Saturday, December 27, 2008

How To Build Any List

The Ponzi Scheme of “Unfunded Liabilities”

There is no bigger Ponzi scheme than those operated by the Federal government – Social Security and Medicare. Both programs are nothing but an inverted pyramid with money from new contributions going to pay withdrawals. The only difference is that Charles Ponzi and Bernie Madoff didn’t force people to give them money.

However, the eventual result will be the same, just on a much larger scale. As the withdrawals inevitably swamp the new contributions, both programs will end in disaster and disgrace.
And for that matter, what is the difference from Madoff’s scheme and that of the big banks who have finally had to admit that their own financial statements were bogus and many of their “assets” worthless.

If nothing else, I hope that people are finally waking up to the fact that in a fiat money system, the entire economy is based on a Ponzi scheme of ever-expanding debt.

Friday, December 26, 2008

Your Ultimate Investment Success

By Andrew M. Gordon

Why do you buy a particular stock?

Check the choice you most agree with...

___ The stock has bottomed.
___ The stock is dirt-cheap.
___ The stock is offering a huge dividend.
___ A majority of analysts have rated it a "buy."
___ It offers an attractive return in the long term.

Buying into a company because it has bottomed is a non-sequitur. You can't really know when it has bottomed. Even if it has dropped 95 percent, you could see it drop another 50 percent.

Buying a cheap company just because its price is low is tempting... but not smart. Many companies are cheap for a reason. Some aren't. The former you should ignore. The latter are much better investment opportunities. (More on that in a few seconds.)

Huge dividends lure many investors. But understand that some dividends are high because investors are fleeing the stock... lowering the share price... and thus raising the dividend yield. Before you buy, you have to ask yourself why so many other investors are selling the stock. It's only a matter of time before many such companies reduce their dividend rates.

Highly rated companies are safe bets, right? Two things you need to know. First, many analysts engage in ratings inflation. If the company doesn't stink to high heaven, it gets a "buy" rating from Wall Street. Second, if all (or most) of the analysts are rating the company high, there's no room for them to upgrade it - and news of a ratings upgrade brings in new investors in droves. I prefer analysts to be lukewarm (at best) about a company. If the company is any good, ratings will rise, bringing in new investors who will drive up the price.

The only reason to buy into a company is if you think it will give you good returns in the long term compared to other investments. Such companies may go down some in the short term - but they have demonstrated an ability to grow profits, manage their cash prudently, are in pretty good sectors, and are reasonably priced. Getting a great price on companies like these is not necessary, although in this market it's not hard to find them at 40-60 percent off. All the better.

Tuesday, December 16, 2008

Home Values

"We will never see these prices again in our lifetime, when you adjust for inflation," says Peter Schiff, president of investment firm Euro Pacific Capital of Darien, Conn. "These were lifetime peaks."

The boom in home prices — fueled by heavily leveraged loans built on low or even no down payments — made it easy to forget that housing values had been remarkably stable for a half-century after World War II, rising at roughly the same pace as income and inflation. Prices soared in most of the country — especially in Arizona, California, Florida and Nevada and metro areas of Washington, D.C., and New York — during a brief period of easy lending, especially from 2002 to 2006. That era's over.

So far, home values nationally have tumbled an average of 19% from their peak. As bad as that is, prices would need to fall as least 17% more to reach their traditional relationship to household income, according to a USA TODAY analysis of home prices since 1950. In that scenario, a $300,000 house in 2006 could be worth about $200,000 when real estate prices hit bottom.

Thursday, December 11, 2008

Economy and Markets Often Go Separate Ways

By Andrew M. Gordon

It's official. We're in a recession. So it's a good time to explore how the stock market does when the gross domestic product (GDP) goes down.

Since we've had negative S&P 500 growth in every quarter of our current recession - which began a year ago this month - it may seem that a falling economy is always accompanied by a falling stock market. But this is not true.

The most recent examples of this not happening are the fourth quarter of 1990 and the first quarter of 1991. GDP dropped 3 percent and 2 percent respectively, but the S&P grew.

In the post-WWII period, there have been 36 quarters when the GDP has shrunk. During those periods, the S&P actually gained 1.03 percent.

One reason for this is that the markets tend to rebound 3-5 months before a recession ends. That very last quarter of a recession usually shows significant market growth. And the next-to-last quarter also often shows positive growth.

This recession will continue well into next year (at the very least). But that, by itself, doesn't automatically mean the markets will continue to contract.

If there are signs of economic recovery in housing or retail or auto markets, for example, the S&P could very well rally. Unfortunately, I expect the economic news to continue to be bad. And as long as it is, it'll be hard, if not impossible, for the markets to turn back up.

There's no need to rush back into the market at this point, especially when you can get 6-8 percent interest on investment-grade bonds at very little risk. If you like tax-advantaged bonds, municipal bonds are also offering attractive interest rates.

Monday, December 8, 2008

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Friday, December 5, 2008

When Will It Be Safe to Go Back in the Water?

By Rick Pendergraft

One question keeps coming up when I talk to my friends and family these days: "How will I know when it is safe to get back into the market?" There is one indicator that I am watching closely right now that I think will provide the answer: the mutual fund inflows and outflows.

Since late July, only one week has seen money flowing into equity mutual funds. All other weeks have seen outflows. The institutional money may be what everyone keeps an eye on, but individual investors control more money than most people think. Through retirement plans, more and more individuals have been invested in mutual funds, and right now these people are fleeing the market in droves.

My advice is to watch those mutual fund numbers. Once you see the outflows slow down, it will be safe to start buying stocks again. I wouldn't wait for the inflows to start ramping up, though. When it comes to timing the market, the herd is usually late to the party.

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Tuesday, November 25, 2008

Bollinger Bands

Bollinger Bands are an important technical analysis tool. This tip explainsthe term and its relevance to you as an investor.

What is it?

Generally, trading bands are lines drawn at fixed distance around a moving average. The Bollinger Band concept is that a stock usually trades within a predictable range on either side of the moving average. Bollinger Bands vary in distance from the moving average based on volatility. The upper band is the standard deviation above the moving average, and the lower band is the standard deviation below the moving average.

Bollinger Bands are insightful tools helpful for spotting trends. These are valuable indicators of when the markets are overbought or oversold. While technical analysis is not fool proof, it assists the investor to make informed market choices. Sharp moves tend to occur after the bands tighten to the average. A move outside the bands calls for a continuation of the trend. Tops and bottoms formed outside the bands, followed by tops and bottoms formed inside the bands, indicate a trend reversal. A move originating at one band tends to go to the other band.

What is sector rotation and why is it important?

Sector rotation is simply the overweighting of some sectors while underweighting others to take advantage of money flows moving in and out of the market.

This is important because, over time, sectors go in and out of favor. Sectors that are the best performers today won't necessarily be the best performers tomorrow, next week, next month or next year. Rotating in and out of sectors as they gain and subsequently lose momentum is a strategy intended to outperform the market over the long term.

After all, the strategy of overweighting some sectors and underweighting others is precisely what many big institutions do. And it's the billions of dollars in money flows they control that move these sectors up and down.

Tuesday, November 18, 2008


John F Kennedy said that a rising tide lifted all boats. That may no longer be the case. Most Americans are worse off now than they were in 2001 at the start of the last stage of economic expansion. And the median, as opposed to average, household income is only marginally higher than it was a generation ago. Is the American Dream fading?

Barbara Ehrenreich, author of the mini-classic Nickel and Dimed (2001), has brought out a collection of her most biting journalism and certainly thinks so. In language only she could deploy, Ehrenreich explains why the debate about whether the US is heading into recession is irrelevant to the large swathes of America that for years have endured flat or declining incomes.

For people living in the "real economy" as opposed to those who measure success by macroeconomic numbers, recession has never been far away. "With all this talk of how to stimulate it, you'd think that the economy is a giant sex organ," she writes. "If we have learnt anything in the last few years it is that the economy is no longer an effective measure of human well-being . . . If there is a real economy, then what in hell is the economy?" To pose the question differently, who nowadays best symbolizes the American economy?

Monday, November 10, 2008

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Tuesday, November 4, 2008

Next Wave of Bankruptcies

Banks have lost over $680 billion because of the huge wave of foreclosures that has hit the market over the past two years. And losses are beginning to ratchet up somewhere else, too: consumer credit card charge-offs.

Charge-offs are debts that a company deems "uncollectible." According to Moody's Investor Services, credit card charge-offs increased by 48 percent in August alone. And Moody's expects them to continue increasing into late next year.

6.82 percent of all credit card debt has now been written off. With unemployment rising and the economy falling into even more dire straits, the credit card charge-off rate is sure to skyrocket.

Which means that banks that have relied heavily on income from credit cards - like Capital One (COF) and American Express (AXP) - are sure to see bigger losses.

Sunday, November 2, 2008

Spock would say it's not logical!

Like all bear-market rallies, last week's was utterly illogical, irrational, certifiably insane.

Look. All the fundamentals that caused this bear market are stronger than ever:

The financial disasters that have gutted world stock markets this year are accelerating; NOT slowing.

Debt defaults are soaring; NOT going away.

Global economies are cratering; NOT growing.

Consumer confidence is crashing. Corporate earnings are vanishing. And, it's all coming unglued FASTER with every passing week.

Wednesday, October 29, 2008

A Day of Shame

While all eyes were focused today on the Fed's rate cut, the big news was the Fed's latest cockamamie effort to save world.

Just when you thought the insanity couldn't get crazier, the Fed announced it's now going to funnel a massive $120 billion of U.S. funds into Brazil, South Korea, Singapore, and Mexico! We're circlingthe toliet bowl and we're sending money to other countries!

And that's on top of the IMF bailouts already committed to the Ukraine ($16.5 billion), Iceland ($2.1 billion), and Hungary ($25.5 billion)!

In response, some folks are cheering with glee, blindly believing that Mr. Bernanke can play Santa Claus, the Pied Piper and the Fairy Godmother all in one act. What idiots!!!

Anyone with any experience with the real world is quickly coming to the realization that Mr. Bernanke is Desperate — resorting to the radical measures of all time.

Playing his last cards — realizing that if these last-ditch rescues don't work, it's game over.

Taking huge risks — that his rescue-the-whole-world schemes will in the form of falling confidence in the U.S. government as a whole! Meanwhile, the much ballyhooed Fed rate cut was a dud!

After all the hope and prayer implied in yesterday's stock-market surge, today, the market literally saw a ghost: Just in the final 12 minutes of trading — from today's post-rate-cut high to the closing bell — the Dow nosedived by an alarming 372 points! And the fools on TV were tellingyou we had hit the bottom! What morons!!!

Not exactly a polite "thank you" note to Mr. Bernanke for his half-point rate cut! He sure does not get my "thank you"!

Bottom line: Some investors can be fooled some of the time. But the investors that move the market are painfully aware of one simple fact:

Mr. Bernanke cannot drop interest rates below zero!
He cannot force banks to lend money!
He can't compel consumers to borrow, or make people spend. Of course, ourso called "wise" leaders are doing plenty of it for us!
Nor can he turn back the clock to undo decades of financial sins ... or repeal the law of gravity and stop investors from selling.

Indeed, all of this week's wild events merely underscore that we are indeep, deep trouble and the Fed and that group of bandits and the politiciansare selling us out. I'm ashamed of my country, I really am!

Saturday, October 25, 2008

Time to Short Airlines as OPEC Cuts Crude Output

I’ve been watching in bewilderment at how much airline stocks such as UAUA, AMR, DAL, LCC, and RJET have have rallied without any real profit taking to set in yet. I shorted RJET a few times mostly for profits as I’m looking to catch this on the down side once people start taking there profits. And it's not a matter of if this will happen, it's when. With every huge sector rally, there's always a point when it peaks and retraces a significant amount before it continues going up, levels, or continues to fall.

OPEC scheduled an emergency meeting for Friday, October 24th, and is expected to cut crude oil output by an unknown amount. Demand for oil has been on the decline which has led to oil dropping around 55% from its peak near 150. Falling oil prices has meant increased profits for airlines, which is why the airline sector has been skyrocketing. Yet with rumors of the OPEC cut, hugely overbought conditions, and airline stocks losing momentum, this seems like it could be the beginning of a good time to catch airline stocks on a downside move, at least in the short term.

I’ve been trying to go short in several of them, yet shares have been hard to borrow. I managed to borrow some shares of RJET at 12.43 on Wednesday and alerted Black Service Members to go short. UAUA was also another very appealing airline stock and fell as far as 20% Thursday during the session, yet I wasn’t able to get any shares to short.

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Thursday, October 23, 2008


For the second-straight day, stocks plunged Wednesday as concerns about a worldwide recession and futures earnings from some of the global giants made headlines.

The fear of recession spread from stocks to other markets, as hard assets like gold and other commodities sold off. Energy, financial and materials led the decline and all 10 economic sectors posted losses ranging from negative 10.4% (energy) to negative 3.8% (consumer staples).

The losses occurred despite impressive earnings gains by some of the great global names: Apple (AAPL), McDonald’s (MCD), Merck (MRK), and Phillip Morris International (PM) all beat estimates. But Apple was the only one that closed higher, at $96.57, up $5.08.

Yahoo (YHOO) reported earnings after the close on Tuesday, beating estimates by a penny and announcing a 10% cut in its workforce. Yesterday, YHOO rose 32 cents to $12.39.

But the losses Wednesday weren’t primarily due to past earnings but to future earnings, as the overwhelming majority of companies have said that Q4 2008 and at least the first half of 2009 look much slower.

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Monday, October 20, 2008

3 Billion Served

Trading volume can be used as an indicator of changes in the market. Volume can tell you if a trend is likely to continue... or if it has run its course.

During the week of October 6-10, we saw several things we had never seen before. For one thing, the volume on the New York Stock Exchange reached 11 billion shares in a single day. A new record. Plus, the Spyders - the ETF that tracks the S&P 500 - saw over 800 million shares trade in a single day, and the weekly volume for the Spyders reached an incredible three billion shares. Those were both records.

You might also note that the week of October 6-10 saw the worst drop in the history of the U.S. stock market. That huge drop, coupled with the record volume, could indicate a capitulation point for the market - when everyone gives up and sells their stock. The second week of October could have been just that, the surrender of the bulls.

I would not recommend diving headfirst back into the market. There are going to be numerous layers of resistance to cut through. This market is best played cautiously. Lower your allocations and keep some cash on the sidelines. If, indeed, this turns out to be a bottom and a new bull market starts from here, there will be plenty of time to get back in.

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Monday, October 6, 2008

China's economic juggernaut is faltering.

The latest sign of a slowdown came with the Oct. 2 release of September figures on the health of China's manufacturing sector.

The data, the CLSA China Manufacturers Purchasing Managers Index (PMI), showed the steepest fall in volumes of new orders since the monthly survey began in June 2004; registering 47.7, it was well below the 50 boom/bust cutoff.

"This is a tsunami that starts in America, blowing across the globe and arriving at our doorstep," says Alex Fong, CEO of the Hong Kong General Chamber of Commerce. "Manufacturers [whose operations are all in China] have to be prepared for the worst."

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Saturday, October 4, 2008

Falling Market Great for You?

Unless you follow the market closely every day, you should have two stock-investing modes - as a holder of stocks and as a purchaser of stocks.

And what about selling? Selling now is not a good idea. The market has lost about 25 percent of its value since it peaked last October. That's about the average loss during a recession. If we're not at the bottom, we're probably near it. The worst you can do is sell when stocks are cheap and buy when they're expensive. That sounds easy enough... until a series of economic crises cause the markets to fall. In other words, exactly what is happening today. Then investors begin to panic. And panic is followed by selling.

If you are invested in sound companies, they will bounce back. In the meantime, the market's decline has presented you with a wonderful opportunity. The market is on sale. It's going for 25 percent off.

As a certain Warren Buffett said (in 1997): "Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."

Saturday, September 27, 2008

3 things are crystal clear:

1. The U.S. credit engine is already melting down. In fact, just this week, the all-important market for short-term commercial paper has come to a virtual standstill. This is precisely the market we warned you about. Now it's collapsing. And if this pattern continues, it's likely to drive many corporations that depend on this instant cash into instant bankruptcy.

2. Although a massive federal bailout might help rally the stock market temporarily, it is not — and will not — reverse the credit meltdown.

3. Quite to the contrary, fear is now spreading throughout the banking industry, driving many Americans to pull their money out of the financial system entirely. Yes, it makes sense to shift from weak to strong institutions, and that's rational. But the behavior we're beginning to witness is both irrational and dangerous.

Monday, September 22, 2008

Market Minute

For all the commotion. The final tally for the Dow this past week was a drop of 34

points. All told the Dow moved over 2,000 points last week. We saw the biggest

down day since 2001 and the biggest up day since 2002 all in the same week.

Don't fool yourself into thinking this debacle is over. The economy is still on

shaky ground.

Friday, September 19, 2008

Pivot Points

A technical indicator derived by calculating the numerical average of a
particular stock's high, low and closing prices.

The pivot point is used as a predictive indicator.

If the following day's market price falls below
the pivot point, it may be used as a new resistance level.

Conversely, if the market price rises above the pivot point, it may act as the new support level.

Monday, September 15, 2008


I've been calling for Dow 10,600 for months now -- and for the drop to be driven by the combined and intertwined problems of the housing and financial industries -- and I'm more certain than ever that we'll hit that, and for those very reasons.

Going forward, we can also expect two more legs down in the financial sector. There's going to be more than a few headaches in the days to come. Most eyes are on the fate of one Dow component in particular, AIG.

AIG is connected to nearly all of the players in the financial markets -- if it goes under or becomes insolvent, it will impact the financial system in a big, bad way.

The company's losses -- $18.5 billion in the last three quarters -- have been widely attributed to a decrease in the value of credit default swaps tied to subprime mortgages, which it sold to protect its debt investors.

Lehman was also a big player in the credit-default swap game, and you see where it ended up.

Bottom line: There's plenty of money to be made in the financials -- it's just not happening on the long side.

Monday, August 25, 2008

New Webinar Times for Home Seller Assist program with John Alexander

Don't forget, we have a live presentation each Tues
and Wed followed by a Q&A session.

Tue Night: 8:00 CST Seller Call ( attend this if you have a property to sell or buy

Tue Night: 9:30 CST Business Overview ( attend this if you want to make a 1% on any loan that funds - my profits since June 23rd are just over $17,000

Wed Night: 8:00 CST Seller Call ( attend this if you have a property to sell or buy

Wed Night: 9:30 CST HSA Training Call & Q/A Session (
using the info in our training, I have made over $17,000 since June 23rd


"You make money when you buy, not when you sell." So says the old adage. It's especially important to keep this in mind in today's market. Buying opportunities abound, and now is the time to take advantage of that and make your money.

I must admit, I have a soft spot in my heart for Detroit. That was where I was born and raised. And the entire southeastern part of the state of Michigan is dependent on the automakers staying in business. So whenever talk of the Big Three (or Two, if you prefer, since Chrysler is now privately owned) going bankrupt surfaces, I take note. But no matter what you hear, I believe the chances of them going bankrupt is very remote.

Here's why: If Ford or General Motors, for example, ever filed bankruptcy, it would likely shift consumers immediately away from their products and to those of its competitors, further hurting revenue. Because that sudden loss of customers would make it nearly impossible for the company to recover from bankruptcy, a more likely scenario would be a recapitalization of debt, and favorable concessions from suppliers and unions to ease the financial burden. It could also mean that new debt sources could be found at more favorable terms.

The government, having bailed out Chrysler in 1979, is well aware of the consequences of a major automobile manufacturer going out of business. It wouldn't just be GM or Ford going out of business. It would also mean the end for the hundreds of auto parts suppliers in the region, including Delphi, Visteon, and Johnson Controls. The trickle-down effect would be devastating.

So how does this tie into the old "you make money when you buy, not when you sell" adage? Ford and GM are currently trading near their 15-year lows. The outlook for them is bleak. Everyone is dumping shares. But, for the above reasons, I don't think these companies are going to go away - and it is time to look at them as long-term recovery investments.

Buying near 15-year lows gives you two advantages: You are buying at a very low price, so the upside is huge. At the same time, that low price makes your downside relatively small in the unlikely event that they do go bankrupt.

Saturday, August 23, 2008

Government Intervention Has a Ripple Effect

By Rick Pendergraft

Over the last month, the intertwined relationships of the markets have been wacky, to say the least. On July 15, the SEC announced its protection plan for Fannie Mae (FNM), Freddie Mac (FRE), and 17 banks and brokerage firms. This move totally disrupted the natural ebb and flow of the market.

Financial stocks bottomed (for now) on that date - which makes sense. But the next part doesn't make sense. Oil peaked on July 15. What does the U.S. government bailing out financial institutions have to do with the oil market?

When the government stepped in to protect those financial stocks, the dollar rallied. Oil is traded in dollars. And much of the rise in oil over the last year can be attributed to the falling dollar. So the rally in the dollar that started on July 15 caused oil prices to drop.

All this being said, it looks like the dollar has too much resistance to get through in the near term. Plus, at this point, oil has too much support at $110 to blast right through that level. Look for a pullback in the dollar and a rally in oil over the coming months.

You shouldn't get overly excited about this manufactured rally in financial stocks, or about the decline in oil. The downward trend for financial stocks is still in place, as is the upward trend for oil. The government may have reversed things for the short-term, but this could be a major opportunity for you to short financial stocks and buy energy stocks.

One thing it has helped is the Home Seller Assist program created by John Alexander as explained at, this no bank qualifying program is helping many who could not otherwise buy a house, check it out today.

Saturday, August 9, 2008

Fannie Takes $2.3B Loss; Nixes Alt-A Purchases

Fannie Mae has reported a $2.3 billion loss for the second quarter, up slightly from $2.2 billion in the first quarter, and the mortgage giant said it will cut its dividend to 5 cents and stop purchasing alternative-A mortgages later this year. Read more...

Fannie Sees No Revenue Boost in 2nd Half

Despite raising its loan fees and pricing several times this year, Fannie Mae says it does not expect to see an increase in revenues in the second half and is beginning to see the Federal Housing Administration take away some of its business.

Thursday, August 7, 2008

Household Debt

The ratio of household debt to GDP spiked up in recent years as investors were lured into borrowing money at artificially low interest rates in order to buy stocks and real estate as a hedge against inflation - in the mistaken belief that the assets would continue to appreciate.

The result was an inevitable asset bubble as demand for real assets exceeded supply. Prices were bid up to the point that asset yields were negligible and expected returns were based primarily on future speculative gains from inflation.

The financial sector, spurred on by soaring profits and fat bonuses, circumvented lax regulatory controls to expand debt to record levels - ignoring prudent banking standards to include borrowers with bad credit histories - again in the mistaken belief that ever-increasing asset prices would save them from defaults.

This is making it even harder for buyers to get loans, however, the Home Seller Assist program, created by John Alexander, is providing people with credit scores as low as 500 a chance to purchase a home and obtain good fixed rates. They loan from $50,000 to $300,000

Not only that, but the Home Seller Assist program allows sellers, agents, builders and investors to make a nice 1% commission on every loan that funds.

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Larry Potter

Thursday, July 24, 2008

It's scary

"Venezuela is broadening its network of regional alliances into Central America with its cheap oil financing initiative Petrocaribe, as countries find it increasingly hard to turn down President Hugo Chávez's largesse amid soaring oil prices.After Guatemala formalised its membership at the Petrocaribe summit on July 13, Costa Rica has officially requested to sign up. Honduras joined earlier this year.

Chavez may be far to the left side of politics, but cheap oil can easily win moderate and slightly to the right friends. "Petrocaribe" allows countries to pay for half the cost of the oil they import from Venezuela when they buy it. The balance can be paid off over 25 years.

The idea is to make friends with neighbors and keep U.S. influence down, Chavez claims.

And you thought the mortgage crisis was bad. Wait until Cuba, Guatemala, Jamaica and other poor countries find they owe Venezuela billion-dollar fuel bills they can't pay.

Thursday, July 17, 2008

Trading Mercenary

In The Last Samurai, Tom Cruise plays a mercenary with no allegiance to one side or the other. His only allegiance is to money and whichever side pays him the most.

That made me think about how traders are mercenaries. They have no allegiance to the bullish side or the bearish side, only to the side that will pay the most money. This is the only way to be successful as a trader. Some of the more famous mercenary traders who played both sides of the market include Jesse Livermore, Bernard Baruch, and Joe Kennedy.

Sure, it would be nice if the stock market only went up and everyone got rich just by buying stocks and holding them for a while. But that isn't how it works. The market goes up and the market goes down. And during rough economic periods, like the one we are currently in, the market is going to move down.

Yes, you should stick to what you know. But if the companies you love or the system you're using isn't working, don't worry about being loyal. Instead, become a trading mercenary. Your only allegiance should be to growing or protecting your own wealth.

Tuesday, July 15, 2008


In the United States, the quarter that just ended was probably the first period since the early 1980s that a bigger proportion of the consumer’s pocketbook was spent on gasoline, oil and other energy products than was spent on motor vehicles.

But even as the price of gasoline has soared to more than $4 a gallon, Americans are spending a much smaller share of their budgets on fuel than they did at the time of the last spike in oil prices, in 1980.

Even before gasoline hit $4 a gallon, the motor vehicle share of personal consumption expenditures had fallen to its lowest level since shortly after World War II, when the automobile industry was just beginning to increase production after converting to military production during the war.

The share of personal consumption expenditures going to gasoline and other fuels rose to its highest level in more than two decades in the first quarter. But that is well short of the record of 6 percent, reached in four quarters in 1980 and 1981, when oil prices were high and the economy was suffering through two recessions.

These figures are based on government figures on personal consumption expenditures, and may seem a little odd to many, who think the proportion of their disposable income going to gasoline is much larger than the figures would suggest.

They have a point. A growing part of personal consumption expenditures goes to medical services, much of which is not paid directly by consumers. In the most recent quarter, that area took 17.5 percent of spending, up from around 11 percent in the early 1980s when the fuel spending set a record.

-- New York Times

Monday, July 14, 2008

Roller coaster...

...after gapping lower on the open, dropping sharply lower at midday, rallying back to positive territory in the afternoon, the Dow still managed to close lower by 128 points on Friday.

The market got off on the wrong foot after rumors hit that Fannie Mae and Freddie Mac might be taken over by the government, rendering the stocks almost worthless.

Each of these mortgage insurers were down over 50 percent in pre-market trading. Both bounced back during the regular session, but Fannie still closed lower by 22 percent.

Saturday, July 12, 2008

Financial Stocks

Stock markets were spooked by the collapse of IndyMac, the third largest bank failure in US history, and the sharp fall of Fannie Mae and Freddie Mac over the past week.

Massive volume in the last few days indicates the presence of strong buyers who see value at current prices. Entry at this stage would be exceedingly risky, but the stocks are worth watching over the next few weeks.

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Wednesday, July 2, 2008

Perfect Company's to Short

One of the simplest ways to make money in the stock market is to find a pattern with a history of repeating, and then exploit that pattern for profits. Today, I'd like to share with you a pattern that proves to be one of the best ways to make money in a down market.

All you have to do is look for companies that recently cut or eliminated their dividend payment, and short them.

The reason why stocks drop is straightforward.

Investors view a company's dividend payment as a barometer of their fundamental health. If a dividend is reduced or eliminated, it's almost always because the company is not only making less money, but should continue to make less money down the road.

Had you shorted Ford after they first cut their dividend payments in September of 2006, you'd be up 41%. You would have been up over 70% if you had shorted National City back in January when they cut their dividend. Clearly, this pattern has been happening for years.

So if you're looking for a good company to short in this bear market, just look for one that recently cut its dividend payment.

Monday, June 30, 2008

Air Lines

Four international airlines have agreed to pay $504 million in fines to settle charges they conspired to fleece consumers by driving up cargo shipping prices.

The Justice Department called the case one of the largest antitrust settlements in U.S. history.

Associate Attorney General Kevin O'Connor called the scam an "international price-fixing cartel" that cost consumers hundreds of millions of dollars between 2001 and 2006. In some instances, for example, fuel surcharges rose by 1,000 percent.

One of the four airlines -- Air France-KLM -- has agreed to pay $350 million of the total settlement. The other carriers are Cathay Pacific Airways, Martinair Holland and SAS Cargo Group

"American consumers and taxpayers pour billions of dollars each year into the pockets of these lawbreakers," said FBI Assistant Director Joe Persichini. "Let there be no mistake that people in corporations that take consumers and taxpayers in this way are thieves."

Authorities said executives from each of the airlines met repeatedly in the United States, Europe and Asia to cook up a price-fixing scheme that raised cargo rates, fuel surcharges and security costs for businesses and, ultimately, consumers. The cartel focused on goods shipped to and from the United States, including electronics, clothing, produce and medicines, O'Connor said.

The settlement agreement, filed Thursday in U.S. District Court in Washington, still requires a judge's approval.

Thursday's announcement marked the latest in a series of cargo shipping settlements over the last two years. Earlier, British Airways, Korean Air, Qantas and Japan Airlines filed similar agreements as part of the investigation.

In all, airlines have agreed to pay $1.2 billion in fines -- what O'Connor called "the highest total amount of fines ever imposed in a criminal antitrust investigation."

The investigation is continuing.

-- AP

Sunday, June 22, 2008

The higher oil prices climb, the more America imports!

Sure, we've seen gasoline demand drop a tiny bit as energy prices rise - and some say that the drop in demand will drive prices lower.

But the facts say something very different:

Look: In 1990, oil was at $23 a barrel. Today, it's flirting with $140 - a 509% increase.

If the oil bears were right, you'd expect U.S. oil imports to have dropped dramatically - right? But U.S. oil imports are up a staggering 70% since 1990 - even as oil doubled to over $50 per barrel ... doubled again to over $100 per barrel ... and continues going ballistic right now!

Friday, June 20, 2008

The bogeyman

Facing the toughest political climate in a generation, the oil industry is using a barrage of advertisements to deflect anger over $4 a gallon gasoline prices.

Exxon Mobil has been particularly aggressive, running televised spots during the NBA Finals and network morning talk shows, and buying large print ads in the U.S. and Europe. Chief executive Rex Tillerson appears in one of the ads, which began running earlier this month, discussing the company's goal of caring for the environment as it provides energy to the world. Ads from other oil companies hit on similar themes: investment in alternative fuels and technology required to produce oil these days.

Exxon's ads are part of a growing effort by the industry to counter a political backlash against rising oil prices and global-warming worries. Oil companies have traditionally been the bogeyman for consumers during times of rising prices, with ad campaigns often employed to soften the industry's image.


Thursday, June 19, 2008

To finance the trade deficit

"Using excess dollars earned as a result of the massive US trade deficit, foreigners are buying up big chunks of the nation's businesses and properties.

"The latest shoppers: Abu Dhabi for New York's Chrysler Building and a Belgian-Brazilian brewery for Anheuser-Busch..

" 'It's the single biggest transfer of wealth in the shortest period of time in the history of mankind,' says Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, a group of mostly small manufacturers worried by their loss of business to foreign companies.

" 'We can't continue to transfer US wealth at this rate. We are basically selling off the furniture to pay for Thanksgiving dinner,' says Peter Morici, a professor at the University of Maryland's business school in College Park. He roughly calculates that at the present rate of deficits, foreigners could own in a decade more than a fifth of the nation's total $35 trillion or so in assets of every kind - corporations, businesses, and real estate.

" 'We are very vulnerable now,' says Mr. [Charles] McMillion [of MGB Information Services in Washington]. To finance the trade deficit, the US must borrow money or sell assets worth $2 billion a day - a shift that will eventually erode American living standards, he argues."

-Christian Science Monitor

Wednesday, June 18, 2008


International Business Machines Corp. said it is collaborating with a Japanese semiconductor-equipment maker to commercialize a solar-energy technology developed by IBM scientists.

Tokyo Ohka Kogyo Co. will work with IBM to develop processes and equipment for the production of thin-film photovoltaic solar cells that convert sunlight into electricity. Terms of the collaboration weren't disclosed, but IBM said it expects to license the technology and, eventually, collect royalties, rather than building its own large-scale, manufacturing capability.

A number of companies are pursuing thin-film solar cells because they are expected to be much cheaper to manufacture than the current generation of solar cells made from silicon. Thin films are potentially more efficient at converting light into electricity than silicon is. They could even be applied to tinted windows or roofs on buildings and produce enough power for lights and air-conditioning.

Supratik Guha, the scientist leading photovoltaic activities at IBM, said the two companies aim to develop the technology "to a point where we can build a pilot" manufacturing line to make photovoltaic modules.

Tuesday, June 17, 2008

Pizza Hut and KFC

Two of the Most Popular
Restaurants in China Are American Icons:

Yum Brands, the parent company of Pizza Hut, KFC, Taco Bell, Long John Silver's, and others, is the largest restaurant chain in the world. It has over 34,000 stores, but more than 14,000 of them are outside the U.S. and concentrated in Asia.

In China alone, Yum operates more than 2,000 KFCs and 300 Pizza Huts. In fact, more than 50% of Yum Brands' revenues come from outside the U.S.

According to A.C. Nielsen, KFC is the top consumer brand in China, even ahead of Coca-Cola and Nike. You see, very few Chinese will ever have the chance to set foot in the U.S. so dining out at KFC or Pizza Hut is as close as they will get to visiting America.

Plain and simple, the Chinese love KFC and Pizza Hut!

Yum plans to expand its hugely successful home delivery services to target the huge nocturnal populations of crowded Chinese cities.
Get this: The swarm of customers waiting to get into the grand opening of a new KFC in the city of Qiandaohu was so thick that eight security guards had to be brought in to help manage the crowds. "This happens every time KFC opens a new store," says Wang Weiming, manager of the Qiandaohu KFC.

The reason is that Yum has been able to take advantage of the Chinese's love affair with American products. And they have succeeded in tailoring their menus to local tastes across China.

The menu is different from the United States, with smaller portions and new entrees featuring popular local ingredients. For example, at Chinese KFCs, you can get a Beijing Duck Wrap served with scallops and hoisin sauce, chicken skewers that come with the cartilage, shredded pork soup, and congee (rice porridge).

Pizza Hut takes that localization strategy even further:

In Taipei, they serve sashimi pizza ...

In Kualu Lumpur the locals love chicken satay pizza ...

In Shanghai, sea eel is #1 ...

And as unbelievable as it sounds, the Thai people love to dollop a can of tuna fish on top of their pizza!

The packaging is American, but the tastes are definitely Asian.

Monday, June 16, 2008

Tomorrow on Your Calendar

Before we jump into this week's calendar, I wanted to take a moment to recap some of what happened last week.

Retail sales posted a surprising increase of one percent, almost doubling the 0.60% increase the market expected. As I had speculated, the report revealed that most of this came from the economic stimulus checks that started hitting mailboxes last month.

One of the reports from last week that could provide clues as to how this week will play out is the Pending Home Sales report. Pending home sales posted a huge increase last week. The expectations were for a one percent decline; instead we saw an increase of just over six percent. This leads me to believe that the Building Permits and the Housing Starts reports will both beat expectations this week.

In addition to those two reports, Tuesday is stocked with five additional reports. The Core PPI and PPI reports are released at 8:30 am, and expectations are for a 0.20 percent increase in Core PPI, and a full one-percent increase in the PPI Index. Since the Core numbers exclude food and energy, it is pretty clear that the bulk of the increase in the PPI is due to those two factors.

The final report of note this week is the Philadelphia Fed report. This survey covers manufacturing purchasing managers in the Pennsylvania, Delaware, and New Jersey area. In a possible glimmer of hope, the report is expected to not be as bad as last month, posting a decline of twelve points versus May's fifteen-point decline While still a decline, at least it is shrinking.

Saturday, June 14, 2008

Even modest boosts in sales can have a big impact on the revenues of small companies.

That's not the case with bigger companies.

I like small companies with growing international sales. They shouldn't fall as much as other small companies during a bear market. Plus, when the market rebounds, they'll get the benefit of growing domestic and international sales. For a small company, that can be more than enough to grow profits and see share prices rise.

Most stock search engines will let you cull companies by market cap. But to see what they have in international sales (if any), you have to dig a little deeper. Still, it's not hard. Most companies will mention global sales in their profiles. One place to find a company's profile is on its main page in Yahoo's finance section.

Friday, June 13, 2008


As part of a green marketing bid, automotive giant General Motors plans to unveil a lighthearted television ad that begins "Dear Oil," and proceeds to suggest a cooling off of its "relationship" with petroleum products.

GM marketing executive Kathryn Benoit spoke about the ad in a panel discussion at the American Advertising Federation conference Monday, said Kelly Cusinato, GM spokeswoman.

While discussing green marketing, Benoit cited the company's plans for the new spot, which is aimed at promoting alternative fuel, said Cusinato.

In the ad, the "Dear Oil" letter continues: "We've had this great relationship for many years. We think we will both be a lot happier and healthier if we see less of each other."

The ad spot is still in the planning phase, but the target date for release is June 22nd during NBC's Meet the Press, according to Cusinato.

Thursday, June 12, 2008

Crude Oil

West Texas Intermediate crude is consolidating between $131 and $139.

Reversal below $131 would warn of a test of $122, while breakout above $139 would offer a target of $135+(135-122)=148.

A retracement that respects support at $135 would also be a bullish sign.

Wednesday, June 11, 2008

Setting Up For Another Leg Down

Over the past few months, the markets have fought all that is logical in order to move higher. After bottoming in February, the Dow Jones rocketed 1,200 points. But did last Friday's sell-off signal a bigger sell-off looming?

To find out, let's take a look at the CBOE Volatility Index ($VIX). This index measures the implied volatility of S&P 500 index options. When the VIX moves higher, it signals more volatility. And more volatility generally means lower stock prices. With that said, when you see the VIX moving higher there is a strong likelihood that stock prices will move lower.

Setting Up For Another Leg Down

Over the past few months, the markets have fought all that is logical in order to move higher. After bottoming in February, the Dow Jones rocketed 1,200 points. But did last Friday's sell-off signal a bigger sell-off looming?

To find out, let's take a look at the CBOE Volatility Index ($VIX). This index measures the implied volatility of S&P 500 index options. When the VIX moves higher, it signals more volatility. And more volatility generally means lower stock prices. With that said, when you see the VIX moving higher there is a strong likelihood that stock prices will move lower.

Tuesday, June 10, 2008

The unemployment rate

It is the highest since October 2004, reflected an expansion of the workforce, led by teenagers. The increase in the rate was the biggest since February 1986.

A loss of jobs is one of the criteria used by the National Bureau of Economic Research to determine when recessions begin and end. The group, the official arbiter in the U.S., defines contractions as a "significant'' decrease in activity over a sustained period of time. In addition to payrolls, changes in sales, incomes, production and gross domestic product are also considered.

Payrolls shrank by 324,000 workers in the first five months of the year. In 2007, the economy generated 91,000 new jobs a month on average.

"We've never seen a run of negative payroll numbers like this without the economy being in a recession,'' Avery Shenfeld, senior economist at CIBC World Markets in Toronto, said before the report.

"We are in a mild recession. We expect to see a few months of declines that are worse than this.''
Factory payrolls fell 26,000 after declining 49,000 in April. Economists had forecast a drop of 40,000. The decrease included a drop of 7,500 computer and electronics manufacturing jobs. Auto factories added 4,400 workers.

The protracted housing slump and resulting collapse in subprime lending were also reflected in today's report. Payrolls at builders fell 34,000 after decreasing 52,000. Financial firms decreased payrolls by 1,000, after a gain of 1,000 the prior month.

-- Bloomberg

Monday, June 9, 2008


Americans saw their net worth decline by $1.7 trillion in the first quarter, as declines in home values and the stock market ravaged their holdings.

The net worth of U.S. households fell 3% to $56 trillion at the end of March, according to the Federal Reserve's flow of funds report, which was released Thursday.

The drop marks the second straight decline in net worth, which fell by more than $500 billion in the fourth quarter of 2007. Until then, net worth had risen steadily since 2003, climbing nearly 31% over those five years. During the bear market of 2000 through 2002, household's net worth dropped 6.2%.

Saturday, June 7, 2008


When it comes to a measuring a company's health, little can compare with overall profits. The more profitable a company is, the better. And no company in the world is more profitable than ExxonMobil (XOM). For anyone who drives a car and pays $4/gallon for gas, this should come as no surprise.

In 2008, the petroleum industry is where you want to be. And while few of us can avoid buying gas, we can at least make back a little of what we're spending by investing in ExxonMobil. The stock was around $70/share at the beginning of 2007, and recently closed at around $94/ share, a 34 percent increase.

Keep in mind that you need to go into any investment - even a seemingly great one like oil - with your eyes open. As Rick Pendergraft mentioned recently, the economy can't sustain the gas price crunch on consumers for long. And as Andrew Gordon pointed out in an article about the future of gas prices, new technologies are on the horizon that will "upend the demand side of oil" and "make inroads on increasing the supply side." Those technologies are still a few years away. In the meantime, if you're cautious, there is no reason you can't profit from Exxon's stock movements.

For the short term, oil is a good investment. Americans still drive everywhere, often with no one else in the car. And while a trend toward smaller cars has begun, gas-guzzling SUVs still dominate our highways. So, like it or not, ExxonMobil and its counterparts will continue to cash in on high gas prices for the near future.

Add ExxonMobil to your portfolio to help offset rising prices at the pump. But keep your eyes peeled for the inevitable reversal - and be prepared to jump ship as soon as gas prices start to slip. Protect yourself by setting a 25 percent stop-loss point. That way, you'll get out with 75 percent of your profits intact.

Thursday, June 5, 2008


1. Modesty. You don't need to be the best and most successful investor in the world. If you set modest objectives - 10 percent to 15 percent - you will have a good chance of reaching them.

2. Humility. You don't know enough to predict the future. Admit it by setting stop-loss points and sticking to them.

3. Consistency. Umpteen studies have shown that the most important factor in stock market success is the consistent application of a rational system. Which system you follow is not as important as your consistency in adhering to it.

A 10 percent to 15 percent return on your investment may not make you wealthy overnight. But if you stick to these three virtues - and don't abandon them when you hear an irresistible story about a "can't lose" stock - chances are you will do much better than your friends and colleagues.

Wednesday, June 4, 2008

The S&P Homebuilders Spyder (XHB) has...

...bounced back from its January low. The stock has recently moved above its 100- and 200-day moving averages. I find this to be encouraging for a long-term investment.

I am normally a short-term trader, but I know a long-term opportunity when I see it. The XHB is a great one. I would look to buy shares up to the $23.50 level and hold them for a year or more.

Tuesday, June 3, 2008

Although OPEC's excess capacity ...

...has rebounded from its 2005 low, the gains are largely in heavy crude oils that can only be processed in specialized refineries. Those facilities are running full bore, so the added supplies aren't relieving a tight market. The latest evidence also suggests OPEC is now restraining its output.

While some warn that oil production has peaked-or will soon-most industry experts contend that oil resources are plentiful; it just takes time and money to get them out of the ground and into the market.

Higher prices have done what economics would predict-stimulated efforts to increase supply. Companies have expanded their exploration budgets. Oil-producing nations have announced new projects. Drilling activity is at a high level, both offshore and on land. Wages and oilfield services costs are being bid up, while shortages persist for some key skills and equipment.

So far, new supplies haven't materialized quickly enough to keep up with growth in world demand, largely because various hurdles have slowed their development. Oil resources, for example, are concentrated in countries with state-run oil companies or little economic freedom. Where market signals aren't allowed to work, incentives to boost production may be muted.

Oil demand is inelastic in the short run-that is, it doesn't react quickly to changing prices. Consumers adjust their spending to maintain consumption as prices rise, even if they have to pay more for it. Most likely, this reflects businesses' commitment to keep up production and individuals' need to drive to work, run errands and heat homes.

When demand is inelastic, even modest tightening in markets translates into strong price movements. In recent years, this inelasticity has magnified tight markets' impact on prices.

-- Federal Reserve Bank of Dallas

Saturday, May 31, 2008

Trumps the Tally

What's wrong with depending on the collective wisdom of the analysts who follow stocks day in and day out? If the majority of analysts say buy, shouldn't you buy? And when most say sell, shouldn't you sell (if you already hold the stock)... or at least not buy? If anybody knows whether a stock is good or not, they should, right?

All this makes so much sense. And it would be so easy to do. Which is why I hate to throw the idea to the dogs. But that's what it fully deserves. And I'll tell you why.

Analysts are incredibly biased. When they see a cup half-empty, they're known to shout "buy." Okay, that's forgivable. But not when they see a cup two-thirds empty. The frightful fact is this. About 40 percent of stocks go down in any given year. And the percentage of stocks that have "sells"? Only five percent. As recently as the 90s, it was two percent.

That means a lot of stocks go down with either a "hold" or "buy" rating.

There's a way for you to get around all the smoke and mirrors. Look at the trend, not at the tally. Are analysts liking a company more or less? If it's more, the company is worth a second look. Because as analysts improve their ratings from sell to hold or from hold to buy, they bring more buyers into the fold. And as investors do more buying, the share price goes up. As an investor, that's what you want to see.

The Reuters financial site shows how analysts have changed their opinion on specific stocks during the past year. You can find this information under "recommendations."

Thursday, May 29, 2008

Demand Continues To Soar!

Anyone who tells you Asia's economic growth is slowing has been smoking something.

Why do I mention Asia? Because it happens to be ground zero for the demand side of the bull market in natural resources. There is simply NO WAY anyone can even come close to forecasting the boom without understanding Asia.

Some recent facts...

China's 2008 copper demand will increase by as much as 15%, while India's will jump nearly 10%.

Asian demand for food is growing faster than Asian economies' GDP, and is expected to jump as much as 50% by 2020.

Oil demand in China for the first quarter of this year shot up a whopping 8%!
And as strong as all that demand emanating from Asia is, it is not the only place with strong demand for natural resources.

Wednesday, May 28, 2008

If you are a chart follower .

Then you'll have good reason to believe that the Dow Jones may move higher in the weeks ahead.

After the 676-point sell off last week, the Dow now looks oversold. The last two times this year that the Dow was this oversold, it went on to rally over 1,000 points. But beware, the economy is weak.

Any bad news could kill the rally before it gets underway. So pay attention to your stops.

Tuesday, May 27, 2008

China Stocks Rebounding!

Right here in the U.S., despite the Fed's eight consecutive interest rate cuts ...

Consumer confidence has plunged to a 28-year low ...

Inflation expectations have soared to the highest level since 1982, and ...

Housing starts have cratered to the lowest level in 17 years.
Nor is the U.S. economy an easy fix. We have the massive burden of $49 trillion in credit market debt, according to the Federal Reserve Board. We have $50 trillion in contingency debts of the U.S. Federal Government, according to the Government Accountability Office. And we also have $164 trillion in derivatives, according to the Comptroller of the Currency.

Monday, May 26, 2008

Be on Top of Everything

As you get busier, you want to get better too. In particular, you want to:

Be prepared for all the meetings you go to.

Meet all your deadlines.

Answer all the questions you've agreed to answer.

Friday, May 23, 2008

Unhealthy Investments Are Best

What trumps a stalled economy? Demographics. And what are the two biggest demographic trends today?

1. Globally, it's the rapid growth of a middle class in countries like India, China, and Brazil. They want what we already have: a nice car and house, modern appliances, and good education and health care for their children.

2. Domestically, it's back to the future. Boomers still rule. And they're getting old. Hospitals, long-term-care facilities, vaccines, and meds of all kinds will see greater demand.

What these two trends have in common is health care. Globally and domestically, it's set to grow - even if the economy isn't.

Higher long-term interest rates:

I don't know if you've been shopping for a mortgage recently, or if you've been following the price action in long-term bonds. If you have been, you've probably noticed something: Long-term rates haven't been falling along with the Fed cuts. They've been rising. And naturally, since bond prices move in the opposite direction of interest rates, bond prices have generally been declining.

U.S. long bond futures topped out at around 121 earlier this year. They're going for 116 and change now. Thirty-year fixed mortgage rates bottomed out at 5.48% in mid-January, according to Freddie Mac. They were recently up to 6.01%.

And what about all those Fed rate cuts? Have they helped? Well, a 30-year fixed loan went for 6.38% in September when the Fed started slashing the funds rates willy-nilly. So that means 325 basis points of Fed cuts have bought you essentially 37 basis points in long-term, fixed rate mortgage relief.

Thursday, May 22, 2008

Dow Double Top

The Dow reversed sharply below support at 12750,

completing a small double top and warning of a bull trap -

and a test of 11750.

Wednesday, May 21, 2008

They're Giving Away Resource Stocks

Canadian resource exploration stocks. These small cap companies are notoriously volatile. They aren't quite free these days but they are ridiculously cheap.

Why exactly has this happened? Especially when commodity prices are soaring pretty much across the board. Aren't the explorers supposed to show leverage to the underlying resource prices to which they seek?

History demonstrates typical long term leverage with exploration stocks. If gold goes up 20% you can reasonably expect the gold shares to perform at a multiple of that figure. At the present times the "juniors" aren't even keeping up with rising commodity prices.

The ongoing global credit crunch is a primary reason for this disparity. The appetite for speculation has waned. Global players have sold off winning positions in order to create liquidity. Some suggest that hedge funds may be shorting the explorers. Whatever the reasons are, the anomaly won't persist indefinitely.

Either commodity prices must fall or junior miners must rise and close the gap. I don't see commodity prices falling significantly from present levels. They stand as protection against currency debasement which happens to be a growth industry these days. The US dollar remains at the epicenter.

Tuesday, May 20, 2008

Red Herring in History!

While the world's been stock watching (and losing!), the elite quietly play a different game with different rules...

Feeling cheated and disillusioned by the stock market? Sure, you may have made a good trade here... but then lost on another. The people dutifully pour their hard-earned cash into investment banks to put into the stock market for them... and those investment banks gladly oblige, for a fat fee... which they invest somewhere else! I'm no conspiracy theorist, but in my opinion the stock market is really a diversion for the masses... a distraction from where the BIG and consistent money is made... in the world's money mountain. And when I say "Money Mountain," I speak quite literally... the BIGGEST mountain of money on the planet.


Monday, May 19, 2008

Lehman Brothers will begin long-anticipated layoffs early next week, CNBC has learned, on the way to roughly a 5 percent cut to its ...

... 28,000-strong workforce.

The layoffs of about 1,400 workers-which come in addition to a previously announced 5 percent cut-are part of an initiative by Lehman Chief Executive Officer Dick Fuld to remake the firm into a smaller, more nimble, and less leveraged outfit, following the implosion of Bear Stearns .

One source has told CNBC the latest round of cuts will begin Monday.

Bear Stearns' leverage-particularly its massive borrowing of money from hedge funds to finance operations through so-called "repo trades"-has been cited as a primary cause of its implosion in March.

As rumors spread alleging that Bear Stearns had liquidity problems, those same hedge funds stopped lending money to the firm and, moreover, began shorting its stock until current Bear Stearns CEO Alan Schwartz went to the Federal Reserve and JPMorgan Chase for emergency funding.

JPMorgan offered to buy Bear for $2 a share. Though the final price tag eventually rose to $10, the bargain-basement sale sent shudders through Wall Street-and Lehman in particular-as the firm became the target of many of the same hedge funds that had shorted Bear Stearns.

Fuld, one of the toughest CEOs on Wall Street, went on the attack: First, he alleged to the Securities and Exchange Commission that he had evidence that hedge funds colluded to short Lehman into oblivion the moment the Bear Stearns deal was complete.

He then went to work on Lehman's balance sheet, putting in place the layoffs that will begin next week. He also embarked on a massive deleveraging of Lehman.

At the time of the Bear implosion, Lehman was leveraged 20-to-1-meaning 20 borrowed dollars for every dollar in capital available to the firm. Bear Stearns, by contrast, was leveraged about 40-to-1. According to people close to the company, Lehman is now leveraged between 12-to-1 and 14-to-1.

Saturday, May 17, 2008

Dow Jones Industrial Average

The Dow is rising on unusually low volumes, respecting support at 12800 before again testing resistance at 13000.

Higher volume on days with longish tails indicates buying support and we are likely to see a continuation of the up-trend.

The signal is confirmed by the S&P 500.

Friday, May 16, 2008

Firefighting Robot

Only you can prevent forest fires. But in the near future, there could be a better way to fight them. German researchers have designed a dog-sized, insect-shaped robot that can operate independently to fight forest fires. It's equipped with water tanks, fireproof armor, fire-dousing chemicals, GPS, heat sensors, and other high-tech gizmos. The robot's six legs - it has no wheels - give it stability.

There are no current plans to roll out the design for widespread use. But firefighters and fire experts around the world are investigating ways they can apply this new technology.

Thursday, May 15, 2008


WASHINGTON -- The Senate, jittery about a political backlash over the rising price of gasoline, voted by a veto-proof majority today to halt deliveries to the Strategic Petroleum Reserve over President Bush's objections.

The House is expected to follow suit later [Tuesday].

The action, supported by the Democratic and Republican presidential candidates, comes as high fuel costs have contributed to the nation's economic woes and become a hot issue on the campaign trail. It could be the only legislation that Congress passes this year in response to public angst at the fuel pump because of the parties' differences over energy issues.

The Senate measure passed 97 to 1, with Sens. Barack Obama of Illinois and Hillary Rodham Clinton of New York breaking off from their campaigns to return to the Capitol to vote for the measure. Sen. John McCain of Arizona, the presumptive GOP presidential nominee, supported the measure but was absent for the vote, continuing his campaigning in the Pacific Northwest.

"Why on earth should we be putting oil underground at a time of record high prices?" Sen. Byron Dorgan (D-N.D.), the measure's chief sponsor, argued.

-Los Angeles Times

Wednesday, May 14, 2008

Chrysler's Gas Price Gimmick

Chrysler is offering new customers who buy a Chrysler, Dodge or Jeep a fuel card that will lock their gas price at $2.99 a gallon for three years, in lieu of a standard rebate. For some models, there is a gas card AND a rebate - $3,000 back on the Chrysler PT Cruiser, Dodge Charger, Jeep Grand Cherokee, Dodge Dakota and Dodge Ram. What do all these vehicles have in common? They all suck ... gas!

First of all, how desperate must Chrysler be to try this ploy? Pretty desperate - its sales dropped 23% in April and Chrysler cars get the lowest average mileage of any of the major automakers. Chrysler only has one compact car in its fleet and it makes no subcompact cars.

Tuesday, May 13, 2008

The two surefire ways to make money...

... off boomers is now down to one. But that one way looks stronger than ever - and if you haven't invested accordingly, you should do it now.

Boomers had been a sure bet to spend their retirement years visiting either far-off places or nearby hospitals. Travel and health care companies were drooling over the thought.

But for travel agencies, hotels, and resorts, a thought is all it'll ever be.

Boomers are feeling the pinch along with the rest of the population. Consumer loan defaults are approaching levels not seen since the 1991 recession. And mortgage defaults are surging. Hopes of retiring with a nice little nest egg are fading along with the economy. That leaves health care...

The number of people being admitted to hospitals is expected to skyrocket from 8.2 million in 2004 to 22.9 million by 2030. Boomers begin reaching the ripe old age of 65 in 2011. And hospitals of all stripes - general, community, specialty, acute-care, ambulatory surgery, etc. - can't gear up fast enough.

How to invest? There are 12 real estate investment trusts (REITs) that specialize in developing and/or owning medical properties. They're much less risky than picking a pharma you think might have the next blockbuster pill.

Look for REITs with the lowest price-to-earnings (P/E) ratios. To find more information on these companies, go to the U.S. REIT website ( and type "health care REIT" in the search window. Plenty of useful links will pop up for your browsing pleasure.

Monday, May 12, 2008


The Federal Reserve bears much of the responsibility for keeping the nation's economy on track but few Americans are fully convinced that the central bank can improve the country's financial situation.

A national CNN/Opinion Research Corp. poll released Wednesday found that only 8% of respondents are "very confident" that the Fed can stimulate the country's shaky economy.

A full 17% of those surveyed said they were "not confident at all" and 34% were "not very confident," according to the poll.

The remaining 41% of respondents were only "somewhat confident" in the Fed abilities.

The poll results came from interviews with 1,008 adult Americans conducted by telephone from April 28 to April 30. The margin of sampling error for results based on the total sample is plus or minus 3 percentage points.

The Fed has dramatically lowered its federal funds rate, the key overnight rate at which banks loan money to one another, in an effort to stimulate the economy and avoid a recession.

Last month, the central bank lowered the fed funds rate to 2%. It had been as high as 5.25% as recently as September.

But the downside of lower interest rates is often higher inflation and the Fed has a duty to both maintain economic stability while controlling inflation.

In its most recent statement, the central bank signaled that it may cease interest rate cuts for a while as concerns about rising inflation has become more prevalent.

Saturday, May 10, 2008

GAAP Accounting

During the past 25 years or so Social Security has piled up a huge surplus. as it was supposed to do.

But, everyone who sat in the White House during those years have proposed federal budgets that stole from the surplus in order to hide the real size of the current federal budget deficit. These slick moves allowed those presidents - and their pals in Congress that approve the budgets - to spend more and justify tax cuts for the wealthy.

The US Office of Management and Budget says that between 2002 and 2006 while the US government's reported deficit averaged about $300 billion a year - about $4,000 per household - the real deficit was actually more than 50% larger.

The government shrunk that deficit with some chicanery by reaching under the table to borrow about $165 billion a year from the Social Security Trust Fund.

In 2007, the real deficit was $449 billion, according to the OMB. However, the "official" widely reported deficit was only $257 billion.

That's because it's government policy to add the borrowed Social Security Trust Fund surplus ($192 billion in 2007) to revenues before calculating the "official" deficit that has to be borrowed publicly.

And here's a bee-ute. US leaders in Washington claim that the recently passed $160-billion economic stimulus package will only raise the 2008 official deficit to about $400 billion. Add in the annual theft from the Social Security Trust Fund and the real deficit in 2008 will be about $600 billion.

Thursday, May 8, 2008

The Fed is GOOD for Gold!

If the Fed is successful at turning the U.S. economy and credit crisis around, it will only be because it flooded the system with hundreds of billions of paper dollars, creating wild inflation.

If the economy were to pick up on top of that, between inflation and resumed economic growth, global demand for gold would soar.

Of course, the media mavens would then argue that when the economy turns back up, the Fed will jump in with both feet to head off inflation by aggressively raising interest rates, choking off the bull market in gold.

That's also hogwash. In fact, look at the recent record. From late 2004 to mid-2006, the Fed raised interest rates 17 times, in steady quarter-point increments to 5.25% from a low of 1%. And over that period, gold surged 127%!

Look at it this way: Even with the U.S. economy in a bad funk - gold demand hit a record $79 billion in 2007.

Most of the increased demand - no surprise here - came from Asia and the Middle East. Demand from No. 1 gold customer India rose 7%.

Wednesday, May 7, 2008

Bring Back 55-Mile-Per-Hour Speed Limits.

America has amnesia. That's the only explanation for why our elected leaders don't know how to deal with an energy crisis. After all, we've had one before. And how did we solve it? One part of the solution was driving 55 mph.

The 55-mph speed limit was repealed in 1995. With apologies to Sammy Hagar and his song, "I Can't Drive 55," we all have to start driving at slower speeds again.

The average driver uses 22.8 barrels of oil per year. Driving at 55 mph, depending on what speed you have been driving previously, could increase your fuel efficiency anywhere from 7% to 21%. For every mile per hour faster than 55 mph you go, fuel economy drops by about 1%.

According to, you can assume that each 5 mph you drive over 60 mph is like paying an additional 20 cents per gallon for gas. In other words, if you're paying $3.60 per gallon gasoline, and you drive 80 mph, you're actually paying $4.40 per gallon.

Driving at slower speeds, along with other tips I talked about last week including regular maintenance for your car and keeping your tires properly inflated, could - and should - be our first attack against higher oil and gas prices.

Tuesday, May 6, 2008

It's not the bottom number that counts .

Only 20,000 jobs lost? We're skeptical.

We think the damage was much worse. But it's interesting to see where the pockets of job strength are: education & health services, government, leisure & hospitality, and mining.

Of these, we favor health, government (especially companies selling to defense) and mining.

These sectors continue to "swim upstream" while the rest of the economy tanks.

Monday, May 5, 2008

Companies that went from good to great have the following 7 traits

1. They had quiet, self-effacing leaders. People who had a "paradoxical blend" of humility and professional will. They were more like Lincoln and Socrates, Collins argued, than Patton or Caesar.

2. These leaders placed the highest priority on surrounding themselves with great people. Rather than focus on vision or strategy, they spent most of their time trying to "put the right people on the bus and get the wrong people off the bus."

3. They embraced the "Stockdale paradox" - that you must accept and confront the worst facts of your situation while maintaining an unwavering faith that you can overcome them.

4. They found something they could do better than any other company in the world. Even if it meant abandoning their core concept and moving on to something else, they maintained that lofty standard.

5. They developed a corporate culture where employees were so committed to the company's core values that disciplinary rules were not necessary.

6. They used technology to support their core values, not as the driving force of the business.

7. The process they used to make improvements was incremental, not revolutionary. It resembled "relentlessly pushing a giant heavy flywheel in one direction, turn upon turn, building momentum until a point of breakthrough and beyond."

Saturday, May 3, 2008

Dow Jones Industrial Average

The Dow closed above 13000, confirming the breakout, after a short retracement respected the new support level at 12800 - signaling buying pressure. Money Flow holding above zero confirms the buying pressure signal. Reversal below 12800 is now unlikely and would warn of another test of 12000/11750.

Friday, May 2, 2008

Sadia's (SDA) chart.

Sadia just hit a new high this week! Not only did it hit a new high, it did so by rallying nearly seven percent! As Tony the Tiger would say 'That's GRRRRRREAT!'.

When you see a company break through resistance and hit a new high, it's usually a good sign that the company will keep moving higher.

Sadia is a particularly strong company. You can find their products and meats in the freezer isle in rapidly growing Brazil. Considering that Brazil is growing by over seven percent and food prices are doubling almost every year, this company should easily see huge profit growth in the future.

While I'm not excited about their margins, they do seem average for the industry. Yet their return on equity is 25%, revenues are growing by 26%, and earnings by 32%. And if you look at value metrics like cash flow to market cap, then you'd notice that this company has

NEARLY A THIRD of their market cap covered by cash flow! That's amazing!

Thursday, May 1, 2008

Can Volatility Kill?

People who trade options study volatility closely. They hunt it out or avoid it. They massage it and time it. They know it can work for them, or against them, and in either case it strongly affects their price.

In contrast to the option trader, most of us stock investors give volatility very little thought, if any.

If that's you, you can continue to trundle happily down that path, ignoring the whole issue. if you stick with blue chips and plan to hold them for 20 years, that is.

Otherwise, it would be worth your while to give the subject a little notice. A great deal of what the experts tell you about stocks and how to handle them is closely linked to their beliefs about volatility and their reactions to it.

But on the more practical level, volatility may also affect whether you are profitable, what kind of stocks you should buy and how you handle your money.

As with the series on trend lines, I am going to break this subject down into rational pieces. You will find that the subject is not abstract at all, and is certainly not as complex as some people would have you think.

Normally, a discussion of volatility in stocks heads right to the deep waters of Modern Portfolio Theory, beta and academic studies. We'll get there, but we'll start at the commonsense end of the subject, before academics chop it up and give each of its parts ten-dollar names.

Tuesday, April 29, 2008

The Chinese government will NOT allow...

...its stock market to fall any further!

What was the fuel for the Shanghai rocket? The Chinese government sent a clear signal to investors, announcing two major policy changes last week designed to prop up the ailing market ...

Cheaper trading costs. The stock transaction tax, known as the stamp tax, was reduced from 0.3% to 0.1%. This move actually reverses a year earlier move when the Beijing bureaucrats raised the tax to cool what was then an overheated market.

Restrictions for big block sellers. A new 30-day lockup was announced for large institutional investors. Any transaction over 100,000 shares has to be conducted "off" the market in a private institutional transaction. What this effectively does is reduce the amount of new shares hitting the market.

Monday, April 28, 2008


To make money on stocks, go where the growth is. Right now, the so-called frontier markets are hogging it. For example, the Kuwait exchange is up 335 percent over the past five years. Nairobi is up 190 percent. And Nepal has more than doubled.

These are the smaller, somewhat-less-developed "emerging-market" countries. They're still climbing. On the other hand, many bigger emerging-market countries have fallen alongside the U.S. markets.

So how to invest? The ETF that invests most in these markets is the SPDR S&P Emerging Middle East & Africa (GAF) fund. You may think its 56 percent exposure to South Africa invalidates its frontier-markets credentials. Not true. South African companies are increasingly spreading their wings into other parts of Africa. GAF is a nice combination of emerging and frontier markets. Until Vietnam and some of the other frontier-market countries get their own dedicated ETFs, GAF is the best way to leverage their super-fast growth.

Saturday, April 26, 2008

Japan Bank Takes Hit On Cerberus's GMAC.

“Cerberus Capital Management's 2006 deal for finance firm GMAC was billed as a bet that no one else was willing to take. Wednesday, it showed why, with a partner in the deal disclosing that it had lost roughly 26% of the value of its piece of the $8 billion investment.

While the private equity firm has acknowledged it has "significant concerns" with GMAC, it has been short on specifics. Wednesday, Aozora Bank Ltd., a Japanese bank that invested in the deal, disclosed that it booked a $130 million loss on its $500M equity investment in GMAC. Cerberus is Aozora's largest shareholder.” (Wall St. Journal, Apr. 24th)

Friday, April 25, 2008


What a disappointment Microsoft gave analysts, as they reported net income three percent under expectations.

Of course, analysts ignored the fact that earnings beat by three cents AND guidance for the year was above estimates.

If they are down on this news, imagine what happens when they spend over $40 billion buying a company that is already underperforming.

Thursday, April 24, 2008

Try a creative lease option.

Say you normally might be able to offer your house for $205K on a lease option. The other party pays $1,200 a month, and $200 of it goes to equity. Maybe you can offer it for $220K with a $1,250 monthly lease payment... but 100 percent goes to equity if they execute the option to buy!

This is a unique offer. At the end of one year, if they execute, they have to come up with $205,000 - about what you owe. If they don't execute, at least you've pulled in another $15K, reducing your negative cash flow.

Not ideal... but keep in mind that you're trying to make the best of a bad situation.


Making money in the markets has almost nothing to do with how often you win - but everything to do with how you manage your risk.

Repeat this to yourself every time you invest in the market until it becomes ingrained in your thought process.

Why? Have I lost my marbles? How can you make money in a market if you're wrong more than you're right?

The answer is simple, and the proof is mathematically certain. Let me show you ...

The Nature of Risk Equilibrium: The stock market is a dynamic structure that ebbs and flows pursuant to the forces exerted upon it by investors.
Trader A makes 10 trades. Nine are losers - dead wrong each and every time. Only one trade is a winner. Sounds like a pretty lousy track record, right? After all, Trader A was wrong 90% of the time!

If that's how you see it, change your thinking right now. Because making money in the markets has almost nothing to do with winning all the time.

Rather, it's the magnitude of the winnings when you are right that counts.

Trader A lost $200 on each of those nine trades (including all costs and commissions). Net loss on the nine losers: $1,800.

But Trader A let his one winning trade run, ultimately netting a huge profit of $3,000.

So how much did Trader A make on those 10 trades? Nine losers for a net loss of $1,800, plus one winner worth $3,000. Total net profit: $1,200!

Imagine that: Trader A was wrong on 90% of the trades - taking losses on nine out of 10 trades - yet still netted a profit of $1,200!

Now, let's compare that to Trader B who claims that nine out of his 10 trades are winners - a 90% win rate. Trader B makes $200 on each of the nine winning trades, for a net gain of $1,800.

But on the 10th trade, Trader B fails to control his risk and loses $3,000!

Result for Trader B: Nine winning trades for a net gain of $1,800. One losing trade for a loss of $3,000. Net result: A $1,200 LOSS!

So while Trader B was right 90% of the time and produced nine winners, he lost $1,200! Get the picture?

Wednesday, April 23, 2008

Will the Dow keep dropping?..

It's hard to say. Sure, the major indices are overbought and should move down from here. But then again, the CBOE Volatility Index (VIX) recently broke under its 200-day moving average.

The VIX typically drops when the market rises. So if the VIX can't get back above its 200-day, you should expect the market to stay flat or rally in the weeks ahead.

Tuesday, April 22, 2008

Government figures understate the true rate of inflation.

John Williams, who spent more than two decades as an economic consultant to Fortune 500 companies, said the government figures understate the true rate of inflation.

Williams, who runs Shadow Government Statistics in Oakland, which tracks changes in inflation, unemployment, the gross national product and other data, said that over the past 25 years, the government has changed the method of calculating price increases in ways that have lowered the reported inflation rate.

The changes include measuring the cost of shelter by rental prices instead of home values, as well as giving nearly as much weight to high-ticket items such as cars and electronics as to daily necessities such as food and gasoline.

According to Williams, if the government measured inflation based on pre-1982 methods, it would be running at 11.6 percent right now, or 7.3 percent using pre-1998 calculations."

-- Union-Tribune (San Diego)

Monday, April 21, 2008


Friday was options expiration for the April options series and there had to be some folks taking some big hits.

After Google and Citigroup posted better than expected earnings, the market soared higher from the word go.

Anyone that had been writing calls as the market declined had to take a big hit, as there wasn't time to get out given the gap higher on the open.

Saturday, April 19, 2008

Small Caps

The Russell 2000 broke out of the trend channel, indicating that the primary down-trend has weakened.

Expect a test of resistance at 730.

The ratio against the Russell 1000 is moving sideways; upward breakout from the narrow channel would be another positive sign for the market.

Downward breakout, however, remains as likely and would warn of another primary decline.

Friday, April 18, 2008

REAL Interest Rates

Let's say you're holding a corporate bond that pays you 5.5% in interest per year. That rate seems decent and roughly in line with the typical interest rate on long-term, AAA industrial company debt over the past few years (using Moody's data).

But what if inflation is running at 5.5%? Then you're not really earning anything. The interest you earn matches the decline in the purchasing power of your dollars. Or in other words, you're simply running in place.

And if inflation is 10%? In this unhappy scenario, you're actually losing money - to the tune of 4.5 percentage points, or 450 basis points, if you prefer.

That's the concept of "REAL" interest rates versus "nominal" ones. You have to not only look at the current, nominal level of rates, but also what inflation is doing, to get an idea of whether monetary policy is easy or tight.

Thursday, April 17, 2008

The flight to safety is real.

The Investment Company Institute reports that money market funds hit a new record at the end of March with $3,500 billion under management. This is 44% more than a year ago.

But the dividend problem we just walked through is sneaking along this cove of safety, too. What's in Wells Fargo's money market fund? Bonds from Wachovia, Citibank and Bank of America-three institutions under pressure-make up three of its top 10 holdings. Fidelity Select Money Market invests more than a fourth of its holdings in the financial services industry.

Most of the top money market funds that had invested in mortgages and structured investment vehicles last fall have gotten out of them now. But that still leaves many of them with holdings in assets like bank bonds that can lose value. And with the astounding wave of new money that has washed into these funds, the competition is on for the small pool of high quality assets these funds can (or should) hold.

Wednesday, April 16, 2008


Corporations outside of financial services -- from Cisco Systems Inc. to Coca-Cola Co. -- have collectively socked away more than half a trillion dollars in cash. They have also reduced short-term debt and cut inventories to near record-low levels in relation to sales, leaving them better prepared than in the past to weather a contraction.

Non-financial companies are well-positioned now because they kept firm control of spending during the expansion. That means ``there should be less of an imperative to reduce costs by cutting back on staff and capital spending,'' says John Lonski, chief economist at Moody's Investors Service in New York.

Manufacturers in particular have responded by keeping inventories in check, Achuthan says, removing about half of what he calls the ``recessionary impulse'' of steep cuts in stockpiles that occurred during past declines.

Companies were rewarded for their discipline with 20 consecutive quarters of double-digit profit growth that ended only in the middle of last year. As a result, industrial corporations in the Standard & Poor's 500 have amassed $615.5 billion in cash and cash equivalents, says Howard Silverblatt, senior index analyst at S&P in New York, compared with $352.4 billion in 2001 and $95.5 billion at the time of the 1990-91 recession.

The cash hoards mean companies aren't so dependent on battered banks for money to finance their operations. Debt as a percentage of net worth for non-financial companies outside of farming was 61.3 in the fourth quarter of last year, compared with 68 at the start of the 2001 recession and 93.6 in the 1990- 91 contraction, Fed figures show.

"Cash flows are more than adequate, and the amounts of monies that they need are very readily financed in the weakened credit markets,'' Greenspan said at the April 8 conference.

Tuesday, April 15, 2008

Yourself as an Advocate

Position Yourself as an Advocate

Although the finder ad is designed to attract people long before they show up on any foreclosure lists, some of the people who respond to you will have had some kind of run-in with another investor. That investor may have left a bad impression - the impression of being solely interested in taking the property for profit. That's why it's important to position yourself as an advocate, not as an "opportunistic" investor, in your finder ads and recorded message.

By providing your prospect with a number of potential, step-by-step solutions for them to stop their foreclosure - and only briefly mentioning the possibility that you might be able to buy their home - you are 99 percent more likely to be perceived as being on their side.

Finder Strategies

I use direct-response marketing methods to create "finder strategies" - ads that drive qualified prospects to me. I use classifieds, business cards, flyers, mailers, yard signs, and even Google AdWords.

Like all good direct-response advertising, these finder ads:

1. Have a compelling headline to capture my prospects' attention

2. Make a big promise to create interest.

3. Ignite a desire to find out more.

4. Tell my prospects exactly what action to take

The key to making these ads work is to make sure they offer helpful information to people facing foreclosure. People facing foreclosure experience a wide range of emotions. They can be angry, afraid, depressed - even ashamed. Most of them will be looking for ways to stop the foreclosure and save their homes. They want a solution to their problem... and they want it fast. The only thing they're interested in is ending their pain. The finder ad should do that for them.