THE LONG ROAD BACK

"I Would Rather Be In Jail In America Than Free Anywhere Else". Eldridge Cleaver



An Unlikely Patriot. Some of those who read this may be too young to remember Eldridge Cleaver. No, he was not another offspring of Ward and June. He was the leader of the Black Panther party and he knows whereof he speaks. He grew up during the years before the civil rights act and witnessed heavy discrimination against Black Americans. If anyone had a reason to be bitter about America it was him. He spent years in prison for violent crimes and would have gone back had he not jumped bail left the country for Cuba and other communist countries. After 8 years in exile he came back to face the music. He denounced his former violent ways and embraced the country that he thought had done him wrong. He spent the remainder of his life writing and speaking about the role of Black Americans in society. Patriotism is often frowned on in present society. Certainly we have made many mistakes and some of us have become irresponsible in our quest for wealth and power. Still, we are lucky to have the opportunity to live in this country where we can see our mistakes and take measures to correct them.



Coping With New Realities. Many of us are not sure where to turn in this market. Some have lost faith in the ability of the free markets to function with limited government intervention. Undoubtedly, there are those who have taken advantage of the trust placed in them by the investing public. Executives and labor unions have taken money for themselves which should have gone to the investors or retained in the company for research and product development. This would have made these companies more sound. Wall street has also diverted money as they over paid executives and deal makers huge amounts for placing money with the investing public, many of whom had no idea of the amount of risk they were taking. When huge sums are being placed, a very small percentage may sound fair until you look at the absolute dollar amount being spread among a relatively small number of employees.



Now We Look Towards The Government To Save Us. It is highly unlikely that the government is capable of taking over the huge responsibility of keeping companies on the straight and narrow. Look at the motor vehicle department and the post office if you want an example of how the government runs things. Look at the $10,000 toilets and $500 hammers if you think the government is capable of keeping us out of trouble. Look at the social security system if you want to know how to keep a Ponzi system operating for 100 years. Look at the huge debt they are piling up if you want to know how to live high and pass the debt to our children. Look at the way the two parties demean each other if you want to know how to put together a cohesive organization.



How Do We Cope With All Of This? The only answer is self reliance. Watch how you invest, spend, and save your resources. Plan for worst case scenarios instead of the best case. It's not rocket science. Spend less than you earn, invest the difference, monitor those investments closely, and don't let luxuries become necessities.

Be careful who you trust. There are those who look like geniuses until the bubble bursts. Remember Mike Wise. He was the Chairman of Silverado Savings and barely escaped jail when the bubble burst the first time. He did it again and got caught with a huge con game in Aspen. He spent a short time in prison and last month jumped off a 9 story building in Florida. The Chief Financial Officer of Freddie Mac committed suicide a couple of weeks ago, leaving us to wonder what hey may have done to make him prefer death to staying here to deal with the consequences. We will probably never know.

YOUR BIGGEST OPPORTUNITY

"We ought not to fight them at all unless we determine to fight them forever." John Adams, speaking to President Jefferson regarding the potential invasion of Tripoli in response to their piracy activities.

Before I Talk To You About the Serious Stuff.......I thought you might enjoy seeing the eight pound catfish my friend caught when he came up to visit yesterday. He's been my friend for almost 40 years so I wasn't jealous of his good luck. Besides, I was glad I didn't have to clean the thing.

The More Things Change, The More They Stay The Same. We had to fight for our country 200+ years ago and we have to do it again periodically. Looks like John Adams was correct when he made the statement above. I have recently spent a lot of time reading history, something I should have been more diligent about 50 years ago. One thing that comes to mind is that, whatever we are fighting about, there will always be part of the population who prefers to do whatever is necessary to preserve the peace. In revolutionary times, there were the Tories who didn't want to break from England. In the civil war, there were the "Copperheads" who were willing to leave slavery intact to avoid war. Many of us still remember the "sex, drugs, and rock and roll" crowd who didn't believe in the Viet Nam war. Now there is the Iraq war and the war on terror and the usual group of protesters who think we should back off. I won't say that the protesters are always wrong, but neither are they always right. The one thing that seems obvious is that there will always be wars and there will always be those who don't support them.

Now That I Am Off My Soap Box.......I'll tell you the main reason I am making this post only a few days after the last one. I believe there are tremendous opportunities in the residential real estate market. The combination of low prices and artificially low mortgage rates make home ownership more affordable than it has been for some time. I'm talking about true affordability, not the artificial kind of the past 5 years. This probably presents more of an opportunity for the younger generation but what can be better than the opportunity to buy your own home at a reduced price and finance it at very low interest rates. If you haven't owned a home for three years, there is a $7,500 tax credit which makes the opportunity even more attractive.

There is Something For The Older Generation Too. If your home isn't paid for and you have a rate in excess of 6%, pick up your phone and dial our office to see if it makes sense to refinance your current mortgage at current levels. This is especially true of you have any kind of adjustable mortgage. It is no longer worth the risk to continue these obligations. Those of you who have followed my writing for a number of years know that I am always reluctant to claim exceptional insight into the future direction of the financial markets, including mortgage rates. I will step outside of that box and tell you that I believe there is a strong probability that, because of huge government spending increases, there is a strong probability that rates may reach unheard of high levels in the future. If I am right, the upside of refinancing is that you will be locked in at a very low rate for the remainder of your ownership period. Even if I am wrong, the downside is that you invest a few dollars as an insurance policy against future increases. I believe it is important to make your move now. To procrastinate may mean missing out on an opportunity you won't see again for many years.

Looking Forward To Next Week. I have already scheduled some appointments for next week. Although Susan chastised me for having folks call her without telling her my schedule, it is still better to contact her because she always knows how to find me, something that isn't always easy to do.

THINK WE HAVE IT ROUGH?

"The reflection upon my situation and that of this army produces many an uneasy hour when all around me are wrapped in sleep. Few people know the predicament we are in". George Washington.



Consider What Our Ancestors Went Through. It's all relative isn't it. I worry about the political and economic situation we are in and I also have a few uneasy hours when "those around me are wrapped in sleep." When I read about the American revolution, I realize how much we tend to whine. Stop and think of what these ancestors went through in order to give us the comparatively luxurious lives that even the poorest among us enjoy. Think about feeding and providing weaponry for a ragtag bunch of so-called soldiers who faced the most powerful army in the world. Did you know that they cut down countless trees, dismantled fences, and even demolished old houses and barns in order to have firewood for cooking and warmth. Think about the effect of that on the environment. Did you know that they didn't even have enough gunpowder for every soldier to have a rifle. They even issued spears and asked that "...men who active, bold, and resolute enough use spears in defense of the lines instead of guns." Despite all of these obstacles, George Washington was bold enough that, after the above quote, he made the following statement; "Perseverance and spirit have done wonders in all ages." We may not have leaders of Washington's caliber to inspire us today but we can think about the gifts they gave us and aspire to roll up our sleeves and do what ever is necessary to get ourselves through this man-made crisis.



Be Careful Who You Ask For Help. Particularly if you fly in a private jet to make your request. President Obama asked the CEO of General Motors to resign. I hate to think that the government can do that to the head of a private corporation. On the other hand, you have to expect things like that when you tell the government that you have run into the ground what was once the most successful automobile manufacturer in the world. At that point, the government has not only the right but the obligation to make their bail out contingent on the resignation of an unsuccessful CEO.



Resistance or Support? The Dow Jones Industrial Average is once again hovering around the 8000 level. A friend of mine who is a strong believer in using charts to predict the market told me that once we fell below the 8000 level we could expect it to fall to the 5000 range. Within a few days of dropping below the 8000 "support level" the market dropped to the 6400 range. Not quite 5,000 but no doubt scary. It has since recovered by 25% back to almost the 8000 level. At this point, 8000 is no longer support, it is resistance. This means that it will be difficult to rise above that same level. While, I am not nearly as sold on this approach to predicting the market as my friend, neither do I think we can afford to ignore it.



What Does This "Mumbo Jumbo" Mean? It means that we may have hit bottom at around 6400 and we will have difficulty passing 8000. If you are an individual investor, the best approach is probably to ignore that and cautiously buy good companies here. Items in my own portfolio that I would buy again today are AT&T, Pfizer, Waste management, and Marathon Oil. Stocks that I don't own that I am considering are 3M, Conoco Phillips, and US Natural Gas.

If you want to speculate, try American Capital Strategies, Dow, or Huntsman. All of this last group have been beaten down to the point at which the downside is much lower than the upside. Even if two of the three of these goes bankrupt, the surviving could gain enough to make up for the two that became worthless.



Keep an Eye On the Mortgage Market. With rates in the 5% range it may be time to make a move, especially if you have one of those 5-7 year adjustable products that are adjusting soon. If you have questions, call Susan at 720-449-0200. She can make an appointment for me while I am there next week. Look forward to seeing my Colorado clients then.