by Natalie Pace.

Includes a Solar Energy Stock Report Card and one little company with a big backlog of orders.

The Pacific Wheel at the Santa Monica Pier is the world's first solar-powered Ferris wheel.

"Everyone is green these days." When Rupert Murdoch says that (reportedly at his management retreat in Pebble Beach last July), you know that Al Gore's Inconvenient Truth is airing well beyond his fan base. The good news in green is that, despite the fact you still can't find a solar brochure at Home Depot, sales of solar energy products are increasing at the speed of (sun) light.

First Solar (FSLR) more than doubled revenues in 2006 from the year prior (to $135 million from $48.1 million). Suntech tripled revenue (to $236.5 million in 2006 from $78.7 million in 2005). And the sector is flush with all kinds of competitors -- not just the well-known startups and a slew of young wannabees, but big names, like BP Solar and GE Solar, as well. A quick look at the list of exhibitors at the Solar Convention in Long Beach in September is a testament to the amount of new capital, new orders, new interest and new competition in a solar sector that largely languished over the past 30 years.

The word is out that green is great, so did you miss the opportunity to invest? First Solar rolled out its Initial Public Offering (IPO) in November of 2006 and initial investors have already doubled their money. Trina Solar Limited (TSL), a Chinese based company, began trading on the New York Stock Exchange on December 18, 2006 and is more than double the price of its IPO, as well. That's unbelievable performance for a sector anytime, but especially during a period where the general marketplace has been very volatile, with flat performance. And with the Department of Energy's Solar Decathlon coming up in October 2007, it's likely that the buzz this year will only intensify.

With that kind of popularity, it's easy to think that your nest egg should contain a basket of solar energy stocks, and if you're willing to watch them like a mother hen, you might be right. Every company listed on our Solar Energy Report Card (click on the title to access) is trading at or near its 52-week high - with the exception of Evergreen Solar. Evergreen Solar's problems, however, are likely to show up in other companies over the next year, and are worthy of note.

Evergreen Solar was the darling solar energy company of December 2005, when pictures circulated of their techs installing solar panels on the National Park Service building at the White House. The Evergreen share price soared 250% on those headlines, but has been falling ever since. What happened? More than three profitable solar companies launched IPOs in 2006. Meanwhile, Evergreen turned in their biggest loss to date in that same year - at -$26.7 million. In their annual report, which was released on February 27, 2007, Evergreen executives acknowledged, "We have a history of losses, expect to incur substantial further losses and may not achieve or maintain profitability in the future, which may decrease the market value of our stock."

Installing Evergreen Solar panels on a National Park Service building at the White House. Photo credit: Evergreen Solar

As I said in my October 2006 article, entitled "Sun Powers Whole Foods, But Not Whole World," "Green CEOs (as in less experienced) will shine and soar and crash and burn by expanding too fast, over-committing to research and development, missing projections due to silicon shortages, neglecting to secure capital when they are in good shape, and scrambling to obtain high-cost capital when the company is on the ropes. Almost everything spooky about NASDAQ 1999 is creepy about Solar Energy today." It seems like anyone with a solar idea scribbled on a cocktail napkin can find funding, and any solar IPO is doubling the minute it hits the boards. Evergreen was a real company with real orders, and they have taken a beating from the competition in cash flow, profits, orders, joint ventures and silicon supply.

Investors are ill-advised to jump with headline hysteria, even though the sector is clearly on fire. A better plan to profit from other people's fever is to invest in the companies that are positioned to lead the sector. Google, eBay, Yahoo and MSN survived and thrived after the dot com burst. Likewise, there will be solar energy stars as well - many with Chinese addresses. (You get to capture two emerging markets with one stock!)

In October of 2006, I added MEMC Electronics (WFR) and Suntech Power Holdings (STP) to my Hot News List. This month, I'm adding two more solar companies - Trina Solar Limited (TSL) and WorldWater (WWAT). Three out of four of these companies look strong to lead their industry. The fourth, WorldWater, has a particular niche that may flourish in an acquisition-hungry environment.

In general, Chinese solar companies benefit from some strategic, competitive advantages. This rapidly developing industry is still reliant on government subsidies, especially for research and development and to secure silicon in a tight marketplace. It was this Sino advantage that really hurt Evergreen last year, when Suntech Power Holdings offered better terms to MEMC Electronics and MEMC pulled out of a silicon supply agreement with Evergreen.

In terms of political agendas, Premier Jiabao Wen went all the way out to Suntech's factories to praise the company and the workers in 2004. President Bush didn't even walk down to the Washington Mall in 2005 (or send Vice President Cheney) to see the beautiful solar-powered homes that were competing for the Department of Energy's Solar Decathlon. Like Suntech Power, Trina Solar Limited appears to have strong Chinese government ties and secure access to capital.

Additionally, the Chinese labor force offers a strategic advantage that is seen in both the sales (production output) and the profitability (competitive wages) of the solar companies. Suntech Power Holdings has more than double the sales of the top U.S. based solar company, SunPower, at $598.87 million compared to $236.51 million respectively, and a net profit margin that is 6% higher, at 17.30% and 11.21% respectively.

So, after all that preaching about profitability and the competitive advantage of China, why am I hyped up over a New Jersey-based company that is trading off the boards, that has never turned a profit and had just $73,638 cash on hand in October, with a loss of over $6.6 million in the first nine months of 2006?

For every 100 companies focused on building with solar energy, there are only a handful focused on solar applications for water. WorldWater & Power Corp. holds two patents, which they believe make their system ideal for large-scale agriculture, refrigeration, wineries, water utilities and wastewater operations. This company has a talented and dedicated team that has worked hard to secure grants, partners, patents and solar solutions for major disasters worldwide, including Hurricane Katrina and the Tsunami along the Asian Pacific Rim.

WorldWater received grants in 2006 from the U.S. Trade and Development Agency (USTDA) and from the New Jersey Board of Public Utilities (NJBPU). The USTDA grant was specifically targeted to a pilot project for water supply in Sri Lanka. This project is designed to assess solar technology methods to provide safe, sustainable water supplies to people in six villages near the tsunami-ravaged southern coast of Sri Lanka. The company was also one of the first companies to provide potable water to Hurricane Katrina survivors, with their MaxPure Mobile solar-powered water purification system.

Gerald C. Finn of NAI Global and Quentin T. Kelly, Chairman and CEO of WorldWater & Power Corp

In the last half of 2006, new orders, revenues and equity capital funding improved significantly for WorldWater. Revenue for the 3rd Quarter of 2006 was the best in the Company's history, at $6.5 million with gross margins of 22%, compared to revenue of $1.5 million for the 3rd Quarter of 2005. The 4th Quarter also saw completion of the company's largest solar project to date, the $7.8 million Farm ACW avocado ranch in California, believed to be the world's largest application of solar for agriculture. Additionally, in November 2006, the Company signed a strategic alliance with EMCORE Corporation (EMKR) wherein EMCORE purchased 26.5% of WorldWater stock on a fully diluted basis for $18 million in cash ($13.5 million on signing and $4.5 million on completion of the strategic agreement before Jan 31, 2007).

WorldWaters' annual stockholder's meeting is scheduled for Thursday, May 24, 2007, at which time shareholders will vote on a proposed reverse stock split that positions the company to move back to the big boards. The 4^th quarter and annual earnings report were scheduled for release on March 30, 2007, but were not available at press time. The company, which estimates 2006 revenue of $17 million, expects to see sales nearly double in 2007 - to $30-$35 million, representing 5 megaWatts of electricity. WorldWater has a steady backlog of solar projects and is bidding on an active pipeline of new opportunities.

WorldWater is a very risky stock, until they secure their reverse stock split, trade back on the boards and turn profitable. It's rare for me to feature a company that is trading off the boards, however, we're highlighting it on the Hot News list this month, because WorldWater looks poised to do all of those things in 2007.

Suntech is up over 35% since we first listed the company in October 2006, however, we believe that there is still further upside in this fast-growing marketplace.

MEMC Electronics is up 72% in share price since our November feature, largely based on the recent headlines on Jim Cramer's site last week. (We love getting in early and then benefiting from other pundit's headlines!) There is a tight market for silicon ingots, and MEMC might not see a lower price in 2007. However, it's hard to get excited about buying at an all-time high when insiders have just sold $3.5 billion. Be patient. Keep MEMC on your shopping list. The markets have been volatile, and there might be another buying opportunity. (This insider selling was probably to diversify the portfolio of the venture investors, who likely had years of investment of capital and sweat equity with no return. Both of the big sellers still own over 12 million shares of MEMC, according to MoneyCentral.)

Trina might be just beginning its' run. The company expects total net revenues in the range of $270 million to $300 million, and net income in the range of $34.5 million to $36.5 million for the full year 2007. Those projections would be over double the revenue and income Trina saw last year. However the company has the talented, international team that could well accomplish that feat.

Other Articles of Interest:
Solar Powers Whole Foods, But Not the Whole World. by Natalie Pace. Why Investing in the Most Abundant Energy in the World - the Sun - is Trickier Than You Think. Vol. 3, iss. 10.
Cleaner & Greener. Is Alternative Energy the Next Big Thing? By Paul Woods, President & CEO of Odyssey Advisors, LLC. Vol. 2, iss. 12
SunPower's Billion Dollar IPO. By Natalie Pace. Vol. 2, iss. 12

The Quiet Revolution.

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

Don't look now Detroit, but something is about to rock your world.

Imagine a vehicle that's completely silent when stopped, produces a quiet whirring sound when accelerating, and produces NO emissions. It has all-wheel drive, room for 4 people, and looks like a car/SUV crossover. Its motors produce the equivalent of 644 horsepower. It will go from 0 to 60 MPH in 3 seconds with a top speed of 155 MPH, which is enough to outrun every Lamborghini currently on the road. For the current cost of a gallon of gasoline ($3), this car will go about 150 miles. It has a range of 350 miles before it needs refueling, and can be refueled in about 10 minutes. The necessary fuel can be made from multiple sources, including wind and sunshine, and none of the fuel needs to come from the Middle East.

The Zap-X

I'll take a guess that your reaction to this is that I've been reading too many science fiction books. A car like this probably sounds like something that will take a long time to become reality and will be absurdly expensive when it finally reaches the market. Believe it or not, there's currently a quiet revolution going on in electric vehicles and the car described is in the process of going from concept to reality http://www.insidegreentech.com/node/677. Don't look now Detroit, but something is about to rock your world.

Killing the Beast
Although electric vehicle technology is still in its early stages, we've already reached the point where the combustion engine is now a noisy, inefficient, poison-spewing beast in comparison. What's amazing is how many politicians, farmers, venture capitalists, and environmentalists seem to believe that, if we can just feed it a fuel that doesn't come from the Middle East, we can keep this beast alive indefinitely. By the time reality sets in, these folks will have poured trillions of dollars from taxpayers and investors down a rat hole.

In spite of huge vested interests in the status quo, it's no longer a question of whether cars with combustion engines will end up in museums, but when. The demise of this 19^th century technology won't come because of hysterical doomsday predictions about global warming. In the end, it will come down to economics. The coming electric cars will be cheaper to drive, more fun to drive (better performance), have batteries that will recharge in the time it takes to fill a gas tank and last 10-12 years, won't require the sacrifice of size or comfort, won't produce emissions, and will be significantly quieter.

Why Hydrogen Will Bomb
Electric cars can be powered by batteries or fuel cells. A fuel cell is an electrochemical energy conversion device that generates electricity from a variety of fuels, using a combustion-free process discovered more than 150 years ago. Since the goal is to reduce dependence on fossil fuels, hydrogen is being touted as the fuel of the future for these, and it sounds pretty good. Cars would require a tank of renewable hydrogen and a fuel cell to turn it into electricity to power the electric cars of the future.

Unfortunately, there are more than a few problems. There is no pure hydrogen anywhere on this planet, so it requires energy to separate hydrogen molecules. All the hydrogen today is produced from natural gas, so we're starting with a fossil fuel, then losing about 60% of the energy in the conversion process. As a result, hydrogen costs will always be a multiple of natural gas costs.

At present, the hydrogen equivalent of 15 gallons of gasoline costs up to $400. In addition, there's the cost of fuel cells to convert this to electricity. Right now, fuel cells appear to be about 10 times as expensive as the next cheapest alternative for powering a vehicle, which is why Honda's current hydrogen fuel cell cars cost around $1 million each.

There's also the small problem of hydrogen being 10 times more flammable than gasoline and 20 times more explosive, which dramatically increases the chances of catastrophic accidents. In addition, the flame from a hydrogen fire is invisible, which makes putting it out a lot more interesting. Finally, hydrogen would require an entirely new infrastructure, with a cost in the billions.

There are numerous sites on the internet that go into more depth on this if you're curious. The most concise is http://www.energybulletin.net/11963.html. It's hard to find anyone that understands hydrogen who also believes it will ever be a viable fuel. In contrast, cars using new battery technology will cost about 2 cents per mile to drive and the batteries will last a minimum of 10-12 years. At present, the only thing keeping the hydrogen pipe dream alive is government research grants being paid for by politicians who haven't done their homework.

The Smartest Guy in the Room
If the electric car industry has a true visionary, it's Martin Eberhard, CEO of Tesla Motors. He decided to stop pandering to environmentalists and came up with the revolutionary idea that electric cars should be fun to drive. He also realized that, for these to make a dent in the demand for oil from the Middle East, the perception of electric cars has to change and manufacturers have to find a way to market them to people that don't lose sleep over global warming and don't care about their carbon footprint. More remarkably, his business plan doesn't involve handouts from taxpayers. A recent interview with him can be found at http://video.wnbc.com/player/?id=70885 and is well worth the time to watch.

Our Green President
If someone told you that a powerful official in Washington was seen a few weeks ago driving an electric truck, I'm guessing George Bush wouldn't be the first name on your list. Since the electric car industry is still in its infancy and doesn't yet have the funds to buy political access, this event caught more than a few people by surprise.

Even though George Bush is a four letter word among most environmentalists, the fact that politicians on both sides of the aisle are beginning to take notice of electric vehicles will only help this industry. Any vehicle powered by something besides gasoline (ethanol, hydrogen, electricity) will require new infrastructure. With the electricity grid already in place, electric vehicle charging stations would probably require the smallest investment and need to be one of the alternatives considered in Washington when future energy bills are passed.

President George W. Bush posed with a sport utility electric truck (SUT) from Phoenix Motorcars

Detroit
In discussing the companies likely to lead the electric vehicle revolution, the Detroit automakers aren't included, even though they had a brief affair with electrics in the 1990s in response to a program from the California Air Resources Board to produce a zero emissions vehicle. When that program was changed, the automakers had every electric vehicle destroyed, even though there were buyers available for the cars.

My take from this is the automakers wanted electric cars out of sight and out of mind, and I doubt that has changed. In spite of recent claims to the contrary, the automakers in Detroit would appear to be reluctant revolutionaries at best. More likely, they'll be dragged along kicking and screaming the whole way. Ford, GM, and Chrysler are married to the combustion engine, and a new type of car is probably going to require a new type of carmaker. The most useful thing Detroit will do is to provide a model of how not to build the cars of the future.

The Major Players - Publicly Traded
There are many subsidiaries of larger companies that make components that can also be used in electric cars. Following are smaller companies that are pure plays in this industry. All are extremely speculative and inappropriate for investors who are risk averse. For disclosure purposes, it should be noted that the Odyssey Clean Energy Portfolio has investments in all of these.

Altair Nanotechnologies, symbol ALTI (batteries)
Hybrid Technologies, symbol HYBT (electric vehicles)
Maxwell Technologies, symbol MXWL (regenerative braking)
SatCon Technology, symbol SATC (electric motors, components)
UQM Technologies, symbol UQM (electric drives)
Zap, symbol ZAAP (electric vehicles)

The Major Players - Private Companies
A123 Systems (batteries)
AC Propulsion (electric motors, components)
Phoenix Motorcars (electric vehicles)
Tesla Motors (electric vehicles)

The Sound of Silence
It took a trip to Catalina Island last fall to make me appreciate one of the unexpected benefits of electric cars. In Avalon, it's virtually impossible to get a permit for a car with a combustion engine and everyone drives electric golf carts. The lasting impression was how quiet Avalon was. Standing on a busy street corner a few days later, I was amazed at how much noise we all have to tune out whenever there's a concentration of traffic. Put me down as ready for this revolution.

Editor's note: We will be writing a follow-up article and stock report card on these companies in the May ezine. Please note that Hybrid Technologies and Zap! are trading off the boards, making them very high risk investments. Zap went through bankruptcy in 2002, and has only $2.2 million cash on hand, according to their most recent earnings report released on April 2, 2007. According to the company, ÒWE MAY FACE LIQUIDITY CHALLENGES AND NEED ADDITIONAL FINANCING IN THE FUTURE.Ó

Paul Woods is President and CEO of Odyssey Advisors LLC, an independent investment advisory firm specializing in equity and fixed income management for individuals, entrepreneurs, families, endowments, and non-profit institutions. He can be contacted at pwoods@odysseyadvisors.com or 310.5688.4700.

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 © 2007 by Odyssey Advisors LLC

Electric Cars: Are They the Transportation of the Future?

by G.K. Pace, Electrical Engineer.

There are many advantages to the use of electricity for motive transportation, and personal transportation in electric cars is poised for a climb in use. There are also some disadvantages, which have thus far limited electric cars from showing up in your garage, and these disadvantages have so far prevented the technology from making a run for the lead.

Chief among the disadvantages is the limitation for storing a sufficient quantity of energy on board the vehicle. (Editor's Note: You can't take a road trip to Vegas in any electric car - yet.) The use of lead acid batteries has proven to be the most reliable and efficient means, thus far for such applications, but this technology is heavy, carries an environmental burden when disposed of, and has limited range. Improvement in range has been accomplished by the use of hybrid technology, which carries a means of electricity generation on board, but at the cost of efficiency. A newer battery technology; the use of Lithium Ion batteries has promise for making a huge improvement in the feasibility of the electric car for daily transportation.

Lithium Ion batteries provide approximately three times the power density of lead acid batteries, at a reduced cost, and longer service life. Such batteries may prove to be the technology that allows electric cars to compete with fossil fueled cars in some applications. They allow much farther range of travel on a charge, better efficiency due to lower weight, and quicker recharging times.

Thermal run-away is a failure mode, which all batteries can be subject to. Lead acid batteries can fail in this manner causing a destructive fire. Lithium batteries are also subject to thermal run-away, but when they fail in this manner the resultant fire can be hotter, and often explosive. This technology has been refined such that the potential for such failures is decreased through the use of better materials, and better monitoring and control when using and charging them. Today's lithium ion batteries are much safer than earlier designs, and further advances, which improve not only the performance, but also the safety of their use, can be expected in the near future.

Electric cars are the vehicles of the future. The cars of the future will either be powered by fuel cells producing electricity, or by batteries, which are charged up when parked. It may be that both technologies will find their niche, but it is certain that the efficiency of these technologies will improve, and electric cars will have a significant place in the future.

G.K. Pace is an electrical engineer employed as a systems engineer working with the Delta Space Launch program at Cape Canaveral, Florida.

Woman on Top:

How Chairman of the Board Kay Koplovitz Kicked in the Glass Ceiling.

Kay Koplovitz, the Chairman of the Board of Liz Claiborne (parent company of Juicy Couture and other fashion labels), talks with Natalie Pace on how delighting in "delicious chaos" plays into entrepreneurial successes, like USA Networks (a company she founded) and YouTube.

Kay Koplovitz Founder, USA Networks Principal, Koplovitz & Company Entrepreneur and author of Bold Women, Big Ideas (May 2002)

She didn't make Fortune's 50 Most Powerful Women's list, but Chairman Kay Koplovitz is one of the most powerful and stylish women ever to kick in the glass ceiling. True to her fashion sense at the helm of Liz Claiborne, she has launched her billion-dollar endeavors, like USA Networks and Springboard Enterprises, with her own brand of flair, beauty, grace and a delightful sense of humor. Thankfully for our readers, Kay is also open to sharing her secrets, gleaned from decades of doing big-time business, so that your road to riches can be more enjoyable along the way. Her book, Bold Women, Big Ideas, is a great gift for any enterprising woman (or man) - the perfect gift for Mother's Day - and receives an average 5-star rating on Amazon.com.

As non-executive chairman of the board of Liz Claiborne (parent company of Juicy Couture, Kate Spade, Ellen Tracy, DKNY Jeans/DKNY Active, Lucky Brand Jeans, Kenneth Cole NY and Reaction Kenneth Cole, among other labels), Kay Koplovitz is one of seven other women in the U.S. who occupy the chairman's seat in the boardroom of a Fortune 500 company. Currently, just 11 FORTUNE 500 companies are run by female CEOs. Of those, a little over half -- six women - also chair the company, namely, Brenda C. Barnes (Chairman & CEO, SaraLee), Susan M. Ivey (Chairman, CEO and President, Reynolds American), Andrea Jung (Chairman & CEO, Avon Products), Anne M. Mulcahy, (Chairman & CEO, Xerox), Indra K. Nooyi (Chairman and CEO, Pepsico) and Patricia A. Woertz (Chairman, CEO & President, Archer Daniel Midland).

Kay's role as non-executive chairperson is unique in the U.S. Her position is similar to the one that former Chairperson Patricia C. Dunn served for Hewlett-Packard, (just after former Chairman and CEO Carleton Fiorina was ousted from the corporation). Not surprisingly, all 11 female CEOs show up on Fortune's list of Most Powerful Women, whereas Kay Koplovitz, who doesn't have profit and loss statement responsibilities at Liz Claiborne, flies under the radar of these accolades. Even without the recognition, Kay Koplovitz has done more than any woman living today to ensure that other women are seated at the table of power, and she balances all of these responsibilities like a true role model - in heels, sporting her Phi Beta Kappa pin.

Editor's Note: Patricia Dunn ranked on Fortune's Most Powerful Women's list in 2005. However, in addition to her non-executive chairperson duties at Hewlett-Packard, Ms. Dunn was also the Global Chief Executive of Barclays Global Investors, with Profit & Loss responsibilities.

Ask anyone where a woman goes to get venture capital funding or to join a board and chances are a company founded by Kay will be the first name dropped. Kay is a founder of The Director's Council (executive and board recruiting firm), of Springboard Enterprises (nonprofit organization specializing in equity capital for women), and of USA Networks, where she became the first woman to head a television network. She chaired the bipartisan Women's Business Council in 1998 for former President Bill Clinton and has served on the boards of Oracle, General Reinsurance Corp and Nabisco. In addition to all of that, Kay is also active on the boards of the New York City Partnership, the Central Park Conservancy, the Museum of Television and Radio and the International Tennis Hall of Fame.

Kay Koplovitz possesses more than her fair share of the typical characteristics found in a great leader. She is, hands down, one of the most effervescent, enthusiastic, creative and open-minded of all of the seasoned executives whom I've interviewed. She is highly intelligent. She inspires her colleagues to greatness. She's a patient planner, a visionary, a spark plug, and a team player with superior organizational skills. And then there is her fresh sense of humor.

On January 31, 2007, Kay sat down with me to discuss how women end up on top in America, and what she is doing to make sure that she, other women, and her company, Liz Claiborne, stay there. According to Kay, you make your own luck. Sometimes it takes nine years for the technology to catch up to your vision! Revel in chaos and persevereÉ at least through this interview, for more of Kay's pearls of wisdom and Juicy Couture.

ÒIlludeÓ satin and feathers, by Kate Spade.

You've been a director on the Liz Claiborne board since 1992, and recently, you were named Chairman of the Board. What is your success strategy for Liz Claiborne?

Liz is a high quality company. The strategy for growth has been one of brand acquisition and brand growth. Over the past few years, we acquired Juicy Couture and Lucky Brand Jeans.

Great acquisitions! Liz stock is a star on Wall Street, with 140% gains since 2000. Wow! How are you doing that while other companies, like, GAP (+8% since 2000) and Ann Taylor (+3% since 2000) are performing much less impressively?

We have acquired brands that have real strength in their markets and are potentially global brands. We just acquired Kate Spade, which is a stellar accessories brand with potential for entering other markets. We also promote organic growth -- growing companies that have been developed.

Will the high price of gas and housing limit our ability to buy cool clothes next year? Do you think that Liz Claiborne's buyers will be forced to shop at Ross in 2007 and going forward?

There are better and worse years, but Coach and Lauren have been fabulously successful. So, there are always better and weaker competitors in the marketplace.

One of the criticisms of the former CEO of GAP was that he was using focus groups to lead the design. What do you think of that strategy?

I come from the programming business and it's not so different from apparel. You write, produce, direct and license programming. In apparel, you have designers you believe in.

One of your many companies -- the Director's Council - is helping big business draft more minority candidates for the boards of publicly traded companies. What made a media mogul like you decide to jump into the executive recruiting business?

Without our company, a lot of board seats circle back to Chief Executive Officers and retired CEOs. We feel there is a lot more talent than that limited pool. It certainly doesn't promote diversification. With the globalization and shift to products and services companies, it's a necessity to have diverse opinions and views on the board, in addition to the qualifications. It's important for the stakeholders - the shareholders, the employees and the customers. So, once you get past the people in the headlines, we do a much better job of uncovering the qualified candidates.

What is the single most important factor to your success?

I think that my success is really being able to concentrate on the future. You can't get too far ahead or you'll starve to death. My vision regarding satellite technology, and how it changed the landscape is the singular hallmark of my professional career, but now today you have the opportunity with new media. There's always new media -- web-based, broadband and mobile, and with each new medium, it will be consumer demand plus an economic model that creates a business that works.

What do you think of YouTube? Will Google (YouTube's parent company) be able to make money on their video programming before companies like Viacom pull all their content off the site?

YouTube was a great example of a consumer driven product that took off because it spoke to people's needs to share videos, but they did not have a business model for revenue stream. On the other hand, Google had not yet developed video search. It's a good match-up and not a bad price at $1.6 billion. Now it will be up to Google to monetize it and deal with the other problems. It's a chaotic field, which is great if you are entrepreneurial. When things are static, it's harder to make anything new. Chaos is great for change. I'm a big believer in chaotic environments and gaining marketplace in a chaotic environment is a delicious temptation.

It's wonderful to see someone as successful as you using the words "delicious temptation" (and I wish our readers could see your vivacious smile as you say those words). So, you've still got the bug - that entrepreneurial spirit.

I think the thing that is unique about me is that I like the energy of entrepreneurialism and the startups - the pain and aggravations -- all the way through boards. I find the whole field and the whole spectrum challenging, interesting and creative.

Was that one of the reasons why you founded Springboard Enterprises - to keep your fingers in the pie, while you help other women get money for their ideas? You really do play in both ends of the spectrum, in your venture capital enterprises and your board positions.

Springboard Enterprises funds women entrepreneurs and high growth businesses. You've got to be able to focus not only on your idea, but how to execute that plan. A lot of entrepreneurs don't know how to put all of those elements together. What works as a business is more than a great idea. It requires a lot of persistence, and you have to be willing to learn from the network you put together and the challenges you face.

USA Networks was your first big venture at the helm. What was your strategy and how did you execute it?

It was a 9-year overnight success! It required a lot of hard work, and a lot of persistence. YouTube was lightning in a bottle, but mostly it doesn't happen that way. When you are putting together the pieces to execute a viable business plan, you kind of do that by putting one foot in front of the other.

Was Juicy Couture another lightning in a bottle story?

Not really, if you talk to the founders. They worked in the field. They worked for others. The company is nine or ten years old. They have a very clear vision of what their product does, of understanding the reason the consumer is attracted to their product, so that they could expand beyond the workout suit. They've expanded with their own sensibility and their own sense of fun to accessories to babies to men -- broadening out their product to make it a brand, not just a fad that appears on the scene. It is through the roof, but it is because they gave a lot of thought to what that brand represents and they are very good at it.

What is your biggest disappointmentÉ?

(Here Kay looks perplexedÉ Has she ever been disappointed? Is that just not in her DNA? I decide to rephrase the question.)

What is the biggest challenge that you've ever faced?

I had written my master's thesis on satellite technology, and on what I thought would be the impact on society. I had a very clear vision on how to execute USA Networks, but the technology wasn't there yet. Meanwhile, I had to work in the business to learn more business acumen, surrounding TV, cable and production. I did my own training in these different fields, all the time with the focus on when this product would be right for introduction into the marketplace.

The cable companies didn't have their own product at that time. They were antenna systems for the television companies. Satellites weren't approved until 1975 for consumer purpose. I was very purposeful, never losing my focus on what I wanted to do, but I had to do other things to get there. The marketplace had to get there. For me it wasn't that hard to figure out that movies and sports were the two drivers that would be more successful. It wasn't really disappointing, other than being frustrated by it taking so long. And it wasn't like I wasn't working on the vision, in the meantime.

Luck is when preparation and opportunity meet. You make your own luck. I was fortunate to be in the right place at the right time, and I worked very hard to get there.

Is there one thing that you think every businessperson - from the Avon lady to the chairman of the Board -- needs to know or do to be successful?

Networking is very important for people who are starting up in business or any career -- a teacher, a doctor anything -- because no one does it alone. It's always a matter of who you know, who you can get access to, who's going to make the call for you. It's just like life. When you move into a new community, you have to find your doctor and dentist and your social group. You need to gravitate toward people whom you admire and get to know them and get some confidence with a two-way relationship, and call on that relationship when you need to. People underestimate the value of human capital. At boot camp at Springboard, entrepreneurs come to raise capital. Raising human capital is at least as important as financial capital. The financial capital follows the human capital. They don't know that when they come to Boot Camp; they just think you pitch people and get money.

Important point. The founders of YouTube, Chad Hurley and Steve Chen, were some of the first employees at PayPal, and leveraged those relationships when they were looking for their venture capital. You serve on the boards of many non-profit companies, including the Central Park Conservancy, the Museum of Television and Radio, Springboard Enterprises and The Tennis Hall of Fame. Why?

I think as a human being that it's important to give back. I've lived a gifted life -- it's not that I haven't earned it -- and I serve on each board for different reasons. My husband and I are both big tennis fans. I enjoy tennis and the tennis community around the world. The museum is where I come from with my business. Springboard is really just giving back a wealth of knowledge and training. It's so gratifying to see women start up business in very tough fields. In Internet and biotechnology, you have to raise money early with no revenue. So, much of my nonprofit work is done because I enjoy it.

I think Central Park is a remarkable gift to the public. It's important to have public spaces. We're fortunate to have wealthy individuals in New York City, who feel that public space is so important to contribute to a $25 million per year operating budget and $250 million endowment to repair all of the damage. The park is a shining beacon for New York City, but it takes a lot of work, a lot of volunteers and a lot of contributors. I believe the public ought to have access. It's a gift to a child to have lots of play area and public activities offered free or at very low cost. I am a supporter of Shakespeare in the Park. I'm not on the board, but I think it's very important for the public to be able to access artistic works.

Well, you are one of the most influential women in the world, even if Fortune didn't have the vision to acknowledge that - this yearÉ Thank you so much for your example and for your tireless work on behalf of aesthetes -- nature lovers and fashion lovers --- and entrepreneurs.

Stay tuned next month, when we discuss how business is adapting to better serve the needs of working parents with Kay.

Additional Information on Liz Claiborne and other retail apparel stores.
1. Claire's Stores (CLE) has just been taken OFF the market! They were purchased by a private firm. Click on Retail Report Card to get more information on Liz, Claire's, the Gap, Bebe and more!

2. The Gap is listed on our Hot News on Cool Stocks list. Refer to that article for more news. You can also go back to the article in volume 2, issue 12, for more news on "Gap's IncREDible Campaign to Empower Africa", as well as to see a Retail Apparel Report Card from December, 2006.

Denise Brown & Family Seek Public Support Against O.J. Simpson's Tell-All Murder Book (Again).

STATEMENT FROM DENISE BROWN AND FAMILY

(Dana Point, CA - March 19, 2007)

Denise Brown

"We are pleased that Simpson will be denied the rights and royalties to 'the book' at this time.  While we understand the Goldman's position to collect on the judgment, allowing a 'manual on murder' to resurface into the general public is an inappropriate approach. The Goldman's sudden reversal of positions to justify the auction of these rights and subsequent publication and that 'the book' is Simpson's confession is transparent to their true motive which is to collect money. Everybody knows Simpson did it; we don't need his written confession. This overzealous pursuit to collect on the judgment does not morally justify a means to the end.  In our opinion, 'the books' re-circulation will 'commercialize abuse' and put other victims of domestic violence at risk.  

Our primary concern is to protect Nicole's children and the victims of domestic violence.  Auctioning 'the book' poses several risks that we are assessing along with all legal options available to us.   Upon our complete review we will be prepared to make a more formal statement on the matters at hand.  In the meantime, we encourage the continued support of the American public and all coalition groups to speak out against this auction."   

Panic Is Not a Strategy.

...Nor is greed. Stick with your long-term asset allocation.

by Liz Ann Sonders, Chief Investment Strategist, Charles Schwab & Co., Inc.

Just when all appeared calm in global markets, they were calm no more. In reaction to a combination of forces--a 9% drop in the Chinese equity market, the "R" word (recession) uttered by Alan Greenspan, a huge 7.8% drop in durable goods orders, and the continued implosion in the sub-prime mortgage market--our stock market tumbled 3.5% on February 27, 2007 with more swoons to follow.

With the market drop came a return of volatility, which we had long been predicting. As the chart illustrates, the single-day surge in the CBOE Volatility Index® on February 27 was unprecedented. Based on conventional models and assumptions, such an event was ostensibly out of the realm of possibility ... or so the modelers thought!

If markets are good at one thing, it's reminding investors that they don't go up uninterrupted forever. But remember, panic is not an investment strategy, nor is greed. Your only real insurance against the unpredictable is having--and sticking with--a long-term strategic asset allocation plan.

Mindset matters: strategic trumps tactical
Not surprisingly, media coverage has been breathless, with talk show guests of every variety telling you exactly what's likely to happen and what you should do with your money in reaction. In reality, investors should rarely, if ever, react to a short-term move in the market. As intriguing as it may seem to try to catch every market wiggle in order to reap big profits (or so you think), the "tactical" (or shorter-term) approach to investing has its limitations ... and its risks.

We believe it's the "strategic" asset allocation choice--and the ability to stick with it--that will ultimately reap the greatest rewards. These decisions are not a function of short-term market gyrations or forecasts (mine, yours or anyone else's), but are tied to your risk tolerance and long-term goals. Developing and maintaining the right long-term asset mix is by far the most important set of decisions a client will ever make.

Never before has information about the global economy and markets been more readily available and disseminated. As a result, global markets have become very interconnected. In turn, our reaction mechanisms have kicked in, and investor time horizons have shortened dramatically--but not necessarily to our advantage. Yes, the long term is really just a series of short-term events, but it's how we react to them that decides our ultimate fate as investors.

Asset allocation and diversification: investors' "free lunch"
One of the most important areas where Schwab offers advice is the development of a long-term strategic asset allocation plan. Many investors assume that their position along the risk spectrum from conservative to aggressive is largely based on their age and time horizon. But a more important factor is their risk tolerance.

I've known plenty of older investors who thrive on the risk associated with an aggressive investment stance. I've also known plenty of young investors who can't stomach any losses. Too often, investors use a rearview mirror to make their investing decisions, by looking at past performance as a guide to future results. A mirror is a valuable tool, but only when turned on yourself to judge your own circumstances--tolerance for risk, time horizon, income needs, etc. As I've often said, there are very few free lunches in investing. Asset allocation and diversification are as close as you get.

Risk tolerance: know what you can stomach
In "Schwab's Strategic Asset Allocation Models," you'll see our long-term recommendations regarding different asset classes for three types of investors: conservative, moderate and aggressive. Note the vast differences in allocations to riskier asset classes, including international equity, as you move up the risk spectrum.

Clearly, over the long term, given the better performance by the riskier asset classes, a more aggressive allocation has historically reaped higher rewards in terms of returns. But there is a dark side to an aggressive posture's higher returns--the risk taken in getting there.

As you can see in "Higher Returns Come with Higher Risk," since 1970, an aggressive investor would have earned an 11.4% annualized return vs. an 8.6% annualized return for a conservative investor. Who wouldn't want the higher return? Well, it depends on the risk you're willing to take to get there. What this table further shows is that the 11.4% return came within a much wider range of annual returns and, most importantly, was generated only through "stick-to-itiveness."

The aggressive investor had to suffer eight down years, one of which generated a portfolio loss of nearly 24%. Ask yourself how aggressive you'd feel after losing nearly one quarter of your nest egg in one year. And to maintain that aggressive allocation, you'd have to rebalance in favor of the asset class(es) that generated those steep losses, and away from those asset classes that had weathered the storm.

Rebalancing to maintain an aggressive allocation is the best way to generate the higher return. That, of course, is the real test--a test that is administered more often during times of increased volatility. Here's a practical way to think about rebalancing: your portfolio will tell you when it's time to trim from or add to an asset class. You don't need to rely on anyone's forecast of what may or may not happen.

Now let's take the conservative investor. Your average annual return after 37 years is just 8.6%, but you never had to suffer a losing year, even though your best year paled in comparison to the aggressive investor's best year. Never losing money in a year? For some, it's worth the lower return for the sleep-at-night benefits.

Market timing: a dangerous game
It's enticing to try to "catch" the next big investment wave (up or down) and allocate assets accordingly. But there are very few time-tested tools for consistently making those decisions well.

Unfortunately, rearview mirror investing (or performance chasing) never seems to go out of style. In one of the more compelling historical studies of investor behavior, the research firm DALBAR discovered that investors have done themselves a great disservice by shortening their time horizons and trying to time asset class performance via their mutual fund allocations.

As you can see in "Market Strong ... Investors Wrong," for the 20 years 1986-2005, the S&P 500® Index had an annualized return of 12%. Unfortunately, the average equity fund investor had significantly lower returns--only 4% annualized (barely nudging out inflation).

Most interesting, though, was the difference in returns between "systematic" and "market timer" investors. For those who were consistent in their investments, the annualized return jumped to 6%--still only half that of the S&P 500, but much better than for the average investor. On the other hand, those investors who tried to outsmart the market by timing their inflows and outflows saw their returns plunge well into negative territory--generating an annualized loss of 2% over the period!

Time horizons: the longer, the better
According to a recent study by Bain & Company, the length of time that individual investors hold mutual funds has shrunk precipitously over the last 50 years. In 1960, investors held their funds, on average, for eight years. Today, that holding period has dropped to less than a year--10 months, to be exact! And the trigger for selling and/or buying is often short-term performance chasing: buying last year's hot performer and running from last year's loser.

In "Longer Time Horizon = Lower Downside Risk," you can see the power of long holding periods when it comes to minimizing downside risk. The longer you extend your time horizon, the less likely you'll experience a loss over that holding period.

Patience and stick-to-itiveness
Admittedly, the development of a long-term strategic asset allocation plan isn't the hard part--it's sticking to it that often becomes the real challenge. The best way for an aggressive investor to have generated the 11.4% annualized return since 1970 was for that investor to have remained aggressive throughout the period, including during eight down years. That meant rebalancing, typically in favor of underperforming asset classes and away from outperforming asset classes. The same goes for the rebalancing associated with maintaining a conservative allocation.

Adding to underperforming asset classes and trimming outperforming asset classes goes against the emotions of fear and greed that often drive investment decision making. But, if we learn from our mistakes, use our brains over our hearts, and look to our portfolios as rebalancing guides, we can expect a more successful investing future and maybe even get a free lunch along the way.

Is your strategic asset allocation up-to-date? Take action online.
¥ Log in to Schwab.com and click on the Planning & Advice tab.
¥ Click on Portfolio Checkup, on the right side of the screen, for four easy steps to check your allocations and manage your portfolio.
¥ Click on the Investor Profile Questionnaire in step one to make sure your risk tolerance is aligned with your portfolio.

Mr. Toad's Wild Ride on Wall Street.

Paul Woods predicted it. What other wisdom does he have up his sleeve?

Read below for a transcript of the March 21, 2007 chat, when Paul Woods educated NataliePace.com subscribers about the volatility in the stock market, electric cars, Canadian Trusts and more! In his prior chat, on January 10, 2007 (when the markets were raging hot), Paul had warned that "Newbies Treat Wall Street like a casino." Click on Newbies to access a reprint of that January 10, 2007 Paul Woods chat.

Paul, I've been telling everyone that you were a genius for predicting that the newbies would treat the market like a casino. What exactly happened on February 27, 2007?

The stock market had been up every month since June, which was the longest run in 10 years. A combination of China overheating and the real estate market showing signs of stress in the sub prime market finally gave sellers an excuse for a correction.

So... are you still bullish for 2007? Still like the prospects of the pre-election year rally?

I am. Once stocks have been sold, the question is what to do with the cash. Bonds still offer unexciting yields and real estate looks pretty shaky, so I doubt money will stay out of the stock market for long.

And, what about subprime. We've had a few drop. Do you think that there are other companies out there to steer clear of? Do you think that Fannie Mae might be in trouble, for instance, since they purchased a lot of sub-prime loans from places like New Century?

We've mostly avoided that area, so don't have a lot of insights. When the economy slows, that area is usually the first to get hit.

That area beingÉ Are you steering clear of banks, like Citigroup, as well as the smaller mortgage lenders?

We're going to avoid them until the Fed starts to lower interest rates. The good news with the housing market on the ropes and problems in the sub-prime market is that Fed rate cuts are more likely this year. By the way, I am noticing that alternative energy is one of the best performing groups this year. Looks like this area is finally starting to get some attention.

Great. Let's talk about alternative energy. We've listed Suntech Power and MEMC Electronics on the Hot News List, and are following those two stocks. What other companies are you interested in?

The most interesting areas are solar and electric cars.

What are your favorites?

The most bang for the buck as far as producing electricity from solar is FSLR. We also like WWAT, which has a growing backlog and hasn't been discovered yet. In electric cars, ALTI, UQM, MXWL and ZAAP.

Editor's note: These are not recommendations, and two of these companies-- WWAT and ZAAP -- are trading off the boards and have SERIOUS liquidity concerns. Always consult your financial planner before making any changes to your portfolio, or buying or selling any stock.

Paul, what excites you most about electric cars these days? And why are you focusing there, instead of President Bush's favorite alternative energy -- ethanol?

Don't even get me started on ethanol. The only dumber idea is hydrogen. Electric cars have better performance, will cost about 2 cents per mile to drive and will recharge in 10 minutes. Zap has announced a car that will go 150 miles for the cost of a gallon of gas.

How do we position ourselves with regard to electric cars? Do you see a demand for nuclear power to plug all these cars in? Seems counterproductive to charge them with energy from coal/oil fired plants.

I don't think we'll ever build another nuclear plant in this country. I think solar will be the way to go. When you can eliminate your electricity bill and provide a lifetime of fuel for a car, the economics of solar start to get VERY interesting.

Paul, are you planning on going to the Solar Decathlon this year in Washington DC? Those contestants power their electric cars completely on renewable energy (mostly solar).

Zap just introduced a little truck covered with solar panels, which is the first commercial version I've seen. I am not going to DC, but there is a show in Southern California. I want to see if two sets of golf clubs will fit in the Zap-X.

btw: If you want to see some of the beautiful homes constructed for the 2005 Decathlon, you can check them out in the archived ezine, vol. 2, iss. 12. The article is called, "Sun Power's Billion Dollar IPO: Investing in Renewable Energy." Paul also has a great article on Investing in Alternative Energy in that same ezine. Paul, are there any other sectors in the marketplace that excite you besides alternative energy and steering clear of mortgage lenders and banks?

This is a stock picker's market. It's possible to make money in just about any area, if you find the right stock.

You would have made a fortune shorting New Century. I wish that I had the courage to stick it on the Cooling Off list as a short on March 1, 2007. I warned everyone that they should jump out due to the liquidity issues, but I didn't put it on the list!

Volatility in the NASDAQ stocks has been increasing for the last few decades. I don't think that will change with new investors coming in. However, if you avoid technology and biotech, volatility in the rest of the market isn't bad. With the high P/E stocks, the penalty for missing earnings by a few pennies is absurd.

Yes, look at the volatility we've seen in Google. They missed earnings last year and lost over $13 billion in market cap over night. If you know that is the penalty, however, and that those sentiments are fairly reliable, you can play the trading around the core game... Can you talk about that? Having the courage and the conviction (after doing your homework) to act, and why shorting is a much different game than buying a stock that you think will increase in value?

The biggest problem with shorting is that you have limited return potential, with unlimited loss potential. You have to do your homework to know when to stay with something and when to find another stock.

Paul, what do you think about Paramount Energy, a Canadian royalty trust?

We don't follow Paramount Energy, but I think the proposed tax on Canadian oil and gas trusts may be repealed later this year. Our favorites are ERF, PGH and PWE.

That's good news. I own Paramount and it has taken a hard hit. Should the tax be repealed, how might that affect stock price?

The stocks took about a 35% hit when the tax was announced last year. Would guess they would make most of that back. A lot of shareholders in Canada are upset, which is why they're talking about repeal of the tax.

Any estimate on when an announcement might be made?

Hard to say. I've heard rumors that it might be this summer, but nothing substantial. The minister who announced the tax appears to have been backpedaling recently.

Paul, is information on what the ministers in the Canadian Parliament are discussing on the record available as easily as the FOMC or Senate/House hearings are here in the US? Is there a website where Tommy can stay informed?

Unfortunately, the best source is the Yahoo message boards for the oil and gas trusts.

I'm interested to know what you think about broker Zecco which advertises trades for free. Has this been part of the new traders treating the market like a casino?

I've always had trouble figuring out ow to make a profit on free. The goods news is that more people are getting interested in the stock market.

Paul, please explain the difference between a money manager and a broker.

Brokers only get paid when you do a trade. They get a commission on buys and sells. A money manager charges a fee based upon the market value of your portfolio. The only way we make more money is to increase the value of client portfolios.

How much do we need to hire a money manager instead of a broker?

Minimum is $100,000.

So, if you have $100K or above, please feel free to call Paul to find out more about what he can do for you. You can contact Paul Woods at 310.568.4700. If you have less, and you want to increase to that point, check out the article from the archived ezine, vol. 4, iss 1 called "The Perfect (Cyber) Broker: Missing the Greed Chip."

Paul Woods is President and CEO of Odyssey Advisors LLC, an independent investment advisory firm specializing in equity and fixed income management for individuals, entrepreneurs, families, endowments, and non-profit institutions. He can be contacted at pwoods@odysseyadvisors.com

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 © 2007 by Odyssey Advisors LLC

Don't Get Sucked Into the Wall Street Merry-Go-Round.

by Kelley Wright, Managing Editor, Investment Quality Trends stock newsletter.

Editor's Note: Kelley Wright is currently outperforming all of his peers, by bringing in the top risk-adjusted returns on Wall Street with his stock newsletter, IQTrends.com, for the past 20 years, at 12.9% according to Hulbert's Financial Digest. If you are interested in having those kind of returns in your portfolio, you can sign up for Kelley's stock newsletter at IQTrends.com.

Some Sobering Projections from a Respected Pundit:
"Tighter lending standards and stricter regulations will slow the U.S. economy and force the Federal Reserve to cut interest rates significantly to reinvigorate an anemic U.S. economyÉ Restoring pre-bubble affordability in the national housing market will require either a 20% drop in home prices or a 120 basis-point drop in mortgage rates to about 5%, or some combination of the twoÉ The current debate over how big a problem the subprime lending mess is obscures the bigger truth: lenders are tighteningÉ It will not be loan losses that threaten future economic growth, but the tightening of credit conditions that are in part a result of those lossesÉ Tighter lending standards and increased regulation will change the housing outlook for some years to come." - Bill Gross, Managing Director, PIMCO

Carousel at the Santa Monica Pier. Photo Credit: SantaMonicaPier.Org

The above, at face value, sounds like fairly bad news. News, both good and bad however, is part and parcel of every trading day in the financial markets. What is important to remember is that there is a perverse side to the financial markets where good is actually bad and bad can often be good. The key to understanding this perverse paradox is that good and bad are subjective terms that are filtered by perception.

Take the recent sell off in global stock markets that began in China and spread instantly around the world. The initial perception was that China was beginning to take steps to cool down their overheated economy which, when combined with the apparent slowing of the U.S. economy, was unwelcome news to the equity markets. Almost immediately, then, Wall Street and investors began anticipating that the Fed most surely would need to lower rates to offset the economic slow down and still declining housing market. Since declining interest rates are a good thing for equities, the green light and all clear were sounded for investors to jump in and take advantage of lower stock prices. The result was two days where nine stocks went up for every one stock that went down. These trading days are rare and very bullish.

Since then the markets have sold off again because of the subprime mortgage mess and statements by Chairman Bernanke that suggest the Fed is nowhere near making a decision about lowering rates.

The point is that investors are being sucked into the spin cycle of the Wall Street merry-go-round, and it is such a waste of time and resources.

When investors choose to make their investment decisions on news and which stocks or industries will benefit or suffer because of that news, they are inviting disaster. The only relevant news is that which pertains to a company's quality and value. For this reason we concentrate on those stocks that meet our Criteria for Select Blue Chips and are trading at their historically repetitive are of Undervalue. Everything else is just noise; so ignore it.

Are Stocks Overvalued?

80% undervalued stocks coincides with historic market bottoms.
17% undervalued stocks coincides with historic market tops.

Timely Ten Blue Chip Stocks:

News on Claire's Stores and Altria:
If it were in any other industry it would be called stealing. On Wall Street it's called going private. Claire's Stores (CLE), a past Lucky 13 component and a stock we've been long since $18, is being acquired for $33 by a private equity group. While we've made nothing but money on this position, the parting is bittersweet; it's worth $39 per share if it's worth a nickel. C'est la vie, we'll just have to find another one.

On March 30^th, Altria shareholders will receive 0.692024 of a share of Kraft Foods for each share of Altria that they own. Altria shareholders will receive cash in lieu of fractional shares for amounts of less than one Kraft share. The fair market value of each Altria share will adjust to reflect the spin-off and the loss of value of the Kraft stock.

The current dividend paid by Altria is $3.44. After the spin-off, the dividend will be $2.75. The Kraft dividend will be $0.69. If you keep the Kraft shares, you will continue to realize $3.44 in dividends ($2.75 + $0.69 = $3.44).

We will maintain the current dividend yield profile for Altria until the marketplace for investors decides it should be changed. This will be identified through their acquisition and distribution actions. At this time there is no discernible Profile of Value for Kraft Foods. Until such time, Kraft will not be followed in our universe of Select Blue Chips.

 

Tax-Savvy Fund Investing.

by Michael Iachini, CFA, Director, Mutual Fund Research, Schwab Center for Investment Research®

Keep more of your gains with these tax-smart fund strategies.

For investors in mutual funds, tax season can be, well, taxing. The average domestic large-cap mutual fund cost its tax-sensitive clients about 0.65% in returns each year over the past three years, and the costs were even higher for U.S. small-cap (1.14%) and international funds (1.03%).1 To lessen the tax man's bite on your fund investments, consider the tax-smart strategies below.

What's taxable
First, remember that tax efficiency only matters if you're holding your funds in a taxable account. If you're investing in a tax-deferred account such as a traditional IRA or a 401(k), tax efficiency need not factor into your fund-picking decisions. However, within taxable accounts, there are three ways in which buying and holding a mutual fund can cause you to owe taxes, even if you reinvest all distributions and don't sell any shares of the fund.

¥ Dividends: When your fund holds stocks that pay out dividends, these dividends will ultimately be passed on to you. "Equity income" and "dividend equity" funds tend to pay out more dividends, and most of them pass along their dividends quarterly. Fortunately, most of these dividends qualify for favorable tax treatment and are taxed at a maximum rate of 15%. Dividends that don't qualify are generally from stocks that the fund held for a very short time, from certain foreign stocks or from investments such as real estate investment trusts (REITs).

¥ Interest: Bond fund holders are likely to see monthly interest payouts. Unlike dividends, interest from taxable bonds is taxed as ordinary income with a maximum federal tax rate of 35%. If you're in a high tax bracket, consider a municipal bond fund, whose interest is exempt from federal and sometimes state income tax.

¥ Capital gains: Any capital gains that your fund realizes (such as when the manager sells some stock for a profit) must ultimately be paid out to you, the shareholder. Generally, funds pay out their capital gains annually, mostly in December (more on this distribution later). If a fund sells stock that it held for one year or less, these short-term gains will be taxed at a maximum rate of 35%; otherwise, long-term gains are taxed at a top rate of 15%.

Consider these tax-smart tactics
So, how do you make tax-smart decisions when it comes to buying a fund? First, decide if you're in a high enough federal income tax bracket to prefer muni bonds over taxable bonds. If your federal tax rate is 28% or above, you'll generally do better with muni bonds. If you live in a high-tax state, you might consider a state-specific muni bond fund, which would be exempt from both federal and state income tax. However, if you're subject to the alternative minimum tax (AMT), beware of funds that invest in private activity muni bonds, whose interest is subject to the AMT (see "AMT: Stealth Tax Gets Stealthier").

Next, you should look at your fund's tax cost ratio. This measures the amount of your return you would have lost to federal taxes in the past by holding this fund, assuming you were in the highest possible tax bracket. You can find your fund's tax cost ratio by logging in at Schwab.com, going to Quotes & Research, clicking on Mutual Funds, entering the fund's name or ticker symbol in the search box, and then looking at the Risk & Tax Analysis tab. Compare your fund's tax cost ratio to its category average--ideally, your fund's tax cost will be well below average. But remember to consider your fund's other features (expenses, manager track record, etc.), as a fund can have a low tax cost ratio simply by losing money every year!

If it's late in the year (November or December), check your fund company's website to see if the company has published information about estimated capital gains distributions. Fund managers who know that they're going to distribute a lot of gains will often let you know in advance. If that's the case, consider waiting to buy the fund until after it has paid its distribution--otherwise you'll owe taxes on the whole distribution, without having participated in any of the gains.

Finally, consider tax-loss carryforwards. If your fund realized losses (as many funds did in the bear market of 2000-2002), it can use those losses to offset future gains so that it doesn't have to pay distributions. While many funds have exhausted their bear market carryforwards, it is worth checking to see if your fund has any remaining. Funds with attractive carryforwards include Janus Enterprise (JAENX) and Neuberger Berman Millennium (NBMIX).

Looking for funds that we believe are tax-smart and well managed? Start with the Mutual Fund OneSource Select List® and then screen for low tax cost ratios. Or consider some of our favorites below.

Thrive: "The Secret to Wealth" Life Plan.

by Natalie Pace.

Spring clean your budget for a more enjoyable tax season next year.

Photo Credit: Doug Mazell. www.mazell.com. Film and Video Production. Advertising Photography. 562-866-7662

Imagine every year that you are counting up vacation receipts instead of gas receipts, remembering the feel of warm water on your toes. Tax time is the perfect time to reassess your life, and reallocate where you spend your money. After all, you've just spent long, blood-boiling days waiting on hold for someone in Bangalore to explain why your cell phone costs a thousand dollars every month!

Last month, I wrote an article outlining "The Secret to Wealth (Double Your Fun Budget)", which is designed to get you having fun, contributing to the social causes you love, drinking those café lattes (or whatever else turns you on), while still putting aside 10% each month for investing. This new plan may not solve your problem with outsourcing, but it does outline the way to enjoy life more every day.

How you say, when your paycheck doesn't seem to last through the month as is? It's not a matter of how much money you have, but of the proportions, which you set aside for each part of your life. It's essentially about balance. And if you're running out of money each month, never give to charity or take a vacation or invest, then you're probably way out of whack with your basic needs.

You don't need a small fix, like denying yourself a café latte. You need to take a serious look at your BIG expenses and your income, and decide which one is going to give. Are you going to get a better paying job? (Do you need to educate yourself more in order too get a better paying job?) Are you going to find a way to live with a cheaper car in less expensive housing or to live closer to work so that you aren't spending so much on gas? Prosperous people find a way to make do with less and invest in their future. It is why some groups do so well in the U.S. The family sacrifices so that the kids can get a great education and a good paying job!

Most people are way over taxed with basic needs - like taxes, food, clothes, housing and transportation -- and way under-funded in their freedom plan and their fun excursions. Living the Rich Life means enjoying every single day more, as it unfolds. As you do that, you'll find yourself attracting all kinds of wonderfully delightful things to you, including more money. And, if you readjust your focus and get your basic needs more in line now, you can start living the rich life immediately.

The below chart is designed to help you do just that. I suggest that you begin by reading the Secret to Wealth article, and then jump right into your new life plan, as outlined below.

Instructions:

1. Start with your monthly budget - the net total of your monthly take home pay.

2. Put aside 10% to investing, 10% to charity, 10% to ongoing education, 10% to short-term fun, 10% to longterm fun and 50% to all of your basic needs (including debt, housing, transportation, food, clothes & taxes). (If you make $10,000 a month, that's $1,000 to invest, $1,000 to donate, $1,000 to education, $2,000 for short and long term fun and $5,000 for basic needs.) Don't think that it is any easier for someone who makes $1,000,000 a month to tithe $100,000 to their favorite charity! It's about proportion. Get into the discipline of this budget and WATCH how it enriches your life. (READ THAT ARTICLE FOR DETAILS ON HOW and WHY!!)

3. Spend your money appropriately in the following chart. Add details! Which organizations are your charitable donations going to go? What companies will you buy in your investment portfolio? What kind of home will you build or move into -- a green, solar energy, efficient house? Will you manage your own stocks and bonds, or hire a money manager? (If you own your own home, then part of your investing portfolio can go toward basic needs - but not all. Diversification in investing is VERY key. If you rent, then NONE of your investing portion can go to housing!)

4. While your one-year plan should be realistic, based upon where you are now, your 10-year plan should be based upon the dream of creating a more enriching life and lifestyle. If you're educating yourself for the next ten years, imagine how much more you can earn! (There is a very strong correlation between your education and the amount of money you earn.) If you are investing religiously, imagine how much your portfolio will be worth in 10 years!

Now, take a deep, long look at this plan. Then fold it up and stick it under your pillow. Every time you change the sheets, you'll be tempted to look at it again. Do that. Reaffirm your goals. Wash the sheets. Then put your plan under your pillow again! At the end of the year, you're going to be ready to print out a new blank sheet and readjust your plan. Hopefully some of your goals have become reality, and you are on the way to an even more glorious 10-year plan.

Click here to go to the Financial Freedom Worksheet.

Having More Won't Make You Happy.

by Greg Wendt.

Greg Wendt, CFP, is the financial advisor to the Los Angeles Progressive Community. Greg offers comprehensive financial advice to individuals, families, privately held corporations and charitable organizations. Greg also specializes in socially and environmentally responsible investing. His blogs can be read on World Changing LA. For socially conscious investing tips and information, go to Greg's personal website at GregWendt.com.

Photo Credit: Doug Mazell. www.mazell.com. Film and Video Production. Advertising Photography. 562-866-7662

As a financial advisor, I regularly meet the "haves and have-mores," and one thing is for sure: More does not necessarily mean more happy.

Barbara Walters interviewed billionaire media mogul David Geffen in a conversation published in More Than Money magazine: "She said, 'O.K., David, now that you're a billionaire, are you happy?' He shot back without hesitation: 'Barbara, anybody who believes money makes you happy doesn't have money.'"

It's a brilliant insight, because money doesn't make you happy. Today, Alternet posted an excerpt of Bill McKibben's recent book Deep Economy: The Wealth of Community and a Durable Future. I recommend the excerpt highly; it explores the idea that the foundation of our economic assumptions must be re-evaluated and re-tooled for our modern context.

Bill speaks to the heart of the matter: Our civilization has conditioned ourselves to believe that more is better, because we believe simply more makes us happy. We all know it's not true, but many of us are not willing to face our inner shadow work to really embody this truth in our day-to-day lives.

On a similar note, I find many in our circle of friends in the sustainability movement -- myself included -- living lives of accumulation and consumption even with a "modest" lifestyle. Yet as human beings, we know that more "stuff" won't make us happy.

I was speaking about this matter with my friend Marc Barasch, an accomplished author and current Executive Director of the Green World Campaign. Marc said: "The Buddhist tradition states that craving keeps the world of Samsara [eternal suffering] turning."

He continued: "What people want is love and community and the society tends to systematically undermine the means of attaining that, and consumerism is the addictive substitute. The pleasure of the addiction becomes dry and insipid and becomes simply maintenance dosage to avoid greater and greater pain. And it is this collective maintenance of our consumerism addiction that habitually and automatically devours the planet's resources."

So, since you and I have grown up in this system, we are best able to recognize the heart of the matter and begin to deal with the problem at its core. Simply put, in order for us all to manifest the sustainable world built on loving kindness to all beings, we just have to get down to this crucial "shadow work" inside of our own heart of hearts.

You know what I am talking about: inside yourself. You don't need anyone else to know what I am referring to, and you don't need anyone else to do this work inside yourself, right here, right now.

I am very excited that Bill McKibben will be here in Los Angeles on April 4 to discuss his new book with Tom Curwen, editor and writer at the Los Angeles Times. The talk will be at the LA Central Library at Fifth and Flower in downtown Los Angeles. Get more information at the Aloud LA calendar section.

I look forward to seeing you at the event on the 4^th.

Reaching Boiling Point.

by Margaret Heffernan.

An excerpt from the new book How She Does It: How Women Entrepreneurs are Changing the Rules of Business Success.   

How She Does It: How Women Entrepreneurs are Changing the Rules of Business Success (Viking; On-sale date: January 22, 2007; ISBN: 978-0-670-03823-7; $25.95; 288 pages). Part biography and part blueprint for starting and running a successful business, HOW SHE DOES IT redefines power and the nature of success for the 21st century.

Reprinted by arrangement with Viking, a member of Penguin Group (USA) Inc. Copyright © 2007 by Margaret Heffernan.

             "I quit over dinner. I just got to boiling point and I quit. Walked out of the restaurant, went back to my hotel room, called my husband and said I'd quit. I said, "Everyone else has their own business. Why not me?" So we started, in March 1999."
 
            Cecilia McCloy is a geologist. She worked for SAIC, a research and engineering firm, for twelve years, which by any measure would make her a loyal employee. But she reached boiling point, she says, because it got so hard to have any influence. Reorganization followed reorganization until her ability to have any impact, on the people or the place, just felt negligible. It hadn't helped that, as the only female Vice President, she was always being asked by other women to lend support to their sexual harassment cases. Her main issue, however, was that - despite her rank - people kept making decisions, about her and about her people, without ever consulting her.
 
            Cecilia felt - as so many women feel in corporate America - invisible. Every woman can tell you stories of not being heard in meetings, of work not being rewarded and, of course, of promotions that somehow just didn't happen. These careers follow a predictable trajectory. At the outset of
her career, a young woman, pretty and eager to please, is trivialized, appreciated for her charm but little else. As she gains in competence and confidence, she becomes invisible. Struggling to assert herself, she's castigated for being too aggressive, a bitch. If she keeps trying, she may eventually assimilate and be seen as a guy - but then she's shunned by women for having sold out.
 
            These stereotypes dog women's careers and leave them feeling either very depressed or very frustrated. Why, they wonder, can I not be valued for who and what I am? Why must I constantly struggle to fit into a business world that insists on seeing my strengths as weaknesses? That sees my ability to bear children as some hideous, unmentionable threat? That sees my emotions and intuition and empathy as trivial? Where can I go to tap the ability and creativity that I know I have?  
 
            "I was working at Unisys and they'd just had their merger and we had had 23 org charts in 30 days," recalls Lurita Doan. "I didn't know who I was working for and with each chart, I fell lower and lower til my UNIX wasn't even on the chart, we were just one little circle on the side. I didn't know what that meant but I knew it was bad!"
 
            "I had an idea of how to become a program manager and went to my boss and told him. I'd been up all night working on the business plan for it. I explained that, at our customer sites, there was always stuff left undone. They needed custom work and it seemed logical to me that we should do that work. So I said I'd do it. And they just said "That's the stupidest thing in the world. No one will pay for that."
 
            "I went home and I was so upset. My husband said, "Why don't you just quit? You are so bossy and always know what's right. Why not just do it?" So I did! Best thing I ever did because I do like to have my own way and I am usually right."
 
            For centuries, women have known what it is to be powerless, to be dependent - and now they have the skills and, increasingly the confidence, to stand up for themselves. The independence they seek is not just professional. Women of high-growth businesses place money second in their list of motivators. Financial independence - not being held hostage to a marriage or a job that no longer satisfies - isn't about fast cars and big houses. It is about having choices.
 
            What's so interesting about these motives is that women are not leaving traditional careers just to get out. Lurita Doan wasn't running away and Cecilia McCloy didn't retire to the kitchen to bake cookies. Nor are they just storming out in a huff, to regret it the next day. These women move from positions where they're undervalued, underestimated and deeply unsatisfied in search of something far more demanding. It is an existential flight, looking for a place where who and what women are, how they like to work, the things they care about, can be not just tolerated but given a dynamic and central role in their lives. Disappointed by the rigid, narrow choices that so many careers appear to offer, women strike out on their own to redefine what is possible.  

Margaret Heffernan has been the CEO of five different businesses in the United States and the UK. A former producer for the BBC and author of The Naked Truth: A Working Woman's Manifesto on Business and What Really Matters, she is a regular contributor to both Real Business and Fast Company magazine as well as a Visiting Professor of Entrepreneurship at the Simmons College School of Management.

As the CEO of five different businesses in the United States and the UK, Margaret Heffernan knows a thing or two about the evolving role of women in business - and in How She Does It: How Women Entrepreneurs are Changing the Rules of Business Success (Viking; On-sale date: January 22, 2007; ISBN: 978-0-670-03823-7; $25.95; 288 pages), she profiles 27 of the most dynamic and visionary female entrepreneurs working in business today.

Investment Clubs: Girls' Night Out (or Date Night) with Benefits!

by Natalie Pace.

Includes information on how to receive your own FREE investment club startup kit.

Guys have their poker games. Or their fight nights. Or golf. But when do girlfriends find the time to hang out together? Now, you might say that is what Bunko or Mah Jong or book clubs are for, but let's face it ladies, there is hardly an endorphin more thrilling than money, unless perhaps it's chocolate, and the last time I checked chocolate won't power your own private jet. I enjoyed double returns on my investment club, in less than two years! Have I gotten your attention now?

Once a month, my girlfriends and I pooled our dues, decided on what to invest in, and when I cashed out a year and a half later, I had doubled my money. It doesn't get much better than that. Especially when you consider how close we got over the years, how many delicious meals and wine we've shared and even how we pooled our assets to launch my business. Each one of the women has been an important part of my success. And every moment along the way was cherished - even the hard ones.

Yes. There are a few VERY important tricks to know before you get started, so that your experience will be rewarding, fun and enriching, including how to set up the agreement, what kind of partnership (a limited partnership, which is not taxed like a corporation) you want to establish and how it works with the brokerage. Whether you want to set up girl's night out with benefits and gains, or couples night with returns or a singles party investment club, the tips below will help you maximize your gains and your enjoyment.

When you pool your money and partner up on the research, investing is more fun and the power of your dollar goes a lot farther eight or ten times as fast. Also, the peer pressure of writing a check for investing every month means that it gets done! If you've been waiting to have enough money to invest, chances are that process hasn't yielded a big account. Once you get religious and routine about investing, as happens in an investment club when you have to pay your monthly dues, your nest egg grows on auto-pilot every single month. (And with the power of returns, it can really grow, as mine did!)

5 MUST-KNOW FACTS for the successful INVESTMENT CLUB
1. Recruiting new Members:
2. Limited Partnership, not Corporation:
3. Member Agreement:
4. Dues:
5. Responsibilities:

I'm listing the five facts first BEFORE we dive in, so that you have a check list. These facts are so crucial to making your experience a rewarding one, that you really want to check off and make sure you've done it right BEFORE you dive in.

Here's what I HIGHLY recommend you do before you add ANY new members. First: start by recruiting people you really admire and respect to be the core group. Then ask each one of them to recommend one or two people whom they really admire and respect. Before you officially add ANYONE to the group, have a meal together out on the town. Watch how everyone reacts throughout the meal and ESPECIALLY when the bill arrives.

Did someone get sloppy drunk and blather on about wars and traffic nonstop? Who forgot to add tax and tip when they threw in their money for the meal? Who suggested that the group should short change the waiter because s/he didn't show up fast enough with the pepper?

A friend of mine tells me that his hiring criteria is the 3-hour theory. Never hire anyone you wouldn't want to sit next to on a 3-hour plane ride! In this case, never recruit anyone for your investment club whom you wouldn't want to spend a 3-hour meeting with! (Typical meetings start at 6:00ish with dinner and end at 9:00 ish.)

Don't overlook these signs. It's far better to have fewer people in the group who really like and trust one another, than it is to add someone who is going to be trouble down the road. Let the temperament and vision of the core group be the road map for your recruiting. When the Golden Gate Bridge was built, they didn't recruit the guy who designed the Leaning Tower of Pisa or hire the guy who showed up late every day! Be picky!

How many members should be in your club? It depends on your desires, but in my experience, part of the returns of the club are social. It's a lot easier to make everyone feel like they have a voice, if everyone has a seat at the same table. For our club, eight was the magic number, and ten (which we started with) felt too large.

2. Form a Limited Partnership and NOT a Corporation
I met a woman at a conference recently who had been in an investment club, which had recently disbanded. "Why?" I asked. "The corporate taxes killed us!" she responded.

The sad thing is that an investment club (of friends) should not be taxed like a corporation. Corporations are set up when people have employees and are conducting business. Investment clubs are not doing business and have no employees. They are non-profit partnerships, and partnerships are not subject to the same mandatory taxes that corporations are. (In California, the minimum tax to run a corporation is $800 a year, which can KILL your returns in the investment club!) That woman's investment club disbanded and lost money because they didn't set it up right!

This falls into the CHECK WITH YOUR ACCOUNTANT FIRST category. Tax laws change all the time, and this is one area that you have to get right FIRST before you set up your investment club. (Don't worry. After these initial few key things, it gets rewarding from there. Remember those returns!)

The Internal Revenue Service in the United States makes it very easy for limited partnerships who are non-profit (not doing business) to get a FREE Tax Identification Number (TIN) simply by calling a toll-free number - 1.866.816.2065. In Canada, you call Revenue Canada for a Business Number (BN) at 800.959.5525.

You will need this TIN when you set up your investment club account at your brokerage. You will NOT need to publish a DBA because you will not be doing business! So, even though you should have a name for your investment club, don't waste the money publishing your name in the local press UNLESS you come up with a name that is SO awesome you think you MIGHT want to use it for business later on. (And in that case, you might consult a trademark attorney to set up the trademark, as well.)

3. Member Agreement:
NataliePace.com offers an Investment Club Startup Kit, which includes a sample member agreement. This is key! You don't want to set up your investment club WITHOUT agreeing to ALL of the terms of the club. A sample member agreement spells out the operating procedures of many contingencies, like:

What happens if a club member moves or wants to leave?
What happens if a club member dies?
What happens if a club member doesn't pay her dues?
What percentage of the club members must agree before a trade is made?
Who will be President, Treasurer, Vice President, Secretary, etc. and what are their responsibilities?

With a Member Agreement, which must be signed by all of the members, most of these common occurrences have already been addressed, and few things have to be debated after the fact. This makes transitions easy. If someone can't pay their dues, there is a road map for what happens (which is a strong incentive for everyone to pay their dues on time and stay committed to the group!).

It is easier and more cost effective to start with a Sample Member Agreement from a trusted source, plug in the values that are right for your group, and then have it reviewed by an attorney, than it is to create a new agreement from scratch. The small amount of time and money you spend to set up the club right in the first place means that it has a far greater chance to running smoothly later on!

4. Dues, Taxes & other possible costs:
Dues: HmmmÉ How much would you feel comfortable spending on a girl's night out? That's a good start. You want to make sure that the dues are something that you can easily afford each month without feeling deprived (or causing an argument with your partner). This is a portion of your 10% monthly tithe to your investment fund, not the whole thing. (The bulk of your 10% monthly contribution to your nest egg should be going into an account with a long term, diversified strategy.)

Taxes: Capital gain taxes apply when you sell your stock, receive dividends and with some mutual funds. Again, tax laws change from year to year, so be sure to check with your accountant, so that you know how much of your profits to set aside for taxes each year. Typically, stock that you buy and sell within a year, or short term capital gains, are taxed at a higher rate than stocks that you hold for longer than a year (long term capital gains).

Tax Returns: You'll need to file your tax return every year on time. Late filings are punished at a very high rate, which can be $50 PER MEMBER PER MONTH or higher. Make sure that you file the returns and pay your taxes on time every year, even in the first years when you might not be selling any stock or posting any capital gains! Remember that the club will have to pay the accountant every year! So, set aside enough dues for that expense.

5. Membership Responsibilities:
Treasurer: In an investment club, the treasurer is the most important job, so be sure to pick the most responsible member of your group and make sure that person has superior math skills. The treasurer should work with the broker to place the trades and work with the accountant to make sure that the taxes get filed on time. Most investment clubs are only buying one stock a month, so this job shouldn't be too time intensive. Monthly reports should be made each month to the club, but again, most brokerages offer easy online portfolio access, which can be printed and distributed very easily! It's not time intensive, but it is important and the treasurer must be responsible for getting all of the reports to the members each month, as well as getting the tax return to the IRS every year on time.

President: While all of the club members will be listed on the investment club brokerage account, there will typically be only two members who have access to withdrawing funds or writing checks. Since your club won't be writing many checks (mainly to the accountant), it's a good idea to have two signatures required for checks and withdrawals. The President should also be responsible for making sure that the account information remains accurate with the brokerage and the IRS, and that the affairs of the club run smoothly.

Vice President: The Vice President is often in charge of setting up special education nights. Your local brokerage might offer a course on online trading, or a day-long conference. There might also be a money manager who might come to speak to your group. (Be sure to find someone who has been in the business for over 7 years, has no complaints with the NASD and has a good track record of increasing the portfolios of their clientsÉ)

Secretary: It is very important that the meetings are well-documented. At a minimum, the secretary should keep notes on who gave dues, what stocks were considered and which stock the group is planning on trading. Minutes from the prior meeting should be distributed and accepted at each meeting! Also, it is extremely important that the secretary logs the buy/sell date and price of each trade. I've made it easy for you to keep track of that information in an Excel program, which is available with the Investment Club Start Up Kit.

For more tips, and to get started, we are offering an Investment Club Start Up Kit with this article! If we sold the investment club kit, including the Smart Math Excel program, the value would be more than $330, but with the purchase of a subscription or renewal today, the entire Investment Club Start Up Kit is 100% free! Subscribe and/or renew now at the special reduced $65 annual rate, and we'll throw in the investment club kit as our free gift to you! Simply email Heather@NataliePace.com with RENEW NOW or SUBSCRIBE NOW in the headline, or call 866.476.7442, and we'll handle your renewal and/or subscription and send out information on how to download your investment club kit right away.

Note that the $65 renewal rate is 40% less than the current annual subscription rate.

Other articles of Interest:
The Investment Club: An Appetizing Venture.  by Nancy Noel Marra (excerpt from Nancy's novel).  Archived ezines.  Vol. 2, issue 9.

25 of Our Companies Have Doubled.

by Natalie Pace. Includes my Hot News On Cool Stocks List.

Yes, you read it right. 48% of the featured companies from 2002 through 2005, 25 out of 52 features, doubled in share price, and we're just getting started with the new featured companies.

48% of the companies featured in my stock newsletter between 2002 and 2005 -- 25 out of 52 companies -- DOUBLED from the time we listed them to the time when I took the company off of the Hot News on Cool Stocks list. The companies include Oracle and Opsware in 2002, Goldcorp, Genentech, Martha Stewart Omniliving, Overstock, Macerich, Taser International, Dendreon, Delta (short), Northwest Airlines (short) and LifeCell in 2003. Rio Tinto, Google, Ford (short), Sunoco, Advanced Micro Devices in 2004, and Bioteq Environmental and Las Vegas Sands in 2005.

Ten out of twelve companies featured in 2006 are making great returns (well above the markets), with outstanding performance by MEMC Electronics, Suntech Power Holdings, Blockbuster, Disney and News Corp. See the table below for some of the best performing picks we've had, and the Hot News Chart for the details on the latest hot picks. Certainly solar energy is a very HOT sector. Be sure to read the headline article in this ezine for an update on Suntech, Sunpower, Evergreen and two new companies, Trina Solar Limited and WorldWater and Power. We've added Trina and WorldWater to the Hot News list below.

Some NataliePace.com Featured Companies that Have Doubled

*These companies have been removed from the Hot News list.

Companies Featured in 2006 and 2007

The three companies -- out of 15 featured companies from January 2006 through March 2007 - that are not making money yet have been highlighted in red. Note that because we are often early to identify a breakout company, the stock can sometimes be volatile before Wall Street weighs in. This is why so many of our stocks end up doubling. My research criteria helps me to identify companies that are poised to pop BEFORE the data shows up on the earnings report (when Wall Street gets the story).

If you're interested in learning how to make those kinds of gains in your "Stocks on Steroids" portfolio, I'm starting a series of very intimate retreats this year where I will teach one or two dozen participants how to evaluate stocks with the same methodology that I do. The retreat in April is almost sold out! If you are interested in joining us, email Heather now and let her know the preferred month and coast you are interested in. April's retreat is in Santa Monica (there is just one spot remaining for that), and we are beginning to plan another for June or July.

EXCLUSIVE OPPORTUNITY for LEARNING RETREAT with Natalie Pace.

At this retreat, you will have 3 ý days with me in close quarters - a corporate board room - complete with online access and hands-on help on obtaining the information you need to properly evaluate companies you are interested in investing in. Getting the information is FAR easier than using software and far more reliable than relying on the pundits on television. In just 15 minutes, you'll have much of the data you need to begin a well-informed evaluation of the company you are interested in investing in. You'll also meet millionaires who have been VERY successful in the business of investing. Call now at 866.476.7442 or email Heather@NataliePace.com.

Stocks on Steroids
You'll hear a lot of pundits poo-pooing my returns as "market timing" or risky, etc., and they are right (about the risk, not about the returns). You SHOULD NOT take on high risk with your entire nest egg. You wouldn't go and juggle the only eggs you have for dinner out in the street, nor should you do this with your future. However, you might get good at juggling one or two eggs and find that performance enables you each evening to be able to afford a full-blown feast for you, your family AND your friends. And that is exactly what a Stocks on Steroids portfolio - that smaller portion of your portfolio that you manage with higher risk for higher gain - is designed to do. If you'd like some great strategies for your NEST EGG, Liz Ann Sonders, the Chief Investment Strategist for Charles Schwab & Co., Inc., has written a great article in this ezine. Be sure to check it out!

Investing does not have to be either or. It can be both and, provided you are willing to learn the skill required to do the task well. (Most financial planners would agree that if your stomach can take it, you should be having a small part of your portfolio that takes on higher risk.) Btw: as I am entering my eighth year of impressive returns, the risk factor reduces accordingly. I am carefully researching companies BEFORE I feature them.

FYI: NataliePace.com is still at the top of over 830 A-list pundits on TipsTraders.com in annualized gains! According to the Tipstraders critieria, which is different from the way that we list our featured companies, all of the companies featured in the NataliePace.com Hot News list are pulling down 31.25% gains on average every year. The Hot New list below features 31 companies earning great gains, versus just seven that are headed in the opposite direction.

I still a better case is to be made for NASDAQ over the Dow Jones Industrial Average, largely because of the legacy concerns - pension and health care liabilities - that is more prevalent in unionized companies that were founded prior to 1980. Many of these companies are concentrated in the Dow Jones Industrial Average. Below is a list of articles over the past year where we explain why you need to have your radar up for pension plan debt in the former Blue Chip companies.

39 of the S&P 500 companies that are most deeply in the red on pension plans. Vol. 3, iss. 3. (March 2006)
Real Estate Warning: Speculators Are Being Suckered In, While Insiders Are Cashing Out By the Millions. Vol. 3, iss. 3. (March 2006)
Real Estate Slumped in June, but REITs CEOs Have Been Cashing Out Since 2005. Vol. 3, issue 7. (July 2006)
Faded Blue Chips. Vol. 3, iss. 8. (August 2006)
Wow! Dow! Or NASDAQ Now? A Contrast in Cash and Debt. By Natalie Pace. Including a Nasdaq vs. Dow Stock Report Card. Vol. 3, iss. 11 (November 2006)

Yours in peace and prosperity,

Natalie

EDUCATIONAL OPPORTUNITES AND INFORMATION:

1. Interest Rates: In a Pause Pattern. The Federal Open Market Committee has paused six times in a row now (in March and January 2007, December, October, September and August 2006), after raising interest rates 17 consecutive times prior. The federal funds rate remains at 5-Å%. The next meeting is scheduled for May 9, 2007.
   
   
2. Interested in reading the Press Release of the March FOMC meeting for yourself? You can. They are available online. Click on FOMC, or go to FederalReserve.gov, to read! According to the FOMC, "Recent readings on core inflation have been somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures." This slight change in wording indicates more concern by the Committee, and has pundits positing that the Feds may be preparing to cut rates before the end of the year. That move usually serves to stimulate the markets, which is one of the reasons that I expect 2007 to be an up year -- with the exception of the Blue Chips with exceptionally large pension and OPEB burdens.

   The tentative meeting schedule for the 2007 calendar is: May 9 (Wednesday), June 27-28 (Wednesday-Thursday), August 7 (Tuesday), September 18 (Tuesday), October 30-31 (Tuesday-Wednesday), December 11 (Tuesday), January 29-30, 2008 (Tuesday-Wednesday). The fact that the Federal Open Market Committee has decided to increase the number of 2-day sessions from two to four is an indicator that there is double the concern over managing the economy in the coming months.

3. Chairman Ben S. Bernanke testified Before the U.S. Congress' Joint Economic Committee on March 28, 2007, on the economic outlook of the U.S. Click on Ben's name to access a written copy of his testimony or go to the FederalReserve.gov website.
   
   
4. Online Chats: Check out the Calendar section of NataliePace.com regularly. There are many wonderful opportunities to chat one-on-one with millionaire money managers, economists, respected money gurus and CEOs! Please enter the chat room now to make sure that you know how to do it and that you don't have any firewall issues preventing you from accessing the room. (You'll need your passwords.)
   
   
5. Calendar Section: This month, there is one of the most important annual conferences - the Milken Global Conference. When you consider that over 2400 of the most important business leaders, money managers, policymakers and academics in America (and the world) attend, the price looks like a bargain! Don't miss out. You'll find a link to the websites of each event on the calendar section.

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 goals, 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 or intend to buy under the column "NP OWNS?"

Hot News on Cool Stocks List

Highlighted Companies (Hot List):
GAP (GPS)
Intel (INTC)
Intuit (INTU)
Jet Blue (JBLU)
OSI Pharmaceuticals (OSIP)
Siruis Satellite Radio (SIRI)
Suntech Power Holdings (STP)
Trina Solar Limited (TSL)
U.S. Gold (UXG).
WorldWater & Power (WWAT)
WisdomTree (WSDT)

RECENT DELETIONS:
Blockbuster Video
Las Vegas Sands

Hot Stocks List
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. This 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 (if you have already purchased them or if you are willing to come in at a higher price). 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.

Sony (NYSE: SNE) and Sunoco (NYSE: SUN) both had great runs for the list! LifeCell (NASDAQ: LIFC) posted over 180% gains before being moved to the Cooling Off list. Bioteq Environmental (TSE: BQE) had 144% gains. Rio Tinto was removed on 11.15.2006 with 145% gains. Las Vegas Sands was removed on January 5, 2007 with 139% gains, Agilent on 2.1.07 with flat performance, and RELM Wireless was taken off with 3% gains on 2.1.07. Blockbuster ran up 82.5% in gains, which we cashed in on February 12, 2007.

Recently removed from the Hot Stocks List:

Stocks to Watch
Great Companies. The companies that are listed are worthy of watching and might be worth buying in on opportunity (i.e. at a better price), if you believe the news on future potential. 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.

Recent Deletions:
Intel (moved to the Hot News list)

Cooling Off Stocks List:

Highlighted Companies (Cooling Off List):
None

Cooling Off Stocks (that may be Poised for a Decline in Share Price). Note: The companies listed in bold have recently been added to this cooling off list and/or may be currently poised for a decline in value. Investors who have them in their portfolio should read the recent news and consider whether it is time to sell and take profits, dump losses, short the position and/or simply weather the storms, while keeping the company in their long-term portfolio. At any rate, always consult your certified financial partner before making adjustments to your portfolio. (Again, note, that the stocks on this chart are expected to go DOWN in price.)

The following companies were taken off of the Cooling Off list effective 10.16.06. Verisign (+15%). IMClone (-11%). Yahoo (-28%). (The cooling off list anticipates that a company will lose share price value.)

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, and consider your long-term goals and strategies.

IMPORTANT DISCLAIMER: Information has been obtained from sources believed to be reliable however NataliePace.com 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.

NataliePace.com Calendar:

Don't miss the Milken Global Conference this month - the most important conference of the year!

Conferences (featuring billionaires, royalty and statesmen), educational opportunities and online chats with millionaire money managers. Stay plugged in! Visit our calendar section often.

See below for just a few of the amazing educational and networking opportunities that world-class organizations are offering for you. To access links to the event websites and registration, go to the Calendar section at NataliePace.com.

Tuesday - Friday, April 10^th - April 13^th, 2007
Living the Rich Life Retreat in Santa Monica, CA

12 attendees will enjoy a 4-day retreat in an intimate setting, learning Natalie Pace's strategies for achieving superior returns on Wall Street with her easy trade-marked 3-ingredient recipe for cooking up profits. Discover why almost half of the companies that Natalie features are doubling in share price, and how you can achieve outstanding returns of your own! There is only one spot available. Email Heather@NataliePace.com This retreat will take place at the stunningly beautiful beachfront hotel - The Loews Santa Monica Beach Hotel!

Thursday, April 19th, 2007
Worldwide Web!
8:45AM through 9:30AM PT (11:45 a.m. - 12:30 p.m. ET)

Chat with Top-Ranked Green Money Manager
Capitalist Greenie tops Hulbert Charts! Money manager David Fried, the editor of the BuyBack Letter, chats with NataliePace.com subscribers about making socially conscious, superior returns.

Former Vice President Al Gore hugs Fox News CEO Roger Ailes during a light moment at Tuesday night's session on Democracy and the Media. Monday, April 23rd, 2007 Global Economic Conference, Beverly Hills, CA The Milken Institute brings together VIPs, Nobel Laureates and executives for an intensive 3-day learning and networking experience. Policy issues and solutions in business, government, philanthropy, journalism and academics are debated.

Sunday, April 29th, 2007
Rare Chance to View Collection of Eileen Norton at Landmark Residence in Santa Monica.
4:00PM through 6:00PM

The Santa Monica Conservancy will host an intimate reception at the landmark Gillis House for a rare chance to view the renowned contemporary art collection of its owner, philanthropist and art collector Eileen Norton. Tickets are $250 per person and the party is limited to 75 guests. Proceeds benefit the Conservancy's education and preservation efforts. Cocktails and Hors d'oeuvres will be served. Tickets can be purchased through the Conservancy's website http://www.smconservancy.org or send checks to Santa Monica Conservancy, P.O. Box 653, Santa Monica, CA 90406. All tickets will be held at the door.
For more information, call (310) 496-3146.

Tuesday, May 1st, 2007
Professional Business Women's Conference: San Francisco
7:00AM through 6:00PM

The Professional Business Women of California (PBWC) provides the tools you need to succeed in the business world. They offer you ways to enhance your business leadership skills, build mentor relationships, and pursue your entrepreneurial dreams.

Thursday, May 3rd, 2007
The Secret Agape Revelation Conference, Washington D.C.
7:00AM through 9:00PM

Join Reverend Michael Bernard Beckwith - star of the best-selling DVD, The Secret -- and Dr. Rickie Byars Beckwith. The Agape community will delight, empower, awaken, create and celebrate in this 3-day conference. Learn to dance in the rhythm of a Descended Master, with the enlightened guidance of The Rev and the inspired song of Rickie BB!

The Theory of Economic Evolution¨.

by Natalie Pace, CEO, NataliePace.com©

Happy people make better products faster, cheaper, and, as a result, companies, partnerships and countries thrive.

Warning: This is very dense. Do not attempt to operate heavy machinery while reading. If you have insomnia, this might be a good way to get to sleep!

Suntech Power Holdings is the solar technology provider for the 2008 Beijing Olympics.

Many people have asked me my secret to finding the leader in the sector-- that company that is poised to lead the pack, to break out of the current growth trend and shine in product sales and share price growth. Typically, I try to keep the NataliePace.com articles focused on simple "recipes for the rich life," through easy to understand and implement strategies that will jumpstart your journey forward on the path to personal wisdom, which is the foundation of prosperity. However, in this article, I will begin to pull back the screen on the way I perceive the world, through the dynamics of economic incentives, and talk about a more sophisticated hypothesis that I have been employing for years.

The underpinnings of my personal strategy to featuring great breakout companies and countries (we featured China in 2002, Google at the IPO and Eastern Europe in 2004), is based upon a rather progressive, yet common sense, view of economics, which I call the Theory of Economic Evolution.

The Theory of Economic Evolution timeline:

1. Right to Vote
2. Right to Get Any Job
3. Right to Will Your Estate

The theory of economic evolution basically flows from the premise that, regardless of how emotionally mature or immature a person is, the desire to win the lottery, rule the world and have princes and princesses for children (i.e. economic gains) is primal and can be (and is throughout history) harnessed for the greater good by an effective leader.

Before I get into the details of this theory, let me fully disclose that, while I have put the Theory of Economic Evolution to good use in my lifetime, this theory has not yet been scientifically tested, nor academically challenged. In fact, I am publishing this theory now, even in its state of imperfection, having not withstood rigorous academic brow-beatings from my peers, because, regardless of confirmation from the lab, it works for me, and there appears to be enough substance here to warrant more attention. In addition, I hope to encourage comments, questions and critical thinking from my peers, the academic community and you, my inspired readers, so that the theory can be further tested and more completely understood. I am actively seeking an academic partner to throw darts at this theory, sift through statistics, question its efficacy, and to develop proofs designed to prove or disprove the model.

According to this theory, the a priori tendency toward not just "freedom," but economic freedom, is so fundamental to human interaction that virtually everything from war and peace, revolution and civil disobedience (gang warfare), divorce rates and employee productivity, can be predicted based upon this fundamental model of social evolution. While a country, or a company or even a marriage is advancing along nicely on the evolutionary timeline (which is essentially a path toward greater personal freedom), the citizens, employees and marital partners have more tranquility and the ground for prosperity and productivity is rich. Conversely, when a subset of the population, whether it be citizens, employees or a marital partner, feels trapped and stifled in their 'rights' to economic freedom, the seeds for contention are sown, and the ground is ripe for chaos, war, strikes, divorce and other "unproductive" uses of time (arguing, complaining, etc.).

Common sense tells you that happy, productive people make better products faster and cheaper, so, according to the theory, the country, corporation and marriage that paves the path for personal freedoms is the country, corporation and marriage which experiences the greatest sustained prosperity. Common sense and observation of human behavior also tells you that unhappy people throw a wrench in the works. Civil disobedience, union strikes, marital strife, civil war, etc. occur when individuals are no longer engaged and "invested in" the success of the social structure. The theory of economic evolution suggests that the most fundamental way of keeping individuals actively producing and invested in the success of the country, company and/or marriage is to satisfy an innate longing for personal economic freedom.

Now, this is a case of the means being more important than the ends, i.e. the journey up the road is more important than arriving at the end (and, theoretically, there is no endÉ simply more stages that have yet to be discovered and employed). In practical matters, a 20-year-old may not see far enough into his future to care if you provide a retirement plan or health care package (that will make it easier for his estate to remain intact and willed to his children), but is keenly interested in career advancement now. The 20-year-old just got the right to vote and is now looking to get a better job. The forward-thinking company, knowing that the individual will care in the future, will pave the path for continued prosperity by offering a 401 (k) to individuals after a certain period of employment. (The choice still rests with the individual on when to start investing, which is consistent with the theory.) On the other hand, a 60-year-old may make career choices based SOLELY on matters of the estate. She has had the right to vote for years and is looking toward retirement, not career advancement. Thus, how well a company, a marriage and/or a country "frees up" the rights of its citizens to stride forward on the evolutionary path to economic freedom, is one of the most reliable measures of peace, productivity and wealth.

My own limited point of view serves also to illustrate how the model works. The U.S. is, by my calculations, about mid-way between the right to get any job and the right to will one's own estate--a controversial premise, which I will explain further in the next paragraph -- and yet, as close as I am to the brink of willing my own estate, I cannot, yet, see what lies beyond the economic freedom of willing one's own estate. Imagine then, how a slave or a servant may not see far enough in the future to imagine owning his/her own plantation or becoming a doctor, but is willing to risk his/her life to join the cause for freedom and the right to vote. (We saw this in Afghanistan in 2004, when women risked their lives to vote. Some were killed.) Likewise a young assistant may not be overly concerned about the 401 (k), but is highly motivated to get a raise and a promotion.

As one steps along the path to economic freedom, one sees the next plateau to attain. As long as one is moving forward, the perception is "freedom," which is an "engaged" state of being, highly productive and invested in the outcome and continued success of the societal structure (government, corporate or marital). This personal feeling of empowerment, of having all restraints on personal prosperity and potential stripped away is both powerful and productive, and far more difficult to employ in practice, than it is to dream up in theory. This is especially true because even the most "free" countries and companies have, in the not-so-distant past, employed a structure that ended personal freedom with the right to will your own estate (and sloughed that responsibility onto the country or company). This means that countries and corporations enter a period of stagnation when too many of their citizens/employees retire, ending their personal march to greater economic freedom, and demanding their free lunch. The new trend is toward the personally-managed 401(k), allowing the responsibility and the rewards of financial freedom (or retirement) to remain with the individual.

Now, back, for a moment, to the current state of affairs in the U.S. The U.S. is well advanced on the timeline in legal economic rights, but not in practice. Blacks had the right to vote for 100 years before they could really exercise the right to shape the larger social structure; they were still forced to segregate themselves as late as the 1960s. High schools in poor communities experience the highest dropout rates, which limits the ability to secure most jobs. Not surprisingly, the poorest neighborhoods with the highest dropout rates also have higher crime rates, which is consistent with this economic evolutionary theory. Many poor U.S. communities are stuck between the right to vote and the right to get any job.

Some immigrant groups are very good at quickly advancing economic freedoms, which includes placing education as a priority. This, again, is consistent with the theory, and helps to explain why minority groups that invest in education are also quick to assimilate and prosper in the larger community. These immigrants jump on the road to getting any job they desire and drive directly toward the active right to will their own estate.

The Theory of Economic Evolution might explain why freedom, fulfillment and education are correlatives of productivity, which is in turn a key predictor of economic growth. People are happier when they are evolving along the path toward greater economic freedom, and education is fundamental to getting any job you want and to learning how to will your own estate.

Likewise, in the U.S., women won the right to vote 100 years ago, but as late as the 1970s, few women were the head of any Fortune 500 company. (In 1982, Christy Hefner became one of the first female Presidents of a major corporation in the U.S, as the President of Playboy Enterprises, her father's company. In 1988, she was elected Chairman and CEO. Kay Koplovitz founded USA Networks in 1977.) Even today, women account for less than 13% of Board Directors, less than 15% of corporate officers, and women of color hold only 1.6% of C-level (as in CEO, CFO, COO) spots. In most families, men are still more likely to handle the nest egg. Single mothers make up the largest percentage of people living in poverty.

This theory suggests (but has not yet empirically proven) that if marital partners could do a better job of satisfying the innate march of economic evolution for each individual in the relationship, which is essentially a march toward the freedom to choose one's personal destiny and prosperity, the social structure of marriage might be more successful. Today, about half of the marriages in the U.S. end up in divorce.

I do not intend to suggest here that one paragraph of explaining how the model works in theory is proof of anything, or that I've found a panacea for all of the world's ills. Statistics must be analyzed and the model must be tested. What this article is intended to do is to provide a skeletal overview of the Theory, to point out a few areas of societal strife that might be targeted for further analysis, and to reveal some of the ways that I have utilized the theory to identify countries and companies that are poised for robust economic growth, the majority of which experience more prosperity and productivity than their peers (and have earned me quite a reputation among my colleagues).

As another illustration of how this theory works in real life, one can turn to the explosion of economic prosperity currently occurring in Eastern Europe and China. The former was a region where all rights were stripped away by civil war. The latter is a Communist country that has only recently, and aggressively, moved to a free economy.

Eastern Europe has a very high concentration of well-educated persons. Over the last few years, many Eastern European countries have been aggressive about advancing personal freedom to own property and about establishing pro-business policies. As a result, Luxembourg, Estonia, the Czech Republic, Belgium and Lithuania all rank in the 25 most economically "free" countries in the world, according to the Center for International Trade and Economics. The Gross Domestic Product growth rate of these Eastern European countries has been on the high end of the world's countries, double that of their Western European counterparts.

2004 European GDP growth rate

Source: 2006 Index of Economic Freedom

While Eastern European countries are rebuilding and enjoying an infusion of capital and prosperity, Western Europe is experiencing more panic, public insurgences and violence. The headline story in the New York Times on March 29, 2006 was "French Protests Turn Violent." Why were rioters demonstrating against new youth labor laws in Paris? The theory would suggest it is because Western European social policies are being challenged (thus one's "estate" is being threatened), while jobs are migrating to Eastern Europe (where the citizens are as educated but can be paid less).

Instead of producing goods and actively participating in the prosperity of France, on March 28^th, 2006, citizens stormed the streets. The Eiffel tower was closed. French newspapers were printed but not distributed. Mail was not delivered. The Paris National Opera canceled its ballet performances. More than a million people left their jobs and rioted--labor unions claim it was up to three million--to protest a law that was passed by Prime Minister Dominique de Villepin that week, which allows employers to dismiss workers who are under the age of 26 "without cause" during the first two years of employment.

While Western European citizens had a very optimistic view of their future in the past, today their right to get any job they want AND their estate is being threatened. Western Europe is in the delicate position of having to prevent backsliding on the Economic Evolution model. On the other hand, the future and job possibilities in the former war-torn Eastern European countries have never been better, and productivity is, as a result, booming.

Now, the Center for International Trade and Economics ranks countries by the amount of freedom currently allowed in business and property rights, whereas the Theory of Economic Evolution places more value on how well the country is removing impediments to progress toward greater personal economic freedom. According to the 2006 Index of Economic Freedom, Germany qualifies as 19^th most free, France #44, while China bottomed out at 111^th out of 157 countries. Yet China's Gross Domestic Product growth rate was 9.5% (in 2004 and 2005), the highest in the world, double that of most countries in Eastern Europe and far superior to Germany's stalled 1.6% GDP growth rate. (India, another country which ranks low, #121 on the Index, but is making huge strides forward in the economic freedom of the individual, is experiencing 8.6% GDP growth rate.)

What gives? China may not have advanced individual freedoms, by Western standards, but the growth of personal freedoms on their own economic evolutionary timeline is extremely robust. This "Confucius" government is actively promoting personal enterprise at an unprecedented rate, and thus the optimism of the inhabitants is high, as is productivity and growth. People are moving into the cities at unparalleled proportions and opening up new businesses like mad. It's hard to imagine that the student-led Tiananmen Square revolt (and massacre) was just 17 years ago (April - June 1989).

China and Eastern Europe are great examples of how robust "forward movement" in economic freedom is a better predictor of productivity than an advanced, but static (or declining), current state of freedom. As demonstrated by the riots in Paris, many citizens have become more invested in fighting for their rights (against the state) than they are in working hard to make France a great, productive nation. Not surprisingly, productivity and GDP growth is stalled in many Western European countries, and the region faces hard choices over the next few years.

Likewise, we are seeing those same challenges in many of the more mature corporations in the U.S. The airlines, many defense corporations and the U.S. auto industry are suffering under "legacy" costs, the enormous burden of providing health and pension benefits to a large pool of retired workers. As a result, ANY corporation with a defined benefit plan that has a large pool of non-workers to support is hard-strapped right now to compete in the global environment, and is likely in talks with their labor and retirees to reduce wages and cut benefits. The workers, quite understandably, are horrified at having their salaries and benefit plans cut in half (or more). This means that labor (and their unions) are prepared to focus away from productivity and profitability and on the fight against their employer to keep what they've got. This is consistent with the theory. Anytime an individual feels like s/he is losing ground on personal freedom and prosperity, strikes, walkouts and poor productivity are more apt to occur.

Is there any way to keep productivity high during a challenging period of readjustment? The theory suggests that in an environment of building or rebuilding, leadership is essential to laying the groundwork for personal economic freedom, which is necessary for progress and productivity. The answer might lie in always laying the groundwork for the next step of personal economic evolution (rather than end it with retirement), something that just hasn't happened in most societies. What we can say is that in a challenging environment, employees and citizens are vulnerable to a message of hope (whether or not it is a message of truth), which is necessary for keeping citizens and employees invested in productivity. (Someone organized the Parisian riot of 1-3 million people, convincing them that warring against government is the most productive use of their time, and will give them what they want.)

A society, corporation (or marriage) is extremely vulnerable any time that the individuals feel their freedoms are being taken away. Thus the leader who is invested with saving his company or country must convey, at a minimum, that the "higher ups" will share in the burden of working hard to get out of any rut. The troubled corporation or country whose leaders take a salary cut, if they are expecting their workers to take one, should be more popular with the staff (and thus have a more productive labor force) than those who pad their golden parachutes, even as they shuffle employee pension plans over the to U.S. government. (We saw union revolts in the airline sector over this very issue in the U.S., between 2002 and 2006.)

If you can determine the ethos of the leader, in either circumstance, you will be able to determine the pathos of the organization, and from there predict the ultimate outcome - success or failure. This is why I spend so much time getting to know the CEO and executive staff of companies before I feature them in my stock newsletter. The CEO is the soul of the company. If you know how the CEO operates, you can predict how well the employees will build the company widgets or service the customer, how reliable the financials are, how exciting new developments will be, etc..

It appears to be much easier to be an emerging country or corporation that is trodding up the familiar path of economic evolution (like Google and China), than it is to be a mature country or corporation that must re-ignite the passion of its citizens and workers by getting them to think beyond their pension plan (like Delta and France). While Delta Airlines deals (in bankruptcy) with disgruntled unions and disheartened workers, JetBlue still has full planes that take off and land on time (except in that really bad snow storm). JetBlue's employees don't make more money than Delta's, but they are happy about their jobs, and happy about their 401 (k)s (which they control). Reservation clerks can work from home, which gives mothers greater flexibility in their employment options.

This observation, again, must be tested to determine if the model might help us to understand the dynamics of freedom and prosperity, and thus discover the next evolutionary milestone that mature companies and countries can advance toward. In the real world of NataliePace.com's success at featuring corporations, countries and sectors that are poised to outperform their peers, the theory has proven to be quite prescient. 48% of the companies that I featured in my ezine between the period of 2002 and 2005 went on to more than double their share price - that is 25 of the 52 companies featured.

There are many "Blue Chip" corporations (specifically I'm talking about companies that were founded before 1980, that have unions and defined-benefit plans) that are deeply in debt to their pension benefit plans, far more than investors are aware of because corporations are not required to include the obligations in their profit and loss, unless they have to make a contribution in that quarter. (Corporations do have to list the obligation on their earnings release, but the untrained eye might not uncover it in the document.) Any corporation that still has a defined-benefit plan, rather than a 401 (k), where there is a large financial obligation to a large pool of retired workers, is vulnerable to productivity challenges, according to the Theory of Economic Evolution. Perhaps the most important thing an investor should consider in 2007 is how much exposure their portfolio has to corporations that will experience the challenge of re-igniting the passion and productivity of their staff in an environment where benefits and salaries may have to be cut.

The Theory of Economic Evolution essentially suggests that it is important for individuals to freely pursue their highest desires and achieve their greatest potential. The a priori right to personal fulfillment along this predictable economic timeline (which begins at birth for each individual) must be perceptibly advancing in order for peace, stability, productivity and economic growth to occur.

In future articles, if this one hasn't already bored you to tears, we will put the theory to the test and examine how freedom to have any job you desire is broader than just allowing an intern the opportunity to become a managing director, or a copper miner's daughter the right to become the next Nobel Laureate, or a mother the right to stay at home with her children. Check out the Sharing Wisdom Bulletin Board on this topic to post your comments, ask your questions, suggest further areas of examination, and to see whether or not my Ph.D. friends think I'm full of bull or really onto something here.

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