Exclusive Interview with Natalie Pace.

Justice Sandra Day O'Connor (ret.) Photo by Steve Petteway, Collection of the Supreme Court of the United States.

The War in Iraq is one of the most divisive subjects of our day, and one that no political leader has an easy solution for. As the authors of the Iraq Study Group Report noted, "No one can guarantee that any course of action in Iraq at this point will stop sectarian warfare, growing violence, or a slide toward chaos." However, with hundreds of thousands of soldiers and hundreds of billions of dollars committed and a war that has entered its fourth year without abatement, a pathway to peace and prosperity must be forged and death, violence, destruction and mayhem must be curtailed.

It's hard to imagine a peace and prosperity when car bombs are exploding every day, and frankly, as you can easily imagine, the smart flee. As Dr. Gary Becker (Nobel Laureate economist) pointed out in an interview with me last May, the brightest and most capable are the first to emigrate when a country falls into a chronic period of war. So, how do you entice the professionals and entrepreneurs of Iraq to stay and rebuild and create jobs? How do you make it safe enough for them to stay?

Justice Sandra Day O'Connor (ret.), one of the experts of the Iraq Study Group, knows more than a little about promoting peace, prosperity and equality. For 25 years, she was an Associate Justice of the United States Supreme Court, one of the most powerful women in the United States and in the world, and she had to crack a glass ceiling (without violence) to get there.

In the 1950s, as a woman who graduated in the top 3% of her law class at Stanford, Justice O'Connor had difficulty getting an interview above the level of secretary, though her male colleagues found jobs easily enough. In 1981, Justice O'Connor did have the last laugh on those law firms that refused to interview her, however, when she became the first woman appointed to the Supreme Court in the U.S. Justice O'Connor served the public good on our nation's highest court until last year, when she retired to spend more time with her ailing husband, John.

So, given her involvement with the Iraq Study Group, as well as her legacy as a public servant, I asked Justice O'Connor for her insights on what the U.S. should be doing to promote democracy in Iraq, end the war, and bring our soldiers home. What, if anything, can the U.S. do differently? What is the best way to bring together the warring factions in the country? Is there anything that the average American citizen can do to help? How can Americans prevent discrimination against women and non-Muslims in Iraq and against Middle Easterners in the U.S. and throughout the world? After four and a half years of U.S. involvement on Iraqi soil, it certainly doesn't seem like sending more soldiers is doing the trick.

Justice O'Connor openly shared her wisdom and insight, by email, on strategies for promoting peace, prosperity and equality both at home and abroad. While Justice O'Connor didn't offer a panacea for peace, her comments about Iraq, and what is needed to establish security and promote peace and prosperity in that country and at home in the U.S., are bold, astute and candid.

Natalie -- Given your legacy in justice in the U.S., you have come across the circumstances and stories of despair and reform that most of us will never see, across an evolutionary timeline that has fostered greater personal freedoms, particularly with regard to gender and race. (Ed's Note: Justice O'Connor was born in 1930, before the civil rights movement established greater freedoms and parity for women and people of color in the United States.) What, in your experience, lays the foundation for transformation of the individual and the community out of hardship, violence and turmoil and toward peace and prosperity, both in the home and in the community?

The foundation for transformation of an individual is different than for an entire community. An individual can move, obtain a job, find a friend or mentor and can begin life anew. But for a community to overcome violence, turmoil, and hardship requires efforts of many people over an extended period of time. Leadership is required and much hard work and commitment by many to overcome major community ills.

You've retired from the Supreme Court, but I've never seen a busier retired person! It is clear from the number of committees that you serve on, many of which are nonprofit, that you have a strong sense of service and calling. What would you say to the average person who wishes to take a more active role in promoting peace and prosperity in the world? How can s/he indeed be, as Gandhi said, "the change they wish to see" when s/he may not know exactly where to begin?

I learned long ago from a Stanford professor that a single, dedicated individual can effect remarkable changes on a family, a community, or a nation. Normally the work will begin with a good idea and a sense of dedication and, in time great changes can be brought about. It is sometimes the person at the bottom of the ladder who can best envision the needed change. Anyone can begin work at the lowest level and with dedication achieve remarkable results.

What is the next stage of social and/or judicial reform that you believe is important for the United States of America and/or the world at large?

In this country I would like to do more to educate all our citizens, young and old, about our courts and judicial systems, state and federal. We need people to appreciate the necessity for an independent judiciary Ñ one which applies the Constitution and laws as they are written and as they must, without fear of retribution from the legislative and executive branches. Our nation's youth must be taught civics and government so that they will grow up to be useful participants in society.

You were a member of the Iraq Study Group, and participated in a deep, broad analysis of U.S. policy in Iraq. Is there anything that you saw or experienced in Iraq that gave you the most hope and optimism for a positive outcome in the country?

As a member of the Iraq Study Group I learned little that made me optimistic. The situation in Iraq is dire.

What do you think is the one of the most important things that Iraqis can do for themselves and their country, and how can Americans best support their efforts?

I hope the Iraqi people can bring about laws and policies to reconcile the Shias and the Sunnis and allow both to work and hold office and positions in government. Laws to regulate the oil resources and permit fair distribution of oil revenues to all the citizens would be helpful.

Has the President established a Senior Advisor for Economic Reconstruction in Iraq, as the Iraq Study Group Report called for? Have you seen progress toward better organizing the reconstruction effort and better husbandry of the funds that have been allocated?

I do not know the answer to this question.

Iraq and Afghanistan have a very different social structure than the U.S., particularly with regard to rights of the individual. Do you have any comments on what kind of role that the Western world should play in influencing traditional societies where people of a certain gender, race and/or religious creed are prevented from fully participating in society?

Education of young people is our best hope of avoiding discrimination on the basis of race, gender or religion.

In my interview earlier this year with Dr. Gary Becker (Nobel Laureate, Economics), Dr. Becker noted that individuals with knowledge and skills tend to flee war-torn regions and migrate to more peaceful communities, where land and life is more secure. Are you optimistic that the recommendations from the Iraq Study Group can create a peaceful country that will attract back the skilled, educated and motivated for the rebuilding and reconstruction efforts of their own country?

As of now only some of the Iraq Study Group recommendations are being carried out. It is uncertain whether any course of action in Iraq can create a peaceful nation at peace within and with its neighbors. It is also uncertain when or if the better educated citizens will be motivated to return to Iraq.

What do you think is the single-most important challenge facing Americans today?

There are several crucial challenges for the U. S. today. Reaching a consensus on our action in Iraq is necessary. We cannot continue as we are. We must address the problem in the U. S. of some 40 million people without health insurance.

We must address global warming and ways to become energy independent.

Where do you find your greatest source of optimism about the future of the U.S. and our world?

Americans are basically good people and optimistic. Our people are our greatest source of optimism.

Have you heard of the Bill in the House of Representatives to establish a U.S. Department of Peace? Would you care to comment on this bill? It is backed by many of the world's spiritual leaders, including Deepak Chopra, Marianne Williamson, and more. The bill proponents state that a U.S. Department of Peace will give the best practices of peacebuilding a seat at the table of power in Washington. As the Peace Alliance chairperson, Marianne Williamson says, "What a Department of Peace will do is give a more sophisticated analysis of what constitutes peace, of what it would take to wage peace in as meaningful and sophisticated a way as we now know how to wage war."

No. I have not heard of the proposal.

Editor's Note: To learn more about the Bill to Establish a U.S. Department of Peace, go to http://www.thepeacealliance.org. Find out more about the Peace Alliance's September Walk for Peace at the Calendar section at NataliePace.com.

What do you think is the key to success for any personal or professional venture?

A clear objective, dedication and hard work.

Thank you again, Justice O'Connor, for participating in our series on Peace and Prosperity.

Sandra Day O'Connor once remarked that she hopes her tombstone will read, "Here lies a good judge." In reality, however, Justice O'Connor's achievements are far too numerous to list. She is a hard-working person of integrity, a mother, a wife (married 55 years to husband, John), the first woman to become a Supreme Court Justice, and one of the most powerful and influential women in the world. If the gods are willing, Justice Sandra Day O'Connor will continue to break new ground and glass ceilings for many years to come.

Justice Sandra Day O'Connor is an Associate Justice (Ret.) of the United States Supreme Court. Sandra Day O'Connor was nominated by President Reagan on July 7, 1981, and took the oath of office on Sept. 25, 1981. She retired on January 31, 2006.

Justice O'Connor currently serves as Chancellor of the College of William and Mary and on the Board of Trustees of the Rockefeller Foundation, the Executive Board of the Central European and Eurasian Law Initiative, the Advisory Board of the Smithsonian National Museum of Natural History and the Advisory Committee of the American Society of International Law, Judicial. She is an honorary member of the Advisory Committee for the Judiciary Leadership Development Council, an honorary chair of America's 400^th Anniversary: Jamestown 2007, a co-chair of the National Advisory Council of the Campaign for the Civic Mission of Schools, a member of the Selection Committee of the Oklahoma City National Memorial & Museum and a member of the Advisory board of the Stanford Center on Ethics. She also serves on several bodies of the American Bar Association. Whew! And, in 2006, she was a member of the Iraq Study Group, which presented President Bush with bipartisan analysis and recommendations for Iraq - which was my reason for contacting her.

Is It Time to Move Out of REITs (Real Estate Investment Trusts)?

by Natalie Pace. Includes a REITs Stock Report Card.

REITs have been one of the brightest stars in the stock market for the last seven and a half years, but in the 2^nd quarter of 2007, right at the beginning of the implosion of the subprime mortgage lenders, REITs burned out, even while the rest of the marketplace was breaking through to new highs on a regular basis.

Stock Market Segment Scorecard for the Second Quarter 2007

Source: Thomson One Financial, Thomson Baseline

Who knew? Many financial experts, including our sources. Back in May of 2005, we began reporting that residential homebuilders were headed for a decline, calling it a "burn out sector." Since the date when I first warned about them, the companies listed in that article - KB Home and Toll Brothers -- have lost -48.5% and -43.5%, respectively (as of August 31, 2007). I also warned about subprime mortgage lenders back in March in my Hot News on Cool Stocks article, before New Century declared bankruptcy. Click to read that article, from the archived March 2007 ezine, vol. 4, iss. 3.

So if you're not reading the Hot News updates on a regular basis, now might be a good time to kick your celebrity fanzine habit and start digesting something that will keep you fiscally fit and beautiful. I update the Hot News article twice a month. You can find out how best to access and understand it by reading the FAQs article under the Investing Edu section at NataliePace.com.

At the time of my May 2005 article, Bruce Karatz, the CEO and Chairman of KB Home, was still aglow, gushing that real estate was as strong as ever and the future was so bright he had to wear shades, but, if you followed the money trail, it told a much different story. Insiders at KB Home and Toll Brothers, including Bruce Karatz himself, were both selling shares in their companies to the tune of hundreds of millions of dollars. Despite how surprised many of these home building executives act today over the downturn, they were blown by the changing winds as early as May of 2005 and taking their own windfall, to protect their personal interests.

Unfortunately, discerning reality from CEO cheerleading is not as easy as simply following the insider trading. Sometimes insiders cash in because they have almost everything tied up in the company - as Sheldon Adelman, the Chairman and CEO of Las Vegas Sands Corp. did in 2005-2006. Sometimes insiders sell for tax reasons or to fund their foundation, like Bill Gates does every year to the tune of about $500 million.

So, what data is valuable in determining when a hot sector is poised to cool off and when a cool sector is heating up? It is always all about the underlying fundamental economics of the business, which you can ascertain best by using a little common sense.

For instance, anyone who owned real estate prior to 1990 knew that the real estate boom from 1999-2006 was primarily fueled by low interest rates and very unhealthy, aggressive, loose lending standards by a few of the nation's subprime mortgage loan companies -- many of which have since gone belly-up. (New Century Financial and Ameriquest are both history.) Housing affordability has become increasingly impossible for many buyers - especially over the last two years - and almost impossible without the delightfully rock-bottom interest rates. Almost every real estate veteran I know has at least one story of someone putting a down payment for a house on a credit card -- something that would have been completely impossible just a few years ago when you had to borrow money from friends to pay off credit cards, so that you looked like you were fiscally healthy.

Because the mortgage-lending marketplace was so competitive, there was an ongoing joke among experts that if you had a pulse, you could get a no down, liar's loan and own property. It didn't take a genius to determine that income wasn't increasing, that the cost of basic needs, like housing, food and gas, were shooting to the moon and that more than a few homeowners were using their home equity as an ATM machine.

Since the house of cards was built on low interest rates, things were destined to collapse when the Feds started increasing the Fed Fund rate, which happened 17 times in a row beginning in June 2004 and ending in August 2006 (when current Chairman Bernanke began pausing). Real estate values had been ballooning at double and triple their typical annual returns since 2000, so it took a few months for the effects of higher interest rates to kick in.

You know the rest of the story. Subprime mortgage lenders imploded. The Feds and the President had to get involved, so lending standards tightened and banks jacked up interest rates even more - to the point that ARMs are now more expensive than fixed-rate loans. To make matters more difficult, however, even homeowners with good credit are getting caught in the squeeze of falling home values. If the value of the home is near or below the amount owed, what lender is going to refinance it, when the marketplace looks poised for further declines in real estate? Even borrowers with good credit ratings are going to have a more difficult time refinancing an ARM these days, which is why mortgage lenders like Countrywide, are taking actions to make sure they have the liquidity to make it through a very tough road ahead.

So residential builders and mortgage lenders are definitely industries at risk now and going forward, and the true test of those marketplaces is only beginning. The Associated Press reports that there are still another two million or so adjustable rate mortgage loans with obscenely low introductory rates that will need to reset in the coming 12-18 months. Thus KB Home, Toll Brothers and Novastar Financial have been and continue to be on my Cooling Off list, in the ongoing article, Hot News on Cool Stocks. (Countrywide Financial, the nation's largest mortgage lender, should be able to survive, though not without scars and investor disappointments, unless the entire industry evanesces.)

But what about REITs that specialize in office buildings, like Boston Properties (NYSE: BXP) or retail shopping centers, like Macerich (MAC)? Will they be affected by the problems affecting the residential real estate community? Again, it pays to look at the fundamentals underlying the markets of each industry.

Looking first at retail shopping centers, like Macerich, I started with an assumption that if people are having trouble making their mortgage payments, they're also going to be cutting back on eating out and buying clothes. Since retail shopping centers are built upon the backs of restaurants and clothing shops, a decline in consumer spending could negatively impact the earnings of the shopping center. The Federal Open Market Committee noted in the minutes from their June 2007 meeting that consumer spending had slowed from its rapid pace earlier in the year.

A quick survey of some retail shops, from Macy's to Liz Claiborne and Bebe, revealed that retail sales, especially in same store shops, have declined in many of the nation's best-known brands this year from last. Each of the following companies reported declining sales in their most recent earnings report.

Liz Claiborne (NYSE: LIZ): Net sales for the six months of 2007 were $2.284 billion, a decrease of 0.5% from the comparable 2006 period.

Bebe (NASDAQ: BEBE): Same store sales for the thirteen-week period ended July 7, 2007 decreased 5.7% compared to an increase of 3.5% in the prior year.

Macy's (NYSE: M): Sales in the second quarter totaled $5.892 billion, a decrease of 1.7 percent compared to sales of $5.995 billion in the same period last year. On a same-store basis, Macy's, Inc.'s second quarter sales were down 2.6 percent.

Additionally, restaurants have seen less traffic this month. Forty percent of operators reported a traffic decline in July, according to the National Restaurant Association. It's too early to call this a contraction, but the trend in both restaurants and retail is headed in the direction we'd anticipate - south - given the strain on the consumer wallet these days. So, the outlook for the retail mall REIT industry (and again, I'm usually the early bird in terms of adding up the warning signs), by my analysis, is that the industry is on the brink of a cooling off period.

National Restaurant Association's Restaurant Performance Index
Values Greater than 100 = Expansion; Values Less than 100 = Contraction

Source: National Restaurant Association

Now, if we turn to the company itself, the same trend - south - is showing up as well. Macerich, the owner of many marquis shopping experiences, including the Scottsdale Fashion Mall and the Santa Monica Place, posted a big decline in net income in the last quarter. For the six months ended June 30, 2007, net income fell by half, to $16.0 million compared to $33.1 million for the six months ended June 30, 2006. With a declining trend in net income and an alarmingly high price to earnings ratio of 89.30, the only question is whether or not one should sell now or wait until January 2008, after the annual run-up of the stock markets.

Will Macerich benefit from the general larger trend in the marketplace - the Santa Rally -- a phenomenon that tends to especially benefit retail? There is no crystal ball on this. If Macerich flies under the radar of Wall Street investors, it could easily benefit from the annual fourth quarter market rally. If investors get skittish over REITs or corporations with higher price to earnings ratios, or if the fall-off on Macerich's net income captures headlines, the share price will fall. Recently, Forbes.com listed Macerich as one of five companies with excessively high price to earnings ratios.

Since I first featured Macerich in May of 2003, when it was trading at $33/share, taking it off of my Hot News list at $81.22 seems like the right thing to do. I know that chances are good the price will be higher at the end of the year, but the risk isn't worth it when the share price is up 146% -- especially given the fall-off in price over the last six months.

On the other hand, Boston Properties -- and office building REITs in general -- is more difficult to call. The price to earnings ratio of Boston Property is fairly low. The profit margins are extremely robust at 66.30%. Office building occupancy is 90-100% in most of the markets the company is involved in. And certainly Mortimer Zuckerman, the Editor in Chief of the U.S. News and World Report as well as the non-executive chairman of Boston Properties, is a well-regarded, well-respected, very bright individual with deep wisdom and experience ranging over the course of seven decades of living. His reputation and network of friends is undoubtedly keeping Boston Properties at the forefront of A-list real estate deal making. These are all huge pluses.

The Bank of America Tower at One Bryant Park: the world's most environmentally responsible high-rise office building. (© Durst.org 2006)

Owners of skyscrapers will do better than owners of homes over the next year or so because their customers - corporations -- are still benefiting from increasing GDP, high worker productivity (the U.S. ranks #2 in the world), increasing earnings and profit margins, high cash flows and all of this without having to give their employees a raise. Real median earnings of both men and women who worked full time, year-round declined between 2005 and 2006. The median earnings for men fell 1.1 percent to $42,300; for women, the corresponding numbers were 1.2 percent and $32,500 (source: US Census Bureau).

Once this mix changes - if salaries increase, earnings drop, productivity swoons and/or GDP stalls out - the office building owners will have to compete with one another by lowering rates and offering greater incentives in order to keep their tenants. Vacancy rates during the 2000-2002 recession were a challenge for this industry, particularly in San Francisco and New York City. In other words, the office builders may have another 6-18 months of growth ahead before they face too many challenges.

In short, I wouldn't be moving into a new REIT at this juncture, and I'd be moving out of everything in this space, with the exception of office buildings - while setting my appointment book to look at the office building REITs again in January 2008 for an updated analysis of the larger economy. For a side-by-side comparison of the financials of a select group of REITs, including Boston Properties, Macerich, KB Home and Toll Brothers, click on my REITs Stock Report Card.

Macerich and National Health Investors are listed in the Hot News on Cool Stocks list this month. Boston Properties was added to the Watch list.

Please note: NataliePace.com does not act or operate like a broker. We are a media and publishing company. This article is intended to provide the news, information and education individual investors need to have 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 consult an experienced, reputable financial professional and consider your long-term goals and strategies before buying or selling any security.

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.

Real Estate Blues:

From Red-Hot to Bankrupt.

Subscribers share their pain and sound solutions with Steve Dietrich, president of Financial Research Group. Reprint of online chat from August 8, 2007.

Last month, we featured an article by Steve Dietrich, outlining 6 Ways to Protect Yourself from Falling Into Foreclosure. If you haven't read that yet, click on Panic at the Sub Prime Disco, or go to the article in the August archived ezine, vol. 4, iss. 8.

Question: I'm not sure how to boil it down yetÉ

Steve Dietrich: Tell us where it hurts.

Ok. That's easy! We have a property in Phoenix that was a lease-option with a negative-amortization mortgage. The tenant moved out without notice. The amount owed has increased from $210,300 to $218,000. The market has tanked. The property cannot be re-leased because no one, sensibly, will commit to a purchase price, and the manager has had no luck renting it. I cannot get refinancing because the property value is not there, and the debt on the property is increasing. Any ideas?

The first question is for your attorney. Are you personally liable for the loan on the building? If you are, it changes things considerably. Where the market value is less than the loan, you are spending money to maintain an "option" to keep the place and protect your credit rating.

We are liable, and, sigh, that's what I thought. One can always hope for a better idea though.

The first steps would be to try to find out who really owns your loan and if there is any ability to negotiate. The major problem with many of today's loans is that they are owned in pieces.

I have been talking with the lender, but they're having trouble with the drop in value, too. It went from $267,000 appraised on May 2006 to $230,000 or so.

You say you are liable and just to be sure the key issue is the ability of the lender to get a deficiency judgment against you if they take the property back. We are into a legal area so you need legal help. Many California folks are surprised that the laws in states differ. I have only a little knowledge of the Phoenix market, but my impression is that it is overbuilt and also that many of the new homes are occupied by soon to be unemployed construction workers.

The most fundamental approach to dealing with falling values is to act. However, in this case, there might be some relief coming from the government. Despite what Cramer has to say this "crisis" came not from the government but from the Wall Street wizards.

I think that those who expect the Fed to solve this issue are wishing. Priority one is to keep interest rates high enough to prevent inflation and to keep foreign investors interested in treasury obligations. The plight of homeowners is low on the list. The first question illustrates the problem, somewhere a lender is holding a loan that is secured by property worth considerably less in liquidation. If the lender is smart, they would accept the keys in full payment.

Question from Natalie: Can you afford to rent the Phoenix place for less than your mortgage? Steve, if he can hold out for 4-5 years, do you think he'll be glad that he bit the bullet? Will the markets recover and reward him in the long term? I mean the average annual real estate gains are 6.7% per year. If you buy at the top, you may have a longer recovery cycle, but time does work in your favor. Your thoughts?

You need a rate of appreciation that is greater than the deficit of revenue costs just to break even.

Yep, that keeps screaming in my mind about this dilemma.

The good thing about real estate investing is that there are no margin calls until the loan comes due for refinancing.

I don't have an easy answer re: continuing to pay the difference between possible rent and payments. I say possible rent because it appears that it's proving to be very difficult to rent the property.

No one knows why. It's been empty since May 6^th.

I would be tempted to wait for 6 months to see if there is some direction. However, there are a lot of unresolved problems out there far beyond the real estate industry that could have a significant impact.

The interest rate, by the way, went to 8.25% and can rise .125/month, based on an index I don't recall now, with a cap of 12%. Escrow is $130/month.

In some aspects, it is a game of musical chairs where there are more chairs than people. In one of the recent group discussions we talked about the special difficulties with real estate. When you build a house it is not a consumable product but rather better thought of as a machine that will deliver housing to the market for the next 30-60 years.

The interest rate is going to make it very difficult to compete with buyers who are getting in at a considerably lower cost basis and and perhaps a somewhat lower loan rate.

I own shares in a REIT that has done very well in the past. During the last six months, it has struggled. Based on the commercial real estate market, what do you see for the general direction and for REITs as an investment?

Natalie: You should read Paul Woods article from the August ezine. REITS were the worst performing sector last quarter, by a lot. I believe the industry was off over 10%. We first warned of the problem back in April of 2005, when there were hundreds of millions of dollars worth of stock being sold by the CEOs of KB Home and Toll Brothers. You can check out that article from the archived ezines, vol. 2, iss. 5. The article is called, "Rupert Murdoch, Nobel Laureates and Top Real Estate CEOs. Find Out Where They Are Investing," and included four hot markets and five that were burned out. REITs were one of the burnout industries listed, and KB Home and Toll Brothers are still on our Cooling Off list, with losses of 48.5% and 43.5%, respectively, since we first featured that article.

Steve: I am not a stock or REIT guy, but what we are seeing in the investment real estate market is a shift in cap rates and a decrease in competition among buyers. We do some work with long term clients who are in the market at the present time and as a result of this probably 20% of the emails I get are notices that the seller has dropped the price. If this translates to REIT values, it is a time for caution. However, some REITs may have significantly undervalued assets. Unlike 1990, there is not a glut of office space, which resulted in the loss of 75% of the asset value for many large buildings.

Those REITs that use financing are also going to be hit with higher costs.

Editor's note: a cap rate is income/price.

Your inputs as well as Natalie's were what I was looking for and kind of what I expected.

Natalie: Also, with stocks, you have to ask yourself if this is in your trading portfolio or the long-term portfolio. For the long term, dollar cost averaging works pretty well -- you are buying in at lower rates when the price goes down, so you can afford to look to the long term, without too much concern over the year by year fluctuation, although I'd be more concerned about home builders than I would be about REITs like Boston Properties that have office space. If the REITs are in your trading portfolio, buy low; sell high works every time -- if you've still got profits to take at this juncture. These are just a few of the things to consider with your certified financial planner.

This is being done in an IRA Rollover portfolio with long-term plans.

Natalie: Well, the good news is that you shouldn't incur a tax liability if you sell in your qualified tax-exempt IRA. There is certainly nothing wrong with taking profits in sectors that have had a great run up, and redistributing it toward sectors that are poised to perform in the future. REITs were the darling industry from 2000 - 2005. We'll have Kelley Wright, a great Blue Chip stock picker in the chat room in September (check the Calendar section for the date), so that you can ask him his opinion on which sectors he is interested in going forward. My Hot News on Cool Stocks article (ongoing) has been heavy on technology, media, Internet technology and alternative energy, and those sectors have done very well for us over the past two years.

Steve: I would also add that we are probably adjusting our offer on the most secure commercial properties downward by 5-10% as a result of market conditions. We are not using debt so we have suddenly become a much more desirable buyer.

How can we best manage our real estate portfolios if we have equity in our homes and all of our neighbors are in foreclosure?

My feeling is that the loan market has been vastly under-priced in terms of risk. Added to this is the lure of teaser rates. What Wall Street discovered is that there is real risk in a 90% loan to a buyer who has little hope of making payments after the tease is gone. The first step is to secure long term financing at a fixed rate, if you intend to stay in your home. Second is to sit on the sideline for a little while, building liquidity. Third is to consider investing with the caveat that the dead cat bounce also happens in real estate. Use the same wisdom that brings success in the stock market to the real estate - patience + research.

I have fixed rates on all my properties. I did it traditional. However, the buyer's market is sucking the equity out of the properties and due to the decrease in value, my equity is being drained. Now that the interest is going to 8% that will stop buyers from purchasing.

Interest, taxes, maintenance and insurance are a big bite out of the homeowner's budget. Much of the current expansion of home ownership was the result of low interest rates. The use of 90+% financing and variable rate loans with teaser rates indicates that many buyers are both short on cash for a down payment and income to service a fixed rate loan. Thus, if interest rates increase, the amount that can be borrowed with the same debt service decreases.

It was widely reported that Wells Fargo had committed to 8% on the jumbo fixed in August 2007, but today's rates on their website only show 7.6%. (The 3-year Jumbo ARM is 8%!) Does it take a few days for the 8% rate to be enacted company-wide, or have they retreated or were the news sources inaccurate?

Wells (always a leader in raising prices) went for the highest price. The market did not follow all the way, so like an airline that tried to raise prices, it fell back some, but still well above where they were. Instead of getting flack for raising rates they get thanks for dropping back.

Any last thoughts on when the market might cycle upward again based on past history?

I am hesitant to offer a guess.  The "good news" is that the excess supply is primarily in residential and we managed to spread the losses to domestic and foreign financial investors. That is unlike the 90's blowout that had gross oversupplies of residential and office and, to some extent, retail.  There is some well-founded concern that cap rates on commercial properties are very low historically.  
 
I think our challenges are very different today. We are in the 10th year since Osama Bin Laden declared war on us. China can upset the economy at will, and we are evermore dependent on foreign oil.  Treasury rates need to stay at or above these rates to keep foreign investors in treasury obligations.  
 
From a social standpoint, the events leading up to the housing bubble of today are highly desirable in that we have produced a lot of housing over the past five years. It will be here for another 50 years and will help keep housing prices down.  
 
It probably took California housing prices from 1992 to around 1999-2000 to recover to their 1991 levels. (Ed's Note: The 1990s were a horrible time for real estate in Southern California.

I want to emphasize the importance of getting sound legal and tax advice when considering various alternatives.
 
Legal advice, preferably from someone with experience in working on problem loans, is essential, it is not enough to just have a broker working on approval of a short sale.
 
Another VERY IMPORTANT CONSIDERATION IS THAT, as a general rule, forgiveness of debt (or foreclosure) is income, offset by the tax basis of the property transferred to the lender. This is a complex issue that may be modified by new legislation.  
 
The oversimplified example of this is that -  you bought a home for $400,000 in 2000 with a $360,000 loan and $40,000 cash.  By 2005, the home was worth $600,000 and you refinanced for $540,000, using the $180,000 to payoff various debts (including the down payment borrowed from the in-laws)  and upgrade your lifestyle. Suddenly the home is worth only $500,000 or perhaps even less so you mail the keys to the lender, leaving a chilled bottle of chardonnay as you depart. In addition to thanks from the lender you receive a 1099 for $540,000.  Much of this may be offset by your cost but you are also likely to have a significant amount of income to recognize and no cash from the disposition.
 
I have spent most of the last 30+ years working on and advising clients on commercial development. Many and perhaps most developers and investors have a remarkable resemblance to today's homeowners. If there's a lender who will make a land loan, pre-development loan or infrastructure loan, there's a developer who will start.
 
 In the early days the formula was simple, if you did not have a takeout loan for an office building, or anchor leases for the retail, the construction lender did not want to talk to you. If you did not have tenants, the long term lender would not make a commitment, so the developer had to "find" the market - not through appraiser's estimates of rent and absorption, but from real leases and letters of intent. Often the large tenants provided great wisdom to the design process.  Today, in an industry awash in cash (at least in July) the ultimate consumer's voice is heard only from a distance.
 
One of the frustrations in teaching MBA's about real estate development was that they would do great work in their classes and then be blinded by the red mist of their classmates making money on homes. In a world where homes are going up in value by 15%-25% per year AND buyers are paying over listed prices on the first day the listing appears such old fashioned concepts as Long Term Value, debt service coverage, liquidity and such are for losers.
 
Home buyers, like too many entrepreneurs of the dot com age ignored Prof. Cockrum's most fundamental lesson -- never run out of cash.  
 
If our MBA's from some of the best schools are drinking the Kool-Aid we can hardly fault the hard working inner city couple who suddenly sees the American Dream within reach. Add to this the chorus of real estate brokers, mortgage brokers, lenders, planted articles and such which discourage any serious analysis. With seller assistance, no-tell loans and 20% price increases and you too can live free was just too sweet a deal to ignore.
 
For those who would listen, some of those in government, the academic community and even some financial types have been warning that this was coming for a long time.
 
The solution is, I believe, not so much in educating the buyer as it is in educating the ultimate investor and the banks that supported the investors. Perhaps the greatest tragedy of all of this is that so many of the core families who helped to hold our inner cities together will be set back by this debacle, while, had they been encouraged to save for a few more years, they could have purchased an affordable home and lived the dream.  
 
For at least a year and probably more, many housing experts were warning that subprime loans were a disaster waiting to happen.  They were described as "neutron loans" = buyer disappears but the house remains.  The high return on these things led those on the investment side who knew nothing about the housing market to ignore the advice of their housing specialists and to join the other lemmings going over the cliff.  
 
Steve Dietrich
FRG  Development and Consulting Development
Santa Monica CA / Santa Ynez Valley CA
Financial Research Group

Uranium, Sure Shots from Self-Proclaimed Gurus, and Other Ways to Lose Money.

A reprint of our premium subscriber chat on August 29, 2007 with Natalie Pace.

Natalie: Let's start with debunking some myths. The markets are still up on the year.

General Stock Market Performance

Question: It's been painful watching the pullback. Are you still of the mindset that people should hold?
I can give information, but your Certified Financial Planner has to help you decide what's best for you, based upon your timeline and goals. Having said that, there are a number of facts to consider, many of which are addressed in the "September Back To School Stock Sales" article this month. Listed below there are 10 factors, which are historically present in the markets, even today with the subprime problem, many of which indicate that January 2008 will offer a better selling opportunity for most investors than August or September. Also, bear in mind that when we are discussing selling, this is for your trading portfolio, not your nest egg. Your nest egg is all about long-term planning, compounding and tax considerations, whereas the Stocks on Steroids or trading portfolio (which is going to be a smaller percentage of your liquid assets than the nest egg) is about buy low; sell high for maximum gain.

HISTORICAL PHENONMENON that is covered in the "Back To School Stock Sales" article
1. Santa Rally.
2. Back to School Stock Sales in September.
3. Summer Doldrums.
4. Pre-Election Year Rally.
5. Small Caps for Performance.
6. Large Caps for Stability.
7. Exchange Traded Funds over Mutual Funds.
8. Diversification and Asset Allocation.
9. Natural Disasters.
10. Happy People Make Better Products Faster Cheaper.
11. The Economics of Freedom.
12. Emerging Markets.
13. Historical Performance.

Additionally, in the August Mid-month update, which was available online August 14^th through September 4^th (at NataliePace.com under the Online Magazines link), I stated:

Today's headline on the front page of the NY Times read: "Small Investors Feel Less Pain as Stocks Slide: Professionals are hit hardest by turmoil." The writer went on to compare July 2007 to the technology crash of 2000, writing, "The wild swings in the stock market over the last few weeks have reawakened memories of the technology crash of 2000 in which many small investors lost their savings." Wow. The comparison couldn't be farther from the truth, but I suppose the hyperbole serves to sell papers. The technology crash of 2000 wiped out over 60% of a person's technology holdings -- and NASDAQ is still down over 45% from its March 2000 high. (See the black NASDAQ trend line in the chart below.) Whereas, all of the major indices in 2007 are still up on the year, even with the volatility.

I know that if I had sold in May, I would be much better off todayÉ

Selling in May and going away is one of the few Wall Street aphorisms that I don't agree with; I prefer selling in January. And each phrase listed above has an important paragraph included in the article, so be sure to read it! Now, as to why you feel that you should have sold in May, please tell me some specifics. I'm assuming that you are talking about your short term trading portfolio and not the long term nest egg (which works better when you let it ride through fluctuations)É And in terms of your trading portfolio, if the year ends up great, you'll be very glad that you did not sell in May!

I feel as though I'm getting a special treat here, having one-on-one attention!

You are! That is the beauty of the premium subscription. Enjoy it!

What are some of the things you look for when you are buying and selling a company?

Have you looked at my stock report cards? If not, I'd recommend starting by reading a few of the headline articles that I've written this year. Of particular interest would be the articles on subprime (from May) and World Water (from April). I'm sure there are other articles of interest, I'm just going from the two articles that have proven to be very KEY in 2007 to date!

Green Hits the Mainstream! By Natalie Pace. Includes a Solar Energy Stock Report Card and one little company with a big backlog of orders. Archived ezine, vol. 4, iss. 4.
(Sub) Prime Time. By Natalie Pace. A report on the mortgage lending business, including a Subprime Stock Report Card. Archived ezine, vol. 4, iss. 5.

I did quite well in the markets earlier in the year, and then I sold and bought some more that I didn't know much about. I got caught in the downturn of the markets. Who knew!

Well, when you come to my Living the Rich Life Retreat in January, you'll get a sense of who knows, and then you'll know! There are many predictable things about the stock market that are very under-reported. Having said that, I don't like buying January to July, unless there is an amazing story going on (as there was with World Water this year and Disney in 2006 and MySpace and Las Vegas Sands in 2005 and Google in 2004). September is the back to school stock sales, which is a month that I do enjoy shopping for stocks. Just that tidbit alone could have saved you from what you are feeling right now. However, now that you are HERE with these stocks that are down a bit, let's take a look at the strategy you might employ going forward. You'll need to give me a specific or two. Where does it hurt most?

I have been trying to become more familiar with your site. The stock report cards I was only looking at occasionally and when the stock was already up, I decided I had probably missed the run up. Now I will be checking more diligently and keeping track of things.

Well, the good news is that the Hot News on Cool Stocks list does keep track of the companies we feature, listing pertinent news and highlighting the company if it returns to buying range or runs up such a good profit that it is worth sellingÉ Also, the articles are key because you'll start getting a sense of the logic I employ to pick the particular company that I am picking as the "leader" of that particular sector, and why I think the company and the industry are going to increase in value going forward.

With the subprime sector, it was the opposite. I picked a losing sector, told people to avoid it, and picked the king of the losers to highlight as one to really avoid. The month prior, in March 2007, I had warned people of New Century Financial, before they declared bankruptcy, in the Hot News article, saying:

The subprime lenders took a big hit this month, when New Century Financial Corp. reported on February 7, 2007 that the company would have to restate earnings due to losses on subprime loans. 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.

See the complete article in:
Don't Sell on the "China's Black Tuesday" Scare. by Natalie Pace. Archived ezine, vol. 4, iss. 3.

Someone else was telling me when to buy and sell, or in this case not to. I do not want to do that anymore, which is why I am trying to learn more.

Let's take a look specifically at one or two companies that you are currently concerned about in your portfolio, okay?

I have Pinetree Capital (uranium) at $11 plus and now at $4 plus. As well as Pinetree, I have some Moly stocks, such as AUA and ROK, Series sector, I have WES.

I show a symbol of PNPFF for Pinetree Capital. The company is based out of Toronto, trading off the boards in the U.S. and is at $3.77 per share, right?

It was at $4.23 an hour ago!

This is a great stock to learn on. The first thing you should always do when you are considering a company is start by going to NataliePace.com and entering the symbol of the company in the box that says, Company Research. That takes you to one of my favorite stock pages on MSN.com. So, the first thing that I noticed about Pinetree is that it has 5 symbols, which is a big red flag. In the US, five symbols for an individual company typically means something is very risky about the company, the company might have missed filing quarterly reports or might even be bankrupt. (Mutual funds have five symbols also.) Whatever the 5 characters means in this instance, it means do 10 times the amount of research before investing.

Okay and then whatÉ

Then I looked at the market capitalization to see what the story was. It is valued at $375 million, which is a very small company to be publicly traded, and because the price is so low, I looked around to see if it was traded on one of the exchanges (NASDAQ or NYSE) or trading off the boards. Right underneath the name of the company, you can see that Pinetree is traded OTC, which is off the boards. Companies that are not traded on a major stock exchange are VERY, VERY HIGH RISK! You have to do 1000 times the research before buying in. Already I've noticed two HUGE red flags about this companyÉ And that is within the first five seconds. They would have to have an INCREDIBLE story to keep my attention at this point.

Sounds scary! What are the symbols?

This is your company - Pinetree. I can tell that it is the same because it is based out of Toronto, and one of the things that this capital investment company does is to invest in uranium.

Yes, it is a uranium company.

I'm mystified as to why so many people think uranium is hot. I mean it is radioactive, but not a hot stock! In the U.S. there hasn't been a new nuclear power plant built since the 70s, and they still haven't figured out how to safely dispose of the radioactive waste. Additionally, your company is not simply in the uranium business, which is what you were under the impression that it was doing. It is in fact a company that invests in many other companies, including companies that are specializing in uranium, thus the name - Pinetree Capital. I found out this information by clicking on the Company Report link on the MoneyCentral.msn.com stock page for Pinetree.

Well, I'm going to sell it now! Thanks!

Not so fast! If I were an owner of this stock, I'd now go to the company website and check out the most recent financial report. I went to PinetreeCapital.com and noticed that the company's financial information was last updated on June 30, 2007 and that the most recent earnings report had a fairly large loss for this size of a company. That's not so good either. Then when I actually look at the 3-page earnings release, I understand why it is trading off the boards in the U.S. The information is quite basic, and not very professional. You could compare this with the earnings reports and press releases of other foreign-based companies, like Suntech Power Holdings (STP) or SOHU (SOHU), which are both based in mainland China, but are trading on the New York Stock Exchange and NASDAQ respectively.

So now should I sell?

Normally, I am not fond of selling anything in August, especially after the markets have tumbled a bit, because you still have the Santa Rally waiting in the wings. Even if you have a dog, it can go up in value between now and January 2008 - unless, of course, the company is under such distress that it is going to go bankrupt. In the case of companies that are trading off the boards and have a market capitalization under $500 million, there aren't a lot of investors out there to buy your stocks from you, so you have to get aware of what campaigns might be out there to attract investors.

In short, I'm not sure that you should sell or that you shouldn't sell. (I'd be tempted to try to wait and recoup my investment, but only if I thought the company might be attractive to others in the next few months.) However, I am positive that you need to do a lot more research into the company to determine what you should do. You might begin by calling the person who recommended it to you and see if they are still recommending it to a lot of other people. (If they are, those people might start buying and push the price up a bit, so that you can sell it for a few cents or dollars higher than today's price.) See if you can find out why the company lost so much in the 2^nd quarter and why the website financials page hasn't been updated since June 30^th.

There are too many questions to have a good degree of comfort about this investment. Ideally, you want to answer to all of these issues BEFORE you invest. When you learn how to use my investment recipe and the Stock Report Cards (which I teach at the Living the Rich Life Retreat), it makes knowing when to sell and take your profits MUCH EASIER because you are reasonably assured that you have purchased a sound, quality company that is run by sound, quality management with a sound, quality product that people enjoy buying AND that you have purchased the stock at a reasonable price. When all of those factors line up, you don't have to be as concerned about market fluctuations because chances are that over time you've made a good investment that will pay off.

Thanks Natalie. I really appreciate this opportunity, and I can't wait to see you at the retreat in January!

You're welcome. I love having this premium subscription for this very purpose. It really can be a one-on-one opportunity! Have a great week. Good luck in your research and decision-making!

If you are interested in joining me at my Living the Rich Life Retreat in January, act now! We are offering half off the retreat price now through September 15, 2007 ONLY. Get more information on the Living the Rich Life banner ad, located on the home page at NataliePace.com. Email Heather@NataliePace.com NOW with HALF OFF in the subject line, if you are interested in registering for the retreat now.

FYI: Below I'm listing a recent press release from the Federal Reserve, wherein they seem to be in the mood to lower the Fed funds rate soon. When the Feds lower interest rate benchmark, many investors in the stock market get excited. That is not a guarantee that the Feds will lower the rate or that the markets will react favorably, but it is a historic trend that market-philes might gain from knowing about. And, from the action that Chairman Bernanke and President Bush took over the last week to assure investors, it is clear that both are committed to making sure the coming quarter is a strong one for the markets.

Federal Reserve Board Press Release
Release Date: August 17, 2007
For immediate release
Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward. In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably. The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets.

Voting in favor of the policy announcement were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Richard W. Fisher; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Michael H. Moskow; Eric Rosengren; and Kevin M. Warsh.

Welcome to the BIG Buy Low.

by Steve Selengut, author of The Brainwashing of the American investor.

Every correction is the same, a normal downturn in one of the Markets where we invest. There has never been a correction that has not proven to be an investment opportunity. You can be confident that the Federal Reserve, as hypnotized as it is with keeping inflation under control, is not going to cause either a financial panic or a prolonged recession with tight money and high interest rate policies. While everything is down in price, as it is now, there is little to worry about. When the going gets tough, the tough go shopping.

Every correction is different, the result of various economic and/or political circumstances that create the need for adjustments in the financial markets. In this case, an overheated real estate market has finally taken a breather; an overdose of bad judgment among lending institutions is producing a major hangover; and an overheated Stock Market, propelled by demand for speculative derivative securities (ETFs), and Hedge Funds, is finally falling back to more earthly levels.

The reality of corrections is one of the few certainties of the financial markets, a reality that separates the men from the boys, if you will. If you fixate on your portfolio Market Value during a correction, you will just give yourself a headache, or worse. None of the fundamental qualities that made your securities "Investment Grade" just three months ago---when your Market Value was at an All Time High---have changed. No interest payments or dividends have been cut. Only the prices have changed, to preserve the reality of things---and in both of our markets. Welcome to the Big Buy Low!

Corrections are beautiful things, but having two of them going on at the same time is like a trip to Fantasy Land. Theoretically, even technically I'm told, corrections adjust prices to their actual value or "support levels". In reality, it's much easier than that. Prices go down because of speculator reactions to expectations of news, speculator reactions to actual news, and investor profit taking. The two former "becauses" are more potent than ever before because there is more self-directed money out there than ever before. And therein lies the core of correctional beauty! Mutual Fund unit holders rarely take profits but often take losses. Additionally, the new breed of Index Fund Speculators is ready for a reality smack up alongside the head. Thus, new investment opportunities are abundant!

Here's a list of ten things to think about or to do during corrections:

1. First of all, don't beat yourself up by looking at your account Market Value. You don't live in a vacuum and you are not immune to market price variations. That is why we only buy the highest quality securities in the first place and stick with a well-defined Asset Allocation plan. Look for ways to add to your portfolios---that's what the smart guys are doing.

2. Take a look at the past. There has never been a correction that has not proven to be a buying opportunity, in spite of the media hype that this one is special. When they are broad, fast, and deep, the rally that follows is normally broad, fast and steep. Get ready to party.

3. The "Smart Cash" that was accumulating during the last rally---the one that ended abruptly in May, should be put back to work, and probably will be too soon. That's also normal. There are no crystal balls, and no place for hindsight in an investment strategy. Buying too soon, in the right portfolio percentage, is nearly as important to long-term investment success as selling too soon is during rallies.

4. Take a look at the future. Nope, you can't tell when the rally will come or how long it will last. If you are buying quality securities now (as you certainly should be) you will be able to love the rally even more than you did the last time---as you take yet another round of profits. Smiles broaden with each new realized gain, especially when most Wall Streeters are still just scratchin' their heads

5. As (or if) the correction continues, buy more slowly as opposed to more quickly, and establish new positions incompletely. Hope for a short and steep decline, but prepare for a long one. There's more to "Shop at The Gap" than meets the eye, and you may run out of cash well before the new rally begins. Cash flow is king, so take smaller profits sooner than usual so long as there are abundant buying opportunities.

6. Your understanding and use of the Smart Cash concept has proven the wisdom of The Investor's Creed. You should be out of cash while the market is still correcting---it gets less scary each time. As long your cash flow continues unabated, the change in market value is merely a perceptual issue.

7. Note that your Working Capital is still growing, in spite of falling prices, and examine your holdings for opportunities to average down on cost per share or to increase your yield on fixed income securities. Examine both fundamentals and price, lean hard on your experience, and don't force the issue.

8. Identify new buying opportunities using a consistent set of rules, rally or correction. That way you will always know which of the two you are dealing with in spite of what the Wall Street propaganda mill spits out. Focus on value stocks; it's just easier, as well as being less risky, and better for your peace of mind.

9. Examine your portfolio's performance: with your asset allocation and investment objectives clearly in focus; in terms of market and interest rate cycles as opposed to calendar Quarters (never do that) and Years; and only with the use of the Working Capital Model, because it allows for your personal asset allocation. Remember, there is really no single index number to use for comparison purposes with a properly designed value portfolio.

10. So long as everything is down, there is nothing to worry about. Downgraded (or simply lazy) portfolio holdings should not be discarded during general or group specific weakness. Unless of course, you don't have the courage to get rid of them during rallies---also general or sector specific (sic).

Corrections (of all types) will vary in depth and duration, and both characteristics are clearly visible only in institutional grade rear view mirrors. The short and deep ones are most lovable; the long and slow ones are more difficult to deal with. Most recent corrections have been short (August and September, '05; April though June, '06) and difficult to take advantage of with Mutual Funds. So if you over-think the environment or over-cook the research, you'll miss the party. Unlike many things in life, Stock Market realities need to be dealt with quickly, decisively, and with zero hindsight. Because amid all of the uncertainty, there is one indisputable fact that reads equally well in either market direction: there has never been a correction-rally that has not succumbed to the next rally-correction.

If you were head scratching on Smart Cash, Working Capital, or The Investor's Creed, it's time to order the newly revised edition of Brainwashing.

Steve Selengut
http://www.sancoservices.com
http://www.valuestockbuylistprogram.com
Professional Portfolio Management since 1979

Author of: The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read, and A Millionaire's Secret Investment Strategy.

The September Back to School Stock Sales and Other Wall Street Secrets.

by Natalie Pace.

Now that you're getting a feel for the individual company, I'm going to introduce a few ways of gauging the climate of the overall marketplace. There is a saying, " A rising tide lifts all ships." In 1999, you could have thrown a dart on a wall full of stock names and come up with a winner. The same was true in 2003 (and many other pre-election years.) Historical trends are generally reliable, but not foolproof, so don't ever go all-in on them! It will still pay to do your research and focus on the 3-ingredient investment recipe: start with what you know, pick leader in the sector, and buy low; sell high!

I would add that a sinking tide grounds all ships as well. It is very hard for most companies to buck the trend of the general stock market. Few young technology companies, outside of Opsware and Google, survived the 2000-2002 Internet Technology crash. eToys crashed and burned, as did many other brands that seemed destined to soar pre-Y2K, when we worried that malls would become a thing of the past. (Instead, malls became walking promenades - people became even more social!)

No one has a crystal ball on when the low and high of the markets will occur. Past performance is no guarantee of future behavior. But there are a few historical trends that it pays to know about, which I've outlined below.

1. Santa Rally. Over 50% of the stock market gains each year are made in the last quarter. Thus, it often pays to wait to sell until December or January, even if you are tempted to sell earlier. Additionally, September, the worst performing month each year, can be a great time to buy in anticipation of the seasonally strong October, November and December. (This is how I made over 200% gains in 2001 -- a dismal, down stock market year -- by buying during the Back To School Stock Sales in September and selling at the end of the Santa Rally in late December!)

Now, that Santa Rally trend didn't work for many subprime mortgage investors in 2007, and that is an important consideration to consider: is there a time when you should sell during the summer doldrums lows? The subprime lenders took a big hit in April of 2007, and the amount of foreclosures in this market began increasing at a devastating rate. By May of 2007, many of the stocks in the subprime mortgage industry had lost most of their value, but it was still a good idea to cut losses by selling as quickly as possible, rather than hope that the Santa Rally would inflate new optimism and investors in the sector. New Century Financial bit the dust in April 2007. Novastar Financial did a reverse stock split in July 2007. Every four shares of Novastar common stock were changed into one share of common stock. (Reverse splits are typically a sign that the company is in great distress and trying to avoid a delisting of the stock. The New York Stock Exchange and NASDAQ have share price requirements to remain listed, amount other qualifying events.) So, as in the case of the subprime mortgage sector, there are times when you ignore the Santa Rally and have to run with the changing dynamics of the industry.

How do you get the information you need when an entire industry becomes distressed? Here again is where it pays to "invest in what you know" and have faith that you know more than you are giving yourself credit for. When an industry is distressed the last thing you should do is to rely upon the corporations' communication to investors. It's their job to keep you calm while they try to correct the problem. (For more details on how this works, read my Enron article.) Savvy investors who cashed out of subprime would have simply checked to see the trend of foreclosures. Was it increasing? Was it likely to continue increasing? If so, wouldn't that continue to distress those companies that were left holding the empty bag on the loans, regardless of what kind of rah rah speeches the subprime corporations were giving about being helped out by this or that larger white knight corporation?

I didn't know much about telecommunications back in 2000, when I began working for one of the long distance companies, but I did know that long distance rates had fallen from 25 cents a minute to about six cents a minute. You can't have that dramatic of a revenue loss in an entire industry. Global Crossing and Worldcom went bankrupt. Qwest had a difficult time staying alive.

Similarly, subprime mortgage lenders were just holding too many worthless loans to be valuable to a new buyer - regardless of what they were saying in their press releases. (The telecommunications corporations were trying to keep investors optimistic when they were going through their price implosion as well.)

2. Back to School Stock Sales: September is historically the worst performing month each year, and a good time to look for Back to School Stocks on sale! As Joseph Lisanti, the editor of The Outlook, Standard and Poor's market newsletter, noted, "Since 1928, the S&P 500 has declined an average of 1.3% during September. That's the worst record of any month." What is bad news for sellers, can be great news for buyers!

3. Sell in May and Go Away. Almost all Wall Street professionals take their vacations in August. There is low volume, lower volatility and less professional attention paid to the markets in August. July is only slightly more active. I don't like selling in May - I prefer selling at the market high in January -- but I definitely like taking a vacation from the markets for two months! Chances are that if you were denied access to television from July to December, you wouldn't have one day of heart palpitations over the stock market. The goal is to know this trend so well in advance that you calm any misgivings that might occur in your lizard brain when volatility increases and/or the markets give up some of the gains that were made in the first two quarters of the year (and yes, the markets are still up on the year - even given the recent pullback).

4. Summer Doldrums. The summer doldrums are reliably boring, even in spectacular years, like 2003 and 1999! Take a vacation! Everyone else is!  Notice how flat the growth trend becomes in July and August in the following two charts.  





5. Pre-Election Year Rally. The pre-election years, like 2007, 2003 and 1999 are typically the top-performing year in the four-year election cycle. Paul Woods, the CEO of Odyssey Advisors, crunched the data for 164 years and 40 Presidential elections, and the results were the same: in the pre-election and election years, the stock markets are more likely to perform double-digit returns, whereas in the two years after the election, single-digit returns are the norm. Pre-election years serve up almost double the gains, on average, as post election years.

Presidential Election Cycle - Average Returns
(based upon total returns 1842 - 2006)

Election Year	Average Returns
1 Year before election	15.79%
Election Year	11.85%
1 Year after election	6.78%
2 years after election	9.32%

Source: Morningstar/Ibbotson Associates

6. Small Caps for Performance. As you can see in the asset performance chart below, companies with market capitalizations of less than one billion post higher gains than the large, well-known companies. They are also riskier. Examples of companies like this would be: Netgear, which posted over 3 times gains by July 2007, since first being featured in NataliePace.com. AOL in the early days is another example. AOL had soared over 3000% before the Dot Com crash, and then spent over six years trading so low that investor Carl Icahn kept threatening CEO Richard Parsons with investor revolts! Ted Turner lost billions after the AOL Time Warner merger in 2000, and then resigned from the AOL Time Warner board in January of 2003.

As this illustrates, small caps carry greater volatility, so you have to be on your mark to take your profits. 12.72% returns every year are almost double what real estate does historically, but be aware that there is more risk attached to that return! It isn't really a locked-in gain until you take your profits by selling!



7. Large Caps for Stability. Companies that have been around for a long time and have a large market capitalization - over $10 billion - are great stabilizers for your portfolio. Between 2000 and 2002, when the NASDAQ lost over 65% of its value (where the majority of younger, smaller capitalization companies in the Internet Technology space are concentrated), the Dow Jones Industrial Average went down only 22% (where 30 of the large cap "Blue Chips" are concentrated, like Boeing, Citigroup, Intel and Coca-Cola). The companies with the biggest value on Wall Street typically perform at 10.66% returns every year. Blue Chips are one of the top performing asset classes, but still under the performance of the small cap companies. On the other hand, they are a great stabilizing force for your portfolio, and typically earn dividends while you hold them!

   

   Source: MoneyCentral.msn.com

8. Exchange Traded Funds over Mutual Funds. If you've turned on a television, you've probably heard the pundits espousing ETFs. ETFs are funds that typically have a much lower cost structure, pay lower commissions and have lower fees attached to them than mutual funds. Consequently, they are more popular with investors than they are with brokers (who make their living on commissions and fees). If you've had a broker whom you have loved working with over a long period of time and s/he has performed magnificently, then it's hard to want to wrestle their bread and butter away from them (the mutual funds). However, for many people that is not the case. ETFs have almost all of the benefits of mutual funds, except that they are not actively managed. Having said that, some ETFs, like the Wilderhill Clean Energy Portfolio, do seem to be "smart" ETFs with regard to their holdings.

9. Diversification and Asset Allocation. It is more important to know diversification and asset allocation than it is to know how to pick stocks. And it is very important to make sure that you are not trying to "time the markets" with your financial freedom plan (your nest egg). Your trading portfolio should be a smaller portion of your investment portfolio, where you take on higher risk (in direct proportion to your wisdom, experience and emotions) for higher gain. Your nest egg is something that you deposit more money into each month, and let the magic of compounding work in your favor over time. When the markets return on average 10-12% annually, you don't need to do much other than make sure that you are invested and not trying to get too fancy.

10. Natural Disasters. Natural disasters are, in most instances, buying opportunities, not the Apocalypse. Make sure that you read the article, "War and Your Portfolio," for tips on how to protect your portfolio from disasters, and capitalize upon the buying opportunities that are created anytime share prices fall. In the event of a true Apocalypse or Depression, you (and the rest of the country) will have greater things to worry about than stock returns.

11. Happy People Make Better Products Faster Cheaper. This is my personal economic theory, by which I judge a corporation and/or a country's ability to perform in the future. In my view, happiness is directly tied to employee productivity. This article, from vol. 4, iss. 4, is dense reading, but it is probably the key to my market edge. (And yes, I'm confident that I will continue to outperform my peers, even if I hand out a lot of my secrets! I've still got my rolodex and complex pattern recognition abilities as well, which I encourage you to develop to improve your performance.) Remember! My police officer cousin was my "source" for the information on Taser (before it went on to post up to 9000% gains). You don't have to know the CEO to get some great scoop on a product or service that is poised to be in style! The gems of information might be found in what the employees are telling you! Police officers were relieved in 2002 to have less lethal force, like Tasers, to secure aggressive criminals!

12. The Economics of Freedom. This ties into the theory that "happy people make better products faster, cheaper." Basically, however, whenever you see that people feel as though they are losing "rights," the economic growth is apt to wane or lag. We saw this in some of the legacy corporations in the U.S. between 2002 and 2007, when unions were fighting to save employee salaries and health benefits, even while the corporations were losing money. In some countries (particularly Western Europe) that were cutting back on liberal work or social policies in 2005-2006, employees skipped work to riot in the streets.

    When people are feeling optimistic about their future, they become more productive, and productivity, according to Dr. Gary Becker (Nobel Laureate) is one of the leading indicators of economic growth! Taking this to the extreme, it's pretty hard to make a widget in the middle of a war, and you have less incentive to steal from or harm your neighbor when you have more than you need and love your job! It is legal to apply this idea to publicly traded companies, and it might give you a clue as to why some companies can be so forward-thinking and fresh, while others are a real drag to work for. In the end, it is real people making these products - for better or worse for the company and the nation.

13. Emerging Markets. When building and construction was booming in 2004, all of the sudden copper, a basic material in construction, tripled in price, after having been in a price rut for over a decade. The share price of major copper mining companies, like Phelps Dodge, also tripled. Alternative energy was the top performer in the first half of 2007, after being in the doldrums for three decades. Emerging markets can be a new market, like social networking (or Myspace), or simply new blood in an old market, like corn (when ethanol received so much government backing in 2007). If it's an older company, you'll need to pay more attention to debt and the ability to secure more financing if needed at a reasonable rate. In a younger company, you'll need to monitor cash on hand, to make sure that the company has sufficient funding to reach its goals.

Archer Daniels Midland: agricultural commodities and products



 

Being aware of cash on hand and long term debt is much easier than it sounds and very important!  Both line items are listed in the earnings reports. It's not that difficult to do a search on the computer using your Find function (Alt F or Apple F). I routinely "power read" the earnings reports that are filed with the Securities and Exchange Commission, by doing a search on the words, overview, debt, cash, income, revenue, liability, law suit, disclaimer, etc. I find the most interesting information in the reports are centered around those key words, and it takes less time than reading one article online!

14. Historical Performance. Some stocks, like Microsoft, "trade around the core" of a certain price point for years and years. Over the first seven years of the new millennium, you could have bought Microsoft in the low 20s and sold it in the 30s for consistent gains, over and over again, year after year. Other companies, particularly the younger ones, have a trend of increasing gains that plateaus at a certain point. Still others, like mega corporations like Citigroup and Coca Cola, trade in a steady range, but provide great dividends. You can review the historical price performance charts EASILY on your favorite financial news site! It's just one click to create a one-year chart, five or 10-year chart. Very informative!

15. Average P/E. Reread the article "Buy Low; Sell High" if you still don't understand price to earnings ratio! On March 31, 2007, the average P/E of the S&P500 was 17.2, with a forward P/E in 2008 predicted to be 14.1. According to Standard and Poor's Senior Index Analyst, Howard Silverblatt, companies still had excess cash reserves in March, with the industrials having over $600 billion, which was 5.9% of market value and 39.6% of long-term debt. According to Mr. Silverblatt, those who were worried about the weak U.S. dollar weren't considering that many of the publicly traded companies are now participating in the global marketplace, and are not over-reliant on the U.S. dollar as the only currency. Earnings have been outstanding, at double-digit operating growth for the last 18 consecutive quarters!

Buy low; sell high is easy to say: hard to do
In short, buy low; sell high sounds so easy, but it's counter-intuitive. It means you're walking in when everybody else is saying, "It's the Apocalypse," like in October of 2002, and going on a buying spree. When you are buying low, chances are that everybody is telling you how stupid and crazy you are. Selling high means that you are having the vision to see the end of the party. People who sold high, at the beginning of 2000 or end of 1999, were saying, "We're going to have a rookie president. We've had eight years of prosperity. NASDAQ's been running on negative earnings for five years. I think I'm pulling my profits off the table." I was one of them. Everyone told me I was an idiot because I didn't understand the New Economy. Because so many wanted to brag about their gains, many people actually walked away from me at parties in 1999, like I was some kind of black cloud! All I was saying was to take their 900% gains out of AOL! Sell Sun Microsystems at $95!

A few things to understand. Cash (liquidity) is always king. You can't have too many years of negative earnings in most companies. (There are some, like airlines, that the government bails out.) Be wary if the average P/E gets too high. Be attentive and investigate the investment opportunity, if the revenue at any corporation is doubling. As a rule, look for Back to School Stock Sales in September (historically the lowest performing month) and selling opportunities in January (historically the highest performing month). And NEVER PAY RETAIL!

Now, that Santa Rally trend didn't work for many subprime mortgage investors in 2007, and that is an important consideration to consider: is there a time when you should sell during the summer doldrums lows? The subprime lenders took a big hit in April of 2007, and the amount of foreclosures in this market began increasing at a devastating rate. By May of 2007, many of the stocks in the subprime mortgage industry had lost most of their value, but it was still a good idea to cut losses by selling as quickly as possible, rather than hope that the Santa Rally would inflate new optimism and investors in the sector. New Century Financial bit the dust in 2007. Novastar Financial did a reverse stock split in July 2007. Every four shares of Novastar common stock were changed into one share of common stock. (Reverse splits are typically a sign that the company is in great distress and trying to avoid a delisting of the stock. The New York Stock Exchange and NASDAQ have share price requirements to remain listed, amount other qualifying events.) So, as in the case of the subprime mortgage sector, there are times when you ignore the Santa Rally and have to run with the changing dynamics of the industry.

Disclaimer: The writing and opinions of Steven Selengut are his, and do not necessarily represent the opinions of NataliePace.com, staff, management or writing team.

Boycott the If I Did It book.

A special message from Denise Brown.

Includes a link to support the Nicole Brown Foundation in their efforts to eradicate domestic violence.

Denise Brown, sister of Nicole Brown Simpson, is shocked and horrified by Goldman family decision to publish OJ Simpson's "If I Did It" book. "Even though I saw it going in this direction I still can't believe the Goldman family would go through with this. I just received news that the Goldman family has finalized a deal with a publisher in New York that was revealed by Michael Wright, a spokesman for Los Angeles-based literary agent Sharlene Martin of Martin Literary Management representing the Goldman family.

I am asking everyone in our country and the world that was instrumental in keeping this "Manual on Murder" from being published the first time to step forward and speak loud and clear once again.

Let's hold Fred Goldman to his own words, "Make certain that this material never sees the light of day".

"The fact that someone is willing to publish this garbage that Fox is willing to put it on air is just morally despicable to me." said Fred Goldman.

Now Fred justifies publishing the book because he feels it's a confession by the killer, OJ Simpson but previously in an interview, Goldman says "I don't imagine for one second that he (OJ Simpson) considers this admitting it."

Fred's words once again, "I would hope that no one would buy the book. I would hope that the message from people in this country is sent to his publisher, is sent to Fox that this is disgusting and despicable, that we as a nation won't put up with it."

"We won't buy the book. It's morally reprehensible." said Goldman.

I'm all for the Goldman family taking OJ Simpson for every penny he's worth but not in this atrocious way.

I plead with the public to help protect the two innocent victims in all of this. I can't bear that Sydney and Justin; Nicole's children will have to be subjected to this step-by-step manual on how their mother and her friend Ron were murdered. Please help us stop Fred Goldman, the publisher and any one involved with this horrendous business deal.

Please help us hold Fred Goldman to his own words.

Denise Brown

For complete interviews of Fred and Kim Goldman please go to www.denisebrown.com and click on Current Events. If you wish to sign the petition against this book and make your voice heard, you can do that at www.denisebrown.com as well.

Ed's Note: Instead of buying the book on how Nicole Brown was murdered, why not choose, instead, to support an agency local to you that is working to eliminate domestic violence.

The Truth Will Set You FreeÑBut First, It Will Scare You Silly.

by Chellie Campbell, author of Zero to Zillionaire.

Chellie Campbell, author of Zero to Zillionaire.

In the beginning of teaching my workshops, I focused on just the good things I knew and could exemplify. I stayed away from the sticky wicketsÑthe fact that I had been in abusive relationships, the fact that I had filed bankruptcy and lost a home to foreclosure, the fact that I had abused alcohol to the point I had to get myself to Alcoholics Anonymous to get sober.

But a funny thing happened when I started to share these things. A couple in my class was struggling with their debts and considering bankruptcy. I was trying to help them determine what to do, when the young man looked at me petulantly and said, "Well, easy for you to say, but you've never been in these circumstances, have you?"

It was the first time I had been directly confronted with the issue in class, and suddenly I knew I couldn't hide it any more. I said, "Yes, I have, and I filed bankruptcy."

I looked around at a group of shocked faces, and then poured out my story. I had always told the beginning of the story: How my biggest client in my business management firm had left with only two weeks notice and how I scrambled to save my business and started teaching financial workshops.

What I hadn't shared was how I borrowed $50,000 on credit cards to save the company, how I had tried to pay it back over the next five years, and how the 19.8% interest ate me alive. I hadn't told them I lived on Low Budget for years and when my budget failed, or a client didn't pay me, I borrowed even more on the credit cards, because by then it was a habit to borrow. I hadn't told how I drank to cope, and drank more to sleep. Or how humiliated I felt to be the president of a leading women's organization, owner of a bookkeeping service, and teaching Financial Stress Reduction® WorkshopsÑand I was the most financially stressed person in the room. Or how filing bankruptcy and going to Alcoholics Anonymous got me sober in money and sober in drink, and got me started on the road to financial, physical and mental recovery.

But this day I told it all. I told them how I faced my own demons and recognized that every principle I was teaching in my workshops was something I wasn't doing in my own life. My students had all been improvingÑthey were making more money, having more fun, and doing more good. But I wasn't. What was the difference between them and me? They were following the instructions and doing what I told them to do. They were doing affirmations every dayÑI wasn't even doing that. I saw as I talked to them what had to change: I had to change.

That day, I humbly enrolled myself in my own course. I took every class with them. I listened to every instruction I gaveÑand then followed it. And my life improved dramatically. My income doubled in six months. I was happier, richer, more fulfilled and more at peace with myself.

But the biggest change was in my students. They heard my story and knew I had suffered just like them. That I had made mistakes just like theirs; that I wasn't perfect, that I wasn't born with a silver tongue or a silver spoon in my mouth. I was just like them. And if I could use these tools to turn my life around, then they could, too. It gave them more hope, and it gave them more faith. From hope and faith, action is born. And when you have faith and take action, you can produce miracles. Or you just put yourself in the way of miracles. It seemed to me that everyone who took my class after I began telling the truth had bigger successes. I certainly did.

I'm not saying you should wash all your dirty linen on your resume or dry it in the boardroom. I am a teacher and the best illustration I know is how the principles I teach worked for me first, and then how they worked for others. When you see that, you see how they can work for you. Look within your own life and see where honesty and vulnerability might reach Your People in ways that being high on a pedestal won't. Tell of the things you know and how you know it. Admit the things you don't know and ask others if they do.

We are all drowning sometimes. But our lifesavers are all around us. Reach out for them. Sharing the truth with others strengthens you both in ways seen and unseen. Lifting each other up, we survive another day. Until one day we reach the shore.

Chellie Campbell is the author of Zero to Zillionaire and The Wealthy Spirit. She created and teaches the Financial Stress Reduction® Workshops, on which her book is based, in the Los Angeles area and gives programs throughout the country.

If you are stuck in a rut in your business or life and/or having too much "month at the end of your money," Chellie's workshop might be just what you need to get things on the right track. You can sign up for Chellie's Ezine and workshop at www.chellie.com.

 

How to Find a Financial Advisor.

by Rande Spiegelman, vice president, financial planning, Schwab Center for Financial Research.


If your financial picture is complex, it can be a daunting task to manage your portfolio and navigate the ins and outs of retirement planning, estate planning, insurance, investments and taxes. That's where financial advisors come in.

A financial advisor is an experienced professional who can provide a wide range of financial expertise, including managing your money for you so you don't have to handle all the details yourself.

Generally speaking, financial advisors are best suited for people with at least $250,000 in liquid assets who are willing to give up day-to-day control of their portfolios (though different advisors have different minimums).This is important.

It makes little sense to hire a financial advisor only to call him or her every day to learn how your financial plan is going. After all, the idea is to develop a game plan to achieve your financial goals and objectives, and then let the advisor manage the plan so that you have more time for family, career, hobbies and so on.

A Long-Term Relationship
Selecting a financial advisor is the first step in a long-term relationship. Your financial advisor will act as a sounding board for your ideas and help you formulate a plan for what you want to accomplish financially.

For these reasons, it's essential that you and your financial advisor share a certain chemistry and be on the same wavelength. You've got to feel comfortable asking questions. And your advisor must be able to explain the potential benefits and consequences of every aspect of your financial roadmap in a way you can understand.

How do you find a financial advisor you feel comfortable with, who will do right by you and your money? Here are some steps that can help:
     *Get referrals and make appointments
     *Prepare for the initial consultation
     *Learn how the advisor gets paid
     *Verify the advisor's history, credentials and experience

Get Referrals and Make Appointments
Start by asking friends, relatives and business colleagues if they have a financial advisor they trust and with whom they're comfortable. Ask other financial professionals you deal with, as well.

After all, financial professionals rarely work in isolation; they're part of informal networks of accountants, lawyers, insurance agents and brokers. Having a trusted CPA or broker recommend a financial advisor, for example, not only makes sense, but it can also build on a relationship you've already established.

Another way to find a financial advisor is to go through a recognized public trade group, such as the Financial Planning Association or the American Institute of Certified Public Accountants.

Prepare for the Initial Consultation
Spend time the week before the consultation speaking with your family and outlining your goals. And remember to set aside a comfortable amount of time during the day of the meeting Ñ you don't want to feel rushed or pressured.

Your first meeting with an advisor should be free, so use it well. Bring a list of written questions so that you can stay focused, and take notes so you can compare answers from different advisors. Here are some examples of good questions to ask:

• What's your educational background?
• How long have you been in business as a professional?
• What size is your firm and how many clients do you have?
• What types of services do you offer?
• What's your management style and philosophy?
• Do you prefer specific types of investments?
• What has your past performance been for clients with investment needs and risk tolerances similar to mine?
• How much money do you manage?
• How are you compensated?
• Will I maintain control of my assets and where will they be held?
• With whom will I be working?

Maintain a professional tone and make sure you get answers to your questions. True experts can explain even complex topics Ñ hold a financial advisor to the same standard. And don't be afraid to ask any question, no matter how silly you think it might be.

Learn How the Advisor Gets Paid
It's perfectly reasonable to go into the details of how the advisor is compensated, along with the services and attention you would receive in return.

Some advisors receive a flat fee for their services, while others take a fee based on assets under management. For example, if you have $250,000 you'd like the advisor to manage, a typical fee would be 1 percent, or $2,500 per year (as assets under management go up, the 1 percent fee typically goes down; fee "breakpoints" vary). You also want to know whether the financial advisor receives any commission, reimbursement or incentive for selling specific types of investments.

Lastly, remember to ask how much a follow-up meeting would cost. You don't want to receive an unexpected bill for a second consultation.

Verify the Advisor's History, Credentials and Experience
The Securities and Exchange Commission requires advisors who charge a fee to manage your money to register what's known as form ADV either with the state (those who manage less than $25 million) or with the SEC (those who manage $25 million or more).

The ADV provides pertinent information about the financial advisor, including:

• Educational background
• Financial management experience
• How the advisor is compensated
• Any disciplinary actions or complaints

• CFP® Ñ Certified Financial Planner
• ChFC® Ñ Chartered Financial Consultant
• CPA Ñ Certified Public Accountant
• CFA Ñ Chartered Financial Analyst

Lastly, ask for a list of clients who could serve as references. Be sure to call them and ask about the quality of service and the fee arrangements. You want to make sure all the information you receive is consistent.

Final Thoughts
Don't be discouraged if you haven't found an advisor you feel comfortable with after your first few interviews. Stick with it. With a little effort, and these guidelines in hand, you'll be well on your way to finding a financial advisor who's right for you.

Still Number One After 25 Years.

Kelley Wright, the managing editor of Investment Quality Trends, reports on his Select Blue Chips, which are still earning the top risk-adjusted returns over the past 25 years.

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

INVESTMENT OUTLOOK
Will the Feds Lower Rates in September?
We can all rest easier as Dr. Bernanke informed the markets on August 31, 2007 that the Fed was on the job and would remain vigilant. Whew; isn't that a relief. Signs that an election year is on the horizon are apparent with soothing words about help for the mortgage market coming from Washington D.C. I don't know what Washington thinks it can do for folks that took down mortgages they can't afford, short of bailing them out, but never underestimate the creativity of elected officials in search of votes. The initial panic phase in the markets seems to have subsided for the time being, but corrections can be messy affairs. The consensus is that the Fed will ride to the rescue by lowering the Fed Funds rate in September, October or December, but I wouldn't count on anything until we see it happen. Markets like to have things buttoned up nicely and in that vein I still believe we will see a test of the August 24 lows just to make sure that we have indeed established a bottom.

A market correction is a process that takes time and this time won't be any different. The bounce at Dow 12,600 was predictable because the 1,400 point decline from Dow 14,000 presented a textbook 10% correction. At some point, the market will want to establish whether Dow 12,600 was the bottom. My thought is that we will know soon.

Stocks, Bonds and Cash
Frequently, in both my writing and when I speak publicly, I make reference to the three primary asset classes; stocks, bonds and cash. The context for the reference is that the purpose of investing is to consistently increase the amount of money one has to invest so as to consistently increase the amount of income one can spend on current and future cash needs. Of the three primary asset classes, in my opinion, the most appropriate for the purpose stated above is stocks, more specifically Select Blue Chip stocks.

Often, I am asked whether I am being too simplistic in limiting my discussion to just these three asset classes considering the myriad investment options available in the modern financial marketplace. With recent events in the credit markets fresh in most investors' memories, I am presented with a convenient opportunity to answer the query.

Cash is a primary asset class because, well, it is money. We need money to pay for the things we use and need (as a quick aside, I chuckle when neighbor Richard Russell of Dow Theory Letters tells of trying to pay for something with a one ounce gold coin and the clerk told him they only accept cash or credit cards!).

Bonds are a primary asset class because they represent a fixed income stream for a specific period of time, contain a promise to return the principal on a date certain and if need be the highest grade issues such as Treasuries and Government Agencies are also liquid (can be turned into money).

Stocks, when they are high quality and offer good value (read Select Blue chips), are generally liquid. The real value of a stock, however, is in its underlying dividend, which once again is real money.

Derivatives, which consist of collateralized debt obligations (CDO's), credit default swaps and other exotic mechanisms, well, they just aren't money. Sub-prime mortgages and certain other types of asset-backed debt are not money. A lot of things that the markets have treated as a store of value or a medium of exchange are simply not money.

In summation, it really is about the money. Cash, it appears, is still king.

MONEY MARKET FUNDS: ARE THEY SAFE?
The majority of money market funds are safe. Occasionally, however, a money fund manager will extend the funds' duration and invest in credits and maturities more suitable for a long-term bond fund. Such was the case with Sentinel Management Group, Inc., and the fund had to be closed when they couldn't sell assets sufficient to meet redemptions. While this was a rare case, I am a big advocate of U.S. Treasury money market funds. A few basis points in yield are well worth the safety and security. It is difficult to put a price tag on peace of mind.

THE TIMELY TEN
This issues' Timely Ten is a good representation of the points made in the Mail Call response found at the bottom of this article. Colgate (CL), Johnson & Johnson (JNJ), PepsiCo (PEP), and McDonald's (MCD) are just classic companies and an excellent foundation for any portfolio. Automatic Data Processing (ADP) has struggled, but its fundamentals and track record are exemplary. Bank of America (BAC) is our second largest holding after Altria Group (MO), and in our view, the best run bank in the U.S. Cardinal Health (CAH) has been admonished for its sins of commission, but will prosper over the long-term. TJX Companies (TJX) is a great 3^rd and 4^th quarter company that offers excellent value. American International Group (AIG) has been on the road back from myriad concerns, some warranted and some not, and offers excellent historic value. Jack Henry (JKHY) declined briefly in sympathy with the financial stocks that it is tied to but has rebounded nicely; an excellent company. We still like Sysco Corp. (SYY) from the previous Timely Ten and would give it a solid 11.

Every stock in the Undervalued and Rising Trend categories of the Investment Quality Trends stocks newsletter is considered part of our model portfolio for performance tracking purposes. To mirror that performance would require holding one hundred six stocks as of the Mid-August issue; clearly too many positions to be practical.

Whether you are looking to build a portfolio from scratch, are partially invested and looking to add new positions, or fully invested and in need of some affirmation and hand holding, the Timely Ten presents our top ten recommendations as of each issue. Short of utilizing the personal investment management services of our sister company, this is as close to real time as you can get.

The timely Ten consists of Undervalued stocks that generally have a S&P Dividend and Earnings Quality rating of A-or better, a G designation for exemplary long-term dividend growth, a P/E ratio of 15 or less, a payout ratio of 50% or less (75% for Utilities), debt of 50% or less (75% for Utilities), and technical characteristics on the daily and weekly charts that suggests the potential for imminent capital appreciation. This issue's selections are:

Please keep in mind that as an investment newsletter, we are legally bound to only answer questions of a general nature and are unable to provide specific buy/sell recommendations or specific advice on an individual basis. For those interested in obtaining more information on individual management services in accordance with our approach, we have a sister company named I.Q. Trends Private Client Asset Management, which is a Registered Investment Adviser. Among the offerings provided by I.Q. Trends Private Client are individual portfolio consultations and active account management. For more information, please call Mr. Michael Minney at 858.427.1071.

Happy Labor Day to all.
Peace,
Kelley

Chat with Kelley Wright ONLINE at NataliePace.com on September 12, 2007 at 8:45 a.m. PT!

Kelley is the No. 1 Blue Chip Stock Picker on Wall Street for the past 25 years in risk-adjusted returns, according to Hulbert's Financial Digest (an independent newsletter that ranks stock pundits). Their focus is dividend-paying Blue Chips. Chat with the Managing Editor, Kelley Wright, and learn what companies are hot for 2007, and how you can mirror his returns for the price of a stock newsletter!

How to Access the Online Chat Room:
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Click on Chat Room  
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Kelley Wright is currently outperforming all of his peers, by bringing in the top risk-adjusted returns on Wall Street for the past 20 years, with his stock newsletter, IQTrends.com, at 12.8% annualized gains, according to Hulbertÿs Financial Digest. To subscribe, go to IQTrends.com.

The Markets Are Up On the Year. So Why All the Doomsday Headlines?

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. (See the chart in the article, "25 of our Companies Have Doubled," from volume 4, issue 4, the April 2007 ezine, 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 28% gains on average every year, and TipsTraders has me listed as one of the top 10 stock pickers in terms of all-time performance. 28% annualized (every year) is a whopping 140% return over just five years (which is much higher than the red hot real estate market!). The Hot News lists below feature 38 companies earning great gains, versus just seven (even after the recent market pullback) that are headed in the opposite direction.

Market Report:
The August 14, 2007 headline on the front page of the NY Times read: "Small Investors Feel Less Pain as Stocks Slide: Professionals are hit hardest by turmoil." The writer went on to compare July 2007 to the technology crash of 2000, writing, "The wild swings in the stock market over the last few weeks have reawakened memories of the technology crash of 2000 in which many small investors lost their savings." Wow. The comparison couldn't be farther from the truth, but I suppose the hyperbole serves to sell papers. The technology crash of 2000 wiped out over 60% of a person's technology holdings -- and NASDAQ is down over 45% from its March 2000 high. (See the black NASDAQ trend line in the chart below.) Whereas, all of the major indices in 2007 are still up on the year, even with the volatility.

This is why I'm headline-phobic! This is why I say to turn off the television, stop reading news and come to my Living the Rich Life Retreat to learn how to invest, using my easy-to-use, easy-to-understand Cooking Up Profits recipe. (The next retreat is in January 2008. Get details on the home page at NataliePace.com.) You don't stay one step ahead of trends by trading late on headlines. Makes sense, right? You make gains by understanding what will become tomorrow's headline, and this is much easier than you think.

The markets have had a pretty good year, despite the histrionic headlines of newspapers trying to sell copies, and we still have the seasonally strong Santa Rally waiting in the wings. See below for the returns of the stock market this year and last, which are performing well above real estate and bonds over the same period! I'm also listing some of our great hits because, once again (and every year since the inception of our ezine), the NataliePace.com stock newsletter is having a banner year.

General Stock Market Performance

Natalie Pace.com Company of the Year Stocks (4 out of 5 are huge winners)

Click on the blue-highlighted words to link to the feature article. (Please note that the ezines from 2002 and the first half of 2003 are no longer featured online.)

As you can see directly below, in the Hot News list, the performance of the companies featured over the last two years is on track to be as impressive as the companies that were featured between 2002 and 2005, even with the recent market pullback. We've still got 38 companies earning gains, versus only eight that are headed in the wrong direction (and might be in buying range). The majority of the companies featured in this ongoing article are performing well above the performance of the marketplace.

Back to School Stock Sales
September is historically the worst performing month each year, and a good time to look for Back to School Stocks on sale! As Joseph Lisanti, the editor of The Outlook, Standard and Poor's market newsletter, noted in 2005, "Since 1928, the S&P 500 has declined an average of 1.3% during September. That's the worst record of any month." What is bad news for sellers, can be great news for buyers! Have your shopping list (or your Hot News on Cool Stocks article) handy to see what might be in buying range at the end of September. Don't be in a rush to purchase during the summer doldrums, when the markets tend to be more volatile.

In February 2007, in the article, "Buy High; Sell Higher? Why 2007 is Poised to be a Banner Year," we began reporting that the pre-election year rally trend was supported by high cash levels in corporations (particularly in the technology, new media and metals sectors), interest rate trends and earnings. Additionally, with real estate softening, investors that had been enamored with that market turned back to Wall Street for performance. We continue to expect that 2007 will finish strong, with momentum gaining through the Santa Rally and into January 2008 (even given the concern over sub prime and the most recent pullback). The important thing now is not to buy HIGH, however. Stay calm and rational.

In August of 2007, the average price to earnings ratio in the S&P500 was lower than it had been in twelve years! In June 2007, the average P/E of the S&P500 was 15.9, with a forward P/E in 2008 predicted to be 14.1. (In the quarter ending June 30, 1995, the average P/E was 15.82.) Last month, according to Standard and Poor's Senior Index Analyst, Howard Silverblatt, companies still had excess cash reserves, with the industrials having over $600 billion, which was 5.9% of market value and 39.6% of long-term debt. Those investors who were worried about the weak U.S. dollar weren't considering that many of the publicly-traded companies are now participating in the global marketplace, and are not over-reliant on the U.S. dollar as the only currency. Earnings have been outstanding, at double-digit operating growth for the last 18 consecutive quarters! As a result, in this month's MarketAttributes Snapshot, Mr. Silverblatt wrote, "The numbers continue to show Q3 as the bottomÉQ4 could return to double digits with the help of lower gasoline prices and less competitive sales during the holiday season."

Keep cool this summer, even as our Hot News list keeps your portfolio red hot! And yes, even though I typically take off during August, I did crawl out of the ocean to do this update because with all of this volatility and these explosive headlines, I thought you might need it!

Peace and Prosperity,

Natalie Pace

EDUCATIONAL OPPORTUNITES AND INFORMATION:

The Federal Reserve Board:
Not surprisingly, the Feds decided to keep rates at 5 Å percent during their August meeting. It is not uncommon for a rate cut to be issued in the final quarter of the pre-election year, and, though curtailing inflation remains a concern for the Feds, with the real estate situation, there is pressure now to consider a rate cut before the holiday season. Almost 50% of analysts surveyed by CNBC in August believed a rate cut would occur at the September meeting, and that was before Chairman Bernanke began issuing statements that he was on the job about subprime concerns. Based upon the current data and a general read of Chairman Bernanke's stewardship, I'd say October is a better bet. This Chairman likes to give the market an opportunity to absorb shocks without regulatory intervention, when possible. As things change, we'll keep you posted on the news.

1. Interest Rates: In a Pause Pattern. The Federal Open Market Committee has paused nine times in a row now (in August, June, May, March and January 2007, and December, October, September and August 2006), after raising interest rates 17 consecutive times prior. The federal funds rate remains at 5-Å%.
2. Interested in reading the minutes of the August FOMC meeting for yourself? You can. It is available online. Click on FOMC, or go to FederalReserve.gov, to read!

The tentative FOMC meeting schedule for the 2007 calendar is: 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. Calendar Section: Conferences, Online Chats and more: 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, real estate veterans and CEOs! Be sure to join me in my September teleconference and in the September 12^th chat with Blue Chip stock picker Kelley Wright! Details are at the calendar section. Phone information will be provided to all active subscribers by email. Be sure that you have added NataliePace.com to your mailing list and are receiving our email!

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. Your investments and portfolio should take into account your age, your retirement goals, 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.

The Hot News On Cool Stocks List

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

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). 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. See below for the "Wait" list and the "Cooling Off" list.

Highlighted Companies (Hot List):
Altair Nanotechnologies (ALTI)
Citigroup (C)
Jet Blue (JBLU)
Johnson & Johnson (JNJ)
Krispy Kreme (KKD)
Satcon (SATC)
Smith & Nephew (SNN)
UQM Technologies (UQM)
WisdomTree (WSDT)
Yahoo (YHOO)

Recent Additions/Deletions:

The two companies listed below are not highlighted on the Hot News list because they are not considered to be in buying range.

1. Macerich (Deletion, profit-taking range). Read more on this company beneath the Hot News List and in the September 2007 REITs article.
2. National Health Investors (Addition, near profit-taking range). Read more on this company in the Hot News List below and in the September 2007 REITs article.

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. Intuit, deleted in June 2007, was a wash for us - up and down. Macerich posted 150% gains between May 2003 (when it was first featured) and September 2007 (when it was removed from the list).

Recently Deleted:

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 Additions:
LifeCell added 7.1.07
General Electric added on 8.1.07
Macerich added on 9.1.07
Boston Properties added on 9.1.07

Cooling Off Stocks List (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.)

Recent Additions/Deletions:

Google (Added on 7.16.07. Deleted on 8.1.07 with losses of -6.7%.)

Highlighted Companies (Cooling Off List):

None

The following companies were taken off of the Cooling Off list effective 10.16.06: Verisign (+15%). IMClone (-11%). Yahoo (-28%). LifeCell was removed on 7.2.07 with -4.5% overall performance. (The cooling off list anticipates that a company will lose share price value.) Google was added on 7.16.07 and then removed on 8.1.07 with losses of -6.7%.

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:

Shine and Promote Peace and Prosperity at The 2007 Solar Conference, the U.N International Day of Peace and the Blue Chip Stock Chat with Kelley Wright: just three of many amazing September events.

The NataliePace.com Calendar section features conferences, retreats, educational opportunities, cultural events, galas and online chats with executives and VIPs. 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 website and registration, go to the Calendar section at NataliePace.com.

Online Chat with the No. 1 Blue Chip Stock Picker on Wall Street
Wednesday, September 12th, 2007
8:45AM through 9:30AM PT
IQTrends.com has the highest risk-adjusted returns for the past 25 years. Their focus is dividend-paying Blue Chips. Chat with Kelley Wright and learn how you can mirror his returns for the price of a stock newsletter!

Walk For Peace
Saturday, September 15th, 2007
Participate in an historic citizen lobbying effort to create a U.S. Department of Peace, which will provide practical, nonviolent solutions to the problems of domestic and international conflict.

Federal Open Market Committee Meeting
Tuesday, September 18th, 2007
8:00AM through 5:00PM ET
The Federal Reserve Board governors meet to determine whether inflation is more of a factor than the housing pullback and subprime defaults. Will the Feds keep the rate where it is, raise it or lower it? Wall Street analysts are divided in their predictions.

Subscriber Teleconference with Natalie Pace
Wednesday, September 19th, 2007
5:00PM through 6:00PM PT
Get the call-in instructions from Heather@NataliePace.com. Wonder where the stock market is headed? Want to get in on stocks like Opsware and World Water BEFORE they post 100% to 600% gains? Want to learn more about the January Living the Rich Life Retreat, the 3-ingredient foolproof recipe for cooking up profits and/or how to read the Hot News on Cool Stocks article?

International Day of Peace
Friday, September 21st, 2007
1:00AM through 11:00PM
September 21 has been designated as an international day of peace by the United Nations, wherein all countries are to observe a global ceasefire. More than 3500 Peace Day events took place in 200 countries in 2006!

Yoga, Peace, Kirtan, TranceDance, Meditation in L.A., CA
Saturday, September 22nd, 2007
10:00AM through 11:00PM PT
GlobalMala.com presents a day of yoga, kirtan, dance, meditation, raw/vege food and more in a 12-hour ritual peace fundraiser at the solar-powered LA convention center.

Solar Conference 2007, Long Beach, CA
Monday, September 24th, 2007
8:00AM through 7:00PM PT
Solar Power 2007 features over 175 exhibitors, 125 speakers, networking opportunities galore, and an anticipated 10,000 visitors! Almost every major solar company in the world, from Suntech Power Holdings, to Sun Power to GE Solar will be there on display!

These are just a few of the MANY exciting conferences, events, galas, opportunities, chats etc. going on. Go to the Calendar section at NataliePace.com regularly to stay on top of recent updates and opportunities.

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