One Very Hot IPO! Is it Skype or General Motors?

by Natalie Pace.

Includes Car and VOIP Stock Report Cards.

High Debt Vs. High Risk. A side-by-side comparison of the Skype and General Motors Initial Public Offerings.

Click to view a Car Report Card and a VOIP Report Card

President Barack Obama, with Assembly Manager Teri Quigley, gets behind the wheel of a new Chevy Volt during his tour of the General Motors Auto Plant in Hamtramck, Mich., July 30, 2010. (Official White House Photo by Pete Souza)

Which Initial Public Offering most interests you – Skype or General Motors? The free Voice Over Internet Protocol that is taking the world by storm (with 560 million registered users as of Jun 30, 2010) or the century-old automaker with over $100 billion in annual sales? When I ask the question like that, people weigh in on both sides of the table. Skype users are elated beyond compare at the Skype IPO; patriots love the opportunity of investing in an American legacy company. A closer comparison, however, reveals a clear advantage that one company has over the other.

Let’s examine a few critical areas, namely revenue growth, income, debt, market share, management, staff, free markets and ownership.

Luxembourg vs. the United States:
Europe is not known as a hot bed of economic growth these days, and that is largely because the media focus is on PIIGS (the debt problems in Portugal, Ireland, Italy, Greece and Spain), instead of the impressive economic powerhouse of Luxembourg. Luxembourg is #1 in the world for GDP growth per capita. Luxembourg’s 2008 GDP growth per capita was $109,903 (#1). The United States is far in the distance, at $46,350 (#14). China and India, two of the world’s fastest growing economies, have very low GDP per capita statistics, at $3,267 and $1,017, respectively. (Source: World Bank) One of the reasons for Luxembourg’s high growth is an easy, low tax structure, which Skype executives say amounts to about 10% on pre-tax revenue.

Growth:
After three years of sales decline, General Motors is finally showing signs of life again. But the company still trails market leaders Ford and Toyota in sales and awards. And the company hasn’t shown a profit in over five years.

GM Revenue, Profit and Loss (last five years)

Source: GM S-1 filed with Sec.gov on August 18, 2010

By contrast, Skype has been growing by leaps and bounds from the first moment that VOIP was offered for free worldwide online (back in 2003). Skype is profitable in 2010 and would have been for the last three years, had it not have been for a lawsuit (settled in 2009) between the founders and current management.

Skype Revenue, Profit and Loss (last five years)

Source: Skype S-1 filed with Sec.gov on August 9, 2010

*This "loss" was largely on paper -- a "goodwill impairment" of $1.4 billion, meaning that eBay wrote down the amount that they may have "overpaid" for Skype on Oct. 14, 2005, when they forked over a reported $4.1 billion for the company.
** Expenses of $343.8 million for the Joltid settlement regarding use of technology that the founders of Skype claimed ownership over were incurred in 2009. This was a big reason for the unexpected loss in 2009.

Ownership: Andreessen vs. Obama
Unions, the Treasury Department and Canada Holdings are the current majority owners of General Motors. Governments and unions are not necessarily known for the ability to streamline production, innovate rapidly against fierce competition or generate profits. After the IPO, the U.S. Treasury, Canada Holdings and the unions, combined, will still own 50% of GM.

On the other hand, Marc Andreessen, who is a pre-IPO owner and board director on Skype, is currently the King of Silicon Valley. He’s on the board of Facebook, eBay and Hewlett-Packard and co-founded and sold two billion dollar plus software companies – Netscape and Opsware (formerly known as LoudCloud). The owners of Skype are some of the most experienced executives and venture capitalists at creating disruptive software that becomes mainstream, with hits like eBay, Facebook and Skype, to name just a few. Skype is currently owned by Silverlake Funds (venture capital) eBay, Joltid, Andreessen Horowitz (venture capital) and the Canadian Pension Plan Board.

Skype me!
Similar to Google before it, Skype is so mainstream that the noun is now used as a verb. First it was "Google it!" Then it was "Facebook Me." And now it’s "Skype me!" Skype had 13.6 million unique visitors in the US in July, and 25 million UVs in Australia, Brazil, Germany, France, Italy, Spain, Switzerland, UK and USA combined, according to The Nielsen Company. Skype had 13.5 million unique visitors in the US, according to Nielsen/Net Ratings. Bear in mind that this data doesn’t include Skype phones. This measure includes only home and work computer users.

When is the last time you heard someone say, "GM, baby!"

Debt: Cash on Hand versus I Owe You:
When General Motors declared bankruptcy, the company owed over $100 billion; $63 billion of that was loaned from the U.S. Treasury and the Canadian government. The majority of that debt obligation is now equity, which makes these government entities owners who want to sell as soon as feasibly possible. Even after shedding $92 billion in debt in bankruptcy proceedings, GM’s liabilities (including pensions and unpaid taxes, expenses and health care) still total $101 billion. GM has $27 billion cash on hand.

Skype’s total outstanding debt is less than $1 billion ($728 million to be exact), with $85 million cash on hand. Given that both companies need to innovate to compete in these dynamic marketplaces, the company with the smallest burden (debt, pensions, other post employment benefits, etc.) is usually the one that can race to new discoveries fastest.

Management: Old School Vs. Top of the Class
9 out of 13 executives leading the new GM into the future are "Old GM" executives. The four new executives are impressive, including a new CEO from the Carlyle Group and executives from Fleishmann Hillard, Morgan Stanley and Microsoft, but they are in the minority.

The CEO of Skype headed up Shopping.com and Evite.com. Other board directors and top executives were recruited from the team or board of Apple, Dell, Cisco, eBay, Facebook, Hewlett-Packard and AOL. It’s a diverse crew with lots of experience navigating the global regulatory/tax environment of the worldwide web and stimulating technology teams to rapidly innovate. Collectively, this team brought you the first web browser (Netscape), the first cloud computing software company (LoudCloud), the first global marketplace (eBay), the largest social networking website (Facebook) and now the fastest growing Voice Over Internet Protocol, with intentions to expand into video conferencing for small and medium sized businesses (Skype).

Vision:
GM claims that their vision is to design, build and sell the world’s best vehicles, but can the management team that continued to build Hummers and SUVs while Toyota launched the Prius be expected to lead the company into a glorious, new future? This is further complicated by the fact that the company’s ability to innovate has actually gotten worse. New drivers of the company vision, with control of the board, are unions, the U.S. Treasury and the Canadian government. Governments and unions are red tape, not efficiency, experts. There is a sad saying about GM: It’s a pension/health care company that occasionally makes a car. Management’s time and attention will still be on doling out benefits and paying down debt, rather than innovating, building and providing bonuses for worker productivity, efficiency and creativity.

Skype’s mission is to be the communications platform of choice for consumers and businesses around the world. They have the talent and the team to do that and more. But along the way, there will be all kinds of obstacles, including fierce competition from competitors like Google (who might be a potential buyer in the future), communications and tax laws that could dramatically increase costs and drain executive attention and further patent challenges. In 2009, the founders of Skype, collectively called "Joltid," successfully settled their patent claims with Skype and received $348 million, ownership in Skype and two seats on the board of directors. Skype cannot afford to have those kinds of losses going forward.

Bottom Line:
Governments and unions have not been known for their ability to create fantastic products and deliver them expeditiously to consumers at a competitive price. The fall of communism throughout the world is a testament that nationalized countries and companies experience stagnation, not a renaissance. It’s hard to imagine that the new owners of GM, combined with the old management, have what it takes to emerge from bankruptcy as the best car company in the world again.

Marc Andreessen has helped Facebook become the premiere social network and the 4^th most trafficked website online. Facebook users spend three times the amount of time on Facebook than Google, Microsoft or Yahoo. Andreessen, with the help of his partner Ben Horowitz (another Skype board director) have built and sold two software companies for more than a billion each to legacy brands like Hewlett-Packard and AOL. (They love building takeover targets.)

Skype is a very HOT IPO with rocket ship potential Return on Investment. Like any trip to the moon, however, it is high risk. Nine times out of ten, you’ll have the experience of a lifetime. Once in a while, you’ll narrowly escape your personal Apollo 13 experience (or worse). If the price is too high for your stomach to handle, best not to strap yourself into the cockpit. Bear in mind that eBay purchased Skype in 2005 for $4.1 billion, only to write down the value of the company to a fair market value of $2.7 billion in 2007.

Both companies are in the IPO stage, meaning that the exact price and exact date of the public listing are still in flux. If you are interested in participating in the IPO of either company, contact the underwriting banks, which are listed at the top of the respective S-1 filings on the SEC’s Edgar database (or just ask your financial partner). FYI: You can only participate in the IPO – before the company hits the big boards – if you are an existing, qualified client of the bank, who is willing to purchase a block of stock.

I’ve put both companies on the Watch List for now. As the pricing becomes more clear, I’ll provide additional commentary in the Hot News on Cool Stocks updates (around the 1^st and 15^th of each month). Skype is definitely hot, but all investments must be purchased at the right price.

About Natalie Pace:
Natalie Pace is the author of You Vs. Wall Street and host of the Pace and Prosperity radio show on BlogTalkRadio.com/NataliePace. She is a repeat guest on Fox News, CNBC, ABC-TV and has contributed to Forbes.com, Sohu.com and BestEverYou.com and Magazine. As a philanthropist, she has helped to raise more than two million for Los Angeles public schools and financial literacy. Follow her on http://www.facebook.com/pages/NWPace, on BlogTalkRadio.com/NataliePace and on YouTube.com/NataliePaceDOTCOM. For more information please visit, http://www.nataliepace.com.

Please note: NataliePace.com does not act or operate like a broker. We report on financial news, and are one of the most trusted independently owned and operated financial news corporations in the U.S. 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 consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies.   Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a long, safe strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

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.

The Gold Crash of 1980.

by Natalie Pace.

A Brief History of Gold.

Gold hit $850/ounce one day in 1980, and then dropped a hundred bucks the next. Learn the difference between fool’s gold and 24 karat, and why this great gilded asset is riskier than you think.

On January 21, 1980, gold hit an all-time high price of $850/ounce.

Then, quite unexpectedly and overnight, the price fell by more than $100, to $737.50/ounce, and continued to drop throughout the rest of the year. Gold ended the year down 31% from it’s high, at $589.75/ounce.

In 1981, gold prices fell another $200/ounce for an average price of $410/ounce (less t than ½ of $850), and then plunged again, to a low of $300/ounce in 1982. Imagine how desperate the gold rush buyers at the top felt within two short years!

Gold Prices 1980-1984

For the next two decades, gold prices ping-ponged around in the $300-$400/ounce range.

Gold Prices 1975-present

Not surprisingly, as a result, gold was the worst performing asset to own for the last 30 years.

Performance of Stocks, Bonds, Real Estate, Gold and Treasury Bills

1979-2009

Gold was killed again by stocks in 2009. NASDAQ scored gains of 40% in 2009, while gold prices rose only 26%. Small and mid cap stocks and even large cap growth stocks were stronger than gold. Only the Dow Jones Industrial Average (which has a hefty composition of bailouts and legacy value stocks) performed worse.

Performance of Stocks and Gold in 2009

Fool’s Gold or 24 karat?
How is it that all you hear about is gold, and how it will save the world when paper currency is worthless, but the performance is so, well, lackluster?

Gold, like all commodities, is primarily controlled by simple laws of supply and demand. A rally can be killed overnight if a big seller dumps a hefty load. Prices spike when central governments buy gold en masse to issue coins to hungry buyers or when ETF brokerages make it easy as a click to buy a gold index, as is the case in today’s marketplace.

Gold is an Emotional Purchase
Unlike useful commodities like oil, copper and lithium, gold is an emotional purchase. Yes, it’s used in jewelry, but primarily gold prices increase when investor confidence tanks and people hoard gold to feel safe and secure. Savvy (or unscrupulous) gold brokers and sellers feed investor froth with talks of the Apocalypse, anticipating that many people, especially in times of high unemployment, low consumer confidence and/or inflation, will throng to sell wedding bands and the gold out of their teeth.

Just as reliably, when hoarding gold becomes the investment du jour and prices reach astronomical heights, big players move in en masse to take their profits and dump their holdings.

Boom! Crash! Just like real estate in 2006, Dot Com in 2000 and gold in 1980. In fact, it is very likely that the same folks who encouraged you to buy more house than you could afford in 2006, or to hold your cash negative AOL in 2000 are now the authors of the new fairytale – that gold is the new currency in a bankrupt Western World.

Biggest Holders of Gold
So, who are the largest holders of gold today (and are in a position to dramatically affect the price of gold overnight)?

Gold Hoarders

Source: World Gold Council* (Please see below for important additional information)

It is difficult for the average person to know who owns a hefty share of gold in the Exchange Traded Funds, especially if the owner is a private hedge fund. That makes this potential seller extremely dangerous. Most government entities disclose their intentions and time their sales so as not to disrupt the marketplace; whereas hedge funds try will try to sell as quickly and surreptitiously as possible to maximize gains. Since ETFs are highly liquid and can be sold with one click in a nanosecond, should ETF investors decide gold has peaked, the exodus could cause a precipitous fall in share price overnight.

In the 1980s, traders of the time report that Russia flooded the marketplace with gold for sale, killing the rally almost overnight. This would have been done "in the pocket," quietly, during the Cold War, and thus it is difficult to confirm the exact amount of gold that may have been dumped by Russia during that period. According to George Milling-Stanley, managing director, Government Affairs for World Gold Council, "Successive Soviet governments had been sellers of gold ever since the end of the Stalin regime, in order to mask the poor performance of the command economy. This selling was undertaken very quietly and reduced the reserves from a level of anywhere between 2,500 tonnes and 4,500 tonnes that Stalin had accumulated by the mid-1950s, to under 300 tonnes by the end of the Soviet era around 1990." Mr. Milling-Stanley counsels further that many governments, like Brazil, have set value limits on their gold supply (not tonnage limits), which means that they are forced to sell when gold prices are high and buy when gold prices are low -- a winning strategy for outstanding returns! (You should employ it, too.)

The International Monetary Fund is selling
During October and November 2009, the IMF sold a total of 212 tons "off market" to the Reserve Banks of India, Mauritius and Sri Lanka. On February 17, 2010, the IMF announced that they will begin selling up to 200 tons in the marketplace. The Fund counsels that they will do so in a "phased manner over time" in order to avoid any risk of market disruption.

Gold is Hot, but Riskier Than You Think
Despite what you hear in commercials (infomercials), banking on the world’s worst performing asset (over time) to be your sanctuary in the Great Recession has more of a chance of being foolish than profitable, historically speaking. Short term gains can be enjoyed, but it pays to be aware of the risk, the real Return On Investment and the fact that an iPhone, a gallon of gas or a coconut will be easier to trade in the Apocalypse than a nugget of gold.

Nonetheless, U.S. Gold remains on my Hot List, anticipating that, for now, gold will continue to rise and that this junior mining company could become a takeover target.

About Natalie Pace:
Natalie Pace is the author of You Vs. Wall Street and host of the Pace and Prosperity radio show on BlogTalkRadio.com/NataliePace. She is a repeat guest on Fox News, CNBC, ABC-TV and has contributed to Forbes.com, Sohu.com and BestEverYou.com and Magazine. As a philanthropist, she has helped to raise more than two million for Los Angeles public schools and financial literacy. Follow her on http://www.facebook.com/pages/NWPace, on BlogTalkRadio.com/NataliePace and on YouTube.com/NataliePaceDOTCOM. For more information please visit, http://www.nataliepace.com.

*This table was updated in June, 2010 and reports data available at that time.  Data are taken from the International Monetary Fund's International Financial Statistics (IFS), June 2010 edition, and other sources where applicable. IFS data are two months in arrears, so holdings are as of April 2010 for most countries, March 2010 or earlier for late reporters.  The table does not list all gold holders: countries which have not reported their gold holdings to the IMF in the last six months are not included, while other countries are known to hold gold but they do not report their holdings publicly. Where the WGC knows of movements that are not reported to the IMF or misprints, changes have been made. The countries showing as having 0.0 tons of gold report some gold but less than 0.05 tons to the IMF.

**The percentage share held in gold of total foreign reserves, as calculated by the World Gold Council. The value of gold holdings is calculated using the end-April gold price of $1179.25 per troy ounce (there are 32,151 troy ounces in a metric ton). Data for the value of other reserves are taken from IFS, table ‘Total Reserves minus Gold’.

Please note: NataliePace.com does not act or operate like a broker. We report on financial news, and are one of the most trusted independently owned and operated financial news corporations in the U.S. 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 consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies.   Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a long, safe strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

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.

The largest denomination of currency ever printed by the Bureau of Engraving and Printing (BEP) was the $100,000 Series 1934 Gold Certificate featuring the portrait of President Wilson. These notes were printed from December 18, 1934 through January 9, 1935 and were issued by the Treasurer of the United States to Federal Reserve Banks only against an equal amount of gold bullion held by the Treasury Department.

Bonds, Bond Funds and T-Bills: The Next Disaster.

by Dr. Marc Miles and Natalie Pace.

Commentary from Dr. Marc Miles, global strategist and editor, 2006 Index of Economic Freedom
My fear is that the next major move in interest rates will be up.  Typically when that happens the initial large jump happens very quickly, which means the average investor cannot react fast enough to protect him/her self.  My feeling is that despite the current low returns on short-term money, if an investor wants to be in the fixed income area, err on the short side.  The net return vs. longer-term bonds will be higher over the next year or so, as bonds decline in value.

In a recent Wall Street Journal Article Professors Jeremy Siegel and Jeremy Schwartz point out that if the 10-year note, which was yielding 2.8% at the time, rose to only 3.15% the capital loss would be 1.9%.  if the yield rose to 4.0% like they were in the spring, the loss would be closer to 6.0%.  The 10-year is now yielding even less (closer to 2.6%), so the current risk is even bigger.

When will the jump in interest rates occur?  Wish I knew for certain.  Educated guess is within the next year or so.  Why?  We have seen the effect of the loss of confidence in Greek bonds.  The problem there was a large debt/GDP ratio and the stubborn resistance of state workers to allow their compensation (included unfunded pensions) to adjust to the new realities.  Sound a little like California?  It’s occurring in many other states such as Arizona, Illinois, Michigan, New York, and New Jersey, too.  Their debt/GDP ratios are zooming. For all 50 states, unfunded debts are estimated to be around $3 trillion. Things are even worse at many municipal levels. (Watch out for those muni bonds). 

At the same time, we are faced with unfunded social security, Medicare and the new health program promises at the federal level.  Combined with all the other free spending programs (the $787 billion Stimulus Bill, TARP, bailout of Chrysler and GM, etc.), the Congressional Budget Office already projects that within 10 years the debt to GDP ratio at the federal level will reach 100%.  Of course that projection assumes we have 3% growth per year, a level we are unlikely to attain for at least the next couple of years.  Hence the deficit will be even bigger.

When you start combining all the debt at federal, state and local levels, the picture is not pretty.  In fact it is not much different than Greece.  While the dollar is currently seen as a safe harbor currency, as these debt realities become more obvious, there will be a flight from dollars to other currencies, a sharp decline in the dollar’s value, an uptick in inflation, and an accompanying jump in interest rates.  When will this scenario occur?  Probably next year as growth is weak and the deficits at all levels of government balloon because of weaker than expected growth.

In many ways this scenario reminds me of the late 1970s, if you are old enough to remember the Jimmy Carter years.  Both stocks and bonds were killed during that period.  My advice is to hold on to real assets like houses, gold, artwork, etc.  They have the best bet of rising with inflation and thereby retaining their real value.

Stocks During the Carter Years (1976-1981)

Natalie Pace:
Bonds, bond funds and T-bills, which were the saviors in the first years of the Great Recession, will be sinkholes when interest rates start to rise. When will interest rates rise? No one knows for sure, but I’m making an educated guess of 6-18 months from now.

For safety, I’m in favor of quality, cash flow positive hard assets and FDIC-insured money markets (for liquidity, as needed). Why money markets instead of Certificates of Deposit? Because when interest rates rise, so does the yield in the money markets, whereas the rate is fixed in your savings and CDs.

Tricks and Tips for Fiscal Fitness in your Hard Assets
What are "hard assets?" They are things you can touch and feel -- from coin-operated laundry facilities, to car washes, to apartment buildings, to hair salons, to retail stores, to ATM machines, to paintings, to classic cars and beyond. In hard times, cash is king, and great bargains on housing and particularly on non-essential, but valuable, assets can be picked up for a song. From a vintage Ferrari (which you’ll need to house and insure), to vacation homes, to rare artwork and beyond, desperate people are selling everything they can get their hands on, on the cheap, these days.

Hard assets provide diversification, appreciation potential (your home can increase in value) and perhaps even a return on rents (apartment buildings) or profits (solar farms, car washes and dry cleaners). But they also require some tending and upkeep, which is why there are a few important considerations.

You want your hard assets to have:

1. Cash positive operations with a cushion in case of recession, maintenance, upgrades or competition.
2. Insurance. Many hard assets are large and valuable enough to require an extra layer of protection from theft and damage.
3. Factor in Costs of Carrying. Make sure that the cost of ownership, including property taxes, upkeep and insurance, doesn’t bury you in basic needs. You should still be able to afford fun, donate to charity, travel and educate your kids. Don’t just be a slave to your mortgage and investments. Being cash-poor is no fun.
4. Outstanding Management. Don’t get over-extended by adding two or more full-time jobs to your workload. Make sure the new acquisition has a strong management team, the means to keep them on board and that you’re still getting a return on your investment.
5. Start with what you know and love. If you know about it, you’re more likely to get the first four tips right. You’ll know about certain costs that newbies often overlook. You’ll know the right level of insurance (which can save you thousands of dollars). You’ll have a clue what a good manager looks like and does. If you love it, you’ll have a different way of valuing it. When you love something, you’re willing to wait for the perfect buying opportunity, and you’ll never be tempted to sell it on the cheap. This type of investing is very different from the greed-based gluttony we’ve seen of late, where speculators purchased as many homes as they could get their hands on with the intention that they would flip the property fast to the next fool. (As we now see, that kind of investing can burn.)

For additional information on safe assets, read the following article.

Don’t Get Fooled Again (August 2010 ezine, Vol. 7, issue 8)

Equally important is to get diversified in your stock portfolio, to underweight debt-laden companies and industries, to overweight emerging markets and to annually rebalance. Simply put, it’s critically important to underweight the Bailout Index (more commonly known as the leading "Blue Chip Index"). Legacy blue chips are vulnerable until the U.S. government and those corporations figure out what to do about the crushing financial obligations of unfunded pensions, health care and other post employment benefits (OPEBs). If you don’t know how to check the debt, pension and OPEBs of the corporation, best to err on the safe side and underweight companies founded before 1980.

Read You Vs. Wall Street to learn easy-as-a-pie-chart strategies on how to maximize gains in bull and bear markets and what to avoid in the financial storms we face. Attend my Get Rich and Enrich Investing Educational Retreat, where you walk in without a clue (or with a cracked nest egg or desiring to service your clients better) and walk out with a blueprint that works for the rest of your life. Go to NataliePace.com, email Heather@NataliePace.com and/or call 866-476-7442 to learn more.

About Dr. Marc Miles
Marc Miles is the former Editor of the Heritage Foundation/Wall Street Journal Index of Economic Freedom.  Prior to that he spent almost 20 years advising large institutional money managers on changing trends in the US and global markets.  Marc has a Ph.D. from the University of Chicago and was a tenured professor of economics at Rutgers University.  

About Natalie Pace:
Natalie Pace is the author of You Vs. Wall Street and host of the Pace and Prosperity radio show on BlogTalkRadio.com/NataliePace. She is a repeat guest on Fox News, CNBC, ABC-TV and has contributed to Forbes.com, Sohu.com and BestEverYou.com and Magazine. As a philanthropist, she has helped to raise more than two million for Los Angeles public schools and financial literacy. Follow her on http://www.facebook.com/pages/NWPace, on BlogTalkRadio.com/NataliePace and on YouTube.com/NataliePaceDOTCOM. For more information please visit, http://www.nataliepace.com.

Please note: NataliePace.com does not act or operate like a broker. We report on financial news, and are one of the most trusted independently owned and operated financial news corporations in the U.S. 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 consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies.   Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a long, safe strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

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.

Bond: Sexy and Dangerous.

by Natalie Pace.

6 Things You Need to Know About Covering Your Assets During Thermonuclear Financial Meltdown.

Goldfinger, starring Sean Connery as James Bond (1964)

1. What is Lethal to Bond? Rising Interest Rates
"Bonds are worth more when interest rates drop. When interest rates rise, the market value of the bond goes down, and can produce negative returns. A bond that goes to maturity is safe, provided you live long enough. But if you have any reason to believe that you’ll need the funds before the principle is repaid, it’s important to understand the relationship between interest rates and bond trading prices, so that you price your buy and sell points accordingly." Natalie Pace, from You Vs. Wall Street.

What are some reasons that you might not be repaid in full on a bond? If the corporation declares bankruptcy. If the municipality declares bankruptcy (Orange County, California did). If you have health issues and need to sell the bond to pay for treatment, medicine, etc. If you have financial fallout or lose your job and need to sell the bond to cover basic needs. Etc…

2. What is Sexy About Bond? Steady Yield.
Some people say that preferred stocks and stocks that pay nice dividends are as attractive as bonds, but one additional advantage is that bondholders have a place at the negotiating table in bankruptcy proceedings (unless a President decides to supersede). Stock is typically worthless when a company needs to restructure. These days, however, there have been too many former A-rated companies that defaulted on their bonds. Therefore, you have to re-evaluate your entire bond portfolio, and seriously consider just how indebted the corporation, state, nation and/or municipality is to determine just how vulnerable your bond is to default.

3. What is Safe About Bond? Reliable Yield and Payback Date.
Guaranteed Rate of return and better position in bankruptcy proceedings make bonds a safer investment most of the time – but not when interest rates rise and not when corporations and municipalities are drowning in debt. So, don’t assume that your bond is safe just because it is a bond. Muni bonds are some of the most indebted bonds on the market, with unfunded debts topping $3 trillion collectively, in all 50 states. Legacy corporations, particularly those founded before 1980, with unions and a large pool of retirees to support, like General Motors, Chrysler, the airlines, and more, were disasters to bondholders. Bottom line: there are much safer assets than bonds for 2011 and going forward.

4. What is Cool About Bond? Tax-free, in certain cases, and great ROI, in others
Your financial advisor might be saying that tax-free is one cool thing about certain bonds, particularly municipal bonds (which are carrying far more risk than most Americans are aware of). In 2002, financial advisors would have said that the cool thing about bonds was that they were the top-performing asset class – earning 25% and more! These days, however, bonds are not that cool. So, read up on the articles, "Don’t Get Fooled Again," (from August 2010 NataliePace.com ezine) and "Bonds, Bond Funds and T-Bills: The Next Disaster" from this ezine.

5. What is Hot About Bond? I quite liked Sean Connery as Bond, but Pierce Brosnan was pretty hot as well…
Nothing about bond, the asset, is hot these days. They are low yield, riskier than you know and destined to reduce in value when interest rates rise. Some bonds could become illiquid if the corporation, municipality, etc., has to issue a new bond offering in the future at a higher interest rate or when investors get wind of just how much debt the underlying entity is carrying. If you are lucky enough to have a bond that you purchased over a decade ago that is yielding 10% or more and is secured by a healthy corporation or entity, then that is HOT! For sure! Otherwise, you need to evaluate your bonds, each one, with the forensic eye that you give to an individual stock and consider whether or not there are safer havens with a better payback.

6. What is Dangerous About Bond? Armed, dangerous and stealthy
The most dangerous aspect about bond is that the problems sneak up on you while you’re sleeping. Most Americans will not get the memo on bonds being vulnerable until interest rates have already taken their first tick up. (Canadians are already experiencing the first signs of this.) At that point, it might be too late to rediversify your safe money into a better asset. As we know, when people smell fire, and everyone rushes for the exit, a few will get trampled, most will suffer damage and only a handful squeeze through unscathed.

About Natalie Pace:
Natalie Pace is the author of You Vs. Wall Street and host of the Pace and Prosperity radio show on BlogTalkRadio.com/NataliePace. She is a repeat guest on Fox News, CNBC, ABC-TV and has contributed to Forbes.com, Sohu.com and BestEverYou.com and Magazine. As a philanthropist, she has helped to raise more than two million for Los Angeles public schools and financial literacy. Follow her on http://www.facebook.com/pages/NWPace, on BlogTalkRadio.com/NataliePace and on YouTube.com/NataliePaceDOTCOM. For more information please visit, http://www.nataliepace.com.

Please note: NataliePace.com does not act or operate like a broker. We report on financial news, and are one of the most trusted independently owned and operated financial news corporations in the U.S. 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 consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies.   Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a long, safe strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

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.

Our Limping Economic Recovery.

by Judge Richard A. Posner, professor, University of Chicago.

President Barack Obama sits on the front of the Resolute Desk while talking with business representatives during a meeting in the Oval Office prior to their Rose Garden event, , April 30, 2010. (Official White House Photo by Pete Souza)

In my first book on the economic crisis (A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression), which was completed in February 2009, I argued that the crisis should be called a depression rather than a recession, in part because of the enormous debts that the government was assuming in an effort to overcome the crisis. In my second book (The Crisis of Capitalist Democracy), completed in January of this year, I further emphasized the potential long-term adverse consequences of the crisis, and argued that a depression or recession should not be considered over until GDP rejoins its growth path. GDP in real terms is essentially unchanged from what it was two and a half years ago (2007), which means it’s roughly 7.5 percent below the growth path (which assumes 3 percent real growth annually), and suggests that it will be years before the economy gets back on it.

I continue to insist that this is the proper way to evaluate an economic crisis. Most journalists and many economists believe that the "recession" as they like to call it (or "Great Recession"—indicative of a mindless proliferation of labels) ended in the third quarter of 2009, when GDP began to increase, after having been flat in 2008 (though falling sharply in the last quarter) and falling in the first half of 2009. But the current performance of the economy, and the likely political and long-term economic consequences, convince me that we are in the midst of a depression, much as we were in 1936 (before a sharp drop in 1937–1938), even though the economy had grown rapidly since the bottom of the depression in 1933.

Why is the economy so sluggish at present? The basic reasons are, I think, first, the reduction in household wealth, due to the fall in housing and common stock values (with the fall in housing values precipitating many foreclosures); second, the high rate of unemployment, underemployment, and reductions in wages and benefits; and third the continued weakness of the banks.

The reduction in household wealth increased the amount of leverage (debt-equity ratio) in consumers’ personal finances, and consumers have been deleveraging by increasing their personal savings rate (which has increased from 1.7 percent three years ago to 6.4 percent today), leaving them with less money for consumption. One might think that today’s very low interest rates would discourage savings, but the other side of this coin is that savers must increase the amount of their savings in order to obtain the interest income they obtained when interest rates were higher.

With less consumption, there is less production and hence less private investment. These effects are being compounded by the weakness of the labor market from the perspective of workers, which reduces incomes and, by increasing insecurity, increases the propensity to save. And while banks are making good profits because of the very low interest rates at which they can borrow, they continue to hold many sick assets (mainly investments in home and commercial mortgages) on their books, making them reluctant to lend. And anyway loan demand is way down. Most borrowers from banks are either small business or consumers (large businesses tend to borrow by issuing bonds or commercial paper rather than by taking out banks loans), and neither group is in the mood for increasing its indebtedness.

One spur to recovery from a depression is the need to rebuild inventories and replace durable goods that have worn out. This need may explain, along with the stimulus program enacted in February 2009, the growth in GDP that began in the third quarter of 2009 and seems now to be fading. As long as demand for consumption goods is weak, sales will slow after inventories are restocked and worn-out durable goods are replaced. Modern products tend to be highly durable and inventories tend to be much smaller than they used to be, so one cannot expect these standard spurs to economic recovery to have much staying power.

The uncertainties and long-term debt created by the Obama Administration excessively ambitious domestic programs (notably health care and financial regulatory reform) on top of the deficit spending of the Bush years, the plunge in federal tax revenues resulting from the depression-induced decline in taxable income, and uncertainty about which Bush tax cuts will be allowed to expire in the coming year, have impeded private investment. They have done this by exacerbating concerns about what the economic picture will look like both in general and for individual businesses and consumers in the next several years, and perhaps much longer.

A further worry is the volatility of the stock market. The tendency is to view the market’s gyrations as reflections of changing estimates of future corporate earnings and of efforts by investors in the market to guess what other investors are likely to do. But when as at present a large fraction of the population has a significant part of its savings invested in the stock market, market volatility increases economic anxieties and thus dampens spending.

As long as private investment and interest rates remain very low, there is a case for further stimulus (deficit spending), especially since federal stimulus spending has been offset to a degree by reductions in state and local government spending. Cautious or fearful consumers save in safe forms, such as insured bank deposits, Treasury bills, or cash. Such savings are inert; under present conditions they do not get translated into productive investment, since banks are reluctant to lend but instead keep most of the deposits they receive in either cash or government securities. The government, to whom no one is afraid to lend, could put all these inert savings to work on infrastructure and other projects that would employ the unemployed.

That is in principle, but because the Obama Administration botched the design, execution, and public relations of the $862 billion stimulus program (President Obama, despite his undoubted eloquence and intelligence, has proved to be a poor explainer of his economic policies), and because of the soaring public debt (to which the stimulus contributed), there is no political stomach for a further stimulus of any consequence.

What is to be done? With Congress in recess and the mid-term elections looming, probably very little. The best hope may be that the President’s bipartisan deficit commission (the National Commission on Fiscal Responsibility and Reform) will issue a first-rate report. (Its report is due December 1.) If the commission, chaired by President Clinton’s chief of staff, Erskine Bowles, and former Republican Senator Alan Simpson, produces an economically sound and politically palatable program for restoring the nation’s long-term fiscal soundness—a program to which far-reaching tax reform will be central—this may alleviate economic uncertainty and encourage more consumption and private investment in the near term.

About Judge Richard A. Posner
Judge Richard A. Posner is Judge, United States Seventh Circuit Court of Appeals & Senior Lecturer, University of Chicago Law School. Read his ongoing blog with Dr. Gary Becker at http://uchicagolaw.typepad.com/beckerposner/

This blog has been reprinted with permission of the author. All rights are reserved by Judge Richard A. Posner.

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The Slowdown in the Economic Recovery.

by Dr. Gary S. Becker.

Dr. Gary S. Becker.

After falling rather sharply in 2008 and early 2009, American GDP grew at a good pace in the fourth quarter of 2009, but has slowed down during the second quarter of 2010. Unemployment declined to 9.5% from its peak in November 2009 of 10.2%, but has been stuck around its current level for several months.  This has led to growing fears of a double dip recession, and to a call for still greater fiscal stimulus. I do not believe that either of these is correct, and that the federal government should be concentrating on providing a good economic environment to encourage businesses and entrepreneurs to invest, hire, improve productivity, and raise longer-term economic growth of the US.

More than 60 years ago, Arthur Burns- former head of the NBER and Chairman of the Fed- and Wesley Mitchell-founder of the NBER- together wrote a classic study of business cycles called "Measuring Business Cycles". They divided business cycles into several stages, such as the economic peak, economic decline, trough, early recovery, late recovery, and then a peak again. They clearly show that business cycles are of uneven length, depth, and severity, and that recoveries do not always proceed smoothly. A recession ends after the trough is passed, but they recognized that during recoveries an economy takes a while before it reaches and then surpasses its earlier peak. So from this perspective, the troubles the American economy is experiencing are not unprecedented, or even unusual.

Nevertheless, I agree with Posner that something is rotten about this recovery from the so-called great recession. The Federal Reserve was slow to react to the financial crisis, but on the whole the Fed’s policies since then have been decent, given the many unknowns as it tried various old and new monetary approaches to stem the financial crisis. The financial picture was quite bleak as banks greatly increased their ratio of debt to assets during the boom years, and consumers rapidly expanded their debt to income ratios during these years. So even with the best of responses the recovery probably would have been slow and uneven.

But both the Congress and the administration of President George W. Bush, and especially the Congress and President Obama since his election in 2008 made the main mistakes after the crisis hit. Instead of concentrating mainly on fighting the recession and promoting faster economic growth, the Congress elected in 2008 believed they had a mandate to radically remake the American economy. Aside from repeated attacks on American business, especially banks--some of them deserved-- they not only passed various stimulus packages (that did not stimulate much), but also tried to promote a vast legislative program that had nothing to do with fighting the recession.

This program was aimed at reengineering the American economy. It included radical changes in the health care system, proposed taxes on carbon emissions by companies, much larger subsidies to alternative sources of energy, such as wind power, proposals to raise taxes on higher income individuals and on corporate profits, and to raise the taxes on capital gains and corporate dividends. It also includes a movement to make anti-trust laws less pro-consumer and more protective of competitors from aggressive and innovative companies. It has as its centerpiece a financial reform bill that was a complicated and a politically driven mixture of sensible reforms, and senseless changes that had little to do with stabilizing the financial architecture, or correcting what was defective in prior regulations.

In previous posts I have laid out some of the major defects in the financial reform act, the healthcare changes, and the unemployment extension bill (see my posts for 7/25 on unemployment, 7/11 on financial reform, and 3/28 on healthcare reforms). To single out a few points of these arguments, I criticized the financial reform bill for, among other things, neglecting to do anything about Fannie Mae and Freddie Mac, two major corporations that were important factors in causing the financial debacle, and for adding an excessive amount of discretion to financial regulators who did not use wisely the discretion they had prior to the crisis. I suggested that a proper unemployment bill would eliminate most unemployment benefits for persons during the first couple of months of their unemployment, and then use the savings from that to extend unemployment benefits during bad times to a year. The most desirable reform of health care should have been to increase the out of pocket share of medical expenses borne by older persons and other individuals with various illnesses-- as in countries like Switzerland-- but nothing much was done about this in the new law. My detailed criticisms are available in these posts.

Perhaps the new Congress elected after November will try to reverse some of these mistakes. I would like also to see a radical reform of the tax system that returns it to the income tax structure that resulted from the Tax Reform Act of 1986 promoted by President Reagan, and Democrats Senator Bill Bradley and Representative Richard Gephardt. This Act had a maximum personal income tax rate of 28%, except for a "bubble rate" for a few families that hit 33%.

To compensate for any loss in tax revenue from these changes, and to help face the growing debt problem of the US, I would support a value added tax, but only as part of such a comprehensive reform of the tax structure. Value added taxes have many attractive incidence features that can be a valuable way to raise tax revenue in a system with low personal and corporate income taxes. However, VAT taxes also have the potential to be rather easily increased over time without close controls over such increases (see my discussion of VATs in my post on 4/25).

Government spending rose a lot during the last year of the Bush administration, and rose even more so during the year and one half of the Obama administration. Instead of introducing additional stimulus packages and further raising the cost of doing business, Congress and the President should try to create an environment where companies, both large and small, and entrepreneurs are recognized as crucial forces in a dynamic economy. Their activities can help the American economy not only grow out of the economic slowdown, but also raise its economic growth in the future that will greatly improve the well being of future generations, and help meet a dangerous future debt burden.

About Gary Becker:
Dr. Gary Becker is a University Professor, Department of Economics, and Sociology Professor, Graduate School of Business, The University of Chicago. He won the Nobel Prize in Economics in 1992 for his groundbreaking work in "human capital." President George W. Bush awarded him the Presidential Medal of Freedom in 2007.

To keep track of Dr. Becker's continuing research and commentary, visit his website and blog.

Women Don’t Ask.

by Chellie Campbell.

"Oh, I need your products!" said my friend, Sarah, to the woman at the networking meeting who was a skin-care representative. "Please call me tomorrow morning so I can talk with you about what I need to buy."

Then she met a woman who did graphic design. "Oh, I need graphic design for my new flyers and my web site, too!" she exclaimed. "Please call me tomorrow morning so you can help me decide what I need to buy."

Neither woman called the next morning. In fact, they never called.

What’s up with that?? Aren’t they networking to get more clients for their business? And here was a client with money who wanted to buy. Why wouldn’t they call her?

Sarah’s experience wasn’t the only one. Throughout my networking career since 1986, I have heard stories like these over and over again. Once I called a woman who had been a regular at a networking meeting and stopped coming. When I called and asked her why, she said the group didn’t work for her. She never got any business from it.

"How many meetings did you go to?" I asked.

"I went to one every month," she replied. (Only one?)

"Did you call people after the meeting?" I inquired.

"No," she said. "If they wanted my services, they would call me."

I knew she wouldn’t be in business for long. Let me give you a tip: They aren’t going to call you.

Why? Because they have a life, they have priorities, they need clients themselves, they have another appointment, it’s their mother’s birthday, they have to wash their hair. You and your stuff are way down at the bottom of their priority list.

Even if what you have is what they most need and close to the top of their list, they aren’t going to call you. They have fears. They have objections: You’re going to charge too much, they really should remodel their house first, it’s their daughter’s birthday tomorrow, maybe you aren’t really the best one for the project, it’s too far to drive, they’d have to convince their Significant Other and that might mean an argument and that would lead to problems and oh it’s just easier to forget the whole thing…

And you don’t call them, because you don’t want to hear all their objections. You want to hear "Yes!" so much! But not as much as you are afraid of hearing "No."

So most small business owners continue to network and not get the results they want, and make a lot less money than they deserve.

If you have any struggles around money these days, obviously, you are not alone. The whole world has been affected by the financial debacle of the real estate bubble. The financial hardships I see are even harder on women, who still only make 77 cents to a man’s dollar, largely because women still feel badly about "asking for money". But in the marketplace, we must ask to be paid for our services!

Women have a lot of negative emotional baggage around that request, and so often, women don’t ask for what they are worth and settle for less than they should expect. Did you know that men are 8 times more likely to negotiate their starting salary than a woman? And if she settles for $25,000 per year and he negotiates $30,000, over the next 30 years (with the same percentage raises, bonuses, etc.) he will have made over $500,000 more than she!

This is unacceptable.

I understand it. I think it’s partly biological – a woman needs to be able to put others first in order to raise children. This giving quality makes us great caregivers, nurturers, teachers, and workers in the helping professions. And so we naturally think of others and the stress they might have in paying us. So we make allowances, reduce our rate, and even give it away for free. We wait for people to call us because we don’t want to "bother" them. Even when they ask us to call them!

A lot of this is cultural – the way we were brought up to be "good girls". How can we train ourselves to ask for what we deserve in a cheerful, feminine, yet strong manner? How can we avoid being seen as "grasping" or "demanding" or "salesy" or "bitchy"—not just by others, but also by ourselves?

We have to change our thinking and our behavior with money.

So how do we do that?

We have to make a commitment, get educated, and then practice the new behaviors we’ve learned. We need a support team of people to celebrate our wins with us, and pick us up when we fall short.

We need a coach, a mentor, a friend who’s been there and done that and can show us the road to success. The road to success is bumpy, and we don’t have to go it alone.

I saw the problems women had with money years ago first-hand, because I had them myself. I am a Tuna-in-Recovery. When I saw the problem, I got help. I put myself in the Dolphin-in-Training program I invented. I read books, took courses, counseled my bookkeeping service’s clients, practiced, failed, tried again, and finally succeeded in turning my financial life around. It took years.

But it doesn’t have to take years. In fact, it can take just 8 weeks.

I created the 8-week Financial Stress Reduction® Workshop in 1990 to help people like you get the shortcut to everything it took me years and many thousands of dollars to learn.

You deserve to be paid – and well paid – for the wonderful work you do. You deserve to have lots of time off to enjoy your family, travel, nature, leisure, and the good life.

Yes, this training costs money. But how much more has it cost you to not do it? How many years have you been trying to solve this problem on your own? How much more money might you have made and stress you might have saved if you had done this course years ago?

How much would it be worth to you to have a stress-free life? Extra money every month to save and invest and spend without worry? A thriving business with plenty of clients who praise you and pay you top dollar?

In the Financial Stress Reduction® telecourse, you will be given proven strategies that have worked for people for over 20 years.

When I started these workshops, I had no brand, no book, no "Name", no certification, no reputation, and no recognition in the community. Nobody knew who I was, why I was teaching workshops, or what "Financial Stress Reduction®" meant – but it sounded good and people needed it. I created my own brand, reputation, and certified myself. I kept showing up and calling up over and over and people began to trust that I did what I said I did. So they started showing up for my classes – and improving their businesses, their money, and their lives. My clients' extraordinary results with money was the best credential I had.

I have made a very healthy six-figure income since 1996. I’m the author of two books. The Wealthy Spirit was re-released last year because my publisher was getting so many orders for it, and the foreign rights to Zero to Zillionaire were just sold to Japan. I am currently quoted or have stories in more than 50 books.

It takes money to make money - like a farmer has to plant the seeds in the field, hoe the weeds, and pray for rain before he gets the corn. The class comes with a money-back guarantee, so you can't lose. You can only lose by not attending.

I understand, particularly in this economy, that it might not easily fit in your budget today. That’s exactly the kind of problem this course is designed to solve. To put off taking the workshop because of money is like waiting to get well before you go to the doctor.

If you are committed to changing your financial life for the better, and ready to do the work, I will work with you to find a payment plan that suits your budget.

Whatever you want to do is fine with me. I always fill up my workshop—either you will be there or someone else will. You can read all about the workshop at http://www.chellie.com/financial-stress-reduction-telecourse-information.html

Call me directly for a free consultation. Let's talk about your situation and see what I can do to help you make more money and have more time off for fun. That’s the goal for both of us!

With fondest wishes for your most fabulous success,

About Chellie Campbell:
Chellie Campbell is the creator of the Financial Stress Reduction® Workshops, and author of The Wealthy Spirit and Zero to Zillionaire. She has been prominently quoted as a financial expert in the Los Angeles Times, Good Housekeeping, Lifetime, Essence, Woman’s World and more than 50 popular books. She can be reached at Chellie@chellie.com.

Alvin Tam.

Vindictive Neighbors and Ants Suck.

by Alvin Tam.

My Subjective Reality 30-Day Experiment.

I've been reading the latest blogs by Steve Pavlina (www.stevepavlina.com), a very popular personal development blogger. He's talking about his 30-day trial into Subjective Reality. You have objective reality, where the universe exists and your consciousness arises within it, and then you have subjective reality, where your consciousness exists and that's all. You create everything around you: the coffee that you buy at Starbucks, the annoying co-worker, the traffic jam, and even the ants crawling on the sidewalk. They are all creations of your consciousness.

It's a radical departure from the way most people see life and live life. We have a collective belief that the world is a fixed framework and we are beings born into this environment. We claw and fight our way through life because, in objective reality, you don't really control anything. The ways and whims of the world are forces beyond your command, and you simply do your best to deal and keep up. In objective reality there are divisions of people, schools of different thought, and "the other side". You are separate from the world, merely existing, sometimes observing, sometimes responding, but never becoming one with the environment around you. How could you? It was here before you, and will be here when you are gone.

In subjective reality, all this changes. There was no world before your consciousness illuminated since you are the creator of your world. There is no traffic jam or annoying co-worker -- these are reflections of you. As Steve explains, seeing life as subjective reality is like having a dream. You are both the dreamer and the creator of the dream, and all the characters in the dream are creations of you.

Editor's Note: Sounds like Inception to us...

Objective and subjective reality are two perspectives in which to see life. There's no way to really ascertain if one is the truth and the other a falsity. But when you have a choice of perspectives, it's key to be able to see and experience all of them, because it enriches your life in unexpected ways.

I've been inspired by Steve to do my own experiment into subjective reality and live my life for 30 days with the constant reminder that everything I encounter is a reflection of me. This includes people, circumstances, events large and small, and so on - everything. I'm not sure what to expect since I, like most people, have been living life as though I am not in full control of my world. So, here goes...

08/10/2010: Coconut Juice for Recycling Man
I just heard the recycling truck pull up, and, instead of ignoring the man who's working hard to pick up my junk every two weeks and save it from the landfill like I usually do, I decided to bring him a cold can of fresh coconut juice. I gave him the drink and thanked him for working so hard. Was it weird to applaud the recycling man? Maybe. But in the end, it was me that I sent gratitude to, since he's just a creation of myself. And I do like a cold coconut juice on a hot day.

08/09/2010: Vindictive Neighbors Suck
My wife and I started a weekly community yoga class at our neighborhood clubhouse a few weeks ago. We went to the homeowners meeting, proposed the project and got approval to post signs around the complex. After the second class, a horribly vindictive and crabby neighbor decided to tear down our signs. We got very upset over this.

I finally ran into the petty thief, a resident of the community who spouted claims that we were defacing the neighborhood and sullying its beauty with our adverts. I countered back that we intended only to bring a healthy weekly activity to the community. Outwardly I beamed diplomacy and good motives. Inwardly I wanted to wring her neck.

For the next few days I replayed various scenarios in my head of how I could scare her just enough to pack her bags and move out of the complex. Her vindictiveness became mine and the cycle of inner aggression began to play out its ugly dance.

I was living in the objective world where she, a dirt bag, was separate from me and doing something to hinder me, hurt me, put sticks in my spokes. But when I switched on the subjective reality filter, then I saw that she IS me and represents a part of me that is vindictive, disrespectful, and petty. I wish this filter was only rose colored, but as it is, it reveals the ugly truth very quickly.

Since she is me, I couldn't remain angry at her or lay voodoo curses on her every time I walked passed her house. It would be like insulting myself or wishing harm done to myself so I stopped very quickly. Then my wife and I sent silent prayers to her by saying "I'm sorry, I love you." Sorry for the pain and suffering in her (in me) that gives rise to vindictive aggression, and love to hasten the necessary healing that needs to take place in her (in me).

I'm looking forward to seeing what kind of interaction we'll have next time. (Check my website/blog at http://www.soulacrobats.com/ for an update.)

08/08/2010: Attack of the Ants
I know it makes some sense to see reflections of you in other people (recall the various proverbs - the eyes are the mirrors of the soul?) but would you be able to see yourself in non-human life forms, like ants?

We've been having an ant infestation lately and I've been the crazy ant killer. I crush them with glee when they crawl on my kitchen sink and I stomp them with delight when they cross my front patio. It's a killing party.

The other morning, when I woke up and saw them attacking a little chunk of watermelon in my kitchen, I nearly exploded into a fury of ant termination when I reminded myself of my experiment. I asked myself, what part of me do the ants represent? As ridiculous as that sounds, I discovered an answer.

My wife Jaime and I talked about how the ants came because we didn't always do the dishes right away and left them in the sink overnight. I'm clean but not a tidiness freak, so I'll let things get out of hand once in a while. I realized then that the ants represented parts of me that I let get out of hand.

I realized that I could pay my bills more promptly. I realized that I could update my finances more regularly. I realized that I could stay off my computer more and be more focused and productive when I'm on it. I realized that when I get in a rut and start doing things out of routine and not out of passion, I let things slide. I realized that I always need to focus on expressing my deepest passions and truest nature, so that things don't start to slide.

Within an hour, we had come up for a game plan for the kitchen, and life. We decided to do a better job of cleaning the dishes, and to begin an active strategy to find someone or some organization to help us market and distribute our creative products - our instructional DVDs, music CDs, both of our books, and our fitness and developmental workshops. Yesterday Jaime called a few production agencies, and we're starting to take steps towards aligning our passions and our finances.

All from a few ants. It's only been 48 hours, but I haven't seen them back yet. Coincidence - or just a remnant of my self that's been heard and met with compassion and understanding?

****************

I'll follow up with more observations into my 30-day experiment with subjective reality on my website and in my blog. Go to www.soulacrobats.com to sign up for the RSS feed.

Be well,

Alvin.

Bio
Alvin Tam is the founder of Soul Acrobats®, an inspirational products company and Acrofit™, an acrobatic fitness system. He has over 15 years of experience as a circus artist, stuntman, dancer, actor, and coach and has performed for Cirque du Soleil, Notre Dame de Paris, and appeared on CSI. Alvin’s passion is to inspire you to achieve your impossible.

Products
Visit: http://www.soulacrobats.com/products-page/

BOOK: The Art of Impossible

DVD: The Acrofit System Level 1, Expressive Yoga for the Soul

Getting Started With Commodity ETFs.

by Michael Iachini, CFA, CFP®, Director, Investment Manager Research, Charles Schwab Investment Advisory

Michael Iachini

August 19, 2010

Key points

• Commodity ETFs can provide relatively low-cost access to an asset class that's otherwise difficult to invest in.
  
  
• While commodities can be useful as a hedge against inflation, they generally shouldn't make up a very large portion of your assets—typically no more than 5% to 10% for most investors.
  
  
• Helpful information for investors considering commodity ETFs.

One feature of exchange-traded funds (ETFs) that many investors find attractive is relatively low-cost access to asset classes that are otherwise difficult to invest in. The poster child is commodities—physical goods such as precious metals, oil and agricultural products. While it can be tough for a typical investor to buy and store these goods, an ETF can grant access with relative ease.

Before diving in, however, there are certain issues to consider.

First, what role should commodities play in your portfolio? Many investors turn to commodities for diversification and some protection against inflation (although we think deflation is the bigger risk in the short term). While commodities can be useful as a hedge against inflation, they generally shouldn't make up a very large portion of your assets—no more than 5% to 10% for most investors. More than that may reduce the diversification benefits, with too much of your portfolio's risk then coming from commodities alone.

Second, but just as important, you need to understand what makes commodity ETFs different from other ETFs, and how they can differ from each other.

Structures of commodity ETFs
Most investors are familiar with stock ETFs, which are portfolios made up of actual shares of common stock. A commodity ETF, by contrast, is typically structured in one of three ways.

The first and simplest structure buys and stores the physical commodity itself. The primary examples of this type of ETF are the two largest gold funds, SPDR Gold Shares (GLD) and iShares Comex Gold Trust (IAU). These are technically trusts, and they use their assets to buy gold bullion to store in bank vaults.

The second common structure is a fund that holds futures contracts. A futures contract on a commodity is an agreement to deliver a certain commodity at a certain date in the future for a price paid today, such as paying $80 today for a barrel of oil to be delivered in three months.

Futures contracts trade on exchanges, similar to stocks and bonds, and don't require storage like a physical commodity does. When a futures contract approaches the delivery date, the holder will typically "roll" that contract in exchange for another contract on the same commodity to be delivered further in the future.

Examples of futures-based commodity ETFs are US Oil Fund (USO) and PowerShares DB Commodity Index (DBC).

Understanding contango
Investors who buy ETFs that use commodity futures contracts are sometimes surprised to see that the ETF does not move in lockstep with the price of the commodity as seen in the news, oil being a good example. This is because of a phenomenon called contango.

Contango simply means that investors are willing to pay a premium today to be sure of the price they'll get in the future, rather than waiting a month or quarter and then buying the commodity in the real-time "spot" market. For example, say oil is trading at $80 per barrel today (the spot price). Investors may be so concerned about higher prices in the future that they're willing to pay $82 per barrel now for a contract that promises to deliver oil one month from today. When the future price is above the spot price, that's contango. (The opposite situation, where the future price is below the spot price, is called backwardation.)

If the market for a particular commodity suffers from strong, persistent contango, an ETF that buys futures contracts on that commodity will perform worse than the spot price of the commodity itself. If you invest in a fund that always buys one-month oil futures contracts, for instance, and that fund has to pay $2 more than the spot price for them, the fund will essentially lose $2 per barrel each month when they roll their futures contracts. This is because they will have to sell their expiring contracts near the spot price and buy new contracts at a price higher than the spot.

In addition, if an ETF that buys futures contracts is very large (assets in the tens of billions of dollars), it might be possible for other investors to trade ahead of the fund when it's time to roll its contracts each month. Such investors might know that the fund is not equipped to take delivery of the commodity, and is scheduled to sell billions of dollars worth of expiring contracts and buy billions of dollars worth of contracts for a month in the future. Knowing that a large fund is about to buy a particular futures contract (pushing up its price), these investors could buy the contract ahead of time at the lower price and sell to the ETF at the higher price—in which case investors who own the ETF will see slightly worse performance than they would otherwise.

What can you do as an ETF investor?

• Be aware of the difference between a commodity ETF that relies on futures contracts and one that buys and sells at spot prices (look at the fund's prospectus to see what kind it is). The futures fund will do worse when there's contango but better when there's backwardation.
• Consider owning a fund that has the flexibility to buy futures contracts of various lengths (one month, three months, six months, 12 months) instead of just the next month, since contango can differ with the length of the contract.
• Be aware of the potential for other investors to trade ahead of very, very large funds and consider funds that are not quite so large in size.

The final common structure is the exchange-traded note. ETNs aren't ETFs, but investors typically consider them alongside ETFs—the blanket term is "exchange-traded products." There are many commodity-based ETNs, tracking everything from broad commodity indexes to individual agricultural products and metals.

ETNs are designed to deliver the total return on a broad index or individual commodity, but rather than being structured as pools of securities that the fund itself owns, they are instead unsecured bonds (notes) issued by a firm that agrees to deliver the return of the index it tracks. Because of this, ETN investors need to be aware of the specific terms of the note and the credit risk of the issuer.

If the company offering the ETN goes bankrupt, holders of the ETN become creditors of the firm. In fact, when Lehman Brothers went bust in 2008, shareholders of the three Lehman ETNs were left with securities that had become worthless. Shareholders' only hope now is that they will recover some pennies on the dollar in bankruptcy court.

Be cautious with ETNs—while they have the advantage of potentially delivering exactly the return of the underlying index with no tracking error, we think the credit risk is not worth shouldering, since similar products are generally available in a non-ETN structure.

What about ETFs that invest in commodity-producing companies?
Some ETFs primarily hold stocks of commodity-producing companies, such as gold-mining or oil-drilling firms. While the performance of such companies does depend somewhat on the price of the commodity, these funds tend to perform more in line with other stock ETFs than commodity prices. As a result, investors don't receive the sort of diversification benefit a true commodity ETF would provide.

Commodity ETFs that track indexes may be a sensible start
While some commodity ETFs track single products such as oil or gold, another popular choice (especially for investors new to commodities) is a diversified commodity index ETF, which is designed to give you exposure to a wide variety of commodities in a single investment.

The main commodity sectors in these indexes are energy (various oils, natural gas), metals (gold, silver, copper, nickel, aluminum, etc.) and agriculture (corn, soybeans, wheat, livestock, coffee, cotton, etc.).

There are several different commodity index ETFs and (if you're so inclined) ETNs, varying for the most part in their exposure to energy.

• One of the most well-known commodity indexes is the Dow Jones-UBS Commodity Index (formerly the Dow Jones-AIG Commodity Index). This index is well diversified among 19 commodities currently, with 32% energy, 32% metals and 36% agriculture.¹ However, the only fund that tracks it—iPath Dow Jones-UBS Commodity Index (DJP)—is an ETN, and worthy of caution due to its structure as a note.
  
  
• The leading diversified commodity ETF by assets is PowerShares DB Commodity Index Tracking Fund (DBC), which tracks the Deutsche Bank Liquid Commodity Index-Optimum Yield. This index currently includes 14 commodities, with 55% energy, 22.5% metals and 22.5% agriculture. While the level of diversification is less than what the Dow Jones-UBS fund mentioned above offers, it is available in what we believe is the more favorable ETF structure.
  
  
• Another well-known commodity index is the Standard and Poor's Goldman Sachs Commodity Index (S&P GSCI), which is tracked by both an ETF—iShares S&P GSCI Commodity-Indexed Trust (GSG)—and an ETN, iPath S&P GSCI Total Return Index (GSP). This index presently tracks 24 commodities but is highly concentrated in energy, with 70% energy, 11% metals and 19% agriculture.
  
  
• The GreenHaven Continuous Commodity Index (GCC) is an ETF that tracks the Continuous Commodity Index, which sprang out of the older Commodity Research Bureau (CRB) Index. This index currently has 17 equal-weighted components, with 18% energy, 24% metals and 58% agriculture. The fund is newer than the funds above, having launched in early 2008, and has fewer assets.
  
  
• The final example on our list is the ELEMENTS Rogers International Commodity Index (RJI)—another ETN—which tracks the Rogers International Commodity Index. This fund has the most components, currently 36, and contains 44% energy, 21% metals and 35% agriculture. This fund also has the fewest assets of the diversified options.

Making the choice
So, how do you choose?

• As mentioned we generally prefer ETFs over ETNs whenever possible.
  
  
• Along with structure, another important consideration is the nature of the index. Are you looking for exposure to a single commodity or a broad index? How much exposure to each commodity sector are you looking for?
  
  
• After deciding what type of index you're looking for, consider the characteristics of the fund itself. Look for ETFs with low expense ratios and high trading volume relative to other commodity ETFs, and avoid ETFs with extremely small asset bases.

How to take action.
by David Suarez Senior Research Analyst, Schwab Center for Financial Research, Charles Schwab & Co., Inc.

Clients can find the information mentioned above and more by going to Exchange-Traded Funds and entering an ETF ticker symbol, or by using the ETF Screener at Schwab.com. For a breakdown of a commodity ETF's components, consult the fund company's website.

Commodities are not for everyone. Carefully consider their particular risks and complexities before making an investment decision. If you decide that you seek the diversification and inflation-protection that commodities may offer, an ETF can be a relatively low-cost way to get exposure to this unique asset class.

While there are a wealth of options, from single-commodity funds to broadly diversified baskets, it's important to look carefully at all of the details of a fund, including its structure and its underlying index, before making the choice to invest. Also, for tax reporting purposes, keep in mind that commodity ETFs typically generate a schedule K-1 instead of a 1099 tax form.

1. Index component weightings are taken from ETF and index provider websites as of July 30, 2010.

Important Disclosures
Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 800-435-4000. Please read the prospectus carefully before investing.

Some specialized exchange-traded funds can be subject to additional market risks. Investment returns will fluctuate and are subject to market volatility, so that an investor's shares, when redeemed or sold, may be worth more or less than their original cost.

Since sector- and commodity-specific funds are not diversified and focus their investments entirely in a single sector, commodity, or basket of commodities, the funds will involve a greater degree of risk than an investment in other diversified fund types.

This report is for informational purposes only and is not an offer, solicitation or recommendation that any particular investor should purchase or sell any particular security or pursue a particular investment strategy. The types of securities mentioned herein may not be suitable for everyone. Each investor needs to review a security transaction for his or her own particular situation.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Examples provided are for illustrative purposes only and are not representative of intended results that a client should expect to achieve.

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner or investment manager.

Charles Schwab Investment Advisory, Inc., is an affiliate of Charles Schwab & Co., Inc.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

HYIPs—High Yield Investment Programs Are Hazardous to Your Investment Portfolio.

A FINRA Investor Alert.

High-yield investment programs (HYIPs) are unregistered investments created and touted by unlicensed individuals. Typically offered through slick (and sometimes not-so-slick) websites, HYIPs dangle the contradictory promises of safety coupled with high, unsustainable rates of return—20, 30, 100 or more percent per day—through vague or murky trading strategies. According to recent law enforcement cases, many operate as Ponzi schemes, using payments from today’s recruits to pay "interest payments" to yesterday’s investors or "referral" fees to those who recruit new members. The Federal Bureau of Investigation recently reported that the number of new investigations in this area during fiscal year 2009 increased 105 percent over fiscal year 2008.

HYIPs use an array of websites and social media—including YouTube, Twitter and Facebook—to lure investors, fabricating a "buzz" and creating the illusion of social consensus, which is a common persuasion tactic fraudsters use to suggest that "everyone is investing in HYIPs, so they must be legitimate." Some of these sites purport to monitor and rank the "best" programs. Others tout "winning" HYIP investment strategies or provide a forum for trading tips on how to profit from HYIPs, even those suspected to be scams. Still others—such as the recently exposed "Pathway to Prosperity" scheme in which investors on six continents allegedly lost $70 million—expressly caution investors against HYIP scams, using a form of reverse psychology to create the false impression that this HYIP is somehow different.

But the reality is virtually every HYIP we have seen bears hallmarks of fraud. We are issuing this alert to warn investors worldwide to stay away from HYIPs. If you have already put money into a HYIP:

• Do not send more, even if the program appears to be paying "interest."
• Do not refer others to HYIPs in an effort to garner referral fees—doing so only helps professional con criminals commit fraud and draws you into the scheme.
• Do not try to "ride the Ponzi" by attempting to get in and get out before the scheme collapses. If you do, you could end up like investors in the Genius Fund, a HYIP shut down by regulators where participants lost some $400 million.

A Snapshot of the HYIP World
Open the cyber door to HYIPs, and you will find hundreds of HYIP websites vying for investor attention. It is a bizarre substratum of the Internet. In addition to the HYIP sites themselves, there are sites that:

• Rank the latest programs and provide details of "payout options," presumably to lend credibility to the HYIP "markets" and to falsely suggest that those HYIPs at the top of the list are worthwhile investments.
• Allow web designers to buy ready-made HYIP templates and set up an "instant" HYIP.
• Blog, chat and "teach" about HYIPs. Some HYIP "investors" proffer strategies for maximizing profits and avoiding losses—everything from videos showing how to "make massive profits" in HYIPs and "build a winning HYIP portfolio" to an eBook on how to "ride the Ponzi" and get in and out before a scheme collapses. Other HYIP forums discuss how to enter "test spends," how to identify new HYIPs to maximize one’s chances of being an early stage payee and even how to check when a HYIP’s domain name expires so you can guess how long it might pay returns before shutting down.
• Offer e-gold and other online payment systems that provide the means by which participants fund their accounts, get "return" on their "investment" and, presumably, enrich the scammer. Investors should be aware that not all digital currency sites are subject to federal regulation. And some have been tied in recent years to criminal activity, including money laundering, identity theft and other scams.

All of these sites and supposed support mechanisms are designed to lend legitimacy to a high-risk scheme by creating the illusion of a real market, complete with real investors, real investments and real demand.

Spotting HYIP Scam
Any time an investment purports to provide guaranteed above-market returns with no risk whatsoever—especially if you cannot tell how the investment makes money—you should hear warning bells sounding. HYIP sites often display multiple telltale signs of fraud, including:

1. High, unsustainable yields. Investment return is usually stated as a daily rate of return, often with cryptic "short-term" and "long-term" payout options. For example, the Genius Fund HYIP at one time promised 36 to 40 percent daily, with 2-day yields of 106 percent. In contrast, the Pathway to Prosperity scheme offered investors a choice of 7-, 15-, 30- and 60-day "plans" paying annual rates of return as high as 17,000 percent! Regardless of how the yield is presented, keep in mind that returns on investments in large-company stocks have historically averaged less than 10 percent per year.
2. Unclear methodology for achieving returns. HYIP sites often give virtually no clues to how the promised returns will be generated beyond generic references to trading in foreign currencies, futures or other investments.
3. Lack of concrete information about the HYIP operator. HYIP operators cloak themselves in secrecy regarding who manages investor money, where the company is located or where to go to get additional information.
4. Offshore operations. Many HYIP sites are located outside the U.S. and typically are not licensed to sell securities in any country, let alone here. Be aware that generally persons or firms offering securities to U.S. residents must be licensed by FINRA and registered with the SEC.
5. Reliance on e-currency sites. Virtually all HYIP sites require you to open an "e-currency" account from one of a number of online vendors that service the HYIP market. Be aware that while there is currently no federal regulation of e-currency sites, many states require "money transmitters" to register with the state’s banking regulator. An unlicensed e-currency site is a red flag.
6. Incentives to recruit new investors. Many HYIP ploys dangle the prospect of paying a "referral bonus"—as high as 25 percent—to those who bring in new investors with fresh streams of money. Remember that Ponzi schemes tend to collapse when the fraudster at the hub can no longer attract new investors, so perhaps it’s no surprise that HYIPs encourage participants to rope in new recruits to help keep the scheme afloat.

Typo Tip-Off
Watch out for online postings, website copy or emails that are riddled with typos and poor grammar. This is often a tip-off that scammers are at work.

How to Protect Yourself
HYIPs all too often are short-lived scams—and, according to FBI data, they seem to be on the rise. The best way to avoid losing money in these scams is not to put any money in one to begin with. Navigate elsewhere—the sooner the better. Here are some additional tips to protect yourself:

• Ask and check. Always independently verify who you are dealing with and whether the seller of investment is licensed to do business with you. You can see who is behind a website by doing a Who Is lookup online. You can confirm the status of an individual broker or firm using FINRA BrokerCheck. And you can check with your state banking regulator to confirm whether an e-currency site is registered. You’ll find contact information on the website of the Conference of State Bank Supervisors.

• Exercise skepticism. Bear in mind that most people who sell strategies for getting rich quick make their money on the sales of their books or seminars, not necessarily by practicing what they preach. Ask yourself why they’re "sharing" their "secrets" with you. And do not spend time reading about the latest HYIP strategy—such as when to join, how much to deposit, whether to take a compounding offer or when to exit. A scam like this has no viable investment "strategy."
  
  
• Recognize persuasion at work. Rankings and testimonials are tactics fraudsters use to bolster the credibility of the scam—but remember: credibility can be faked. Pay no attention to the experiences of others—good or bad. Pay no attention to sites that rank HYIPs—they are just one more element of the elaborate HYIP ruse. Avoid falling into the trap of thinking that you can outsmart the con artists. In these schemes, sooner or later the investor always loses.

If you have already put money into a HYIP, do not sink any additional funds into it, even if you think it will help you get your original investment back.

Where to Turn for Help
If you suspect that you are being scammed, have information regarding the offer or sale of HYIPs or simply want to talk through an investment that seems a little too good to be true, call FINRA at (240) 386-4357 or file a complaint or question using FINRA's online Investor Complaint Center. You may also contact FINRA’s Office of the Whistleblower to report potentially fraudulent or illegal activity by submitting a tip at whistleblower@finra.org or by calling 1-866-96-FINRA (1-866-963-4672). International investors should similarly contact their home country securities regulator. Visit the website of the International Organization of Securities Commissions (IOSCO) to get contact information.

Additional Resources

• Financial Fraud Enforcement Task Force
• British Columbia Securities Commission News Release: Genius Funds Permanently Banned for Illegally Selling Securities
• United States Attorney Southern District of Illinois News Release: Resident of the Philippines Charged by Criminal Complaint with Numerous Offenses
• Risk Meter
• Scam Meter

To receive the latest Investor Alerts and other important investor information sign up for Investor News.

About FINRA:
The Financial Industry Regulatory Authority (FINRA), is the largest independent regulator for all securities firms doing business in the United States. All told, FINRA oversees nearly 4,800 brokerage firms, about 170,400 branch offices and approximately 643,000 registered securities representatives.

FINRA believes investor protection begins with education. Using the Internet, the media and public forums, we help investors build their financial knowledge and provide them with essential tools to better understand the markets and basic principles of saving and investing.

Back to School: Investing 101 for 4.0 Returns. By Natalie Pace. Includes my Hot News on Cool Stocks Report.

by Natalie Pace.

Includes my Hot News on Cool Stocks Report.

 August 30, 2010

General Stock Market Performance

Wall Street Highs/Lows in the New Millennium:

Compare those returns to the returns of stocks, real estate, bonds, Treasury bills and gold over the last 30 years.

Market Update:
Cliff Notes for the investor who wants to score 4.0 on Wall Street.

1. Back to School Stock Sales? Based upon my historical analysis of the new behavioral trends on Wall Street (since hedge fund managers began moving the markets more than institutional fund managers), the low point of the market is occurring later and later in the year. It used to be that September was the worst performing month of the year, and you could simply time your buys at the end of September and tidy up for a nice profit at the top performing month -- January. Oh, how I miss the sweet Santa Rally! However, everything has shifted. The worst performing months for the last decade are October, February, January and June, in that order. For a detailed examination of the data, read my article, "Spring Rally. How Long Will It Last?" from the April 2010 ezine.
   
   
2. Santa Rally? Since October, February and January are the three worst performing months of the last decade, the Santa Rally has proven to be more coal in your stocking than holiday glee. Don’t bank on this seasonal market trend of yore to be the wind beneath your gains in 2010.

Santa Rally 2007



Santa Rally 2008



Santa Rally 2009



Source: MoneyCentral.MSN.com. For illustration purposes only.

3. Buy and Sell Price Points are as Important as the Companies Themselves. NASDAQ started the year at 2294. On August 27, 2010, NASDAQ was at 2,153. 2010 has been a volatile down-trending year, and the best game in that environment is to take your profits early and often. (For your nest egg, the best strategy is to use Modern Portfolio Theory, lose the bailouts, add hot industries and rebalance once or twice a year.) So, even if you pick a great company, it’s imperative that you buy it at a great price and sell it at an even greater price. The best way to learn how to determine all of this is to come to the Get Rich and Enrich Retreat. The next Get Rich and Enrich Retreat is Oct. 22-24, 2010. This one is special. Just a dozen people in a board room for three full days, learning directly from me. Get more information on the home page at NataliePace.com.

Outside of the Spring Rally that we experienced in April, when the Dow Jones Industrial Average jumped back to 11,205 (3000 points shy of the October 2007 high), the markets have been in the red all year.

2010 Stock Market Performance (through August 30, 2010)

Source: MoneyCentral.MSN.com. For illustration purposes only.

This makes for a great year for day-traders and for investors who employ rebalancing strategies. This also creates an imperative for everyday folks to overweight safe and get a new plan that can withstand more market fallout.

No matter what direction this year ultimately takes (and, for the record, my analysis has been all year that we’d have a volatile down-trending year), your bottom line will be more beautiful if you are employing a plan that can weather the storms. In short, you must know what you’re doing, and you must learn a system that has a track record of strong performance for the past decade.

Buy and hold hasn’t worked for the last ten years and will not work going forward – as long as we are in a slow growth environment that is fueled by free, easy money. Furthermore, with interest rate increases looming on the horizon, your bonds and bond funds are now vulnerable as well. So you need alternatives for your "safe" money, too.

Don’t think that options, shorting or day-trading are the answers, especially if you’re a newbie. The Nobel Prize winning economist who wrote the book on options has had two hedge funds go belly-up.

What does work? The simple nest egg pie charts and the 3-ingredient recipe for cooking up profits that are outlined in my book, You Vs. Wall Street, have created outstanding gains for individual investments in stock, real estate, gold, bonds and more. These strategies have worked beautifully for over a decade, through bull and bear markets, and yes, even during the Great Recession.

You can learn these strategies directly from me at the October 22-24, 2010 Get Rich and Enrich Retreat, where you’ll join a dozen other investors in a board room in the sunny beach town of Santa Monica, California.

Get more information at the Get Rich and Enrich flyer on the home page at NataliePace.com. Please note that Early Bird pricing has been extended through August 31, 2010 and if you register before that time, you will receive a FREE private coaching call with me (value: $600) as well.

Top Online Brands
One more thing. You’ll see that I’ve got AOL on the Hot News on Cool Stocks list. Those of you who are not frequently visiting the AOL site may wonder why.

Below is one of the biggest reasons. You’ll see that AOL (and the sites owned by AOL, including Moviefone and Mapquest) is one of the Top 10 most Popular Brands online, right up there with Google, Microsoft, Yahoo, eBay, Apple, Amazon and Facebook.

Yet, AOL’s market value still reflects the minor leagues.

Tim Armstrong, AOL’s chairman and CEO, joined AOL in April 2009 from Google, where he oversaw the company's North American and Latin American advertising sales, marketing and operations teams as President of The Americas Operations and worked with some of the world's most widely recognized brands and advertising agencies. His tenure at Google covered the scaled launch of Google's advertising efforts and defined many of the operating structures that supported Google's global expansion. Armstrong was a member of Google's Operating Committee and the company's executive team.

In short, AOL makes the list because the corporation already has the traffic, and I’m banking that the executive who helped build up Google’s monster revenue stream can do the same with AOL.

Preparing for a Rise in Interest Rates
While interest rates are likely to remain low for the foreseeable future (6-18 months), when they rise, bonds and bond funds will drop in value. Annuities and pensions (for other reasons) might not be the safest areas for your money either. Read, "Don’t Get Fooled Again," in the August 2010 ezine, volume 7, issue 8 for tips on how to stay safe as the economy moves into the next phase of the cycle.

Reforming Wall Street
President Obama wants your feedback on how much you like (or dislike) your stock broker/Certified Financial Planner and why. This is an important part of financial reform, and the window for your commentary is only 30 days. Please act now! Thanks!

SEC Publishes Public Request for Comment to Inform Study of Obligations of Broker-Dealers and Investment Advisers

Banks Are Still Failing
There have been 118 bank failures so far in 2010 (as of August 30, 2010), 140 bank failures in 2009 and 25 in 2008. Don’t be seduced by banks earnings reports of record earnings! Most of them are fairy tales.

Track Record of our Reporting
While the markets are still down significantly since their high in October of 2007, the Hot News and Cooling Off lists below have a winning track record – in bear and bull market years. 91 positions listed below – 82% -- have delivered impressive gains over the past two years, even while the Dow Jones Industrial Average is still trading lower than it was in 2007 (when it cracked through 14,000)! Only twenty-one of our listings went in the opposite direction of the reporting, which is quite impressive given the market gyrations of more than 7000 point swings since 2008. FYI: If 2010 tracks the historical trend, the summer doldrums and particularly the Hurricane Season could be hard on the markets.

Remember that the trading portfolio should be equal to your experience, and should not be part of your nest egg. (The nest egg is money you earn while you sleep, not while you day-trade.) If you’re new, you should be using education or fun money, not your nest egg, to learn on. Take your trading profits early and often in these volatile, whip-sawing years. (Your nest egg is better off just rebalancing once or twice a year, not trying to market time.)

4 out of 7 Company of the Year selections more than doubled.  My 2003, 2004, 2006, 2007 and 2009 Companies of the Year posted up to 9000% gains (Taser), up to 690% gains (Opsware), up to 215% gains (Suntech Power Holdings), and up to 10X ROI for U.S. Gold, respectively. MySpace, my 2006 Company of the Year, was a large part of News Corp’s success with shareholders that year.   So five out of seven Company of the Year selections were superperformers. That’s the kind of record that puts you on top on Wall Street.  (I launched my first publication on 11.15.02, and featured the first Company of the Year, Taser International, on 1.1.03.)

Some of my best picks include: U.S. Gold (UXG) 10X return on investment, Google (GOOG) +585%, Opsware (OPSW) +690%, Rio Tinto (RTP) +145%, Sohu (SOHU) +150%, Suntech Power Holdings (STP) +107%, Taser (TASR) up to 9000% gains. Some of the best picks in 2008 and 2009 were put options – on the Cooling Off list -- which is why I added options training to my 3-day Get Rich and Green Investing Retreat. Look on the Cooling Off list for details on the incredible gains options investors enjoyed (and the losses that average investors avoided as a result of being alerted to the problem) on Wells Fargo, Fannie Mae, Toll Brothers, KB Home, Novastar Financial and more.

This stock newsletter was the first to list the following 911 alerts:

1. 2008 Recession (Get Safe)
2. Trim back on Faded Blue Chips in 2006
3. Get out of Dodge (real estate) in 2005
4. Google at the IPO! (May 2004)
5. To get Fannie Mae and Freddie Mac out of your 401(k) in 2003

Market Movers:
The Federal Open Market Committee and Monetary Policy
The Fed funds rate continues to be "0 to ¼ percent." The next FOMC meeting takes place on September 21, 2010.
Second Estimate GDP growth rates for 1Q 2010 were 1.6% (down from advance results of 2.4%), according to the Bureau of Economic Analysis. 1Q 2010 GDP growth was 3.7%.
Final GDP growth rates for 2Q 2010 will be released on September 30, 2010 at 8:30 a.m. ET. These release days tend to be very active on Wall Street. For more BEA release dates, go to the BEA.gov website and be sure to visit the NataliePace.com calendar section often.

EDUCATIONAL OPPORTUNITES AND INFORMATION:
1. FOMC Information: Interested in reading the press release of the August 10, 2010 FOMC meeting for yourself? You can. The official Federal Reserve document is available online. Click on FOMC, or go to FederalReserve.gov to read! According to the Committee, "The pace of economic recovery is likely to be more modest in the near term than had been anticipated."

The tentative FOMC meeting schedule for the 2010-2011 calendar is: September 21 (Tuesday), November 2-3 (Tuesday-Wednesday), December 14 (Tuesday), January 25-26, 2011 (Tuesday-Wednesday), March 15, 2011 (Tuesday), April 26-27, 2011 (Tues.-Wed.), June 21-22, 2011 (Tues.-Wed.), August 9, 2011 (Tuesday), September 20, 2011 (Tuesday), Nov. 1-2, 2011 (Tues.-Wed.), December 13, 2011 (Tuesday), January 24-25, 2012 (Tues.-Wed.).

2. Calendar Section: Conferences, Online Chats and more: Check out the Calendar section of NataliePace.com regularly. You will find great opportunities to attend the most exclusive business and Green Conferences, learn about upcoming TV and radio shows and other educational opportunities – many are FREE! Get more information on how to best use our articles in the FAQs article, located under the Investor Edu link on the home page of NataliePace.com.

Don’t miss the Pace and Prosperity Show with Natalie Pace on BlogTalkRadio.com. Check BlogTalkRadio.com/NataliePace for upcoming shows and call-in and log-on instructions and to listen back to any shows that you might have missed. These shows are pod casts and are FREE!

BlogTalkRadio offers a Q&A format, where you can call in with your most pressing questions. Be sure to keep a list of your questions as they come up, and join our ongoing dialog on peace and prosperity, getting rich and enriching, green investing, the Thrive Budget and more on Facebook at http://www.facebook.com/NWPace.

3. Survey Results: Each month we have three new surveys so that we can stay in touch with your needs and desires. Cast your vote on our survey page!

4. Euro interest rates: ECB rates are at 1.00% (main refinancing), 1.75% (marginal lending) and 0.25% (deposit facility). The next meeting and interest rate announcement is scheduled for July 8, 2010 at 2:30 p.m. CET. (July 22, 2010 & August 5, 2010 after that.)

Hot Stocks List
Investors who "never pay retail," note that the BOLD 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. (If the stocks are not highlighted, then in our estimation, this is not a good time to buy. Reasons are explained in the news commentary.) 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. And remember that these "Stocks on Steroids" are not intended to be part of your nest egg strategy at all – not even for "pros." If you’ve never traded individual stocks before, this is your "fun" or "education" money. You should not stake your future on anything that you don’t have mastery over.

Hot News List (highlighted).  Be sure that you are buying low.
None

Profit-Taking:
Hoku Corp. (HOKU) +36%
LDK Solar (LDK) +42%
U.S. Gold (UXG) 10X ROI

DELETIONS (Take your profits early and often):
Galaxy Resources (with 48% gains) on 8.1.10
Rio Tinto (with 21% gains) on 8.1.10

HOT NEWS on COOL STOCKS LIST

Recently Deleted Companies 2008-2010:
Echelon +20%, GE, +13% and +18%, Google, +15% and +31%, Johnson & Johnson +10%, LDK Solar +18%, Microsoft +12%, Satcon +13%, Suntech +35%, Trina Solar +22%, World Water & Solar +22%. Genentech (8.1.08) +40%. Altair (deleted on 8.7.08) posted gains of +3% and +57%. Zoltek (deleted on 8.18.08) lost 30% before being removed. LDK Solar was deleted on 9.2.08 with 46% and 29% profits. U.S. Gold profit taking on 11.6.08 amounted to 72% gains. Conergy gains of 51% were taken on 11.7.08. American Superconductor posted 50% gains between 12.1.08 and 1.14.09. MEMC Electronics (WFR) had 21% gains between 12.1.08 and 12.15.08. STP had gains of 69% between 12.1.08 and 1.2.09. SQM profits 20% on 1.14.09. WWAT was deleted on 2.1.09 with -62% losses. On 2.15.09, AMSC had gains of 65%, MEMC Electronics 26%, Sociedad de Quimica y Minera 48% and U.S. Gold 432%. Citigroup gains of 42% on 3.15.09. Genentech was deleted on 3.15.09 with gains of 29%. OSI Pharmaceuticals was deleted on 3.15.09 with 7% gains. Rio Tinto was deleted on 3.27.09 with gains of 67%. On 3.27.09, the following companies were in the money: ALTI (+48%), AMSC (+51%), eBay (+24%), GE (+40%), HOKU (+38%), LDK (+46%), MEMC (+44%), PBW (+35%), SATC (+42%), SQM (+76%), STP (+211%), TSL (+207%), U.S. Gold (+456%) and WBK (+25%). Profit-taking 4.13.09: ALTI +209%, AMSC +70%, HOKU +32%, LDK +64%, PBW +42%, SQM +42%, UXG+418%. Deleted 4.13.09: eBay, +45%, Eurox -11%, GE +47% & -56%, Google +9%, Maxwell +25%, MEMC Electronics -33% & +49%, Microsoft +24%, SATC +67%. STP +262% & -64%, TSL +216% & -67%, Westpac +42% & -22%. Deleted 5.4.09: FMC Corp. with 19% gains. PZD with losses of -39%. SPWRA with 19% gains. TREMX with 50% losses. WSDT with losses of -59%. Deleted 5.15.09: SQM with gains of 38% and 62%. Deleted 5.31.09: EMKR with losses of 13% and 88% and Melco with losses of 8%. Ener1 with gains of 11% and 17%. Deleted 7.20.09: Conergy with losses of -52-98%. Deleted Smith and Nephew on 8.15.09 with gains of 17% and losses of 28%. Deleted the New Zealand dollar currency ETF by Wisdom Tree with 36% gains on 12.12.09. 12.18.09: Deleted Ener1 with 22% gains and Satcon with 29% gains. Deleted 1.11.10: KCI with 88% gains! Deleted 8.1.10: Galaxy Resources with 48% and 9% returns and Rio Tinto with 21% gains.

Recently Deleted from the Hot News list:
Galaxy Resources (on 8.1.10)
Rio Tinto (on 8.1.10)

Stocks to Watch
Some of these are great companies that we’re thinking of adding to the Hot List and some are stinkers we’re thinking of adding to the Cooling Off List.  Read carefully to identify which is which! Note that right now most of our favorite companies are on the Watch List. Getting the price right is as important as picking the right company. Never pay retail!

Recent Additions:
Applied Materials (AMAT) (added 8.1.10)
iShares Australia Index (EWA) (added 7.11.10)
Cree (CREE) (added 8.1.10)
Galaxy Resources (GALXF) (added 8.1.10)
General Motors (added 9.1.10)
iShares Emerging Markets Index (EEM) (added 7.11.10)
iShares JP Morgan Emerging Markets Index (EMB) (added 7.11.10)
iShares North American Tech Semiconductors (IGW) (added 8.1.10)
iShares S&P Latin America 40 Index Fund (ILF) (added 7.11.10)
iShares MSCI All Peru Index Fund (EPU) (added 8.1.10)
Rio Tinto (RTP) (added 8.3.10)
Skype (added 9.1.10)

Recent Deletions:
Ford (F) (moved to Cooling Off list on 8.1.10)
Powershares Laddered Treasury (PLW) (moved to Cooling Off list on 9.1.10)

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.)

Highlighted Companies (Cooling Off List):
Berkshire Hathaway (BRK.A)
PowerShares Treasury Bill Index Fund (PLW) on 9.1.10

DELETIONS:
Applied Materials (AMAT) deleted on 8.1.10
Fortress Group (FIG) deleted on 9.1.10
Maxwell Technologies (MXWL) deleted on 9.1.10
Medtronic (MDT) deleted on 9.1.10
Microsoft (MSFT) deleted on 9.1.10

Deleted in 2008/2009/2010:
Fannie Mae was deleted on 2.11.08 after losing -50% and -56% of its share price value, and then again on 7.1.08, after losing another -40%. (Both puts more than doubled.) Novastar Financial (NFI) was deleted on 6.2.08 with -95% share price implosion. Sears Holding Corp. was deleted on 7.1.08 with 64% gains on the put option. Wells Fargo was deleted on 7.1.08 with 83% gains on the put. Apple was deleted on 8.1.08 with 35% gains on the put. The Google put, deleted on 8.1.08, was another great performer, with over 50% gains. First Solar had gains of over 32-34%. Mentor was deleted on 9.30.08 with 75% gains on the put option (-17% on the share price); Medicis was deleted with gains of over 37% on the share price (down direction). Boston Properties, Las Vegas Sands and Macerich were deleted on 10.9.08 with gains of 16-30%, 66% and 28-42% respectively. Wells Fargo was deleted on 11.6.08 with 35-50% gains on the put and again on 12.1.08 for 50-70% gains. American Express posted 35% gains in just 30 days, between 2.1.09 and 3.2.09. First Solar was deleted on 8.13.09 with 33% gains. KB Home with 74% gains and Toll Brothers with 51% gains on 10.01.09. Deleted AMAT on 8.1.10 with gains of 12.5% & 7% (put gains would be double or more). 8.30.10: Deleted FIG (-10% & -40%), MXWL (-37%), MDT (-4% & -24%), MSFT (-20%) -- all for gains.

IMPORTANT DISCLAIMER (PLEASE READ):

Please note: NataliePace.com does not act or operate like a broker. We report on financial news, and are one of the most trusted independently owned and operated financial news corporations in the U.S. 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 consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies.

Investors should NOT be using the Hot News on Cool Stocks list or the Cooling Off list to trade their nest eggs. Your retirement plan should reflect a long, safe strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.

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:

Think You’ve Got the Next Facebook? Want Money to Build Your Dream Business? Chat with Kay Koplovitz, the founder of Springboard Enterprises, a venture capital forum, on September 8, 2010.

The NataliePace.com Calendar section features conferences, teleconferences, retreats, educational opportunities, cultural events, galas, market events and online chats with executives and VIPs. Stay plugged in! We add online chats, article updates, teleconferences, etc. as they are booked, so be sure to visit the calendar section early and often.  Below is only a partial listing of what’s happening this month.

To access links to the event website and registration, go to the Calendar section at NataliePace.com.

Get Rich and Enrich Retreat, Santa Monica, CA
October 22-24, 2010
You spend hundreds of thousands learning how to earn money. Why not spend a fraction of that learning how to invest? After 3 days of learning investing directly from Natalie Pace, you will have a nest egg blueprint that works for the rest of your life. Early Bird Pricing is available now through August 15, 2010 ONLY. Call 866-476-7442 to register NOW! Be one of just a dozen people in a boardroom learning investing (and having a lot of fun).

Speak Up About Your Broker-Dealer Experiences
President Obama wants your feedback on much you like (or dislike) your stock broker/Certified Financial Planner and why. This is an important part of financial reform, and the window for your commentary is only 30 days. Please act now! Thanks!