Peter Schiff Says "What Gold Tells You Is What the Purchasing Value of the US Dollar Is Worth"

Peter Schiff guesses gold will go to $5,000 or higher. Wow, big call.

Dow Monthly and Daily Charts after Today's Fall

Dow Loses 300 points Thursday, Makes Recovery, and Long Term Investors Who Haven't Sold in the Recent Panic are the "New Contrarians"

Earlier today I wrote a post on the Motley Fool board, "Macro Economic Trends and Risks" in which I "fessed" to being one of the few investors who hasn't been busy "churning" my account, trading in and out, like a nervous jackrabbit during the recent swoon in the Dow.

Yesterday, I posted a chart of the Dow in daily form.

Today, I post a new chart with the latest "Japanese Candlestick" now showing on the same chart.

(The daily chart I am talking about is the second of the two posted above.)

A certain trend reversal formation has formed on the daily chart. It is called a "hammer". The hammer is classified by a tiny "head" on top of a long "shadow". (Someone once described to me a "hammer" as looking more like a hatpin.) What this particular candlestick tells investors is a trend was decidedly "bearish" in a session, with the later part of the session turning bullish.

Notice on this daily chart that the "head" of the "hammer" closed above the 200 day moving average line AND my trendline. Although my trendline has now broken down (using Japanese methods of drawing trendlines NOT Western methods) I am still "bullish".

Which leads me to point out to Nervous Nellies who've been selling their Blue Chip Big Cap stocks in the face of what seems like an Armageddon event:

The Dow Monthly chart is still hale and healthy.

Look at the monthly chart (the top chart of the two).

That Dow chart shows a 25 year old trendline.

That's 25 years of 12 candlesticks per year showing the 1987 market crash and the 2000-2003 bear swoon including the dot.com meltdown and 9/11 and its bear aftermath (which reset the trendline to a less severe rate of rise).

Now I want to point out something to many of you out there.

My longterm trendline for the Dow starts out at 769.68.

That low for my trendline took place in August of 1982 . . . so we are talking exactly 25 years ago this month.

Next, I want to do a mental exercise where we shoot down a few hyper-ventilating Armageddon Sell analysts who are telling everybody to sell everything in the recent sell off of the Dow.

1. First, let's think about the Dow.

It's a weighted average of 30 of this country's greatest companies. It's the oldest "index" for the NYSE, or New York Stock Exchange.

Names you know, such as Verizon, Johnson and Johnson, Exxon, are all members of this Index. And these names, for the most part, have been neglected by buyers of stocks since the dot.com bust in 2001.

Big Cap Blue Chips have sorely "underperformed" the overall markets as I've pointed out in earlier posts on this blog.

To make money in any kind of investing, you must buy dollars for .40 cents. Go where the herd does not tred.

Hence, I think a "flight to safety", i.e., Big Cap Blue Chips, is exactly the kind of move all risk adverse investors should be making in these trying times.

Onward.

2. Using 770 (rounded off 769.68), most investors will look at that number and say "Aha, the Dow has gone up about 16 times in 25 years . . . therefore it is way overbought."

However, let's look at this 770 start point and double it.

That gives us 1540. The Dow first hit 1540 in January of 1986.

That's like 3 1/2 years for a double. That is above the "normal" mean where we seek to "double" our stocks's values every 5 years.

{Dr. Jeremy Siegel points out the 100 year average for S&P 500 type stocks is about 11% per year which would be a "double" every 6 1/2 years; however, through proper timing of your buys, I, Warren Buffet, and even Dr. Siegel firmly believe . . . and have empirical knowledge . . . that many investors can expect "normal" average returns of 13-14% and better. Meaning that I expect to "double" my stocks's gains (with dividends reinvested) every 5 to 6 years.}

Anyway, let's get back to our exercise.

So we hit 1540 sometime in January in 1986.

Our next double of 3080 takes place in December of 1992. Okay, instead of 3 1/2 years, this next double takes about seven years, from January 1986 through almost January 1993.

So, stay with me, the Dow doubled twice in 10 1/2 years total, right?

Our next double would be 6160. When did that take place?

This next double of 6160 took place in October or November of 1996.

This was our quickest "double" of the Dow yet. It took a little less than 3 years to take place.

Now, let's do one more "double".

We are looking for the first appearance of 12,320.

Guess what? This double took the longest of all, almost ten years exactly.

Look for yourself at the monthly chart. This new double of 12,320 took place in October or November 2006 . . . ten years after that last double in October or November of 1996.

So the Dow has doubled four times in the past 25 years.

Length in time for the Dow to double those four times in 25 years . . .

First double: 3 1/2 years

Second double: 7 years

Third double: 3 years

Fourth double: 10 years

Take Away on the above observation

If we are using a 25 year old chart of the Dow, then the next double of the Dow . . . 24,640 . . . will probably take place in less than five years if . . . I said IF . . . historical "norms" continue through thick and thin times.

The only thing to destroy my outlook would be a Worldwide Depression.

And if a Depression comes, I'm still not selling off my stocks which I've bought at undervalued prices.

As I said in a Motley Fool message board post today titled Contra Thoughts from Accused Perma-Bear . . .

I'm looking over my charts right now.

I'm seeing banks, many REITs and the currencies showing contra-moves against the overall markets. The Bank Index is up almost 4% today.

It's like the financials are expecting a "Greenspan Put" from Bernanke or they know something we don't know. (I still am too nervous to buy financials outright, although Bank of America is tempting me.)But, I'm not looking at financials as a buy as I don't trust their "off book" investments are doing.Hence, I am looking over other sectors.

Consumer staples are also doing very well in these down markets.

But it's not only that sector.

You can find a good bunch of Blue Chip dividend payers to start buying into today.

According to a great Barron's piece 8 weeks ago, the record margin is almost all hedge funds, mutual funds, etc. It's not us small investors getting the margin calls . . . unless . . . of course . . . you used margin on your own or you invested in a fund which relies on leverage.

Despite all the turmoil, my ports are still up for the year and dividends paid within the past two weeks are buying much larger hunks of fractional shares in solid companies which will not blow away in any market tsunami.

People got to eat, use gas, buy electricity.

Invest accordingly.

Call me crazy, but I believe now is a great time to begin buying Proctor and Gamble, Johnson and Johnson, Pfizer, Huaneng Power etc. Average up, average down. Let those dividends reinvest.

It seems everybody's on board the downbound train. Yeah, we know Kudlow and crew are perma-bulls, but like posters on this board have said about perma-bears (which I've been incorrectly called), even a broken clock is right twice a day.

This is a classic time, IMO, to start taking the contra view of seeking good solid companies whose shares were sold off by funds so the cash could pay off riskier losing bets elsewhere.

I'm not suggesting you go hog wild and throw all your dry powder into the markets today. I am simply suggesting you look over those great companies which you've been hoping would come down in price for an initial buy.

Buy some now.

Maybe the markets will continue down. Maybe not. Average down. Average up if the markets take off again.

Warren Buffet has to be going nuts with his cash buying cheap shares of his favorite companies. I know he recently doubled down on Johnson and Johnson. I can't wait to see where he's feasting while big players run for the exits.

Maybe September 15th will be the bottom via ajaskey's (note to blog readers, ajaskey is the alias of a regular Motley Fool poster) Gann Theory. And then maybe not.

Maybe the Dow will drop below it's longterm trendline breaking the y axis at 12,000. Maybe not.

Trying to time a perfect bottom is tricky business. It takes a lot of monitoring of LIVE software, charts and news to jump in and out of positions like a nervous jackrabbit.

I say everybody here should be rotating into solid great companies, begin sleeping like a baby, and go fishing.

The clouds we saw on the horizon in 2005 and which were ignored by 99% of investors are now storms taking out people stuck in the door jambs as the flood surge rushes above their heads.Don't lose yours to panic selling.

Use this time to begin buying where others fear to tread.

p.s. I think another 5% fall on the Dow is doable. I feel another 10 to 12% fall on the S&P is doable and would be good. And a 30% to 40% drop on the NASDAQ would not freak me out. But I could be wrong and all of my trendlines taken out by some major catastrophe like a Great Depression. So what do I do? Go live in a hole with an AK-47 and wait for Doomsday?

Nah, I bought great companies over the past four years and all of them will hit the "Return Accelerator" with their DRIPs if their shares fall dramatically.

Moreso, I believe there will be a natural flight to safety on great Blue Chips which have been the most neglected stocks of the past 10 years. A lot of my port is diversified into these great companies and I'll be buying more.

Just because I am still bearish on Housing, doesn't mean I can't see bargains in Housing developing. It's just Housing markets move much much slower than stock markets. Today, I see many real bargains in the stock markets. And obviously Warren Buffet, Bill Miller and Anton Van Den Berg see these same opps too.

This is a time for Value Investors to shine.

(end of Motley Fool post)

As I've state before, there is always something "on sale" in the stock market.

If you know your history, if you've read Dr. Jeremy Siegel's book "The Future for Investor's" and you grasp the beauty of compounding dividends through dividend reinvesting, and you buy quality companies when no one wants them . . . you too shall thrive while others are losing their minds jumping from one mania to another.

You remember the first official stock pick of this blog, Johnson and Johnson? While the Dow has lost about 10% in two months, JNJ is still at or close to our buy in point of $63.41.

In fact, JNJ dropped at one point in July to $59.72 low. During the June 15th through July 15th recording period for Insitutional buying, Warren Buffet doubled his position. During the recording period of July 15th through August 15th, Warren Buffet increased his position another 9.21% with a total holding now of JNJ stock showing 53,145,848 shares worth $3,257,840,000.

Mr. Buffet is wading in when others are fleeing in panic.

The smartest investor of all time has other companies he's buying . . . and several of these shall be discussed in upcoming blog posts.

Meanwhile, I assure you, Johnson and Johnson . . . despite the recent failings of its stent business . . . is a booming healthcare/consumer staples macro play. When you see the new "Band Aids" with Neo Sporin gel being advertised, that's your baby. When you see the new "Listerine Mouth Whitening Strips", that's your company too. Johnson and Johnson's consumer staples division has caught fire, and they are going to give Proctor and Gamble, Colgate, Unilever and others a run for their Consumer Staples bucks . . . just wait and see.

When you buy "safety" when it is extremely undervalued (as Johnson and Johnson, Proctor and Gamble, Pfizer, etc., are today) rewards shall be reaped by the patient.

Action to take: keep buying Johnson and Johnson and other quality Blue Chip Big Caps which will not blow away during any major Armageddon event.

As always,

Caveat Emptor

Rock

Dow Industrials Daily Chart About to Break Important Support Trend Line?

(click on image to enlarge)

Dow Daily Chart Shows Today's Close Right on Important Trendline and 200 Daily Moving Average

Just an observation of mine which I've yet to hear anyone pick up and discuss on Bloomberg:

Click on the above chart. When it expands, look at today's closing Japanese Candlestick. At one point during the afternoon, the low of the trading session touched the trendline for a "reconfirmation".

If we were bullish on fundamentals for a stock with a similar chart, this would be a bullish indicator to buy near a historic "mean".

However, as we are on the Edge of Panic in our stock markets, what we want to watch tomorrow is to see if this trendline is pierced tomorrow for a breakdown of support.

Notice, too, the red squiggly line almost in perfect rate of rise with the trendline. That is our 200 day moving average line.

The 200 day moving average is an important indicator. If the Dow falls below it and closes below it sometime this week, this will signal day and swing traders that the breakdown in markets is going to bring more pain.

In these markets, especially with housing, lender, banking and insurance stocks being hammered, this could be the beginning of a new more serious downturn in the markets.

This chart is for all my friends on Motley Fool's "Macro Economic Trends and Risks" discussion board which is now FREE to access. Come join us.

Banking Sector Stocks to Drop Further? Discuss Every Day on Motley Fool

(click on images for expanded looks at charts)

Banking Sector Index Charts Showing a Break to Downside

This is simply a look at the monthly and daily charts of the Philadelphia Banking Index.

If you would like to discuss these charts and more macro-economics, I have a suggestion for you: instead of leaving comments on this blog . . .go to http://www.fool.com/ which is Motley Fool's opening page. Join the community of posters. Motley Fool is now offering FREE access to all their discussion boards, and their discussion boards are the very best on the Internet for anything to do with educating yourself financially. (I am not getting any financial remuneration for making this recommendation.)

Once you are posting on Motley Fool, find the following discussion board which follows all things in the macro-Economic Universe: Macro Economic Trends and Risks.

The METAR board is the one where I find the juiciest links to news I can use.

The board has about 100 regular posters from all walks of life. Some of us are bankers, loan officers, small businesswomen, chemists, students, Armed Forces members, stripclub deejays, and so on. It's a great mix of people with all kinds of backgrounds and interests. And we all share our knowledge.

If you make it to that board, seek out WendyBG who is basically the caretaker of this great discussion board.

Today, Monday August 6, 2007 is going to be a day the board will closely follow the continuing saga of the Credit Market and Hedge Fund implosions . . . which many of us feel is a bigger story than the Housing Market Crash.

By the way, Motley Fool "polices" its boards. You cannot turn it into a Yahoo message board where trolls use bad language or issue constant threats on your life, etc. Yes, we have differing opinions and we sometimes have to sustain personal attacks, but usually the community will take a miscreant to task for bad behavior. However, if you really abuse the Terms of Agreement, you will be banned from using Motley Fool message boards. Therefore, once you get there, take in 100 messages in a row to get the flavor of how posters comport themselves . . . usually.

Hope to see you over there someday.

Rock

Chinese Stock Market Blasts To New All Time High

(click on chart to see magnified image of Shanghai Exchange chart)

Shanghai Stock Exchange Sets All Time High: 4400.77

Old high from late May was 4335. Today, the Shanghai opened at 4338. Shanghai finished the day at 4440, or 2.20% higher than last Friday's close.

This despite China's government on the same day tried to cool their economy with new banking curbs. From Bloomber we read:

China's government curbed bank lending for a sixth time this year after failing in its previous attempts to cool the fastest expansion since 1994.

Lenders must put aside 12 percent of deposits as reserves, starting Aug. 15, up from 11.5 percent, the People's Bank of China said today on its Web site.

The restriction, coupled with three interest-rate increases since March, is aimed at stopping a $112.5 billion first-half trade surplus from fueling inflation and asset bubbles. Consumer prices rose 4.4 percent in June, the fastest pace in 33 months, and the key stock index more than doubled this year to a record.

``The problem in China is excess liquidity,'' said Tim Condon, head of research for Asia at ING Groep NV in Singapore. ``We can expect steady increases in interest rates and the
reserve requirements.''

The announcement coincided with U.S. Treasury Secretary Henry Paulson's visit to China, in which he plans to push for faster appreciation of the yuan to reduce the trade surplus. Last month, the U.S. accounted for more than half of the gap.

The currency fell 0.07 percent to 7.5674 against the dollar today after gaining 0.15 percent last week. China's economy, the world's fourth largest, expanded 11.9 percent in the second quarter from a year earlier, the fastest pace among major countries. In the first six months of this year, property and factory investment surged 26.7 percent.

Wow. Consumer prices rose 4.4% in June in China? That's huge. That kind of announcement in the USA would cause riots in the Halls of Congress.

Will the Chinese market slow down, or will it continue it's insane growth and pull the US and global economies with it? I don't know. I'm staying invested in all my stocks, many of which are benefitting from globabl exposure to China, India, Russia and other emerging economies playing "Catch Up" to the Western World. And if there is a precipitous fall in any market, I will continue to "hold" and let my dividends punch the "Return Accelerator".

Soon, China will lead the world in GDP. There won't be any more of this "catch up" stuff with a national savings rate of 35% and over $1 trillion in foreign reserves awaiting redeployment in new infrastructure, commodities, and domestic and foreign businesses. China is for real. This isn't faked growth. Just ask Americans shopping at Wal Mart what country's name is usually on the label of clothes, yard furniture and the like. If you were to tear apart your new Iphone, Dell laptop or Sony Bravia LCD TV, you'd be amazed at how many of the important chips are now Chinese made.

China is the reason I see the global economy as more than "half-full" on odd days of the week. Then I look at our bankrupt economy in the USA where overall consumer debt is larger than home equity and I think, "How in hell can we avoid a major crash in our markets?"

Whatever happens, I will ride this piece of history making to its end with condifence. I'm still invested heavily in many stocks which have the global exposure which Dr. Jeremy Siegel says will bail out Baby Boomers depending on income producting dividend paying stocks. I think Siegel is right, otherwise, I wouldn't be buying stocks in these uncertain times where Hedge Funds are going bust.

This is China's Century. Westerners should have some exposure to this biggest of all stories in the Global Economy. If you can't stomach buying a Chinese ADR in a Chinese company, buy a multi-national which is benefitting from Chinese, Russian, Indian and other emerging companies. (Again, look over this blog's first pick: Johnson and Johnson. It's a better buy today than it was a few weeks ago.)

We will focus more of this blogs energy on China's development in the near future. In fact, our next official stock pick will be a Chinese company which is worth investing in whatever happens to their market near or long term.

Last thought: it is good to see their Central Bank is taking measured steps to cool inflation. I hope they continue to tighten up on credit. I don't wish to see a Major Crash in Shanghai or the USA. It would be nice to see a tapering off, or a sideways movement in the markets. I can deal with that.

The USA Credit markets, however, hold the key now to our market, IMO. All we need are a few more hedge fund blow ups, and we could see some bad bad mojo in our markets with -20% down years.

It's interesting to note that all the King Makers on Wall Street were patting consumers on the head just a few months ago, assuring Americans the sub-Prime mess was contained. I can remember just a few months ago Cramer and other famous touts screaming people need to buy Bear Stearns, JP Morgan, Goldman Sachs and such stellar names who would not be touched by the Housing Crash.

One last aside before running off: Housing prices in Key West have already gone down 20% in the first seven months of this year according to Bascom Grooms IV, the President of the local NAR chapter, in a recent radio interview. So, for every million dollar home down here, the owner is now looking at $200,000 evaporated equity which he can no longer tap into when selling or going back to the ATM piggybank lender who said, "You can always refi later . . . "

Keep a lid on your margin buys in this market. Ride the trend of appreiating commodities which will never go out of style: uranium, oil, corn, etc.

The money to be made in Real Estate is still pushing further out. No bottom in 2008. You didn't hear it from me first, but no less a mortal than Robert Toll, CEO of Toll Brother's fine McMansion Homes is saying now that "maybe" we'll see the bottom in 2009.

Adam Lashinsky's Blog: "Imagine this: Straight talk on the housing market."

Imagine this:

straight talk on the

housing market

Sometimes you run across a photo on the Internet which makes you laugh out loud and shake your head in disbelief and anger at the same time.

Eventhough the photo caption above of an expectant mother, smoking a cigarette, tells us she is worried about the effects of jackhammer noise on her unborn child, any sane person would "get" the real story not being told by the photo.

The woman is the bigger risk to her unborn baby, yet here she is casting accusations a construction workers.

In the same way, in Housing circles for way too long, homebuilders and Realtors have been telling a story which doesn't jibe with the pictures painted by bloggers all over the nation.

Every once in a while, you run across a blogger or writer on the net who sees through the bullshit and tells it like it is and makes it really funny to drive home a point. And you laugh out loud. And you want to share that laugh at the expense of a prevaricator or petty tyrant or crank who doesn't know when they are the cause of much humor.

Hence, today I reprint Adam Lashinky's recent CNN/Fortune Money blog which puts words into the mouth of Toll Brother's CEO, Robert Toll.

To show how Lashinsky and I think alike, I will add my comments in itlaics colored in purple under his comments printed in black italics.

So, what we have here is Adam Lashinsky and Rock Trueblood having a little fun at the expense of one of the biggest egos in Housing, Robert Toll.

(for the unedited version showing none of my comments, click on this link)

http://gowest.blogs.fortune.com/2007/07/25/imagine-this-straight-talk-on-the-housing-market/

July 25, 2007
Imagine this: Straight talk on the housing market

by Adam Lashinsky

Reading word of the debacle at class-act mortgage lender Countrywide (CFC), I couldn’t help thinking about a fascinating interview my colleague Jon Birger did recently with Bob Toll, eternal optimist and CEO of luxury home builder Toll Brothers (TOL). When I read the Q&A in the magazine, I was struck by how there seemed to be a sub-text to everything Toll said, a sort of What-He-Says versus What-He’d-Say-If-You-Injected-Him-With-Truth-Serum.

So with apologies to Jon and Bob, here is an imagined annotation to Toll’s responses, were he being more candid than the situtation allowed. (To read the full interview, follow the link above. I’ve edited it for space below. The bold are Birger’s questions, the plain text are Toll’s published answers, and the bit in italics is my contribution.)

How bad is it out there?
I don’t see the market getting better until, at the earliest, April of 2008. But I do think that when a recovery occurs, it will be much quicker than it has in the past because of pent-up demand.

Sounds good. Of course we all know there is no pent-up demand for homes. Everyone who wanted one bought one. Or Two. Or Three. Gosh, I loved the early 2000s. By the way, I just know Countrywide will predict no recovery until 2009. Most folks will find them more believeable than me.

I hope these guys have forgotten that I was once predicting that if Americans didn't buy a home in 2005, they would never be able to afford a house again in their lifetimes. I hope they also forget that I predicted a new landed gentry with those who owned, and those who would always be sentenced to rent from the new landed gentry. Why should I worry? Americans have short term memories. Jesus, Angelo Mozilo at Countrywide just said he doesn't see a turn around until 2009. Is he spending too much time at the tanning bed or what? How come he can't get on the same page as me and start spinning the proper spin?

Weren’t you worried about speculation in Florida and elsewhere during the boom?
There wasn’t anything we could do about it. We would make people sign in triplicate swearing up and down that they weren’t speculators, but we couldn’t control whom the builder next door was selling to.

Worried? Are you kidding me? We LOVED it. Do you realize how much our stock went up in three years?

Worried about the run up in home prices which caused a huge panic buying wave and made people all the more addicted to buying Real Estate, no matter what the price? Are you crazy? Our stock price rocketed, our board paid me more options and bonsues, and the mania allowed me to be King of the Universe for a few years there.

Some analysts think new-home prices would have fallen even further if not for all the incentives - high-end kitchens and the like - that builders are offering.
When you start selling homes for $400,000 that were $500,000, all the homeowners who paid $500,000 are going to be in your sales office complaining, saying, “Why are you doing this to me? Why don’t you just put a sign on my lawn saying, ‘I’m a schmuck?’ ” So you’ve got to give incentives instead of lowering prices because you don’t want to be rude, crude and barbaric to your clients.

Believe it or not, most are too stupid to realize that the giveaways are the same thing as lowering the price. Is America great or what?

Americans are to dumb to realize incentives not only lower prices, but also keep the median home price artificially high. If more homes were selling for a real price without incentives, homes in all neighborhooods . . . be them of new housing or old used housing . . . would have to adjust their prices downard, dramatically I might add. We can't weather reality based pricing. Hence, incentives help us hide our pain and nervousness and incentives helps us keep a straight face when we tell homebuyers and the press that prices are not coming down that fast or not coming down at all.

There’s been a lot of speculation that with homebuilder stocks down so much, they might be takeover targets for private-equity funds. Do you see that happening?

I think that every builder has been approached and had conversations, but obviously they haven’t gone anywhere. Say an LBO fund approaches a builder, saying, “Look, your stock was $50, it’s now $25. I’ll give you $30.” Well, why should I sell for $30 when every time the market has come back we’ve gone to new highs?

It’s a good negotiating position, don’t you think? Look, I’m a smart guy. I know that $30 is a GREAT price because we’ll never see another housing boom like the last one in anyone’s lifetime. Truth is, I doubt even the shopaholic private-equity guys would pony up for overvalued stocks like homebuilders right now.

If some private equity guy . . . who are having trouble finding money to borrow after the Bear Stearns debacle a few weeks ago dried up liquidity lending . . . wants to buy us out for $30 a share, I'll kiss his ass and be the Godfather of their children. I'd be happy to make them the last bagholder in line. I'm over this. I need a long vacation.

Revisiting and Updating Our Shanghai Exchange Charts from 10 days ago . . . Shanghai Market has lost 15% in the Past 4 Days

Compare the Shanghai Daily Exchange Charts from 25 May 07 to Today's 4 June 07 Chart

On May 25, I pointed out and asked "The Chinese market closes at 4151.13. In the last 17 years, you can see this market has gone up 4200% . . . is this sustainable for much longer?"

And the answer is an emphatic NO!

Last week, after the Chinese government tripled taxes on trading fees, the Shanghai market saw the bears take over from the bulls.

And today, 4 June 07, the market declined 8.26%.

Overall, in the past four trading sessions, the Shanghai market has lost 15% of its value. You are not seeing things. That's right, 15% of the whole market has vaporized.

Click on the charts. Read the details. See for yourself.

As I asked on one chart, "How low will she go?"

Print out the charts. Clip them into a notebook for future generations to observe and learn what bubble markets look like.

Okay, the above was the chart from 6 trading sessions ago. After today's swan dive off a cliff, here is what the same chart looks like now . . .

And here is the update on the monthly chart. Please read notes on this chart as it explains what the monthly is beginning to portend for July . . .

One more big question: should the Shanghai Market lose 50% or more from its market top, how will that affect world markets? Will we shrug off the losses in China as we have done in the past 4 trading sessions?

Machts nichts, i.e., "It doesn't matter?"

Stay tuned to this board for timely updates . . .

Rock's Stocks: First Official Pick for the Rock Trueblood Watchworld Blog: Johnson and Johnson (NYSE: JNJ)

Strong Buy: Johnson and Johnson (NYSE: JNJ)

Buy Range: $62 to $68 a share.

I am selecting Johnson and Johnson as our very first pick for this blog.

Friday, 1 June 07, Johnson and Johnson shares closed at $63.41 a share.

In a Nutshell, Here are 22 Reasons Why I Recommend You Buy Johnson and Johnson Shares NOW in the $62 to $68 range:

1. The longterm Japanese Candlestick chart of mine shows JNJ shares "reconfirming" a longterm trendline three times in 2007. My charting service, stockcharts.com, only has data going back to 1990. Still the trendline shown (snapped from a start in 1994) is a continuation of a much older trendline starting in 1984 which I snapped on a JNJ Japanese candlestick chart using another charting service. This other charting service allows no "snapshots" of their charts to be cut, pasted or saved to my hardrive. If I could show you the older chart's trendline (23 year old trendline vs. this 13 year old trendline on the chart shown above) you would see the same identical rate of rise of the trendline.
2. Extending my trendline to Jan. 1, 2010, I am looking for JNJ shares to be trading with a base range of $95 to $105 a share. This is approximately a 33% increase over the next 2 1/2 years. Figure in dividend reinvesting, and I am looking for no less than a 40% total return increase in share worth during the next 2 1/2 years.
3. Johnson and Johnson has increased dividends every year for the past 40 years straight. The current dividend is .415 cents per quarter. This dividend was just raised 10.7%, or from .375 cents a share to its current .415 cents a share. (Note: Yahoo data does not go back to 1966 . . . the year JNJ started dividend payments with yearly raises.)
4. Johnson and Johnson is formally positioned in one of the Top 3 performing sectors of all time according to Dr. Jeremy Siegel author of "The Future for Investors": healthcare.
5. The Healthcare sector shall grow dynamically during the next 50 years as America and most of the Western World's population ages more quickly than new babies are born. At this time 76 million Baby Boomers in the USA are just beginning to retire. Also, immigration laws are being designed to add new immigrants to our overall population, increasing a pool of new social security/medicare payers who will also need healthcare and who will help pay for healthcare of retiring Americans with no health plans. Healthcare needs will explode, benefitting Johnson and Johnson in an exponential way during the next 50 years.
6. Johnson and Johnson not only has consumer staples (Splenda, Neutrogena, Bandaids, Tylenol, cotton ear swabs, contact lenses,etc.) but many medical devices and prescription drugs.
7. Johnson and Johnson bought out Pfizer's Consumer Healthcare Brands this past January. The products they've added to their pipeline of Consumer goods with the Pfizer purchase are names we all know: Neosporin, Listerine, and others. These new consumer products are just beginning to generate topline growth and will also filter quickly to the bottom line.
8. Johnson and Johnson recently bought out China's biggest skincare/cosmetics maker, Dabao. This gives JNJ a foothold in over 3000 outlets, many of them second tier Chinese cities and towns where Dabao products are featured. . Dabao products are low to medium priced which will fit nicely with the more expensive Neutrogena products already sold by JNJ
9. Brand name is one of the Top 50 in the world.
10. It is one of the Top Ten Fortune 500 Companies.
11. Forbes Magazine made JNJ one of their Top 5 stocks to buy in 2007.
12. Warren Buffet, one of the greatest investors of all time, has recently upped Berkshire Hathaway's stake in JNJ to 48,665,600 shares. This is almost a doubling of the shares he already owned.
13. Earnings on this giant have increased up a beautiful long straight trendline (for the most part) for over 40 years.
14. People are afraid what will happen to healthcare stocks if Democrats take back control of the White House. However, “From 1948 to February 2006 the stock market has returned 11.95%. Under Republican control the stock market returned 9.53% and under Democratic control the stock market returned 15.26%” - Dr. Jeremy Siegel
15. JNJ is well diversified and has more sales outside the US than anytime in its history. Regardless of what happens with healthcare in the USA, the broad product lines, and the surging Global Economy, will help take up any slack caused by US government controls placed in any healthcare bills in the next decade or so. JNJ is what I call a "global goliath".
16. So great is JNJ, it is one of 30 stocks in the Dow Industrials. Liquidity is never a problem. This is a stronghold for many institutional buyers.
17. The recent most quarterly report shows diluted earnings of $1.17 per share . . . or a 17% gain over same quarter in 2006 with .99 cents earnings. Several acquisitions will dampen earnings in the about to be reported quarter, giving investors a better chance at buying than our official buy in price.
18. Recent weakness in JNJ's share price is probably attributable to negative investors sentiment over recent patent challenges. More notably, Cypher stent sales concerns about risk of blood clots from drug-eluting stents and new competition in stents . . . particularly after Boston Scientific bought out Guidant for a price higher than JNJ was willing to pay. The recent acquisition of Conor Medsystems gives JNJ a next-generation stent that should address many of these concerns. For a net $1.3 billion cash, taking an $807 million charge to 1Q07 earnings for IPR&D. . . There was a snag, however, with Conor's new CoStar stent. JNJ has discontinued sales of it abroad and has quietly stopped its pre-approval use application to the FDA. This will shave a few pennies off the bottom line for the year. Hopefully, this gives investors a little more time to average in their buys of JNJ this year.
19. On 23 May 06, Cordis Corp., the heart device unit of Johnson & Johnson Inc., said it agreed to become the worldwide distributor of a line of bare metal stents made by Israeli medical device maker Medinol.
20. Megatrend: Globabl pharma sales rose 7% last year. JNJ will benefit from their global exposure.
21. Value Line rates JNJ as a 1 for "safety", meaning this is a stock which will hold up well in an major market downturn.
22. Motley Fool's "The BMW Method" board is calling a buy on JNJ (using Mike Klein's charts posted on the highlighted website) based on their method of tracking Compound Annual Growth patterns on logarithmic charts invented by founder Jim "BuildMWell". This is a great mechanical screening tool which I added to my toolbox for Blue Chip Big Cap companies only two years ago. It is eerie how many times one of my longterm charts and one of the BMW method charts scream "Strong Buy" at the same time. My Japanese Candlestick charts led me to BUD, PFE, KO and many others in which the BMW charts were also crying out "STRONG BUY".

Okay, gang, that's 22 Reasons to Buy Johnson and Johnson now.

I hope we have a few more months of sideways or down action in shareprice so that we can all build sizeable holdings in our ports. Once it hits $68, I will throttle back on my purchases as I believe JNJ will then be "off to the races".

Think about the 3 billion new Capitalists unleashed overseas who are buying Johnson and Johnson healthcare products right now. Although individual Chinese investors cannot yet buy American companies, that day is fast approaching. And Johnson and Johnson owns many categories of consumer staples and healthcare products in China (and India) already, so the name will be one of the first to be bought.

One more bonus point to drive home: JNJ is not only a healthcare company . . . it is also a consumer staples company.

And I will remind you again from my blog about Dr. Jeremy Siegel's book showing how stocks outperformed real estate . . . the top 3 performing sectors with dividends reinvested over the past 50 years are:

1. Energy
2. Consumer Staples
3. Healthcare

Hence, in JNJ, we have a very "safe" play which is focused in 2 of the top 3 sectors for share growth when dividends are reinvested every quarter.

As Mr. T sez, "I pity da fool who don't buy Johnson and Johnson here and now and hold that sucka forever."

Roger Shiller's Advice: "Stay Away from the Pack"

Money Magazine's Jason Zweig Interviews Robert Shiller

Readers of this blog know that I hold Robert Shiller in high esteem. He is, after all, the man who warned us all that the Internet stock mania would end badly. In fact, his book which clearly outlined this warning, "Irrational Exuberance", became the most famous two words uttered by ex-Fed chief, Alan Greespan, when he warned Congress the markets were valued way beyond sanity.

In an earlier blog of mine "How Stocks Have Done Since the Millenium: Why Buying My Rental House is a Losing Bet Today", I quoted from an early article by Shiller published on the Internet in 2005 which warned that Housing would crash as surely as the Nasdaq crashed in 2000.

I quoted from Shiller's article the last two paragraphs verbatim:

"Well, we are looking upon a real estate boom again, and we are likely to observe the same end to speculative feeling, at least before many years have passed. Human nature is unchanged. In a bubble, high prices are sustained only by the expectation of more high prices. That is what makes a bubble a bubble, prone to bursting.

The reason we cannot expect a soft landing today is that right now people are willing to pay these very high prices only because they expect them to go up even more in the future. Prices can't just level off, because when people no longer expect them to go up, some of them will not want to hold at the high price."

Yesterday, a new interview with Shiller appeared on the Internet titled "Robert Shiller: Mr. Worst-case scenario." The interview was conducted by Money Magazine's Jason Zweig, placed on Yahoo Finance, and I've cut just the interview from the piece for your reading pleasure:

Question: What caused the stock bubble, and why did it end as it did?

Answer: Some sociologists talk about collective consciousness. We humans evolved to be very closely linked, and our minds focus on the same ideas. Those [ideas] get reinforced because we hear them all the time.

Back in the late 1990s, you kept hearing that you had to stake your claim on the Internet or you'd miss out on the future. No one cared about the present.

Then something happened around March 2000. There was an acceleration of public talk about doubts. You could no longer declare at a cocktail party that Internet stocks were going up. Such statements had become embarrassing -and just like that, word of mouth changed. Embarrassment is a powerful emotion.

Question: Is that about to happen in real estate?

Answer: It doesn't seem like we're there quite yet. But this is the biggest boom in housing prices since, well, ever.

Nothing seems to explain it, and nobody forecast it. It seems to me...wait a minute. Please don't quote me as forecasting the markets.

Question: Okay. What you're about to say is not a forecast.

Answer: Well, human thinking is built around stories, and the story that has sustained the housing boom is that homes are like stocks. Buy one anywhere and it'll go up. It's the easiest way to get rich.

Question: So how rich can you get on real estate?

Answer: From 1890 through 1990, the return on residential real estate was just about zero after inflation.

Question: Excuse me? That's all? Hasn't it been higher lately?

Answer: Since 1987 it's been 6 percent [or about 3 percent a year after inflation].

Question: So real estate doesn't go up roughly 10 percent a year?

Answer: It can't be true that homes rise 10 percent a year. If they did, in the long run no one would be able to afford a house.

Question: Let me grab a calculator. If real estate really rose 10 percent a year, a $25,000 home in 1957 should be worth roughly $3 million now.

Answer: And that flies in the face of common sense. In fact, I'm inclined to think there's a good chance that the return on real estate will be negative, substantially negative, over the next 10 years because all booms reverse in the end.

Question: All right. We won't call that a forecast either. So how should people think about their home as an asset?

Answer: Avoid concentration of risks. You need a house, but I would avoid a second one - or at least avoid an outsize house. Over-investing in real estate now would be a recipe for disaster.

Question: You also write about the risk to human
capital. What's that?

Answer: What you're trying to do is to invest in skills that somebody else will want to pay you for. Let's say you want to work at Bethlehem Steel.

That would have been a good idea in the 1950s, not so good by the 1970s. The world went the wrong way on you.

Question: How can you manage that risk?

Answer: I used to coach children's soccer, and I would tell my players, "Stand away from the pack, and sooner or later the ball will come to you."

In your career choices too: Get away from the pack. Also, you associate your home country with safety. But the rest of the world is pretty peaceful too, on average, and the average is all that matters.

I think relatively few [Americans] are getting away from the pack, investing more outside the U.S. than in.

Question: How are you investing now?

Answer: I'm probably a little over 60 percent in stocks, almost all of it outside the U.S. I have a lot of cash. And I've been reducing my exposure to real estate. It may be at the end of a cycle.

Since the late 1990s, Blue Chip Big Caps have been ignored by investors. Big Caps have sorely underperformed Emerging Markets, small caps, Real Estate, and so on.

However, I firmly believe this is the time to be loading up on familiar Big Cap names with Global exposure. I especially urge anyone buying stock to focus on the following three top performing sectors since the beginning of the S&P 500 in 1957:

1. Energy
2. Personal Staples
3. Healthcare

I have two energy stocks I will be discussing on this board in the near future which I would urge anyone to buy, sock away in a Roth IRA or other retirement account, and re-invest the dividends forever until you are ready to retire.

I have two personal staples stocks I would recommend here and now.

I have two healthcare stocks I will recommend to anyone in the near future.

And I have one mid-cap stock which is a play off all three sectors and other stocks which have sustained growth while paying dividends.

I will be publishing my first official stocks picks soon on this board. And these picks will be looked at monthly on a Watchworld scorecard.

That said, Shiller is urging us to invest overseas. What Shiller did not bring out is this: you can buy multi-national companies which have large presences overseas.

In fact, four of the seven stocks above which I will soon recommend make more money overseas than they do in the USA . . . and I think when I mention some of these names . . . you will be stunned to learn that these "American" companies have larger exposure off-shore and are making big profits by currency exchanges added into the mix.

For now, however, go back and read what Shiller is telling anyone who is thinking about buying Real Estate in these exuberant times.

He believes:

• You know the Real Estate Bubble is finally dead when people are too embarrassed to talk about it openly as a way to make money. (You know we haven't reached that point in Key West as the local NAR branch is still running ads "Now Is a Great Time to Buy a Home!")
• From 1890 - 1990, the return on Real Estate was zero after inflation was factored in.
• From 1987 through 2007, Real Estate has only gone up roughly 6% annually. In reality, the reutrn is only 3% annually after inflation is figured in.
• Real estate could not possibly go up 10% a year as some NAR wags claim as that would make a house which cost $25,000 in 1957 worth $3 million today. (The house my parents bought for $7,000 in 1950 would not be worth $60,000 today in Richmond, VA . . . which means it doubled in price only three times in 57 years for only a 3.84% compounded annual growth rate . . . and this includes the last five to seven years of the Housing Bubble)
• Avoid concentrations of risk. Go where others are not already crowded.

p.s. Disclosure: I am very heavily weighted in gold, silver and oil in my real life portfolios. In fact, I own real gold and silver proof coins.

Anyone who does not own gold, silver and oil in their portfolios at this time in history is simply playing Russian Zip with an Uzi machine gun loaded with a full clip, IMO.

If you can't make yourself buy real gold and silver as a hedge, please, understand where oil is today with prices already skirting $4.00 a gallon in the Florida Keys.

Read the Mogambo Guru's weekly column you see headlined on the margin of this blog. His humorous writing is a compendium of knowledge he has gleaned from other writers during the past week. Mogambo is crazy as a fox. Read and learn.

You will also want to see a Matt Simmons slideshow about oil. Just google his name. Look for a slideshow. All you need to know about oil is right there in 50 or 60 slides that Matt has put together to wake you up.

Look about you. Start thinking about the obvious. See all those For Sale signs in your town? Who can afford to buy those homes now that the EZ Credit train has jumped the track leaving millions of bagholders on the platform scratching their asses wondering who is going to take them away from all the masses scratching their asses?

Keep reading this blog to learn that Real Estate has gone colder than Walt Disney's head.

Meanwhile, use your head.

Gold, silver, oil. Get those hedges first if you are just starting out. Then we can add in the healthcare and personal staple stocks later. As Mogambo would say, you can thank me later.

How To Give Yourself a Perpetual Pay Raise Every Week. . . As Long As You Reinvest Your Dividends

Perpetual Weekly Pay Raises
(Exponentialsim 101)

Posters on the boards for the Motley Fool Rule Breakers Newsletter know me as an investor who likes highly volatile stocks such as Blue Nile (Nasdaq: NILE), Akamai (Nasdaq: AKAM), and Exelixis (Nasdaq:EXEL).

Today, Blue Nile is more than a double in my portfolio. Akamai is about a four bagger. And Exelixis is only up double digit percentages . . . but I am still holding 200 shares "forever" as I believe this company will become a 21st Century type of early Pfizer story with a focus on cancer fighting drugs.

As mentioned in an earlier post on this blog, I also took a flyer on 500 shares of Calpine (Nasdaq: CPNLQ) for .28 cents a share. Today, those shares are now roth over $3.00 each.

Yes, I like my surfing on fast moving lava flows and hitching rides on rocket ships when it comes to riskier growth stocks.

But the stocks I really enjoy most for buying and holding long term are those sleep-on-the -beach and never worry class of stocks we know as dividend payers.

Enter the “Weekly Pay Raise” part of the portfolios I manage.

I check my portfolios of stocks usually at the end of every month. And when I click on the “history” button to see which stocks paid out dividends the last 30 days . . . cha-ching. . . I always have a new list of updated fractional shares for certain stocks which show increasingly larger dividend totals!

This kind of no-brainer money growth excites me. Recently, I’ve taken these growing quarterly dividends and started dividing them by 13 to see how much extra money is paid out as a weekly pay raise during the past quarter.

Let me illustrate this look by using just one real-life holding I manage in my girlfriend’s Roth IRA.

We bought her 200 shares of Eagle Shipping (Nasdaq: EGLE) in September 2005 @ $14.26 per share for a total of $2,852.00 (not including the small trading fee).

Last Friday's closing price of $21.91 would give those 200 original shares a new worth of $4,383.00, for a total gain of about 53.65 % in 20 months time. I don't know about you, but I’ll take that kind of return any day of the week, any month of the year.

But as Ron Poppel would scream, “Wait, that’s not all. There’s more!”

EGLE paid monstrous dividends during 2006 and during the first two quarters of 2007. The dividends were for .57, .50, .50, .51, .51 and .50 cents respectively over those six quarters.

Let’s look at these just passed quarters and their fractional share growth in 2006 and 2007 as applied to the 200 shares of EGLE which we purchased in September 2005.

Q4 2005 – 200 share purchase

Q1 2006 – 208.8490 shares (8.8490 new shares purchased with free dividend money)

Q2 2006 – 216.3290 shares (7.4800 new shares purchased with free dividend money)

Q3 2006 – 223.9180 shares (7.5990 new shares purchased with free dividend money)

Q4 2006 – 230.8150 shares (6.8770 new shares purchased with free dividend money)

Q1 2007 - 237.0420 shares (6.2270 new shares purchased with free dividend money)

Q2 2007 - 242.3160 shares (5.2730 new shares purchased with free dividend money)

Notice how the returns multipled as the stock price was still ascending?

So, my girlfriend started with 200 shares of EGLE in September 2005 and now has a little over 242 shares?

Here we go!

Before accounting for reinvested dividends, we were already up 53.65% share price gain. Remember?

But look what happens to this great 53.65% return when we add in the dividend “free money” to buy those extra 42.3160 fractional shares:

Let’s multiply 242.3160 shares by $21.91 (Friday's closing price). We get $5,309.12.

Divide this latest closing balance of $5,309.12 by our original investment of $2852.00 and we’re now looking at an unbelievable 20 month return of 86.16% instead of the original 53.65% on just 200 shares!

Hence, you now see first hand how Dividend Re-investing is giving bigger returns that you would expect of a growth company which pays no dividends. Damn, this dividend re-investing stuff sure makes sense.

Better yet, my girlfriend’s dividend dollar totals are increasing quarterly: every fractional share added the previous quarter was paying extra dividends to the total the following quarter.

To hell with Existentialism, teach me more of this Exponentialism!

Check out the total dividend payouts multiplied by those burgeoning fractional share amounts:
Q2 2006 - $104.42 total dividends divided by 13 = $8.03 weekly extra pay

Q3 2006 - $108.16 total dividends divided by 13 = $8.32 weekly extra pay w/ .29 cents a week pay raise

Q4 2006 - $114.20 total dividends divided by 13 = $8.78 weekly extra pay w/ .46 cents a week pay raise

Q1 2007 - $117.72 total dividends divided by 13 = $9.06 weekly extra pay w/ .28 cents a week pay raise

Q2 2007 - $118.52 total dividends divided by 13 = $9.12 weekly extra pay raise w/ .06 cents a week pay raise

How Do You Get Bigger and Better Pay Raises Every Week? Buy More Stock in Companies Which Will Never Go Out of Business

Do you see that Magic of Compounding going on here? And when you have a portfolio of great stocks such as Budweiser (NYSE: BUD), Wrigley’s (NYSE: WWY), Colgate (NYSE: CL), and other Steady Eddy dividend payers, you can see how these weekly pay raises translate into a rewarding “wealth effect” which grows forever.

Be your own boss, folks. Diversify your portfolio with great dividend paying companies for the long term. Learn to give yourselves weekly pay raises while you sleep.

p.s. The other day I was speaking to a rep at my local bank, First State Bank. We were talking about routing transfer numbers, so I could send a bunch of my savings into a safe "forever" stock which pays huge dividends bigger than Eagle Shipping.

The woman representing my bank of 17 years wanted to know why I would buy stocks at a time like this instead of investing in CDs at her bank or a Money Market fund.

I told her:

1. Your passbook savings rate is only one-half of one percent. (No that is not a mis-print.)
2. You money market fund is offering only 5.0%
3. Online banks such as Everbank are offering 6.01% on chekcing accounts at this time
4. Your CDs for 6.0% and more would lock up my money for months at a time. Should I need to cash them out for a purchase of an undervalued asset, I would be assessed a penalty by your bank.
5. You are now advertising you have $250,000,000 to lend business and home buyers in the Florida Keys at this moment in time when Real Estate is crashing. I don't like the idea of my hard earned money being distributed to people who don't have a clue as to what an overvalued asset class looks like
6. I have made more than 21% or more in the stock market for the past four years . . . and this year looks to be my best ever as I continue to load up on Blue Chip Big Caps which pay dividends.
7. If the economy crashes, I am hedged with real gold and real silver. Plus many of my stocks are based on commodities which are in a bull market. The last place I want to keep my money is in a passbook savings of a bank which will lose money as more homebuyers turn in the keys to their overpriced Real Estate in Key West.

I was not rude to this woman. I was simply trying to help her understand that some people make money in bad markets and good using their brains to not follow the herd.

She asked me the name of the stock I was buying recently.

Actually, there are more than one, but in a post I will lay here soon, I will give you my two top recommendations for new money now. Both picks pay healthy dividends. And both picks are invested heavily in either energy . . . in particular, Oil . . . or consumer staples.

More later.

How Stocks Have Done Since the Millenium: Why Buying My Rental House is a Losing Bet Today

At the end of this latest entry are some stats on different stock market indices which were brought to my attention by a poster on Motley Fool, HamletsMill. This information coincides nicely with a book I am reading, "The Future for Investors" by Dr. Jeremy Siegel

Also, this is a very long blog post. It was done in haste and was never edited properly. If you are stumbling upon this post just now, know that certain sections are redundant, have typos and the syntax struggles in places.

Against my better judgement, I am placing this out there un-edited so that the valuable information therein can at least be gleaned and picked over for the kernels of truth it contains. I intend to come back to this blog at the beginning of June sometime to fix the mistakes.

Right now, however, I feel it imperative to post as much as possible in an effort to find my "blog" voice and to learn how to use all the features blogging presents.

Important Data Must be Broken Out To See the Trees from the Forest: Looking at Individual Stocks Vs. It's Whole Sector

One of the things you would gather from reading the list attached to the end of this blog is : the Dow Industrials (comprised of 30 of the biggest stocks in America) have under-performed Small and Mid Cap stocks since Dec. 31, 1999.

As Dr. Jeremey Siegel points out in his excellent new book "The Future for Investors" (as would Warren Buffet, Charlie Munger, Sir John Templeton, Peter Lynch and other great investors) there are always some safe Big Cap stocks on sale in every market.

For instance, anyone buying housing stocks or mortgage brokerage firm stocks in 2005 would have been buying those stocks at a market top for housing. While housing is in a giant landslide, housing stocks seem to be finding a support area, then drop, find another support area, then drop, repeat. No one knows where the bottom in housing is, so why buy housing related stocks which continue to get beat up? The trend is your friend, and the trend is still down for housing. Bet against housing for now.

While the whole country was drunk on Real Estate, housing and lender stocks soared to the moon. Anyone buying these stocks in 2005 would have been "chasing" these stocks.

When you chase a stock, you are already too late to the party. It's like trying to jump on a moving train which you just can't catch in time.

So, Housing and Lender stocks, stars from 2001 to 2005, are now in the crapper and only worth a look once we find a bottom in housing. Yes, they are highly "undervalued" to the remainder of the the stock market. But what the analysts on TV are not telling you after they breathlessly point out the low P/Es is this: the E or Earnings in that equation keep falling quarter over quarter, year over year, quarter after quarter. As earnings continue to fall and housing CEOs continue to slash payrolls, why invest now as the value of shares continue to fall too? Housing is nowhere near a "bottom" as inventory and foreclosures continue to soar, prices are dropping all over the world in Real Estate, and loans are harder to arrange.

Many of the mortgage lenders have gone bankrupt already, or have been bought out for pennies on the dollar . . . similar to all those dead telecom stocks from 2000-2001.

Meanwhile, dull, boring, safe companies which actually turned profits and have P/Es of less than 20 . . . during the Great Depression, the Crash of the Nifty Fifty, many Recessions, the Crash of 1987 and attendant S&L Crisis from the same decade, the Internet Bubble and the Housing Bubble . . . continued raising their dividends yearly and cranking out one boring annual report after another. These Steady Eddy stocks grow surely but slowly, feeding the insatiable appetite for a growing Global economy and populace needing razor blades, soap, and gasoline and oil for their cars.

And to make matters even better, there is a big world of these stocks "on sale" at this time which are neglected because they are not "growth" candidates in a world gone mad for growth (think the Chinese stock market, the Indian stock market, our own small-cap and mid-cap indices.

Here. Let's take one example of a boring company which was around in 1907 and which is still here in 2007. To make this lesson simpler we will take the last 50 years of this company's stock performance and compare it to a super growth company darling of the past 50 years . . . and both of these companies were side by side in the Dow Industrials 30.

The boring slow growth company makes something which everyone needs for the cars, buses, tractor trailers, RVs, motorcycles, etc., which are dotting this planet: gasoline and oil products. The company we are spotlighting is the biggest company on the planet today: Exxon. And when something is as large as Exxon, supposedly, their "growth" days are supposed to be long gone, buried in the grave. Other than the past 5 years when the oil sector has taken off again, no one could make money buying Exxon stock during the other 45 years of its 50 year period, right?

Wrong.

I Learned about the Stock Market at an Early Age . . . and Then I Dropped my Self-Education and Easy Shot to Make Myself Wealthy While I Was Young and Stupid

I could have bought $1,000 of Exxon in 1957, never sold a share, and re-invested those Exxon (then Standard Oil of New Jersey, then ESSO, then Exxon) dividends for the past 50 years (dividends for Exxon are paid quarterly, hence I would have received 200 dividends during those 50 years) and now I would have multiplied that $1,000 original investment into close to $2 million of today's dollars.

President Dwight Eisenhower was in power when I was a young kid. Ike built this country's Interstate road system. World War vets, like my dad, came home to an economy changing to a "peace" time economy . . . (despite the massive Arms race in nuclear bombs.)

Everyone had to have a car for the "freedom" it gave every family to visit the seashore, the mountains, the growing National Park system, etc. So, an investor in 1957 would have been staring at this new mega-trend of personal travel and asked, "Hmmmm, what will all these motorists need?"

During that same time, the country began installing computers in government buildings to help keep track of government. The company with the largest payoff in governmental contracts was "Big Blue" or IBM. I remember as a kid . . . in 1964 when the Beatles invaded America . . . learning to read the stock market tables from the richest kid in my class, Huddy Hyman. And I remember too that IBM had the highest stock price in all the tables. I can even remember the share price (not split adjusted for today, by the way) as being $360.00. And I would watch with fascination as the stock would rise $10.00 one day, drop $8.00 the next, and go like that up and down, up and down, but for the long term up, up, up.

Had I been able to afford 3 shares of IBM in those days, I would have surely bought them. The country was mad about IBM stock. And if you were employed by Big Blue, you were a "God" in your neighbor's eyes.

That same year I discovered girls. Having girls on the brain 24/7 ended my Straight A student average. It also ended any fascination I once held for stocks.

Meanwhile, four years after learning how to read stock market tables, I went to work as an attendant at an Esso gas station where I changed oil, checked under the hood, and took my time washing windshields with women drivers wearing mini-skirts. I never once, not once, thought about Esso stock while all these cars where filling up on .18 cents a gallon Esso, .20 cents a gallon Plus or .22 cents a gallon Premium gas. Oh, the folly of youth.

Forty Years Later I Meet the Good Professor in Articles and Books, and I Realize Just How Stupid I Was For Ignoring the No. 1 Asset Builder on the Planet: Stocks

Doctor Siegel shows in his book how "chasing" a growth stock, such as IBM, pays off less in the long run than a Steady Eddy boring stock such as Exxon.

In fact, take this test yourself where Dr. Siegel gives you all the metrics for IBM and Exxon during the last 50 years: IBM had the most revenue per share, the most earnings per share, the higher dividends per share, and the company was in a sector . . . technology . . . which was on fire from the 50s through the end of 2000.

Knowing all this, 9 out of 10 investors would think IBM would have been the better "Buy, hold and forget" stock for the past 50 years. In fact, I was one of those 9 out of 10 investors who used to think that way before I figured out what I was doing wrong in stock purchasing (chasing the latest growth stocks in a burning hot sector).

As Siegel explains in his Yahoo piece (and I would read the whole piece now) "Beware of the Growth Trap"

IBM's earnings per share, Wall Street's favorite stock picking criterion, grew more than three percentage points per year above the growth of Standard Oil from 1950 through 2005. As information technology advanced and computers became far more important to our economy, the technology sector rose from 3 percent of the market to 15 percent.

In contrast, the oil industry's share of the stock market shrunk dramatically. Oil stocks comprised over 20 percent of the value of all stocks in 1950, but fell to under 10 percent by 2005.

If a genie had whispered these facts in your ear in 1950, which stock would you have bought? If you answered IBM, you have fallen victim of the growth trap.

Although both stocks did well, investors in Standard Oil earned 14.46 percent per year on the shares from 1950 through 2005, almost 1 percent percent per year ahead of IBM's 13.09 percent return. Although this difference looks small, $1,000 invested in the oil giant in 1950 would be worth over $1,800,000 today, while $1,000 invested in IBM would be worth $867,000, less than one half the amount in Standard Oil.

The fact that the long-term return of Standard Oil beat IBM is not a result of the recent surge in oil stocks over the past two years. When I compared Standard Oil's return from 1950 through 2003, I did in my book The Future for Investors, IBM still lagged by a significant amount.

Now, in 1964, honestly, I would have used $1,000 to buy three shares of IBM. I would have never thought of Esso. And as I mentioned, I worked for Esso. Still, had I bought those three shares of IBM, I would be sitting on close to $800,000 today. But had I simply not chased IBM like every Tom, Dick and Harry who were bidding up its share price, and instead, invested in a slow growing braindead company such as Esso, I would now have close to $2,000,000 in my bank account. (Actually, knowing myself, I would have way more than that as I would have learned "The Magic of Compounding" at an early age and I would have contributed monthly to a stock buying plan.)

Every market has boring laggards or beaten down stocks and beaten down sectors. And every market has a new company building a moat around its primary business which is booming. You just have to find those stocks which are true "dividend" stars or emerging from "growth stock" into a dividend star, buy them when they are "cheap" (this is a perfect time to buy Microsoft (Nasdaq:MSFT) in my opinion), let their growing dividends re-invest quarter after quarter, and someday, 15, 20 or more years down the road, you will be sitting on loads more shares of the companies, their share price is also higher, and if you are doing the retirement thing, you simply begin to cash your dividend checks instead of re-investing them.
(And let me say one more thing: if you are 25 years of age or younger, you have time on your side. For me to make as much off every $1,000 you invest, I have to put $64,000 into a stock to be "even" with you by my 75th birthday matched to your wealth in your 75th year. If you are young, open a Roth IRA today, and start dumping small bits of money into it every month. I will tutor you into being a millionaire before your 40th birthday. You will thank your lucky stars that you had a father figure such as myself who could tutor you at your early age.)


What Dr. Siegel's Research Tells Us Will Astound the Growth Stock Chasers

Siegel tells us in his new book that 3 of the 10 "sectors" of stocks which have been around for 50 years or more have paid off much better than all others:

1. Consumer staples such as toothpaste, soap, beer, food.
2. Energy for cars, homes, and factories
3. Healthcare

As Siegel further explains, some of the biggest mistakes are chasing growth stocks, tech stocks, consumer discretionary stocks, housing stocks, etc. All of these sectors are filled with Johnny come lately stocks which supersede the "old dog" companies which were in the S&P 500 for years. And the biggest mistake 90% or more investors make is chasing new arrivees to the S&P 500, instead of investing in the sleepy old "tried and true".

Siegel also goes on to quote the man who gave the stock market of 2000 the term "irrational exuberance", Professor Robert Shiller, who is now calling the housing bubble a much bigger and more dangerous bubble than the stock market of 2000.

Meet Robert Shiller, the Brilliant Economist Who Called the Tops for the Internet Stock Market Bubble and the Recent Housing Bubble

Understand how good Professor Shiller is: he told us just a few months before the current Housing Bubble top (Summer of 2005 by all accounts) that this Bubble was not "sustainable".

Schiller is also a rare kind of an Economist. He's a longterm view historian.

Back in April 2005 he wrote the following about the 1887 Housing Bubble in Los Angeles with a thought as to what he predicted would happen to the Housing Bubble of 2005 . . . which many Realtors claimed was NOT a bubble:

It is useful to think back to the first major real estate bubble in Southern California, which took place in the 1880s. This bubble, which peaked in early 1887 and afflicted all of the region, notably Los Angeles, is well documented in the Los Angeles Times of that time: "People poured in by thousands and prices of land began to climb. Everybody that could find an office went into the real estate business. ... Desk room was hired in stores, in hallways, wherever room could be found. ... Tracts of lands were cut up into lots, the further enormous rise in values was predicted, auction sales were announced ... rattle off the lots and have another sale.''

So what brought this bubble to an end in the fall of 1887?

It cannot have been the Fed raising interest rates - there was no monetary authority then. Nor was it a major economic disruption. There was a short national recession from March 1887 to April 1888, but not a notable one.We do see a change in attitude, an increasingly vocal list of doubts, reflected in the press accounts in the fall of 1887.

In November 1887, the Times quotes a salesman for a Southern California real estate firm operating in Chicago: "Everybody has heard about the boom in (California) real estate, but they want to know what there is behind it. ... (They ask) You think then that the present growth in Southern California will continue?' Most assuredly.''

The Boston Evening Record wrote in the fall of 1887: "In almost every suburban town around Boston, parties are being made up of people who are going to Southern California, there to spend the winter or to settle permanently. ... But to those who are selling out their property here in the East with hope of making a fortune in California real estate within a year after they reach that latitude, the Record offers the advice to go slow.' Southern California may be the most perfect garden on Earth, but the way things have been going there for the past three years is pretty good evidence that the slump is coming before long.''In less than a year, this floating of doubts about the boom morphed into a sense of real disillusionment.

In November 1888, the Times wrote after the bust: "We must avoid the rotten methods, inflation, unhealthy speculation and ephemeral booms. ... We believe this is now the feeling of nine-tenths of our people. ... The wild scenes of twelve and fifteen and eighteen months ago are in no danger of being soon repeated. Possibly we may never look upon their like again. If so, so be it!''

Well, we are looking upon a real estate boom again, and we are likely to observe the same end to speculative feeling, at least before many years have passed. Human nature is unchanged. In a bubble, high prices are sustained only by the expectation of more high prices. That is what makes a bubble a bubble, prone to bursting.

The reason we cannot expect a soft landing today is that right now people are willing to pay these very high prices only because they expect them to go up even more in the future. Prices can't just level off, because when people no longer expect them to go up, some of them will not want to hold at the high price.

Robert Schiller's comments above were under an April 2005 headline, "Housing Bubble Will Pop." (I emboldened his last two paragraphs to show how prescient his view was back in 2005).

Schiller nailed another "market top" months before it happened. The man's brilliance was once again laughed at by Realtors, Homebuilders, Lenders and other vested interests who depended on the Real Estate Bubble to never burst.


How I Used My New Powers on Analysing the Stock Market as a Template to Correctly See Through the Housing Bubble Fully Inflated in 2005: or Dummy Did the Math

Two months before this article of Schiller's appeared on the Internet, two friends of mine bought "homes" which I felt would lose value very soon.

One of the homes is now worth $120,000 less today than it was appraised at in Februrary 2005. Mind you, this is also after the couple put $20,000 into sprucing up their purchase . . . which was done with No Money Down/No Documentation/Interest Only/ARM Reset in Year Four type of Loan.

The other homebuyers are stuck in a "condo" in a part of Old Town Key West which flooded. Although the female in this couple works in a bank, this woman signed her life away on a hybrid ARM loan with small "teaser" rate for the first 3 years (she actually put down 5% toward her purchase of a 600 sq. foot "attic" with ceiling slanted at steep pitches on both sides of her "tube" condo. Her boyfriend hits his head on the ceiling every time he stands up) and next February, her loan kicks into an ARM which will almost double her current payment of $2,400 monthly for the right to have the title "homeowner".

(By the way, this couple moved from a spacious apartment in Old Town which used to cost them $900 per month rental. They lost their apartment when their landlord died. The woman in this relationship fretted that if she and boyfriend/common law husband did not buy Key West Real Estate in 2005, that they would "never be able to afford it" again. She works in a locally owned bank where the mindset at that time is "Key West Real Estate always goes up in price."

Months preceding her purchase, Bascom Grooms IV, current president of the Key West Realtors Association, was quoted in the Key West Citizen saying we would never see a house sell for less than $600,000 again in Key West proper. Today, Mr. Grooms is buttering his bread selling the cheapest homes and condos in Key West. Many of these "homes" asking prices are below $500,000 and many of his condo listings are below $300,000.)

Meanwhile, I and my girlfriend had long discussions about "buying vs. renting" Real Estate in Key West. She and I both agreed that Key West Real Estate could not continue to double in price every 3 to 5 years as it was doing from 2001 through 2005. We did the math. We took a $550,000 "home" and doubled the price 6 times through the future of a 30 year loan.

By 2035, this "home" would supposedly be worth $35,000,000 had real estate in Key West continued to keep doubling every 5 years as Realtors said it would in 2005. Dumbasses. Liars. Frauds. Whatever you call them in your mind, Realtors were selling the public Snakeoil Dreams back in 2005.

My girlfriend and I agreed, "This doubling of real estate every five years is not going to continue. This insanity is not sustainable." We figured tens of millions of future homebuyers would not be able to afford a $35 million home. And not even millionaires are so stupid to pay $35 million for a house with less than $150,000 materials in it. And what millionaire wants to pay taxes and insurance on a $35 million home?

That was our simple, lucid, against the crowd thinking in 2005 when all of Key West was mad for Real Estate. We were a small minority of people, maybe 1 to 5% of our population, who knew Bad Times for Real Estate were right around the corner. But anytime we spoke our beliefs, we were ridiculed.

Did we ever meet a single Key West Real Estate Cheerleader who simply "did the math" on their own and who would share their disbelief that housing could not possibly continue its mad rise in prices?

Are you kidding?

A cheerleader ignores reality. They continue to cheer the "home team" even when they are losing 60 to 0 with two minutes remaining in the fourth quarther. Plus, when a cheerleader is making big bucks of your ignorance, there's only one thing to do to keep the game going: cheer some more.

So while others were losing their heads and chasing the Housing Bubble Money Train, I and my girlfriend stayed with our tried and true method of buying "safe" stocks which will weather any Recession or Depression, while buying a few "high-flyers" to boost returns in our very diversified stock portfolios . . . .

Using our method of diversifying a few high-flyers with dividend paying stocks, we have never made less than 21% on our portfolios in any year. And we beat the S&P 500 averages for all four years we've been investing smartly. One year, in fact, we beat the S&P 500 by a full 30%!


A Couple of High-Flyer Stocks I Bought in 2005 Which Have Smoked the Returns of the Housing Market Since Then . . .

I've owned 100 shares of Akamai (Nasdaq: AKAM) since $12.00 a share. Back when I approached people at Motley Fool about this company, few listened. The reason: Akamai was a former "darling" of the Internet Bubble which exploded and took out trillions of dollars in equity. Investors had trouble understanding that even at Ground Zero of the Internet Blowup, there were still a handful of outstanding stories warranting a closer look now that the fire, smoke and radiation had gone away.

Those Akamai shares of mine are trading at $54.83 today and people on Motley Fool are still urging me to "take some profits". (These gains are only two years old.)

I am not taking profits on Akamai as I continue to do my homework on their growth. I'm not Tommy, the deaf, dumb and blind boy. I am Rock, the man who takes full responsibility for my decisions in picking and staying with stocks.

To me, selling Akamai now is the wrong advice.

Akamai is a HOLD in my book. And if it drops down the $30.00 region, that is where I will wade in and buy another block of 100 shares.

That's how confident I am of its business future. Retailing on the internet is growing by tens of billions of dollars every quarter. News organizations, music and film are being sold via the net. More people surf the internet to learn about housing than ever before.

Buying Akamai is a bet on the future of the internet. And this purchase was made AFTER the Internet Bubble burst, not while it was in full swing.

This kind of "Buying at the Bottom" thinking is ingrained in me now after I studied many a great investor's thinking. I had to lose many extra tens of thousands of dollars in stocks which were "winners" and which I sold without letting them run. But my self-education in how to correctly invest is worth every penny I lost in the "old days of ignorant chasing the Bubble."

Akamai has a huge moat around its business and it is one of the very few tech stocks which I see thriving in any economy, good or bad. This company is a "Rule Breaker" which is now becoming a "Rule Maker" in its business.

This is a company which will be around for a long time as they are re-investing millions of their profits back into the business, buying up smaller companies with interesting niches which Akamai never had, and paying cash for these businesses from their money making machine which is now just kicking into gear. (Akamai only turned a profit a little over two years ago, and now they are off to the races.)

Akamai's name is stellar with people who use their proprietary methods of helping company websites to never lockup during high traffic times. (Think of Akamai's main business as offering a "turnpike" to high traffic websites, so that surfers are never slowed by "traffic jams".)

Microsoft uses Akamai for its downloads. Apple uses Akamai. ESPN uses Akamai. The NBA uses Akamai. Name a big company with big presence on the web requiring mission critical support from logjams 24 hours daily, and you will most likely find Akamai behind the scenes.

When I think of Akamai, I think of the guys who sold pickaxes and jeans to the 49ers who flocked out West to find gold.



Better Than a Wildass Stab in the Dark, a Tame Studied Speculation with Disposable "Betting" Money Is Paying off Big

Another of my stocks, Calpine (Nasdaq: CPNLQ) is still working out of bankruptcy.

I know many investors who will never touch a stock coming out of bankruptcy.

But I study history. By studying history, I have a leg up over 99% of investors in any market.

One of my mentors, Jim Rogers, is a billionaire who made his billions working as a trader for George Soros. Rogers now leads his own commodities investment firm and funds. He is alsoselling his home in upstate New York to move to China. I watched an online video intereview with Rogers about a year ago in which he said he would teach his children three things to succeed in the 21st Century:

1. How to think critically for themselves without being spoonfed crap from experts and authority.
2. Mandarin Chinese
3. History

Watching that interview lit a fire inside me. I couldn't agree more with what he said if I had children of my own.

I feel that third item, History, should be driven into the skulls of all people, no matter their age. Most Americans can't remember as far back as 2000 when the Nasdaq stock market lost over 80% of value and wiped out trillions of dollars of value.

History can work to your advantage. If you lost big money during the Nasdaq trainwreck, yet you studied how others continued to not only survive, but thrive, you became aware, "Jesus, this making of money the old fashioned way sure isn't hard. Why didn't I see how this dividend re-investing in great companies really works long, long ago?"

The magic of compounding dividend re-investment returns needs to be taught in American grade schools. The nightmare of compounding interest which works against you needs to be studied too.

I had to learn all this on my own dime. It took many hard lessons of losses in the stock market to have "value" and "dividend" investing instilled into my mind as the safest way to make money off stocks.

Looking over bankrupt companies, I realized the time to buy was not when the company was promising vaporware and living off smoke and mirror profits attached to future outlooks. I realized the time to buy a troubled company is after it comes out of bankruptcy, is starting to turn real profits and is working with creditors agreeing to cut them slack.

I saw what happened with K Mart and several other companies which did come back despite Enron, World Com, and others going totally bankrupt. I studied both the failures and successes of Chapter 11 companies.

Calpine was a very risky buy that I would not recommend to any novice stockpicker or even friends or family. Eventhough I felt very good about the developing story of creditors working with - not against - Calpine, I still did not want to bang the table for friends and family to "buy, buy, buy," as Jim Cramer would do today on every other stock in the S&P 500.

On Motley Fool boards, I simply logged in my buy as a "Guilty Pleasure" bet that I didn't want anyone else to try. I told readers of my posts that I was willing to see Calpine blow up in my face. "Don't do what I am doing," is the message I clearly put down time and again in print.

I bought 500 shares of Calpine at .28 cents a piece in December 2005.

Today each share is worth $3.75 per share.

Thus, I have 500 shares of a stock at this moment which are up 1300% in a little less than 17 months time.

(I don't know a freaking house or hunk of land which went up this much in less than year down here in Key West.)

Today, Calpine is a less riskier buy, hence, a higher price is attached to it as institutional buying is picking up on the story with much less risk.

I'm getting paid for being "early" on the story. I took a risk bigger than people buying the better story of Calpine today. Yet, know this: I did not feel strong enough about Calpine in December 2005 to put down $1000, or $5000 or $10,000 in a bet. Had I put down $10,000 in December 2005, I'd now have $130,000 sitting in my brokerage account if I cashed out.

But I only invested $150.00 because I had to assess how much future Pain I could endure if I lost everything on my bet. I would not miss $150.00 if I lost it all. But if I put down $10,000 and lost it all, man, I would . . . and should . . . be pissed at myself for gambling away so much money on such a risky bet.

I've lost big in the stock market before, I could lose again. Hence, I played Calpine as a "winner take all" bet. A winner takes all bet is the same thing as saying, "Never bet more than you can afford to lose."

Today, even with its improving story, I would not recommend this stock to any novice buyer. I feel the stock has gotten ahead of itself. And I am prepared for a 50% drop from today's price.

This thing could still blow up and leave me penniless. But I feel better about this company today than when I first bought it.



Why I Am Taking Time to Look Over Two of My Riskier Stock Market Investments

I'm laying out my truthful thoughts here so that novices might learn "How does a successful stockpicker play the stock market?"

Great stockpickers who take these highflyer bets every once in a while "diversify" their portfolio. They mix it up. They don't put all their eggs in one basket.

Playing a wild bet every once in a while is only a very tiny part of my portfolio. This time, it is working out. Next time might be a total "wash". But if I lose a bet on the next Calpine, its loss effect won't even mean a 1% total loss to my whole portfolio.

There is something else to take away from the two story stocks I did not "luck" into, but which I bought with guts and real money . . .



The Bigger the Risk, the Bigger the Possible Gain: When You Make a Risky Bet, You Better Have Done Your Homework

You have to take on greater risks in any market to win big. On the riskiest bets, you have to be willing to lose it all on money you don't really need.

I hate to lose money in the stock market, but I still prepare for losses and cut them short when they do appear. Still, I don't buy possible highflyers blind. I do a load of research and thinking. And, I only wager a bet that I am comfortable losing.

The bet on Calpine cost me the price of a normal Super Bowl wager: $150. Instead of betting on the Super Bowl in early 2006, I bought Calpine and said, "I'll hold it whether it goes bankrupt or goes up in price. Either way, no big loss to me as I would have most likely lost the bet on the Super Bowl anyway.

But I still did a ton of homework on Calpine before buying. I spent hours pouring over conference calls, news releases, quarterly reports and the like.

Calpine and Akamai are two of my three biggest "gainers" in the past two years. But when you average them in with my slower, safer, more steady gainers, you can easily understand I prefer investing in steady eddy, boring dividend paying stocks over investing in tech stocks, IPOs, multi-level marketing scams and espcecially "The Housing Miracle" or "Housing: The American Dream".



Remember When You Were a Schoolkid and You Hated Doing Homework?

That is why so many millions of Americans are crying the blues about Real Estate these days: they didn't do their homework.

They wanted someone else to do it for them. Now that their housing "investments" (bought on Zero Down, Interest Only No Doc Loans Backed with an ARM) are exploding in their faces while they are faced with foreclosure, they want to blame their bad life choices on "my dog ate my homework."

True, there were (and still are) many slimy lenders, Realtors, and so on who preyed on these lower and middle class people who are now singing the blues and laying blame on everyone else except themselves.

However, I also wonder "Where are the adults?"

When people take the biggest purchase of their lives . . . a home . . . and they don't do any homework before they purchase, should the government be talking "bailout" for all those losing their homes?

WTF?

When did "investing" (as the NAR claims housing to be) become totally "RISK FREE"?

(Where's the government to re-imburse me for all those stupid losses I incurred during the 2000 Internet wipeout? Instead of crying, I used my anger at myself to fuel my passion to conquer the stock market. Now I know why great stockpickers always say, "You got to lose money in the stockmarket before you can being to learn how to make big money." How true that maxim is.)

In my mind, many of these newly poor ex-homeowners had runaway greed glands pumping visions of "instant wealth" into their hasty decisions.

Everybody was buying Real Estate not long ago. Your taxi driver. Your barber. Your gynecologist. The hooker on the corner, the drug dealer selling cocaine to the hooker, the cop arresting the dealer, the jailer removing the handcuffs from the dealer at the jail, the janitor at the jail, the bus driver who drives the janitor home to his wife who cooks at the restaurant, to the bartender and waitress working the tables and bar, ad nauseum, folks, you and I can't forget 2001 through 2005 everybody was talking Real Estate.

Full blown panic buyers of homes at the Market Top saw every other homebuyer purchasing homes with Interest Only loans which switch into an ARM in year 3 or 4. And this was all done with no documentation, so they thought, "This is the best way to amass my personal fortune. We're going to make so much money off a home, we'll buy his and her Harleys!"

During the Panic to Buy Housing, I sat back with disbelief every time someone urged me to buy a house and thought, "Didn't these fools see this cartoon end badly during the Internet Mania? Jesus, buy a house with No money down, Interest Only payments for the first 3 years, followed by an ARM reset in year four and interest rates are starting to go up again? Can't you folks work a simple Texas Instruments calculator? Do any of you understand no asset goes up forever?"

I was thinking these thoughts every day in private, and saying them out loud to people at work and my loved ones. Still, despite my warnings, several people I really care about bought overpriced housing in which they are now "upside down" on the mortgage. Being upside down on their mortgage simply means their home is now worth far less than what the mortgage was taken out for.

When you are upside down on your mortgage, you are no longer a homeowner, my friends. If you rent $500,000 from a lender to buy an overpriced home, and two years later your home appraises for $350,000, my friends, you are now a slave to your master: the Lender.

As an indentured slave in an upside down mortgage, your home now owns you. And your lender owns your home at usurous rates which are paid to them monthly, or else.

I don't know about you, but I can assure you renting $500,000 from your bank to buy a home which declines in price to $350,000 in the space of 18 months is surely not going to be thought of as one of your most brilliant "investment" moves when you are old and gray.

Warren Buffet warned in a February 2005 speech in London that the Credit and Housing Bubbles in America risked turning American homeowners into "sharecroppers". (His word exactly.)

But my favoirte expression about buying housing at the wrong time is this: I have two co-workers paying $4,000 interest only payments so as to have the right to say they "own" a home. Two nights ago, one of them, a dancer I love dearly, a young girl from Argentina who wants to make it in America, told me this: "Rocko, my condo is my pimp. I am working so much these days so as to pay that monster."

Her payment of $4,000 a month is for a condo which would fetch $200,000 less than her original buy price in the mid $500,000. And what makes this worse is not one single penny she has paid in these monthly $4,000 payments has gone toward paying down any principal!

Now That Housing is a Bust, What's the Next Asset "Investment" Opportunity?

People who ask that question are followers of short term trends. Yes, it is good to be aware of trends. But you want Long Term trends. And it's even better to find a "seat" early on a long term trend when it's just about to take off.

Unfortunately, the masses are usually the last to get on board of a good thing. And the reason for this is they allow mass media to spoonfeed their brains. Thinking on their own is too hard and time intensive. So, they end up buying the latest short term trend once its already whipped up into a Category 4 or 5 intensity. Instead of trying to catch their tails like a dervish cat, people would do well to study history and find that one asset class which delivers "opportunity" every day of every year.

There is only one place I can always find an Investment Opportunity every day of every year: the stock market.

Nothing in history has ever beat stocks as an investment. Nothing. And especially NOT housing.

Let's get something straight, folks:

A home is not an investment.

A home is something you live in.

Don't buy a house so as to flip it and make a profit. That's a sure road to unhappiness and financial hell.

When you buy a home, you better be damn sure it is a place you really, really want to live during the worst of times as well as the best of times.

If you go out and buy a speculative home to flip on that great faulty premise made by all Realtors, i.e., "They aren't making any more land in Key West (Richmond, Tampa, Los Angeles, San Diego, fill in the blank) and real estate always goes up" then you are a sheep ready to be fleeced. You bought the lie. You don't know history.

(If you want to read some interesting stories about Florida real estate, google the 1928 Florida Real Estate Crash. There are homes in Boca Raton, Palm Beach and Miami which have still not gotten back to their 1928 levels of market top pricing. By the way, EZ Credit for consumer goods such as radios and refrigerators, and ARM loans for houses were introduced in the 1920s run up in real estate and the stock market.)

If you are "investing" in Florida real estate today and you can't do simple math, you are going to have your head shoved into an Asplundh woodchipper by a backslapping Realtor and Mortgage Broker feeding your body into the machine.

I know only a very few people who do no work other than live off their real estate "investments". Sure, I know dozens of people who own rental properties but who cannot live of the meager $100 or $200 per unit they take in every month after expenses. Most of these low income earners of real estate plow their money back into safer investments such as TIPS, bonds, stocks.

On the other hand, I know quite a few people who live off their stock investments quite nicely while they live in a "home" they purchased with money they "rented" over 30 years.

I'll bet you right now there are thousands of folks in the Florida Keys who are living off dividends from stocks or pension funds which are built upon stocks which throw off dividends, rather than pensions built on Real Estate. (With the advent of REITs or Real Estate Investment Trusts, there are actually pensions buying "stock" which is based on real estate investments such as giant hospital leases, banks leases, commercial shopping centers, apartment buildings, etc. So yes, there is a way to get in on income money streams built on billions of assets, but you have to do your homework and buy the correct REIT stock. For instance, you do not want to buy an REIT which makes its money buying and trading sub-prime Mortgage Backed Securities.)

In Key West, Spottwood, Singh, Swift and a few other developer names are living off real estate. I predict some of these people will soon find they are in over their heads with all these condo hotel conversions. I know for a fact the guy who specializes in "affordable housing" is already sweating the fact hundreds of people on his "waiting list" no longer qualify for sub-prime loans. . . but that is another story to write about in the future.


When an Investment in Housing is Not an Investment

A home purchase requires thousands of dollars of interest payments over the life of a loan. Yes, if you lived in your house for 20 years and sold it at the market top in 2005 and got equity back, you most likely"made" money. However, once you subtract all the interest payments, the closing costs, the insurance costs, the taxes, the Realtor costs, and the big one, INFLATION, and so on from that equity, how much did you really "make"?

Many a homeowner sells his or her house after 20 years and they see they have $100,000 in "clear" equity. Yet, if they subtract the above costs from that $100,000, in many, many cases, the homeowner shows a net loss of real dollars which also have less buying power after 20 years of inflation.

As I pointed out in another post on this blog , I rent a million dollar home for $1,900 a month. This house will never sell in this current market at its new asking price of $1.2 million . . . which by the way is the new price after two reductions from $1.7 million asking price a year ago. Think about that. The asking price has dropped from $1.7 million to $1.2 million in about 18 months. That's a 29% drop in asking price.

(Late breaking news: my landlord just took my house off the market. Looks like I'll not have to move for many a long time. Great. I love this house.)

Back to my example.

This $1.2 million house . . . were I suddenly to lose my mind and purchase it at my landlord's current asking price of $1.2 million . . . would cost me a sizable $120,000 downpayment to get the best loan at a 6.5% rate.

But let's say, that eventhough I'm a good credit risk, the local bank is jittery about all its bad sub-prime loans and is very worried about the newly growing pool of Alt-A loans going bad. So, instead of 6.5%, I only get a fixed loan for 30 years at 7.0%.

Okay, so far I've put down $120,000 of hard saved money as a downpayment.

Let's subtract that $120,000 from $1,200,000 and we get $1,080,000 to finance. We are talking about a payment of $7,336.00 per month, give or take ten dollars.

Anyway, that's what I would have to be paying at a very good loan at 7% over 30 years . . .and that is AFTER putting down a huge downpayment of $120,000.

All right. Let's add other costs. Monthly insurance and taxes will add another $1,000 a month to that payment. But let's be conservative and give the Real Estate Cartel the benefit of the doubt and say our new payment with taxes, insurance, etc., added in are going to run at $7,900 a month.

To show you how conservative my additional costs for insurance and taxes are, let me give you another Key West lesson: my ex-roomate owns a home up on Key Haven, where a lot of rich people have homes. His home was flooded during Hurricane Katrina. He's had his home on the market since before Katrina, and has come down in price by $300,000 or more. Today, he'd take $600,000 for his home.

Now guess what his homeowner's, flood and wind insurance are running per year? Hold on to your seat: $20,000 per year!

His insurance payments alone are almost what I pay per year to rent a million dollar home.

Factor in his taxes and his monthly mortgage, and you can understand why this man wants to leave the Keys just as soon as he can offload this "investment" of his.

Doing the Math on My Rental of a $1.2 million Home vs. Buying It

Let's subtract my current rent from conservative "best case scenario" Mortgage payment from hell to buy this house ($7,900 - $1,900 = $6,000).

Okay, so right now I have $6,000 a month "free money" not tied up in the early months and years of a 30 year loan to buy this overpriced "home".

That's a boatload of money I am not spending on a mortgage every month, that $6,000, is it not?

I'm saving more than $6,000 monthly buy renting rather than buying this $1.2 million home I live in. (Keep in mind, this "home" was recently on the market for $1.7 million.)

Wait. Let's consider another fact about compounding interest when it works against you.

Let's think about the way mortgage payments are set up or amortized over 30 years.

For those of you not schooled in math or loan payments . . . the early parts of any loan are the years where you are paying more interest than you are paying "principal".

If you don't believe me, take out your car loan booklet and receipts and look over the payment schedule. Notice how the first payment goes almost all to paying "interest" while the last payment pays off almost all "principal"?

Compounding, when it works against you, is a real bitch brothers and sisters. When you buy more house than you can truly afford, you compound the pain of compounding interest. It will only get worse the older you get.

Let's also consider the "other costs" when we purchase my current rental home:

What's the Realtor's commission for representing your buy? That's 3 to 6 percent or $36,000 to $72,000 we pay out of pocket.

We also have the closing costs, the title insurance, etc.. Let's be conservative again with these "extraneous" costs.

Let's round these figures off for Realtor's commissions, closing costs, title insurance, etc., to $40,000 for simplicity sake and so that we don't get a bunch of crybabies from the Realtor Cartel telling us we are too high in our assessment.

All right.

Add that $40,000 to your $120,000 downpayment in 2007 to buy my $1.2 million home, and you have tied up $160,000 of your capital in the purchase of this overpriced "home".

That's a huge hunk of money, $160,000.

That huge hunk of money would have to be spent at the beginning of my fixed 30 year mortgage to insure I get that good low rate.

But let's keep in mind something else. I am assuming that this house . . . which has already dropped in price from $1.7 million to $1.4 million to $1.2 million will somehow stop at $1.2 million of appraisal and suddenly take off to the races again like the go-go years for Real Estate in Key West from 2001 through 2005?

I don't think so. In fact, I'll take on all bets that the decline will continue for many years to come.

In this declining market, I feel this home I am currently renting is not going to become a world class "investment" . . . as Realtors are so wont to call homes. . . for the next 20 years or more as the excess pricing insanity of the Housing Bubble will take years to bleed away. I'll even go so far as to say that this house may never meet the current asking price of $1.2 million during the remainder of my lifetime . . . and I hope to live another 50 years.

Next let's consider this too: Over the life of this loan, we will make 360 payments of $8,000. (I conservatively rounded up from $7,900 a month considering the inflating price of insurance and taxes in the future).

So, conservatively speaking, we will have paid over $2,880,000 in mortgage payments to be able to stand in this house 30 years later and burn the "mortgage payment book."

That's very close to $3 million in mortgage payments for a $1.2 million house which I feel is going to never sell for $1.2 million in the next 30 years.

Three million dollars!

That right there blows my mind.

I spent almost $3,000,000 of hard earned dough over 30 years to buy this house originally priced at $1,200,000 . . . and that's after I put down a huge hunk of 2007 dollars ($160,000, remember) as my downpayment, closing costs, Realtor fee, etc?

No sir, I ain't taking the bait that "There's never been a better time to buy Real Estate!"

Not this boy.

I didn't grow up to be fooled twice by sharpies who used my ignorance of investing to fool me back in 2000. Once is all it takes with me.

To make this example all the clearer:

In 2007 we bought this place for $1,200,000. Thirty years from now we want to sell this house the day we pay it off.

For us to make any "real" money off our "investment", we must set an asking price of over $3,000,000, not just a sales price over and beyond $1.2 million.

Why do I say this?

If we bought a house for $1.2 million in 2007 and sold it later for say $1.5 million in 2037, I made a profit of $300,000 right?

Wrong.

Yes, we bought the house for $1,200,000. But in 2007 dollars we spent $160,000 up front (downpayment + closing costs + Realtor fees + etc) while scrimping and saving $8,000 a month to make a mortgage payment just so we have the right to call ourselves "homeowners".

Imagine having made 360 monthly payments of $8,000 during those 30 years of servitude to the bank, you sell your house for $1.5 million, then you and your partner slap each other on the back for being so smart and astute to "invest" in the house way back in 2007 so you could have a $300,000 nest egg when you sold it.

What's wrong with that picture?

Well, if you paid the bank over $3,000,000 in hard cash over 360 monthly payments, selling a house at a $300,000 profit is a solid losing bet. Yeah, you get your $1.2 million original price back. And you get $300,000 on top . . . but you've paid $3,000,000 to the bank meaning those beancounters are the real winner in this deal.

So, let's quit being so negative and pessimistic here. Let's play this Real Estate deal where I buy the house today at $1.2 million and make a big profit in 2037 using the National Association of Real Estate's cheerful prognosis.

Let's say I sell the house for $3,000,000 in 2037.

Play along with me because I am going to show you how this is not even going to be a profitable "investment".

We're just saying this to show how the blind and hopeful still wouldn't make real money off this home in 2037 . . . even if someone were stupid enough to pay $3,000,000 for it in 2037

David Lereah, spinmeister/NAR economist would tell you in 2037 that I "made" $1,800,000 equity off my sale price of $3,000,000. In truth, he forgets I would be paying off a Realtor for helping me sell the place.

Okay, so we "make" $1,700,000 off our "investment". Now we are millionaires!!!
Let's back this train up, boys and girls.

Let's go back to the beginning of this example.

Let's take that $120,000 downpayment plus that extra $40,000 in Realtor fees, closing costs, title insurance, etc., which combined give us $160,000.

If I had $160,000 spare cash right now, I'd invest all of it in Big Cap blue chip stocks which are way undervalued at this time. I would not buy overvalued blue chip stocks. I would buy names like WalMart, Proctor and Gamble, and Johnson and Johnson and Chevron right here and now. I'd stay away from overvalued stuff like Apple, Cisco, Ford, GM, Domininion Homes, Toll Brothers, etc.

Here Is What Using $160,000 Wisely in the Stock Market Instead of Using It as a Downpayment on an Overpriced $1.2 Million Key West Home Will Get Me in 30 Years

Now I'll guarantee anybody reading this post that if we were to invest just that lump sum in 2007 and we got the average stock market return of 13% per annum (this includes dividends), at the end of 30 years, I would have $6,259,000.

If you don't have a calculator on your desk to figure out what that $160,000 compounded at 13% yearly would get you in 30 years, no sweat:

Here's an easy one you can use on the internet

(To use this calculator on the net, I use $160 as the staring principal as the calculator will not allow me to punch in 6 figures. Once I get my answer, I add three zeros. Simple. As you can see, $160 compounded @ 13% per annum for 30 years gives us $6,259. Add three zeros. Voila. Our answer is $6,259,000.)

Now subtract our starting sum of $160,000 from that figure. Let's round it off to a $6,000,000 gain just to keep this simple.

Now if you have stayed with me this far, congratulations.

Now answer me this:

Would you rather:

a) Pay down $160,000 for an overpriced Key West Home at $1.2 million today and add in 360 monthly payments of $8000 for 30 years and sell the home for $3,000,000 . . . meaning that all that money you paid the bank over the years simply kept even with inflation . . .

OR

b) You rented the house paying out about $750,000 in total rent over the next 30 years while investing all of what would have been your initital downpayment in the stock market which would give me a $6 million payoff in 2037?

Wait. There's one more question you have to think about too.

What about the $6,000 we save every month by making rental payments of only $1,900 versus making monthly mortgage payments of $8,000?

Glad you asked, and we'll get to those savings in just a few minutes.

Unmasking the Unreal Profits You Thought You Would Make In Real Estate

Now in the home deal above, David Lereah, Lead Toad Economist for the NAR, is going to tell everyone you made $1, 800, 000 profit of your "investment" in a home. (You bought for $1.2 million, and 30 years later you sold for $3.0 million.)

However, what Lereah is never going to mention is you also paid $8,000 a month in mortgage payments every month for 30 years, or 360 months, which gave us that figure of $2,880,000 in monthly payments over the course of the loan.

And don't forget those escalating property taxes and insurance. So we rounded up the total montly payments to $3,000,000 paid out over the life of your 30 year loan.

Wait, we also have to add that $160,000 (in 2007 dollars) to that figure.

So, in reality, I the homeowner who "gets back" $1,700,000 profit (or $3,000,000 equity) for the sale of my house in 2037 am really getting back dollars which have been eaten away by inflation while the bank got rich "renting" me $1,200,000 in money. Furthermore, this $1,200,000 which I "rented" from the bank lost value for 30 years to inflation. To make this all the more graphic, the bank made money by playing the "spread" between the money I paid them at their interest rates and inflation. The bank then takes this profit from the spread and invests the money I pay them back with interest . . . in other money making loans.

Hence, the only winner in buying this house at $1.2 million in 2007 and selling it for $3.o million in 2037 is the bank or lender. They made money all along. The money I paid monthly is destroyed by inflation. The $3 million I get back is simply the same $1.2 million I paid the bank at interest and which did not keep up with normal inflation.

How Banks and Lenders Make Money Off Compounding by Investing in Things Other Than Loans

Banks make more sensible "investments" such as in stocks, bonds, and commodities to help them work around the loans they made and which are going bad.

(Never mind that bank "reserves" are the lowest in history and that banks are now investing in deriviatives, MSOs, CDOs, and other extremely risky bets to amp up their returns. As they lose more money on sub-prime loans, banks are taking on inordinate amounts of high risk to make up for their growing losses. Derivatives, with margins of 10 to 1, are the ticking time bomb in bank vaults waiting to take out some major players if corrections are not taken soon.)

But to be sure, if you read annual reports or you simply breeze through "Institutional Holders" of great Blue Chip Big Cap stocks, you will see many a major bank is holding billions of shares of stocks in companies which have been around forever. If the banks are making money in the stock market and making money off your ignorance, what stops you from being a loser, smarting yourself up, and joining the Big Boys on the Right Side of the Winning Bet?

Let's Show You How I the Renter Will Use That $6000 Monthly Savings from Renting vs. Buying This Home . . .

Let's get back to me the renter:

Instead of buying this exremely overpriced house, I took what would have been my $160,000 startup/downpayment "nut" and put it in the stock market.

Again, if I invested in "safe" Big Cap stocks which average (with dividend re-investments) 13% over 30 years, I would have $6,259,000 to show for my efforts.

But wait. Let's make this more interesting.

I continue to rent this house for all 30 years.

(Again, look over my recent blog using the New York Times new "Rent vs. Buy?" Calculator which told me renting for all 30 years would be better than ever buying at $1.4 million, which by the way was the price on this house when I wrote that blog.)

During this time of renting for 30 years, I also save $6,000 monthly by renting versus buying, right? (My rent is $1,900. I pay no taxes, no insurance. And, being an observer of Key West Real Estate, I see rents coming down all over this island, NOT going up. There are too many vacant houses all over the place needing someone, anyone, to pay rent to help the owner pay off debt, right?)

Okay. Now just for kicks, lets say I add just $3,000 a month to the stock market, and the other $3,000 in savings, Linda and I use for discretionary spending such as better food, dining, vacations, a new big screen TV, whatever. Some of this money would go into "rainy day" savings accounts such as Everbanks different CDs etc.

Okay, so instead of investing all $6,000 a month of "savings" in the stock market, we instead invest only $3,000 in the stock market.

Starting with $160,000 in 2007 and adding $3,000 a month for the next 360 months to the stock market with 13% returns, this is what we would have in 30 years: $18,186,000.

Now let's stop right there. That's $18,186,000 we would have in 2037 AND we also had fun spending and saving the other $3000 in savings from renting on stuff like vacations, rainy day funds, buying a used car or boat with cash, etc.

So, who would you rather be: the guy who bought this house in 2007 for $1.2 million and had to scrape and work his ass off for 30 years to make those high monthly mortgage payments of $8,000. . .

OR

. . . Would you rather be the guy who spent only $1,900 a month on rent for a million dollar house, who never paid dime one towards maintenance, taxes or insurance, and who pocketed what would have been a downpayment plus costs of $160,000. Furthermore, he lived life during those 30 years of renting by taking $3,000 of that monthly $6,000 in savings from renting vs. buying. And to top this all of, he took the other $3,000 of the $6,000 savings from renting vs. buying and invested it in safe stocks which have increased dividends for over 50 years running. And then to end this story, he has $18,186,000 but the poor man never was a homeowner?

Which guy do you want to be?

The dope who bought real estate close to the Market Top for Real Estate and who wasted 30 years of his life working himself silly to "stay even with the Joneses", or the smart guy who lived life, moved around from neat rental to neat rental, and who retired with $18,186,000 after vacationing all over the planet for years and finally finding a farm he wanted to buy for $3,000,000 cash.

I think you know which guy I identify with.

So the Stock Market Average is 13% (with Dividends Re-Invested) Per Year Gain . . . Can You Beat Those Gains If You Really Learn How to Invest in the Stock Market?

I have beat the market averages for the past five years, with the past three years being my "best" years of stock market investing ever. This year 2007 is looking to be my best ever.

It took me 11 years of perserverance to get here, but I am here.

I'm making damn good money in the stock market, I don't sell my stocks, and I am reinvesting dividends in those Big Cap companies which I hold.

Now I ask you, who is smarter, David Lereah telling me to go ahead and buy a home right now, or, my inner voice telling me to wait out the real estate crash and buy a cheaper home years from now while living in a millionaire's house for less than 1/4 of what a monthly mortgage payment would cost?

Who do I listen to, David Lareah who would "put me into a house" which ties up my capital in the early years while it slowly pays off interest, or my inner voice telling me, "Hey Rock, we got three excellent Big Caps with dividends looking good for a buy right now, Proctor and Gamble, Johnson and Johnson, and Chevron."

I saw through the Realtors in 2005 barking like maddogs because I got burned in the stock market of 2000. I knew buyers of Key West homes in 2005 were cruising for bruising.

I know what mania looks like firsthand. I was part of the Internet Bubble. Had I bought tried and true stocks like Phillip Morris, WalMart, Coca Cola, Pepsi, or any other of hundreds of solid "name" stocks which were neglected in the 90s, I would be a millionaire today.

The stupidest and costliest mistake of my investing career was due to me listening to so called "experts" on the stock market. I let my greed glands get the best of me, for sure, but every damn day some new "expert" came on CNBC to tell us all "It's different this time. Welcome to the New Economy. The Paradigm has shifted..."

(I will address some of those "experts" in a future post. Boy, I've got a lot of future post ideas from writing this one.)

Needless to say, there were sage advisers I neglected in the late 1990s, such as Warren Buffet, the nascent Motley Fool writers, the men such as Jim Rogers, Alex Van den Berg, and so on, who were watching us manic buyers of Amazon, Yahoo, Oracle, Sirius, dig our own portfolio graves while they kept trying to warn us, "You'll be sorry."

Fool me once, shame on you. Fool me twice, shame on me. (Don't ask George W. Bush how this saying goes, please.)

So, I may continue to be a renter for the rest of my life. Which would mean, I might die without having ever owned a home. So what? If Real Estate stays insanely price, I can outwait this insane market longer than I live.

Yes, I'd love to own a house. But no, I don't want to be owned by a home which I cannot afford.

If it makes more sense to rent and focus on making way more money in the stock market, so be it. I can't see buying an overpriced home (in my mind this home would have to come down to $400,000 to get me interested, and I'd buy at $300,000 to $350,000) today just so I can feel good about myself now being a "homeowner".

I don't want to buy today, feel good for a month, and then when that first mortgage payment hits, I too feel like my home is "my pimp."

I can buy a home I don't really want to live in right now on Stock Island. I could buy any number of "condos" which give me no privacy and which aren't pet friendly and where the freaking condo association will tell me not to fly an American flag or I can't keep firearms or I cannot play my music over certain decibels (not that I do any of that now, I just don't like nosy authority telling me how to live).

There's not a damn $350,000 home anywhere in Key West which suits my wants and needs, today. And $350,000 is all I can afford. Yet I live better by renting a millionaire's house for only $1,900. And I have a new goal to invest $1,000 every week in the stock market.

So, why buy real estate if I'm not going to be relaxed and happy? Why take on a massive loan to buy a home which is way overpriced? Why not wait out this buyer's market as more inventory floods the market, prices continues to have pressure downward, while my money continues to grow by 20 to 30% or more (my returns in the stock market the past 3 years, honest) and I continue to educate myself in the proper way to play the stock marke?

I'm through with losing money.

I am in the math business.

Just remember, the statistics below are for whole indices (plural of index) which include losing stocks of same market caps.

The idea is to buy the "winners" at the .40 cents on the dollar. It's called "Value" investing and I will take this type investing up later on this blog and give you several real life cases of safe stocks I've bought years ago, where they are now, and how easy it was to spot these money machines.

Let me leave you with one more thought.

When you buy stock, you become an "owner" of a company. Shareholder means you share the ownership of a company.


Warren Buffet and I are Pimp Daddies of Budweiser. . .

When I think of my holdings in Coca Cola or Budweiser, I smile and think, "Warren Buffet is my partner in this company." Warren Buffet is the kind of investment friend I like having on my side of a bet.

When I decided to buy Budweiser, it was at Bud's worst low for the past 10 years. I saw Bud sales . . . and all beer sales for that matter . . . pick up market share from liquor in my bar starting in late 2005 . . . the same year the Housing Bubble topped.

I've seen three "Beer/Liquor" Recessions since I've been in the bar business since the late 1970s. I know what the market share change looks like. When beer sales decline, look to buy a good wine/spirits company as they are stealing market share back from beer. And vice versa.

I convinced one of my owners of my nightclub to buy a slew of Budweiser at $41 to $42 a share. This man is very wealthy from playing the stock market since the 1960s. When I presented my thesis to him (it was a verbal 10 minute thesis, nothing on paper) he turned around the next day, called his broker, and bough BUD up the wazoo.

I think what convinced him out of the 9 or 10 points in my presentation was Warren Buffet had bought $2 billion worth of Bud at higher prices, somewhere in the $48 range. So, in essence, we were buying BUD cheaper than the greatest stockpicker the world has ever seen.

Anytime I can buy a pick of Warren Buffet's for less than what he originally paid for it, I'm putting down the money hand over fist. In a later blog, I will tell you of a free website which gives me monthly updates on what Buffet is buying, how many shares he bought, and whether he's lightening up or adding to his positions of a certain stock.

So, when I told my boss about Buffet buying BUD at $48, and he and I realized beer was making a comeback in our bar, plus my Japanese Candlestick charts were screaming "Strong Buy", plus we were buying BUD for $6 or $7 less than what Buffet was paying for it, we both jumped in.

Today, a little over a year later, my boss and I are sitting on gains of about 25 to 28% on our BUD shares. The dividend has recently increased to .295 cents a share quarterly, or $1.18 yearly. Both my boss and I re-invest those dividends which in turn buy more BUD shares every quarter. Which in turn means more total shares will pay out even more dividends, which means more buying power to buy back even more shares. We've got this money making machine called "stock" in Budweiser. Every month, the Bud story gets better and better. Can you imagine sitting on these shares for 30 years or 120 quarters of dividend re-investing? Wow.

You see, I use compounding to my advantage. I do not allow compounding from usorous loans for overpriced assets to work against me.

I don't piss away my hard earned money buying an overpriced house and paying a bank interest. I make money by having the company(ies) I own pay me interest with quarterly dividends which are paid out from the "profits" they make and give back to us shareowners.

See, I am Budweiser's Pimp Daddy.

I work in a bar where Bud Light is our No. 1 seller. Corona is our second best seller.

Bud owns 50% of Corona and 100% distribution rights of Corona in the US.

Bud just bought Rolling Rock.

Bud owns distribution rights for Grolsch and Tiger Beers in the US, the No. 2 beer in Holland and the No. 1 beer in Cambodia.

Bud owns the No. 4 Beer in China, Harbins, and owns 100% distribution of it in China.

Bud owns 27% of the No. 1 Beer in China, Tsingtao. And here's another factoid: China has a younger average age for population than the developed West. Hence, beer sales are exploding in China. I should mention also, Bud is entering India by purchasing some of their top breweries. Beer is not a big seller in India, but Bud is already amping up fun advertising which has younger Indians trading wine and other spirits for beer.

One last item: over 44 million Latinos live in the USA now. Their number one and two beers are Bud Light and Corona in that order.

And I did not even discuss how Bud runs the largest aluminum recycling business in the world or how they have hit upon new packaging which has turned the business upside down and causing them to run their packaging plants 24/7 with more plants on the drawing board.

See all that knowledge I just tossed at you? It came at a price. Instead of sitting in front of Must See TV 5 nights a week, I simply "did my homework" on the internet.

I am a shareowner in Bud. I let Warren Buffet do all the Fundamental Analysis and talk about Bud at his annual meeting. I read his annual reports on the internet. He likes what he sees. I like reading that.

I like what I'm seeing in my bar. I joke about drinking more Bud with my customers.

Yes, you are damned right, I am Budweiser's pimp daddy. Everytime someone finishes off another Bud product in my bar or the barback walks through with 3 cases of Bud Light . . . for the fifth or sixth time in the night . . . to restock a cooler, you bet I smile.

This is how I make real easy money in the stock market: I buy what I know or can learn to understand. I learn the history of the company. I look for solid management. I look for smarter investors in me to be investing in the company already. And when my charts say "Strong Buy", I buy.

It's taken me years to figure out how to really make money through investing.

Again, some people are real estate flipping whizzes, but its usually those who have done a load of homework on their own and realized when to read a market in real estate bottoming or topping.

You don't get rich buying a house for $1,700,000 (the price on this house I'm in back in 2006) and then seeing the same house sell for $1,200,000 one year later.

I don't care who you are, if you were to have bought this house at $1,700,000 in 2006, you would be feeling like a chump today.

The same can be said for those of you bought Amazon, JDS Uniphase, Qualcomm, Enron, etc., etc., back in the go-go days of the the late 1990s when everyone was going to become an overnight millionaire.

When Informercials were running by the hour telling you how to become rich with no money down buying real estate, where the hell was your mind if you lost money in the Internet Bubble? Did you not have a red flag run up the flagpole on top of your brain which said "Warning: This reminds me of the mania in the stock market?"

Thus, while everyone I know was losing their minds buying Key West Real Estate over the past 5 years, I was busy teaching myself how to properly invest in the stock market. You buy Longterm, you Hold, you re-invest dividends over and over, and you continue doing Homework on your investments.

Coca Cola is not going out of business any time soon. Nor is Budweiser. Colgate? They, like Coca Cola, are over 100 years old. All three of these examples, I "own". And the dividends increase yearly. And since I've bought these three, all three have gained in price per share.

These 3 "tried and true" companies grow slowly buy surely, year after year after year.

No, none of the above three stocks are throwing off the 1300% gains of that risky Calpine bet I told you about, or the less risky, but still risky, Akamai bet which has not gone up over 400% in less than two years of holding.

Yet all three stocks are still beating the S&P 500 averags over their time I've held them. And as I stated before, the average for S&P 500 stocks to yield yearly is 13%. And I plan to beat that average forever by purchasing extremely undervalued classic Big Cap Companies as I am doing now.

I sleep well at night because I am very diversified in my holdings. Yet there are plenty of Americans with zero savings, tons of debt, and they are living in a home which they can no longer use as an ATM machine because the value of their home has fallen in value below where they originally bought it.

And think about all those added on costs of buying a home which people wanted to "invest in" not "live in".

When I buy or sell a stock, I don't pay 6% fees. I don't have title costs, I don't have insurance to pay, or yearly taxes. Yes, I do pay a low 15% capital gains tax on dividends paid out, however, I also have a Roth IRA where no taxes are paid on dividends and where no taxes will ever be paid on any and all money pulled out from it during my retirement.

If I need to unload a stock which all of a sudden has changed from a great story to one that is truly bad (like a CEO is caught buggering little boys at Boy Scout Camp), I can load up the stock symbol with my attendant shares I own and hit "SELL". It would take me less than a minute to go "liquid".

However, that kind of made up story about a CEO buggering boys would spell "Buy Opp" to me instead of "SELL". As long as the company was still a great company and the managment down the ladder was still pristine and intact, I would most likely "average down" on my intital buy and ride the stock back up.

So, what I'm doing today is just throwing out a few thoughts which I've thought long and hard about over the past 7 years.

I am hoping my mindset and the way I think about things will help you avoid the mistakes I've made in my investing career.

Again, yes, there are people making money in real estate. But you would take years of your life to become Sam Zell - the famous billionaire who has made his billions off real estate. (By the way, Sam just sold billions of real estate he owned to a private equity firm. If Zell sells, you can bet your ass he sees harder times coming in Real Estate.)

To dabble in buying a home without really studying the pros and cons is financial suicide in my mind.

You can't take the biggest purchase of your life and simply turn it all over to people who make money off your purchase, i.e., those with a vested interest in seeing the pyramid scheme continue such as mortgage brokers, Realtors, appraisers, homebuilders, title companies.



You Should Never Place 100% Trust in Strangers Who Only See You as Their Next Commission.

You've got to come at this with your eyes wide open and your head filled with knowledge.

If you buy a house, brother and sister, you will be chained to it for a long long time in a declining market which we are witnessing now.

If you wake up tomorrow and want to sell the house you just bought yesterday, you can't simply open up an internet site, load up "SELL", click a button, and suddenly see cash money flood into your account.

Sales of homes take weeks and months to list, show and close.

A stock, on the other hand, can be bought and sold in less than a minute. Hell, daytraders buy and sell the same stock hundreds of times in a day.

And what about the tinier fees for buying and selling stock? I can buy $160,000 of say Proctor and Gamble this morning and the fee for the purchase will be $9.99 via my internet account. If I hold a stock for 20 years, I will never pay insurance fees. I will never be taxed on appraised value, but only on any dividends paid. (I will pay capital gains taxes if I sell that stock 20 years down the line.) And if the stock is a dividend payer in a Roth IRA or other tax free retirement account, I won't even have to pay dividend taxes or taxes on any stock I sell once I reach retirement age.

If I bought a $160,000 flooded trailer home, I'd still have to pay a Realtor her cut, I'd still pay title fee, closing costs, taxes, insurance etc. I'd be paying taxes and insurance fees on that home every year too. Plus, a flooded home is going to need to be fixed up and maintained. Where's the sense in buying a "cheap" home simply because it's cheap?

That's what is bothering me about so many of the latest pitches from Key West Flying Monkeys (Realtors): they keep telling you how "affordable" housing is getting. Yeah, affordable if you want to live in a place you aren't really going to like living in.

I mean, come on. I can go root around the back of Sears and get an giant washing machine box to go live in. I can place it in the magroves. I won't have power unless I take my generator out there. I can "afford" all this, but do I want to pay for the "free" living quarters by all the hassles it would involve, not least of which would be the slow loss of my sanity?

The Big Question You Have to Ask Yourself Before Even Thinking About Buying the Key West Realtor Bullshit

So the question a smart investor must ask himself and loved ones today is this: What is the smarter choice here in a declining market for housing? Housing or stocks?

Is housing still overpriced in Key West? Yes, yes, yes. By a long shot.

In decades past, the old investment wisdom was "never buy a home which would cost you more than 1/4 of your monthly take home pay.

That's still outstanding advice.

Yet how many newly impoverished homeowners all across America and in the Florida Keys are putting 50%, 60%, even 75% and more of their paychecks towards housing?

Don't ask Regina Corcoran, No. 1 Cheerleader for Key West Real Estate who advised people in February 2006 to use their credit cards to finance a downpayment. If you listened to that woman, your Feb. 2006 "investment" is already smelling like Chum Spirit.

In Chicago alone for March 2007, there were more than 54,000 "homeowners" who were more than two months late on their mortgages. And that's just one American metro area. You think any of these 54,000 were paying less than 25% of their take home pay toward their mortgages . . . when they were paying on them?

Where are the net savers in America?

We as a nation are negative savers in 2007. This means we owe more to debt service than we save in our bank accounts.

Yeah, you might have $1,000 saved in your First State Bank account for a "rainy day fund", but you might also be carrying $30,000 in student loans, another $15,000 in credit card loans, and $14,000 more on a brand new Camaro which is in its third year of seven years of payments. So, are you classifying the above example of a "saver" as a real saver? Not in my book. Show me the net money in this example. There is not net gain. There is only a net debt/loss. Now multiply that debt owed by tens of millions of strapped Americans.

The real savers are overseas. They are in Asia. They are buying gold. They are buying stock. They are investing real capital in startup businesses which are taking high paying jobs away from Americans who must step down a pay scale to stay in a field in which the graduated college.

Not every American can be a Realtor or Mortgage Broker. And with the way Housing is going now, those two fields are seeing mass layoffs with smaller commissions for those toughing it out.

There's money to be made overseas in this new Global Economy.

Look at the world. There are 3 billion new capitalists unleashed in China, India and the emerging Asian countries. These capitalists are buying toothpaste, beer, electricity, clothes, chewing gum, and other "luxuries" which we think of as non-luxuries in the USA.

Companies with American names are now making more money overseas than they are in America where they first sold their goods and services.

Take GM. Once it was the proud standard bearer for all American companies. It was once said, "What is Good for GM, is Good for America."

GM is billions of dollars in the hole. Their pension fund is grossly underfunded. GM keeps selling off bits and pieces of its company, such as Hughes Satellite, Delphi, and now their sub-prime banking arm. They no longer make profits on any car they sell in America. They make profits off their "lending" to buy the car. Still, the red ink is forcing GM to layoff American workers through buyouts and renegotiations of their once liberal pension and benefits packages.

Yet there is one glimmer of hope for GM: Asia. GM is making profits off every car it sells in China. And sales are up triple digits year over year in Asia.

So, do we buy GM here? Well, I don't know. I don't have a handle on the car business like I do in the bar business (Budweiser and Pepsi are used every night in my bar), toothpaste and soap use at home (Colgate and Proctor and Gamble are on many of the "names" I use every day), electricity (I own part of the biggest electrical utility in China which is also a play on the newest nuclear reactors about to take center stage during the 2008 Olympics).

I can leave GM alone to people with more knowledge about the car business, or I can spend a helluva lot of time reading GMs annuals and reading internet sources to see where their car business might be going. But for now, I'd only buy Toyota if I bought a car business. Toyota is the No.1 Car Company in the World as of last week. I'd say Toyota is doing something right. In fact, I know they are doing something correctly: I own a Camry since 98 and its hands down the most solid car I've ever owned.

Great investing is personal. It requires work. You can't leave this stuff to people who will seperate you from your hard earned money. It's why the old saying goes, "I gave my money to my broker, but the only person broker is me."

You had hundreds of so called "cheerleaders" for the internet stocks who went on TV every day to tell you such horseshit as, "Qualcomm is worth $1,000 a share," and who never used sold financial analysis to come to such a bullshit conclusion. Hey, that analysts who said that made millions in commissions pulling in stupid investors to pony up hundreds of dollars a share for Qualcomm.

Most of the beserk analysts on CNBC made money for their "investment" bankers by being their cheerleaders for worthless IPOs of companies which had no products, no services, but a really cool internet homepage.

The investment bankers made billions by bringing all these worthless companies public. Bringing them public meant you, me, and Joe Sixpack could buy "Globalstar" stock at a highly inflated price while the investment bankers and their friends were unloading their shares (in the forms of options and privately "gifted" shares) the day they were pumping the shares to you and me.

(This is called a "Pump and Dump" in stock brokerage houses.)

This same scam is going on in housing right now. Realtors want you to you to believe that housing only goes up in price, never down. Yet just the other day, the NAR's David Lereah finally had to "give" and cry uncle. He's looking for a "soft" retreat in median housing prices. He says median prices, nationwide, will drop by about .7% this year, or a tad less than 1%. And of course, he's using the median home price stat which is the most biased and corrupt way to judge true housing values. (But we'll cover the median price in another post.)

So, as the stock market has its corruptible greedhounds giving off bogus analysis and badly mangled "statistics", so to, the housing market has its vested interests bullshitting the sheeple on housing is a sure fire "investment".

As I said earlier, housing is not an investment.

Housing is only a place you can live and hope your purchase will stay just even with inflation as housing has done in the USA for over 100 years.

Stocks beat inflation on average. Housing rarely does.

A very small percentage of the populace ever lucks out and times the sale of a property at or near a market top for Real Estate. Just remember, there are always two sides to a sale. While others were lucky to sell their homes in 2005, those who purchased the homes from the lucky sellers are what Mafia loan sharks would call "the bagholders".

Most homeowners who sell a home and collect the "equity" never look at the "costs" they paid the bank over the years to accrue that equity. They don't think about inflation (inflation and housing prices have run neck and neck over the past 100 years in America, meaning the normal price increase of any home averaged out is 3 to 4% a year...and I can show you how inflation is really higher than what the government is telling us it is, but that is yet another story to tell here on this blog.)

Billionaire Warren Buffet never "moved up" from one house to another. He still lives in his Omaha, Nebraska home which he bought for $38,000 or so way back in the 50s or 60s. Buffet realized early a "home" is something to live in, not trade like a stock.

I've shown you how a homeowner buying the place I rent would lose major investment equity by buying today while housing prices keep coming down.

I've shown you how the average stock has engineered over 13% returns (including dividend re-investment) for the past 100 years of precise record keeping. Keep in mind this average (13% including dividends) includes the 1929 stock market crash and the Great Depression.

Yes, there are plenty of companies which not only survived the Great Depression. There are some which thrived during the Great Depresssion.

It doesn't take a load of brainwork to figure people will put eating, drinking, showering, heating, air-conditioning, and other life necessities ahead of subscriptions to the highest tier of Satellite TV, expensive magazines which are only for show on the cofffee table, the best gym, etc. When people cut costs to save money, non-necessities are the first to go.

You got to have water to survive. That's been true since we evolved into modern humans. Anyone here think water companies will go out of business any time soon?

How about your electricity? Anyone here see modern homeowners saying, "Screw the electricity. I'd rather buy a new set of gold clubs and live in a sweat box with no microwave, computer, TV, radio, or other electrical appliance. So, how hard would the connection be and the sense to be found in investing in Electric utilities?

People make life choices when Hard Times hit. During the Great Depression, coffee never went out of favor. Prohibition was overruled in the 1930s during the Great Depression and the great Beer Companies and Liquor companies thrived again.

In Closing: There is a lot of money to be made in ALL markets when purchasing stocks.

We live in a Global Economy.

China is going to be the country with the highest GNP and GDP in my lifetime.

Many overseas companies are buying up American companies. Nestles, a Swiss company, just bought the biggest baby food company in the world, Gerbers, formally an American company. How do we profit off a Swiss company buying up another piece of America? We (you and me) buy the Swiss company and vote our shares.

I know this has been a scattershot post. I know it has traveled all over the map. And were I not so busy, I'd take days to edit this, hone it, and then release this for publishing on my blog.

However, I think it is best to sometimes to wade in here and start typing as I would talk to you on a barstool or sitting in a cafe.

My favorite insights to Warren Buffet are those eloquent moments where he takes questions from his shareholders of Berkshire Hathaway stock (Berkshire's stock is now $109,550 per share . . . the highest share price of any stock in history) and answers those questions with his folksy humor and precise language sewn with example after example of real life learning.

Buffet admits his mistakes in public. He puts his trades out there so that we can all hold him accountable. He hides nothing. Buffet cuts his losses quickly. And he lets his winners ride forever. He once said, "You want to buy a great company at .40 cents on the dollar while others are running for the exits." I learned from Buffet how to properly invest while others are losing their heads.

Enough said for now.

Here are the stock incices for the past 7 years and four months. Keep in mind these stats are not telling "the whole story". There are plenty of great companies, big blue chips paying dividends, in the S&P 500 which out-performed the averages for the Russell Small Caps.

For instance, were you to take certain oil companies such as Exxon, Chevron, BP and Conoco Philips, they've had their ups and downs since 2000 (mostly ups) and if you add in their dividend re-investments, you'd be waaaaaaaaaaaay ahead of the S&P 500 percentage for the past 7 years and four months.

Again, you can beat the stock market averages by buying "smart".

Smart money doesn't chase a stock when it is overvalued.

Smart money doesn't chase housing when it is overvalued either.

When you buy something, you have to do your homework. You got to know how the "game" is rigged against the small investor, be it the stock market or housing.

Thus, read these results with a grain of salt. The S&P 500 is further broken down into the ten sectors which Dr. Jeremy Siegel talks about in his book "The Future for Investors".

Keep in mind at all times the three sectors which he says beat the whole market from 1957 to the present: energy, healthcare and consumer staples. Also, I would add that Dr. Siegel should add an addendum discussing older "tech" stocks which are now "consumer staples" such as Microsoft, Akamai, etc. Eventhough we don't see "it" as we use it, I use Microsoft and Akamai evertime I fire up my computer.

I say without question this book is going to be a "classic" for years to come. This is one which will be taught in college classrooms to educate the rich kids how to get richer.

Buy this book today. Sit down. Read a chapter a day. Take notes. And learn how to make money in stocks while you sleep.

As John Hiatt sings, "It'll Come to Ya". Everything that Doctor Siegel is telling you has already been validated in my own investment career in spades. Had this book been published in 1999 . . . instead of last year . . . I'd never have bought an internet stock and I would probably sitting on my first million right now.

The book is that important and that good.

Buy it.

As of April 17th, the total returns since December 31, 1999


S&P 600 Small-Cap Value............129.84%

S&P 600 Small-Cap......................115.01%

S&P 400 Mid-Cap Value...............109.02%

S&P 600 Small-Cap Growth..........98.15%

S&P 400 Mid-Cap...........................97.07%

S&P 400 Mid-Cap Growth..............84.92%

Dow Utilities...................................82.35%

Dow Transports..............................70.70%

Morgan Stanley Cyclical.................68.33%

Russell 2000...................................64.23%

Morgan Stanley Consumer.............36.02%

S&P 500 Value...............................29.95%

Dow.................................................11.10% (29.03% w/divs)

Russell 3000....................................8.19%

Wilshire 5000..................................7.95% (20.49% w/divs)

Russell 1000....................................4.60%

S&P 500...........................................0.15%

S&P 100........................................-15.04%

S&P 500 Growth...........................-23.75%

Nasdaq...........................................-38.15%

Nasdaq 100...................................-50.51%


Here's how the 10 S&P 500 Industry Sectors have fared:


Energy............................................128.23%Financials.........................................52.87%Materials..........................................50.94%Utilities............................................46.96%Staples............................................34.99%Healthcare.......................................27.57%Industrials.......................................20.99%Discretionary.....................................3.97%
Telecom..........................................-48.75%
Tech...............................................-54.70%


p.s. I again want to thank Hamlets Mill a poster on Motley Fool for bringing that list to my notice.

And please note that all sectors values above do NOT show dividend re-investing.

Dr. Siegel makes the point that S&P 500 stocks have returned 11% a year with dividends. What he does not discuss is the S&P 100 stocks which are undervalued return more than 13% a year when you buy them cheap. If you continue to read this blog, I promise to deliver these promising stocks to you on a platter in the coming years. All you have to do is read over my Fundamental Analysis, look at my chart, buy, hold, forget the stock except for quarterly of yearly updates. Let the dividends re-invest over and over.

Lastly, HamletsMill added these last notes to his post:

The cost of living, as officially measured, has increased by about 22% since December 31, 1999. So, in terms of actual worth, one should discount accordingly.Still, the indexes do paint a clear picture of what has been the best working parts of the equities market this decade so far: Small-Cap and "value" stocks, and Energy.(From Eddy Elfenbein's "Crossing Wall Street")