Put more succinctly, I was the typical 20-something know-it-all whose real life lack of experience, expertise, and knowledge was nearly immeasurable.

Then several ’storms’ converged to enlighten me.

The starry-eyed optimism and unearned confidence of my early adult life was both a help and a hindrance. It helped as I forged ahead in things only a lack of fear made possible. It hindered cuz, well, ignorance and arrogance always hinder. Duh. So what were these storms?

I embarked upon an intense and extended period of education. The teachers were, with rare exception, not ivory tower professors. They were doing what I was doing — and with excellence.

I became a father — that should be self explanatory.

The disastrous inflation/recession of the early 80’s hit HARD and taught exceedingly well.

Grandma explained what she’d been tellin’ me for years — that the fundamentals, physics if you will, of economics would not be long mocked.

I learned a priceless lesson: ‘Adapt or perish’ wasn’t just a slogan.

In my experience, the principle of adaptation has two basic levels. 1) We must adapt to market changes, often temporary in duration, or if not, they’re generally not soul-wrenching events. (Captain Obvious now rollin’ his eyes.) 2) We must adapt to huge changes, often systemic in nature, that will make previously profitable strategies and/or endeavors disappear faster than steam.

An example of #1 would be temporary but problematic interest rate increases, or minor but irritating modifications of a particular tax law. An example of #2 might be TEFRA, an act passed by congress in 1986 which threw wrenches in all sorts of real estate investment strategies. It causes much grief and chaos in the years immediately following its passage. It decimated limited partnerships, a very popular investment vehicle of the time. Many said it took away much of what ERTA gave a couple years earlier.

If you’re over 40, and especially over 50, the big picture as it relates to your retirement income is now more important than ever. Specifically, that means the real estate goddess of forgiveness, appreciation, has been banished for the foreseeable future. Without the reasonable expectation of properties consistently moving up the value escalator, the real estate investor’s expertise and knowledge will be tested. Mistakes will now be punished — solid investing will be rewarded.

The ability for you to adapt to all the changes that have rained down on us in the midst of this perfect storm will, more likely than not, make or break the quality of your retirement. Those who’ve lost so much on Wall Street are acutely aware of this principle and how it will affect their future.

Be bold, but Plan — then do things on Purpose.

This is where Self-Directed IRAs, Solo 401Ks, and Roth IRAs come into play for so many of you. Best case scenario for many is a number of years on the treadmill playing catchup — making up for all the money lost. Be strong, and take heart — then make the decision to be an adapter. It could be the difference between the retirement for which you planned, and 10 more years on the job.

We’re not in Kansas any more, Toto — it’s back to the Old Normal.

Frankly, I’m thrilled the Old Normal has made a comeback. It’s the silver lining to all these storm clouds. Those who make Purposeful Planning the foundation for their retirement will reap the benefits. The next five years will see the amateurs left by the side of the road. Appreciation, the goddess of forgiveness has left the building.

Let’s talk. Contact me at 619 889-7100. Have a good one.

CURRENT BUY –- 100% of portfolio stock allocation $$$
KEYLINE 7-25-09 BUY — 50% allocation only (S&P @ 970)
SIGNAL 10-9-09 BUY — balance of 50% (S&P @ 1071)

Sometimes you just wonder how long the market can meander sideways. But then, you remember that the rule in charting is that the sideways movement, called a “correction in time,” (especially after a long rally) can be the best world of all. What such a market says is that, yes, the heavy preponderance of buyers has declined, but, the auction market is now at almost a balance between buyers and sellers and the index prices should hold their own until more buyers come to the game.

My wife used to ask me why the market was up or down on a particular day. My answer became so “the same” that she often answered for me. My answer on days where the market was up was “More buyers than sellers,” and on down days “More sellers than buyers.” She used to laugh, but I am sure she got tired of hearing that. I recall she would often say, “No, I mean really!” Sorry honey, but who REALLY knows exactly for sure. Sometimes it is clear, but most of the time it is foggy at best to pick the one best reason. That is why in the daily “Munchin” report I try to give you the 5-7 main reasons the market moved up or down for the day, at least as I see them. Take your pick, as any one of them usually has had at least some noticeable impact during the day.

But, on to the markets. I told you last week that if the bonds held steady, the dollar steady, gold was soft and the S&P above 1,100 on the Friday close this would be the best scenario for the week. We only got the S&P to cooperate. The bonds were decidedly down on much stronger than expected retail sales and consumer confidence. Bonds took the hit, as they say, because the good consumer numbers portend a recovering economy.

That potential recovery means that the Fed may soon be able to raise rates and try to get back to the historical mean of about 5% interest rates. But, the rub is that rising rates means lower profits 80-90% of the time, and lower profits means lower stock prices. This last effect is one the Fed would like to avoid, at least for the next 12 months or so. All of this is the main reason I developed and use the Keyline so diligently. It keeps me out in bad selloffs and in on good rallies –- like this one.

The Charts

Ok, let’s get to the charts for this week. By the way, I am including two charts this week that I have made a part of the closing data at the end of this weekly Keyline Report, the dollar and copper. The dollar I have shown you several months ago, but I will now be including it on a more regular basis. Copper I am including because of all the commodities — it is the one that is most used by professional traders to gauge the effects of inflation. Yes, there is a commodity index that included almost all the commodities, but copper is the single most sensitive commodity over the years and traders even call this metal “Dr. Copper,” as it is most often the first to signal changes in the inflation winds.

But first, let’s get to the S&P chart.

You can see that we are just “crawling up the chart’s Headline”. So far, we have held above it, but just barely, as the market has worked over the last month or so to digest the huge rally that began last March. My target remains the S&P 1220-40 area at this point, but I am keeping a close watch for any weakness that might signal a shift from the current sideways movement. For now, we are above the Keyline (at 1059) and holding above the 1,100 mark all this week would be a good sign. About 1,080 is still a critical support. Note in the MOMENTUM SECTION, at the bottom of the chart, that the green line (fast stochastic) has moved back into the 80 area (see red circle), a rather high reading for a good up move to develop. But, I have seen it happen before. Just need to be alert to this high reading for now. Let’s let the chart show us the way here, however.

Now on to the dollar chart

I am showing the last 10 years here, so you can get a good grasp of the decline this period of time has produced. It is substantial, but the lower dollar has also helped to reduce our import-export balances. But, we need to really cut oil imports to make any more of a dent, it would appear.

The current price remains well below the Keyline (at 79.92) and, you can see by the chart, that the bit of a dollar rally they have talked about the last 10 days is really a very anemic move –- so far. The big news here is that the Japanese yen is replacing the dollar as the choice of the “carriage trade” traders. That means that the dollar will be bought for the next month or so, as these traders buy dollars to repay their “carriage trade” loans and move to the yen.

I expect, assuming the shift is relatively smooth, the dollar will continue to gain some in price, but should remain below the Keyline for now. This gain in the dollar will weigh on the stock market, as it means, primarily, that the U.S. will be less competitive in world markets with its goods and services –- less profits to the minds of investors. A steady to mildly higher dollar this week would be the best scenario.

And finally, on to the copper chart

I had this chart in the daily “Munchin’” report this past week, but I am including it here again, as I have more extensive comments to make about it. This time I am showing the chart back 10 years. You can see it did the same nosedive that stock market did, as would be expected. But, note that it began to rally as early as January of this year, nearly 60 days ahead of the March low. I suspect that this was one of the major clues to the big investors that that March low was not a harbinger of more lows and may have help set off the rally we are still experiencing.

Note in the MOMENTUM SECTION at the bottom of the chart that the green line (fast stochastic) is quite low and the black line (slow stochastic) is still in the 70 area. This kind of setup is usually a harbinger of higher copper prices. This might also be telling us that the current stock market rally might be ready for more up move. I will be watching this closely.

We remain well above the Keyline (at 2.8808) for now, but like we did in the late July to October period, prices are moving sideways pretty much. I am keeping a watch on this one for any weakness that might break the $3.00 level. If that were to occur, we might well see the stock market begin to drop again, also. If that were to occur, the drop would hopefully not be like it was last year. But, for now, the $3.00 level is a critical support. Watch the price updates I give you daily to keep up on this one. Best scenario is to hold steady in price this week.

The Bottom Line This Week

Well, that pretty much wraps up this week. I will have the daily update to keep you current on any major developments during the week. But, I will not be giving you a summary this week, as I have in the past, of the major news events influencing the market all week. That I am now doing within each daily update report.

But, here is the way I see the bottom line that would make this week’s scenario a good one. The S&P needs to remain above the 1,100 level, bonds really need to find support in this 117 area, Gold needs to hold steady — but above $1,100 level, oil should hold the $68-72 area and the dollar not break above the 77.50 mark, as the “carriage trade” exits the dollar usage and shifts to the use of the yen.

So, as always, do have a good investing week. And you keep in touch. I do! See you next week.

Weekly Changes

Closes as of Fri. 12-11-09 WK. CHANGE (cash) KEYLINE# ABV/BLW
DOW INDU. 10,471.50 +83 points 9,848 ABV +623
S&P 1,106.41 +43 points 1,059 ABV +47
NASDAQ 2,190.31 -4.05 points 1,969 ABV +221
30 YR BONDS 117 21/32 -23/32nds 115 24/32 ABV +1 30/32
GOLD $1,132.50 -$37.00 $1,044.40 ABV $88.10
OIL $69.56 -$5.91 $83.21 BLW $13.58
DOLLAR INDEX 76.57 +.63 79.03 BLW 2.46
COPPER $3.1330 +$.0285 $2.8808 ABV +.2522

Top 10 Stock Sectors Last 6 Months @12-11-09

1. BROADCAST (+70.3%) SAME AS LAST WEEK SAME
2. TOOLS (+65.0%) #7 LAST WEEK UP
3. AUTO (+49.0%) SAME AS LAST WEEK SAME
4. ELECTRICAL (+48.0%) #6 LAST WEEK UP
5. ENGINES (43.4%) #4 LAST WEEK DOWN
6. PRINTING (+42.5%) #2 LAST WEEK DOWN
7. TEXTILE (+41.1%) #10 LAST WEEK UP
8. MINING (+38.6%) #9 LAST WEEK UP
9. PUBLISHING (+36.7%) #5 LAST WEEK DOWN
10. CHEMICAL (+34.4%) NEW TO LIST UP

*The name Super Chart Keyline is a registered Trademark of Max Whitmore.

But, don’t think that we are out of the woods just because all the good stuff lines up end to end. The weakness that the Dubai episode uncovered nearly two weeks ago is still there. But, as of this writing, it is fair to say that it is likely no longer a game-breaker. But, what it did show to all was that the world’s central banks still have a long way to go to regain the confidence of investors.

I have said a number of times over the last two years that the worst nightmare of Mr. Bernanke, our Fed chairman, is to lose the confidence of investors. His concern over this is one of the reasons that the huge flood of “newly printed” dollars continues. At all costs, he does not want deflation to gain the upper hand. So far he has been able to keep control, which is testified to by the stock markets seven month rise.

But, last Friday’s employment report may signal the beginning of a different battle for investors. Instead of the expected near 125,000 job loss, the report showed only an 11,000 job loss and every investor in the world suddenly looked up from their computer screens and said in unison “What!?!”

The bond guys were the only ones not caught flatfooted, as I see it. They began to sell bonds last Tuesday and sold bonds heavily on Wed and Thur. When the employment number came out they just continued to sell. Bonds fell over 4 points in those three days. That is a huge drop and a clear sign that they had some sense of the coming employment numbers. I don’t mean they knew somehow from a cheat sheet. They just sensed it coming from data released during the previous three weeks. They were right.

Now, the big fear gripping the markets shifts into a whole new direction.

Remember last week when I told you that Australia had hiked their interest rates for the third month in a row? I told you that there was a drum beating in the distance. Well, the drummer is at the door now beating like there is no tomorrow. The tune is called “When?” That is, when will the Fed and other world banks begin to hike rates?

Last February the Fed said they would keep rates low for “an extended period,” as you may recall. Now investors are wondering if that period is rapidly coming to an end. Will the Fed cease entering the market and buying bonds to thrust more funds into the economy? Will Mr. Bernanke say something soon (maybe even today as he continues to face Congress during hearings that seek to give him another four year term) to indicate that rates may finally go up a bit? You can be sure that investors will be watching. And, of course, so will I.

OK, with all this as the backdrop, just where are we on the charts? Well, there is a short answer and a long answer. Let’s just stay with the short one. OK? The short answer is that the S&P continues to climb. Right after the employment numbers were announced at 8:30am Friday, there was a shot by the markets to break above the current overhead resistance (at about S&P 1,130-40). But, the attempt failed as the dollar gained a huge chunk as the day progressed, mostly from the “carriage trade” traders buying dollars to cover their borrowing activities.

Whatever the reason, the bottom line for the charts was that supports did hold up as the markets backed off sharply. Will there be another try to break up through overhead resistance. For sure. When? Don’t know at this point, but a very important event occurred last week with regard to my Keyline that makes me more confident that this next try or two will succeed. For the first time since the crash 14 months ago late in 2008, my Keyline closed at a tad higher price than the previous week. Why is this important? Because when my Keyline slope turns up, upside momentum has gained control of the chart.

Now this event is no guarantee we will just continue to climb higher, but in every BUY trade called by the Super Chart Keyline since I started to keep it 40+ years ago, that “turn-up” point was followed by at least 5-7 months of higher Keyline prices each week, with the S&P close each Friday staying above the Keyline.

Note I said Keyline prices continued higher each week. There were still ups and downs of the Friday S&P cash index prices, but even with these ups and downs the cash index stayed above the Keyline all during that time, too. My Super Chart Keyline still says that we are heading for the S&P 1,220-50 area (about 11,300-600 Dow) and, unless we close for six weeks consecutive below my Keyline, that is still where it indicates we are going. Will it be true to its 40+ year history again? No guarantee, but until it breaks my Keyline to the downside, we are going to the S&P 1,220-40 level, as I see it.

There was one other good chart development technically last week. Remember I told you of a concern I had about the Momentum Section possibly signaling a price retreat? Well, it did NOT come to pass. The green stochastic (fast) did drop to the 50 level as I felt it would, but then it moved up sharply to close last Friday at 79.01. This means, also as I had hoped, that any potential decline that might have been signaled by this formation is, for the present moment, wiped away.

However, there is one cloud on the horizon, as I alluded to above. The most significant chart development of the week was the decline in bond prices last week. The bond market, one that no one can really control because it is so huge (not even the Fed), will now be watched closely by all savvy investors. For me, I will be watching my Bond Keyline like a hawk. Currently, it sits at last Friday’s close 115.26. I have attached the current Bond chart so you can see what last week looked like.

You can see that Bonds closed at 118 26/32, down from the over 123 reading of the previous Friday. But, we are a tad over 3 points above the Keyline, still OK. But, if we were to close below my Keyline, it would signal to me that interest rates will likely be going up very soon, as the Fed anticipates a need to suck dollars out of the economy to dampen a possible inflation move. If that does occur, Mr. Bernanke will have achieved his goal of avoiding deflation for now. And it will be the first time in history that the Fed actually has changed the outcome of a possible depression. Will it work out that way? Hummmmmm. Stay tuned.

But, in the meantime, back at the ranch, stock investors will be keying on the bonds far more than the dollar for awhile. Any real potential for higher rates –- read that as pressure on earnings –- will send them scurrying for the sidelines and we might see a test of my Keyline sooner than expected. But, let us not get ahead of ourselves. I would still be a stock buyer in here, albeit it on a bit of a reduced scale for now, until we see how this current change in the winds plays out. Keep checking here each day or so. For, if the situation gets more pronounced in bond selling and higher interest rates become a real threat, I will have a special report for you as to the next steps to take. Never a dull moment!

Now, for those of you who always like to have a quick wrap-up of what news influenced the market last week, here is how I saw it:

!. Dubai moved to the backburner, still there, but not a game breaker.

2. Bonds sold off as the big players in the bond market sensed a recovering economy worldwide that might lead to higher interest rates.

3. The Friday employment report caught most investors off guard, as it indicated only an 11,000 job loss, far below the expected 125,000 job loss. And the unemployment rate dropped to 10% from 10.2%. But, be careful, one month’s number does not a trend make!

4. The metal market, especially gold, eased off its recent new high price levels, as the dollar gained ground. And the dollar gained ground as “carriage trade” traders –- those who borrow dollars at almost 0% and invest for higher interest rates elsewhere in the world –- began to cover their borrowing by buying dollars to repay their borrowing.

5. Several of the big U.S. banks announced they will be paying back their government loans –- oops, their Fed loans; remember the Fed is NOT a government entity –- with the Bank of America the biggest one making such an announcement.

6. Not much in the way of political developments to move the market last week, but keep your eye on the troop surge progress and the Congress battling over the health care issue.

Of course, there were other events, but all were of much less importance than these six, as I see it. Hope that helps you put the market’s reactions into perspective.

Well, that’s about all this week. The bottom line remains that the S&P is still above its Keyline by over 40 S&P points, bonds remain above their Keyline by over 3 points, gold is way above the Keyline, oil has been above its Keyline since early October (not such a good sign) and the dollar continues well BELOW its Keyline. Best scenario this week would be bonds steady, dollar steady to a little higher, gold soft, and the S&P staying above its 1,100 level. Worst scenario would be bonds dropping fast, dollar rising fast, and the S&P dropping below its 1,080 level.

Well, as always, do have a good investing week. And you keep in touch. I do! See you next week.

Closes as of Friday 11-27-09 CHANGE (cash index prices)
DOW Indu. 10,388.90 +79 points
S&P 1,105.98 +15 points
NASDAQ 2,194.35 +56 points
30 YR BONDS 118 12/32 -4 12/32 (big drop here!)
GOLD 1,169.50 -$10
OIL 75.81 -$.15

TOP 10 STOCK SECTORS LAST 6 MONTHS @12-6-09

1. BROADCAST (++67%) #2 LAST WEEK
2. PRINTING (+48.7%) SAME AS LAST WEEK
3. AUTO (+45.4% #4 LAST WEEK
4. ENGINES (41.3%) #1 LAST WEEK
5. PUBLISHING (40.8) SAME AS LAST WEEK
6. ELECTRICAL (+40.3%) SAME AS LAST WEEK
7. TOOLS (+37.7%) #9 LAST WEEK
8. CONSUMER PRODUCTS (+37.1%) NEW TO LIST THIS WEEK
9. MINING (+31.8%) #10 LAST WEEK
10. TEXTILE (+30.4%) #8 LAST WEEK

*The name Super Chart Keyline is a registered Trademark of Max Whitmore.

Basically you will note that the price from last Friday was only a tad lower (from 1093.48 to 1091.38 – remember this is the S&P cash index, not the futures). We did move closer to the “Headline” again, however, and this, with the high green line (fast stochastic) in the Momentum Section (bottom of the chart), has me a little concerned that we might see a bit more selling soon.

At the moment, I don’t expect any major continued selling, but I do see the possibility for a sell back to the 1050-60 area as possible. We should get some idea if that will begin to happen by this week’s end (remembering this is a holiday week and the likelihood of a major move either way is usually not very great on holiday weeks).

As I see it, unless we can get above S&P 1,100 and pretty much stay there all this week, this correction will likely occur and I wanted to alert you to it -– probability (as they say on the weather forecast) is about 65%, at the moment.

Bottom line here is that we are still ABOVE the Super Chart Keyline for now. Again, not a lot to say here today, as holiday is upon us, except, of course, Happy Thanksgiving.

OK, let’s go to the oil and gold charts. Here is the crude oil chart (weekly) back to 2005, nearly 5 years ago. Why so far back? You need to see what the history is to give some idea of where the future might take us.

You can see from the chart that the huge oil price fall from the $150 area last year has only recovered, at best, about 38% of its total loss, but, currently prices are just above the all-important Keyline. All this has taken most of this year to accomplish. However, we are still in the “blue zone” where there is still some question as to the next major direction. The bias is to the upside, but we need time to see if we break out of the “blue.”

Now, take a look at the Momentum Section of the chart (at the bottom of the chart). Note that the Momentum black line (the slow stochastic) is almost at 90, at the moment (89.67). Such a high reading generally portends that we are more likely to see lower crude oil prices rather than higher in the next few months (high readings often means that a price climb is approaching a near term “stall out”). In this instance, I would expect that the Keyline will prove to be support at around the $72-73 per barrel mark (see line on chart) and the last broken support, back in late 2007 early 2008 at about $89-90 a barrel (see line on chart), will likely be the key overhead resistance.

That outlook has some importance from the standpoint that a trading range of $72-90 a barrel could also mean that the dollar might also achieve a more stable price range near term or might actually strengthen a bit. Stabilizing action in the dollar would seem to be the better indication, as I see it at the moment. (Oil is often a very good forecaster for the dollar.)

Bottom line on oil? Expect a trading range of about $72 to $90 per barrel over the next several months. I will be keeping my eye on this bell-weather commodity and let you know if developments on the chart change this near term outlook.

And as for gold, well it remains one of the most powerful charts I have seen in a long time. I told you last week I expect the $2-3,000 range in the next 3-4 years (possibly even sooner depending on political developments), but I want to add quickly that in the near term we could see some “backing and filling” on gold prices.

We have had a very sharp breakout to higher prices the last 12 months, now well above the $1,000 per oz. level as you can see above on the chart, and the black line (slow stochastic) on the Momentum Section of my chart (at the bottom of the chart) is almost at the 95 level (94.21). With such a very high reading, I do expect some sort of correction in the near term.

Now you need to know that corrections generally come in one of two flavors. One is called a “true” price correction (prices fall) or a correction called a correction “in time.” A correction in time means that while gold’s price tends to stay in a relatively very narrow price range, the Momentum Section black line moves back toward the mid-range of its chart (usually in the 40-60 area (the chart is scaled 0-100, as you know). So, I will be alert to see which one develops and let you know.

If it turns out to be a price correction, more aggressive buying might be in order if we reach support in the lower $1,000 area -– see the support line I have drawn in at about $1,050. However, a correction “in time” will be a tougher one to use to add to your portfolio, as prices will likely stay above the $1,100 area. For now, let’s just wait and see what develops here, also.

Bottom line on gold? Watch for some near term (60-90 days) correction action that brings the Momentum Section black line much lower on its chart scale.

Lastly, you need to be alert to some developments on the interest rate scene internationally, as I said last week. As you all are aware, interest rates are practically non-existent today. In other words, the fallout from the market crash last year is being taken out on the savers of the land. Not much we can do about that one, at least as long as the Fed holds rates down to re-liquefy the balance sheets of banks.

But, there is finally some serious international talk about firming up rates in the near future –- read interest rates could go higher. Of course, timing is, as always, crucial. One very important development so far, if you did not know, is that Australia recently hiked their rates a bit causing other central banks of the world to begin to take a serious look to see if they might want to do the same.

There is a two prong benefit to interest rate hikes. First, it will help quiet the inflation jitters being experienced by many folks all around the world, including here in the U.S. The second benefit is, of course, savers will begin to re-liquefy their bank accounts, too, for many a really needed event.

But, the downside to rate increases is what we really want to be alert to here. If rate hikes do come to pass the effect will be almost instantly lower stock prices everywhere. A higher cost of doing business means lower profits and that means lower stock prices. And this is why the Australian move is so important.

Bottom line on interest rates here? With one country already making the move, we need to be very alert to moves in Europe and in Canada, especially. So far, it is only talk. But, if rates begin to rise (and lower bond prices will likely be the first to signal this by moving below my Keyline on the bond chart, at about 116 last Friday), I will have a special report for you at once.

Well, not much else to report on this holiday week, except to say please have a very Happy Thanksgiving. Let us all count our blessings, even if they might be a bit fewer than several years ago. The ancients had a saying that applies so well to these days -– “This too shall pass.” Let’s us, each in our own words and each in our own way, lift up our thoughts this wonderful holiday and pray for better days. You can count on it that I will.

And, as always, do have a good investing week. And you keep in touch. I do! See you next week.

Closes as of Friday 11-22-09 (cash index) TOP 10 STOCK SECTORS
DOW Indu. 10,318.16 LAST 6 MONTHS @11-20-09
S&P 1091.38 1. ENGINES (+82%) 6. ELECTRICAL(+50%)
NASDAQ 2,146.04 2. BROADCAST(+71%) 7. APPLIANCES(+49%)
30 YR BONDS 120 28/32 3. PRINTING (+65%) 8. TEXTILE (+45%)
GOLD 1,151.20 4. AUTO (+58%) 9. TOOLS (+43%)
OIL (Nymex) 77.69 5. PUBLISHING (+52%) 10. MINING (+41%)

*The name Super Chart Keyline is a registered Trademark of Max Whitmore.

BawldGuy Axiom: Lenders lend. When they begin to see the lender ’stamp’ on their forehead fading away, they realize it’s lend or die. They’d rather lend.

The most recent example of this has been in Texas, and not even with owner occupied properties. A institution totally new to investment property lending saw the opportunity to make a killing. They made it known they’d lend 80% LTV on small residential income props. They charged just a smidge over normal points, and a slightly higher, but acceptable interest rate.

What happened?

They found out quickly they were unprepared for the pent-up demand for reasonable loans on income property. 30 day loans took 45 days, then 60 days, but they eventually got done. Borrowers showed up from all points on the map wanting loans for their Texas purchases. They didn’t even make it to the 4th quarter much less to the end of the year as I’m sure they’d planned. They were swamped from Day 1.

Lenders are now dealing with an investment market sporting handcuffs designed by Fannie Mae and friends. The changes they’ve implemented have been good, bad, and just downright silly. The net effect they’ve had on the market is to retard it, not help it.

One of the helpful changes has been the way appraisers are assigned. It’s much more random now. I say helpful, but in the case of new construction or new mostly undeveloped areas of a region, this can backfire on the purpose intended. An analogy would be who you choose to maintain your car. If you owned a Mercedes, taking it to your local Ford dealer for its 50,000 mile service is risky at best. Reasonable folks can agree that even a highly experienced Ford-trained mechanic will simply not be prepared for what he finds under the hood of a Mercedes.

Appraisers unaccustomed to a neighborhood a few miles from where they usually work, don’t know the ins and outs of that one compared to the ones they’ve been appraising for years. This isn’t complicated, is it?

Then there are the underwriting changes. Upping the credit score requirement makes sense, though I strongly suspect folks with less than a 720-740+ score aren’t moles sent by Satan to sink the economy. But seriously people, some of them defy explanation, even by the lenders themselves. Here’s an example.

Last year you bought a duplex. Since ya haven’t owned it for two years, they force you to count the mortgage payment on your application, but NOT the income. Let that set in a bit. This results many times in superb borrowers appearing to be way in over their heads. Yet it presents an artificial (nice way of saying BS) i.e., false picture of the borrower’s true financial position. Imagine having cash flow from your various investment properties half as much as your job income — and you make almost six figures annually! This new ‘accounting’ makes you appear to be almost struggling financially.

How does that help?

When a real estate investor puts 20-30% down plus closing costs, they don’t do it on a whim. They’ve thought long and hard about putting $50-80,000 of their hard earned money into an income property. How motivated do ya think they’ll be to make that investment a long term success? Duh. The arguments made for this 1984 approach to underwriting language are laughable at best, and fraudulent at worst. That’s a discussion for another day, but suffice to say the next lender who gives me a plausible explanation without stuttering, while avoiding eye contact, will be the first.

Then there’s the now infamous four property limit. Gimme a break. My Grandma thinks this one is stoopid, and she’s been dead for over a decade. I’ve railed about this before, but it’s so counterproductive, one can’t wonder what the real intention was. Ya get four props — this includes your residence too which is another rip. You want more, but now the underwriting, gulp, gets even dumber. Of course, this is if ya can even find a lender who’ll make the dang loans. Currently there are only two lenders, B of A (Save us, Lord) and Wells — that’s according to the word I’ve gotten from several lenders who don’t do them.

Lenders don’t like living in a world in which they’re not lending. I have colleagues and personal friends who’re both mortgage brokers and employees of direct lenders. The stories they tell me are literally so dumb sometimes I almost make ‘em swear on their kids they’re not makin’ them up. These guys, for the most part can make loans in the majority of the states — and still their companies’ leadership has made life so tough at times, two of them are considering changes.

At some point some board of directors meeting is gonna explode at the nonsense with which they’re forced to live. It’ll be at that point we’ll begin to see some cracks in the dam. They’ll become relatively proactive in changing the status quo. Even the investors buying these loans are beginning to grumble. The siren song of higher yields generated by highly experienced borrowers, with significant skin in the game is beginning to keep them up at night.

Watch for the grumbling to become audible — sooner rather than later.

To contact me — call 619 889-7100. Have a good one.

As I sit here writing to you, the thought keeps coming “All because we hit Dow 10,000?” Now, understand, hitting the Dow 10,000 level was of great interest to me. After all, just six months ago we were over 3,000, that’s 3,000, Dow points lower and by most all accounts about to fall below the Dow 5,000 very soon. But, from the true economic standpoint Dow 10,000 is no different than Dow 9,000 or any other Dow even thousand number. The truth is that a Dow number is not what will start a selloff anyway. Selloffs occur when the large majority of investors see the expectations that fuel a rally slipping away.

Yes, I do agree with most of the sites that we have come a very long way very fast (creating what they call a “V” bottom on the Dow chart). But, just because we hit the 10,000 mark will not of itself end this rally.

So, what could actually start a selloff? Well, we might continue higher until we hit my Super Chart well-defined S&P 1220-1260 target, the target of the head and shoulders formation I have been chronicling for you. But, not until we get there, can I tell you what the chart looks like and decide if a selloff is then warranted.

Or we might break the key Super Chart supports currently below our present prices on the Dow and S&P and see a sell move begin. Currently, the supports I see are at about S&P 950-960 and Dow 8,800 or so. Additionally, for my part, I would begin to get concerned if we break the head and shoulder formation’s “headline” on the Dow at about 8,800 or on the S&P at about 990-980, as shown on the S&P chart below.

And, as promised last week, here is an update, with comments, on the S&P Super Chart.

First off, note that we are still ABOVE the Keyline on the Super Chart, currently at 1063.69 (Friday’s S&P close was 1079.6). That is as important to me as being above the “headline” just now. If we did break the Keyline just a bit, I would still not be terribly concerned. But, breaking the Keyline AND breaking the supports I mentioned above would most likely have me sending you a warning about this market. But, for now, no such warning.

There is one thing, however, I don’t like too much which occurred on the lower portion of the Super Chart called the Momentum Section. The green (or “fast”) stochastic indicator (see the circle marked “1”) has pulled up to the 80 level from the 55 level and hooked down to 77.24. I am concerned because the previous hook down of the high of the green “fast” stochastic was higher than the hook down point that occurred this week . Then, note on the Super Chart that the last price high hook down, occurring just before it crossed up the thick red Keyline, was lower than this latest high hook down which occurred this week.

This is called a “divergence.” The last low of the Momentum Section green line was lower than the last high before it hooked down and the last high on the price was higher than the last price high before that price high hooked down. Usually this is a signal that leads to a price decline of some sort. Too soon to tell if it will be anything substantial at this point, but I will keep a close eye on it and keep you updated. Odds say a decline is 70% likely. We will see. Other than this, the Super Chart overall remains BULLISH.

As you know, I don’t look to the fundamental factors very much when analyzing the markets, but I do make an effort to keep abreast of what the drift of the financial news is. This week it was earnings, tinged a bit more to the down side than expected by investors and, of course, the talk last week that Paul Volker, a key financial advisor to the President, is actively talking up his proposal that banks be stripped of their investment powers and that this activity be reserved only to investment banking houses like Goldman Sachs, Merrill Lynch etc.

There will be a long fight for this change and it may never come about. But, it would remove a major conflict of interest for the financial industry to separate banks from potentially using depositor funds to finance programs such as sub-prime loans, Collateral Debt Obligations (CDO) and the like.

This separation existed from the 1930’s until 1999, legislated by a law called the Glass-Steagall Act. While as I said, this is not a likely change right now, it is important to keep your eye on this future possibility as it could radically change the financial landscape and how your portfolio might need to be managed.

Mr. Volker’s favorite closing to his speeches about this proposal, one that gets laughs and the nodding of heads is something like this: “The combination of both powers in one bank is why we are in the mess we are in ladies and gentlemen.”

Not much more to add this week, except to tell you I will be on a business trip from this coming Thursday until late Monday (11-2), so my next week’s column will not be posted until Tuesday PM (11-3).

And just to keep you up to date, I hope to have a section on the new web site, which will be up quite soon, so that you can log in weekly and see where each of the Dow stocks are on my Super Chart. This is a first installment of the exploratory program that I told you about several weeks ago to try and make the Super Chart’s great advantages available to you for any stocks that you may own or are considering owning. But, that advanced phase is getting way ahead of myself. For now, the weekly Super Chart update of each of the Dow stocks being available to you on the new web site will be the one to watch for when it opens.

Well, as always, I do hope you have a good investment week. In the meantime you keep in touch. I do! See you next Tuesday.

Well, what do I say?? As of the close last Friday, The Maxx Super Chart flashed a full-blown BUY signal. The last signal it generated was the SELL signal on February 8, 2008, over 18 months ago. So, am I impressed? YOU BET!! I have followed the Super Chart for a number of decades and I am always excited when a signal is flashed.

OK, so now what, you say. Well, the signal that flashed a 50% BUY commitment last July 25th now says the rest of the portfolio allocated to stock purchases should be committed. What stocks should you buy?? Well, I will leave the specific stock selection to you, as you know your likes and dislikes better than anyone else. Now understand, that’s not a cop out. I just don’t give personal portfolio recommendations, as I am not registered for that. But, as I said last week, I will continue, from time to time, to present a stock I find of interest for you to further investigate. And, hopefully one day, I will be able to offer a way that you can check your own stock picks on my Maxx Super Chart. But, that is still down the road a bit.

However, let me give you a guide that I believe will get you started in the right direction. I always watch stock sectors and the following ten sectors are the top ten ranked as follows (with the number of companies followed in each sector shown in brackets after the name and the percent price growth of the sector for the last six months shown next): (1) Broadcast [26] +90.6%, (2) Printing [10] +81.8%, (3) Textile [35] +69.1%, (4) Oil & Gas [24] +68.7%, (5) Electrical [30] +64.9%, (6) Leisure & Recreation [29] +64.4%, (7) Mining [105] +63.3%, (8) Auto [46] +59.5%, (9) Tools [8] +57.9%, and (10) Lasers [19] +56.0%.

Now, you will have to take it from here to pick out your favorite stocks from these groups, which contain a total of over 240 stocks, surely enough to fill any needs you have. And why the top ten sector? When power is exhibited in a sector and a move is on, that sector tends to stay strong until the move begins to approach its price top. Need I say more?

Ok, let’s move on. I told you last week that I was going to give you some valuable info on the Bond and U.S. Currency markets, so let’ s go to that right now.

I have included a Super Chart on the Bond market 30 year bond below. This chart tells it all, as far as I am concerned.

First, note that this is a weekly chart that goes back to July 2007, nearly a year before the recent market meltdown really got started. Also note that all during this time, the bond chart price never got below the blue shaded area and only twice (in June 2009, August 2009) dipped its toes below the all important Super Chart Keyline (the heavy red line on the chart).

Currently, the bond Super Chart Keyline is well below the close of last Friday at 116 6/32. Also, note that the “Momentum Section” of the chart (at the bottom), shows the near setup of a price rally resumption possibility. This setup shows that the slow momentum line (black line at reading of 50.02 – hidden by the green price marker) and the fast momentum line (the green line at 50.02), are both in the neutral area (on the scale of 0-100, this area is between 40-60 on this lower chart) at exactly the same reading! This “setup” will lead to either a resumption of the bond price rally, a fall in bond prices or a sideways move in bond prices that lasts for a number of months. Why? Because such a rare chart position is typically a precursor of some major market activity. For now, that is all the chart is telling us. Something is about to happen and all we can do is wait and see, but at least alerted that something big is afoot.

Now, let me put all this in a little plainer English. First, holding above the Super Chart (red) Keyline means that the Bond guys are NOT seeing a near term (6-12 months) huge increase in INFLATION. That is key here. The chart showed that bond prices pulled down to the Keyline on August 8, dipping just below it for one week. Clearly, that was a warning that the Bond guys were afraid for a bit that inflation might rear its ugly head, big time. But, then prices rallied sharply away and up from the Keyline, telling us that they changed their mind very quickly. Why? I don’t have a clue and, frankly, trying to figure it all out is a waste of precious time. The chart says it all and right now the important thing is that the bond price did not fall below the Keyline at 116.10. It says no inflation on the horizon, so all we need to do is adjust our portfolios accordingly. Be a buyer! Be assured that I will watch all this for you and keep you advised.

Now to the U.S. Dollar chart.

I am showing this chart back all the way to early 1999. I do so to give you a very clear picture of what is going on here. In 2002, the Dollar index stood at over 120, as you can see. Over the next 3 years it dropped to the 80 area, a decline of 33% in three years, a pretty hefty decline (see the circle in late 04, early 05).

Now, in spite of what you have heard, the decline of the dollar is not all bad. At 120, we were not able to compete for world exports at all, as our dollar relative to other currencies made it price prohibitive for other countries to buy our products. The result, huge deficits in the import to export ratios, jobs in many industries disappeared, and U.S. companies often found the only markets for their products was the U.S. consumer.

Now, all this changed from 2005 to mid-2008. As the dollar continued to decline, U.S. companies suddenly became very competitive in the world markets with products that were and are recognized as top quality and often quite superior in quality to products made in other parts of the world. When this occurred, the deficits in U.S. import-export numbers began dropping by huge amounts.

But, then came the market meltdown and everyone gang tackled the dollar, buying it in huge amounts because it was the only world currency they trusted. You will note that all during the 2002 to 2008 decline, we only once popped above the Super Chart Keyline, briefly in 2006, before the meltdown rally in 2008.

How interesting that despite all the trash talk about the dollar at the time, every big money source showed their real stripes and bought the only currency they really, really trusted. Funny how under duress, the real truth comes to the surface, isn’t it? But that is a subject for another column.

So, what is the chart saying today?? Well, falling below the Keyline last June and the blue area last month says that we are going to continue to see a lower dollar and a better environment for exports. Second, I expect that we might even try the last low in the 70-71 area (April 2008 – see circle). We closed last Friday at 76.43, still a fair distance from that low.

So, for now, we just watch. The bonds say no big inflation and the dollar seems to be adjusting a bit lower. That is still a good environment to be a stock buyer. But, let me caution you here. We do need to tend to our knitting and keep a close eye on the S&P Super Chart “headline.” That “headline” is now very important!

But, before I move on, yes, I do hear your question about gold very clearly. Buy Gold? Yes. I believe that every portfolio needs at least 5-10% in gold or gold equilivents (GLD, CEP, etc.) because prudent investing always says keep some hedge to the fiat currencies floating around out there (including the U.S. dollar). But, to go all in to gold? I would never do that, period.

OK, let’s move on to the S&P Super Chart to expand on the last comment I just made about the “headline” on this chart.

Last week, I told you we were approaching a CRITICAL moment for the S&P Super Chart. It clearly looks like that moment resolved to a continuation of the rally. I expected it might take several weeks to know this, but the market clearly says otherwise. I still look for the head and shoulders formation target to be hit at about S&P 1220-1260 (about 11,500 or so on the DOW), and I still think it will be first quarter that we get there (late or even possibly early second quarter). But, the ONE BIG proviso remains! We need to stay above the HEADLINE on the chart. Crossing below that will set off all sorts of bells and whistles that I will cover for you if it happens. (It was what I began to watch for last week.) But, that does not now appear to be a concern. ALL-IN says The MAXX Super Chart, boldly flashing its BUY signal as of last Friday!

And just so you don’t go away without at least one stock chart I thought of interest, I picked a stock at random from the “Printing” sector because it was about to cross up the Super Chart Keyline and has been in a perfect move to setup for higher prices since mid- August. The stock is SGK, Schawk Inc., their class A stock.

Granted we still need to cross up the Keyline, but the sideways movement of the price for two months is what is called a “correction in time” versus a “correction in price” and is often the precursor to a strong resumption of the last move direction, in this case an up move from the 7 area to the current 11-12 area.

What would I suggest? Well, a buy in here using no more that 5-7% of your portfolio cash for stocks would not be a bad move, as I see it. There is support at 8 ½-9, if we did see a down move, but the upside looks like the 16-17 area (once we cross up the Keyline). If we were to move above this near term 16-17 resistance level, the next price target is probably 20 or so. I would speculate that might take a number of months to accomplish, if it all comes to pass.

Well, that’s all for today. But the news is tremendous!! An ALL-IN BUY signal from the Super Chart is a momentous occasion. How momentous? Well, since 1965, there have only been 9 BUY signals – just 9!! And all of them have resulted in profits, from a low profit in the 1969 signal of +8.6% to a high of 311.7% profit in the 1991 signal that lasted until the year 2000! And, just to be fair, remember, that past performance does not predict or assure future performance. But, I am impressed by the Super Chart record to date.

So, do hope your week’s investing activity is a good one. In the meantime, you keep in touch. I do! See you next week..

Aside from the myriad things we need to know and understand, plus the technical and analytical skills required to make real estate investment decisions, there are, in reality, all things being equal, only two things you need to know. Once you know these two things, and understand the conclusion to which they inevitably lead, you will have infinitely increased your chances for long term investment success.

First — And don’t smirk — More is better than less.

More after tax profits. More after tax cash flow. If it has to do with return, maximize it one way or another. There are more ways to get to that end than most ever imagine.

Second — Sooner is better than later. Hey! I said no smirking. It’s surprising how many folks don’t understand time’s place in real estate investmenting. Calling time a crucial factor is like saying Grandma’s raisin bran muffins were the best in the known universe — Duh. Neglecting time’s effect on your Plan, and it’s execution is almost always injurious if not outright fatal. Whenever possible, ya wannna make time your friend.

Conclusion — The synergy between the two factors produce yet another Captain Obvious epiphany.

More — sooner — is much mo’ betta.

In other words, if someone ever tells you that $100,000 today is a better choice than twice that much 7 years from now — Don’t call him on it — That statement is right, not always, but the vast majority of the time — at least in real estate. Throw out boom/bust times — 2% a year appreciation on 20% down is a 10% capital growth rate — BEFORE tax benefits, principal pay down, and cash flow are factored in.

BawldGuy Axiom: Time doesn’t care about us. It just is. Our decisions are what make it our friend or our foe. Ya wanna court time.

Do your own numbers. Turn in your papers when you finish, and please show your work. Don’t get caught up in whether your particular area is currently experiencing falling or rising values. We’re talkin’ principle here, OK? Besides, if you’re geographically bound, that’s your choice — a statement most couldn’t plausibly make 10 years ago.

Understanding the value of time is sometimes akin to having the key to the vault — or avoiding losses.

Call me and let’s see what we can do in the time left for you. 619 889-7100 will find me most of the time. Have a good one.

How could things be any better? The answer? Easy.

Let’s do this by employing just a little Socratic questioning.

What would have happened if you’d exchanged your triplex at the appropriate time for twice the property?

Would you have been better off with little or no cash flow but, with properties in a growth region still rising?

Leaving Socrates for a moment…..

If you had executed the above proposed exchange when appropriate, and your newly acquired units went up in the intervening time, (which they would have) how much more would you be worth? Even if they didn’t, you improved the location of your portfolio significantly. Those who took their capital from hard hit regions (usually high priced too), to more stable and emerging growth regions, are now far better positioned — even with the correction — than if they hadn’t gotten outa Dodge when they did.

So I ask again, how much more would you be worth?

Might the answer be easily enough to bring on regret? Or, put another way — far better than now, cuz you stayed in San Diego?

Back to Socrates for a minute or so…..

Now that the San Diego market is dead in the water for the time being (as it relates to investment property), what should you do with those units? Whatever they’re worth today is significantly less than they were say, two years ago when I begged you to exchange to a better home for your equity. How will the market react to your three units selling for far more than they’re worth today? Will anyone even want them? Heck, if they’re in San Diego, they’re currently worth between $500-700K.

Would you, in your right mind, consider paying considerably more than that in 5-10 years? No? Neither will most of the other investors in their right minds. And if your next argument is they can’t go any higher, then tell me again — why do you keep them? Keeping these units is a losing proposition any way you look at it. Wait a minute here — what were we talking about in the first place? Oh, right. So, what’s a common mistake real estate investors make?

Here’s a sobering thought: Income property is all pretty much local now. Live in Palo Alto and really like those fourplex prices in Boise, Texas, Kansas City? Go ahead, buy three. That said, and it happens daily, compare your units to what’s getting’ you all excited. Yours are older than Moses’ first pull toy. Theirs? Um, aren’t. Their fourplexes are often less than your duplex — so tell me again why they’re gonna rush to San Diego, or wherever to buy your stuff? Really?

Folks fall in love with cash flow when they’re in desperate need of capital growth.

The irony is this usually happens when they are making more money on their job than ever. This distracts them from keeping their eye on the ball that matters: Capital Growth. This distraction results in the loss of at least six figures and sometimes, when taken over several years, a million bucks.

I’ve seen local investors literally lose significantly more than a million dollars as they watched incredible opportunities go by them. It wasn’t that they didn’t want growth. It wasn’t that they were unaware of their need for growth. But man, that cash flow.

It’s like a drug — a drug that pays you to get high every month. And how do you beat that? I’ll tell you how.

Imagine keeping those San Diego units (or units in any other area with high prices) for another several years. You’ve already lost hundreds of thousands by keeping them way too long. If you keep them another five years you’re just compounding your losses.

But you thought compounding was a good thing.

It is when opportunity isn’t ignored in favor of the addiction to cash flow. Think about what’s really happening. You’re opting for $5-10K in annual cash flow in place of capital growth which would eclipse that paltry figure like $100 eclipses $5. Do you really prefer monthly spending money now over a fantastic monthly income in retirement? Of course you don’t.

Here’s how you correct that mistake. Get your units ready to sell. Put them on the market. Move your net equity to a solid and secure growth market. Watch it grow. Imagine a retirement rich in income and freedom of movement. Look back at what your retirement would have been like if you hadn’t experienced the capital growth the last 10-15 years before you quit working.

Stop looking — it’s not pretty.

Quit your cash flow addiction cold turkey. ‘Rehab’ doesn’t take that long and it’s very profitable. And I promise it won’t hurt.

Chasing cash flow when you don’t need it at the expense of vastly superior capital growth is a huge, dream-killing mistake. Many investors have retired with what they thought was a nice income. They had no idea that income could have been three to six times as much. But it’s too late for them.

Consider this an intervention. Kick your addiction to cash flow. It’s literally costing you hundreds of thousands of dollars.

I have just two more words for you.

BawldGuy Rehab.

Be the Captain of your own rehab team. Call me at 619 889-7100 and we’ll get it started. Have a good one.

Here’s the only answer you can take to the bank — so to speak. Lassie will find Timmy in time. It’s a lock. Count on it. It’ll happen.

Rates? I’m pretty firm in my belief we have from now ’till sometime between next August and the first quarter of 2011. That’s our window based on facts in evidence, discussed here recently. Is it as much of a slam dunk as Lassie and Timmy? Gimme a break, OK? Windows open and windows close. Your magic dust is no doubt as effective as mine.

Economic recovery? What with all the talk about a ‘jobless recovery’ (an oxymoronic phrase if ever there was one), I’ll leave when it actually begins to the talkin’ heads on the boob tube. The only editorial comment I have for you is that a jobless recovery has the flavor of a great steak — but boiled instead of broiled or grilled. You’re not starving any more, but you’ve had better steak at Sizzler’s on a bad night.

The real recovery comes when people in very large numbers start going back to work. Anything else is a buncha numbers on a chart emblematic of not much.

Is Real Estate scrappin’ the bottom? Depends where yer lookin’, right? Ask a San Diego real estate investor and you’ll get a scowl. Go to much of Florida, Arizona, and Nevada and you’ll likely generate derisive laughter. But there are growth regions where prices have either dropped less than 5% the last 12 months, or actually risen. Places where rents are goin’ up while vacancy rates are goin’ down. Who’da thunk?

Rates this low are here for awhile — solid, common sense investments are available to the discerning investor — and recovery, whenever it graces us with its presence, will make the folks who made their moves sooner rather than later, look pretty dang prescient.

Call me for info on solid properties in growth regions. 619 889-7100 — or just email me. We’ll figure out your personal scenario and Plan accordingly. Have a good one.