturn in equities.

Figure 6: Global Stocks relative to Global Bonds, 2005 - 2006

Source: Rolf Bertschi, www.credit-suisse.com/techresearch

For this reason, my advice remains to be extremely defensive. Most asset markets including stocks and commodities are extremely overbought, and there is far too much speculation in all investment markets. Therefore, severe downside volatility, also in precious metals, should not be surprising in the period directly ahead.

Marc Faber
GloomBoomDoom.com

Dr Marc Faber is editor of the Gloom Boom & Doom Report and the author of Tomorrow's Gold: Asia's Age of Discovery.

Dr Faber is a contrarian. To be a good contrarian, you need to know what you are contrary about. It helps to be a world class economic historian, to have been a trader and managing director of Drexel Burnham Lambert when the firm was the junk bond king of Wall Street, to have lived in Hong Kong for a quarter of a century, and to have a contact book crammed with the home numbers of many of the movers and shakers in the financial world.

Famous for his approach to investing, Marc Faber does not run with the bulls or bait the bears but steers his own course through the maelstrom of international finance markets. In 1987 he warned his clients to cash out before Black Monday on Wall Street. He made them handsome profits by forecasting the burst in the Japanese Bubble in 1990. He correctly predicted the collapse in US gaming stocks in 1993; and he foresaw the Asia-Pacific financial crisis of 1997/98 and the resulting global volatility.

NASDAQ Doubles Up on the DOW.

by Natalie Pace, NataliePace.com CEO and founder.

Natalie Pace, NataliePace.com CEO and founder.

The stock market has rewarded investors 12.3% annually over the past 25 years (source: Hulbert's Financial Digest). Not bad! For your nest egg, it pays to prune and fertilize, more than to actively trade because trying to get too fancy, for most people, is usually a money-losing proposition and taking a long view is plenty rewarding. However, because the markets have been volatile but largely flat over the last two and a half years, for your short-term portfolio, seasoned investors are looking to short-term gains for better performance. NASDAQ and the S&P 500 have brought in 13% and 10.5% gains (respectively) in 16 months (or 9.75% and 7.9% each year), while the Dow is dragging along at 5.25% per year. By contrast, stock newsletters and money magazines, like NataliePace.com, are reporting much higher returns, with the companies featured in NataliePace.com turning in over 55% gains each year (source: TipsTraders.com).

With the Dow Jones Industrial Average hovering near its 2000 high, there are certainly more blue chips to sell than there are to buy. On the other hand, the Amex Composite Index has shot up 120% since January 2000 and ETFs (which are concentrated in the AMEX) are still gaining in popularity, which means that transferring from mutual funds into ETFs might be a good call. In addition to the momentum, you are also benefiting from lower management costs and brokerage fees. If you want to invest in ETFs on your own, online discount brokerages make it easy to gather important asset allocation and diversification information and to invest. I also recommend that you read Paul Woods' excellent article, ÒWhat the Mutual Fund Salesman neglected to Mention,Ó for the case of ETFs over mutual funds.

Because there is a lot of risk in the markets (high valuation in the Dow, terrorism, rising interest rates, inflation and moderated GDP growth projections), you should make sure that you have a defensive position, particularly in your long-term stock portfolio, that you don't have too much exposure to the stock market (or real estate), and that you have sufficient liquidity on hand to get you through inflation and rising interest rates. Liquidity is one easy form of hedging, and also means you're prepared for any "buying" opportunity that may arise. The money markets are handing out bond-like returns with no risk. Meet with your financial planner to discuss trimming back on your DOW holdings and faded Blue Chips and increasing your money markets holdings.

NataliePace.com contributing writers have written several articles over the last year about the risks associated with the DOW (over-valued, lots of mature blue chips with "legacy" concerns). On the other hand, NASDAQ is still over 50% off of its 2000 high, many of the companies are cash-rich this time around, corporations have begun to invest in infrastructure and unemployment is at a low. That means more computers and software being bought, which is good for technology companies, according to a number of highly regarded analysts, including Smith Barney's Tobias Levkovich. (See this month's quote of the month.)

So, sell in May and go away for the annual summer doldrums? Nah, just do a little pruning and make sure you've got enough liquidity on hand in case things dry up over the summer.

S&P 500 Index Average Total Returns 1928-2002

Stats, Facts, Quotes and Educational Information:

1. There are great and important conferences and events coming up this month, including the Forbes' Executive Women's Conference in Florida (5.8.06), the meeting of the Federal Reserve Board (5.10.06), the Nomadic Museum in Santa Monica, CA, and Mother's Day (5.14.06). For more information, visit the NataliePace.com calendar at www.NataliePace.com.
   
   
2. Higher Interest Rates. The Federal Open Market Committee decided on 3.28.06 to raise its target for the federal funds rate by 25 basis points to 4-3/4 percent, for the 15th consecutive rate hike. While the minutes state that "further policy firming may be needed," Bernanke testified before Congress on 4.27.06 that Òat some point in the future the Committee may decide to take no action at one or more meetings in the interest of allowing more time to receive information relevant to the outlook.Ó The next FOMC meeting is scheduled for Wednesday, May 10, 2006. Click to review the FOMC Minutes from the March 27th and 28th, 2006 meeting.
   
   
3. Don't Buy High. The Dow Jones Industrial Average and the S&P 500 are trading close to their historical highs set back in 2000, while the NASDAQ is still almost 50% off from the highs set back in March of 2000. Investors are still feeling the burn from the NASDAQ crash, but corporations are not. Technology is on a number of analyst's lists for being in favor, while blue chips have a concentration of the corporations that are suffering from "legacy costs." It may be time to lick old wounds and rummage through the research of your old favorite Internet and Information Technology stocks again, while trimming back your exposure on legacy corporations with structural challenges, like automakers, defense contractors, airlines, and/or any corporation established before 1980 that still has a defined-benefit plan (and unions).
   
   
4. Real estate is on everyone's bubble warning list, but one thing to remember is that we haven't received the international vote yet. Just when you think that our high end US real estate is over-valued, the foreign capital moves in! We're seeing that with the Dubai ports situation. There is a lot of interest abroad to buy U.S. real estate. The last time real estate skyrocketed, in the 1980s, the foreign capital, then Japanese, moved into the most desirable locations. Beverly Hills and Rockefeller Center benefited more than San Bernardino, California and Peoria, Illinois. We'll start hearing more about foreigners wanting to diversify and own hard American assets. The U.S. ranks pretty high on the most desirable countries to live in, in the world.

The Federal Reserve Board Open Market Committee (FOMC) Minutes from 3.28.06 noted that, "Anecdotal reports from several markets, surveys of homebuyer attitudes, and data on inventories, home sales, and new home cancellation rates all pointed to a moderation in housing activity. Going forward, participants expected a deceleration in house prices to contribute to an increase in the household saving rate and to weigh on consumption growth."

5. 20 BIG WINNERS, which keeps the companies featured in NataliePace.com at the top in Annualized Returns (according to TipsTraders.com). This hot news article still has the proud honor of featuring twenty companies that have posted positive gains, versus just six that have gone south. Of the six that have gone south, we were most concerned with Krispy Kreme, but with the hiring of Kraft Foods veteran Daryl Brewster as president and chief executive that company seems to be sweetening up. Investors bought in on the news, pushing the price near its 52-week high. Turnarounds are difficult to stomach, even the turnaround of the most popular sweet on the planet. Lawsuits and challenges remain. For OSI Pharmaceuticals, Sirius Satellite Radio and Yahoo, current prices are buying opportunities. Sometimes it takes awhile for the rest of the investment world to realize that. Still love Jet Blue as a consumer, but the sector is in trouble until they figure out how to fly solar-powered planes. Tried to hang with Martha Stewart Omniliving, but, despite a recent jump in ad revenue, the flops were adding up more than sales.

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, and 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. Always consult a trusted financial professional before buying or selling any security.

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 appear to be poised to continue performing well. There are never any guarantees in life, and all stocks are risk-based investments. Consult your certified financial planner before making any changes to your investment strategy.

Stocks in Profit-Taking Range. Note: The news is still favorable on some of these companies (so far) for the long-term (as in Genentech and Google), which means if you have them in your 401K or long-term portfolio, you might want to keep them there. However, for the trading portion of your portfolio, in a market of modest gains but high volatility, many analysts recommend taking profits in shorter windows. A gain is a gain. We may look to add some of these great companies to our hot news list again, if the price point should become attractive (as we did NetGear in March).

Please note: NataliePace.com does not act or operate like a broker. We are a media and information center. This article is intended to educate and inform individual investors, 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 security.

Other articles of interest:
Are GM, Delphi and Delta the Beginning of Japan-like Stagnation for the U.S.? Q&A with Nobel Laureate Economist Gary Becker. By Natalie Pace.
Want a Raise Now? It Could Be a Check Mark Away. by Maya Patel.
The Eastern European Renaissance. This Year's "It" Investment. Article and Stock Report Card by Natalie Pace.
Leave Your Job, Not Your 401(k) By Maya Patel. Discount Brokerages Make Rollover IRAs Easy.
NASD Investor Alert: Putting Too Much Stock in Your Company - A 401(k) Problem
What the Mutual Fund Salesman Forgot to Mention. by Paul Woods, President & CEO of Odyssey Advisors, LLC.

IMPORTANT DISCLAIMER: Information has been obtained from sources believed to be reliable however NataliePace.com LLC does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication 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.

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, 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.