Liquidation sale!

You've seen them, men and women standing on street corners holding signs that are as tall as they are, exclaiming: Going out of business! Liquidation sale! 50% off! During this current recession and down economy, more and more companies are going out of business. The most recent example that made local news in St. Louis was Circuit City. Shoppers scrambled to peruse the stores for "bargains". TV's and computers were "on sale"! Hey wait a minute! I thought we were in a recession? I thought thousands of people were losing their jobs? Who are all these people shopping at Circuit City? Mostly people who are behind on their bills, late on their credit card payments and over extended on their budgets. So why do they do it? The retail industry has done a very good job at "educating" people that they can "save money" by buying things on sale. While this may be true in principle, you have to take a closer look to see if these "sales" are really worth it to you and me. For example, when items are marked up 100% over cost, an item on sale at 30% off is still very profitable to the retailer. But more importantly to you, the consumer, you need to ask a couple very basic questions. Number one, do I need this item? If your TV went on the fritz and you need another one, great. Go get a new TV on sale. But if your TV still works, buying a new one that you didn't really need is not going to save you any money at all, even if it's on sale for 90% off. Number two, just because an item is on sale at one store, even a store that's going out of business like Circuit City, does not mean that you can't find a better deal somewhere else. Many times, you can find better deals at Sam's, Costco, Walmart, or other outlet stores by doing your homework and comparison shop. Another important thing to remember about stores going out of business. There are no warranties. Once you buy something at a store that is going out of business, it's yours! No returns allowed. Think about that before you plunk down 8 large for that new flat screen TV. One last question. Why do these liquidation sales last so long? I bet you know why. Sometimes being a smart shopper means not buying at all!

Fear and panic are now setting in to this bear market. This is normal. People tend to follow each other and act more on emotions than on anything else. This is called the "herd mentality". Now that the stock market has surpassed the November '08 lows and have now reached levels not seen in 12 years, people are finally starting to throw in the towel. While I cannot say (like anyone else) when this bear market will end, I am beginning to see indicators (based on investor sentiment and actions) that we are near the bottom, which in the industry is called, "capitulation". In the past two weeks I have fielded calls from scared investors who have wanted to move their investments out of stocks and into cash, money markets, and gold. I have even spoken to an old high school friend who has decided to short the market! He believes that the Dow (Dow Jones Industrial Average) is going to go below 5000 before it bottoms, and a client I spoke with yesterday thinks it may go as low as 2000! That would be another 70% drop from where we are now! Again, while I nor anyone else cannot say when the bear market will end or how low it will go before it bottoms, I can say that it WILL end and history proves it. There has never been a bear market that did not end. So what can you do? If you are an investor, you can still invest for the future. There's an old stock market adage, "buy when there's blood in the streets". What does this mean?

"Baron Rothschild, an 18th-century British nobleman and member of the Rothschild banking family, is credited with saying that "the time to buy is when there's blood in the streets." He should know. Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon. But that's not the whole story. The original quote is believed to be "Buy when there's blood in the streets, even if the blood is your own!"

This is contrarian investing at its heart--the strongly held belief that the worse things seem in the market, the better the opportunities are for profit.

To read more about this topic, click on this link:

Buy When There's Blood In The Streets

In the meantime, decide if you are really an investor. Someone who buys CD's is not really an investor. This market is brutal, but it will eventually end. So what will you do?

What are you giving up?

If you've been following my blog, you know that I gave up drinking sodas on January 1st as my New Year's resolution. It was part health related, part fun, and mostly an experiment that I thought of for myself, to see if I could do it for the whole year, and if so, how much weight would I lose. So far (64 days and counting) I have lost 9 pounds. Now that Mardi Gras is over, Catholics and other faiths who participate in Lent, have had to decide what to "give up" during this time before Easter (a 40 day period) to draw believers into a closer relationship with God and their faith. Traditionally many people choose to give up certain kinds of food, like chocolate or candy. Others get more creative. A neighbor down the street has decided to give up gossiping. My wife has not disclosed what she is giving up, claiming that it is personal. Today, I read a story that I found very interesting. The Catholic Church is recommending some ideas for people:

"The Italian branch of the Roman Catholic Church wants its followers to forswear text messaging, social-networking Web sites and computer games in the run-up to Easter."

For the full story, click here:

Thou Shalt Not Text Until Easter, Italians Told

What makes this even more interesting to me is that I have read where the Catholic Church wants to embrace new technology by having a presence on facebook and UTube and other social networking websites. The St. Louis Archdiocese has even told people to sign up on their website for a text message to announce the new St. Louis Archbishop as soon as the Vatican makes the official announcement. So is this a contradiction? We want you to use facebook and text messages to communicate with the Catholic Church, just not during Lent? Ultimately, each person must decide what her or she will give up for Lent. While I am not Catholic, I consider myself a friend of the Catholic Church, as I am married to a Catholic. So while I am not giving up anything for Lent, I will continue my Water Experiment, which may not be a religious endeavor, but it is a noble one. At least I think so...I better lay off the chocolate anyway, the dentist told me I have 2 new cavities yesterday! Bummer.

A game of chicken

This nasty bear market that we are stuck in is starting to play on the nerves of investors, traders, advisors, economists and anyone else with an investment portfolio, including Warren Buffet. By most measures, this current bear market is worse than any seen since the Great Depression. This latest downturn has caused more people to throw in the towel, go to cash or gold, and swear off stocks forever. All the "so-called" experts say to hang in there and wait for the rebound. Indeed, history shows us that all bear markets have eventually ended and new bull markets began. The question is when? We seem to be over due for a turn around yet nothing good seems to be happening. So what to do. The question for most people has become what is your time horizon? When will you need to pull money that you have put into the market, out? Current wisdom would suggest not to invest money into this market that you do not need for the next 5 years. The real mistake though is to sell all your equity positions and go to cash, bonds, or gold at this late stage in the game. The market is playing chicken. How much can you take. Remember, your "losses" are only on paper until you push the sell button. Past history would suggest riding this market, as terrible as it is, out. Consider this (from a story pulled on Smartmoney.com):

"A bull market may be hard to imagine right now, but as Fidelity points out it can be very costly to miss the beginnings of one when it does happen. Researchers at the mutual fund company found that within six months of a new bull market more than a quarter of the gains have already been booked, while more than 40% of the gains come within the first year. Standard & Poor's has found that investors on average recoup 80% of their bear market losses within the first year of the next bull."

And this analysis by Pinnacle Group, a wealth manager in Midlothian, Virginia:

"If you remained fully invested in the S&P 500 for the 20 years between 1987 and 2007, your average annual return came to nearly 12%. However, if you missed just the 10 best days during that span, your return fell to about 9%. Miss the 30 best days in 20 years? Your average annual return came in at less than 6%. In other words, missing a trading months' worth of rallies over 20 years lopped about six percentage points off the annual average return. The upshot? The fully invested saw $10,000 grow into $93,000, while those missing the 30 best days got $28,000 for their trouble. Now get this: Pinnacle notes that investors who did nothing at the bottom of the market during the Great Depression watched their portfolios take more than four years to be made whole. On the other hand, those who plowed another $10,000 into stocks on June 1, 1932, recovered all their losses in just three months."

Read the full article, here.

So there it is. This is a serious game of chicken. Will you get hurt, or dodge the bullet? This is real life. Jim Cramer and Suzy Orman can't help you now.

Did we really need to know this?

Scientist Solves Mystery of Belly-Button Lint

The "mystery" has been "solved", so the story goes. But that begs the question...do you care? And the even bigger question is...would you pay $31.50 for the full report? I wonder if this is where some of this stimulus package money is going.

If you have not seen this article and are dying to know more, click on this link for the...rest of the story. Good........................day!

Ode to Fear

Today's blog is being brought to you by my high school friend Rich Harrison, who writes a blog out of Cincinnati. He wrote a poem which I thought was appropriate for this bear market we all find ourselves in. It's called Ode to Fear. Enjoy!

Thanks Rich! I'll be back tomorrow with more thoughts on the market.

The winter of our discontent

As we move into March, most people are turning their eyes toward spring. People everywhere are making plans for spring break, St. Pat's, or at least a 3 day weekend. Sports fans are gearing up for the NCAA tournament, and the return of major league baseball. Globally, everyone is hoping and praying for an end to this cruel bear market and a sense of direction from our government leaders instead of promises for the future and talk of more bailouts for broken corporations who are deemed too big to fail. The markets are oversold but there do not seem to be any buyers in the wings. To make matters worse, the eastern half of the country has just been pelted with another layer of snow! Well, spring does not officially begin for 3 more weeks. I guess everyone's favorite groundhog was right 4 weeks ago! But fear not! There are plenty of good things happening around us. Tiger Woods is back! He has played his first tournament and the knee surgery appears to have been a success! U2 is coming out with a new album this week! Their first one since 2004. Gas is still selling below $2 per gallon. This is a personal economic stimulus package that keeps on giving. Homes and cars are selling at terrific discounts. If you are in the market for something new, this is a buyer's market! Banks are actually lending money. Despite the media's broadcasting to the contrary, most banks are lending money to qualified people who are looking to borrow. Give your banker a call, he's wants to make a deal.
There are plenty of opportunities in bonds. If you're looking for better yields on your cash, forget CD's and money markets, go for bonds. Bonds are the new stocks! Forget gold. Didn't you learn anything from 1999? Buy low, sell high. Stocks and bonds are selling at a discount, gold is not. OK, class dismissed...see you tomorrow!