Want to build wealth in lean and flush times? It’s easy. Just tame your brain
By Richard Sine

Attorney David Chizewer had hit the professional jackpot.

A judge and jury had awarded one of his clients the largest judgment in the history of the federal Whistleblower Protection Act, and in August 2008, Chizewer received his share of the payout. (He won’t say how much, but let’s just say that a tiny fraction of $334 million is still a gigantic payday.) And then he sat on it. Well, not exactly. He invested some of it and watched those investments lose value, and then put more into the market at its bottom in 2009. He has since regained his losses. So now the money is tucked away in retirement and college-savings accounts, even though Chizewer is in good shape in those departments thanks to years of fiscal discipline. * So what’s that money really for? “I thought it would end the war in my head,” Chizewer says. “That feeling I have that the world is going to end every time I let my kids order filet at a restaurant, or buy chocolatecovered goji berries at Whole Foods. It feels kind of inappropriate to do that during the recession, so we’ve tried to increase our charitable commitments, which makes our financial status seem even more precarious. So I just cross my fingers and hope everything works out.” * Experts are talking recovery, but sometimes this economy feels more like the world’s longest roller coaster. One minute we’re riding high, so we treat ourselves to a nice Napa cabernet. But then it swoops so low we can’t bring ourselves to open the bottle.

Read the rest of this article here:

Invest Yourself, The New Route to Rich : Men’s Health.com.

When invited to dinner, it’s good to bring a gift for the hostess. When your brother is mad at you, send a gift with a note acknowledging your love. When a man in need sits outside the train station daily, share your wealth. When a food drive is announced at your child’s school, pack up some canned goods. Even when suspicious about the person with their hand out, give.

Some people have uncanny good fortune. They make wealth-producing decisions.  Long hours and diligent attention to detail with a dose of mysterious good luck grant some folks with large bank accounts. If you’re one, give. You never know how long wealth will flow; sharing gives your life new dimensions of meaning and value. Giving may become your legacy.

Some family gatherings represent millions of dollars. If your family owns extensive wealth, create a family foundation. Organize a board of trustees or directors and determine how you will share your wealth. The poor live in every city and town through history; relieving their distress by giving may become your legacy.

Whether affluent or just comfortable, most of us have more than we need. Giving puts a smile on our faces, lifts our hearts, gives meaning to our life, and could become our legacy.

A Roman attorney and preacher said, “I’ve never, as you so well know, had any taste for wealth or fashion. With these bare hands I took care of my own basic needs and those who worked with me. In everything I’ve done, I have demonstrated to you how necessary it is to work on behalf of the weak and not exploit them. You’ll not likely go wrong here if you keep remembering that our Master said, ‘You’re far happier giving than getting.’” (The Message, Eugene Peterson)

If you get stuck wondering where to give,  how your gift will work, or if the charity uses your money wisely, consider these resources. Search on charitable organizations using these agencies:

GUIDESTAR

“If you care about nonprofits and the work they do, then you’re affected by what GuideStar does—even if this is your first visit to www.guidestar.org. You see, we gather and publicize information about nonprofit organizations. Our reach is far and wide. Our database is broad and deep.”

NATIONAL CHARITIES INFORMATION BUREAU

NCIB’s mission is to promote informed giving and to enable more contributors to make sound giving decisions. NCIB is a non-profit organization.

BBB WISE GIVING ALLIANCE

BBB Wise Giving collects and distributes information on hundreds of non-profit organizations that solicit nationally or internationally. If a charity becomes the subject of an investigation, BBB Wise Giving Alliance requests data about programs, governance, fund raising methods, and finances.

MORINO INSTITUTE

“Created in 1994, the Morino Institute is a nonprofit organization that explores the opportunities and risks of the Internet and the New Economy to advance social change. Our work is focused in four key areas: stimulating entrepreneurship, advancing a more effective philanthropy, closing social divides and understanding the relationship and impact of the Internet on our society.”

THE NATIONAL CENTER FOR FAMILY PHILANTHROPY

“The mission of the National Center for Family Philanthropy is to promote philanthropic values, vision, and excellence across generations of donors and donor families. Our understanding and experience with the very personal act of giving ensure that these donors and their advisors have access to the highest quality information and the encouragement needed to:

• Articulate, pursue, and achieve their charitable missions;
• Understand and meet their governance and management needs; and
• Have a significant, positive impact on the lives and work of those they support. “

COUNCIL ON FOUNDATIONS

IRS

Verify your charities status before submitting your tax deductible donations.

The U.S. economy languishes in a quagmire of uncertainty and fear. We all need a jolt from Napoleon Hill’s, Think and Grow Rich. We’ve lost our imagination. We depend on government. We think if we just hang on, things will get better; when they won’t, unless we collectively take action.

Actions begin with thoughts, with imagination, with dreams.   Ideas get buried in political gambit. Dreams get squashed by disconsolate pessimism. “I can’t do it” echoes along Main Street more often than, “Let’s just get it done!”

Americans have been here at other times. The Great Depression was the time for despair, and many Americans were desperate.

How much of this information sounds familiar?`
• October “ is the cruellest month . . .” for the stock market.  Time’s cruelty is  T.S. Eliot’s theme in The Waste Land. Time, greed, and fear coalesced on “Black Tuesday” (October 29, 1929).  Stocks lost 38 points as 16 million shares changed owners (the Dow Jones did not trade as many shares until 1968). The Dow Jones Industrial Average declined 89% from its peak and found a bottom at 41.32.
• In the 1920′s, industry and business announced exceptional profits.
• Wages were low and credit purchases were high.
• Real estate prices peaked in 1935 and lost value prior to and after the 1939 collapse.
• 40% of US banks failed.
• Unemployment climbed to 25% in 1933
• During his first year as President, Roosevelt charged the “unscrupulous money lenders” and ” self-seekers” for the economic collapse.
• The American family saw a drop in income from $2,300 to $1,500 annually; that is a 40% decline. A 2009 survey by FinaMetrica indicates that 64% of respondents expect a drop in life style.
• Government initiatives created road and building projects.
• The Dust Bowl of 1935-1938 forced 800,000 out of their homes and off the farm. Did Al Gore catch a cyclical event or an inexorable global catastrophe that might be mitigated?
• The Home Owners Refinancing Act passed through Congress in 1933 helping about one million families get mortgages.

Sounds familiar and worse.

Maybe imagination, hope, belief, expectation, and ideas helped Americans get through the effects of avarice.  Maybe changes are just simple economic cycles. Maybe,  World War II gave Americans focus, hope, and incidentally, economic growth.  Who knows for certain? I think energy and necessity (“the mother of invention) exceeds the impact of circumstance.  What we are matters more than where we are.

Napoleon Hill writes, “Never in the history of America has there been so great an opportunity,  for practical dreamers as now exists….The rules of the race have changed, because we now live in a changed world that definitely favors the masses, those who had little or no opportunity to win under the conditions existing during the depression, when fear paralyzed fear and development. ”

“We who are in this new race for riches, should be encouraged to know that this changed world in which we lives is demanding new ideas, new ways of doing things, new leaders, new inventions, new methods of teaching, new methods of marketing, new books, new literature, new features for the radio, new ideas for moving pictures.”

“Back of all this demand for new and better things, there is one quality which one must possess to win, and that is definiteness of purpose, the knowledge of what one wants, and a burning desire to possess it.”

Where are the inventors and innovators? They are doing what inventors and innovators do. They change our world; they lead us because they dream, they innovate, they invent, and they have ”burning desire”.

You may think that America has lost its “burning desire” for invention and innovation;  not so. The Kauffmann Foundation tracks the creative and inventive spirit of America.

Here are recent news stories from the Kauffman Foundatin newsletter:

 
• World Turns On Its Entrepreneurial Axis: During Global Entrepreneurship Week, November 16-22, millions of young people around the world joined a growing movement of entrepreneurial people to generate new ideas and to seek better ways of doing things. Eighty-eight countries across six continents came together during the second annual global celebration of entrepreneurship to inspire young people to embrace innovation, imagination, and creativity.
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• Company Founders Credit Experience, Management, and Luck for Entrepreneurial Success: While fostering new business creation could again help the United States move more swiftly toward ending the current recession, little has been known about the factors that cultivate and support entrepreneurialism. However, a new study from the Kauffman Foundation, “Making of a Successful Entrepreneur,” provides insight into company owners’ views about what influences the success or failure of a startup business.
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• Canadian Student Takes 2009 Global Student Entrepreneur Award: Simon Fraser University student Milun Tesovic, founder of MetroLyrics.com, has been named champion of the 2009 Global Student Entrepreneur Awards (GSEA) and the recipient of $150,000 in cash and donated services that will help support his company and development as an entrepreneur. The GSEA Global Finals, featuring students from eighteen countries, were held at the Kauffman Foundation during Global Entrepreneurship Week.
  Watch video highlights of the competition more arrow
• OECD Report on Entrepreneurship Reveals Economic Impact on Firm Formation: The Organisation for Economic Co-operation and Development (OECD) has unveiled the first indications of how the economic slump has affected entrepreneurship in the United States and eleven other countries in 2008 and most of 2009. The report, Timely Entrepreneurship Indicators, shows that firm formation declined and exits increased, which economists say could have significant implications for job creation.
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• College Freshman Show Increasing Interest in Entrepreneurship: The most ubiquitous survey of college freshmen in the United States reveals that interest in entrepreneurship among first-year college students has risen over time. Trends in Business Interest Among U.S. College Students bases its findings on data available through the Cooperative Institutional Research Program, which for forty years has conducted the CIRP Freshman Survey. Find out more arrow
• Partnership to Launch Book Series on Innovation and Entrepreneurship: The Kauffman Foundation, Princeton University Press, and the Berkley Center for Entrepreneurial Studies at New York University have announced a publishing partnership to launch the Kauffman Series on Innovation and Entrepreneurship.
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Do you believe history is repetitious?

Do you believe that what happened then can happen anytime?

Are you dreaming…inventing…innovating?

This morning a friend and I talked by telephone.

The Bible says, “Friends come and friends go, but a true friend sticks by you like family,” and he is family.

My friend works for a major insurance company overseeing new product development management from the technology side: databases, daily valuation updates, client statement. He’s not a geek, but he understands geekdom.

Today, we talked about the power and impact of personality during good times and bad times.  No one found a pink slip on their desk, but company bonuses and matching pension contributions got axed.

Most employees groused. He understands, accepts, and does his job effectively.

His tone is even, but never bores. As his wife says, “He can walk in a room without sensing any emotion. I walk in a room and absorb every one’s feelings.” He does sense feelings, but never messes with them.

My friend’s temperament and commitment merits a promotion, and he got one.

Temperament and tone matter. Personality is the message. Impeccable expression changes lives.

Paul Hawken’s commencement address, “Healing or Stealing?” expresses his passion, intelligence, and vision. His words: energetic; his challenge: relevant.

Loving the word, ideas, concepts, and having a vision matter. Too often, we overlook the power of ideas because we exert too much attention getting people to buy a product or service. The power of language, the impact of passion that words convey, and the power of redemptive change elevates above the base and mundane.

Mark Twain wrote, “The difference between a word and the right word is the difference between the lighting bug and lightning.”

Paul Hawken’s University of Oregon 2009 graduation commencement address affirms and encourages. When bleak news fatigues and arouses fear, Hawken’s says, “You are brilliant and the earth is hiring.” Economic policy, human toys, and avarice must give way to the enduring necessity of life on earth.

Every day we commence activities, and every day our economic obligations and initiatives must conform to what works best for the earth and all her inhabitants. Investing is not just for you, or me; investing demands moral temperament and sensitive tones. Investing ourselves for the highest purpose creates a portfolio legacy that Wall Street cannot take nor diminish.

To read Hawken’s message, look at the toolbar at the bottom for the word “full” (screen). Hit escape when you’re done.

“Well we’re movin on up,
To the east side.
To a deluxe apartment in the sky.
Movin on up,
To the east side.
We finally got a piece of the pie.

Fish don’t fry in the kitchen;
Beans don’t burn on the grill.
Took a whole lotta tryin’,
Just to get up that hill.
Now we’re up in the big leagues,
Gettin’ our turn at bat.
As long as we live, it’s you and me baby,
There ain’t nothin wrong with that.

Well we’re movin on up,
To the east side.
To a deluxe apartment in the sky.
Movin on up,
To the east side.
We finally got a piece of the pie.”

Did you watch the Jefferson’s in their  “apartment in the sky”? Life was good, goofy, and gilded; they “finally got a piece of the pie.”

High net worth families have a net worth of one million dollars. How they got there is a prism reflecting unique ideas, good timing (luck), passion, determination, prudence, and focus.

Keeping their wealth takes momentum, persistence, risk-taking, and entrepreneurial instincts. Adding complex global economic trends, currency and commodity values gives wealthy folks economic vertigo.Wealthy living on the upper east-side or a Tuscan village differs.

A successful, high-net worth hairstylist said to me, “In Italy you live, but make no money. In America, you make money, but have no life. My best times in Italy are sitting at a cafe, drinking coffee, reading the morning paper, and watching ocean waves. When leaving, I say, ‘Thanks…I’ll be back.’”

Making it and maintaining it became difficult and frustrating for wealthy Americans during this recession, just like the rest of us.

Millionaires don’t feel as good about their income:
• Most, like the rest, consider their cash flow worse.
• 54% feel “worse off”
• 32% think this could be a better year (optimism matters)
• 42% think not much’s gonna change
• 26% are downright pessimistic: things won’t stay the same, they’ll get worse.
• 38% shifted funds or will shift funds to certificates of deposit

Read, “Hard knocks for the high net worth” by Investment News, August 17, 2009

What you don’t measure, you can’t track.

This axiom matters when bear markets hobble your investment portfolio. Understanding the cause, measuring the result, and tracking the patterns,  guides and instructs.

Most of the news we get heightens anxiety or accelerates our greed.

When the news affects personal assets, we shun the obvious in catatonic stupors. Many investors acknowledge choking on their emotions during this recession and stock market decline.

We forget  economic rhythms that always undulate between profit and loss. We sometimes  see economic trends as irrational and bizarre and forget the simplicity of supply and demand.

As long as humans trade dollars for stock ownership, loan money to corporations or  governments for bonds, and manage risk with options, markets will remain rational most of the time and irrational some of the time.

George Soros says, “The key to understanding this crisis — the worst since the 1930s — is to see that it was generated within the financial system itself. What we are witnessing is not the result of some exogenous shock that knocked things off balance.”   “A New Motor For the World Economy”; The Bangkok Post (Thailand); Oct 18, 2008.

Opportunity drives us, taking chances absorbs us, money comforts us, but tracking effectively often eludes us.  Wall Street markers tell us where we’ve been, not where we’re going.

The hiking trail cairns on Mount Washington stand as immovable rock formations that do both. What makes investing so difficult that we don’t use simple indicators rather than a cacophony of mixed-messages?

“Teach a parrot the terms “supply and demand” and you’ve got an economist.”
Thomas Carlyle quotes (Scottish Historian and Essayist, leading figure in the Victorian era. 1795-1881)

Carlyle overreached when saying this, but he’s on to something rudimentary about economic predictions.

Investor cairns or markers include the S&P 500, Russell 2000, and the Wilshire 5000 (intrepid investors may use the Investor’s Business Daily 1000).  An index tells us where we’ve been with myopic predictions.

In 1744, a group of captains and merchants met at Starbucks (well,  the coffee shop on Threadneedle Street in London). Coffee houses were then what they are today, social gathering places where business deals and loud conversation filled the place.

Merchants and investors  wanted to track shipments between Virginia and the Baltic at the “Virginia and Baltic Coffee House”.  They tracked shipments of “tallows, oils, flax, hemp and seeds from the Baltic states”.

Today, “The Baltic produces independent shipping market assessments. Using a panel of international shipbrokers, we provide daily assessments on over 50 dry and wet routes, weekly sale & purchase and demolition assessments as well as daily forward prices.” (Read more about: The Baltic Exchange)

What makes this index prescient? Well, the Baltic Index is a leading indicator. We learn how many cargo ships travel, where they’re going, what they’re carrying (lumber, coal, iron, grain, cement, as examples), and the value of their cargo.  Every business day, the the Baltic membership accesses ” a dry cargo fixture list.  Each fixture is carefully checked and verified.”   The Baltic … is regarded as the most comprehensive and independent such list available.” (The Baltic website)

There’s no economic prognostication or guesswork. The Baltic Exchange motto: “Our Word Our Bond”.

An economist reading “The Baltic” magazine gets the facts. The Baltic Exchange measures what it tracks. When economies do well, shipments increase; no guessing, estimating, or preponderance of divergent economic opinions.

You can peruse “The Baltic” magazine on line; the June 2009 issue bids farewell to Michael Drayton as The Baltic Chairman.  Read his answer to the question “What are your greatest fears for the shipping markets over the medium to long-term?” (The Baltic, June 2009, page 5)

When you want a foward-looking indicator, look  at Bloomberg’s  Baltic Dry Index chart.

The Kaufman Foundation’s passion and mission gives life to entrepreneurial thoughts and innovation.

What you’ll learn with some of my thoughts:

1. The age of entrepreneurs is changing.

2. Venture Capital is necessary.

3. Business start-ups spark new economic growth.

4. New firms revive economies in most instances.

5.  Most Congressman just don’t “get it”.

6. Innovators change economies.

7. You may be one of many entrepreneurs who sprouts the BIG idea in a small place.

8.  All economics is local. Where you live is where you spend your time and money.

9.  All economics is global. An entrepreneur in Seoul or Yangshuo (Guangxi), China may change your life.

10. Your ideas matter. What you discard as worthless may become the leading innovation of all time. Either you graspe the moment, or someone will adhere to the idea. Read Russell Conwell’s Acres of Diamonds.

Edward Yardeni once worked for Prudential Securities (now defunct). Yardeni reminded and instructed stock brokers about many economic patterns. One that sticks with me is his observation of “rolling recessions”.

Recessions happen in strong economies; we get more of them in a weak economy. When rolling recessions happen in all economic sectors, we have an economic pandemic. The world gets a runny nose.

Despite worry, consternation, and fidgeting when watching Bloomberg news, there are metropolitan areas that show life, vibrance, innovation, employment, and hope. The downside is that there are metropolitan areas where there’s inactivity, darkness, boredom, unemployment, and despair.

Everyone does, in my opinion, possess hopeful opportunity. For reasons somewhat inexplicable, not everyone catches or wears the “gold ring”.

Alan Berube, Senior Fellow at the Brookings Institution, reminds us that there are 366 metropolitan areas. We are not, as Berube says, a single economy. We are “a nation of 366 different economies, fueled by varying industries.”

Given the diversity, the time of recovery will differ from one metropolitan area to another.

Utopia has all 366 metropolitan areas productive and growing. Unfortunately, utopia is no place.

And there’s joy at Fenway as  Boston Puts It To the Yankees.

If….you love the Yankees, I understand.

Every morning after a Red Sox game, Lisa’s grandmother tells me about the game. I already know what she tells me, but she gets quite excited at age 95.

She says, “Big Poppie (David Ortiz) clocked his third home run, and things are looking up for him” and “the stock market”, I add.

OK; not so fast, Randall. We have a lot of ground to travel before returning to solid ground. No banners hanging over Wall Street yet.

Just the same, the news is better.

Market analysts support viewpoints with statistics. Most of us find the data dreary. We scan the dull parts faster than a furtive glance.

Baseball stats dull the sound of the bat, the “wave”, and a Fenway Frank. Just the same, statistics and probabilities matter.

This summer, I went to my second Red Sox game. We sat perpendicular to third base. What seats! To my right and to my left, two middle-aged men kept track of every hit and every pitch for every inning.

I asked, “How come you do that?” They both said, “I just enjoy the game more when I do.”

So, for those who enjoy stock statistics, the attached SEI Investments commentary gives you plenty to ponder.

Quiz:  Can you guess the stat before reading the right coloumn? They all seem esoteric to me.

Here’s the article, “Small-Cap Stocks: Too Far Too Fast or Just the Beginning?” by James Solloway, CFA, Senior Portfolio Manager, Global Portfolio Strategies, SEI Investments, Inc.

Whoever told us that getting what we want, no matter what the cost, rewards us with profits?

What presumptions did we assume during the Industrial Revolution?

Did someone say the earth has a voracious appetite for our refuse without choking?

Paul Hawkens contradicts our presumptions, assumptions, and earth-born arrogance by recognizing an eternal premise: the earth lives, and we have no right, in the name of profits, to destroy the land.

Hawkens, (read The Ecology of Commerce) taught Ray Anderson that sustaining the earth is consistent with making profits. You can treat your customer with high regard, make decorative carpets with sustainable characteristics, offer free recycling of what you make, while making profits.

Ray Anderson is the founder of Interface, the company that makes those adorable Flor carpet tiles (as well as lots of less whizzy but equally useful flooring and fabric). He was a serious carpet guy, focused on building his company and making great products. Then he read Paul Hawken’s book The Ecology of Commerce. Something clicked: with his company’s global reach and manufacturing footprint, he was in a position to do something very real, very important, in building a sustainable world.

Here’s what Ray Anderson told a Ted conference (If you want to learn innovative ideas from critical thinkers, check out “Ted, Ideas worth spreading“.

 Math, engineering, technology, and science are the subjects necessary for economic growth in the future. The Kauffman Foundation. understands the necessity to train “METS” entrepreneurs for future innovation.

America has been the innovation leader in the world. School Boards, superintendents, and high school principals must recognize the need to train students in “METS” subjects.

Dire statistics include those from a recent U.S. Department of Labor report indicating that 60 percent of jobs in the 21st century economy will require skills that only 20 percent of the workforce currently has—and those skills are largely related to METS subjects.

There are 14,600 local school boards across the United States, each independently addressing one of education’s most critical challenges: how to improve the teaching of mathematics, engineering, technology, and science (METS). Some have led their districts to innovative partnerships and brilliant solutions; others have made disastrous decisions costing their districts thousands of dollars. But none of them has had a central place to go to for resources and support.

Beginning in 2007, a new partnership between the National School Boards Association (NSBA) and the American Association for the Advancement of Science (AAAS) was created to address this gaping need. The AAAS/NSBA Science, Mathematics, and Technology Education Project marks the first time a national science organization has reached out proactively to local school boards, and the first time that NSBA has directly addressed its constituents’ needs with respect to METS subjects. The project’s goal is to determine what school boards want and need to know about METS education and to address those needs head-on.

Read the entire story here:
Helping Local School Boards Understand the Importance of METS Education

Last week’s chart illustrated the current plunge of S&P 500 earnings. Today’s chart illustrates how this plunge in earnings has impacted the current valuation of the stock market as measured by the price to earnings ratio (PE ratio). Generally speaking, when the PE ratio is high, stocks are considered to be expensive. When the PE ratio is low, stocks are considered to be inexpensive. From 1936 into the late 1980s, the PE ratio tended to peak in the low 20s (red line) and trough somewhere around seven (green line). The price investors were willing to pay for a dollar of earnings increased during the dot-com boom (late 1990s) and the dot-com bust (early 2000s). As a result of the current plunge in earnings and the recent 2.5 month stock market rally, the PE ratio has spiked to the low 120s – a record high.

Notes:
- Where’s the market headed? The answer may surprise you. Find out right now with the exclusive & Barron’s recommended charts of Chart of the Day Plus.

Source: Chart of the Day

Chart of the Day
While the stock market is up sharply since early March, the economy as well as corporate earnings continue to suffer. Today’s chart helps provide some perspective as to the magnitude of the current economic decline. Today’s chart illustrates that 12-month, as-reported S&P 500 earnings have declined over 90% over the past 20 months (with over 90% of S&P 500 companies having reported for Q1 2009), making this by far the largest decline on record (the data goes back to 1936). In fact, real earnings have dropped to a record low and if current estimates hold, Q3 2009 will see the first 12-month period during which S&P 500 earnings are negative.

Notes:
- Where’s the market headed? The answer may surprise you. Find out right now with the exclusive & Barron’s recommended charts of Chart of the Day Plus.

Source: Chart of the Day

On December 19th, 2008, Robert Brokam of the Motley Fool, asked John Bogle (born 1929), founder of The Vanguard Group, if we are heading for a depression (Bogle grew up during the Depression).

“Today, we hear a lot of people invoking the possibility of another Depression. So what is your take on today’s crisis? Are we looking at another Depression?”

Bogle answered,

“…This is my tenth bear market, defined as one that goes down at least 20%. And this is in a lot of ways the most difficult one that we have had because the gross excesses — the unacceptable excesses in our financial sector — are carrying over to the economy at large…I think the excesses of Wall Street and Wall Street’s greed have carried over and done substantial harm to Main Street and the people that make America go….”

In the Berkshire Hathaway 2008 Annual Report, Warren Buffet refers to the performance table (see page 4) tracking the 44-year performance of Berkshire’s book value and the S&P 500 index.

“…2008 was the worst year for each. The period was devastating as well for corporate and municipal bonds, real estate and commodities. By year-end, investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game.”

There was no place to hide, and asset allocation didn’t matter.

An “Investment News” survey concluded that “70% of 329 advisers said that the economic downturn and its effect on clients have negatively affected their physical and/or emotional health.”

Jed Horowitz, author of the article, writes,

“Mental-health professionals say that stress can trigger depression, which can lead some advisers to feel unjustified guilt over unpredictable client losses.”

“As many as 80 percent of Americans are stressed about their personal finances and the economy, according to the annual survey conducted by the American Psychological Association,”

according to CNNHealth.com.

Dr. Katherine Nordal, the association’s executive director for professional practice said,

“This year…the No. 1 concern is both money and the economy. In my 30 years of experience…this was not the thing that would be high in complaint lists…what we’re seeing today is that the economy and finances are viewed as significantly more stressful, by more than 8 out of 10 Americans”

(7,000 Americans replied to the survey from April to September 2008).

During his March 24th press conference, President Obama reminded Americans that

“We will recover from this recession, but it will take time, it will take patience, and it will take an understanding that when we all work together; when each of us looks beyond our own short-term interests to the wider set of obligations we have to each other — that’s when we succeed.”

.

Recent news suggests, but may not be conclusive, that this recession has found its bottom and finds it attractive.

This cat sleeps.

Dead cat stock market bounces are “A temporary recovery from a prolonged decline or bear market, after which the market continues to fall.” (Investopedia)

If dead cats bounce, the metaphor is useful when predicting stock market trends.

Dead cats bounce along Wall Street after short sellers cover their yet-to-be-owned stock. Their doubt about the market’s continued price-drop prompts them to buy the stock (ie. cover their short position).

Dead cats bounce along Wall Street when investors cover their option positions. Their action may encourage false hopes of a bounce in the markets.

Dead cats bounce along Wall Street when speculating investors throw a dart at Wall Street “blue light specials” (for you KMart shoppers). When checking their purchase in the Sunday papers, they find their shares for sale at a deeper discount.

The dead cat bounce is a silly idiom; no experiment I know of proves a dead cat bounces. No economist or analyst predicts dead cat bounces in the stock market consistently.

“8 Who Saw the Crisis Coming…” (Fortune Magazine, August 2008)
• Sean Egan
• Nouriel Roubini
• Michael Mayo
• Robert Rodriguez
• William Poole
• Richard Baker
• David Einhorn
• Bill Eickman

  “…And 8 Who Didn’t”

• Angelo Mozilo
• Jeff Larson
• Moody’s, Fitch, Standard & Poor’s
• Greenspan, Bernanke, Paulson
• James Cayne
• Chuck Prince, Former Citigroup CEO
• Stan O’Neal, Former CEO, Merrill Lynch
• Zoe Cruz, Former CEO, Morgan Stanley

An ancient test for a prophet requires exact and fulfilled predictions every time, not some of the time.

Stock market moves are not dead or alive, bullish or bearish unless investors make them so. Momentum comes when the greater number of investors take action that opposes other investors. This makes momentum possible.

Most importantly, you don’t know until you presume the cat bounced. Predicting market direction expresses chutzpah blended with keen observations.
You may be right, but the likelihood of accurate and successive predictions confirms the unparalleled dimensions of uncertainty.

Market optimism or pessimism occurs when a mass of people make the result theoretically probable. The determination or prediction of probable outcome never eliminates uncertainty unless there are glaring market anomalies (**see Robert Schiller).

Italian economist Vilfredo Pareto’s principle asserts that 80% of value comes from 20% of those who have the potential to create value. The calculations do not support the 80/20 rule every time, but at minimum the concept retains its assertion.

Therefore, 80% of market analysts are right 20% of the time or 80% of stock market predictions are right 20% of the time. As with all predictions, there’s no certainty of which prediction is right.

For me, further proof that asset allocation, with static weighting and dynamic investment methods works when market anomalies lack affect.

When Vilfredo’s cat died, he did not drop her stiff body out of his bedroom window to see if she’d bounce.

“It is a maxim of empirical economics that if you torture the data sufficiently, they will confess.”
(Stephen A. Marglin, The Dismal Science “How Thinking Like An Economist Undermines Community” (Cambridge: Harvard University Press, 2008) 122.

Empirical economics is distinct from theoretical economic theory or the fundamental distinction between deductive and inductive economic ideas.

We’ll all know in six months.

“If you want to have a better performance than the crowd, you must do things differently from the crowd.” – John Templeton

Templeton is right, but most of us act according to John Emerson’s views posted on Scienceblogs.com.

Economists have always had trouble with bubbles, like the one we just experience (sic), and this is partly because not only are people not totally rational and not only do they not have perfect knowledge, but besides that, they communicate with one another, so the irrationality is not randomly distributed so that the irrational individuals are weeded out, but can pervade a whole population.

What will the maddening crowds do? Uncertainty prevails for the moment. We may presume, I think, that Americans possess an unwavering commitment toward work and prosperity, and these ethics should become evident in the value of stocks.