As I have instructed all my students, over the past 35 years, the markets go up and down daily, but, the long-term trend is always up. In fact, the stock market looks like a yo-yo going up and down in the hands of a man walking up steps. Hopefully, you learned from my teachings, and your own research, that equities will always beat out every other asset class over time. You, personally, can remember the Dow hitting 11,700+ in 2000. Then, the tech-wreck and 9/11 caused it to drop to 7,400. If you sold out at the bottom, you probably lost money. If you held on…then, no money was lost. You have experienced and learned a valuable lesson. Buy and hold will always win out (unless there is a worldwide thermo nuclear holocaust – if so, the world is over and who cares). Over these past years, the “drive-by media” simply dumps bad news on you. Even with “all” the bad news in the world, the markets keep going up. (You know, it has been the same bad news reported for the past 200 years.

You know, it is funny, the Investment Company Institute, that tracks individual investor behavior, noted the following: In 1982, when the Dow was at 762, money was flowing out of the stock market. In 1987, at 2,100-2,200, money was flowing in. When the Dow dropped to 1,700, money flowed out. In 1997-2000 money poured into the market during the tech bubble on the way up to 11,700. When the bubble burst and the Dow dropped to 7,400, guess what, money poured out.

From 2004-2007, money again poured into the market as it rose. In the 2008 stock market drop, trillions moved out of the market and into cash. March 9, 2009, the market hit the low point. One year later, the market was up over 65%. Now that the market is back to a level prior to the drop, money is coming back in…just about the time when a mild correction will take place. So, looking back at the recent drop, people poured money in at the top, took a 40-60% drop, sold out at a loss and, now after a huge gain, these same people are investing again near a top. I thought the rule was “buy low, sell high.” The masses are all doing the opposite of buying high and selling low.

Watch…once the “drive by media” notes a new record on the Dow, money will pour in. Enjoy the ride, stay on the course.

Look at today’s stock market. After skyrocketing from a market low in March 2009, the stock market (S&P 500) is up by over 40 percent, yet the main street investor is still disengaged and skeptical.

Looking back into the late 1990’s, most investors were confident that stocks were wealth-building perpetual-motion machines. Also the “buy and hold” disciples got religion around the top of the tech bubble in early 2000. At this point, the annualized trailing 10-year S&P 500 returns exceeded 15 percent, so the average investor poured into the market at the top. Bad move.
Today (October 2009), the trailing 10-year return is negative 2 percent (excluding dividends). It will stay weak until we absorb the melt-up returns of late 1999 and early 2000. Keep in mind the average rate of return for the S&P 500, since 1926, has been around 13 percent.

So, if the tremendous historical returns were a signal that was best left unheeded in 2000, then, do the lousy 10-year trailing numbers of today imply that … “the direction of mean reversion for asset classes will favor stocks again in the near future?”
Funny how the widespread acceptance of “buy and hold” was the mantra ten years ago, at the top, is being cast aside at the bottom. (Look back in history and you will see the same attitude every time the market drops.)

Research shows … over the previous period of negative decades, since 1900, the market was higher 70 percent of the time over the next one, three and five years. In fact, it was higher 100 percent of the time over the following decade. Also, the market returns over theses periods were, in general, better than average.

Keep in mind there are no guarantees for the future. At the same token, I have seen too many times over my career, how the markets always bounce back after severe setbacks (1973-74, 1981, 1987, 2000) and I believe the same will take place again. It will not be straight up, but I believe in America, the American people, the great companies of America and American ingenuity. Yet, I see people sitting on the sidelines until the market fully recovers and then they will invest at the top of the market … and … ride it down to a loss. They do it over and over again. Remember the definition of insanity?

Stay disciplined now … or experience regret later on …

Well, with wounds on both of their knees people ran away from stocks and real estate into “safe” U.S. Treasuries. Because so many people wanted safety, these securities have been bid up. They are overvalued. Their prices make no sense relative to fundamentals.

Let’s look backward – in 1999, did the price of Pets.com make sense relative to the fundamentals? In 2003, did the price of a house in San Francisco make sense relative to fundamentals? No, in any case.

The price of Treasuries has no place to go but down based on the economic environment, the threat of future inflation and the probability of rising interest rates.

You know the sad thing is those same people who bought tech stocks in 1999, houses in 2003 and oil in 2007 are the one buying Treasuries now. They are like a fighter with a “glass jaw” getting ready to be hit by a “heavyweight champion.” Get out of Treasuries before it crashes!!

There are more than $16 billion worth of matured bonds that have not been redeemed. This is the final year Series E bonds earn interest. Thus, a $100 bond from 1960 is now with 700.

You can visit a website to see if you have an unclaimed bond. You could have substantial cash that will stop earning interest. I found a few that I had previously bought. Check out the website: www.treasurydirect.gov/indiv/tools/tools_treasuryhunt.htm.

Good luck and good hunting.

Gold is used as an insurance policy on your portfolio, i.e, a form of hedging. In a long term strategy gold will move counter-cyclical to other asset classes. In essence, when certain asset classes drop in value…gold will rise and vice versa. Like any “insurance policy” do not expect to make money in gold, rather, it will balance or offset any undue risks.

Your holding of gold can be done via stocks, mutual funds, exchange traded funds (ETF) and ownership of the buillion (no this is not an excuse to buy gold jewelry).

There are benefits to owning the paper derivatives, namely, stocks, mutual funds and ETFs. With the present administration’s excessive mounting of debt and printing of money it is evident that inflation will be on the rise. Gold is a great hedging mechanism against inflation, war, financial crisis and just plain fear.

Although you may own the paper derivative ownership of gold I highly suggest you also purchase the buillion. But, in purchasing the buillion be careful which items you buy. The present administration is acting much like the FDR administration of the 1930’s and 1940’s. During that period FDR confiscated all the gold buillion from American citizens (see the attached Executive Order).

Executive Order Page 1 (jpg)
Executive Order Page 2 (jpg)

I would not be surprised at all if the present administration does the same as the dollar weakens and Americans collect gold. Get assistance in this area by purchasing the correct items of gold.

If you need help in this area please contact our office. We would be glad to assist you.
Email: paul@fgmci.com or phone: (713) 871-5919

Ironically, this market also leads us to believe that there are now excellent opportunities in the market for investors that can remain disciplined and take the longer-term view necessary to see beyond the current economic problems.

I wish I had some eye-opening quick fixes for you, but frankly that’s exactly what got Wall Street into this crisis. We believe that turbulent times in the market are the most important times to stick with disciplined, conservative investment principles that have worked well over numerous market cycles.

By following the basics, investors can position their portfolios to outperform when the fear in the markets ultimately subsides. The flip side of volatility is opportunity for patient investors who are focused on finding undervalued assets with good growth prospects that the market will recognize in the next three to five years.

Since equity markets are near their average pullback in past recessions, we believe that the fundamental trend of rising equity markets across market cycles will pull markets upwards over three to five years. The markets will return back to their long-term trend line once it becomes clear that the negative effects of the housing and credit bubbles are diminishing.

While it may be difficult to focus beyond the latest headlines of bailouts and bank failures, with a prudent and patient approach, we believe that investors will look back at this time as one of the rare buying opportunities of a lifetime – so work with your advisor who can help you take full advantage of this great situation.

Couple this with a Democratic near super majority Congress whose initial plan of business will be to eliminate the deduction for 401K, then, they plan take your 401K accounts and wrap your monies into a social security account…now you know why markets are shaky. You have been experiencing a classic bear market in stocks and real estate so what’s a body to do?? If you followed our advice over the years and fully diversified your portfolio you would be in fine shape. (All my comments are not personal…they are strictly business advice.)

In addition, for many years I have begged you to save 15-25% of your gross income and invest it, so as to minimize your risk. Well, now that the horse has left the barn and you want to close the door. What can you do?

Follow the principles I have taught you and have also been passed on by Doug Andrew in his many books.

• If you harvested your home equity and put it in a conservative side fund you would not have lost now that your home value has dropped. It is gone and there is nothing you can do.
• If you still have some home equity, then, get it out now before it drops more. The additional mortgage may be one if the few remaining deductions you will have.
• Maintain aggressive savings
• Reduce unnecessary expenses such as vacations or eating out. You are trading today’s benefits for your future security and peace of mind.
• Stop funding your IRA/401K for tax deduction beyond your company match level. You will find in retirement the tax you will pay on the distribution will be 10-15 times what you saved in taxes from the original deduction.
• I recommend my clients reduce taxable income via mortgage interest deductions.
• Invest your non performing home equity and "above the matched" 401K contributions into safe investments that earn more than 8% per year tax free (maximum funded equity indexed universal life policies structured by a highly skilled professional); you will enhance your retirement income substantially when compared to traditional retirement strategies. You will also eliminate the downside risk of stock market investing. You participate in the upside of the market but not the downside.
• The above strategy will allow you to fund this new retirement plan with indirect tax-offset deductible monies, it grows tax free, you can withdraw it tax free and when you die it transfers tax free.

The present monetary policy and future plans to "bailout" companies and "unqualified" home buyers will put inflation into a mode of full steam ahead.

Thus, place long term investment money into assets that will benefit during inflation…commodities, real estate, gold and natural resources. (Be Selective with your natural resource picks.) The new administration plans to punish oil companies and coal producers. Although the ultimate outcome will be higher energy prices stay away from direct investments and look toward essential services to these industries and companies.

The policies that have been outlined and promised will not be beneficial to Domestic Stocks. Work your allocation to place more in International Equities. Additional policies from this administration will not be good for medical, health care or pharmaceutical companies in the U.S. These asset classes are still considered good long term plays. Look for multinational companies that do a majority of their business outside the U.S. International health related companies will not be negatively affected by the new U.S. changes in health care. Any defense related companies will be negatively affected in this new administration. Offset these positions with higher allocations to hard assets to take advantage of fear, higher inflation and a weak currency.

Visit with your advisor to realign your portfolio quickly to take advantage of the mega shift coming in the investment horizon.

It is imperative that you now concentrate on aggressive tax planning. I haven’t seen such a demand from my clients for help in this area since the late 70’s during the Carter administration. Back then tax rates were at 70%. Since 1982 tax rates have dropped, tax revenue skyrocketed going into the Treasury and people concentrated on making prudent investments. Consequently, you saw a massive bull market in stocks and real estate from 1982 until 2008. These upcoming policies of the new administration are very similar to the Carter years, so let’s make money like we did under those policies in the late 70’s.

I am sure you can see a huge tax rise and a shift in U.S. stock market returns coming in everyone’s future. Tell me, are you going to be one of the masses and wait until the boat has capsized to then look for your life preserver? Or, do you want to get into the preserver now and safely get to shore?

Call or email if you are ready to build your wealth. Discipline or regret!!