March 1, 2009: Safety First For Your Financial Future

I have be visiting some old financial and political publications from the 1930s through the early 1980s. One author, the late Libertarian and financial guru to many in the 1960s-80s,Harry Browne, was an eloquent, substantially self-educated man. With interests as varied as politics, radio host, opera, gourmet cooking, Swiss banks, politics and writing on all things financial, he could be described as a Renaissance man. Yet, he was generally ignored by many in the mainstream press and financial circles as not worthy of attention,let alone respect.

The following is a representative list of rules for financial safety written decades ago by Mr. Browne but still worthy of comment during the massive change occurring in our country.

Here they are:

Your career provides your wealth. You will most likely make far more money from your business or profession than from your investments. Don't take risks with complicated
schemes in the of multiplying your capital quickly. Your investment plan should be aimed at preserving capital from investment loss, government intervention or mismanagement.

Don't assume you can replace your wealth. Markets and opportunities change, laws change. Conditions today may be considerably different from what they were when you built the estate you have now.

Recognize the difference between investing and speculating. Money that is precious to you shouldn't be risked on a bet that you can outperform other investors.

No one can predict the future. Events never unfold as we were so sure they would.

No one can move you in and out of investments consistently with precise and profitable timing.

No trading system will work as well in the future as it did in the past. Somehow, "infallible" systems never come through when your money is on the line.

Don't use leverage. When someone goes completely broke, it's almost always because they used borrowed money.

Don't let anyone make your decisions. Many people lost their fortunes because they gave someone (a financial advisor) the authority to make their decisions and handle their money. If you put money into an account for someone else to manage, it must be money you can afford to lose.

Don't ever do anything you don't understand. Don't undertake any investment, speculation or investment program that you don't understand. It's better to leave you money in Treasury bills that to take chances with your estate.

Don't depend upon any one investment, institution or person for your safety. No one investment is good all the time. We live in an uncertain world and surprises are the norm. You must not risk the chance that a single surprise will wipe out a large part of your holdings.

Create a bulletproof portfolio for protection. For the money you need to take care of you for the rest of your life, set up a simple, balanced diversified portfolio. You can achieve a great deal of diversity with a simple portfolio.

Speculate only with money you can afford to lose.

Keep some assets outside the country which you live. Don't allow everything you own to be where your government can touch it.

Beware of tax avoidance schemes. Huge losses can come from from investments that provided special tax advantages but did not make economic sense, and from tax shelters that were disallowed by the IRS - incurring penalties and interest on top of the liabilities.

Enjoy yourself with a budget for pleasure. Your wealth is of no value if you can't enjoy it.

Whenever you are in doubt about a course of action, it is always better to err on the side of safety. If you pass up an opportunity to increase your net worth, another one will be along soon enough. But if you lose you life savings just once, you might never get a chance to replace it.


Excerpted from Browne's writings in the 1970s, they appear timeless today.

February 25, 2009: Buy Real Estate ETFs Now, NAR Loves The New Legislation

No, this is not a hoax. I am calling this the beginning of an opportunity to become a player in real estate ETFs at this time for speculative funds. Although economies here and elsewhere have a ways to go before realizing that the light at the end of the tunnel is not an oncoming train, today, beginning with BB in front of the Senante Finance Committee and concluding with BHO in front of everyone, some sense of purpose emanating from inside the beltway has arrived. I like it. It would have been nice to have a sighting of the Treasury Secretary, but he is still mulling over his next appearance on the Hill hoping not to reprise a woeful premiere performance.

Although I am in Rick Santelli's camp regarding bailouts of the liar loans and speculators, as an investor - and active real estate participant - reality must be acknowledged that hundreds of billions will prevent further erosion of the real estate sector, sans commercial which will remain a mess. And short of direct investment as a landlord, ETFs are the way to game the surge.

Here are three picks that focus on domestic home builders with a financing arm:

ITB - iShares Dow Jones Home Construction ETF $7.99/sh, .48/fee, +8.27% 2/24

PKB - PowerShares' Dynamic Building/Construction ETF $8.69/sh, .63%/fee, +4.45% 2/24

XHB - SPDR S&P Homebuilders ETF $9.18/sh, .35%/fee, +7.27% 2/24

Yesterday, a bulletin was e-mailed to those on the National Association of Realtors' large producer roster and stated the following:

"REALTORS ARE THE VICTORS IN HOUSING STIMULUS PACKAGE

For nearly four months, NAR has been working to deliver a comprehensive plan to stabilize the housing market.

Last week, NAR saw countless hours of hard work pay off when the federal government implemented NAR's recommendations to stimulate housing with the signing of the American Recovery and Reinvestment Act of 2009.

This bold and unprecedented move to help housing did not happen by chance. Just a few months ago, the auto industry had Congress' ear. Yet, thanks to countless meetings, letters, phone calls and public pressure REALTORS placed on lawmakers in Washington, D.C., housing emerged as the top priority in the new Administration and in Congress. While some of the items in the Act are controversial and are being debated, our top priorities were addressed.

Thanks to our hard work, America's homebuyers and homeowners will soon have:

1. Lower interest rates for home mortgages.
2. A greater ability to get financing through FHA, Fannie Mae and Freddie Mac in high-cost areas.
3. A true tax credit incentive to buy a home NOW, and
4. Foreclosure mitigation and short-sale standards.

As a direct result of NARs advocacy, we anticipate REALTORS will see an increase in house sales this summer. NAR also continues to make significant progress on our efforts to unclog the pipeline for foreclosures and to address administrative problems with short sales."

I am not predicting a straight upward move in the housing sector. However, the unbridled glee of the NAR coupled with even more monies coming from TARP 2 towards the housing industry in the form of mortgage subsidies and functioning financial money centers bodes well for the investor willing to extrapolate today's bargain basement home builder into potentially double or triple digit gains over the intermediate term.

Pressed by some readers to name my favorite form of real estate for now and the future, I still reply: Buy well located property at a good price and become a long term landlord. However, these ETFs will work for the more passive investor within the real estate sector.

February 19, 2009: Rick Santelli, The Best Five Minutes In CNBC History

Finally, someone speaks truth to ego and the far left. I highly recommend you go to the CNBC Website and view Rick Santelli's Chicago Tea Party video.

It is becoming more apparent each day of the new administration those who work hard, save and are responsible citizens are getting hosed by the practice of class warfare. As I mentioned in a previous post, I know Chinago politics as I do every square inch of my body.

Ladies and Gentlemen, the politics of vote buying,legal extortion extortion and the re-distribution of wealth to the lazy and ill-educated has begun in earnest. And, we haven't even touched upon a deteriorating foreign policy.

Thanks to CNBC's Rick Santelli and the workers in the pits that deal in commodities to finally express it. We can all be grateful for the lesson.

February 13, 2009: Emerging Markets Infrastructure May Emerge

With real gloom and doom hanging over many of the world economies, governments are poised to throw funds into projects that may revitalize growth. One way that is popular is make-work jobs within infrastructure. Although one can rightfully contest the value and immediacy of infrastructure ventures to stimulate out of a recession, infrastructure itself will be a large, ongoing gift that keeps giving to investors well beyond the current malaise into the post-recession period.

An interesting way to invest in the sector is through PowerShares' Emerging Markets Infrastructure Portfolio ETF (PXR). Launched in the fall of 2008, PXR is trading around $22.00, $3.00 less than its opening price, which is not bad considering the market from then until now.Although the expense ratio is rich for an ETF,0.75%,the portfolio of sixty-one holdings appears to bode well for short term portfolio asset parking and may well provide significant long term capital growth.

Included in the portfolio are industries that include, but not limited to as per the Prospectus, construction and engineering, construction machinery, diversified metals and mining, factory electrical equipment, industrial machinery and steel.

Top country allocation are as follows:

China 16.7%
Indonesia 10.11%
South Africa 8.58%
United States 8.35%
Brazil 7.54%
Malaysia 6.47%
France 5.71%
Russia 5.21%
Taiwan 4.60%
Mexico 4.21%

Market cap and style allocation are:

Large-cap growth 39.84%
Large-cap value 15.51%
Mid-cap growth 17.70%
Mid-cap value 15.53%
Small-cap growth 3.91%
Small-cap value 2.27%
other 5.22%

The largest company holdings include:

ABB Ltd.
United Tractor
China Communications Construction Co. Ltd.
Carso Infrastructure Construction S.A. de C.V.
Compania Vale do Rio Doce
Indocement Tunggal Prakarsa
Jiangxi Copper Co. Ltd.
Caterpiller
Aveng Ltd.
Gamuda Bhd

Although this ETF has a small asset base (around $9m), PXR may be an interesting addition as the investor looks beyond the financial show trials, our domestic political stimulus legislation and the doom and gloom media to construct a solid portfolio highlighting sectors that are not likely to melt away, regardless of the perils ahead.

February 10, 2009: Non-conforming Portfolio Tactics For Uncharted Waters

As Margaret Thatcher stated during her reign, "Consensus is the abdication of leadership." Throughout the civilized world, loosely defined as such, a curtain of fear has descended upon many aspects of our lives. Certainly, our lonely planet has faced much worse, but countless media headlines delivered in all formats and the grandstanding of politicians of all stripes have made the present era of instant communications exacerbate worldwide stress.

Thinking outside the box, investors with greenbacks to risk could amuse themselves with a few ETFs that could provide interesting gains through both contrary and deductive reasoning.

I had been toying with putting in place a simple Bizzaro World portfolio. Actually, I have already begun and have named it as such. This is in addition to my Permanent and Speculative Portfolios, both which have undergone a significant makeover since early autumn of 2007. Having an investment climate where almost nothing works, my largest portfolio adjustments since beginning stock and bond adventures around 1971 were both necessary and prudent. With multiple income streams from diverse sources and other asset shields in place, the Bizarro World Portfolio may actually have merit as a super-speculative vehicle. A Bizzaro Portfolio deserves a bizzaro rationale, as follows:

1. What inmates are running the asylum?

With the rest of the world appearing to be waiting for the United States to bail them out of the recession, Russia behaving badly towards Obama, European leaders bickering at every turn, Africa in chaos, South America being the usual lagging question mark, China being China and fires down under, it is observed at this time that the two most important leaders on mother earth at the moment are quasi-socialist Democratic politicians Nancy Pelosi and Harry Reid. They own Obama, based upon their hand-crafted legislation affectionately entitled a stimulus bill. I was going to add our Treasury Secretary as a player, but after Timothy's unconvincing performance in front of the Senate Finance Committee, he does not rate.

So, let the printing presses role! My choice for honoring Ms. Pelosi and Mr. Reid are the iShares' Inflation Protected Government Securities (TIP), ProShares' Double UltraShort 20+ Year US Treasuries (TBT) and the SPDR International Government Inflation Protected Bond ETF (WIP).

2. Will a politician use fear to instill a mandate to legislate and stifle opposition? Will exaggeration occur?

If the answer is yes, my favorite during a route of the market is the ProShares' UltraShort S&P 500 ETF (SSO). When the market tanks for the day (at least 3%), buy this ETF about five minutes before the market closes with a trailing stop 4% lower than your purchase price. Plan on selling it the following day during a significant pop. What we only have to fear is fear, itself. Using fear (or uncertainty) as a political weapon gyrates the markets during or shortly after the time of attack. SSO may be your short duration answer to a short duration political ploy.

3. Can corporate earnings be trusted? Can CEOs be trusted? Can anything in this market be trusted?

If not, forget common stock and head for bonds or preferred stock where you have at least a chance of earning a few bucks and perhaps a little capital appreciation. Although many investors have flocked to treasury bills and the like, I think corporates are a better Bizzaro Portfolio pick. IShares' Investment Grade Corporate Bond ETF (LQD), iShares' Preferred Stock Index Fund ETF (PFF) if you believe financials may actually have value, and PowerShares' High Yield Corporate Bond ETF (PHB) fit the bill.

4. During this well-promoted "worst recession since the Great Depression", can anyone seriously be considering carbon credits, green EFFs, commodities and automobile companies? Are these luxury items as individuals fear for their jobs or worse?

There is a sucker born every minute. Even the Bizzaro Portfolio takes a pass on these, except for iShares' Silver Trust ETF (SLV) or iShares' Gold Trust (IAU). Infrastructure was on my list, but went away after reviewing the muddled mess of the draft stimulus bill.


Some, or maybe none of the above, will work over the long haul. We may see a whiff of deflation, but the money supply and steep index variations provide a reason for unusual portfolio choices. Mixing the above securities in a Bizzaro stew of sorts, adding your own seasonings and zest, may become a tasty treat on your investment menu.

February 8, 2009: In Colorado Springs

I am taking a few days to visit son, USAF Maj. Tom, Daughter-in-Law USAF Maj. Jamie and two wonderful grandchildren ages two and two months. This is a real treat, more so since I intentionally left all business, including the laptop. at home to gather some dust.

We are having a grand time visiting and revisiting spots I remember from vacations with my parents from my childhood residence in suburban Chicago. The weather has been excellent for winter. My only regret is not getting over to Cripple Creek to hit the blackjack table. Later, perhaps.


This is probably as good a time as any to be silent about investing. Until we see the stimulus package and observe world economic conditions thereafter, being in short term bonds and high grade corporates are obvious choices. Sure, speculators are doing well on individual issues and eclectic ETFs, but I suspect. like those who go to Vegas, we hear about the very few who get lucky and not the exponential number of those too smart by half losing their shirts.

Stay smart, stay calm and stay conservative until things begin to sort out.

I'll be sorted out and back with some thoughts in a couple of days.

February 3, 2009: Leadership Personified - Dwight Eisenhower

Is there a dearth of solid leadership in our country at present? Those under the age of fifty have not had the privelidge of living in a time of true statesmanship - the willingness to work as a political leader in a non partisan fashion with the life experience of a military backround in the world's most brutal war, coupled with coping with an extended economic depression, communist expansionism and social ills such as segregation and intolerance on the home front (much of it unrecognized at the time).

Our country, by some measure in perilous times, would do well to remember General of the Army and President Dwight D. Eisenhower, a humble man whom history may well regard as one of our greatest citizens and a true leader.

Here are a few (and perhaps surprising) observations from this exceptional American:

"Don't think you are going to conceal thoughts by concealing evidence that they never existed."

"Every gun that is made, every warship launched, every rocket fired, signifies in the final sense a theft from those who hunger and are not fed, those who are cold and not clothed."

"Farming looks mighty easy when your plow is a pencil and you're a thousand miles from the corn field."

"An intellectual is a man who takes more words than necessary to tell more than he knows."

"A people that values its priviledges above its principals soon loses both."

"When you put on a uniform, there are certain inhibitions that you accept."

"War settles nothing."

"We will bankrupt ourselves in the vain search for absolute security."

"The world moves, and ideas that were once good are not always good."

"The spirit of man is more important than mere physical strength, and the spititual fiber of a nation is more importnat than its wealth."

"The problem in defense is how far you can go without destroying from within what you are trying to defend from without."

"Some people wanted champagne and caviar when they should have had beer and hot dogs."

"Plans are nothing;planning is everything."

"Politics ought to be the part-time profession of every citizen who would protect the rights and privileges of free people and who would preserve what is good and fruitful in our national heritage."

"It is far more important to be able to hit the target than it is to haggle over who makes a weapon or who pulls a trigger."

"Leadership is the art of getting someone else to do something you want because he wants to do it."

"May we never confuse honest dissent with disloyal subversion."

"Only strength can cooperate. Weakness can only beg."

"Pessimism never won any battle."

"If a problem cannot be solved, enlarge it."

"If you want total security, go to prison. There you're fed, clothed, given medical care and so on. The only thing lacking...is freedom."

"I think that people want peace so much that one of these days government had better get out of the way and let them have it."