July 11, 2009: Connecting

During the past month, aside from some business ventures to attend to, my immediate family ranging in years from 99 (mother) to 12 (youngest child) went on what could be best billed as a trip down memory lane. First was a trip to Chicagoland, where we had our first meal after arrival at a traditional Czech restaurant with my lifelong friend John G. and his wife Carol. Having challenges in his career in retail real estate and a retirement 401k blowup is not easy to take, but John's humor (we still play off each other's comments - not skipping a beat after more than 45 years)and Carol's loyalty - even taking on a part time job as a dental hygienist, has kept this couple as solid as a rock over the years. My daughter has gained an interest in family history, so she was attentive to almost everything everywhere we went. My son Tom and his wife and two children aged 3 and seven months flew in from their military assignment in Colorado Springs to join us for what could be a final visit for us to the somewhat obscure Berwyn/Cicero area of my formative years. We visited first cousins in Chicago and culminated with a reunion of my Czech side of the family (the Croatians were visited separately, as is the custom) at my cousin's beautiful and classic home in Oak Park. Many relatives attended primarily to visit with my mother, soon to be 100 and still lucid and conversant. Her memory is astounding and she answered many family questions, some going back to the 1020s and earlier. Needless to say, the Czech/American food was amazing - as usual. I think our fondest memories centered around activities pertaining to food.

Then there was a long and noteworthy reunion in Florida.Driving to Orlando as a base of operations initially, and joined again by Tom's family (his wife is from Port Saint Lucie, nearby, to see her family as well)we stayed as usual for me at a Marriott Resort (a second cousin, Fred Malek - former President of Marriott and campaign chairperson for George Bush the elder as well as a cabinet member in the Regan administration always beckons me to stay at the Marriott brand). Visiting my cousin Mellonie at her home in Siesta Key was, and is always, a treat. With her sister Gail and male friend Brinton, a retired CPA from Washington, D.C. they treated our entourage as royalty. My mother was visiting her home for the first time, and had tears seeing our relations at the door with warm smiles and a pitcher of a signature martini concocted in my honor for the success of my branch of the family. We stayed for hours talking, eating, watching Mel's DVD of her production in Sarasota of a musical (she still has a great voice and obvious directing skills in her early 70s) and talking about the "old days", both good and not so good.

I can't continue without backtracking to the Chicagoland visit. I took time alone to visit my all-time respected teacher, Mr. Frank Boker, living in La Grange Park, who was my private instructor and band director during elementary and junior high school. He is in his mid-90s now and just returned home from a care facility. He taught some of the best symphony musicians in area in a humble, unassuming way - yet, demanding excellence. We had a wonderful and emotional visit. He regaled me with stories about his band directing in California and Guadalcanal and the Solomon Islands during WW2.He remembered lots about me, and was extremely complimentary in every respect. Of course, I owe him my love for music and copied his methodology during my career as an educator and school principal - often times getting arrows in my back for bucking the politically correct crowd. Frank Boker is my hero.

Continuing,the following day we traveled for a milestone visit to my eldest first cousin, Delores, in Orange City, Florida near Orlando (but a world away). Delores is in her 80s (her parents lived into their late 90s). She was a career Air Force enlisted and married a like Sgt. from an old Alabama family who had a relative as aide to Stonewall Jackson. She is a widow without children and had always been very reclusive, except that she writes beautiful letters on holidays. The last time I saw her face was in 1960, in Denver, Colorado where she was stationed. My mother, ditto. When we pulled into her apartment parking spot, a frail, yet definitely Croatian-featured and proud figure was there to greet us. We hugged and my family exchanged pleasantries, but the biggest hug and many tears was reserved for my mother, the last link of Delores' past.We spent several hours catching up and answering a long list of questions Delores had meticulously prepared in advance. My impression was that Delores served her country well, was intelligent, loved history, was very introverted and very deliberate in her speech to be precise in her dialogue. She admired my son USAF Maj. Tom and said several times how proud she was that the family had Air Force traditions. I even discovered she owns acres of land and an abandoned silver mine above the timber line near Colorado Springs, for no apparent reason at present. We left so very happy to have connected again.

Continuing our trip to our condo on Singer Island near Palm Beach (right across the inlet from Rush Limbaugh's estates, for the benefit of my liberal friends), son Brian who is a commanding officer with the Coast Guard in Key West and his wife and two children, aged three and one along with their au paire visited, as well as daughter Gail from Wright Patterson AFB in Dayton, where Capt. Gail is an acquisition officer. We spent a wonderful week there, together for the most part. Unfortunately, I could not connect with Renee Bergeron, a second cousin who is an administrator at Miami International Airport and a dead ringer for an aunt we share.

And it doesn't quite end. This coming week I will be representing the family in Colorado Springs as Maj. Tom assumes command of a squadron in a highly classified Air Force program at Peterson AFB. He will be honored for his work to date by superior officers including a General (name omitted) who has mentored Tom and followed his progress in areas where no errors are allowed, and promoted into a world-impact position.

I will be in the front row. As I have been in life, I am lucky to be in the right place at the right time surrounded by good people.

July 7, 2009: Billions for Urban Real Estate Investors

Let the monies roll in! The Housing and Economic Recovery Act of 2008 has arrived in an urban area near you. Almost $4 billion in Federal grants and an almost equal amount of matching State and Local Grants are pouring in to targeted urban areas for the purchase, renovation, demolition and new construction of homes.

My opinion is that this operation will ultimately fail. But for the investor, the ability to purchase and make use, for better or worse, of real estate with this manna from heaven is compelling as an immediate investment opportunity.

If you live near an urban area, make haste wisely to find out through a Realtor, Banker or City Planner (already, politicians are awarding property grants to political friends) about areas approved for investment.Five areas are included in this legislation that opens the gates for investors:

1. Financing Mechanisms (2301-c-3-B) for purchase and redevelopment of foreclosed upon and residential properties, including such mechanisms as soft seconds,loan loss reserves and shared equity loans for low to moderate income buyers.

2. Purchase and Rehabilitation (2301-c-3-B) to purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon in order to sell, rent, or redevelop such homes and properties.

Relevant Definitions:

Abandoned: A home is abandoned when mortgage or tax foreclosure proceedings have been initiated for that property, no mortgage or tax payments have been made by the owner for 90 days or more, and the property has been vacant for at least 90 days.

Current Market Appraisal Value: The current market appraisal value means the value of a foreclosed-upon home or residential property that is established through an appraisal made in conformity with the appraisal requirements of the URA at 49 CFR 24.103 and completed within 60 days prior to an offer made for the property by a grantee, subrecipient, developer or individual homebuyer.

Acquisition: Section 2301(d)(1)of HERA requires any purchase of a foreclosed-upon home or residential property under NSP be at a discount from the current market-appraised value of the home or property. Such discount shall ensure that purchasers pay below-market value for the home or property. For the mortgagee foreclosed properties, grantees must seek to obtain the maximum reasonable discount from the the mortgagee, taking into consideration the likely carrying costs of the mortgagee if it were not to sell the property to the grantor or subrecipient.

Rehabilitation: Direct home ownership assistance to persons whose incomes do not exceed 120% of median income.

24 CFR 570.202 states eligible rehabilitation snd preservation activities for homes and other residential properties. Note that rehabilitation may include counseling for those seeking to take part in the activity.

3. Land Banks: 2301 (c-3-C) states that a Land Bank may not hold a property for more than ten years without obligating the property for a specific, eligible development in accordance with NSP requirements. HUD does not believe that holding property alone is sufficient to stabilize most neighborhoods.

4. Demolition:2301 (c-3-D) allows the purchase and demolishment of blighted structures.

5. Redevelopment: 2301(c-3-E) allows redevelopment of vacant or demolished properties. New houses may be constructed.

Well-schooled investors or consortium of investors will do extremely well in all phases of this program. As mentioned above, I do not think this will have a long term positive impact upon urban housing. Tenants determine what remains clan and fit for habitation and what does not. However, the investor(s) will reap a windfall buying distressed real estate and flipping it to builders or local homeowners who can get cheap financing on great terms. Sound familiar? Shades of the housing bubble all over again.

Many years ago, I was rehabilitating properties and innocently asked a long time -and very successful- urban real estate investor "When will A_______run out of properties to rehab?" He laughed and said,"There will never be a time when an urban area runs out of properties to rehab". He was right. And now is a great time to jump on the bandwagon and flip,resell or use the Section 8 program for your rental tenants using other taxpayer monies.

And here I am vactioning in Palm Beach. Time to get on home and get in on the action.

June 28, 2009: Shariah-Compliant Investing Exploding, In More Ways Than One

Some estimates put the amount of world wealth invested in Shariah-compliant investments at over $2.7 trillion. If the trend continues, such investments may well grow to several times that amount within a few years.

Shariah-compliant investments are those entities that adhere to Islamic Law. Funds boasting the Shariah-compliant claim most often have Muslim clerics(Shariah adviser) as compensated consultants.

Shariah law authorities are paid directly or indirectly as investment blessors by such entities as Dow Jones,Standard and Poors, HSBC, Citibank,Deutsche Bank, Goldman Sachs,UBS, etc. to determine and assure the compliance of these and other linked institutions' products with Shariah.

There appear to be six key drivers of the Shariah compliance finance market:

Specialized law firms such as King and Spaulding, Patton Boggs and Gerystyn Savage; Shariah consulting firms such as Shariah Capital, Shariah Index Providers such as HSBC, Standard and Poors, Dow Jones and FTSE; Accounting firms; Software providers; Global banking institutions.

While many investors choosing Shariah-compliant products as a way to invest in a religious and socially preferred fashion, institutional compliance with Shariah law is a slippery slope. Investor's Business Daily reported that "Wall Street is jumping into this hot...market oblivious to the risks not just to the bottom line, but to national security. It knows little about Shariah law and is turning to consultants to create 'ethical' products to sell." One such consultant was the North American Islamic Trust (NAIT). Several months ago, Dow-Jones had to sever its relationship with NAIT after federal agents disclosed that NAIT was a Saudi-tied front for the pro-jihad Muslim Brotherhood that leads some of the most radical mosques in America. The Justice Department in 2008 named NAIT an unindicted co-conspirator in a terror money-laundering scheme to funnel money to Hamas under the banner of charity. Similar situations are not rare.

While not investing in pork product companies, alcohol, tobacco, gambling and entertainment are laudable if that is your view, the Shariah investor is tacitly supporting other aspects of Shariah law.

For instance, Shariah law in regards to women:

Muslim women are prohibited from marrying without parental consent, their wedding can be held without their being present or even in agreement to wed as long as the guardian consents - allowing underage and/or arranged marriages to occur, may only marry men of the Muslim faith, can be divorced simply by her husband repudiating her without obligation to provide child support,cannot divorce her husband without his consent,cannot claim abuse as grounds for divorce,can only inherit 50% of what a brother inherits, and if divorced cannot remarry at the risk of losing custody of her children. I'll leave stoning and other dark age punishments as penalties against women out of the mix.

Devout Muslims living in non-Muslim nations are allowed to use regular financial institutions due to a lack of Shariah-compliant alternatives under the Shariah doctrine of extreme necessity. However, once Shariah banks, for instance, exist in your locale, one is religiously obligated to utilize them exclusively.

Shariah Sovereign Wealth Funds are now pumping hundreds of billions of dollars into the world investor community. One is entitled to speculate that it is only a matter of time until the Islamic advisers controlling these monies use them to destabilize Isreal and other Western democracies or impose distasteful stipulations upon companies in which they acquire a controlling interest.

True, faith-based investing is not limited to Muslims. Catholic, other Christian and, if one wants to be frank, the religion of Environmentalism maintain their own views and investing standards.Investors utilizing a belief system to chose an ETF, Fund or other investment has generally resulted in gains close to that of the S&P 500 since 2000.

If you wish to explore Sharia-compliant Funds, ETFs and the like, you have a world-wide space to investigate. Perhaps you may want to travel to the UK where iShares has the MSCI World Islamic/Sharia ETF (ISWD) and the Emerging Markets Islamic/Sharia ETF (ISEM) and several instruments sponsored by Deutsche Bank. Canada maintains several Funds through Alt Management, Ltd. such as the FrontierAlt Canada, World and Global Income Funds. In the U.S., Sharia-compliant Funds can be via the Halla Mutual Funds run by Azzad (www.azzad.net) of Falls Church, Va., the U.S Saturna Amana Funds (including the Amana Trust Growth Fund - AMAGX),amongst others.

ETFs and Funds that cater to Muslim beliefs are still a small part of the investing world, but the potential growth can be nothing short of spectacular. One hopes that these investments have profit and not geo-political interests as the centerpiece of their existence.

June 23, 2009: Neural Fair Value Portfolio for Investment Ideas

Amidst the commentary, sometimes investors just need a list of ideas to contemplate. The Standard and Poors' Neural Fair Value Portfolio, updated regularly, provides for the investor a list of their top 25 companies that are considered to have superior price appreciation potential. The Neural roster has generally outperformed the S&P500Index by a significant margin.

Naturally, this list is for your use to begin inquiry into whether one or more of these recommendations will be suitable for your portfolio. Without elaboration, here it is:

Accenture, Ltd. (ACN)
ADC Telecommunications (ADCT)
Allergan, Inc. (AGN)
Immucor, Inc. (BLUD)
BMC Software, Inc. (BMC)
Check Point Software Technologies, Inc. (CHKP)
Capella Education (CPLA)
General Dynamics (GD)
Hanesbrands (HBI)
Herbalife, Ltd. (HLF)
International Business Machines Corp. (IBM)
Lockheed Martin Corp. (LMT)
Macy's, Inc. (M)
NetApp, Inc. (NTAP)
Occidental Petroleum Corp. (OXY)
Petsmart, Inc. (PETM)
Polycam, Inc. (PLCM)
QLogic Corp (QLGC)
Symantec Corp. (SYMC)
Tidewater, Inc. (TDW)
Integrys Energy Group, Inc. (TEG)
Hanover Insurance, Inc. (THG)
Tempur Pedic International, Inc. (TPX)
Tyco International, Ltd. (TYC)

None of these are presently in my portfolios.

June 21, 2009: A Portfolio For You, Not Your Financial Planner

As many of you, I have been observing the writings of resume-rich bloggers gaming the Obama economy, new ETFs, gurus-on-call, talking heads (not be be confused with gurus) and listening to the media watchdogs, whether they be in the tank for the present political leaders or not.

Of particular concern to me is the utter lack of commentary (or strategies) to invest holistically. Everyone seems to be focusing on stocks, bonds and/or their cumulative funds and are missing or intentionally ignoring geo-political and taxation realities that the investor must take into account to navigate portfolio currents using the maxim,"it is not what you earn, it is what you keep" as the guiding light of any investment strategy.

Perhaps many are writing more for their audience and web stature.

First: Taxes.

If your financial planner does not include a legal and sound way to avoid taxes as an integral part of your portfolio, at all levels of government, look for someone else. Ditto for planners who will not venture away from paper investments.Most stick with tax "deferred" stances, which is a long term mistake, especially when tax rates rocket higher.

Frustrating for me are some who say that losing less is a victory. The glee from many who lost "only" x-amount of treasure! Pyrrhic, in my opinion. Or, that taxes are not a viable expense when figuring total return. We are taxed, as the Terminator stated when running as a Republican for Governor of California, 24/7. Local, State and Federal debt is going to be funded by taxation, likely coupled with inflated dollars. Your goal, and mine, should be to let others pay their fair share. Settled law states we are to pay the least amount of taxes legally owed.

Overlooked in tax strategy is the huge tax advantages owning and self-managing real estate. I prefer residential real estate. You have write-offs and phantom depreciation galore (which can be deferred until death via 1031 and similar property exchange programs, or simple refinancing). Both political parties are not about to hack away the benefits of owning property (your personal residence is not an investment as it produces no income, save a tax benefit). The real estate lobby rivals the public education and trial layer cartels within the Beltway.


Second: Portfolio

Real Estate: 35%. You must buy right and educate yourself on appropriate management. Now is a great time to launch yourself into this endeavor. My average returns since 1976 have been in handsome double digits each year after considering income plus write offs. No flipping for this buy and hold strategy. You are after total return ("what you keep")for the long haul. The tax advantages of real estate will allow you to go after some income and longer term capital gains regardless of future revenue enhancements courtesy of our political and judicial class. Thus,

World Money: 25%. I believe that most of us know that the United States is not the power it once was, and demographics tell us that it will grow sporadically weaker on the world stage as the welfare state encroaches upon the risk taking and hard work of our forefathers. The Fidelity Strategic Income Fund (FSICX) which is balanced between 31% corporate securities, 32% government agency and 29% securities based in foreign currency yielding 5.61% with $5b in assets priced at $9.75. Complimenting this gem of a fund would be anticipating the rise of inflation/devaluation of the currency that unfortunately appears to be in the cards for we Americans. IShares' Treasury Inflation Protected Securities (TIP) fills the bill here. Trading at $100.17with a current yield of 4.74%, this $13.2b ETF with a .20 expense ratio fits well with the aforementioned fund, or others of like consistency which you may prefer.

Commodities: 15%. A diversified basket of commodities fits with a world paying up for life's necessities and historical wealth preserving entities. I like PowerShares' Commodity Index Fund (DBC) because it does not grossly overweight any one commodity, such as fossil fuel. Trading at $23.20, earning a Morningstar 5 star rating for ETFs in class and possessing a respectable $2.9b in assets, DBC may well provide excellent capital gains without the manic gyrations of just one or a few commodities. If you must hedge towards fossil fuel, I believe Encana(ECA), the huge North American energy company focused in Canada is a worthwhile consideration. This excellently managed company that knows how to appropriately genuflect towards our environmentalist friends sports a 3.1% dividend and currently trades at a paltry price/earnings ratio of 5.6.

Emerging Markets: 15%. Remember when European investors profited billions from developing assets in the emerging United States back in the 1800's? I don't, but history tells us that money is best invested towards emerging societies that crave a better way of life. IShares' Emerging Markets ETF (EEM) trading at $31.75 with a yield of 2.15% and an index to love is a $29b asset play on the rest of the world meeting and eventually surpassing many developed nations of today. Key to their success will be the avoidance of nanny-state welfare and regulation that has stifled old Europe and threatens the United States.

Stock or Rock: 10%. Harry Browne was adamant that money was not only to protect and invest but also to enjoy. Pursuing a hobby, taking that great trip or donating to a favorite charity (remembering the old adage, "charity begins at home") should be within your grasp IF you avoid the stoic securities trap. Real estate business ventures may even allow you to write off a trip. If you prefer to follow investments, then add a domestic common stock fund to your portfolio. There are plenty of ETF's to consider. I like the IShares Preferred Stock Index Fund (PFF) trading at $31.99 and yielding 8.35%, the S&P 1500 Index ETF (ISI)trading at $41.51 and the S&P Small Cap 600 Value Index ETF trading at $47.50.

My portfolio submission may be torn to shreds by the purists, chartists and those Elliot Wave theorists who still thrive to perfect the science of alchemy. However, I suspect there are more than a few investors whom have successfully figured out real estate (not those who blame tenants,repairmen,Realtors,God,etc. for their failure in this area) and reason that the rest of the portfolio serves to enhance the geopolitical realities of investing. If I am incorrect in my assumptions, let me join just about everyone else writing now for the future.

June 14, 2009: Still on business.....

Business comes first. I have been in Chicago and now proceed to North Carolina and then to Florida on real estate business. Apologies to regular readers. I shall resume posting in a day or two - when I can gather my thougths for something significant to discuss.

What I can report is - the real estate business is fantastic.

June 10, 2009: The More Things Change.....

After a hectic week of surgery and business in between, I took time to prune overripe files. Just as I enjoy reading old financial publications to see the multitude of wrong, really wrong and Bozo the Clown wrong predictions from most experts, reviewing and pitching stock transaction slips from the 1990s was good for a few chuckles. A humbling experience it was, indeed.

Here are a few of my slips. Perhaps you will enjoy this trip down memory lane.

1998
Nippon Telephone and Telegraph @46
US-China Industrial Exchange @2.75

1997
Oxford Health @26.75
Grand Metropolitan @ 36.50
Ocwen Asset Investments @20.75
Newell @32.75
Hoechst @38.75
Easco @14.12
Pool Energy Services @23
Authentic Specialty Foods @14.50
Asia Pulp and Paper @12.50
Espirit Telecom @13
Yasuda Trust and Banking @22.25
Broughton Foods @16.25
Hungarian Telephone and Cable @8
Hurricane Hydrocarbons @7
Life USA Holdings @15.75
Legend Holdings @6.25
Syntel @11.62

A few. I have many more from that period back through the early 70s. Now in the dustbin of history, I think the cumulative effects were lessons learned. The above were some stinkers.Overall my record was profitable - without instant television access, talking heads and 24/7 market sources via the computer.

Am I a better investor today than yesterday? Probably, yes. One learns something new every day,as in other aspects of life.

June 6, 2009: Honoring A Family Hero on D-Day

My family history is not unique. Hero's abound within military families during the course of war. My 99 year old mother's brother was one of ours. He never spoke about the war, until near the end of his fruitful life in 1999. He unit's record, meticulously kept and still filed at an obscure base museum on the California Coast, tells a history of daily violence, courage and carnage. He landed in Normandy, fought through brutal battles in France, the Battle of the Bulge, the Rhineland Campaign and into Germany and Czechoslovakia as, beginning in July 1944, an integral part of the Third Army of General George Patton. His weapon, the M-12 155mm self-propelled gun, of which only 72 were built. They were the spear of every major advance by Patton and were assigned to many front line units because of their unique ability to destroy practically anything. They were called into close encounter dirty work because of their powerful and mobile firepower. The Unit's record, known as the 558th self propelled artillery battalion, was magnificent. They wreaked havoc on the Germans, but through the unit's citations by Generals within the Third Army and Patton himself, they saved a great many American and Allied force lives.

He returned to the states in August, 1945 fortunately diverted while on the way to Japan to fight in the Pacific Theatre when hostilities ceased. So,1st Sgt. Uncle George, a man who served humbly, given a battlefield promotion to Lieutenant and returned home to become a husband, father, grandfather and battalion leader in the Chicago Fire Department (and treat my children during their early years as a second grandfather), here's the tribute you richly deserve on the 65th anniversary of D-Day. You made a positive impact upon my family-greater than you ever knew.

June 4, 2009: Low PE Stocks With High Earnings Growth Rates

I am being very selective about purchasing common stock. In fact, my Speculative and to a lesser extent my Permanent Portfolio(s) consist of a higher percentage of bonds, preferred stocks and commodities,almost all via ETFs. Rental real estate has been advanced to a higher amount than ever in my holistic portfolio, as well as tax strategies to keep what I earn. Not one who is prone to panic with each day's news, I try to be well read from a variety of viewpoints, especially the Financial Times and Wall Street Journal, a few blogs and Bloomberg, for starters. I also subscribe to a few eclectic financial and economic publications that I may discuss in a future post.

I am concerned about inflation, creeping socialism, the geo-political status of world hot spots and the victim mentality that appears to be resonating from a form of class warfare not seen in the United States since the 1870s. That said, there is always a bull market somewhere and I have been toying with various stock screens to find gems for possible inclusion to my holdings.

The following stocks have current (and projected) earnings growth of at least 25% and a relatively low PE and PEG ratio. Perhaps you may wish to research them further to see if they are your cup of tea:

AGO Assured Guarantee (Insurance, Re-Insurance) trading recently at $14.00 with an EPS of 128%.

CAST Chinacast Education Corporation (Schools) trading recently at $5.50 with an EPS of 80%.

DENN Denny's (Restaurants) trading recently at $2.50 with an EPS of 67%.

MPAA Motorcar Parts of America (Auto and TRuck Parts) trading recently at $4.50 with an EPS of 59%.

LRN K12 (Schools) trading recently at $16.70 with an EPS of 58%.

HGRD Health Grades (Business Services) trading recently at $3.70 with an EPS of 47%.

CRTP China Ritar Power (Electric Inst. and Controls) trading recently at $2.00 with an EPS of 45%.

DCP DynCorp (Transportation) trading recently at $14.75 with an EPS of 42%.

EGMI Electronic Game Card (Casinos and Gaming) trading recently at $0.90 with an EPS of 40%.

CGA China Green Agriculture (Chemical Manufacturing) trading recently at $7.50 with an EPS of 36%.

HXM Homex Development (Real Estate Operations) trading recently trading at $26.70with an EPS of 27%.

Granted, all of these stocks are growing earnings after some weak fiscal 2008 results. Comps are interesting all over the investment spectrum in this market cycle. But they appear on the right track this year and beyond,and perhaps worth a look as a speculation within your portfolio.

June 3, 2009: Hitler, For A Sober Instruction

It is rare that a world-class monster is quoted. As we follow the events of President Obama's venture into Europe to acknowledge the events of World War 2, readers may be interested in a few quotes from Herr Hitler.

"If you tell a big enough lie and tell it frequently enough, it will be believed."

"Success is the sole earthly judge of right and wrong."

"The art of leadership...consists in consolidating the attention of the people against a single adversary and taking care that nothing will split up that attention."

"The broad masses of a population are more amenable to the appeal of rhetoric than to any other force."

"The day of individual happiness has passed."

"The leader of genius must have the ability to make different opponents appear as if they belonged to one category."

"Through clever and constant application of propaganda, people can be made to see paradise as hell, and also the other way round, to consider the most wretched sort of life as paradise."


And, two from his sidekick, Joseph Goebbels:

"It is the absolute right of the State to supervise the formation of public opinion."

"Think of the press as a great keyboard on which government can play."

June 2, 2009: Section 8 - Will This Be A Civil Rights Club Against Landlords?

Section 8 is a voluntary program providing qualifying individuals (family unit) with a voucher to rent real estate. I like the Section 8 program. It has made me a lot of money. Still. it can be a nuisance and many landlords want no part of it.

Moves are constantly in motion across the country to make acceptance of Section 8 tenants mandatory. Under the present administration in Washington, a national effort may be shortly in the works. They like to make things easy for voting constituencies, it seems.

The primary argument is that because the majority of Section 8 recipients are minorities, the refusal of Section 8 certificates is discriminatory. The rationale is that the same tenants would not be accepted without the certificates.

All other things equal, tenants might not be accepted simply because their income would not be sufficient to pay rent. Is the next legal claim to be that refusal to rent on the basis of amount of income constitutes discrimination?

The landlord not wanting to accept a Section 8 voucher can gain the upper hand as follows:

Section 8 requires certain property standards, often at the discretion of the Section 8 inspector. If the property does not meet these standards, you are not required to fix it so it conforms. Then, the property will be rejected for Section 8 and you can rent to a non-Section 8 tenant.

Keep rent above what Section 8 will pay.

Require a move-in date earlier than the local Housing Authority can get the paperwork together and send you the rent check.If you have specified in your printed requirements handed to rental applicants that they must be able to move in on the first of the month and that you be paid the entire amount due for rent and deposits then, that will go a long way toward eliminating Section 8 applicants. They can't move in, because they don't have the first and last months' rent plus the deposit.

Check rental application carefully for omissions and errors. If you find an error, reject it.

Look for mandatory Section 8 to be used as a way to solve the nation's urban housing challenges. If you don't like Section 8, you need to discourage and reject at the source. That said, for those of us who use Section 8 vouchers as a part of our rental portfolios, effective selection of tenants with a Section 8 voucher can be a beautiful thing.

May 27, 2009: Five Pack of Ex-US Treasury Bond Funds

Many investors are nervous about the state of the US dollar, probably for good reasons. For conservative investors that want to hedge a little against the greenback and want to minimize the spiked risk of stocks, the following five ETFs may be worth looking into:

iShares 1-3 Year International Treasury Bond Fund (ISHG). This $10m ETF generally corresponds to the S&P/Citigroup International Treasury Bond Index (ex-US). Trading at $102.22 and yielding 1.56%, the ETF trades at light volume (around 2000 shares) with a track record trading range of $92.84-102.87.

Barclays Capital SPDR International Treasury Bond (BWX). This $915m ETF corresponds to an index that tracks fixed-rate local currency sovereign debt of investment-grade countries (ex-US). Trading at $53.84 and yielding 2.71%, the ETF trades at solid volume (around 125,000 shares) with a 52-week trading range of $43.00-56.70.

iShares S&P/Citigroup International Treasury Bond Fund (IGOV). This $19m ETF corresponds to the S&P/Citigroup International Treasury Bond Index (ex-US). Trading at $99.84 and yielding 0.22%, this ETF trades at a light volume (around 4000 shares) with a track record trading range of $91.40-101.03.

Barclays Capital SPDR Sort Term International Treasury Bond Fund (BWZ). The $11m ETF corresponds to an index that measures the 1-3 year fixed rate investment grade debt issued by foreign governments of developed countries. Trading at $35.00, this ETF trades at a light volume (around 2500 shares) with a trading range of $31.25-35.19.

Barclays Capital SPDR DB International Income Fund (WIP). This $255m ETF corresponds to the DB Global Government (ex-US) Inflation-linked Bond Capped Index. Trading at $50.97 and yielding a respectable 4.48%, this ETF trades at a solid volume (around 85000 shares) with a trading range of $42.34-62.78.

This is a basic roster for interested investors to research on your own. I own BWX and WIP at present. BWX is in my Permanent Portfolio and WIP is in my Speculative Portfolio.

Use this post as a first step towards diversifying away from the US dollar conservatively. My advice would be to keep maturities short,and research inflation-protected products ex-US.

As with any investment in the current environment, remember Investment Rule #1:
Nothing ever turns our exactly as planned.

May 23,2009: Memorial Day. Thanks, Kids!

Lt. Commander, Major and Captain. You certainly have made the family proud.

May 22, 2009: Alternative Investment $$ - Multi-Family Housing

As mentioned in my writings on numerous occasions, a holistic investment portfolio is best. This portfolio should include the ownership and active management of real estate.

For the first quarter of 2009, multi-family sales were so slow as to be almost nonexistent in most areas of the country. Roughly $135b worth of commercial
property changed hands in 2008 - 68% less than 2007 in dollar value. The decrease, which was even more pronounced in the first quarter of 2009 reflects far fewer deals and lower selling prices.

Generally, sellers are waiting and hoping they can weather the storm. Buyers are waiting for rents to drop, sellers to throw in the towel and prices to fall even further. This is the perfect storm for the investor to grab a modest multi-unit property, quite possibly through a bank that does not want to publicly foreclose but needs to dispense with a non-performing asset.

Large apartment complexes are generally the domain of institutional investors of large real estate companies such as Avalon Bay and are not really the focus of this post. The sweet spot is the $500g-$5m properties generally owned by a local developer/entrepreneur or consortium's of doctors/lawyers, etc. that may have not been effective property managers, milking the property for rents and not maintaining the premises to continue success. These properties may be in a negative cash flow position with deferred maintenance, having insufficient writeoffs or poor financing which are each, and collectively, reasons to sell.

It is my view, and the view of other professionals in the field that are comfortable in this sector of the real estate market, that deals in the above price range are occurring because properties of this scope and price are viable for individual investors or small investment groups that can pay cash or obtain a loan from a local bank that owns the financing and/or has a good feel for the market. Get to know your local or regional bank's loan officer and real estate portfolio department intimately.

With financing tight, the investor may look for transactions that qualify for specialized loans. Buyers of certain multifamily properties could qualify for funds through the HUD 221(d) program. Business owners may be eligible for a Small Business Administration Loan, which can require as little as 10% down (not suitable for residential rentals, but certainly appropriate for retail, warehouses and office properties).

The individual investor should be aware that banks are a great source for properties close to default (foreclosure) status. Banks do not want bad loans on their books. With short sale regulations and procedures being both standardized and simplified by recent legislation, purchasing these properties is easier and less stressful for both buyer and seller.

Make no mistake, there are many thousands of distressed multi-family properties out there. Sometime, perhaps this summer when the next wave of foreclosures hit home (literally), owners who have overleveraged are going to say, "Let's just get rid of this property", and the market is going to reflect in later months, after the downdraft, equilibrium. Myself and others have found tremendous bargains in real estate for years (There is always a bull market somewhere? I digress.). The time for shedding the notion that stocks and bonds are all you need for investment purposes is at hand through the purchase of income producing real estate at the right price and on the right terms.

Another way to sweeten a deal's bottom line is to proceed to obtain tax credits for providing low-income housing to a percentage of tenants. Although federal funding may be hard to come by, state and private tax credits can be solicited. Added to rents, depreciation and other tax benefits, multi-family real estate speaks in no uncertain terms towards the old adage, "it's not what you earn - it's what you keep."

If you are a novice investor, please seek competent advice from a seasoned investor. My experience is that successful investors in modest multi-family properties are usually more than willing to share their successes and failures with you. I am always learning something about real estate investment (often times from my rent-subsidized tenants - they have their world fine tuned). If you are a good observer, good listener and willing to take your investment portfolio, in part, into your own hands, I bet you will achieve not only excellent profits, but a lifelong interest in not only the brick and mortar part of real restate, but in human nature as well.

Real estate can, and should be, be an investment well lived.

May 21, 2009: First-Time Homebuyer Tax Credit (The Essentials)

No need to go to a seminar or be subject to a Realtor sales pitch. Here is all you need to know about the First-Time Homebuyer Tax Credit, current as of May 21, 2009.

AMOUNT OF CREDIT: 10% of purchase price, up to a maximum of $8000.00.

DATES OF ELIGIBILITY: Through December 1st, 2009.

FIRST-TIME HOMEBUYER REQUIREMENT: Buyers may NOT have owned a principal residence in the last three years preceding the purchase.

INCOME LIMITS: Full credit available to individuals with an adjusted gross income (AGI) of no more than $75,000.00 ($150,000.00 on joint return). Credit phases out for AGIs up to $20,000 above those caps.

ELIGIBLE PROPERTY TYPES: Any single family residence that will be used as a primary residence, including condos, co-ops and townhouses.

REPAYMENT: None.

RECAPTURE: If the home is sold within three years of purchase, the entire credit is recaptured upon sale.


I have had many inquiries on this topic. The record should now be straight!

May 18, 2009: Juicing Your Income With Select Bonds

I do not fault any investor who does not wish to speculate with individual bonds. Mutual funds and ETFs give the investor diversity. With ETFs, the cost to own the investment portfolio is quite modest.

Still, there is a risk of going too long with blended bond funds, and short duration funds are producing a miserly return. In inflation rears its ugly head (a distinct possibility), principal will be sacrificed.

If you wish to take the plunge, I recommend using your on-line brokerage service to screen bonds maturing in four years or less with an acceptable rating risk to beef up your income and to collect your full principal upon maturity. Obviously, bonds with close maturity dates will largely negate the effects of long term inflation.

Here are a few examples of bonds that I have looked at over the weekend:

Citigroup 172967DH1 rated A3/A 5.125% maturing 2-11-11 priced at $99 to yield 5.735%.

Alcoa 013817AD3 rated Baa3/BBB- 6.5% maturing 6-1-11 priced at $100.80 to yield 6.069%.

Steelease 858155AC8 rated Baa3/BBB 6.5% maturing 8-15-11 priced at $99.75 to yield 6.62%.

Genworth 37247XAE2 rated A2/A 5.375% maturing 9-15-11 priced at $90.50 to yield 10.067%.

Health Care Properties 421915EF2 5.95% rated Baa3/BBB maturing 9-15-11 priced at $98.75 to yield 6.535%.

Citicorp 173034GV5 7.25% rated Baa1/A- maturing 10-15-11 priced at $98.88 to yield 7.77%.

XLCapital 983730AA0 6.5% rated Baa2/BBB+ maturing 1-15-12 priced at $96. to yield 8.204%.

Marriott 571903AG3 4.625% rated Baa2/BBB- maturing 6-15-12 priced at $96.75 to yield 5.78%.

Bank of America 060505AR5 4.875% rated A2/A maturing 9-15-12 priced at $98.87 to yield 5.25%.

I prefer bonds trading at a modest discount so a capital gain may also be acquired at maturity. Short term maturities are a must to protect against inflation. I am not concerned about deflation - the government printng presses are taking that scenario off the table.

If you prefer a mutual fund, I have recommended the Fidelity Strategic Income Fund (FSICX) on several occasions. Up nicely this year, it presently is priced at $9.42 to yield 5.75%. This $4.5b fund invests approximately 55% in US and 35% in foreign bonds,investment grade to speculative in quality. It is carrying about 10% in cash equivalents.

The universe of individual foreign corporate bonds not denominated in dollars is appealing, and will be addressed in a future post.

May 11, 2009: Beware The Long Term Bear Market

Financial Times pundit John Authers presented a logical case for investors to be very careful assuming the worst is over for the markets. Four reasons make sense to tread carefully into a long term bullish stance. Beware:

First, someone will have to pay for the stimulus that has been administered. That means inflation, higher interest rates or higher taxes. None would be good for stocks.

Second, companies still have to raise a lot of capital. That will dilute the stock market.

Third, measures of value that have worked as market timing indicators - such as cyclically adjusted price/earnings ratios - show stocks did not get anything like as cheap at the bottom in March as they did at the bottom of the bear markets of the twentieth century.

Fourth, there are demographic issues. The developed world is ageing. This will put a greater drag on public expenditures and lead to sales of stocks as the baby-boom generation retires and cashes in what is left of its savings.

According to Auther, these are overwhelming arguments that the secular bear market is not over.

What will derail the present rally? I agree with Auther that once bond yields go over a certain level - say, 6% or so, they may become a better investment bet than common stock. It is my belief that the enormous debt accumulated (and growing) by the United States alone may well make the Carter years of double digit interest and yield of 1976-80 look meek in comparison.

In fact, it might be appropriate to bring back one item from the Reagan era - the "Misery Index". This was the addition of unemployment plus inflation plus interest rates. Some just used unemployment plus inflation. Either way, if your bet is that the Obama train will derail, as did Carter's,approximately three years into his presidency, buying iShares Treasury Inflation Protected Securities (TIPS), short term bonds and commodities make sense.

Climate Change (the new "global warming" mantra) may have to take a back seat to just making ends meet within the family budget if the Misery Index becomes pronounced. Legal tax avoidance to sidestep higher taxes, including a wealth tax in addition to an income tax, will likely become Rule #1 for financial planning.

Hopefully, the gloom and doom above will somehow be avoided, and all will be the right with the world. Seasoned investors know that precious few assumptions turn out as expected. Thus, consideration of both positive, neutral and negative investment scenarios is prudent.

May 7, 2009: CSFB Monthly Real Estate Survey

Credit Suisse First Boston publishes what I consider to the the best monthly survey on the nations housing market. This survey is done through the eyes of on-site consultants that know the area where they work. CSFB then assimilates their own proprietary data to then arrive at a general and region specific report.

For the time period ending April 30th, here are general comments from this exhaustive document:

Buyers respond to low mortgage rates and prices, looking for foreclosures. Nationwide, there was increased buyer traffic in April,especially in beaten-down markets where buyers went searching for foreclosures and other bargains. The best markets were those with high levels of foreclosures (Ft. Meyers, Las Vegas, Los Angeles,Orlando, Phoenix and in Inland Empire). However, these are some of the weakest markets for new home sales. Dallas and Atlanta were the two markets with the worst traffic during the month.

Lower mortgage rates and the first-time buyer tax credit generated significant activity at the low end of the housing market.

Home prices remain under pressure with some beaten-down markets showing movement towards stability. Washington and the Inland Empire (CA) posted the highest prices. Elsewhere, new homes are 30% more costly than comparable foreclosed homes, thus new home sales are lousy.

Builders continue to mention their concern about converting contracts into closings due to appraisals that often come in below the purchase price as appraisers use extreme caution - using foreclosures as comps. In addition, foreclosures and short sales remain the toughest competition.

In short, the landscape for real estate favors investor pools snapping up homes and lots at bargain prices. The balance between new and existing real estate sales remains in a state of flux - regardless of what politicians are doing - and the light at the end of the tunnel may still be an oncoming train.

If you are an investor, these are the best of times if you buy right and buy smart.

May 5, 2009: Encana Lookin' Good

Encana is a large North American onshore producer of natural gas and crude oil, with major operations in Alberta, Canada (oil sands) and the United States. ECA's other operations include the transportation and marketing of crude oil, natural gas and natural gas liquids (NGLs), as well as the refining of crude oil and the marketing of petroleum by-products. ECA was the largest producer of natural gas in North America last year.

While divesting oversea operations, Encana is still adding to assets through both acquisition of high-grade fossil fuel property and smart extraction techniques - all in the relative safety of North America. In short, the management team in place within Encana is using, producing and expanding assets better than almost any other company within their sector. A Chesapeake Energy (CHK) it is not - and that is a good thing.

Trading at $50.99/share, ECA has popped up the past few weeks, but I believe it is a great long term play on oil and natural gas. I would use any pullback into the mid-40's as a solid entry point.

Sporting a 3.12% yield, this $38.5b US company is trading at a PE of only 5.8. Encana deserves strong consideration as a stand-alone stock representing the fossil fuel sector.

While I have been preaching ETFs, preferred stocks and inflation-protected securities over recent months, ECA has been traded in and out of my Speculative Portfolio over the past few years. It has made me good money. Recently, I have purchased it (cost basis around $42.) with the intention of holding ECA for the long term.

The market, despite the record run up the past two months is still froth with uncertainty and potential setbacks. Holding a few quality holdings like Encana in addition to your safety net is a worthwhile consideration.

April 30, 2009: Sell Ford, Because of Ford

I am hard pressed to find a company chairman who is a progressive socialist whose company stock warrants a bet. Bill Ford, the Chairman of Ford (F) appears to be genuflecting towards Big Government and the left fringe by calling for a hefty tax on gasoline to push Americans into what the government thinks they should own - and Big Government knows best, according to Bill Ford.

Mr. Ford stated this week that taxes to push up the cost of $2.00 gasoline by 70% were needed to change Americans' car buying habits and usher in a new generation of fuel efficient vehicles.

"We clearly need (the tax)- whether it's a gasoline tax or cap and trade, it's something we do need because with gasoline at $2.00 (a gallon),customer behavior is not driving the direction that the government would like", he said. Asked how high the gasoline price should be set, Ford stated:"I don't know what the magic number is, somewhere around $3.50. We've seen behavior go back now that it's around $2.00. We don't want that, we don't think society wants that. We think price certainly is a better way to go." Ford is a declared environmentalist.

Perhaps like his great-grandfather, who was a raging anti-Semite and had profitable dealings with Hitler, Bill Ford carries a diabolical gene that permits profit while "gassing" others.

Of course, there may be a perfectly rationale reason why Bill Ford wants to force prices higher. Ford and all other American auto makers have never made worthwhile profits on small, cheap cars. Perhaps Ford wants to force the sale of cheaply made cars at a premium price to justify his investment in green technology. This would be a good thing for the Ford Motor Company.

My belief is that Ford is,in reality, sticking it to the less than blue-blood class by driving down the resale of their present vehicle, raising the cost of business across the board and thus diminishing the standard of consumption and living standards of those making modest wages. In other words, Ford wins selling new too-small and "coffin" ready cars at a higher price.The blue collar customer who has been Ford's lifeblood since the early 20th century loses, and loses big.

Bill Ford's mindset is narrow, unsustainable and not in the best interest of the Ford Motor Company. He should resign.His grandfather's company needs to hold true towards providing solid transport from trucks to autos through producing products that people want to buy - not what Big Government thinks they should buy through economic coercion. If green cars are a part of the mix to be sold at a good profit margin, fine.

Shame on you, Bill Ford, and shame on those who prefer socialism and high taxation as a way to dictate philosophy. It has never worked, thus the Ford Motor Company will ultimately not work. Sell the stock, or gift it to the Sierra Club.

F stock has made a nice run up recently and will likely avoid the fate of GM and Chrysler. I'll call it a dead cat bounce, with the company not being able to compete with others down the road unless a new Chairman is of a different ilk.

April 26, 2009: An (almost) Final Visit to Chicagoland

The old saying goes, "you can never go home". There is some truth to it, especially as maturity and careers expand. I took time out to drive alone back to the old neighborhoods of my youth and forefather's neighborhoods the past three days. Living in the Berwyn-Cicero enclave (those that know Chicago understand my choice of term) gave rise to several life-long relationships which I deeply cherish. Meeting these few friends and breaking bread over a great meal of pork, dumplings and sauerkraut with liver dumpling soup,Czech desert and coffee included (that's a Bohemian meal!)starting just where we left off a long time ago was priceless. Eating the ethnic eastern European foods of my culture at the Riverside Restaurant, Bohemian Crystal and a family favorite since the 1930s, Russells Bar-B-Que in Elmwood Park, then shopping at Veseckys Czech bakery on Cermak Road, Crawford Sausage Company on Pulaski, Josie's Czech Dumpling Factory (best fruit dumplings in the world) on Pershing and Bobaks, a more recent addition for great homemade sausage on Archer Ave., reinforced the notion that food tastes of youth evoke strong memories. Many other establishments have had their day and closed, but these and a few other culinary remnants remain after many decades or longer of existence. Their days, sadly, are numbered. Si?

I also performed a family ritual and visited the graves of close relatives, especially my father's. As my parents came from large families, we had a very close, clan-like family relationship - nothing like that which presently exists as a rule in our society. It was interesting to see that Bohemian National Cemetery (a national historical landmark - relative's pictures are on their tombstones as per custom of the culture and period)- now has a special Chicago Cub Section where fans can actually be buried facing a mock ivy wall replica of Wrigley Field.

A high point was being able to thank my 92-year old Band Director for modeling me for success and for many other things which will remain private. He is frail and we spoke by phone. He is in a nursing home at this time but his memory was sharp as a hawk. I expected nothing less. And being able slowly drive by the family homestead and other important locations from my youth in the 1950s and 60s made my adventure complete.

Many memories and duties to perform in three short days to an area where I may, or may not, return.

I think that many readers would like very much to return to their roots,on personal terms and a personal schedule. It reminds one of a past much different from today, and an appreciation for the trials and tribulations of growing into adulthood. I, for one, wonder how in the hell I actually managed to do it.

April 22, 2009: Earth Day, An Interesting Perspective

As readers know, I am an avid reader of contrary views that, while out of favor with the politically correct crowd now, may be in retrospect an intellectually valid position that may be honored as insightful and true later.

One such viewpoint is that of Harry Browne on Saving The Environment From Political Destruction. Shortly before his death a few years ago, Harry penned a lenghty piece that shattered many environmental stands and pinpointed criticism on many facets of this topic. Although you (and I) may disagree with him, all points of view should be available for consumption and open debate. You may find his complete work an interesting read.

As follows is a brief excerpt:

"The supposed struggle to save the planet is really a struggle for power - power over your life. So politicians and environmental extremists never wait for their claims to be proven before demanding to turn your life upside down.

They tell us we can't afford to wait for proof; we must do something right now - even if no one is sure what the problem is, even if no one knows whether the changes they demand really will help, and even if a single solution might be discovered tomorrow that wouldn't require upsetting everyone's life.

WHY THE ENVIRONMENT IS SO IMPORTANT TO POLITICIANS

"Everything you do, every move you make, each step, each breath affects the environment in some way.

That's why so many politicians and environmentalists (reformers) are enthusiastic about saving the environment. Virtually the entire crusade is about you.

Conserving resources means taking them from you and putting them under political control.

Ending global warming means forcing you to pay higher taxes for gas, oil and electricity.

Recycling means vast power for those who will decide what you must recycle and what you'll be allowed to throw away.

Protecting endangered species means the power to seize you land.

Controlling pollution means controlling you.

For the politicians, the environment is the perfect issue. They can use it to gain more power while appealing to your desire for health, to your appreciation for the natural beauty around you, and to your concern for your children and future generations.

No problems will be solved by the people who gave us the US Postal Service and the Savings and Loan Crisis (note: if Mr. Browne was alive today, he would have a much longer list). But a great deal will be improved by getting the (environmental issues) out of the hands of politicians, reducing the federal government to its Constitutional limits, telling the politicians to stop playing junior scientist and letting motivated individuals (through the free market and in their self-interest) deal with the problems society discovers."

Harry Browne's complete piece can be found at www.harrybrowne.org/GLO/Environment.htm

Now, time to drink a nice tall glass of organic tea.