by Natalie Pace.

A report on the mortgage lending business, including a Subprime Stock Report Card.

"I have never seen a delinquency situation like we have today with full employment." Angelo Mozilo, Chairman and CEO, Countrywide Financial Corporation.

New Century Financial declared bankruptcy on April 2, 2007, after sliding from a 52-week high of $51.97 down to a delisting off of the New York Stock Exchange. Novastar Financial was down to just $154 million of cash on hand (according to the annual report), is predicting that the company will lose money (taxable income) now through 2011, and is cutting 17% of its workforce (about 350 jobs). Meanwhile, Countrywide Financial, another mortgage lender that has been hit hard by subprime defaults, was just named as one of April's Most Attractive Stocks, by Forbes' writer David Trainer.

Who do you believe, and how do you separate the mortgage lending companies that are sliding toward crash and burn from those that might survive? Are subprime loans merely the tip of an iceberg, an implosion that could sink our banking system?

According to Dr. Marc Miles, a respected economist and global strategist, subprime mortgages are bundled and sold on the secondary market, so the risk gets spread out - except in the case of those issuers like New Century Financial, which are unable to secure a secondary buyer fast enough, and those the organizations that get caught guaranteeing those loans. Dr. Miles predicts no major catastrophes, except for the already troubled Fannie Mae and Freddie Mac. Perhaps the only thing keeping the wolves on Wall Street off of Fannie Mae and Freddie Mac is the widely held perception that the U.S. government will bail them out if need be.

According to many leading economists, the subprime default problem is a small ripple in the ocean of banking, but those ripples can crash in powerful waves on the local shores of regional mortgage lenders. Thus, one way of evaluating which REITs are rotten is to sort for regional mortgage banks based out of real estate markets that are experiencing (or primed) for the largest correction.

According to Robert Toll, the Chairman and CEO of Toll Brothers (who spoke on one of the real estate panels at the Milken Global Conference in April), New York City, parts of New Jersey and Texas are pretty much the only spots in the U.S. that are still holding strong in real estate. A respected investment banker, who preferred to remain anonymous, said that the subprime sector has already been beaten up, but if he were looking, he'd look for companies operating in Florida, Las Vegas or inland California. Robert Toll would add Phoenix, Boston and Michigan to that list. In perhaps the most colorful speech on the subject, Mr. Toll called Florida "death takes a holiday," compared Phoenix to Indiana Jones if he went off the cliff and worried that Michigan might be a place where real estate doesn't come back.

The interesting thing about waves is that they build up momentum and crash in rapid order. New Century smelled ripe for bankruptcy back in March 2007, when I warned: "Shareholders have filed suit against the company and liquidity looks like a big issue, so steer clear of New Century, unless you are a professional who understands how to maneuver in very short, volatile windows." The company filed for bankruptcy just one month after that note was published in my Hot News on Cool Stocks report. (Experienced investors who know how to maneuver in very short, volatile windows made a great return on that article.)

On February 20, 2007, NovaStar Financial announced their 4^th quarter and 2006 year-end earnings. The 4^th quarter net loss was $14.4 million. That unexpected loss, combined with their go-forward projections of "little, if any, taxable income during the period 2007 through 2011," prompted a market sell-off. The earnings report also revealed deep, underlying trouble in that NovaStar's portfolio of loans under management was $16.3 billion at year-end, with nonconforming loan originations totaling $11.2 billion in 2006, up 21 percent from 2005. That's a lot of risk in an Ohio and California-based company, with just a $267.67 million market value and the FDIC breathing down its neck to tighten up its lending policy. If a shareholder lawsuit comes in - and with this kind of risk and fall-off of share price, a lawsuit is highly likely - that could be the final straw.

Now, just because NovaStar looks more vulnerable to a continued market sell-off than Countrywide Financial and Capital One doesn't mean that these two companies won't continue to experience pressure on earnings and share price. David Trainer, a Forbes' writer, has Countrywide Financial on his list of "April's Most Attractive Stocks," and his premise that the company might weather the storm might be right - in the long run. The number one company in any sector is often able to do that. In the near term, however, while interest rates and tighter lending continue to result in defaults and foreclosures, the odds that you'll be able to pick up a mortgage lending company at a lower price in 12-24 months are high.

Fannie Mae, in a recent SEC filing, warned that "approximately $1.1 trillion in ARMs are scheduled to reset at least once during 2007, with an additional $300 billion scheduled to reset in 2008." These resets have Angelo Mozilo, the Chairman and CEO of Countrywide Financial, concerned. With tighter lending policies, forced by legislation, the people who have to renegotiate their mortgage loans will have a whole new set of rules to deal with, in addition to a decline in the value of their real estate. That could be the scenario where we start seeing subprime affecting people with decent credit who refinanced at the market high.

Mr. Mozilo recently took a cut in salary (from $2.9 million to $1.9 million) and signed an employment contract to continue with Countrywide through 2009, but he has also exercised options valued at $80 million. Having spent his life in mortgage banking, Mr. Mozilo appears to be an executive capable of steering his company through the flotsam and jetsom and out the other side. However, the ride in between will be more than the stomach of most investors can take, and it's hard to imagine that we've experienced the bottom of this mess.

Likewise, the CEO and Chairman of Capital One, Richard D. Fairbank, has filed notice with the SEC that he intends to exercise options on 2.1 million shares and sell them on the open market. At the current stock price of $74.96 that would put about $157 million in Mr. Fairbank's pocket, in addition to the $37.4 million compensation package he received in 2006. Both Mr. Mozilo and Mr. Fairbank certainly aren't keeping their own estates banked on the near-term future of their respective companies, although they appear to be committed to steering their ships through the storm.

And all of this during a time when the nation is at almost full employment! As Angelo Mozilo cautions, "If we see employment weaken, then the rules change." In the meantime, perhaps the best strategy for the mortgage lending market comes from Shakespeare -- "Neither a borrower nor a lender be; For loan oft loses both itself and friend, and borrowing dulls the edge of husbandry." (from Hamlet 1.3)

I have added NovaStar to the Cooling Off portion of my Hot News on Cool Stocks list this month, expecting further, and potentially rapid decline in share price. Fannie Mae continues to remain on the Cooling Off list.

Other mortgage lending companies are listed below for your convenience.

Full Disclosure: I have no stock, options or positions on any companies mentioned in this article.

Small Cap (under $500 million market capitalization)

Mid Cap ($1-$5 billion market capitalization)

BIG CAP (over $10 billion market capitalization)

Buy Your New Home in Fall, and Save Thousands of Dollars.

by Natalie Pace.

Photo Credit: Stefano Paltera/Solar Decathlon The Virginia Tech team won first place in the Architecture and Dwelling Contest of the Department Of Energy’s Solar Decathlon

Investments, like the Eastern Seaboard, have their seasons. In stocks, you need to know about the summer doldrums, the Santa Rally and the pre-election trend (which you can read about in my Hot News on Cool Stocks article in this month's ezine). In real estate, there is a phenomenon called "The Four Ds, " which have the greatest impact on price volatility. If you don't know them, you're at risk for overpaying for your home (or undervaluing if you're selling).

The Four D's: Death, Depression, Divorce and Disaster.
Winter is the off-season for real estate. Why? Who wants to uproot the kids during school? Also, life looks bleaker in the winter months, when natural disasters capture more of national headlines. For instance, hurricanes in the Atlantic are a fall phenomenon.

Fall and winter have disproportionately high occurrences of natural disasters. 9.11.01 was in September. The Great Depression and Black Monday 1987, two major corrections in the U.S. stock market, both occurred in October. The Northridge Earthquake (in California) was in January.

Why do prices fall in winter? It's a simple case of supply and demand.

After the spring and summer rush to buy homes is over, buyers dry up and listings start to abate -- that is, unless or until death, depression, divorce or disaster (or job loss or transfer) motivates some owners into selling. Homebuyers have already moved into their new purchases and put their kids into the local schools, so the number of people looking to buy is limited, giving you a strong hand when it comes time to make an offer and negotiate. No matter what the listed price is, if the seller is highly motivated, you can make a low-ball offer with much less worry of a competing bid.

If you're looking to buy in the summer -- especially this year when sales appear to be abating, but are still well above the five-year high in many regions -- you're likely to pay above what the asking price of the property will be in a few months. This has an even greater likelihood of happening if the listings continue to outpace the number of buyers in the market (which they are), and lenders tighten their lending policy (which is occurring). The longer property sits on the market, the more pressure there is on the seller to lower the price.

Thus, the patient buyer takes a risk that that the property might get sold to someone else, with the knowledge that the gains could be the equivalent of a down payment if she plays her real estate 4-Ds right. Waiting just a few months, until October, means there will be far fewer buyers to compete with. Sellers who haven't given up selling, will have lowered their price. Additionally, if there is any type of bad news at all in the meantime, some less experienced or desperate sellers may panic and drop the price more dramatically, sometimes significantly. In truly terrible disasters, like earthquakes, terrorist strikes, fires, stock market corrections, floods and riots, etc., real estate values can plummet overnight.

It's almost uncanny how reliable the winter season is for lower prices in real estate, due to the 4-Ds. In August of 2001, a friend of mine was determined to buy a home while interest rates were so low. In order to find a place they could afford, Jane and her husband drove out of the dream neighborhood where they were living, into a less expensive neighborhood with a farther commute, more traffic and higher crime. Jane and her husband decided upon a fixer-upper with more mandatory, immediate repairs than they were really able to afford. She and her husband put the home into a 30-day escrow, and were still in the transition period on September 11, 2001.

America's loss on 9.11 inspired Jane to take a hard look at the termite-ridden home she was about to close on and call her own. Instead of proceeding forward, the couple gave up their deposit and backed out of the deal. If they were going to spend every last penny they owned on a new home, at least they were going to love the place.

One day in October, Jane and her husband were back driving around their dream neighborhood, in a part of town they thought they couldn't afford. They almost didn't bother stopping at the FOR SALE sign, but, being a Sunday, a day of leisure, decided to take a tour. They now own their dream home, at a price they can afford. It wasn't a fixer-upper. In fact, the only major purchase they had to add was a Jacuzzi! The person selling the home had been personally impacted by 9.11.01, even though he lived in Southern California, and wanted to liquidate the property fast. Both families benefited from the sale.

If someone is highly motivated to sell in winter, chances are they are in need of liquidating the property in a narrow time frame. If they were disinterested sellers just looking to get the top dollar, the property would only be available during the sizzling hot sales months of spring and summer. Planning and patience always work to the advantage of the seasoned investor.

2007 Forecast: A Cloudy Crystal Ball.

by Natalie Pace.

An economic report from the Milken Global Conference.

At the Milken Global Conference last Tuesday morning, Steve Forbes hosted a round table of esteemed executives and economists to make predictions about the U.S. economy, including Brian Fabbri, Chief U.S. Economist for North America, BNP Paribas, Angelo Mozilo, Chairman and CEO, Countrywide Financial Corporation, Peter Orszag, Director, Congressional Budget Office and Andrew Rosenfield, Managing Partner, Guggenheim Partners LLC. There were general predictions for "sustainable" 2-3.5% Gross Domestic Product growth in the U.S. economy, but once all of the qualifications and possible drags on the economy were outlined, you'd get more clarity on where 2007 would end up from a gypsy psychic.

Editor's Note: Sustainable in economic parlance means just above anemic, as opposed to "robust," which would describe China for more than a decade.

The Tuesday morning panel was about as entertaining as an economic panel can be. The panelists managed to separate themselves into optimists and pessimists, including a real doomsday oracle - Brian Fabbri - but they were basically kibitzing over 1% growth rate in the GDP and highlighting ongoing problems that have been making headlines for years. You'd have to be an adept hand in nano-surgery to have extracted any useable strategy for 2007-2008, mostly because economic predictions have a way of embarrassing those who make them.

Still someone has to employ the brave pen, and Andrew Rosenfield was willing to take a stab. In Mr. Rosenfield's view, technology and knowledge-based revenue growth should prevent panic over subprime. Thankfully, when I emerged from the palatial cocoon of the 3-day conference, I was greeted with the happy news that Mr. Rosenfield's brave prediction might play out - The Dow Jones Industrial Average had soared to a record close on April 27, 2007 of 13,120! Perhaps 2007 will indeed be a year when it won't pay to "sell in May and go away." This would follow the trend of 2003, another pre-election year, when the stock markets hardly noticed that Wall Street professionals like to vacation in August.

Pre-Election Year Trend
(Years included: 1927-2005)

Source: Odyssey Advisors

One debate over the economy centered on the question: Will foreign investors lose confidence in the U.S. and dump their currency and Treasury bill holdings (essentially shooting their own investments in the foot)? "11 countries have over $1 billion in assets. One has over a trillion in assets," according to Mr. Fabbri. "When they start to diversify -- and the investment counselors tell them that they should diversify -- interest rates increase. Those indebted will have bigger problems."

Rising interest rates certainly could exacerbate the current problems in the mortgage lending industry, especially because higher interest rates, expensive homes and tighter lending policies are reducing the amount of available home buyers in the U.S. In that scenario, real estate values are apt to continue to decline and drag down the growth of the U.S. economy. Robert Toll, the Chairman and CEO, Toll Brothers, who sat on another panel on real estate, was bearish on most real estate markets in the U.S. at this time, outside of New York City, Hoboken, New Jersey and Texas.

And then there is the problem du jour - subprime defaults. Will the subprime market mess spill over into the larger economy? Just how bad are the numbers? Mr. Mozilo, Chairman and CEO, Countrywide Financial, noted that there is a 19% delinquency rate on subprime loans, and that 5-6% of those delinquencies will become foreclosures.

An alarmingly large percentage of home buyers - at least in the subprime market -- simply made up the information on their loan applications in order to flip homes for profit, which incidentally earned subprime loans the nickname "liar's" loans. "You never know who is swimming naked until the tide goes out," according to Mr. Mozilo. "As soon as the value started to recede, all of the sins were exposed."

Most of the panelists agreed, however, that even with alarmingly high default rates in the subprime market and an almost flat national savings rate, the overall economy would continue to grow, as long as unemployment remained low. "I have never seen a delinquency situation like we have today with full employment. If we see employment weaken, then the rules change," warned Mr. Mozilo. The delightfully candid Chairman and CEO of Countrywide Financial Corporation has been in the mortgage lending business for 54 years.

Editor's Note: The national savings rate doesn't take into account a person's 401 (k) or the equity in their home, so many respected economists do not consider a flat savings rate to be an alarming statistic.

While we are at full employment today, everyone agreed that monitoring the ongoing progress of the unemployment reports is a good idea. Click to check out the latest monthly data at the Bureau of Labor Statistics.

"The direct effects of subprime, in the scale of the size of the economy, is fairly small," according to Mr. Orszag. In Mr. Orszag's view, the biggest thing we have to fear from fallout in the housing sector is the possibility that it will infect fear into the average American. Consumer sentiment is highly correlated with stock market performance.

Mr. Fabbri, the doomsday prophet of the bunch, was concerned however, that the drop off in housing starts was likely to spiral into the end of capital expenditure, which would stall out the economy. He said, "That's how the housing economy will begin to infect the rest of the economy. It turns business from investing in equipment and information technology to using their own capital for buying their own stock and keeping stock prices higher when earnings are not going to be there."

Is that the inevitable outcome of the stock market over the next eighteen months - inflated share prices, a fallout of earnings and foreign investors dumping their U.S. investments? Not according to Dr. Gary Becker, a Nobel Laureate winning economist, who has incidentally been right on the economy for the last decade, since the Milken Institute has been hosting the Global Conference.

In a private interview on Tuesday evening, Dr. Becker told me that the economy looks good. He noted that production may not be booming, but it's still strong. Our national debt is not alarming, when measured by Gross Domestic Product. We're importing capital, which keeps interest rates low. "Their worries are misplaced," according to Dr. Becker, "unless the U.S. dollar tanks relative to the Euro, and that's unlikely."

Dr. Marc Miles, PhD, and global strategist, agrees. According to Dr. Miles, "As I may have told you last spring, I expected (based on historical interest rate movement evidence) a slow down late last year and a pick up around mid 2007. No recession, no major collapse.  So far, so good on that forecast."

Could anything actually boost the GDP growth rate of the U.S.? Steve Forbes proposed that adopting his 15% flat tax for the U.S. would take the GDP growth rate from 2-3% to 4-5%. Believe it or not, there is some new data to support his claim.

According to data provided by Dr. Marc Miles, the editor of The 2006 Index of Economic Freedom, Estonia, Latvia, and Lithuania all adopted flat taxes on individuals in 1994-95. (Estonia also has an essentially zero percent tax on corporations, and the other two have corporate tax rates of 15%.)  Estonia grew 7.8% in 2004 and had a 7.2% average growth rate over 5 years.  It's real per capita income is now over $14,500.  Latvia had an 8.8% growth rate in 2004 and a 5-year average of 7.7% (over $11,600 per capita real GDP). LIthuania had a 7.0% 2004 rate and a 7.1% average rate (over $13,100 per capita).

Some Democrats are trying to draft Gore as their 2008 Presidential Candidate. Should Republicans reconsider Steve Forbes as their man?

As Andrew Lo, MIT professor notes, "Physics has three laws that explain 99% of the phenomena, and economics has 99 laws that explain 3% of the phenomena." When the crystal ball is cloudy, and it is rarely clear in economic forecasts, your best strategy is to take a long term view, and diversify your assets across a portfolio of investments, including stocks, bonds and real estate. (In the event of an Apocalypse, you'll have bigger things to worry about than your investment portfolio.) If you are a new investor, please read the other articles of interest (below) for more information on how to do just that. For more information on the subprime sector fallout and which companies will be affected, read the article, "(Sub) Prime Time" in this month's ezine.

Other Articles of Interest:
Wow! Dow! Or NASDAQ Now? by Natalie Pace. Archived ezine: Vol. 3, iss. 11.
Call It Your "Buy My Own Island" Plan, Not Your Retirement Plan. By Natalie Pace. Including 6 Easy Wealth Tips That Make Life More Enjoyable.
From Flipping Burgers to Owning Your Own Island. By Natalie Pace. How tithing 10% to Your Nest Egg will make you a millionaire, even if you're only bringing home $30,000 a year.
Investing is Not Surgery. Brokers are Not Surgeons. (They Are Salespersons). Why wise, informed, personal, daily, healthy choices keep you fiscally fit. By Natalie Pace, i-Sophia CEO and founder.
Top Ten Investing Mistakes.
Brokers and Lovers: It Pays to Pick a Good One.
Lessons from Enron. Power is Intoxicating. 11 Ways to Avoid Getting Drunk.
Faded Blue Chips. by Natalie Pace. Archived ezine: Vol. 3, iss. 8.

Deficits: Mountain or Molehill?

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

Long scorned, global imbalances begin a process of correction.

Debates continue to rage about America's triple deficitsÑbudget, trade and current account. It is also one of the most popular subjects about which I get questions from clients. The broadest and most-debated deficit is the current account, which has been deeply in deficit in recent years. By definition, an economy running a current account deficit has an overall "net capital inflow"Ñas foreigners buy U.S. companies, stocks, bonds, Treasuries and currency, and also make bank loans, in exchange for U.S. purchases of imported goods and services.

One side of the debate suggests a large deficit means the United States is living beyond its means as consumption and investment exceed savings. The other side of the debate suggests the United States is an oasis of prosperity, attracting investment from around the globe thanks to our economy delivering higher investment returns at lower risk than other investments.

I lean on the side of the latter view, believing current imbalances are not necessarily inherently bad. Today's deficits may represent natural adjustments taking place in our global economy. What's more, these imbalances are currently shrinking. Maybe what investors should worry about more are the "cures" offered by the pundits. Among the most dangerous: higher taxes and/or trade sanctions.

I believe the focus should be less on the size of the deficits and more on what we get for the money. There is a basic principle in financeÑlaudable investments and projects can be securely financed with a degree of borrowing, while unworthy projects and investments should be denied. Debt can be desirable if it is successfully utilized to attain or maintain growth. In the current environment, I'd argue, our deficits are partly the result of globalization and some positive forces sustaining U.S. economic growth. 

Conventional wisdom: Deficits are dangerous
Conventional wisdom views ongoing deficits as a serious threat to the economy, suggesting we're living beyond our means and are relying on the willingness and "generosity" of foreign nations to provide us financial capital. It's theorized that these countries have an interest in encouraging our spendthrift habits, but they could quickly and easily stop lending so much money to the United States. Were that to happen, interest rates would soar and the value of the dollar would plunge, it's believed.

Reality: Deficits may not be the monsters many fear
How is a nation to know whether it's making good investments? One way is to allow "the lenders" to tell "the borrowers" how they're doing. In other words, if a borrower is a good credit risk, a bank will be more than willing to lend. DebtÑusing "other people's money"Ñcan be a sound way to finance good investments to induce or foster economic growthÑfor individuals, businesses and governments.

One thing that's become clear over recent years is that lenders around the globe find U.S. Treasuries to be some of the safest investments anywhere. I believe there is little risk that they will stop their lending anytime soon, as they would be aiming squarely at their own feet were they to halt suddenly.

Global growth defined by imbalances
What nations should always strive for is non-inflationary growth that's at least as fast as the growth in debt. It's easy to argue that the deficits that were run up in the early part of this decadeÑwhen the country was teetering on the brink of a serious recessionÑhad the beneficial effect of restoring economic growth. Think of them as a force for economic good. Never before has the global economy been so, well, global, with greater mobility of capital than ever before. The drivers and linkages of global economies are changing dramatically.

A similar pattern is unfolding now as a result of globalization. Although balance is still lauded, the modern world coexists withÑand thrives onÑimbalance. Trade and current account balances are not only unrealistic to achieve everywhere; they're becoming the exception rather than the rule. Growth (which should be the rule) can only be generated through imbalances, since growth requires supply and demand to be out of whackÑat least for some time.

Think of it this way: If, as suggested by the current account deficit, aggregate demand in the United States had been running 5%-7% ahead of aggregate supply for the past four yearsÑand we had no ability to access overseas supplyÑthe U.S. economy would have gone into overdrive (causing interest rates to soar). But it didn't.

The biggest risk may be protectionism
Capitalism, which is in rapid ascent globally, breeds imbalances. But protectionism, which is brewing in Washington as a quick-fix solution to the perceived perils of deficits, may actually be the economy's biggest risk. The recent announcement of import duties to be placed on Chinese paper goods came, brilliantly (yes, that's sarcasm), at the very time the U.S. economy is measurably slowing. It's foolish to impose a massive "tax" in the form of higher prices for imports!

Don't folks remember the Smoot-Hawley Tariff of 1930, which was key in turning what would have otherwise been an inventory correction into the Great Depression? The U.S. auto industry has been on the receiving end of tariffs for decades now. Does that industry have much to show for it? More recently, the steel tariffs imposed (and later repealed) by the Bush administration were a debacle, too.

Imbalances may ease with adjustments here and abroad
Regardless of your view, the most recent deficit readings were actually much improved. There's a non-calamitous way to lessen global imbalances. The process would involve more currency flexibility and greater consumption/less saving by our trading partners, and greater saving/less consumption in the United States. All could be achieved without a massive depreciation of the dollar or a sharp rise in U.S. interest rates.

Well, this process may be underway: U.S. economic growth (via lower consumption) has slowed, its budget deficit has improved, growth in Europe and Japan is stronger, and Asian currencies are becoming more flexible. Putting the burden more on currency flexibility may help ease the impact on global economies; and the willingness to be more flexible, especially by our Asian trading partners, is growing.

According to the International Monetary Fund (IMF), it may take a smaller drop in the value of the dollar to rebalance the world economy than academic and government analysts have suggested in the past. A real dollar depreciation of less than 10% could bring about a 1% of gross domestic product (GDP) narrowing in the U.S. trade deficit. This compares to common economic estimates that a 10%-20% real dollar depreciation would be needed for such a reduction.

The IMF noted that the responsiveness of trade to changes in the real exchange rate is greater the more flexible the economy. In addition to movements in real exchange rates, domestic policies matter as well. History suggests that increases in saving rates and improved fiscal restraint in deficit countries have allowed investment and economic growth rates to be better sustained during the adjustment period. The United States appears to be walking that path currently. For surplus countries, a narrowing of their surpluses has been generally accompanied by a pickup in domestic demand, associated with more expansionary monetary and fiscal policies. Many of our trading partners appear to be walking that path currently.

This time, the world may not catch America's cold
But what if the U.S. economy really stumblesÑwon't growth stumble elsewhere in the world, too? Contrary to the old cliché, "when the U.S. sneezes, the rest of the world catches a cold," economic downturns abroad have been considerably smaller than U.S. recessions or growth slowdowns. On average, a one-percentage-point decline in U.S. economic growth is tied to a 0.16-percentage-point decline elsewhere, though the impact is larger in Mexico and Canada, which are heavily dependent on exports to the United States.

And even though the "spillover" effect may be growing as financial markets and economies are ever-more-tightly linked, there may be a bright spot on the horizon for the U.S. and world economies. Currently, slower economic growth here in the United States is almost purely a function of the weakness in housing (and automobile manufacturing)Ña decidedly less global force than, say, a weak stock market or technology bust (think 2000-2002) or a liquidity crisis.

Indeed, the recession in the United States in 2001 did have a significant effect on global economies. However, the 1991 recession, triggered in part by the savings and loan crisis and related credit crunch (domestic in nature), had little effect on global economies. In fact, most emerging countries saw improved economic performance. As for current weakness in the U.S. economy, the IMF notes, "The fact that the import content in the housing sector is relatively small has helped to mitigate the spillover effects on other countries."

The United States may be entering an era of export-led growth
This should also mitigate any detrimental impact on U.S. export growth, as most world economies are still displaying strong growth. As you can see in the "Deficits Now Moving the Right Way" chart, the U.S. trade imbalance is noticeably improving for the first time in nearly five years. The latest fourth-quarter GDP report showed net exports contributed 1.6 percentage points of the 2.5% growth in the U.S. economyÑmore than offsetting the 1.5 percentage points of contraction from fixed investment (residential and nonresidential). Yes, export-led growth may be something our trading partners have enjoyed over the years, but it may be our turn for a while. 

For much of the 1970s and late 1980s, the narrowing of our trade deficit actually supported both employment and income growth here in the United States. We may be entering a similar era. If the U.S. economy can remain healthy thanks to strong export growth, the continued correction in housing may not have as deleterious an impact on the economy as some believe.

Budget and current account deficits improve
The current account deficit just posted a dramatic improvement, from -$229 billion in last year's third quarter to -$196 billion in the fourth quarter. See the "Current Account Deficit Heads North" chart.

Closer to home and as seen in the "Deficits Now Moving the Right Way" chart, the federal budget deficit has declined to only 1.5% of GDPÑwell below the 2.4% average of the past 30 years. The Congressional Budget Office is now projecting that the budget deficit will drop to $172 billion in fiscal year 2007, $240 billion below the record deficit of $412 billion set in fiscal year 2005. And these figures include the $80 billion expected to be spent on the war(s) in the Middle East. The aging U.S. population and related entitlement spending (Social Security and Medicare) poses the greatest risk to the budget in the long term, but that's a topic for another day.

What accounts for the dramatic improvement to the budget deficit? Going back to my earlier comment about growth being the desired goal, revenue growth into the U.S. government's coffers (via a stronger economy and higher tax receipts) has greatly exceeded spending growth. Ironically, if we jeopardize that growth through measures such as protectionist trade sanctions, we might see those positive trends turn negative again.

Don't dismiss deficits ... just understand them
I don't want to sound dismissive of deficits. The entitlement problems that I brushed over are grave problems that brave politicians will have to deal with before too long. In addition, there are other forms of debt about which we should have great concern: U.S. household debt payments as a percentage of disposable income are at a record high, and there's a pyramid of leverage in the debt markets created by speculators and traders using "cheap" money from around the globe (particularly from Japan). But I will always believe that letting free markets work to ease these imbalances (while still understanding their root causes) is the best medicine.

The Benefits of Education.

by Dr. Gary Becker, Nobel Laureate, Economics.

Natalie Pace attending Santa Monica College.

An article by James Altucher, a columnist of the Financial Times, this past week essentially asserted that college and university education is a waste of time, that students would be better off by working rather than attending classes, or by using the money that went to tuition to travel instead. ("A mind is a terrible thing to waste but so is all the money that is being flushed down the toilet in the elitist quest for a good education. The best education is falling on the ground and getting a few scrapes. ÉJust don't get robbed for four straight years [by going to college]"). Two days later a columnist of the Wall Street Journal, David Wessel, argued just the opposite, that the benefits of higher education have never been higher, at least in the United States, and that the puzzle is why more Americans do not finish high school and college. Who is right? The evidence is overwhelming that Wessel is right about the benefits of education, and that Altucher does not know the subject he is writing about.

It is well documented that the average earnings premium from a college education in the United States increased from about 40 percent in the late 1970's to about 80 percent at present. Not everyone does well financially from going to college, or badly by not going-Bill Gates is an obvious but extreme example of a college dropout- but the average person who does go has far better prospects for earnings, employment, and occupation than the average person who stops schooling after finishing high school. The economic benefits from completing high school also went up relative to those to high school dropouts, although they did not increase as much as the benefits from college. A similar picture holds for Great Britain and many other countries, although the changes elsewhere have been smaller than in the United States.

Nor is this all. Research increasingly demonstrates that education improves performance in virtually every aspect of life. Educated persons on the whole are healthier, are better at investing in their children, have more stable marriages, smoke much less and in general have much better habits, commit many fewer violent crimes, are better at managing their financial resources, and at adjusting to unexpected shocks, such as hurricane Katrina. It might be thought that these correlations between education and various benefits, including earnings and health but not only these, are the result of abler persons, such as those with higher IQ's, and healthier persons getting more schooling rather than the effects of schooling. More able and healthy persons do have greater amounts of schooling, but literally hundreds of studies have tried to correct for these differences. They find that even after making these and other corrections, the effects of education on various monetary and non-monetary benefits remain very large.

An additional finding is also important. Not only have the earnings benefits of education increased during the past 30 years, but so too have health benefits, the advantages of education in raising children, and the benefits of education in managing one's assets. The growing gains from education are pervasive and not limited to earnings, or to economic benefits narrowly conceived. This suggests that the forces producing the greater advantages are also broad and general rather than narrow and specific.

Three such broad forces have been identified. Probably most important is that the technological progress of the past 30 years has increased the demand for educated and other skilled persons. Examples include the growth of the Internet and the personal computer, developments in biotech, innovations in financial instruments, and rapid progress in technologies that improve the health of adults. Globalization and the economic development of countries like India and China is a second factor that raised the returns to skill, for global growth increased the worldwide demand for products and services that use highly educated and other more skilled inputs. A third general force is due to the decline in the cost of plant, equipment, and other physical capital, in part the result of lower real interest rates. Educated and other skilled manpower is complementary with physical and financial capital, whereas low skilled labor is a substitute for such capital. Hence a cheapening of physical and financial capital would raise the demand for educated inputs relative to the demand for the less educated.

Estimates indicate that in the United States the average rate of return on a college education in the form of higher earnings is about 10 percent. The average return is lower for students who fail to complete four years of college, and is higher for those who do graduate work. If the benefits of better health, better skills at raising children, better financial management, and so forth are added to the benefits of higher earnings, the total rate of return on college would rise to 15 percent or more. Should not such high returns have induced most persons who finish high school to go on for a college education, and encourage additional boys and girls to finish high school?

Up to a point they have, so it all depends on whether one looks at the glass as half empty or half fill. Since earnings and other benefits of a college education began to increase almost 30 years ago, the fraction of high school graduates who go to college has also increased greatly, and the increase has been pervasive among different genders and racial groups. Higher enrollments are found for white males and females, African American males and females, and Hispanic males and females. Over 60 per cent of high school graduates now get some higher education, one of the highest percents in any country. True, many of these college entrants, especially men, fail to finish college, but at least they show awareness of the advantages of a college education.

The real failure of the American education system compared to other countries is in the large numbers who drop out of high school. What is even worse from the perspective of equalizing opportunity is that the fraction dropping out of high school, some 20- 25 percent of high school students, is concentrated among African Americans and other minorities. Surprisingly, this fraction has not declined over time by very much, despite the huge increase in the returns from greater amounts of schooling. I do not have a good explanation for the lack of response in the high school graduation rate to the greater benefits of education, except that the American family started deteriorating rapidly only a little earlier than the returns to education began to rise rapidly. The reduced preparation for schooling, especially among boys in the many families without fathers, was offsetting the increased benefits from additional schooling.

How to better prepare students so that more of them want to complete high school and attend college, and benefit from their schooling experience? It would be important to help stabilize African American and other families. In an earlier post (March 12 of this year) I discussed a subsidy to couples if they get and stay married. That might be an option, especially if the subsidy to marriage was greater to lower income couples, although I give various arguments in that post why such a subsidy may not be desirable. Perhaps head start school programs for children from broken families would be a better approach. Legalizing drugs would contribute, so that students would not drop out of high school drawn by the (slim) prospects of making a lot of money through the sale of drugs. The quality of public schools attended by most minority students is low-although teachers at these schools face formidable obstacles- so school vouchers and other ways to increase competition among schools for students would be helpful.

Dr. Gary Becker is the University Professor, Department of Economics, and Sociology Professor, Graduate School of Business at The University of Chicago. Click on his name to read more of his wisdom on his weekly blog.

Glass Ceiling and Glass Walls.

by Marilyn Tam, co-founder, Us Foundation.

Marilyn Tam, Author of How to Use What You’ve Got to Get What You Want.

Recently, LA Times ran an article on the "Return of the Glass Ceiling" or as they put it, the "female free management zone" of corporate business. This article calls attention to a subject many have been lulled into thinking is on the way to be solved: the common belief is that women are assuming more corporate management positions and directorships and that women have free choice in how and where they advance in their careers.

Statistics show that this is definitely not the case; in fact the situation is at best status quo or getting worse for women in corporations, in spite the occasional standout exception like Indra Nooyi, the new CEO of Pepsi.

There is a glaring dearth of women in the top executive suites of major corporations in the U.S., in spite the fact that women have been getting over a third of the MBA's since the 1980's and that women comprise over fifty percent of the managerial and professional workforce (source: Catalyst). For women of color the glass ceiling is even so much harder to break.

In 64 of the Fortune 500 companies, there are no women at all in the management team - house hold names like Owens-Illinois, Saks Inc. Borders, Newell Rubbermaid, Toll Brothers, and Whirlpool. These companies' customers are predominantly female and yet they do not seem to recognize that having women on the leading team will add to the productivity and effectiveness of their organizations.

Women are starting businesses at twice the pace of men and their businesses are prospering at twice the growth rate as all firms. Yet in corporations women earn only 75% of what men make in comparable positions, and they are assigned to be in staff positions twice as often (source: Catalyst).

The issue of the Glass Ceiling for women is a particularly timely topic since the X and Y generations have grown up with less of an awareness/need of having to fight for their rights in education and sports. They are now just beginning to realize that the rise up the corporate hierarchy is fraught with barriers that they thought were dealt with and broken by their mothers and grandmothers.

The Glass Ceiling in corporate business is still very much in place and equally rigid are the Glass Walls, which the LA Times article also alluded to. Glass walls, the invisible obstructions that keep women from learning the range of skills that are required to rise up in a company, are even more insidious. Why should everyone care? Because it is good for business. A study conducted by Catalyst , a nonprofit research and advisory organization, showed that companies with more women executives financially outpace those with fewer women executives.

Simply put, the reason that we all need to be concerned about breaking down the glass ceiling and glass walls is that in today's world it is foolhardy to bypass half the available talent, especially since we are experiencing a skilled labor imbalance and shortage globally. It is good for business to be in tune with our customers' needs. With women holding over 80% of the purchasing power in the US, we need to know and understand our customer. To integrate the customer group into the management of the business just makes good business sense.

Additionally we need to expand the issue of the glass ceiling and glass walls to all affected groups - all who are not similar in ways to the current management demographics. This concept of exclusion/inclusion expands past the gender issue and includes all ethnicity, national origin, regional differences and religious/sexual orientation. The time to address the Glass Ceilings and Glass Walls is upon us.

Marilyn Tam is hosting a Power and Visibility webinar on May 10^th. Register NOW to learn how to employ the skills Marilyn Tam used to head up Reebok Apparel, Aveda and Nike.

Marilyn Tam is a Corporate Consultant, Speaker, Author, Executive Director and Co-founder of Us Foundation. Ms. Tam was formerly the President of Reebok Apparel and Retail Group; CEO of Aveda Corp. and Vice President of Nike Inc. She is also a successful entrepreneur, having developed and built companies in corporate consulting & training, a web portal company and a supply chain software company. Marilyn Tam's international selling book, How to Use What You've Got to Get What You Want, combines her business acumen with her goal of giving back to show others how to achieve their dreams. www.HowToUseWhatYouveGot.com

In How to Use What You've Got to Get What You Want, Ms. Tam talks about how to discover your own inner North Star, and how to use it to navigate your efforts to achieve maximum personal success. The hardcover is available for $15.60 on Amazon.com.

Why Men Earn More:

by Warren Farrell, Ph.D.

The Startling Truth Behind the Pay Gap.

Dr. Warren Farrell with his wife and two daughters.

When I was on the board of the National Organization for Women in New York City in the 1970s, I led protests against the male-female pay gap. I assumed the gap reflected both discrimination against women and the undervaluing of women.

Then one day I asked myself, "If we can pay women less for the same work, why would anyone hire a man? And if they did, wasn't there a punishment called going out of business? In other words, did market forces contain a built-in punishment against discrimination?"

Perhaps, I thought, male bosses undervalue women. But I discovered women without bosses--who own their own businesses-- earn only 49 percent as much as male business owners. Why?

When the Rochester Institute of Technology surveyed business owners with MBAs, they discovered money was the primary motivator for only 29 percent of the women, versus 76 percent of the men. Women prioritized autonomy, flexibility (25 to 35-hour weeks and proximity to home), fulfillment, and safety.

These contrasting goals were reflected in contrasting behavior: male business owners working 29 percent more; being in business 51 percent longer; having more employees; and commuting 47 percent farther.

To make a fair legal assessment of the value of these differences requires more than saying, for example, that people who work 33 percent more hours should earn that much more pay. The Bureau of Labor Statistics finds that people who work 33 percent more hours get about double the pay. For example, people who work 44 hours per week make more than twice the pay of those working 34 hours. (Not at the same job, but, for example, at a job like a national sales representative, that would not even be available to someone who could only work 34 hours per week.)

After a decade of research, I discovered 25 differences in men and women's work-life choices. All of them lead to men earning more money; and all lead to women having lives more balanced between work and home. (Since real power is about having a better life, well, once again, the women have outsmarted us!)

High pay, as it turns out, is about trade-offs. Mens' trade-offs include working more hours (women work more at home); taking more-dangerous, dirtier and outdoor jobs (garbage collecting; construction; trucking); relocating and traveling; training for more technical jobs with less people contact (engineering); taking late night shifts; working for more years; and being absent less frequently.

These are just 10 of the 25 variables that must be controlled to accurately assess the pay gap. And they don't include three of the most important variables: one's specialty, sub-specialty and productivity.

Is the pay gap, then, about men and women's choices? Not quite. It's about parents' choices.

Women who have never been married and are without children earn 117 percent of their male counterparts. (The comparison controls for education, hours worked and age.) Why? The decisions of never-married women without children are more like men's (e.g., they work longer hours and don't leave their careers), and never-married men's are more like women's (careers in arts, etc.). The result? The women out-earn the men.

The crucial variable in the pay gap is family decisions. And the most important family variable is the division of labor once children are born: children lead to dad intensifying his work commitments and mom intensifying her family commitments.

The pay gap, then, is not the problem. It is a reflection largely of family decisions that we may or may not wish to change. The law can still attend to discrimination, but not by starting with the assumption the pay gap means discrimination.

Does the change in division of labor once children arrive imply mothers sacrifice careers? Not quite. Polls of people in their twenties find both genders would prefer sacrificing pay for more family time. In fact, men in their twenties are more willing to sacrifice pay for family than women (70% of men; 63% of women). The next generation's discussion may not be who sacrifices career, but who sacrifices being the primary parent?

Don't women, though, earn less than men in the same job? Yes and no. For example, with doctors, the Bureau of Labor Statistics lumps physicians and surgeons together. The male doctor is more likely to be the surgeon, work in private practice, for hours that are longer and less predictable, and for more years. When these variables are accounted for, the pay is precisely the same. What appears to be the same job (doctor) is not the same job.

Are these womens' choices? When I taught at the school of medicine at the University of California, San Diego, I saw my female students eyeing specialties with fewer and more predictable hours (dermatology, psychiatry). Conversely, they avoided specialties with lots of contact with blood and death, such as surgery.

But don't female executives also make less than male executives? Yes. Discrimination? Lets look. Comparing men and women who are corporate vice presidents camouflages the facts that men more frequently assume financial, sales and other bottom-line responsibilities (vs. human resources or PR); they are vice presidents of national and international (vs. local or regional) firms; with more personnel and revenues; they are more likely executive or senior vice-presidents. They have more experience, relocate more, travel overseas more, and are considerably older when they become executives.

Comparing men and women with the same jobs is still often to compare apples and oranges. However, when all 25 choices are the same, the great news for women is that then they make more than men.

Is there, nevertheless, discrimination against women? Yes. For example, the old boys network. But in some fields, men are virtually excluded. Try getting hired as a male dental hygienist, nursery school teacher, cocktail waiter, or selling even men's clothing at Wal-Mart.

The social problem with focusing our legal binoculars only on discrimination against women is that the publicity those lawsuits generate leads us to miss opportunities for women. For example, we miss 80 fields in which women can work, for the most part, fewer hours and fewer years, and still earn more than men, fields such as financial analyst, speech-language pathologist, radiation therapist, library worker, biological technician, funeral service worker, motion picture projectionist. Thus women focused on discrimination don't know which female engineers make 143 percent of their male counterparts; or why female statisticians earn 135 percent.

Nor did my daughters know that pharmacists now earn almost as much as doctors. As I took my binoculars off of discrimination against my daughters, I discovered opportunities for them.

The biological instinct of most judges and attorneys, like all humans, is to protect women.

My goal is to give women ways of earning more rather than suing more, thus erasing the fear of companies to pursue women; to give companies ways of teaching women how to earn more; and give the government ways of separating real discrimination from its appearance. This is the world I want for my daughters.

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Warren Farrell is author of Why Men Earn More: The Startling Truth Behind the Pay Gap--and What Women Can Do About It and several other books. Learn more at www.warrenfarrell.com.

Shopping for a Promotion – Literally.

by Natalie Pace

Every promotion and raise I ever got hinged on one critical heelÑdressing the part. Have you ever heard of anyone in a t-shirt and thongs (the shoes, not the underwear) getting an executive level position (unless they owned the company)? How would you feel if your attorney showed up to court in a Hawaiian shirt? Every job has its standard dress code, and dressing for success is a subtle, but important statement that you walk the walk and talk the talk of the promotion you're aiming to get. And that message has to start BEFORE you ask for the job, not after. Unfortunately, you can't afford to rationalize that you'll buy the new suit AFTER you get the job and have the extra money to afford it. If you don't invest in the duds first, your big shot will mostly likely be a blank.

The reason that I say to start walking the talk now, is that it's not just in the boss' office where that suit can be an advantage. Great-looking clothes (and unfortunately fabric DOES matter) can provide a conversation starter for strangers. At a conference last year, I met one of my business advisors because he and I were both standing in the valet queue, waiting for our respective cars, wearing similar (and I think quite tasteful) pin-stripe suits, which were coincidentally made by the same designer. (Yes, I bought mine on sale.) That silly clothes moment has resulted in a business relationship and Rolodex sharing that has the potential to add millions to the bottom line of my company. That's a million dollar return on a thousand dollar investment. (It was a really great designer suitÑwhich I bought on sale!)

Still afraid to pony up the dough before you win the job? Worried about how you'll pay off the credit card bill? Unfortunately, it's a Catch 22 situation. If you don't make the investment, you're unlikely to get the promotion. Which strategy is more likely to succeed? Walking into your boss' office wearing the corporate clerk smock or having the boss walk by your office and see you looking sharp and sassy, like you're ready to go sit at that vacant corner office upstairs? One entrance reeks of pleading, while the other sizzles of respectability and upward mobility. Your new clothes and confidence hint to your superior that if he or she doesn't come up with some added incentive and responsibility for you, you might start looking around for an employer who will. (And if you need to pay that credit card off, you're really going to start looking if they don't give you what you deserve!)

Fear is what keeps most people frozen in their tracks, while entrepreneurs are well known as risk-takers. You have to take a serious moment with yourself about just how much you're willing to invest in climbing the corporate ladder. If you're unwilling to set aside money for more education in your field and an appropriate wardrobe, you shouldn't complain about the rung you're stuck on! Climbing the corporate ladder has no bearing on what kind of person you are anyway. If you're happy in your job, by all means, keep the clothes you have! But promotions, like all upward mobility in life, are going to require an investment in time and money.

Last week, I came across an executive assistant wearing a tailored suit. The first thing I thought was, "If her work ethic, her education and her intelligence warrant a raise and promotion, I wouldn't be surprised to see her in her own office next time I visit." (And if her education and industry acumen don't measure up, then her next shopping spree should be for college classes and/or professional development!) I put her name on my short list of people I would approach when/if my company was hiring.

Finally, get the most for your buck. Summer can be a great time for off-season designer sales! Splurging (within reason) can be the best thing you do for your career, and paying a little more for a great fabric and a great cut can pay off for years because classic cuts don't go out of fashion, like the latest trend does. Polyesters, off-the-rack suits and outrageous fashion statements may cost less, but they look also look cheaper and wear out in just one season. Whereas a great suit can become this year's hip, new look with a new blouse and some accessories!

 

The Secret of Scoring:

by Chellie Campbell, author of Zero to Zillionaire.

Go for the Goal!

Chellie Campbell, author of Zero to Zillionaire. Photo credit: Mary Ann Halpin.

Dream big! What are some goals that are a stretch for you, that make you laugh and your eyes shine when you think about actually achieving them? Just the pursuit of them can be thrilling. Why not go for it? You might be surprised what shows up in your lifeÑsooner than you expected.

For example, I admire the lavish High-Roller Suites maintained by the Las Vegas hotels for their "whales"Ñthe gamblers who wager millions of dollars in their casinos. Chellie is not a whale at this point, but still, I put "I spend the night in a fabulous High-Roller Suite" on my list of goals.

I forgot all about it the next month as I jetted off with three of my girlfriends for a cruise on a paddlewheel steamer up the Mississippi River from New Orleans to Memphis. We were staying in New Orleans to take in the sights for a couple of days before getting on our ship, the Mississippi Queen.

As we waited in line at the check-in counter at the Intercontinental Hotel in New Orleans, the harried clerk apologized profuselyÑthey were completely overbooked. The rooms we reserved weren't available. She asked if we would mind sharing a suite instead of having separate rooms.  We said "Sure!" because we're easygoing people, and we were on vacation and having fun.

We knew something good had happened when we had to use our key in the elevator to get to the concierge floor. Hmmm. We smiled at each other as we alighted on the top floor and passed the lovely room where they served complimentary munchies and soft drinks. Down the hall we went to the last door, and opened it slowly.

Our collective breaths caught as we saw the black-and-white marble-tiled floor of the entryway and the full-length oil painting and large vase of flowers. This was no ordinary suite. We dropped our bags on the floor and turned right into the living room. It was huge! Fireplace, couches, television, elegant tables and chairs, a dining table set for ten in the dining room, and a full kitchen behind that. The balcony alone was bigger than the usual hotel room. We discovered a small den, with a wet bar and another television. The master bedroom was huge, with a gorgeous four-poster bed, and the master bath had a whirlpool bathtub and another television. The second bedroom was smaller, but still fabulous. We were jumping up and down with "oohs" and "ahhs" as we explored our very own Fit-for-a-Zillionaire High-Roller Suite.

We had been given a free upgrade to the Presidential Suite that goes for $2,000 a night! And I had put "Stay in a High-Roller Suite" on my list of goals only one month before.

Live it up! What secret goal do you want but are afraid to name because you can't see how you would ever get it, how you would qualify for it? Want to put High-Roller Suite on your list even if you're not a High-Roller? Or an overnight stay at Buckingham Palace, even if you're not royalty? Or free front-row seats at the next Bon Jovi concert with a backstage pass, even if you don't have "connections"?

Go for the goal, Zillionaire!

You Can "Yeah, butÉ" Your Way to Zero

Every day you don't take action to achieve your dreams is a day you are creating more of what you have right now. If what you have now is perfect, then you only have to take the same actions to continue to maintain it. Great. But then don't tell me you're life isn't what you want. If you're complaining about the way things are without taking any steps to change it, you're likely to end up being one of the "Ain't It Awful" people who are constantly whining about the price of gasoline, or taxes, or houses, or the weather, the traffic, the kids these days, television commercials, their spouse, the neighbors, and email spam. (Like there's something you can do about that.)

As my friend, author Eddie Connor says, "Let me kick you in your ÔBut'". Stop sniveling and move on. No one cares about how rocky the coastline is or how bad the storms were or how long you studied navigation or how the crew mutinied or how abused you were or how hard it is to sail a ship. They just want fun ports, lots of food, and good shopping on their cruise.

You're too old? Grandma Moses was 85 when she started painting masterpieces. Colonel Sanders was 65 when he got his first social security check, said to himself, "This will never do," and started Kentucky Fried Chicken. I started writing my first book at age 50 and it was published when I was 54. So you're too old and it's too late for you to doÑwhat? One of my friends told me everyone knew her acting career was over because she was 40 years old, and I rolled my eyes and said the show biz types had been telling that old lie forever but that didn't make it true. She gaped at meÑshe had never thought to challenge that idea. It was accepted wisdom in her industry. I told her to do her research and she would discover just how many actresses became successful after age 40. She had never thought to investigate but when she did, she came up with a list of 75 women.

There is one "Yeah, but" that is permissible: You do have to acknowledge what your gifts are and not what you wish they were. If you want to sing professionally, you should be able to carry a tune. If you want to be an NBA basketball star, it would be a good thing if you were tall and nimble with a ball. If you want to be a supermodel, it's helpful if you're thin and beautiful. That's not to say there aren't exceptions that prove the rule, but it helps to put the odds in your favor.

You can't "positive think" your way into a talent you don't possess. An hour of watching American Idol on television should convince you of that. No one is served when you tell your friend or family member that they sing like Clay Aiken, when they really sound more like William Hung. But then again, William got a record deal, too. If you weren't born with the talent to sing extraordinarily well, accept it. By all means, still singÑsing for the joy of singing, for the communion of voices when in a group like at church, sing happy songs in the shower to start your day on an upbeat note. But don't waste your life pursuing a dream of being a famous pop singer, when really your best talent might be to help the sick and dying by running a hospice.

We are all born with gifts. Some are dynamic and bright and shine like comets in the night sky. Some are quiet and soft, like moonlight on a meadow. Your mission is to find your passion, what makes your life sing, and then sing that song for all you're worth. Your song will be different from everyone else's song, and therefore special, unique and wonderful. Don't try to sing someone else's life song. It can't be copied. I can sing a perfect Chellie Campbell but only a second-rate Bette Midler.

The Beginning of Another Streak:

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

Will the stock market continue to soar in 2007?

In the first quarter of 2007, the string of positive returns for the S&P 500 Index that started in June 2006 finally came to an end in February 2007. That might not sound like much, but the last string of eight months of positive returns ended in 1995. This streak was brought to an end by shock that borrowers with poor credit who were lent too much money at the top of the housing bubble were having trouble paying it back. As it was possible to get loans for more than 100% of purchase price at the peak and housing prices have subsequently declined, some of the rest of us are surprised the problem isn't bigger.

We also had the usual gibberish about the economy and inflation from various past and present members of the Federal Reserve. Inflation is a problem, or it isn't, or we aren't sure. Economic growth might be slowing, or probably will slow, or might be stable, unless it picks up a bit. It's fascinating to watch a big move in the stock market every time one of these statement are made, which gives the impression most investors are as confused about the economy as everyone else.

Toward the end of the quarter, Iran found that capturing a few British sailors was a good way to get higher prices for their oil. After briefly visiting $50 per barrel in January, oil prices ended the quarter above $65 per barrel and appear to be in another uptrend. The combination of rising oil prices and more Democrats in Congress pushed alternative energy to the top of the list for industries, while growth finally outperformed value, and medium sized companies were the place to be. For reference, here's the stock market segment scorecard for the first quarter.

Source: Thomson One Financial

In addition, here's the stock market index and industry group scorecard for the same period:

Source: Thomson One Financial

During the first quarter, yields on 3 Month Bills were slightly higher at the end of the quarter while yields on intermediate bonds dropped. The Fed kept interest rates unchanged and softened its reference to the need for higher borrowing costs in a statement announcing its decision to keep its target rate unchanged for a sixth straight policy meeting.

Source: Bloomberg LP

The yield curve remains a tribute to bureaucratic meddling as yields on the short end are clearly too high. Our opinion is that although there are some risks to the economy, growth will continue and the Federal Reserve will either keep rates where they are or lower them slightly by the end of the year. Our portfolios remain higher in quality and of intermediate maturity to capitalize on improvements in return in that area of the yield curve.

Source: Bloomberg LP

Helped by the modest decline in interest rates, bonds mostly outperformed stocks in the first quarter. While we added to 3 and 4 year U.S. Government Agency bonds during the quarter where spreads were most attractive, we did not add to Treasury holdings. The yield spreads between corporate and Treasury bonds have tightened although the concern about the sub-prime mortgage market may cause spreads to start going the other direction. Municipal bonds in California continue to be under pressure and a huge recent offering produced higher yields. However, the huge demand for California municipals coupled with the lower quality versus other states still makes them look expensive and unattractive relative to other bonds.

The most recent quarter showed real economic growth chugging along at around 3% with capacity utilization rising a bit. Reported inflation continues to be volatile from month to month, but modest on an annual basis. Earnings growth for the S&P 500 continues to be in double digits, for the fourth year in a row. We expect current problems in the housing market to produce a gradual slowing in economic growth and corporate profit growth for the balance of the year, but don't see a recession on the horizon.

Although the stock market was either up or down in the first quarter, depending upon the index used, the underlying earnings continued to grow. The result was that an undervalued stock market got a bit cheaper. The stock market in the first quarter appeared to be about 18% undervalued relative to the yield on 5 year Treasuries, according to our model. We don't see much competition for stocks from bonds or real estate at present, and expect some recovery in valuations by the end of the year. We still expect the combination of undervalued stocks and rising earnings to produce double-digit returns in most segments of the stock market in 2007.

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

Solar Shines on Wall Street.

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

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 in our feature article 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, Genenech, 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. (See the chart in the article, "25 of our Companies Have Doubled," for a listing of companies.)

Additionally, the market performance of the companies that are featured in my Hot News on Cool Stocks list are still keeping me at the top of over 830 A-list pundits on TipsTraders.com in annualized gains! According to the Tipstraders tracking data, all of the companies featured in the NataliePace.com Hot News list are pulling down 32% gains on average every year. The Hot New list below features 35 companies earning great gains, versus just five that are headed in the opposite direction.

Stock Market Overview:
As you can see below, the stock market over the last year and a half has been a wonderful place to be. If you were invested, chances are you are earning wonderful gains.

General Stock Market Performance

The pre-election year rally trend is a strong, predictable pattern over time, since 1927 (at least) according to our data, and we're expecting the year to finish out strong.

Pre-Election Year Trend

(Years included: 1927-2005)

2003, another pre-election year, was the top performer of the last seven years in the stock market - well above the annual gains of real estate!

2003 U.S. Stock Market Performance:

Source: MoneyCentral.msn.com

Solar is Hot, Hot, Hot!
Another trend that is treating us well is our concentration in solar energy, and the explosion of sales and interest in that sector. We just listed Trina Solar Limited and WorldWater on the Hot News chart on April 1, 2007, and they have both exploded over the last 30 days, with gains of 29% and 8% respectively. Suntech Power Holdings and MEMC Electronics have outshone the other companies on Wall Street, with 47% and 57.5% gains in just six months, respectively. (Suntech and MEMC Electronics were first featured in our October 2006 ezine, volume 3, issue 10.)

Solar Energy Companies listed on the Hot News list

Leading Sectors Going Forward:
I still believe 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 are 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 I 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)
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)

FAQs (Frequently Asked Questions):

1. What's the easiest way to stay on top of the companies that you are featuring each month?
   I publish a new Hot News list on or around the 1^st and the 15^th of each month. We do our best to put the publishing date on the calendar section, so that you can be on the lookout for it. The article is available online 24/7 for your convenience.

The email you receive from NataliePace.com is a notice that the article is online, not the article itself. The Internet Service Providers are becoming very aggressive about putting email in the spam folder, and/or blocking email altogether. Don't rely on receiving an email. Go to the website!

The easiest way to locate the Hot News list is to go to the Online Magazine link on the home page at NataliePace.com. In the drop down menu, simply select Hot News on Cool Stocks. Additionally, the Hot News article is always a headline feature when it is published, so you'll find it in one of the main article spots on the 1^st and the 15^th. FYI: This article is password protected, so that it is available only to subscribers.

Additionally, each month I feature an article on a new exciting company at the top of the ezine, while I almost always anchor the bottom of the ezine with the Hot News list at. In between those two articles, there are articles by other leading economists, money managers, etc., articles on ways to become better at investing, on creating wealth, on succeeding in business, philanthropy, etc.

I recommend that you print out the entire ezine and read it in your spare time. When an article is featured on the home page, that is a good time to print it out as well, so that you get just the article (instead of the entire ezine).

2. Why don't you own all of the companies that are listed on the Hot News List?
   I am a journalist, not a money manager. That means that the governing agencies on Wall Street don't concern themselves with me UNLESS I start acting in a way that they would consider insider trading and/or front-loading my own portfolio. If I were to buy every position that I report on, that would be considered front-loading my portfolio. Telling you to buy things that I already own means that odds are very good that my own position increases in value. It is illegal for me to profit in that way.

Additionally, I have to be careful about exactly when I trade, which must always be after I publish an article.

One of the few journalists who have been prosecuted for insider trading was a famous Wall Street Journal reporter who allegedly sold the names of the companies he was going to feature before the articles appeared. So, there is actually a strong incentive for me NOT to own the companies I feature.

I do not recommend thinking that I have more faith in the companies that I buy and sell than in the rest of the companies that I feature. That is simply not the case. More often than not, it is simply true that I am on the road that month, and forget to place an order until the price is above what I want to pay. As you can see from the independent analysis of TipsTraders.com, the overall performance of the entire companies featured in my articles are at the top of Wall Street (and typically start their climb right after I feature them). You'll do better by either following ALL of the companies, or by following the companies that you know the most about and believe in the strongest.

Investing is a game of controlling your emotions so that you can buy low and sell high. You're more apt to be a cool hand if you understand and believe in the reasons for investing in a particular company or a particular position. Sometimes the markets will challenge your position, and you don't want to panic and sell yourself short.

3. How can I learn how to use the Stock Report Card?
   In the Investing Edu section of NataliePace.com, we list many past Stock Report Cards. I highly recommend that you check out what happens when you line up the numbers. Start by reviewing a report card on your favorite industry, and then reading the accompanying headline article (from the archived ezines, all of which are available online).
   
   When you are interested in comparing and contrasting the competition of a company you are interested in, simply create a Stock report Card in your own word processing document and plug in the numbers. There is almost always a clear leader! Reading past articles of mine will help you to start understanding the data, and how to truly evaluate what is most important. It's not just which company is selling for the lowest Price to Earnings ratio. As you can see from the May feature on Subprime mortgage lenders, the lowest P/E could simply identify the companies that are the most vulnerable to Chapter 11!

Additionally, I teach an intensive 4-day retreat on Living the Rich Life at least twice a year that is focused FOR TWO DAYS on learning how to pick the breakout company of any sector. 25 out of 52 companies featured in NataliePace.com between 2002 and 2005 - that is a whopping 48% -- more than doubled, and the vast majority of the other 52% performed well above the market. Picking the leader in the sector, by using the Stock Report Card to line up the numbers, is a very reliable part of my 3-ingredient recipe for cooking up profits. Be sure to keep an eye out and pre-register for the next Living the Rich Life Retreat.

3-ingredient recipe for cooking up profits:

1. Start with what you know and love.
2. Pick the leader in the sector.
3. Buy low; sell high. (Easy to say; hard to do.)

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 Minutes 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, "The increase in delinquencies on subprime adjustable-rate mortgage loans and the ensuing increase in interest rates and tightening of credit standards in the subprime mortgage market likely would constrain home purchases by some borrowers, perhaps retarding the recovery in the housing sector. However, there was no sign of spillovers from the subprime market to the overall mortgage market."
   
   
3. Pundits are 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 for most of the marketplace. There is one BIG exception, however. Many Blue Chips with exceptionally large pension and Other Post Employment Benefits (like health care) burdens are still very overvalued when you consider the amount of debt that they are carrying and the tough time that they are having being competitive in industries where there are other companies that do not have to support a large pool of non-workers.

The tentative FOMC 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.

4. 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.
   
   
5. 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.)
   
   
6. Calendar Section: This week, Reverend Michael Bernard Beckwith is hosting his Agape Revelations Conference. Millions of viewers of The Secret love the Rev's message and this is your chance to experience his message live and in person! 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):
Genentech (DNA)
Jet Blue (JBLU)
Siruis Satellite Radio (SIRI)
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 on 4.1.07) 

Cooling Off Stocks List:

Highlighted Companies (Cooling Off List):
Fannie Mae (FNM)
NovaStar Financial (NFI)

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 Reverend Michael Bernard Beckwith's Revelations Conference this month - your chance to see/hear the star of The Secret up close and personal.

The NataliePace.com Calendar section features conferences, educational opportunities, cultural events, galas 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.

Thursday, May 3rd, 2007
Agape Revelation Conference, Washington D.C.

Reverend Michael Bernard Beckwith and Dr. Rickie Byars Beckwith delight, empower, awaken, create and celebrate in this 3-day conference. Dance in the rhythm of a Descended Master. According to Dr. Beckwith, "The old paradigm is that you die and go to heaven. The expanded paradigm is that you die to your narrowness and reveal heaven here on Earth as a descended master."

Friday, May 4th, 2007
Porgy and Bess at the Los Angeles Opera
7:30PM through 11:00PM PT

Francesca Zambello directs a theatrically vivid production featuring Gershwin's utterly unique score which blends blues, Tin Pan Alley and opera. Love lost and found in the times of slavery.

Wednesday, May 9th, 2007
Federal Reserve Board Committee Meeting

The Feds have been in a pause pattern. Pundits are positing that the next move will be down, but no one is sticking their neck out to say that will occur in May.

Sunday, May 20th, 2007
Global Peace Meditation Day

Nine global events to demonstrate the power of directed thought, monitored by Princeton University.

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