The American Myth About Home Ownership

(click on photo for a bird's eye view)

Be A Man, Buy a House?

I came across an interesting Forbes piece on the Internet this morning. The title of it was "Don't Buy That House".

Among the amusing items I found was this gem from the cheerleading NAR of the time (the 1920s) . . . which makes David Lereah's recent pep rally soundbites seem a bit, well, tame.

Homeownership has been touted as civic responsibility, "moral muscle" and a bulwark against communism. A 1922 pamphlet from the National Association of Real Estate Boards even promised that it would put the "MAN back in MANHOOD." Over the years, it has been claimed that homeowners vote more, join more voluntary associations, take better care of their residences and have better-educated kids.

That one made me laugh out loud.

Back in the 20s, there was no Viagara. But there were cigars and homes to buy to make a man feel more "manly." Whoever was in charge of the NAR at the time didn't use a legendary spinmeister economist such as David Lereah. Instead, he (women had no positions of authority in those days) had a copywriter who knew how to sell without a bunch of numbers involved. And the two of them probably smoked big cigars over every line of copy just to make sure they hit that one emotion which really sells: fear.

Go for the penis instead of the throat. Go for flag waving patriotism in your copy. To buy a home is the American thing to do. To rent is to possibly show your neighbors (and women) that you are a limp dicked Communist.

What bullshit! But it is brilliant copy, it really is. It hammers at the fears of men with low self-esteem with an insight Sigmund Freud must have admired. That copy sold a load of homes in the 20s. (And if you know how the run up in Real Estate during the Housing Bubble of the 1920s added to the good feel of "The Roaring 20s", you would also know that Real Estate crashed in Florida in 1928 . . . one year ahead of the biggest stock market crash of all time.)

While the nascent NAR was urging men to become more American and manly by buying a home . . . they got help from the lenders: the Roaring 20s was the decade where EZ Credit was established. People financed washers, RCA radios, cars and more for the first time.

And here's another fact about American brainwash in the 1920s which was never a myth . . . The Roaring 20s indelibly stamped on frontal lobes of American consumers that one question which still prevails today: "How much is the monthly payment?"

For Roaring 20s homes, a special new product was invented for men with bigger ambitions of Manhood: the Adjustable Rate Mortgage. EZ Credit was the Viagara and Cialisis of the Roaring 20s. So much for having a nation of big swinging dicks owning homes, farms and stocks which they soon lost to foreclosures, bankruptcies and margin calls.

I'm going to give Forbes some props for bringing up the following factoids at the end of their article:

What about all the social benefits attributed to homeownership? It turns out that many of the supposed benefits of ownership are likely due simply to family stability, for which homeownership is an excellent proxy.

For instance, while it is true that the children of homeowners have scored better on standardized tests than the children of renters, there's little to suggest that ownership per se is the cause of better performance.

"Some research has suggested that it isn't whether parents own or rent, but the mobility of the household," says Rachel Drew, a research analyst at Harvard University's Joint Center for Housing Studies. In other words, it's likely that families who stay in one place for a long time (renting or buying) are doing better by their kids than families that move often.

"All of these things we say are benefits of homeownership in the U.S. I think would also be benefits of long-term rental tenancy," says Bourassa.

Certainly there are plenty of stable, wealthy, well-educated places in Europe, at least, where homeownership is far rarer than it is in the U.S. Nearly 70% of all Americans own their own homes; only 34% of the Swiss do. Thriving cities like Hamburg, Amsterdam and Berlin have rates of ownership of just 20%, 16% and 11% respectively, according to the United Nations.

So if something in your gut--or on your bank statement--tells you that now is not the right time to buy, resist the pressure. There may be no place like home, but there's no reason you can't rent it.

I can buy that. A feeling of "rootlessness" is not good for any kid who is bounced from school to school on a regular basis. And which child would grow up with fewer problems: a kid living in an apartment or home rental where the parents are not in debt and are putting away money to further the education of the child? Or a child stuck in the suburbs in a home where ma and pa are now working two jobs to keep the exploding ARM paid and the sheriff from nailing a Foreclosure notice to the door?

Screw the NAR: I'm Comfortable With My Manhood . . . And I Rent

As an adult with no children, I am not locked into staying in just one rental for the sake of my kids either. (Not that I think moving from one rental to another in the same town would be detrimental to children's health as long as they had the same schools and friends to keep.)

And today, renting makes more economical sense than buying a home. Read the whole Forbes article to get a sense of what they are explaining in common sense terms or read my blog where I said the same thing in much lengthier words.

To which I will add: I'd rather save a ton of money by renting. I'd rather take those savings from renting and re-invest them in safe dividend paying stocks, with gold, silver and oil as hedges. And if things ever get tight, I can always find a cheaper rental to live in without destroying my credit.

Furthermore, I will not be renting a house a hundred miles from my workplace.

It may sound un-American, but I'd much rather live in a old Berlin house rental or upper floor Seattle or Prague warehouse apartment rental than live in an American suburb where there is no culture . . . other than that which I can find on my TV . . . and where I struggle to meet the exploding payments on my ARM.

Screw the American Mondo Condo Shopping Mall Hell

Americans put down European living all the time. Usually, these very critics have too often never traveled outside our borders.

I once rented an apartment in downtown Frankfurt, Germany for three years and I cherish those memories of living in early 70s Deutschland. I saw The Who, Led Zepellin, Deep Purple, Pink Floyd, name a great band of the era, just steps from my apartment's door. I owned a Norton 750 Commando Motorcycle which took me to Heidelberg, Munich, Berlin and to countries like Scotland, France, Denmark, etc. I was immersed in culture.

More often than not, I'd buy a monthy "Eurail" pass which allowed me to hop on any train going anywhere. Sometimes, I and a couple of friends would get drunk in a good downtown bar at the beginning of our 3 or 5 day pass, go to the Hauptbahnhof, and simply jump on the first train leaving to see where it would take us. It was magic. Wake up stone sober in say Dusseldorf and run around that city for the day. Or find out you are in Switzerland at the border as your passport is checked.

Forbes mentions Berlin.

I pulled guard duty once in Berlin. That city was the swingingest city in Europe at the time, more so than London or Paris, IMO. And this was a city which was surrounded by Russian troops. Yet the people in West Berlin lived like there was no tomorrow.

The very best symphony I ever heard in my life was in West Berlin, 1971. That's where I heard Dvorak's "From the New World" symphony. To this day, I hold that piece of music as my favorite classical music work because it takes me back to West Berlin.

The Forbes article states that only 11% of my beloved Berlin's current population owns their home. Who cares? Berlin is alive and jumping. Berlin is the city I think of as the new "Capital" of Europe. If I moved there, I would be able to walk or catch a Strassenbahn (electric streetcar) to the incredible art galleries, stores, concert halls, beer halls, coffee shops, and outdoor political rallies and festivals (like Oktoberfest, Fascing (sp?) and the world's biggest Dance Music festival) which make the City fun, young and vibrant. I could spend years just losing myself in lengthy walks of its streets to stop and view inspiring architecture.

On the other hand, one of my visions of hell (I am an atheist, so I am speaking of hell from a contextural view) would be for me to be "stuck" in a $500,000 American suburb or exburb house (which cost me $550,000 a few years ago) and where the closest culture center is the indoor mega-mall.

That mega mall would have maybe one or two outdoor cafes where you could buy a watered down beer and which overlook a 50 acre parking lots. Or maybe you would overlook the nearby Interstate. The closest thing to an art gallery would be the Crafts Connection Poster and Frame Store. My only connection to music would be the salesmen at Sam Ash playing the same metal riff over and over. The only coffee shop would be a Starbucks. And the closest cinema would be the indoor multiplex showing "Diehard 12", "Star Wars 15", "Home Alone 4", and "Scary Movie 7".

When I think of Mega Malls in the burbs, I think of Mojo Nixon's 80s Anthem, "Burn Down the Malls".

America has been so dumbed down that we believe it's a dream to "own" a house miles away from where we work. We are constantly brainwashed to become a good little homeowner miles from nowhere in a development which has no soul.

The NAR's current campaign, "Now is a great time to buy a home," is nothing more than big cigar smoking men . . . and women . . . with vested interests in the Real Estate Cartel patting your head, whispering, "Now be a good little consumer and buy a home." Pat, pat, pat. "Credit is tightening up, but you can use your credit cards for a downpayment." Pat, pat, pat. "And don't pay no never mind to the ARM which kicks in a few years from now. By then rates should be lower, and as you know, home prices always go up." Pat, pat, pat.

The NAR doesn't care a bit about how indebted we might become in our chase of the "American Dream". Their job is to sell homes so they can line their pockets with your hard earned cash. So they lull you to sleepwalk into buying a home which you really cannot afford . . . unless you become their girly man or dumb blonde who never questions their authority.

Note to the NAR flacks: more and more Americans are waking up to the fact of a newer reality - their home owns them.

The more Americans admit their recent home purchase is the biggest mistake of their lives, the more people are adding to the misery index. It's not the naysayers on overpriced housing who are un-American. It's the Real Estate Cartel pushing Liars Loans, overpriced homes, and developments with no longterm planning who are undermining America.

People don't really relish the thought of a one or two hour commute to and from cookie cutter homes. But the NAR doesn't discuss this in thir adverts or billboard ads. People move way the hell out into nowhere because they fear not being able to afford the American Dream which keeps moving further out and farther away.

"Where do you live?"

"Over the mountain pass in that new sub-division which is cheaper than housing near here."

Who wants to live where no one knows your name, where neighbors don't know neighbors . . . unless they are reporting you for breaking Homeowner Association rules such as flying a flag from your lawn, parking a pickup truck in the driveway, or seeing your kids ride bicycles without crash helmets on?

Screw that Home Owners Association Hell

Give me a rental in a garret of an home built in the 1700s in the great city of Berlin which is an accessible, inspiring, cosmopolitan and freethinking vibrant city and society. Or let me find another spacious Key West rental which allows me to almost never need a car as I walk to work and bicycle around town. My neighbors in either locale do not and would not think the less of me for actually, heaven's forbid, renting a place.

Today, we still have Americans biting on "Now is a great time to buy a Home. " But deeply ingrained in that thinking is the American myth that home ownership is a right, that it is a dream to chase at any cost, that it really is a measure of your worth . . . male or female.

Screw Hours of Commuting to and from Work

To the NAR I say you can keep your two to four hours of daily satellite radio listening in your car added to an eight hour day on the job just so you can afford that overpriced, ball and chain, sleep/eat cocoon in the suburbs or exburbs.

No question about it NAR, NHA, and Lenders, you can keep your home in "Misty Meadows - Putting the Magic Back into Homeowning" (as the billboards on the highway describe that place to which you hope to sell me into indentured slavery).

So I sign off with an old adage to members of the Real Estate Cartel: you can fool some of the people some of the time, you can't fool all the people all of the time.

I got my manhood right here. Shake, shake. And my money spent on rent saves cents.

Thankuvurymuch,

DJ Rock has left the building

David Lereah - R.I.P.

David Lereah . . . Busted!
Former Number 1 Shill for the National Association of Realtors is Gone, But His Legacy of Horrific Predictions and Observations Live On in Infamy

We the people who did not listen to David Lereah . . . the former Chief Economist for the NAR . . . are now saddened to see him go.

Looking back, Mr. Lereah was the absolute best Contrarian Indicator on Real Estate during the blowing of the Housing Bubble: anything David encouraged "investors" to do, you only had to take the opposite view to make money.

It is now accepted by most economists and observers of Real Estate that the market top for housing was during the Summer of 2005 . . . or the same year the No. 1 Shill for the NAR released his first Real Estate book.

Like a color blind person calling an Ace of Spades rose hued, Lereah issued his initial book with a title of “Are You Missing the Real Estate Boom?: The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade - And How to Profit From Them”. I swear to you, I am not making up such an ill conceived title. (Click on the title to see the Amazon PR).

The cover of the book (below) shows a house rising in the air to give the impression Real Estate investments always go up. (If you open up the Amazon links highlighted in red, you will be able to Zoom in on the book cover.)

By 2006, Wavy Davey had to be sweating hydrochloric acid as he was looking like the planet's biggest fool in print who purported to be a Real Estate expert. At the beginning of 2006, Homebuilders were reporting increased inventory with fewer building permits issued. Not only this, housing bubble blogs began publishing one story after another about the misery in rising foreclosures, declining prices, and always, the stories about inventory exploding to highs not seen in years.

Lereah knew all this. He had his hands on the inventory reports from all around the nation . . . and he knew how inventory did not include all the new housing by builders who in early 2006 were reporting declining revenue and losses in income while unsold inventory was piling up.

Lereah also knew how median home prices from sales was being distorted by incentives, above 100% financing, sales back to a developer at the developer's top price (by canceled depositers), and pre-contract appraisals which were still being pushed by lenders . . . not market prices . . . to make appearances that all was still well in Real Estate.

Lereah was privy to all this insider business of smoke and mirror numbers reporting. He was one of the biggest cheerleaders blowing smoke out his ass. He continued to distort the data he released while saying it was untainted to make things in Real Estate look better than they really were.

David Lereah did not care for the real truth. The Truth, you see, did not sign his fat paychecks.


Enter David Lerah . . . Less Enthusiastic Illusionist and Title Changer

Eventually, the market turned so much against Lereah's ill timed book release, that a cover up of his Big Mistake had to go into effect. What to do?

While eyes were diverted, David Lereah and his publisher changed the title of his 2005 book to reflect a somewhat more somber view of Real Estate from 2006. Mind you, the same illustration of the floating house still graced the cover.

The new title in 2006 for the exact same book release of 2005 adopted a less loud claim that the boom would continue throughout the decade. Still, Lereah's new title for the same book had what was now less a confident claim . . . and more like a hopeful claim . . . the boom would not bust. Hence, the new title became: “Why the Real Estate Boom Will Not Bust - And How You Can Profit from It: How to Build Wealth in Today's Expanding Real Estate Market”

Way Behind the Smart Real Estate Bloggers and Message Board Posters, Lereah Begins His Backpedalling to See if He Can Go Back to Meet the Pack as it is About to Lap Him

Finally, in April 2007, Lereah seeking to cover his tracks on one of the worst calls in history with a diversionary title change added in for good measure, launched his newest, bestest, back pedaling title, “All Real Estate Is Local: What You Need to Know to Profit in Real Estate - in a Buyer's and a Seller's Market”. With this new title, Lereah actually owns up to the thought that, yeah, there might actually be something like buyer’s markets where prices are decreasing instead of there always being a seller’s market where prices always go up in Real Estate La La Land.

This title was the funniest “Whoops! There It Is” moment in non-comedy categories for the year in my book. It was David’s last coverup attempt on blown calls which he might sprinkle with sugar before he exited . . . not stage right or stage left mind you . . . but quietly out the back door of the NAR’s Ivory Tower.

I would think anyone who listened to this bloviating Phd. (Piled higher and deeper . . . definitely in Lereah’s case) will now consider that so-called “experts” in all asset bubbles have vested interests in keeping the respective bubbles alive. I hope anyone who lost money listening to Lereah’s incessant misinformation and disinformation will now use their anger as a lesson to never trust anyone in authority without doing your own due diligence on what the experts proclaim is fact.

As I will keep reminding you on this blog, any stranger who has vested interests in keeping Ponzi Schemes alive should never be listened to. Never listen to a stranger who looks at you as their next paycheck or commission check. Do your own due diligence on the biggest purchase of your life. Deal with lenders, builders, appraisers and Realtors from a position of strength by self-educating yourself.

Last, always get promises and deals in writing. Never accept the word of anyone . . . including family members, your Church elder, or the guy next door who can put you into a house at the very best price. Remember, the "experts" know only as much as you don't. Educate yourself, ask questions, and make other parties on deals put down in writing what they are telling you.

Embarrassed, Discounted, Downgraded as an Expert by All, Lereah Had to Quit or Face Making the NAR Fire Him

In Lereah’s case . . . his writings could not back away from the facts in 2007 that housing was busting. In fact, in one of his last published pieces from the NAR’s Ivory Tower, he had to ring the bell that median prices were probably coming down .07% . . . or less than 1% in 2007. This admission surely had to embarrass Mr. “Why the Real Estate Boom Will Not Bust” . . . and it wasn’t long after this confession Mr. Lereah quit his job as Chief Economist of the NAR.

Although Mr. Lereah was granted a Phd. in Economics from the University of Virginia, I am sure Thomas Jefferson would not have recognized anyone with such sycophantic desires to please their master to be worthy of a doctorate from his beloved university. President Jefferson was always a freethinker, and he called things as he saw them. He would have seen through Lereah as easy as other non-college graduates (such as myself) who sought the Truth. Jefferson would have recognized the fraud Mr. Lereah represented, and most likely, Jefferson would have expelled Lereah for breaking the University's Honor Code.

Hence, I will always think of David Lereah as a "mister" at best and the slimiest kind of analyst/lapdog prevaricator at worst.

In David’s dis-honor, we place this last image firmly in the ground as his tombstone. I wish this image would expand, but if you have a big enough screen or a mouse with a magnification feature, use it. The quotes from Lereah are worth reading for one last laugh out loud for the "Most Incompetent Economist in the Early 21st Century" claim:

Good-bye, David, we hardly knew ye. But what we knew was quite enough.

Miami Dade-Broward's Housing Boom Turns Bust: Will Lower Taxes Ignite Home Sales?

Over the Next 18 Months Miami Will Add 20,000 New Condos

Miami Dade-Broward's inventory of housing for sale has exploded in the past year.

Last month 76,000 "pre-owned" homes were For Sale in that area. Just one year ago, that inventory figure was only 50,000 homes For Sale.

Real Estate observers know that the 20,000 "new" condos which will come online in the next 18 months will not be added to official MLS inventory as new homes and condos are sold by developers, not individual homeowners. Hence, inventory rolls will not automatically rise another 20,000 properties. Still that new hidden inventory will be out there along with all the other new homes which have been on the market for over two years now and which are still not on the inventory rolls.

However, as more foreclosures take place (and foreclosures all over Florida are skyrocketing) and as new owners of some of these condos are forced to walk away from their deposits . . . we can be sure that some of these newer units will add to the glut of already existing homes for sale.

Will Tax Cuts for Housing Get the Market Moving Again?

Florida's state legislature is under pressure by builders, Realtors, lenders . . . in short . . . the whole Housing Bubble Cartel . . . to lower taxes on Real Estate. These vested interests of the cartel believe lower taxes will get sales moving again.

My thought is this: if I feel I cannot afford a $500,000 home in the changing rate environments of today (long term rates started going up last week as Fed chief Ben Bernake is now signalling that bailing out Real Estate interests is not America's main interest, but controlling inflation by propping up the dollar is) I will surely not care if Florida Real Estate taxes go down tomorrow.

The main problem with Real Estate is it is too overpriced.

The average man and woman in Florida has not seen their wages and salary keep up with the exploding price of Real Estate. So something has to give.

Either Florida wages and salaries will have to double overnight so we can all afford to begin looking at what is overpriced housing today, or the people who really want to sell their homes will have to lower prices to a realistic point where possible buyers might begin to look.

Jack McCabe, housing analyst, recently gave his thoughts about this magic bullet of lower taxes which the Real Estate Cartel hopes will kill the Housing Crash beast:

Analyst Jack McCabe, who is advising large vulture investors on bulk deals, said big investment groups aren't as worried about tax rates as individuals -- saying such costs can be spread out across big buyers' portfolios.

Last week McCabe announced the completion of the first market-corrected deal he's worked on since the slowdown began. While short on specifics, McCabe said a multibillion-dollar private investment fund bought a substantial block of newly built condominiums from a publicly-held home builder in Florida. His investor client, he said, was chosen because of its ``ability to close quickly in an all-cash transaction, noncontingent on financing.''

Currently, he said the market is too sick to recover from a tax reduction alone. A big property tax cut may reignite buying now, he said, but would effectively create a false bottom.

''Meaningful reduction will slow down the correction cycle but the correction is still inevitable,'' said the Deerfield Beach analyst, who has warned for some time about too much construction going up too fast. ''The market is so sick it will take a while to cure this,'' he said. ``This is not a head cold, it is more like pneumonia.''

But such doomsayers also believe the market is poised for brighter days ahead. McCabe says that barring calamitous hurricanes, the market will have righted itself by 2010 -- just as the first baby boomers turn 65.

''No one is more bullish on Florida long-term than me,'' McCabe said.

It's such thinking that prompted corporate raider Carl Icahn to announce last week that he would continue efforts to buy Bonita Springs-based WCI Communities....

All I will add to McCabe's views is this: it all comes down to Economics 101, the Law of Supply and Demand. When there is too much demand, prices go up. When there is too much supply . . . as we see today all over America with housing . . . prices have to come down.

There is no other way to get Real Estate sales moving again other than for homeowners to "get real" with their pricing today. The longer the sellers continue to drip, drip, drip in their price drops, the longer their pain of waiting for a buyer to come along.

I believe many sellers will soon be caught with their pants down and their skirts up as the Federal Reserve focuses on keeping inflation in check by not lowering rates. And if the Fed Chief raises rates just 50 basis points (one-half of one percent), we will see just how many homeowners were standing naked when the small tide of buyers are sucked out to sea.

Mark my words: one healthy rate increase will end all illusions that Real Estate is a smart "investment". It will also suck money out of our stock markets. But if Bernanke has to decide between keeping bubbles alive or propping up the US Dollar and killing inflation, my bet is he'll raise rates. (And just two months ago, I was one who felt like he'd try and save housing by lowering rates.)

If this prediction turns true, more people will be knocked out of the dream of buying a home at today's prices as lenders will further tighten their rules for borrowers.

Fewer qualified borrowers will mean more inventory building on the market.

As McCabe said about Real Estate's growing inventory and declining sales, "This is not a head cold, this is more like pnemonia. Unlike McCabe, I don't see any bottoming in Real Estate by 2010.

I believe we will see further pain and dropping prices in 2010.

This might take 15 years or more to correct.

My advice to sellers: figure out where you want to be in 5 to 15 years. If you want to move today, drop your price. If you have to take a hit in capital gains or perhaps take a loss on a sale, ask yourself what is more important: getting on with your life with a shred of sanity, or having to do a daily gut check wondering if you can induce someone to look over your overpriced home?

If you want to get on with life, drop your prices.

If you want more of the same indecisiveness which will drive you into a funk, keep sitting on your house you no longer want to live in and continue to refuse to drop your price.

It's that simple.

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."

A Couple of Charts for Motley Fool's "Macro Economic Trends and Risks" Board

Two Must See Charts of the Irrationally Exuberant Chinese Stock Market

To my regular readers on this board:

I have the next two days off. I intend to take some quality time to think about some news about the Chinese markets which is being discussed on the outstanding Motley Fool message board named "Macro Economic Trends and Risks".

I am not going to write a post about China at this moment as I am now digesting some stuff which I have only recently become aware of about the Chinese banking system and their stock market.

However, the discussion on the "Macro Economic Trends and Risks" board is too good to not have some clear pictures added to the discussion about the insanity of the Shanghai exchange.

A note to all about these charts:

These charts are static Photographs of charts at the end of business for 25 May 07. They will not update. So, as a courtesy to all my readers, I will update these charts weekly now, shooting for a Friday morning look every week here in the USA. If the Shanghai market crashes, I will of course give updated photos of the market daily on this blog.

To see either chart in an easy to read size, simply click on them.

The reason for showing the charts here on this blog instead of trying to post them to the Motley Fool board directly is I have had too many people from Fool write me emails telling me my trendlines move around, or my Fibonacci lines are not showing, or my comments printed on the chart are truncated or missing. By posting charts here, I know that what I see on my end is what you should see on your end with no more distortions of trendlines, mussed up comments, missing averages, etc. By the way, I did not use a moving average on my monthly chart as I don't normally use them at all on my longterm charts.

The first chart above shows the Shanghai Exchange's trendline and monthly candlesticks from 1990 to the present. I have no idea when that exchange began its existence. I do know that stockcharts.com only gives data for many stocks and indices going back only as far as 1990. So, this exchange may have gone up more than 4200% in its existence. (Perhaps someone on Fool can research the beginning of the Shanghai exchange?)

Secondly, this monthly chart is followed by a daily chart.

The daily chart is one where I have added a 200 day moving average. (The red line). I have also added a 50 day moving average. (The blue line).

I did this because I read something in a great piece by Ty Anrdos on freebuck.com which made the following point which I will not comment on here. I only offer this as a giant red flag flapping in a hurricane wind that is picking up, and I will offer my own opinions and thoughts later . . . and maybe it would be better if all of you reading this would scoot over to the Motley Fool "Macro Economic Trends and Risk" board to lurk because I believe this is going to be as lively a discussion as there has been in quite some time . . . That said, here's the bit from Ty Andros great commenatary which pertains to this daily chart and its 200 day moving average:

“But we should point out that the Shanghai market is currently approximately 95% above its 200 day moving average. To put that in perspective, in the history of the Dow Jones Industrial Average, including wild speculative binges such as 1929, we are unable to find a market high that was more than approximately 55% above its 200 day moving average.

Perhaps the amazing upward explosion in the Nasdaq leading to the March 2000 peak comes to mind as a similar market bubble to be compared with Shanghai. That market also stopped its runaway phase right around the 55% mark above its 200 day moving average.

In our experience, these types of bubbly blow off market phases are more conducive to subsequent crashes than they are to subsequent economic booms. It is difficult to conceive that a market almost 100% above its 200 day moving average will end up in any way but a negative fashion. Only time will tell.”