I wanted to take some time to share views on a disturbing white paper sponsored by the Economic Policy Institute.  It is entitled Guaranteed Retirement Accounts – Towards Retirement Income Security.   

This is a paper that goes through the details of a proposal that has been presented to Congress.  It is about these Guaranteed Retirement Accounts.  

This institute promotes economic agendas that have socialistic qualities.  They think that the system is unfair and  support the notion of redistributing wealth so that everyone can participate.

Their main focus is on the poverty rate in America and they want to redistribute wealth to take care of the problem. 

The latest initiative to come from this institute is a guaranteed retirement account.  It is designed to provide an additional social security-like benefit to workers.  The program calls for the abolishment of the tax breaks that you would get for contributing into a 401(k) plan or IRA.  The program requires any worker who does not participate in a defined benefit plan at a company (company pension plan) to mandatorily contribute 5% of their income into this account.

They also give a $600 tax credit to each worker, which can be used to offset part of that contribution.   They guarantee a return of 3% for the account.  For an average 40 year worker, it is intended to replace 25% of your pre-retirement income.  A worker can still participate in a 401(k) plan.  However, they will not get a tax deduction.

The alarming part of this plan is that certain members of Congress actually think that it is a good idea.

I read over the white paper and found many flaws with the theory that they present.  Keep in mind that most of these types of plans are written based on theory and not reality. 

(1)               They are protecting you from the flawed 401(k) system and stock market investing

The 401(k) plan is doing more damage than good according to them.  Since people do not know how to invest money, these plans are not providing a good retirement for individuals.  Plus, the wealthy receive a bigger tax benefit than others due to the current tax structure.  Actually their argument is extremely weak for this point. 

So, they are going to provide some stability to your life by forcing you to give up 5% of your income so that they can give you a 3% guaranteed minimum return. 

Well, I ran some numbers based on the stock market.  If you are investing for 40 years and did nothing but buy and hold, you would earn much more than 3%. 

If you started investing at the top of the stock market in 1929 before it lost 86% and continued to invest for the next 40 years, your average return would have been 6.03%.

If you started in 1962 and invested until the stock market hit the bottom of the bear market in 2002, you would have averaged 7.76%.  It is absolutely ridiculous that they based this on a 3% annual average return.  That time period experienced some big bear markets. 

Then my favorite part of the paper regarding 401(k) plans – “though the latter strategy (investing in 401(k) plans) may make sense from an individual point of view, it is inefficient from a societal point of view…”  Do they mean socialistic point of view?

(2)               Manadatory Contributions

This is a 5% tax hike on lower and middle class.  Most are not saving because they don’t have the money to save and are barely making ends meet.  Now make them save 5% and see what happens to them financially as well as to the economy. 

(3)               They claim that the guaranteed retirement account and social security will replace approximately 70% of pre-retirement income for the average 40 year worker.

According to social security, the amount of pre-retirement income covered by social security varies.  You would have to be a very low income worker to get to the 70% coverage.  That is not the average worker. 

(4)               Encourages a dependency on the Government and discourages additional saving

This will encourage people to further depend upon the Government to take care of their needs.  Because of that, most people will not save additional money.  Also 401(k) plans will not be as attractive due to the removal of tax deductions.  People will pay more in taxes. 

This is just a cover up plan to get more money to cover the short-fall of social security.  This plan would be managed by social security.  Plus, it is socialistic in just about every way.  It is disturbing that this type of plan would be considered as any type of a solution.  Dependency on the Government is part of the reason we are in this mess.  Adding more dependency only makes it worse.

(5)               They state that the Social Security Administration has a proven track record of efficient management

Need I write any more?

Tags: 401(k), Bob Brooks, Congress, Deceptive Money, Economic Policy Institute, Guaranteed Retirement Accounts, IRA, Prudent Money, retirement

This is one of the toughest markets to follow.  The volatility in the market (the ups and downs) are unbelievable.  Yesterday the Dow posted the 7th largest one day percentage gain in its history.  It begs the question as to if this is a turning point.

I come away with two different answers.  It is difficult to know because this is no ordinary bear market. 

First, the market is embarking on a bear market rally.  A bear market rally is an increase in the market that separates two large periods of decline.  It is labeled a “bear market” rally because it is just a small rally within a bear market.

If that is the case, in one day it should be halfway over already.  Typically bear market rallies increase 15 to 20% in value and last anywhere from 1 month to 4 months 

Second, we are not ready for a sustainable market rally at this time.  We still have further to fall.  In an earlier post, I wrote my target for the S&P 500 before a sustainable market rally would be 775.  After yesterday’s big increase in value, the probabilities are not as good that would occur.  However, the rate and speed in which this market can go makes anything possible.

The interesting thing today will be the Federal Reserve Board meeting and the interest rate decision.   Chairman Bernanke who is an authority of deflation knows (whether he wants to admit it or not) that we are facing a deflationary recession.  If that is true, he has to be careful how much and how quickly he lowers interest rates.  Besides, he has already aggressively lowered interest rates and it has done nothing.

An analyst that I follow had some interesting statistics about the potential of a rate cut.  His analysis goes back to 1943.  The basis of his analysis is that there are some specific metrics that the Fed watches that helps them determine if it makes sense to raise or lower interest rates.  When these metrics are at a certain level, they never lower rates.  Well, those metrics are in a range that has prevented the Fed from lowering rates in the past.  If they do lower rates, it will be the first time that they have done so at these levels since 1943.

Tags: bear market, Bob Brooks, Chairman Bernanke, Deceptive Money, deflation, Dow Jones, Federal Reserve Board, interest rate, interest rates, market, Prudent Money, rally, S&P 500, sustainable market rally

The good news is that we should be getting to a point where this panic selling should subside.  There is a key level that you want to watch in the S&P 500.  Back in October 2002, the stock market reached a significant bear market low of 775 before the start of a brand new bull market. 

It went as low as 768.  So, there are your key levels to watch.  As the markets fall into this danger zone, this bear market turns into a good news or bad news story.  It is great news as long as the stock market remains above 775.  In the event that the stock market closes a trading day below the 775 to 768 range, this quickly turns into a bad news story. 

Below that level, the stock market could easily fall as low as 650.  If that level were not able to support the stock market, then we would be looking at the next key level of 450. 

The good news is that we are falling into this danger zone with every metric available suggesting that the selling should be coming to an end.  Should this happen, we then shift the focus onto the recovery.  Will a recovery put this bear market in the rearview mirror or will it be just an extended break in the selling that eventually leads to a return to the decline?  Will the next bottom of the bear market be “a” bottom or “the” bottom?  These are the big questions.

This week the Federal Reserve Board meets to make a decision on interest rates.  It will be interesting to see how the Federal Reserve Board reacts.  On one hand, the stock market would greatly benefit from an aggressive cut in interest rates.  On the other hand, what the market thinks would be in its best benefit could also be something detrimental in the long-run. 

Ben Bernanke is considered an authority on deflation.  The odds are that we are in a deflationary recession.   Lowering interest rates that close to zero would not be advisable given a deflationary situation.  It wasn’t a good thing for Japan and I don’t think that it would be a good thing for the United States.  So, the conflict will be to do what is good for the country long-term or give into the short-term need for stimulus. 

At some point, the Government has to get out of the way to allow this debt crisis to fix itself.  That will mean speeding up the painful process we ultimately have to face.  By continuing to intervene, the Government just pushes a problem off into the future.

A debt crisis cannot necessarily be corrected with a signature on a piece of legislation.  Time and loss are the only two natural solutions for a debt bubble. 

Tags: bear market, Bob Brooks, bull market, Deceptive Money, deflation, Federal Reserve Board, Prudent Money, S&P 500, Stock Market

“Worst of US Housing Slowdown is Over” – Greenspan – February 14, 2007

“Fed Doesn’t See Sub-Prime Mortgages as Threat.” – Wall Street Journal – March 1, 2007

“More conclusive signs of pending home price stability are likely to become visible in the first half of 2009.” - Alan Greenspan – October 10, 2008

Well, Alan Greenspan thinks that a housing bubble where an estimated 12 million  homeowners owe more than their home is worth (Goldman estimates that will go as high as 30 million), a credit market that is in crisis, and country with no confidence level, is going to firm up as early as the first half of next year.

Of course, this is the same individual that headed up our Federal Reserve Board, and said that sub-prime would not be a problem and predicted that the worst was behind us months before things just started to get really bad.

This is also the same individual who suggested that adjustable rate mortgages were a great idea and that everyone should consider them.  Adjustable rate mortgages are the key ingredient in most home foreclosures. 

It is so difficult to take anything seriously from individuals who were/are elected to office.  Politicians (and I consider Former Fed Head Greenspan one of them) have really let this country down.  It is too bad that we are probably going to get 4 more years of the same.  

I think I would feel better if Mr. Greenspan suggested that this was going to continue for much longer.  

Tags: Alan Greenspan, Bob Brooks, credit market, Deceptive Money, Homeowners, Housing bubble, Housing Bust, Prudent Money, Wall Street Journal

I find it very interesting that financial media took Warren Buffet buying up stock last week as an indicator that the worst is behind us.  Now far be it for me to suggest that Mr. Buffett might be wrong.  He has an incredible track record of success when it comes to investing.

At the same time, buying stocks just because Warren Buffett is buying them doesn’t seem to be the best of reasons for putting good hard earned money to work. 

In a New York Times piece he wrote:

“Today people who hold cash equivalents feel comfortable.  They shouldn’t.  They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.”

“Equities will almost certainly outperform cash over the next decade, probably by a substantial degree.”

Well, I hope that he is right because it has been money markets that have out performed stocks for the past 10 years by almost 2 full percentage points.  He also wrote about how buying in July 1932 even in the midst of the Great Depression proved to be a great buying opportunity.  Well, I would hope so.  The stock market had just dropped 86% over the proceeding almost 3 years. 

Here would be my concern investing like Warren Buffett.  There is no question that is has a great track record of being right.  The problem with that type of track record is becoming over confident.  When people with that type of track record are wrong, it is usually wrong in an enormous way.

Richard Russell is considered one of the greatest investment writers and gurus in the history of investing.  He has called the tops and bottoms of some of the major bear and bull markets.  This guy really has a track record.  Well that was the case until he was convinced that last year we were starting a major bull market.  After decades of writing one of the finest newsletters around, Mr. Russell has had to quit because of poor health. That was a sad day for the investment world.

Bill Miller of Legg Mason was known for beating the S&P 500 15 years in a row up until 2005.  This was quite a feat.  However, he fell in love with Countrywide, Freddie Mac, and Fannie Mae and other financial stocks.  He believed without a shadow of a doubt that they were going to come back.  He was completely convinced that he was right just like he has been for years.  Between 12/31/2005 and 9/30/2008, he lost -25% to the market’s loss of  -8%. 

Be careful listening to someone who is pounding the table claiming emphatically to be right.  Especially be careful when they have  alot to lose if they are wrong.  Remember, Mr. Buffett has bankrolled a lot of money into the banking system. 

Warren Buffett is an investment legend not a stock market indicator.

Tags: Bear Market Bottoms, Bob Brooks, bull market, Deceptive Money, money markets, New York Times, Prudent Money, Richard Russell, S&P 500, stocks, Warren Buffett

(from this week’s Stock Market Outlook)

First of all, I apologize for the late post of the market map.  I usually try to get it posted on Monday, but my trip to Boston last week really put me behind.  

It has been interesting purely from an economic standpoint to watch a debt crisis slowly creep through the system.  In the past I have compared it to a cancer.  It is a disease that slowly works its way through the entire system. 

The economy might have cancer and not even know it. The disease might be only affecting some parts of the economy while other parts look vibrant and alive.   Last year, all of the commentators were calling the debt crisis an isolated event.  They would point to other parts of the economy and claim that we will probably just have a small slowdown. 

Then all of the sudden it starts to affect the good parts of the economy.  It is at that point that the whole system has cancer.   Think of credit as air.  The economy is having a tough time breathing because of a lack of air. 

The one piece of the puzzle that I have been watching very carefully is the consumer.  When the consumer starts to fold, it will be evident that the cancer has a firm grip on the economy. 

We are starting to see it in the retail sales numbers.  American Express announced a 24% drop in revenue because consumers aren’t able to make their payments on time.  We are starting to see all of the signs that retail driven sales is heading for a cliff.  You have to think that at some point the consumer is going to shut down consumer spending.  It is my belief that we haven’t seen it as of yet due to the ongoing ability to use credit. 

Since credit card companies are starting to feel the pinch, lending standards are getting much more restrictive.  The credit card offers (even those with good credit) come with 15% plus interest rates attached.

Some credit card companies are going back to their cardholders and reducing credit limits.  With unemployment going up and without the potential of salary increases due to the weakness of the economy, I really think that consumer spending is in trouble.  If consumer spending is in trouble, then the economy is in very big trouble. 

Over 70% of the economy depends on consumer credit.

Why all of the gloom and doom?  I want to make sure that you are seeing the risk.  You have financial media, Warren Buffett, financial salespeople, etc all proclaiming the bottom is in and that there might be a recession.  Unfortunately, I don’t think that people giving these opinions, including Mr. Buffett, have read enough history to understand this is something significant that the economy is facing. 

The risk is still very high.  The credit markets are still in a deep hole. The hairs on the back of my contrarian head all stand up when I hear everyone proclaiming that now is the time to buy stocks.

Tags: Bob Brooks, debt crisis, Deceptive Money, Prudent Money

I had an opportunity last week to attend a conference in Boston and it gave me a chance to really take a look at what the last 12 months has brought and why this bear market will go down in the record books.   

First, we have to consider the length of time of the decline.  During the 1973 decline, it took 21 months for the stock market to decline 47%.  In 2000, it took the stock market 31 months to decline 49%.  Today, it took a mere 12 months for the stock market to decline -42%.  

Second, typically there are investments that work in this type of environment.  Of the 69 mutual fund categories on www.morningstar.com only three have average positive returns year to date.  The short-term government bond category, the intermediate government bond category (barely positive), and then of course bear market mutual funds.  

Over the last 79 years, in only 5 years have both stocks and bonds lost money in a given year.  If this trend continues, this would be the 6^th year.  I heard a municipal bond fund manager speak on Friday who has managed money for 23 years.  She said that a bad year in the municipal bond market was typically no more than a -2% loss.  Today, she has seen a loss greater than 10% year to date.  

Typically, you depend on bonds and fixed income to soften the blow in a fully diversified account.  Unfortunately, that is not even available to investors.  

Third, Government intervention creates a crisis of confidence.  That is probably the biggest concern that we face today.  Once confidence is lost, it is tough to get it back.  Just this last month, the largest withdrawal of money from mutual funds was recorded.  A record 47 billion dollars was taken out of mutual funds and I think October might just be another record.  

Tags: Bob Brooks, Boston, Deceptive Money, Government, mutual funds, positive returns, Prudent Money

These are desperate times.  People are desparetely searching for answers.  When desperate, there is always the possibility of making bad decisions.  Unfortunately, there are plenty of irresponsible businesses that will help you make those bad decisions.

There is not a better example of this type of irresponsible marketing than in the credit industry.  In my upcoming book, I refer to these companies as “debt solution companies.”  For those in debt, they market the solution.  They will cut those payments in 1/2.  They will force the credit card companies to reduce your debt. 

Take a step back for a moment and think about it.  Credit card companies are just going to let you off the hook.  They are going to reduce your payments and cut you interest rates and debt owed in 1/2.  They are going to do this just because you have good intentions. 

Really?  Please don’t fall for this illusion.  THESE COMPANIES STEAL YOUR MONEY AND MAKE YOUR SITUATION WORSE.

A commercial for a debt solution company said the following:

“The one thing that credit card companies don’t want you to know.  You are entitled to a reduction in the amount of money that you owe.  Yes, you can wipe out a large portion of the debt you owe.  Credit card companies  hope you never find this out. ”

It is unfortunate that these companies are allowed to lie.  Further, it is even more unfortunate that people give these crooks money.  Yes, they are crooks because they are marketing a flat out lie.

Be realisitic when looking for solutions to your financial challenges.  You have to know that there are plenty of people who are willing to flash you a smile and a guarantee and take your money at the same time.

Tags: Bob Brooks, Credit Card Companies, debt consolidation, Debt solution, Deceptive Money, irresponsible marketing, Prudent Money, scams

I have been traveling all day and I am in the very cool city of Boston about to attend a Fidelity conference.  I was tracking the market in between connecting flights and watching as the market started another trip down to the dark side.  This was the biggest plung today since October 1987.

I arrived at the hotel and turned CNBC to hear the media’s take on today’s drop.  Unbelievable to me, the media is acting as if everyone is waking up to the fact that we are in a recession and that is the cause of the market drop.  There was actually the thought that this bail-out was going to help us forego a recession.  The markets are reacting to the severe state of the credit markets and the banking system.  The markets are also reacting to the reality that the economic numbers are looking much worst.  If we haven’t been in a recession, I certainly would not want to stick around for the real thing. 

There is a lot of panic in the markets right now.  The risk greatly increases if the market closes below last Friday’s stock market low.   

I heard an interesting tid-bit today written by Todd Harrison on www.minyanville.com – (an excellent source of analysis – I have been a subscriber for 5 years)  He wrote: 

“Of the 36 time the S&P rallied (I added at least) 6% in the last 80 years, 32 times occurred between 1929 and 1932.” 

There are many parallels between the 1929 and 1932 time period.  This is mainly due to the fact that the problem that plagued this country then is much the same as the one that is plaging this country today. 

Tags: Banking System, Bob Brooks, CNBC, Deceptive Money, market, Prudent Money, recession, Stock Market

I had this sent to me and it really describes the mistake this country is about to make.  It comes from President Reagan’s speech prior to getting elected.

to quote from the first paragraph:

“During the presidential campaign last year, there was a great deal of talk about the seeming inability of our economic system to solve the problems of unemployment and inflation. Issues such as taxes and government power and costs were discussed, but always these things were discussed in the context of what government intended to do about it. May I suggest for your consideration that government has already done too much about it? That indeed, government, by going outside its proper province, has caused many if not most of the problems that vex us.”

And how about this zinger from later in the speech:

“The most dangerous myth is that business can be made to pay a larger share of taxes, thus relieving the individual. Politicians preaching this are either deliberately dishonest, or economically illiterate, and either one should scare us. Business doesn’t pay taxes, and who better than business could make this message known? Only people pay taxes, and people pay as consumers every tax that is assessed against a business. Passing along their tax costs is the only way businesses can make a profit and stay in operation.

The federal government has used its taxing power to redistribute earnings to achieve a variety of social reforms. Politicians love those indirect business taxes, because it hides the cost of government. During the New Deal days, an under-secretary of the treasury wrote a book in which he said that taxes can serve a higher purpose than just raising revenue. He said they could be an instrument of social and economic control to redistribute the wealth and income and to penalize particular industries and economic groups.”

Recognize anyone in that description?

Really nothing else to say. I am very concerned that there is no way out now that we have started down the path of the U.S.S.A – United Socialist States of America.

Tags: Bob Brooks, Deceptive Money, federal government, Government, politicians, President Reagan, Prudent Money

I realize that not everyone watches the technical aspects of the stock market.  For those of you who do, I wanted to post an update.  Following the stock market crash of 1987, the stock market went up 15% over the following two days.  The market should open up around 4% which would give us a 15% gain over two days. (yesterday and today)

That also puts the S&P 500 at a KEY RESISTANCE level of 1050 to 1060.  IF the market cannot close above that line, we will probably see the market fall back down to the lower 900’s again.  That would be a KEY level for the stock market to hold. If it does not hold, then we could see a re-test all of the way back down to the October 2002 lows.

It is all dependent on the improvement of the credit markets.  Thus far this morning, the treasury markets are getting smoked.  This shows very little confidence in our government’s ability to manage this crisis.

Tags: Bob Brooks, credit markets, Deceptive Money, Prudent Money, S&P 500, Stock Market

Do I sell some or all of my stock investments or do I stay invested?  This is the biggest question that I am hearing during this historic time in the stock market.

This question is a tough one to answer because there are so many variables for one to consider.  For some people, it might make sense to sell stocks because of the jeopardy of their financial goals.  For others, it might mean just reducing this stock exposure and creating some balance between stocks and bonds.    

There is a lot of confusion as to what direction to take.  Some say sell it all and some say hang in there for the long-term.  I have made my opinion known as to what makes the most sense, which is simply to reduce risk. 

I keep hearing about the guy who was on a radio show saying that everyone should sell all of their investments and buy gold.  I was talking with someone today who said she liked this advice because it was given with such confidence.  There was no hesitation.

Personally, I feel it is irresponsible to tell an emotionally charged audience to go and sell everything.  First, every one of you has a different situation.  Second, every one of you has different tolerances for risk.

He also encouraged you to put everything in gold.  First, you never put all of your eggs in one basket.  Second, if we are entering into a deflationary period, gold will not be the safe haven people expect.  The price of gold has historically fallen in a deflationary environment. 

Here are some of my thoughts:

1)       It makes sense to reduce risk in your portfolio to some degree.  The degree to which you reduce risk will depend on your risk tolerance.

2)           Determine how much risk you want to take by determining the amount that you want to have invested in stocks

3)           To help determine how much risk you want to take, determine if you could settle for a little smaller return over the coming years rather than trying to take as much risk as possible to get as much return as possible.  Remember that there is a downside to that way of thinking.

4)           If your investments are making you physically ill or keeping you up at night, is investing this way worth it?  NOTHING IS WORTHWHILE THAT AFFECTS YOUR HEALTH.

5)           If you are near retirement and you still have enough in your accounts where your retirement is not affected, don’t take risk.  It is not worth it.  If you are near or have already reached your goals, then preserve capital.

Now let’s talk through some potential ways of moving money from stocks to safer investments such as fixed income investments, bonds or money markets.

1)           You can obviously reduce risk all at once.  There is a risk to making one big move.  It comes down to whether your timing is good or bad.  Good timing would mean that you sell the stocks right before a big decline.  Bad timing would mean you sell the stocks right before the market starts going back up.  You can’t worry about the timing.  The point is that you want to reduce risk.  . 

2)           Move it over a period of 5 weeks at a time.  Transition the money from stocks to your fixed investment category a little bit at a time.

Just a few more important considerations:

·         Most importantly throughout this whole process, you need to pray about your decision and move when you have peace. 

·         Don’t make emotional decisions

·         Don’t ignore your statements

·         Don’t have regrets – this is about reducing risk

·         For your bond and fixed investment portfolio, you have to be careful.  Bonds have had a tough time this year.  Short-term US Government securities (not Freddie Mae or Fannie Mac) would be worth considering.  These US guaranteed back short-term securities have held up pretty well this year.  

Tags: Bob Brooks, bonds, Deceptive Money, gold, investments, money markets, Prudent Money, risk, stock investments, Stock Market, stocks

Marissa, a 6 year old girl, tells her grandparents that she wants to run for President.  This was her platform:  

1)  Help people learn about God.
 
2)  Build houses for everyone.
 
3)  Make new toys for all the children.
 
4)  Help people that are hurt.
 
5)  Care for all the children.
 
6)  Make bills look cuter in the mail.  (It will help people want to pay them!)
 
7)  Bring the troops home.
 
8)  Send food to other countries.
 
9)  Send goodness to their homes.
 
10) Help people understand that God loves them.
 
11) I love you, too.
 
As you can see, she has covered all the important points…economy, health care, welfare, military, Christianity.

Tags: Bob Brooks, christianity, Deceptive Money, economy, health care, military, President, Prudent Money, welfare

It really saddens me to watch this market fall apart at this speed.  It is not that I ever thought that things would not be this bad.  I just never dreamed that things would fall apart in this manner.  The speed of a drop like this will end up being a defining moment for this country. It unfortunately ushers in the creation of drastic rules and changes that would have never been considered in normal times.  Once implemented these new changes and rules that are created in a time of chaos become our new normal. 

I thought that it would decline like most bear markets in the past.  It took 22 months in the 70’s to decline 47%.  It took exactly 12 months to the day (October 9, 2007 was THE market high) to drop 42%.  The speed of this drop has been incredible.  Since the Great Depression, this is the worst 12 month decline on record.  This is probably the worst 7 day period in the market in history.  

Roughly 5 trillion dollars have been lost in retirement money in this country.  I think about many of my friends who are in my business that are facing some pretty horrific situations with their clients.   As an advisor, you would be in a pretty bad situation if you didn’t have your clients prepared ahead of time for this fall-out.

The stock market crash of 1987 was pretty horrific.  Today, this is no different.  It just took 7 days to do what the crash did in 1 day.  I would even suggest that this particular situation is much worst due to the fact that this has lasted for a year and the total drop is so much larger.

Going forward, it is hard to come up with much of a forecast.  All of my indicators are at record levels.  As a money manager, it is almost like managing money in the dark.  We are in as unprecedented times as they get.  All bear markets take 2 to 3 years to drop as far as this one has dropped in 12 months time.  Unfortunately, the only exception to that is the great bear market of 1929.  

I do think that we are heading for the bear market lows of 2002 which is 775.  That forecast has never changed. I just never believed we would get there so fast and I hope that we are not looking at it in the next week. 

The speed of a drop like this will end up being a defining moment for this country. It unfortunately ushers in the creation of drastic rules and changes that would have never been considered in normal times.  Once implemented these new changes and rules that are created in a time of chaos become our new normal.  Unfortunately, a new normal that we would have never volunatarily chosen.

I have written ad naseum about the changes this country needs to seek in the area of leadership.  I hope that this credit crisis opens up the eyes of the American people and a loud voice is heard in Washington changing the landscape of politics forever. 

The finger still points to Washington.  I hope that those campaign contributions from the companies that helped destroy are financial system were hopeful.  I hope that the politicians enjoy their endless terms on our dime. 

Tags: bear market, Bob Brooks, credit crisis, Deceptive Money, Great Depression, market, money manager, politicians, Prudent Money, stock market crash

I have been away from the office and out of town attending a funeral.  Funerals always provide the proper perspective of what is important and what really matters.  Being away also afforded me the opportunity to get away from the market and the computer screens and financial media.  I wanted to share a few thoughts with you.

(1)              These declines in the market have been worse than anything we saw in the last bear market between 2000 and 2002. 

This even includes 9/11.  I think that it is important to put the severity of this decline in proper perspective.  The indicators that I follow are at extreme readings.  These readings are more extreme than the crash of 1987 and any time period in the last bear market.  In fact, some of the indicators that I follow have set historical records over this past week.

(2)              This is not an ordinary time period in our country right now

William Straus and Neil Howe wrote a very fascinating book called The Fourth Turning.  In the book they describe a theory of American history as a series of recurring 80- to 100-year cycles.  Each cycle has four “turnings”-a High, an Awakening, an Unraveling, and a Crisis.

Basically, a country will start out at the bottom, experience growth, greed will take over, everything becomes imbalanced, and then crisis hits.  Once the crisis has ended, the country is back at the first “turning” again and starts over the progression through the four turnings.

Each one of these crisis moments has defined America.  The last crises have been the American Revolution, the Civil War, and the Great Depression/World War II.  Each one of these events has shaped the future of our country.  I believe that we are in such a crisis right now.   I do believe that this crisis we face will create change in this country. 

(3)              The Federal Reserve Board and the Treasury do not matter anymore

In my various writings over the past few years, I wrote that I felt a time would come when the Federal Reserve Board and the Treasury would not matter to the market.  Up until now, the Fed could decrease interest rates and the market would take off to the moon.  The Fed had influence over the markets.  Now, that influence has diminished.  They “over manipulated” the market.  Now their manipulation strategies have no influence.    

There is nothing there to support the market.  They are just about out of ammo.

(4)              Right now is probably not the best time to just dump stocks unless you have an alternative strategy in place

I continue advocating for anyone to reduce risk when it comes to investments.  At the same time, right now when the market is at these extremes, it is probably not the best time to do so.  Some of the biggest stock market rallies happen within bear markets. 

For instance, look at these stock market moves during the last bear market.

-  Between March and May of 2001, the S&P 500 went up 17%

-  Between September 2001 and January 2002, the S&P 500 went up 20%

There can be some big increases in stocks as the selling takes a breather.  The better time to reduce some of your risk in your investments is during those times when the market starts increasing. 

Put a system together to reduce your stock exposure.  If you are in a situation where the stress is eating you alive and affecting your health, I think that it is important to go ahead and consider getting out.  This is not an easy strategy.

If you are moving your investments in an active investment management strategy where the money would be managed, then it would probably make sense to make the changes based on your new money manager’s suggestion. 

Tags: bear market, Bob Brooks, Deceptive Money, market, Prudent Money, Stock Market