Would you….would you like to…..would you like to dance?

My last and most important class of the year will be held on Wednesday, November 19th from 6-9pm. I will discuss the best and safest places for your hard earned $$$ and give a detailed forecast for interest rates and the economy in 2009. Can you really afford not to be there?

The above picture is a perfect representation of why the federal government’s massive injection of capital into banks is not working. Asking banks to lend money to borrowers that are afraid is not going to happen unless there are incentives. Tell the boy and girl in the picture they won’t have any homework for a month and they will dance all night long. The government is involving itself in every aspect of business and has become the only lender in the financial arena and has driven borrowing rates lower (except mortgages). Why should banks lend when they can take their new found capital and invest in Treasury notes and other riskless vehicles? 2009 will bring a new administration, fresh ideas and guarantees of no losses to banks that lend to borrowers. Once lenders are sure that they have no risk on a loan they will again solicit borrowers and open credit spigots but never to the level of the past few years. Banking used to be a risk taking business where profits were the rewards but the credit contraction has taken all but the most simple decisions away from banks and onto the growing government bailout program. Our capitalist free market system has entered the repair shop where it will take many years before it again runs at optimum speed. The kids will dance but it will take patience from the parents (consumers).

Have you had enough pain yet?

Each week I see the raging bear tear into families life savings and continue to eat away at hard earned assets that took years to build. Investment advisors and managers continue to tell us on financial TV to have patience and that eventually prices will rebound. They also advocate buying more of what has already fallen (40%+) but who has any money? One of the worst investing strategies of all time is to add to losing positions and yet the majority are lead to slaughter and never complain. Pain is one of the greatest motivators to change but often too late to make a difference and causes investors to freeze and use hope as a strategy for lost wealth. The problem with this buy and hold forever or reversion to the mean strategy is that many investors need to live off the soon to be cut dividends or use the stocks as collateral for loans or reserves. Or maybe they need to sell for a child’s education or a relative’s health care. The biggest tragedy in this bear market of the century is that 99% of these “experts” only see the future from their own experiences and their forecasts of low risk are heavily influenced by time frames that are irrelevant for today. Investors continue to fear missing the next move up instead of realizing good objective decisions can only be made when all assets are in cash and then you start again. True bear markets don’t end until everyone has left the arena and there are far too many remaining despite the fact their portfolios are bleeding huge losses. The answer is simple for those who remain long using hope as their main strategy: STOP LOSSES. I know your investment advisor never uses them but it is YOUR money they are playing with and at the end they still get paid (why?) for losing your money. These same managers continued to purchase shares in Fannie Mae, Freddie Mac, Bear Stearns, WAMU and AIG all the way down using the excuse the fundamentals hadn’t changed despite declining share prices. At the end the market was right (as usual) and these managers moved on to the next client without much more than a simple “sorry” which doesn’t help increase your dwindling net worth. The only comfort I hear every day is from investors who say “everyone else lost” or “no one saw this coming.” For anyone who believes that please visit our archives where you can read everything I wrote about the coming disaster two years ago. The real problem is that the majority of investors would rather lose in company than win alone. How much do you have to lose to change the way you feel about losing in company? Think about it hard because your advisor is hoping you remain more clueless than him. Life is relative, as long as you are a little more knowledgeable than your clients you appear to be a genius…..Have you had enough pain? I continue to offer a free objective analysis of any reader’s assets/portfolios. I am NOT an investment advisor and you will not be solicited for the purchase of any services or products.

Interest rates

The U.S. Treasury continues to issue billions of new securities each week and has helped to keep long-term rates high. The U.S. 10-year is at 3.73% with the inflation component at 0.87%. The 5-year is at 2.33% with the inflation component at a MINUS 0.09%. Investors are expecting DE-flation in the next five years and less than 1% inflation in the next 10 years. Once we see negative numbers from the monthly consumer price index inflation expectations will fall to negative and that will drive long-term rates to levels not seen since the mid 1940’s. Monthly economic stats are irrelevant at this point and only tell us what we already know…the economy is in the most serious economic contraction since the early 1930’s and like the rolling blackout I wrote about a couple of weeks ago is coming to your house and assets soon. Hoping that it doesn’t rain at your house when a storm is pouring down on every house in the neighborhood is something no one would ever assume and yet everyone believes their portfolio isn’t going to be affected in this hurricane…..wake up everyone, we are not getting out of this crises for many years…and house prices are not going to rebound for many years….and unemployment will soar for many years….Now the only question for each reader is: ARE YOU REALLY PREPARED or using hope as your strategy?

I will have the answers to 2009 and beyond at my class on Wednesday, November 19th at 6pm. Where will you be that evening?