From left to right - Dr. Eric Schmidt (exec. chairman), Larry Page (CEO & co-founder) and Sergey Brin (co-founder) in a self-driving car.

Big Bites Out of Apple and Google: Losing Their CEOs.

by Natalie Pace.

Includes NASDAQ and Dow Stock Report Cards.

Holy Technology. Who would have thought that Google and Apple could lose their CEOs at the same time and NASDAQ wouldn’t crash as a result? As if coordinated, Google and Apple announced the executive shakeups on January 20 and January 17 (respectively) right before excellent earnings. NASDAQ staggered in the wake of the news, while the Dow Jones Industrial Average charged forward and crashed through the 12,000 ceiling. There was not the panic or headlines that executive suite changes of that gravity would normally have generated.

However, that doesn’t mean that investors won’t pullback gradually as the gravity of these changes becomes more apparent. It’s important to examine what exactly we’re eating before we continue to take big bites out of the newly revamped Apple and Google. The big question is, "Can these companies run just as well without their extraordinary, visionary leaders – Steve Jobs and Dr. Eric Schmidt -- as they did under their masterful guidance?"

At a market capitalization of $317 billion and $191 billion, Apple and Google, respectively, have become the new American Blue Chip companies. With year over year earnings growth of 71% (Apple) and 26% (Google), both are unique gargantuan companies, in that they are still leading the race on the Big Boards for revenue growth. It is clear that the hand dealt from Dr. Eric Schmidt to Larry Page (Google’s new CEO and co-founder) and Steve Jobs to Tim Cook (Apple’s COO who is handling day-to-day operations while Steve Jobs is on medical leave of absence) is a winner. This becomes even more pronounced when you measure up the earnings stagnation (or retreat), the legacy concerns and debt burdens of many of the Dow Jones Industrial Average component corporations in the hundred billion dollar market cap range.

There continues to be a growing discrepancy with the new Blue Chips and the former leading Blue Chip Index, which I now refer to as the Bailout Index – where more bailouts are listed than is healthy for your fiscal fitness. The new Blue Chips -- Apple, Google, Oracle, Cisco, Microsoft and Amazon and more -- all boast double digit revenue growth, year over year. Google and Apple have no debt, with billions of cash coming in each month. Google has $33 billion in cash and short-term securities on hand, while Apple has $27 billion on hand. Click to review the Technology Large Cap Stock Report Card.

On the other hand, almost one third of the Dow Jones Industrial Average components, 9 out of 30 companies, owe more than they are worth. 6 out of 30 (1/5) have debt three times or more than the market value of the corporation. Of those nine with excessive debt, four are earning less this year than last year, and only four have earnings that increased more than 10%. Caterpillar’s earnings are up 53%, due to economic growth in the developing world and improvement from low levels of machine demand in 2009 in developed countries. However, Boeing, General Electric, Bank of America, Verizon and IBM are still experiencing stalled or negative earnings trends. Click here to review the Dow Jones Industrial Average Components Stock Report Card.

We hear about public debt all over the news these days, but the corporate debt is as big of a concern. The airline and auto manufacturing industries have all suffered multiple corporate bankruptcies, but in truth any corporation with a defined benefit plan and three or fewer workers supporting each retiree is under a burden far heavier than the newer, leaner corporations, like Apple and Google, where employees manage their own retirements. According to Deven Sharma, the president of Standard & Poor's, "More than [one trillion] of US non-financial corporate bonds and loans falling due [between now and 2015] are rated subinvestment grade." Subinvestment grade means junk bond status, as in high risk. Sharma published his concerns about corporate debt in an Op-Ed published by the Financial Times on January 26, 2011.

When you combine stalled sales with excessive debt and crushing pension and other post-employment benefit obligations, you have a CEO who has to be as distracted with keeping bondholders and unions happy, and raising new capital to say afloat as s/he is with innovation and out-performing the competition. Fortunately, Tim Cook and Larry Page start off with a competitive edge over their peers. With no debt, employees managing their own 401Ks and billions in excess capital, these chief executives can focus almost entirely on competing and innovating and have the capital on hand to purchase smaller companies before they become a threat.

Having said that, if I were to bet on which company (and leader) will win the Gold Medal in 2011 and going forward, I’d have to lay odds on Tim Cook and Apple. Tim Cook has already proven multiple times during many Steve Jobs medical leaves over the years, that he is capable of fueling the innovation that underscores Apple’s extraordinary lead in phone, personal music, computers and customer loyalty. Apple stores are humming with more activity than the local bar scene. And with earnings growth of 71% year over year, that is two and a half times the momentum that Google had in the last quarter (at 26% earnings growth).

The name of the game in all investing is picking the winner and then purchasing the asset at a great price. While 2011 is poised to be an excellent year in the stock markets, the volatility of the past decade means that patient buyers quite often see the buy-in they most desire. I’d bite Apple at a lower price -- in the $260/share range. And I’d underweight Google until newbie CEO Larry Page proves that he is indeed ready to lead. (It didn’t work out so well for founding CEO Jerry Yang, after the handoff from Terry Semel.)

For ongoing coverage of these two new Blue Chip companies, including more attractive buy-in and profit-taking points, be sure to read the Hot News on Cool Stocks updates, on or around the 1^st and 15^th of each month.

Read Dr. Eric Schmidt’s blog on the changes, as well as Steve Jobs' press release by clicking on their names.

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 a contributor to HuffingtonPost.com, Forbes.com, Sohu.com and BestEverYou.com. 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, 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.

France! - The Perfect Valentine’s Day Rendezvous.

by Natalie Pace.

Includes Travel Tips for a Royal Experience on a Commoner’s Budget.

It’s no accident that the French look like they are kissing when they speak. When it comes to romance, nothing beats le francais. The food! The clothes! The scandalous history! (The guillotine. Beheading King Louis XVI and Queen Marie Antoinette and then, less than 100 years later, crowning Napoleon as Emperor... Crowning Carla Bruni, Mick Jaggar’s former girlfriend, as First Lady... Ahhh the intrigue continues over the centuries...)

Below are the Best Experiences of Paris, Versailles and Nice and 10 Tips to make your French experience more rich, more fun, romantic, deep and affordable. You can get the mainstay stuff – Champs Elysee, Museum Invalides, casinos in Monte Carlo -- from any travel book. The tips below don’t just give you the tourist gawk moment at the monuments. They allow you to go behind the scenes and experience a taste of the royal in each.

Voila! The Best of France!

Best of Paris...

	1. The Towers of Notre Dame. A trip to Notre Dame can be a full day on its own, especially if you include (and you should) a tour of the Towers. There, on the rooftops, you’ll gaze face-to-face with the gargoyles and angels and be within hands-reach of the famous bell.
	2. Mass at St. Germaine des Pres. Why not experience a ritual at one of the world’s oldest and most famous cathedrals (which was built in the 6th century)?
	3. Paul. Exceptional patisserie and boulangerie and cafe, with locations all over France. Treat yourself to café au lait, hot chocolate, chocolate croissants, raspberry nougat cakes, delightful canale (exquisite, petite pastry), quick sandwiches or a meal. Because many French restaurants close between 2 and 7 p.m., it is a good idea to have a jambon au frommage sandwich handy, in case you are late to lunch and can’t wait for dinner. Paul is just the place!
	4. Le Derniere Goutte and Fish. If you agree that Life Should be Delicious™ like Cosi (in NYC), then you’ll love the founder’s restaurant and wine shop in Paris, in arrondisement 6 (near St. Germaine des Pres). Fish is 69, rue de Seine, and Le Derniere Goutte is 6, rue Bourbon le Chateau. Only estate wines here, with owners who speak English and host frequent wine tastings.
	5. Le Louvre. Go see Mona Lisa first thing. Do not dally and visit other paintings along the way. Just go straight to the masterpiece, elbow your way to the front and get this done. Once that is over (and if you go early enough, perhaps you can enjoy the front position for as long as you desire), then enjoy whatever else you are most passionate about seeing in the Louvre’s extensive collection. The museum is too large to experience everything in one day. But if you arrive early, visit Mona Lisa right away and pause for lunch in the café, chances are you’ll be able to get in the essentials. You can get lost in le Louvre for days, but if you only have a few days or a week in Paris, then there are other things you MUST do, too, including Versailles.

Best of Versailles
Day trip from Paris to Versailles... (20-minute train ride each way)

The train ride to Versailles (Versailles-Rive Gauche) from Paris is relatively brief, inexpensive and easy. Click for detailed directions.

Most travel books will say that you should allow at least half a day in Versailles. What a waste! In truth, you may wish to book one night in Versailles, so that you can experience the Palace, the town and an once-in-a-lifetime royal event.

Best of the South of France
Jaunt down to Nice-Ville... (second leg of your journey; 5-½ hour train ride or one-hour flight)
The train ride to Nice is a must-do trip in itself, but not one you need to experience twice, especially since the flight (to Paris or any other major European city) will be cheaper and faster.

	1. Hotel of the Century: Hotel Negresco in Nice, France. Read the article in this ezine for more details. If you’re planning a trip to Nice, France or Monte Carlo, this is the place to stay.
	2. Gourmet Food: Michelin-awarded chef Jean-Denis Rieubland at Le Chantecler and his bistro at La Rotonde (located at Le Negresco). You’ll love Le Chantecler for date night, and La Rotonde for fun and/or the family. (There is a fun carousel that will keep the kids thrilled during the meal.) Chef Rieubland lives by the maxim that fresh ingredients and creativity equal success. They also delight the palate.
	3. Old Nice: Explore the fresh produce markets (daily) and beaucoup restaurants.
	4. Rue de France and Blvd. Massena: Shopping (clothes), but not eating, on Rue de France and Blvd. Massena. This is the tourist promenade. You’ll find better food in Old Nice, but the bargains for quality clothing will amaze you, especially considering this street is only one away from Promenade des Anglais (the street that runs along the shoreline)...
	5. Ma Nolan’s. For soccer and a pint, and/or a burger and/or to parlez Anglais. It’s hard to put the word excellent next to Irish pub food, but if you’re dying for a burger and fries (chips), this is the place to go. And you can order in English!
	6. Oliviera. Sample olive oil, drink wine and have a meal. You can get a better meal in Nice (but not a better priced meal), but you will never find more exquisite olive oil. The passion these gourmands have for olive oil will win you over to even try drizzling olive oil on your tiramisu!
	7. Best Cheap, but Good, with Continuing Service: Royal Kebab. Cheap, fresh, with continuing service, you’ll find that kebab of any stripe is your friend in Nice, France. Vegetarians can opt for hummus, tabouleh, baba ganoush, etc. The kebab fare, in general, is great to grab if you are hungry in the late afternoon (or late at night). However, Royal Kebab is definitely more divine than the run-of-the-mill street fare. I recommend the moussaka, served with bulghar and salad. Yummy! 4 Rue Saint François 06300 NICE.

Below are 10 Tips to make your trip to France extra special and more seamless...
Things to do (in general)...

1. Buy a pair of French walking boots and walk everywhere. That way you’ll burn off all of those extra pastries and bread you’ll be eating.
   
   
2. Shopping. Shopping! Some of the best designs, fabrics and couture in the world!
   
   
3. Buy your plane ticket well in advance and use any mileage you might have to upgrade to business class. That way your flight can be a fun part of your vacation, too.
   
   
4. Planes are typically cheaper than trains in Europe these days, though the train is more scenic. Skycanner.com is a good resource for looking for the lowest priced flights between cities. Book early for the best rate (just like in the U.S.)
   
   
5. Become friendly with two of Google’s applications – Google Maps and Google Translate. Plan the routes to your destination before you leave. I found that by writing the directions of where I was going on a piece of paper, I blended in so well, tourists asked me for directions! I also found Google Maps to be FAR more accurate than the other websites. And Google Translate is amazing! Arrive and learn the essential sentences with the click of your fingertips!
   
   
6. Street names are written on the sides of the buildings. It’s important to have very specific directions because one street can change names two or more times as it winds through different neighborhoods. Paris is such a compact city that you can walk to most major destinations (which is definitely part of the fun).
   
   
7. When booking your lodging, it can be very helpful to read the reviews of other travelers. I’ve found Expedia.com to be the most reliable when traveling to Europe, both for finding the best rates and having the most helpful traveler’s comments. (In the U.S., I prefer Priceline’s Name Your Own Price.)
   
   
8. In general, take away one star. If the hotel says five-star, it’s probably five stars. But if it says four stars, then expect the room size and amenities you’d expect in a three star hotel, and on down the line. Showers, beds, rooms, etc. will all be much smaller than the standard American room.
   
   
9. Don’t bother taking hair appliances or a lot of other electronic devices, and do plan on purchasing an adaptor as quickly as possible to charge your cell phone and/or computer. Many electronic appliances (that are not adapted to both American and European voltage) won’t work. You’ll either fry the blow dryer or your hair or both. This is a good reason to book a better hotel!
   
   
10. There’s no tipping in France! If someone does an extraordinary job, then tipping one or two euro is considered okay. More than that is so extravagant as to almost be insulting, if you’re with locals.
    
    
11. Keep your eyes out for a local boulangerie or Kebab stand where you can grab a quick snack anytime of the day. The French eat dinner very late and most restaurants are closed between 2:00 p.m. and 7:00 p.m.. You might find yourself starving in that long break between lunch and dinner, especially if you were sightseeing through lunch and have only consumed pain au chocolat at your petit dejeuner!
    
    
12. Watch for the pits! I’ve found the most delightful chocolate covered cherries (with alcohol) and pizza Espagnole with olives – and each time, surprise! The pits! It doesn’t diminish the exquisite flavors – unless you break a tooth. So take care when eating and watch out for the pits!
    
    
13. The French love dogs. Therefore, you also have to watch where you step...

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 a contributor to HuffingtonPost.com, Forbes.com, Sohu.com and BestEverYou.com. 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, and on YouTube.com/NataliePaceDOTCOM. For more information please visit, http://www.nataliepace.com.

Hotel of the Century – Overlooking the Gorgeous Cote D’Azur.

by Natalie Pace.

If you love art, scandal, history, travel, beaches, amazing food and beautiful people, then you can have it all by booking a reservation at the Hotel of the Century – Hotel Negresco, located in Nice, France.

In 1769, Marie Antoinette’s carriage rolled into Versailles Palace (from her native home in Austria) to assume the role of Princess of France. In 1774, she became the Queen of France and Navarre, a job she was to enjoy for almost twenty years before losing her head, title and privilege to the guillotine of the French Revolution in 1793.

Exactly one century later, in 1893, Henri Negresco, the son of a Romanian innkeeper and gypsy violinist rolled into Monte Carlo. His management of the restaurants and casinos there made him beloved by royalty, the power elite and an emerging new class of "stars," which did not go unnoticed by financier Alexandre Darracq. Together, they engaged the top talent, including architect Gustave Eiffel, to build the Grand Salon and the Hotel Negresco. In 1913, Hotel Negresco opened and was immediately embraced by the A-list, turning a profit of 800,000 gold francs and earning the title of the most sumptuous of luxury hotels. Alas, the auspicious debut was shattered with the onset of World War I in 1914.

Henri Negresco became a hero of the war, transforming the hotel into a hospital, paying for the upkeep of the 100 beds with his own money. Although his efforts saved many lives, Negresco died in ruin two years after the war ended, in 1920.

Today, Hotel Negresco is owned by Jeanne Augier, an art and history lover, and fierce patriot of France, who set out to transform the hotel into a masterpiece – the world’s first and finest museum hotel. Hotel guests (including royalty, the elite and A-list stars) are once again dancing in Gustave Eiffel’s Grand Salon and sipping wine in the all original Relais Bar. They can lounge in the Versailles Room, viewing original palace portraits of King Louis XIV, King Louis XV, Queens and a few portraits of the Kings’ "favorites" (mistresses). Hallways are lined with famous original artwork and lithographs. And the stunning chandelier in the Grand Salon was originally intended for the Tsar of Russia.

I can honestly say that my week long stay at the hotel was one of the highlights of my life, and I have never been in any hotel that preserves the rich, tragic and scandalous history of a region better than Nesgresco. As for amenities, you can expect everything you’d expect in a five star hotel anywhere in the world – including large bathrooms and showers. Madame Augier personally oversees the décor in each room, and each room is distinctly different.

Assembling a collection of paintings, royal portraits and historically significant artifacts is no small task, although it helps that Madame Augier was friends with Salvador Dali, and many other artists! To find out some of her tricks, and to discover what keeps a woman over 80 clocking into the office every day, I sat down with Madame Augier on January 5, 2011.

Natalie Pace: Your passion for art, decor and quality are clear to anyone staying at the Hotel Negresco.  What does art mean to you and why is it such a key feature of Hotel Negresco?

I educated myself about art in my youth by making personal trips to Versailles. In my life, I have had the opportunity to travel throughout the world, and unconsciously, I sought out similar locations. I must admit that I sometimes admired one or two pieces, but never the entire collection, as it was at the Versailles Palace.

I always thought that a foreign tourist who did us the honor to visit our country should leave with a piece of our heritage. I want our customers, after a stay at the Negresco, to leave with the desire to return, having experienced a vibrant element of the history of France that they had the opportunity to discover here.

I hated to make trips overseas that were without meaning. I thought it was the same for foreign tourists, and the Negresco was to be a sort of embassy of culture and history of France.

Outside of the Louvre and Versailles, the Hotel Negresco has one of the finest collections of royal French art and artifacts. How did you go about collecting these works and why did it become a passion of yours? 

I am very patriotic. I love my country and I regretted that some French people, because of money problems, would go abroad to sell some of our best work. So I was able to retrieve the Louis XIV [portrait] by Hyacinthe Rigaud, which was in Brussels, the portrait of Louis XIV as a child, which was in Genoa. The portrait of Madame de Montespan was in Germany. Etc. ... etc. ... 

Where did the idea of transforming Hotel Negresco into a Museum Hotel originate? 

While traveling around the world some years ago, I always treasured bringing back new memories. It is more pleasant for our customers to spend a few hours in our hotel and experience the works of art from our country, than to travel here as tourist and carry home no novel remembrances.

Gustave Eiffel’s Grand Salon at Hotel Negresco.

Gustave Eiffel's most famous work is the Eiffel Tower, however, the Grand Salon is such an extraordinary example of Eiffel's craftsmanship, aestheticism and design.  For a guest, Hotel Negresco is simply awe-inspiring, but behind the scenes, you must be doing so much work to make sure that the history and the quality of the hotel is both authentic and fresh.  What is the biggest challenge to preserve the Hotel in all its glory now and in the years ahead? 

In order to preserve my collection, I employ a team of highly specialized individuals. For example, two students of the Ecole Boulle performed the carpentry-woodwork renovations. When paintings need restoration, I reach out to those specialists who restore the paintings at the Louvre Museum.

I was pleased to add a young graduate of the Ecole du Louvre to our team, who manages the preservation and maintenance of the Collection.

Finally, the Endowment Fund that I created will ensure that the Negresco, its teams and its collection still exist in the same state when I am no longer able to oversee the hotel.

You are loved by so many artists...  Of all of your famous friends, including Salvador Dali, who was the most fascinating to you and why? 

The Côte d'Azur, due to its worldwide reknown as an exceptionally wonderful place, was frequented by many artists. My closest friends were Raymond Moretti, Marc Chagall, Nadia Leger, Rene Gruau, etc ... and each was more fascinating than the other!

Do you have a favorite spot in your hotel? 

I am proud of the Versailles Room. With that room, I was finally able to assemble the authentic documents and paintings that make it an exceptional place for lovers of art.

Lastly, at the age of 87, are there any secrets to living a long and wonder-filled life that you wish to share?

It is essential, at age 87, to have an activity that you love. If you don’t, then you will only be thinking about dying. The secret to my achievements at the Negresco and with this collection lie simply in this: my personal curiosity was aroused. And the secret to life, always, is to engage in a work activity with such passion that you forget the passage of time.

Thank you Madame Augier for your time and for creating the Hotel of the Century!

Friends, Lovers, Countrymen: Voila! I share this treasure with you. This one needs to go on the Bucket List as one thing you simply must do while you are alive on this planet.

For more information and to book your stay at Hotel Nesgresco, simply visit Hotel-Negresco-Nice.com.

Xxoo,
Natalie

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 a contributor to HuffingtonPost.com, Forbes.com, Sohu.com and BestEverYou.com. 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, and on YouTube.com/NataliePaceDOTCOM. For more information please visit, http://www.nataliepace.com.

Municipal Bonds.

by Finra.org.

Staying on the Safe Side of the Street in Rough Times.

Municipal securities—often called "muni bonds"—are bonds issued by states, cities, counties and other governmental entities to raise money to build roads, schools and a host of other projects for the public good. FINRA and the Municipal Securities Rulemaking Board (MSRB) are issuing this Alert to remind investors that while munis have historically been considered relatively conservative investments, they do, like all bond investments, carry risk. As some state and local jurisdictions struggle with the fall-out from current economic conditions, investors should be aware that:

• Defaults, while quite rare, do occur.
• Information about financial problems that affect the bond’s issuer has not always been readily available to investors.
• The current market value of a municipal bond may be hard to determine because many municipal bonds trade infrequently.
• A bond’s market value may change for reasons having nothing to do with the financial condition of the issuer, such as a change in interest rates.
• In cases where an issuer has purchased bond insurance or some other protection feature, the higher overall credit rating of a bond may be more reflective of that protection than of the financial condition of the issuer.

Investors considering an investment in municipal bonds should bear in mind that no two municipal bonds are created equal—and they should carefully evaluate each investment, being sure to obtain up-to-date information about both the bond and its issuer. This Alert describes the basics of municipal bonds, lists smart tips for considering a muni investment and provides links to helpful resources—including a new Investor Checklist, FINRA’s Smart Investing in Bonds and the MSRB’s EMMA website —to help investors avoid some of the most common pitfalls of municipal bond investing.

Muni Bond Basics
Municipal bonds generally pay a specified amount of interest (usually semiannually) and return the principal to you on a specific maturity date. One key reason many individual investors buy municipal bonds is the tax benefits: interest on the vast majority of municipal bonds is free of federal income tax, and if you live in the state or city issuing the bond, you may also be exempt from state or city taxes on your interest income.

There are two common types of municipal bonds:

• General Obligation Bonds, referred to as GO bonds, are issued by states, cities or counties. They are backed by the "full faith and credit" of the government entity issuing the bonds. The creditworthiness of GO bonds is based primarily on the economic strength of the issuer's tax base.
  
  
• Revenue Bonds are backed solely by fees or other revenue generated or collected by a facility, such as tolls from a bridge or road, or leasing fees. Bonds that are backed by a specific tax or assessment of a government entity, such as a tourist tax or other special tax or assessment, also are often considered to be revenue bonds. Unlike GO bonds, revenue bonds are not backed by the full faith and credit of the government entity issuing the bonds. Instead, the creditworthiness of revenue bonds depends on the financial success of the specific project they are issued to fund, on the revenues of a specific operational component of the government entity, or on the amounts raised by a specific tax or special assessment.

Historically, very few muni bonds have gone into default. But defaults can occur. Defaults tend to be higher for revenue bonds than for GO bonds—especially those that back private-use projects such as nursing homes, hospitals or toll roads.

Investors can buy and sell municipal bonds when they are initially issued or in the secondary market through the approximately 2,200 FINRA-registered firms and banks registered with the Securities and Exchange Commission as brokers or dealers in municipal securities. It is important to work with a broker and firm you trust. The firm and broker should have muni bond experience, and the broker should have the skills to conduct an analysis of the credit quality of the municipal investment.

Risk Factors
When it comes to evaluating a municipal bond, a major focus should be on the issuer’s ability to meet its financial obligations. A key question to ask is: How likely is the bond’s issuer to default? This is referred to as "default risk."

One way to evaluate an issuer’s default risk is to assess its financial condition. When a muni bond issuer offers a new bond for sale, it usually discloses the details of the offering and information about its financial condition in the bond’s "official statement" (analogous to the prospectus used for corporate securities offerings). This information is typically updated each year—and also from time-to-time through "material events notices" concerning, for example, delinquency in principal and interest payments, other types of defaults, rating changes, events affecting the tax-exempt status of the bond, bond calls and other events.

These disclosures have historically been difficult and expensive for muni bond investors to obtain. Unlike publicly traded companies that issue stocks and bonds, muni bond issuers are generally exempt from registering their securities with the Securities and Exchange Commission and do not file ongoing disclosures, including audited financial statements, with any securities regulator. You may be able to get this information, for a fee, through one of the Nationally Recognized Municipal Securities Information Repositories (NRMSIRs).

The MSRB currently makes official statements and other muni bond disclosures available to the public for free through its Electronic Municipal Market Access (EMMA) website. Beginning on July 1, 2009, all ongoing disclosures submitted by issuers will become available to the public for free through EMMA, along with real-time trade pricing and up-to-date interest rate information on variable rate and auction rate securities.

Credit ratings can also help you evaluate a bond’s default risk. However, it is important to realize that these ratings are estimates only and should be only one of many factors in evaluating a municipal bond investment. Because ratings can change at any time, do not assume the rating shown on the official statement when the bond was first issued remains in effect if you buy the bond at a later date. Be sure to ask your broker for the current published ratings on any bond you are considering (and any bonds in your portfolio).

Ratings Rise: A number of ratings agencies have indicated they plan to move to a uniform ratings scale for all bonds. In the past, most ratings agencies have used a separate, and more stringent, set of standards for rating municipal bonds than corporate bonds. As ratings agencies employ this uniform standard, investors can expect to see a rise in the ratings of thousands of municipal bonds. Investors should not take this to mean these bonds have been deemed to carry reduced credit risk. Rather, the improved rating reflects a method of evaluating risk that is in keeping with the calibration used for corporate bonds.

A high credit rating is not a seal of approval and neither reflects nor guarantees stability of market value or liquidity. In other words, a high rating does not mean that you will be able to sell an investment when you want or need to—particularly if you sell before the bond matures—or that you’ll get the price you expected.

That said, a low credit rating may very well be a sign of a bond’s increased risk of default or an indicator of greater liquidity risk and price level risk. As such, a low credit rating should not be taken lightly. So-called "high yield" munis often have low credit ratings—the higher return is meant to compensate investors for the higher level of risk they incur.

Bond Insurance and Credit Ratings: Some muni bond issuers include a repayment protection feature—most often bond insurance—to insure their bonds at the time they are issued. A bond with insurance generally is able to come to market with a higher credit rating, making the bond more attractive to buyers, and at the same time lowering the issuing cost to the municipality. The protection can shield an investor from default risk to the extent that the protection provider promises to buy the bonds back or to take over payments of interest and principal if the issuer defaults.

However, any guarantees are only as sound as the protection agent/insurance company that makes them. For this reason, when considering an insured bond, be sure to take into account the credit rating and long-term viability of the bond insurer. Following recent economic turmoil, the credit ratings of most bond insurers have been downgraded—and, in many cases, the current credit profile of the municipal bond issuer itself may now be higher than the current credit rating of the bond insurer.

Not all bonds have credit ratings. While an absence of a credit rating is not, by itself, a determinant of low credit quality, investors in non-rated bonds should be prepared to make their own independent credit analysis of the bonds. If you are unable to do so, ask yourself if the assumption of greater risk is worth the higher yield these bonds may carry.

Interest Rate Risk. Muni bonds are also subject to interest rate risk, which is the risk that an increase in interest rates may reduce the market value of a bond you hold. Interest rate risk—also referred to as market risk—increases the longer you hold a bond. This is especially true if you purchase a bond when interest rates are at or near historically low rates, as they have been recently. Rising interest rates generally make new bonds more attractive because they earn a higher rate of return. Interest rate risk and other risk factors are described more fully in FINRA’s Smart Bond Investing.

Smart Tips
Your overall investment strategy should be based on a number of factors, including how much risk you are willing to take, the purpose of your investment (income, growth or some of both), your investment horizon (when do think you will need the money) and whether it’s a good fit with other investments in your portfolio. These smart tips can help muni investors protect themselves:

• Check out the broker and firm. A securities salesperson must be properly licensed, and his or her firm must be registered with the MSRB and with FINRA, the SEC or a state securities regulator—depending on the type of business the firm conducts. For a broker, use FINRA BrokerCheck or call toll-free (800) 289-9999. For an investment adviser, use the SEC's Investment Advisor Public Disclosure website. To confirm MSRB registration, contact MSRB.

• Don’t reach for yield. Never make your investment decision based solely on a bond’s yield unless you are willing to assume more risk. The higher return you are "reaching for" is an indicator of increased risk.
  
  
• Read the Official Statement. Ask your broker for information about the municipal security before you purchase it. The bond’s Official Statement is where you will find a bond’s important characteristics, from yield to the bond’s call schedule. Be aware that an Official Statement may not be prepared for offerings under $1 million and certain offerings sold primarily to institutional investors.
  
  
• Keep up with material news, including updated financial information and material event notices. An issuer’s circumstances may change over time. Stay abreast of changes to underlying economic factors, a bond’s credit worthiness, and the issuer’s financial capacity. Ask your broker how current the issuer is with its disclosure—and be aware that an issuer’s failure to furnish current information about its financial situation is a potential red flag. Beginning on July 1, 2009, you will be able to access on-going disclosure filings for free using EMMA.

• Evaluate a bond’s price. Bonds are generally issued in multiples of $5,000, referred to as a bond’s face or par value. But they can trade above or below par in the secondary market for many reasons, including changes in current interest rates or the real or perceived credit quality of the issuer. Use FINRA’s Market Data Center or MSRB’s EMMA to check a bond’s trading history, including how actively the bond trades (many trade infrequently) and recent pricing. If the issuer has filed a distress notice but has bonds trading at or above par, ask why.

• Do your homework. Before buying any municipal bond, carefully consider the financial condition of the state, city or county that is issuing the bond and any other party that is responsible for payment on the bond. For revenue bonds, ask whether the issuer’s revenue has been enough to cover the payments it must make on the bond (also known as the "debt service ratio"). With all munis, ask your broker about the bond’s call schedule and see if the bond’s credit rating has gone up, down or remained stable.
  
  
• Do the tax math. Run the numbers (or ask your broker or tax advisor) to determine whether buying a tax-free muni bond, particularly in your home state, makes sense for you. For more information and a formula to help you compare yields, see Muni Math in FINRA’s Smart Bond Investing.
  
  
• Diversify. Market risks can be mitigated to a certain extent by diversification among different asset classes and within the same asset class. When diversifying within the muni bond asset class, consider diversification by issuer, location and maturity date. One way to diversify your muni bond holdings is to invest in a muni bond mutual fund or muni ETF. Be sure to research the securities contained in a given fund or ETF, as well as maturity lengths (longer maturities usually mean greater risk). Be aware that bond funds and ETFs may invest in a narrow group of holdings (only tax-deferred bonds, for instance) and so your diversification may be limited. Bond funds and ETFs can decline in value, and prices fluctuate, making it impossible to know the value of your holdings prior to sale.

Additional Resources

• Muni Bond Checklist
• FINRA Smart Bond Investing
• MSRB Education Center
• FINRA Market Data Center
• MSRB Electronic Municipal Market Access (EMMA)
• Securities and Exchange Commission’s Municipal Securities Information Sources
• FINRA Investor Alert, Auction Rate Securities: What Happens When Auctions Fail

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.

Debt World.

by Natalie Pace.

Where does the U.S. stand, and how close are we to having a downgrade in our credit rating?

Rome's Coliseum at night (Italy's Debt to GDP ratio is currently 118%)

Egypt is rioting, but few headlines are devoted to an underlying cause – excessive public debt and escalating food prices that are crushing to the average person. Egypt’s debt to GDP ratio is 80.5%, inching closer to the crisis range that has affected so many European nations. On Thursday, January 27, 2011, Standard & Poor’s slashed Japan's credit rating. Japan's debt to GDP ratio is the 2nd highest in the world, at 2X debt to GDP. Only Zimbabwe's public debt to GDP ratio is higher than Japan's, at 242%.

Over the past few years, we’ve watched the debt crisis in PIIGS (Portugal, Ireland, Italy, Greece and Spain), the implosion of Iceland’s economy, austerity measures in France and the United Kingdom -- and there appear to be more countries waiting in the wings to take their turn in the hot seat. Even Germany, which has been key in bailing out the European Union countries, has a debt to GDP ratio higher than Spain, at 74.8%.

So where does the U.S. stand, and how close are we to having a downgrade in our credit rating? According to a statement by the Moody’s credit rating service on January 27, 2011, "Although no rating action is contemplated at this time, the time frame for possible future actions appears to be shortening, and the probability of assigning a negative outlook in the coming two years is rising."

The U.S. ranks 28^th most indebted nation in the world, at 62% debt to GDP in 2010, according to the Congressional Budget Office, in their report of Jan. 26, 2011. In 2011, the U.S. debt to GDP ratio is expected to rise to 69.4%. (Bear in mind that if the debt that the U.S. government is holding -- $4.5 trillion -- were added to the CBO estimates of the current debt, we’d be at 100% debt to GDP right now.) By comparison, Greece’s debt had soared to 144% of GDP at the time of its credit crisis and bailout, and Ireland’s debt to GDP was at 100%. Click to go to the CIA’s World Factbook, which lists the Debt to GDP ranking by country.

As the Congressional Budget Office notes in their January 26, 2011 Budget and Economic Outlook, "Investors can lose confidence abruptly and interest rates on government debt can rise sharply and unexpectedly. The exact point at which such a crisis might occur for the United States is unknown, in part because the ratio of federal debt to GDP is climbing into unfamiliar territory and in part because the risk of a crisis is influenced by other factors, including the government’s long-term budget outlook, its near-term borrowing needs, the amount of private saving, and foreign investors’ willingness to invest in U.S. assets."

Republicans say we are headed to the brink of destruction and we have to act quickly and decisively to slash entitlements to avert catastrophe, but everyone, regardless of party, wants the other guy to bite the bullet. President Obama wants the U.S. to "invest" in clean energy, infrastructure and technology to "compete," create jobs and recover, but no concrete plan to slash the deficit and balance the budget was presented in his State of the Union Address on January 25, 2011. And that stalemate allows the government to add another projected $1.3 trillion to the deficit in 2011.

While the CBO won’t "predict with any confidence" when a crisis will occur, the risk increases as debt to GDP gets higher. Additionally, as other countries boast of less debt, offering less risk with more attractive yield, investors could be lured away from U.S. treasuries into a basket of currencies. (Many insiders believe this is already occurring in OPEC, China, Saudi Arabia and other nations and the power elite.) The European Union and Canada may not be more attractive than the U.S. (from a debt to GDP perspective), however, Australia’s debt to GDP of 22.4% is one of the lowest in the world, with the added attraction that this free country is also rich in natural resources and strategically located next to the new wealth in Asia (China). (Don’t rush out to buy this currency without understanding how currency is manipulated by the central governments.)

Spain averted a European Union bailout on January 18, 2011, by selling $7.34 billion (5.5 billion euro) in short-term Treasury bills (12-18 month) at a yield of about 3%. Ask yourself this, "Would you purchase a 12-18 month U.S. Treasury bill that offered 3% yield?" Spain was able to attract buyers with that offer, so it is very likely that the U.S. can as well. However, the ability to avert a short-term disaster doesn’t mean that the U.S. (or Spain) should allow public debt to continue to escalate. After all, in a year and a half Spain will have to issue new debt again and if the debt to GDP ratio has grown more ugly, fewer investors will be interested, unless the yield is increased substantially.

The U.S. debt is rapidly approaching the levels that spurred the European crises, and immediate action is necessary to keep us (US) from the chaos, austerity measures and riots that several European nations have seen of late. For your information, the current debt crisis in the developed world was predicted in my book, You Vs. Wall Street, which was penned in 2007. For the underlying root causes of the budget and debt crises in all of the developed world and most legacy corporations (like, but not limited to, the airlines and auto manufacturers), and some potential cures, read, chapter 20 of You Vs. Wall Street, entitled "The Theory of Economic Evolution." By embracing the qualities of our founding parents, recognizing how much healthier we are than our grandparents at the same age and asking not what our country can do for us, but what we can do to make our nation strong and robust again, the U.S. recovery could be spurred by the horses that always fuel economic growth – the people.

Additional Facts on Debt:
1. By the end of 2011, the Congressional Budget Office projects, that public debt will be $10.4 trillion and, at 69 percent of GDP, the highest level since 1950. (from page 20 of the 190-page report)
2. The Office of Budget and Management estimates $15.299 trillion Gross Domestic Product in 2011 ($14.6239 in 2010). According to the OMB, Gross Federal Debt in 2010 (est.) was $13.786 trillion. By subtracting "Less: Held By Government Accounts," of $4.4889 trillion, we get the Total of $9.297 trillion that the CBO uses for their GDP to growth projections.
3. Gross Federal Debt is 94.3% of GDP in 2010, whereas "Total" Federal Debt is 63.6% of GDP in 2010 (est.), according to the OBM.

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 a contributor to HuffingtonPost.com, Forbes.com, Sohu.com and BestEverYou.com. 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, 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.

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Is the U.S. the Next Greece?

A candid Q&A with global strategist, Dr. Marc Miles.

Marc A. Miles.

Greece’s public debt has ballooned to 144%. The European Union and International Monetary Fund bailed the country out with $146 billion loan package that required "austerity" measures. Riots ensued. Prior to Greece’s problems, the European Union, led by Germany, also bailed out Ireland. Italy isn’t in much better shape, with a debt to GDP of 118%. And while Canada largely avoided the financial crisis that led to the worldwide Great Recession, that nation has a higher debt to GDP than the U.S., the U.K. and Spain, at 82.9%, 63.6%, 63.4% and 76.5%, respectively.

Clearly, it isn’t just a formula like debt to GDP that predicts whether or not a debt situation will become a crisis. Otherwise, Canada and Israel would be in the headlines with PIIGS (Portugal, Italy, Ireland, Greece and Spain).

So, will the U.S. face a similar crisis this year? Next year? Ever? What will it take to reduce our debt, increase our GDP growth, rollback the high unemployment and have fun again? For answers, I turned to Dr. Marc Miles, a respected global strategist. Dr. Miles holds B.A., M.A., and Ph.D. degrees from the University of Chicago and a M.Sc. degree from the London School of Economics.

Natalie Pace: We’ve seen headlines about PIIGS and investor trepidation about how the troubles in those countries might impact the U.S. bond and stock markets.   It appears that quite a lot of countries have extremely high debt to GDP ratios, not just PIIGS, including countries like France, the UK, Germany, Canada and Japan – countries that have not been in the headlines.  How have those countries skirted controversy, and will their debt become a crisis in the near future?

Dr. Marc Miles: The markets are concerned not just with the level of debt, but also whether it is increasing or declining and whether a country will be able to continue servicing it.  If you look at countries like the UK and Germany, they have taken very positive steps to reduce their current annual deficit by reducing spending.  The new UK government has promised for example to reduce government employees by something like 10%.  Germany did not participate in the "stimulus" hysteria, and in fact took the opposite path of reducing deficits instead.  Canada is in great shape, for it did not have the housing and banking crises and did not have to bail out any industry.

Do you believe debt will become a big issue in 2011 for the U.S.? 

Yes, debt will be a big issue in the US this year.  You already see that in the headlines/stories.  California is unlikely to make significant steps towards shrinking its recurring annual budget deficit.  Illinois has taken a counter-productive approach of raising tax rates on individuals and businesses.  If anything, this will only improve the debt standing of Wisconsin and Indiana.  New York is in a pickle as well.  As these states try to deal in the coming months with the fiscal 2012 budget (starts July 1), the news stories and pressure will only build.  On top of that Moody’s and S&P have already warned recently that they may review the rating on US government debt.  Hold on to your hats if there is a downgrade!

Natalie Pace Note: The official word from Moody’s on January 27, 2011, was: "Although no rating action is contemplated at this time, the time frame for possible future actions appears to be shortening, and the probability of assigning a negative outlook in the coming two years is rising."

We’re starting to see states, like Illinois, take dramatic actions to bridge budgetary shortfalls.  Politicians have discussed clearing the path to allow states to declare bankruptcy.  What are municipal bond holders to think?  Is the lure of triple-tax-free municipal bonds worth the risk? 

Soul Acrobat Alvin Tam in front of the Las Vegas sign Las Vegas, NV has the highest foreclosure rate in the U.S. 1 in every 9 housing units received a foreclosure filing in 2010

Be careful on the bankruptcy issue.  Municipalities can declare Chapter 9 bankruptcy (analogous to Chap 11 bankruptcy for corporations), but states CANNOT.  That means municipalities can reorganize and reduce their labor promises, but states cannot.  A big difference.  With the Republican House probably unwilling to bail them out, the states face major hurdles.  Also while there are maybe five states that are near bankruptcy and maybe five or more that are just over the border, that still leaves about 40 states that are okay right now.  You also have to be selective about municipalities.

Traditionally, bonds were a safe haven, especially as people near retirement.  What’s safe in 2011 and going forward?

Good question about what is safe.  I think the best analogy is the 1970s, where both bonds and stocks did very poorly for about a decade.  The best investments were vehicles like Swiss francs.  I see that the value of the franc has already shot up.  An alternative is to buy Canadian stocks.  Their currency is appreciating relative to the US dollar, and many of their industries are basic materials that should hold their real value.

The Debt GDP numbers are based upon public debt.  Will you talk a little about private debt and how this affects countries, like the U.S.?  We’ve seen the auto industry and the airline industry use the bankruptcy courts to restructure their debt burden and employee benefit packages.  Are other private industries as vulnerable? 

I am not sure which other industries are vulnerable, but if I had to take a guess I would look for industries with legacy costs like defined benefit plans.  Those are a dying breed even for old industries.  The last strong holds of defined benefit plans are governments at all levels, particularly the US government.

What is the most important tip you can give investors for 2011? 

Be prepared for inflation.  We already see it picking up to 3-4 percent in the UK and Europe.  If the debt crisis in the US becomes really prominent, then currency traders will let the bottom fall out of the dollar, and inflation here is likely to become as great or greater than that in Europe.  Already precious metals, industrial materials, and even food products are shooting up on commodity markets.  (The one big exception is natural gas, which has fallen by about 20%.  Luckily I heat my home with gas.)  Last time I saw anything like that was 1973 as the "Great Inflation" started.  Invest in things that will not lose their real value as inflation rises.

Which countries are the best for portfolio diversification purposes? 

As I already mentioned, Switzerland and Canada are prime candidates.  Inflation could also improve the position of emerging markets that are primarily natural resource based.

Industry is starting to pour back into Argentina, particularly to develop lithium mining. Is there any easy way to invest in Argentina and/or in the Argentine peso?

Why on earth would you want to invest in Argentine pesos?  The Argentine government continues to rip off its inhabitants.  Sure the economy’s growing, but so is the inflation rate.  People don’t have trust in the currency or the government’s willingness to stand behind it.

Excellent tips, Dr. Miles. Thank you so much!

About Dr. Marc Miles
Marc Miles is the former Editor of the annual 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 U.S. and global markets.  He holds B.A., M.A., and Ph.D. degrees from the University of Chicago and a M.Sc. degree from the London School of Economics.

Other Articles of Interest
"Don't Get Fooled Again," from Sept. 2010 ezine, vol. 7, issue 8.
"Latin America Funds Doubled," from August 2010 ezine, vol. 7, issue 8.
"Hot Funds of Summer," from July 2010 ezine, vol. 7, issue 7.
"Bond Beautification Project. What Should You Do With Your Bonds?" vol. 7, iss. 10.
"Spring Rally," from April 2010 ezine, vol. 7. iss. 8.

Don’t Just Survive. Thrive!

by Natalie Pace.

Try my Thrive Budget, rather than your Buried Alive in Bills budget.

Are you thriving and loving your life, or are you just surviving from paycheck to paycheck and running out of money before the end of the month? Cutting out cafe lattes will not change anything in your life. Getting your big-ticket items in a reasonable range will launch you into dream come true living VERY FAST! 50% to thrive and 50% to survive baby!

10 Rules of Becoming Rich
My Thrive Budget™, upon which these rules are based, is outlined in greater detail in my book You Vs. Wall Street.

Success stories
Steve Jobs, the rock star of Apple Computer and iTunes, slept on the floor of his friend’s dorm room to crash college calligraphy courses before founding Apple. The chairman of an $11 billion company once slept on his parent’s couch while educating himself to make the transition from football coach to CEO. And one of the richest women in the world, J.K. Rowling, received public assistance while she created one of the most beloved stories of all time – Harry Potter.

Bottom Line
So, sing your song… loudly. Dance as if everyone is watching. (They are … on Facebook. And Twitter. And YouTube. And BlogTalkRadio…) And fall in love with your ability to transform your currency into the power that fuels your dream come true life.

Take-Away Suggestions

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 a contributor to HuffingtonPost.com, Forbes.com, Sohu.com and BestEverYou.com. 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, and on YouTube.com/NataliePaceDOTCOM. For more information please visit, http://www.nataliepace.com.

Traditional Bookstores are Doomed.

by Dr. Gary S. Becker

The traditional bookstore is doomed by e-readers and online sales of hard copy books. I use the word "doomed" in the same sense that online digital sales of movies and music have doomed movie rental stores, movie theatres, and stores that sell albums of music. Doomed does not mean that these stores will quickly, or ever fully, disappear, but that they have received deadly blows from Internet competition.

Joseph Schumpeter, an outstanding economist in the first half of the 20^th century, originated the term "creative destruction" to describe new technologies and other forms of new competition that wreak havoc on older and established industries. The process is creative because it provides consumers and producers with more effective ways of satisfying their wants. The process is at the same time destructive because it greatly reduces the value of services and products provided by older industries.

Extreme examples of creative destruction from the 20^th century include the complete substitution of cars for horses and buggies, movies with speaking for silent movies, and computers for typewriters. Less extreme are the large reduction in clerical and secretarial staffs caused by the development of computers and the Web, and the sizable reduction in demand for milk and eggs induced by better information on the health value of low cholesterol diets.

A similar creative destruction process began for bookstores with Amazon’s development of online book sales that offered huge inventories of books, convenience of purchase, speedy deliveries, online reviews of books, and various other services that made it more efficient and often cheaper to buy books online rather than in bookstores. Sales of books online started slowly, but they have accelerated as consumers became more familiar with the process of buying books (and other goods) online. I first started using Amazon at my summer home since it is not near any bookstore. Discovering the convenience of buying books online, I now buy online all year, although I still enjoy visiting bookstores.

Effective online readers, like Amazon’s Kindle, and Apple’s iPad, are only a few years old, but they have become big hits since they can be used both to purchase books online, and to read books in digital form. Hundreds of books can be stored digitally in a single Reader that weighs less than a couple of pounds. They are especially valuable when traveling, but are useful when reading in bed or eating, and also with traditional reading when seated on a comfortable chair. They are particularly useful for individuals with weak eyesight since print size can be easily adjusted. This is why digital readers will appeal eventually even more to older persons than to others, although mainly younger persons are the ones who so far have bought digital readers because old persons are less familiar with digitalization.

I do not expect bookstores to rapidly disappear the way the production of silent movies virtually ceased once talking movies were created. However, I do expect an accelerating decline in the number of bookstores as many close down due to bankruptcy and excessive losses. Some bookstores will continue to exist to cater to men and women who like to browse among physical copies of books, and because some owners of bookstores get great pleasure out of selling and being surrounded by books. Many bookstores that survive are likely to combine selling hard copy books with that of other products. For example, university bookstores usually also sell clothing that have the university logo, computers, greeting cards, snacks and coffee, and other goods that cater to students and faculty. Other surviving bookstores might combine selling of hard copy books in physical facilities with online sales of hard copy books, and online sales of digital books.

The decline of bookstores, theatres, laundries, and other retail industries with physical facilities illustrates a trend that runs counter to older ideas about the effects of economic development. The process of development has been presumed to cause a substitution of market activities for home production. For example, households in poor rural societies have not only grown their own food, but also made much of their clothing, washed their clothes, baked their bread, and cooked from scratch their other food. As countries underwent economic growth, many of these productive activities left the home and migrated to the marketplace. Factory-made clothing was substituted for clothing made at home, and bakeries and laundries developed to make bread and sweets, and to wash, clean, and dry clothes.

Further technological developments, however, such as small motors used in home washing and drying machines, and small machines that cooked bread easily at home, shifted many activities back into the home, and thereby saved on time and energy spent in the shopping process. The online digital revolution is a further major step in this trend of returning activities to the home. Time and effort are saved, for example, when instead of going to movie theatres, consumers both order and download films online to be viewed at "home", either on television sets, or increasingly on computers.

From this perspective, what is happening to bookstores is not unusual. "Books" are still read at "home", but increasingly they are also purchased at home, and not only in hard copy form. Digital books are a true revolution, but their effects on bookstores are only a small part of a broader technological development that has brought important activities into the home.

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.

House of the Rising Sun: A Check-Up on Housing.

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

January 18, 2011

Liz Ann Sonders.

Key points
Housing is becoming less national and more regional in terms of strength/weakness.

Another way to slice the data is to show the actual index level. For instance, an October index level of 186.7 in Washington DC indicates that average home prices are more than 86% above their January 2000 values. An index level of 68.9 in Detroit indicates that average home prices are still more than 30% below their January 2000 values. That's the worst showing by far. Below are the rest of the top and bottom five regions based on index level:

Ugly year for foreclosures
The biggest black eye that remains on the face of housing is the foreclosure problem. In 2011 lenders are likely to foreclose on more homes than any other year since the housing crisis began in 2006. The only saving grace is that RealtyTrac believes 2011 will be the peak in foreclosures, predicting 1.2 million homes will be repossessed this year, up from one million in 2010.

The pain will likely be the most acute in states that have already suffered the worst, including Nevada, Arizona, Florida and California, or in states with bleak economic outlooks, including Michigan and Illinois. More than half the country's foreclosure activity occurred in five states in 2010: California, Florida, Arizona, Illinois and Michigan; meanwhile, Nevada posted the highest foreclosure rate in 2010 for the fourth consecutive year.

Affordability has spiked
But all is not bleak. Most measures of housing affordability have improved markedly. As regular readers know, I keep a close eye on "real mortgage rates."

Like real gross domestic product (GDP), which is nominal GDP less the inflation rate, the real mortgage rate is the nominal mortgage rate (30-year fixed) minus the rate of inflation (or deflation) in home prices. Remember, it's not just the mortgage rate that matters to demand, but also the rate at which houses are appreciating or depreciating.

As you can see in the chart below, real mortgage rates have come down substantially from their peak (which corresponded to the trough in the housing market), but remain well above their trough (which corresponded to the peak in the housing market).

Real Mortgage Rates Coming Down

Source: FactSet, Federal Reserve, National Association of Realtors, as of November 30, 2010.

The traditional measures of housing affordability have improved meaningfully, too. The first chart below shows the Housing Affordability Index, which is composed of mortgage rates, home prices and personal income data. As you can see, affordability is at an all-time peak. The second chart below shows the ratio of home prices to disposable personal income, and the news is good here, too, as prices have come down to at least a 30-year low.

Housing Affordability Hitting Records

Source: FactSet, National Association of Realtors, as of November 30, 2010.

Source: FactSet, Federal Finance Housing Board, High Frequency Economics, as of September 30, 2010.

Housing and employment … the connection
The key to improving demand may lie in something else besides affordability, and that's job growth. The prospects for employment and housing are likely more linked today than any time in history, given the severity of the crisis in both.

As detailed in a study by Ned Davis Research (NDR), real (inflation-adjusted) house prices have historically stopped falling when the unemployment rate has peaked. This potentially bodes well for the housing-is-bottoming story given the drop in the unemployment rate from its October 2010 peak of 10.1% to its present 9.4%. However, real house prices have historically not started to rise until the unemployment rate approaches the "full employment rate (NAIRU)."

Declining Unemployment Rate Should Help House Prices

Source: FactSet, Ned Davis Research, Inc. (Further distribution prohibited without prior permission. Copyright 2011 (c) Ned Davis Research, Inc. All rights reserved.), as of September 30, 2010.

Yellow shaded areas represent periods of rising unemployment. Gray shaded areas represent periods from unemployment peaks until 1.2% points above Non-Accelerating Inflation Rate of Unemployment (NAIRU), a level of unemployment below which inflation rises.

The gray shaded areas represent the time from the unemployment rate peak until it falls to within 1.2 percentage points of the full employment rate. (Although it appears as if the unemployment rate peaked last October, until that's confirmed, the most recent span will remain shaded yellow.)

Assuming the full employment rate is around 7% (NDR's estimate), real house prices likely won't start rising until the unemployment rate falls below 8%. If the full employment rate is closer to 6%, as is assumed by many economists, then the recovery could take even longer.

Burst bubbles take longer to heal
As you can see in the chart below, we're already more than five years into the home-sales downturn, by far the longest stretch (gray bars) in history. The decline in price is rivaled only by the downturn from 1978-1982 when mortgage rates were in double digits and the United States was heading into back-to-back recessions.

Sales Finally Picking Up?

Source: FactSet, National Association of Realtors, Ned Davis Research, Inc. (Further distribution prohibited without prior permission. Copyright 2011 (c) Ned Davis Research, Inc. All rights reserved.), as of November 30, 2010. Gray shaded areas represent downturns.

This downturn is the result of a bubble that burst, but was certainly exacerbated by the related financial crisis and severe recession. NDR compared this bubble to a composite of the four historic mega-bubbles: the Dow Jones Industrial Average in 1929, crude oil in 1980, the Nikkei in 1990 and the NASDAQ in 2000, seen below.

Housing Following the Bubble Path

Source: FactSet, Ned Davis Research, Inc. (Further distribution prohibited without prior permission. Copyright 2011 (c) Ned Davis Research, Inc. All rights reserved.), Standard and Poor's. Historical Bubble Composite as of January 1, 2002, thru May 31, 2016. Case-Shiller Composite as of October 31, 2010.

The picture of the prior bubbles is consistent with our view that housing has probably broadly bottomed, but the path up is likely to be relatively flat, elongated and volatile among geographic regions.

Housing and GDP … the connection
Finally, the real key question is the impact of housing on the overall economy. One of the most common questions I get is whether we can get decent GDP growth without housing doing the heavy lifting, as it did in the last up cycle. Here's where I think many people have it wrong, much as they did after the bursting of the tech bubble in 2000.

As the economy exited recession in 2001, the thinking was that the economy couldn't recover without leadership by technology, given its prior power as an economic driver. However, from the peak in 2000 when equipment and software represented more than 9% of GDP, it was subsequently on its way to near 6% by 2008 … only since then has it begun to rise again. The economy recovered, as did the stock market, without leadership from technology.

As you can see in the final chart below, housing has been on a similar path. At the peak, residential real estate represented more than 6% of GDP, whereas now it's a record low of little more than 2%.

Housing Is Less Important to GDP

Source: Bureau of Economic Analysis, FactSet, as of September 30, 2010.

That of course doesn't mean housing can't be a negative contributor—it just means there are other forces that have gained power as this cycle has unfolded. As an example, auto production now accounts for a larger share of GDP than housing, and its prospects are looking much better.

Upside potential?
The potential good news is that housing starts have been running at a pace of only 40% of their 30-year average, well below the household formation rate. In addition, we're seeing improved price and volume performance for non-distressed sales. Supply is heading back up thanks to increasing foreclosures, but we could be getting close to the last ugly Case-Shiller report and the market-clearing process should pick up in the spring selling season.

Necessary ingredients for a healthy recovery in housing would be the aforementioned down slope in the unemployment rate, a further loosening of the credit environment, no significant (further) spike in mortgage rates, and general improvement to consumer confidence. Again, we believe the prospects for housing are improving, though certainly not stellar, but our optimism about the economic recovery could feed into better-than-expected housing news as well.

Important Disclosures
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative (or "informational") purposes only and not intended to be reflective of results you can expect to achieve.

Is Your Guru a Shaman or Showman?

Readers Ask Natalie to Shed Light on How to Tell the Difference – Before It’s Too Late.

Dear Natalie:

When I heard about the deaths at James Arthur Ray’s sweat lodge in Sedona in 2009, I was so angry that all of those people had trusted him with their lives, when his team wasn’t really qualified to build sweat lodges or conduct the ritual. And then I realized that I had fallen for the same kind of thing by attending Millionaire Training Seminars that had resulted in me making investments (offered at those seminars) that have destroyed my nest egg and ruined my credit. Many of the speakers who sold me products declared bankruptcy, and I have no recourse to recover my losses. Now, that same guru who suckered almost $50,000 out of me (I registered for a lot of the conferences) is selling Get Out of Debt seminars, when just last year s/he was selling Millionaire Training Seminars. Obviously, I won’t be attending, but how do I keep from falling for this in the future?

My Shaman Was Just a Showman (but at least I didn’t die)

Dear Shaman,

You have just learned the hard way that the measure of a guru isn’t how high s/he can leap on stage, or how many fist pumps s/he can conjure up to whip the crowd in a frenzy, or how many whistles and toots and gadgets s/he uses, or how many cars s/he can give away or even how many books have been sold. Our greatest gurus throughout history were much quieter than that. It was their actions, more than their words, which inspired us.

Gandhi didn’t just talk about freedom and eliminating the caste system in India, he dressed in simple "untouchable" clothing and mingled with government leaders as well as those who were previously neglected by society. He weaved his own simple clothing to promote local artisanship. Martin Luther King and Rosa Parks didn’t sell seminars on empowerment. They stood up to the injustices occurring in America in the 1960s and, in a peaceful way, forced a cultural shift that allowed Blacks to enjoy the rights they, by law, already had won. Betty Williams and Mairead Corrigan did not sell peace books through infomercials, they organized peace marches in Northern Ireland, standing up to the violent and aggressive leadership, which was on the both sides of the conflict, to save lives and reduce the power of terrorism in the region. Jesus performed miracles. For free.

A shaman will have a PhD in results. A showman will tell you s/he does, and may even have a degree to boot, but the proof is in the pudding. Does s/he spend her time selling you things or performing miracles?

When my son was two, I went to the most respected pediatrician in my city. She was touted as a progressive, pro-breast feeding, pro-nutrition MD and she was on many boards, as well. Yet, my son had chronic ear infections to the point where this physician recommended that we start him on a low dose of antibiotics year-round. Whoa!

I had to make a trip to the UCLA Biomedical Library to discover what I suspected – that strategy doesn’t work. It produces a resistance to antibiotics, a weak immune system (meaning susceptibility to every virus and worse) and typically leads to hearing loss and surgery. It took courage to stand up to my son’s doctor, and a lot of meticulous searching to find a pediatrician who had an excellent track record for healing chronic ear infections, but once I found Dr. Jay Gordon, he took my son off of the daily 24-ounces of cow’s milk that the previous pediatrician insisted on and within a few short months, my son was healed. (Dr. Gordon correctly diagnosed my son as being allergic to cow’s milk, which most Asians are.)

From that time on, my son needed medical care only once – for a hernia (at the age of five), which was genetic. The office visits were limited to well child checkups for the rest of my son’s childhood! (Dr. Gordon jokes that he does his job too well.) Amazing! This doctor performed a miracle. As a result he was able to sell me far fewer things (very few office visits), but he has received more money from all of the referrals I have brought him.

So, how do you determine who has a PhD in results, if even board certified physicians can give you the wrong diagnosis and prescription?

You have to do your due diligence before you enter into a deep, long lasting relationship (business or personal) with anyone. You have to ask questions and carefully reflect on the answers. This may sound difficult, but my chapter "Brokers are Salesman, Not Surgeons," from You Vs. Wall Street has 12 questions you should ask before hiring a Certified Financial Planner. These questions can be modified for other professionals you are considering in other disciplines as well. Interview your specialists, those people you hire to help you with your health, wealth and well being, as if you life depends upon it, because your lifestyle does.

Whether it is your bottom line, your health or your assets, the faster you get into alignment with strategies that really work, the faster you can heal. So start now by taking ownership of your health and wealth because, as Joe Moglia, the Chairman of TD AMERITRADE says, "Nobody cares about your money more than you do." Dr. Gordon says the same thing in a slightly different way; "Nobody knows your child better than you do."

FYI: The State of Arizona vs. James Arthur Ray trial starts on February 16, 2011 in Prescott, Arizona. Peace and healing to those affected by this tragedy. You remain in our hearts.

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 a contributor to HuffingtonPost.com, Forbes.com, Sohu.com and BestEverYou.com. 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, and on YouTube.com/NataliePaceDOTCOM. For more information please visit, http://www.nataliepace.com.

Having Fun on the Wall Street Rollercoaster.

by Natalie Pace.

Includes my Hot News on Cool Stocks Report.

Take your profits early and often. Be a patient buyer and a ready seller by using limit orders.

January 31, 2010

General Stock Market Performance

Wall Street Highs/Lows in the New Millennium:

Hot News on Cool Stocks Important Data
13X gains on U.S. Gold, our 2009 Company of the Year!
NASDAQ Outscored the Dow Jones Industrial Average, 69% to 30% since 2009
NASDAQ Outscored Gold since 2009, 69% to 56%
13 out of 14 Company of the Month features from 2010 are in the money. Woo hoo!
Gold tops stocks, real estate, bonds and T-Bills Over the Last 10 Years.

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

Market Update:

Photo by: Doug Mazell. Mazell.com

ENER1, one of the hot companies on our Hot News on Cool Stocks list, has been jumping around between a share price of $3.20 and $5.80 since the first of the year. That’s a range of 81% potential gains. Cree (another Hot company), hovered in the high $70 range for most of 2010, and then dropped to the $50 range last week – at a time when NASDAQ was still holding strong. Applied Materials, the 2010 Company of the Year popped 35% right after that feature in the December 2010 ezine.

So, how can you play a market that is so irrational and volatile? By taking your profits early and often. Quite simply, there is too much risk in the marketplace -- with the levels of debt that is being held in most of the developed world -- to buy and hold. One strategy works brilliantly – annual rebalancing. Simply rebalancing your diversified nest egg on an annual basis means that your nest egg grew by 10% or more over the last decade, even more if you were overweighting NASDAQ over the Dow Jones Industrial Average and small caps over large caps. For most individual stocks (excluding very hot industries, like gold, technology and natural resources), patient buying and selling was essential to profits. (Gold and technology have been paying off steadily since 2006.)

The easiest way to be on the right side of the buy low/sell high equation is with limit orders -- both in your nest egg and in your Stocks on Steroids accounts. Interested in an Australian ETF? Why not place an order for your favorite fund with a buy price that is at or near the one or two year low? Unsure whether to take your nest egg profits once a year or quarterly? Why not place a sell limit order at a key price target and let the market rebalance for you? The same applies to the stock in individual corporations. Limit orders allow you to buy or sell at the the price you most desire, even if you are on vacation and not near a computer.

Hot Industries
So what industries will be hot in 2011? Based upon my continuing analysis, the following areas of the world and the world marketplace are poised to lead the world equities: Australia, Latin America (particularly Chile and Argentina), natural resources, basic materials, technology (particularly nanotech), clean energy and NASDAQ. However, the purchase price is just as important as the industry, so be sure to determine the best buy price before adding these slices to your nest egg pie.

Below are the top performing funds of 2010. Note that small caps led returns (again), growth beat value and large cap value was one of the lowest performers (the Bailout Index).

Top Performing Funds of 2010

Source: 2011 © Morningstar, Inc.

Muni bond funds were the worst area of the market to be in, and that continues to be the case in 2011.

Worst Performing Funds

Source: 2011 © Morningstar, Inc.

Large Caps
Finally, it’s important to note that NASDAQ scored 69% gains over the last two years compared to only 31% for the former leading Blue Chip Index, the Dow Jones Industrial Average. NASDAQ is hot for a number of reasons – stronger revenue, emerging markets (like smart phones and Internet) and less debt. As you can see from the vintage article below (from November 2006), the trend of NASDAQ beating the DOW handily was already visible in the crystal ball five years ago. Check out the headline article in this ezine entitled, "Big Bites Out of Apple and Google" for an updated analysis of NASDAQ versus the DJIA.

Wow! Dow! Or NASDAQ Now? By Natalie Pace. A Contrast in Cash and Debt.

Come to a Get Rich and Enrich Retreat and I’ll show you how to: 1. diversify your nest egg, 2. rebalance at least once a year, 3. use my 3-ingredient recipe for cooking up profits in real estate, stocks, bonds, and more, 4. get safe from bonds and bond funds, and 5. use limit orders to place profit-taking on auto-pilot! Call 866-476-7442 to register now. Deborah, who attended the November 2010 retreat, made back the price of her tuition in just one month!

Investor Alerts:
1. OPEC: On October 14, 2010, OPEC released a press release stating that they had agreed upon a new "long term strategy." The details of that strategy were scheduled to be released at the December 11, 2010 OPEC meeting in Quito, Ecuador, but were not. OPEC never responded to my inquiry requesting details and/or the summary of the new LTS (which was sent on December 11, 2010). There is speculation that the strategy will be going from the U.S. dollar valuation to a "basket of currency." If that occurs, it will likely be distressing to investors, which OPEC and government leaders are completely aware of. Watch and wait, but definitely be aware of the potential.

2. Debt: Refer to the CIA’s World Fact Book for a listing of debt to GDP ratio by country. The U.S. isn’t in the worst shape, but we are adding to the deficit every year and approaching levels that were problematic for PIIGS (Portugal, Ireland, Italy, Greece and Spain), Japan and other countries. Current debt to GDP (excluding $4.5 billion held by our federal government) was 63.6% in 2010, according to the U.S. Office of Management and Budget.

3. Real Estate: There were 2.9 million foreclosure filings in 2010. Foreclosures in 2009 were 2.8 million, with 2.3 million in 2008 and 1.3 million in 2007. 13 million homes could be lost before this real estate correction is over. This likely means that there will not be much upside in real estate values until beyond 2012, although low interest rates could make a real estate purchase desirable. According to a SIGTARP report on January 26, 2011, As of December 31, 2010, a total of 673,919 mortgages were undergoing modification, either permanently or on a trial basis, under HAMP. Of those, 521,630 were active permanent modifications and 152,289 were active trial modifications.

4. 911 Investor Alert: Bonds: Inflation and interest rates have yet to weigh on the bond market (preview of coming attractions), however debt has already begun to take its toll. Don’t be suckered into muni bonds or any other bond before examining a full accounting of the debt load of the entity and the fiscal health/capacity to make good on the bond. There were multiple articles in 2010 on bonds. Peruse the archives and read all of them!

5. Gold: The International Monetary Fund will be selling up to 191.3 metric tons of gold on the open market, a policy they announced (and began) in February of 2010. For a brief history of gold and information on which countries are the biggest holders of gold, read, "The Gold Crash of 1980," from the September 2010 ezine, volume 7, issue 9.

http://www.nataliepace.com/newsletters/members/news.php?np=yes&issue=709/709&article=02

So is There Anything Good Out There?
Yes, believe it or not, there are some excellent areas in the economy. My 2009 Company of the Year, U.S. Gold has posted up to 15X gains. 13 out of 14 Companies featured in my Company of the Month articles in 2010 were winners. Your nest egg has almost fully recovered from the Great Recession. If you have a great credit rating and can get a loan, there are areas of the country where you can buy cash positive, low risk income property. And even if you’re in trouble, in doubt, losing a home or declaring bankruptcy, there are some very important things to do to squirrel away as many assets as possible. The best way to learn about these things is to read this ezine top to bottom, read You Vs. Wall Street and register to attend the next Get Rich and Enrich Retreat. Once you have wisdom and education that you should have received in high school, all of this will be easy and can be set up on auto-pilot. Until then, you are vulnerable to more boom/bust markets.

The Get Rich and Enrich Retreat is a great way to have a blast in the sunny beach town of Santa Monica. What a great, empowering vacation! There are only a handful of seats available in this intimate, 12-person, boardroom retreat, so if you’re interested call 866-476-7442 or email Heather@NataliePace.com right away. Get more information on the home page at NataliePace.com under the Get Rich and Enrich Retreat banner ad.

Banks Are Still Failing
There were 157 bank failures in 2010, 140 bank failures in 2009 and 25 in 2008. 7 banks have already failed in the first few days of 2011 (source: FDIC.gov). Don’t be seduced by the banks reporting record earnings! Most of them are fairy tales. (Nonproducing loans are carried off the books; TARP and other Federal Reserve swaps are about as easy to figure out as the origin of the life.) However, the $600 billion that the Federal Reserve is putting in the bank coffers between November 2010 and May 2011 should help their earnings reports shine up real nice. Meanwhile foreclosures were 2.9 million in 2010, with 2.25 million expected in 2011 and 2 million projected for 2012. Ouch… 14 million homes will be lost between 2007 and 2012 and not all of them hitting the financial statements with as much force as they should...

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 before, during and after the Great Recession – in bear and bull market years. 95 positions listed below – 80% -- 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-four 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.

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 15X 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) 15X 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. 13 out of 14 companies featured in the Company of the Month articles in 2010 earned gains – 93%!

The NataliePace.com ezine 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 March 15, 2011.

GDP Growth Rates: Advance estimates of 4^th quarter 2010 GDP growth came in at 3.2%. 2^nd estimates will be released on February 25, 2011 at 8:30 a.m. ET. Third estimate GDP growth rate for 3Q 2010 was 2.6%. 2Q 2010 GDP growth was 1.7%.  1Q 2010 GDP growth was 3.7%.

These release days tend to be very active on Wall Street.  For more information on GDP growth and other important economic statistics, 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 January 25-26, 2011 FOMC meeting for yourself? You can. The official Federal Reserve document is available online. Go to FederalReserve.gov to read! According to the Committee, "The economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions... Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward."

The tentative FOMC meeting schedule for the 2010-2011 calendar is: 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. This month, we want to get the holiday gift giving right! 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 are scheduled for February 3, 2011 at 2:30 p.m. CET. (February 17, 2011 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.
Cree (CREE) added on 1.20.11
MEMC Electronics (WFR) added on 1.31.11

Profit-Taking:
Hoku Corp. (HOKU) +25%
LDK Solar (LDK) +149%
U.S. Gold (UXG) 13X ROI

DELETIONS (Take your profits early and often):
Advanced Materials (AMAT) on 1.14.11
Kulicke and Soffa Ind. (KLIC) 12.1.10

HOT NEWS on COOL STOCKS LIST

Deleted Companies 2008-2011:
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. Deleted 9.13.10: American Superconductor (flat) & AOL (flat). 10.1.10: Blockbuster busted out in bankruptcy on 9.28.10. KLAC was deleted with 11% gains. 10.15.10: ENER1 was deleted with flat performance. 11.11.10: ENER1 was deleted with 37% gains. VECO was deleted with 2% & 41% gains. 12.1.10: KLIC was deleted with 12% gains. 1.14.11: Advanced Materials was deleted with 30% gains.

Recently Deleted from the Hot News list:
Applied Materials (AMAT) 1.14.11
Kulicke & Soffa on 12.1.10

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:
American Superconductor (AMSC) nearing 52-week low on 1.31.11
Applied Materials (AMAT) on 1.14.11
PowerShares Emerging Markets Index (PIE) on 1.14.11
Tesla (TSLA) on 1.14.11

Recent Deletions:
ENER1 (HEV) (moved to Hot List on 1.14.11)
Cree (CREE) (moved to Hot List on 1.20.11)

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):
PIMCO Municipal Bond Fund (MUNI)
Netflix (NFLX)
Taubman (TCO)

DELETIONS:
Tesla Motors (TSLA)

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. Deleted MGM 9.13.10 for 61% gains. Deleted Tesla on 1.14.11 with 20% & 24% gains.

Recently Deleted:
Tesla (TSLA) on 1.14.11

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:

Catch Natalie on CNBC Thursday morning, February 3, 2011, discussing an industry that is hotter than gold.

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.

Chinese New Year
Thursday, February 3rd, 2011
Chinese New Year 2011!

Natalie Pace on CNBC's Squawk on the Street
Thursday, February 3rd, 2011

7:15AM through 7:50AM PT
Natalie Pace will be discussing a segment of the marketplace that is hotter than gold. Check it out!

Do As One Breathing Event
Friday, February 4th, 2011
DoAsOne.com invites you to join "unity" through breath. Join the group anytime February 4th, 5th or 6th in the Universal Breathing Room at DoAsOne.com.

Get Rich and Enrich Retreat, Santa Monica, CA
Saturday, February 5th, 2011
SOLD OUT. Check the March 2011 retreat for availability. You spend hundreds of thousands learning how to earn money. Why not spend a fraction of that learning how to invest? 3 days in a boardroom setting, learning investing directly from Natalie Pace. Feb. 5-7, 2011.

Dmitri Hvorostovsky in concert. LA, CA
Thursday, February 10th, 2011
7:30PM through 10:00PM PT
From the moment he won the Cardiff Singer of the World Competition, Dmitri Hvorostovsky has been likened by critics to the great voices of the century.

The State of Arizona vs. James Arthur Ray Trial Begins
Wednesday, February 16th, 2011
The State of Arizona vs. James Arthur Ray Case Number: V1300CR201080049 will begin today. This is around the deaths at a Sweat Lodge that occurred on Oct. 8, 2009.

Il Turko in Italia. Rossini. LA, CA
Saturday, February 19th, 2011
7:30PM through 11:00PM PT
Experience Rossini's zaniest comedy at L.A. Opera.

Washington's Birthday
Monday, February 21st, 2011

Health Insurance Costs Killing You? Call-in Radio show.
Tuesday, February 22nd, 2011
5:00PM through 5:30PM PT.
Health Savings Accounts reward you for staying healthy. Learn how this tax-deductible asset can beautify your bottom line. Call-in number: (347) 215-7305. Log onto: http://www.blogtalkradio.com/nataliepace

GDP 4Q 2010 (2nd Est.)
Friday, February 25th, 2011
8:30AM through 8:45AM ET
The U.S. Dept. of Commerce, Bureau of Economic Analysis (BEA.gov) releases its 2nd estimate on GDP growth in the 4th Q of 2010.

The Academy Awards
Sunday, February 27th, 2011
5:00PM through 8:00PM PT
James Franco and Anne Hathaway host the 83rd Academy Awards. What's your favorite film? Which actor/actress inspired you most?

TED2011. Long Beach, CA
Monday, February 28th, 2011
A cast of characters capable of stirring the imagination as never before. Explorers, storytellers, photographers, scientific pioneers, visionaries and provocateurs from all parts of the globe.

TEDActive Conference. Palm Springs, CA
Monday, February 28th, 2011
TEDActive brings innovators of the future together at a desert oasis retreat, creating startling conversations supplemented by live music, bonus speakers, and whimsical soirees.

Jonas Kaufman in concert. LA, CA
Friday, March 11th, 2011
7:30PM through 11:00PM PT
Born in Munich, tenor Jonas Kaufmann is now internationally recognized as one of the most important artists of our day.

Get Rich and Enrich Retreat. Santa Monica, CA
Friday, March 11th, 2011 through Sunday, March 13, 2011
You spend hundreds of thousands learning how to earn money. Why not spend a fraction of that learning how to invest? 3 days in a boardroom setting, learning investing directly from Natalie Pace. March 11-13, 2011. Only 5 seats remain. Call 866-476-7442 NOW!

The Turn of the Screw. LA, CA
Saturday, March 12th, 2011
7:30PM through 11:00PM PT
Benjamin Britten's mesmerizing score brings an unforgettable Henry James classic to the opera stage.

FOMC Meeting
Tuesday, March 15th, 2011
The Federal Open Market Committee meets to determine Federal Reserve policy in the U.S.

Spring Equinox
Sunday, March 20th, 2011
The official beginning of Spring!

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