DO YOU KNOW WHAT A RARE EARTH IS?

First A Definition. Rare earths are a group of 17 elements with names you probably have never heard of. They have not found wide use in the economy despite he fact that they aren't really that rare except when compared to iron, copper, and aluminum which are found in relative abundance. During the past few years their applications have increased mainly because they can be made into very strong, permanent magnets that are highly useful in the manufacture of several somewhat high-tech applications such as batteries, for wind turbines, hybrid cars, and guided missiles.

Why Are They In The News? Because China controls 90% of the World's supply. We have been buying virtually all our rare earths from China at a price cheaper than we could make them ourselves. This still wouldn't be a problem except that China has decided that they may need to conserve their supply and cut their exports of these elements by 72%, leaving the rest of the world to cope with the resulting shortage on their own. Investment bankers have been promising investors huge returns for investing in companies that have been formed to exploit Non-Chinese sources of these materials. One such company is Molycorp, a NYSE company with headquarters in Colorado. Molycorp is no neophyte in rare earths. They have been mining a concentrate which can used to extract these elements for a number of years. In a recent public offering they raised $379 million to expand their operation from mining concentrate to one in which they take the concentrate to the individual elements and then to finished magnets. They claim they have improved these processes to allow the production of the finished product at less than currently available in China.

There are several companies that have announced their intent to expand their rare earth business. I have not researched them all but, if you are looking to get in on the ground floor, it might make sense to diversify into this area. Despite the hype from the investment banking community, I believe that these are high risk investments and there are a number of variables that may not be evident as yet. Still, this might prove to be an interesting investment for those willing to devote a small amount of their portfolio to a high-risk investment. I plan to continue to research companies in this field.

Considerable Conventional Energy Exploration in Colorado. Despite pressure from the environmental lobby, a number of companies are looking to exploit oil and natural gas from a formation in Colorado known as Niobrara Shale. This formation encompasses land in Colorado, Wyoming, Kansas, and Nebraska and is in it's infancy. Still, it is being compared to to the Bakken Shale in North Dakota and Montana. This formation has made a tremendous contribution to the economy of North Dakota. A host of small and large companies are working in this area and producing both oil and natural gas. Hopefully, this will get by environmentalists to produce energy that will be desperately needed until we can come up with more economical renewal sources.

What About The Conoco Corporate Center. It's been at least a year and possibly two since I learned of Conoco's acquisition of 400+ acres of land near Louisville to be used for construction of a world class corporate training and research center. The eventual employment target is 7,000 employees which should mean a billion dollar impact for the area. Despite all the hype, I noticed that the total project is anticipated to take 20-25 yeas to complete. Thanks a lot. I would be almost 100 by then. The good news is that construction is scheduled to begin in time for completion of phase 1 by 2012. Hopefully, I'll live long enough to see at least some of that project completed.

I Will Be In Colorado Late This Week. Call my cell phone at 303-902-3940 to arrange a meeting.

ADJUSTING TO NEW REALITIES.

My Outdoor Home.

It's Been a Tough Year For A Lot of Us. With the year drawing to a close, it's time to begin planning for next year. Taking a look at our assets, we often overlook the most important one: The ability to generate income. Over the past five years, I have often written of the plight of those who have undergone a big shift in their income due to job loss. Most of my clients have been high earners over the years and most of those who have lost jobs have found the adjustment quite difficult. The biggest problem is that re-entry into their previously high-paid career is virtually impossible. I have always recommended that high earning clients recognize that their biggest risk is the possibility of loss of high employment income. In previous years, many of those have told me that they were somewhat "bullet proof" in this regard. This attitude no longer prevails and the need for security is replacing the desire for luxury as paramount in the mind of pre-retirement clients. Talk show host, David Ramsey has developed a large following among those who agree with his slogan that "A free and clear house has replaced a BMW in the driveway as the most desired status symbol". I'm not sure that this statement fits everyone but does appear that it fits a lot of those who find that they can no longer keep up with the expense of making large monthly payments on luxury items they wish they no longer owned. A very wise client of mine once said "You can always trade money for stuff but it is much more difficult to trade stuff for money."

Now Is A Good Time To Evaluate Your Strategy. At this point, I am talking to highly compensated individuals who are still employed. Those who have lost jobs are not without hope but will require a different strategy. If you still have a job, even if you think you are secure, ask yourself what you would do if that income were to suddenly end. There is no "one size fits all" strategy, I can give you a few ideas but they may not fit your situation. The best thing you can do is spend some time with a spiral notebook and brainstorm the possibilities. Here are some common problems.

1. Benefits. How will you replace your health insurance? Will your family be vulnerable without your company paid life insurance. Are you insurable? You may not have disability insurance if you are no longer employed and it will be difficult to purchase if you are not.

2. Liquidity. If you don't have adequate investment income to pay your monthly expenses, you will need to have some assets that you can liquidate to cover these expenses. This could present a problem for many of those who liquidated their investment portfolio to purchase one of the annuity products that promises a guaranteed minimum return with some upside if the stock market does well. Without commenting on the merits of this investment, I can almost guarantee that withdrawal before the maturity date will involve a substantial withdrawal penalty. While you can always withdraw from a qualified plan such as a 401-k or profit sharing plan, you will have to pay a penalty if you need a substantial sum. It may be preferable to live on credit cards at the end of the year in order to push the income into next year when your overall income will probably be less. The bottom line is that adequate liquidity is your most important insurance against financial disaster. Guard your liquidity reserves with your life.

3. Debt Service. It is probably inadvisable to liquidate your qualified plan assets and pay a penalty to pay off debt but you need to look at ways to manage this debt. If you were one of those who took out a 15-year loan to get a lower interest rate, perhaps you might prefer lower payments. Even if you get a slightly higher interest rate, you definitely lower your risk by taking out a 30-year loan as opposed to a 15. I have seen more people in trouble because their payments were too high than due to a longer payoff period.

4. Develop New Skills. Consider ways to develop new skills. Look at ways to develop other marketable skills. Not only can it help you stay employed at your current employer it could provide ways to generate earned income if you do become unemployed.

Parting Shots. These are just a few points to consider. More than anyone else, you are in a position to look at the risks you face and develop a plan to deal with them. Can't say I'm making much progress towards my health goals. Will talk more about them next week.

WHAT IS A CAREGIVER?

Fall colors amid the greenery

An Accidental Discovery. One afternoon as I was moving around on the internet, I wandered into a chat room. My pre-conceived notion was that people who spend time in chat rooms fall into the "Get a life category." There were 10 or so people in this chat room titled "Caregivers" or something like that. I was welcomed right away and invited to stay. They asked me if I was a caregiver and I told them I handled some of the personal and financial affairs of my aunt and uncle who lived in an assisted living center in Denver. Apparently, that qualified me. One thing that impressed me was the quality fellowship that existed in this group. It kind of reminded me of when I would stop in the afternoons at Dairy Queen on my trips through Texas. There would often be a large table full of folks drinking coffee and talking about country life. I used to love eavesdropping. I remember one farmer talking about the cost of feeding his cattle and asking if his neighbors thought he could get food stamps for them. Another time, I remember a bunch of farmers in straw hats and overhauls talking about the hard drives and random access memory on their computers. I think chat rooms like the caregiver group are sort of an offshoot of the afternoon coffee clubs but without the coffee.

What is a Caregiver? In the beginning, my definition of a caregiver would have been someone who takes care of one or more disabled persons who can no longer care for themselves. There were several like that in this chat room. Some were professional caregivers, the most common being nurses; however, the majority were individuals who had cared for spouses or family members during an extended terminal illness. One of the older men in the group had spent several years, taking care of a spouse for several years after having a stroke. Another, man had spent several years taking care of an aging parent. He often spoke of the toll those years had taken on his life. One retired RN spent years taking care of her mother and was now engaged as a volunteer rehabilitating injured animals. Most of the participants were no longer involved in this activity since the care recipient had since died.

What impressed me most about this group was the bond between these individuals. Most had never met face-to-face and those who had did so only briefly. The word love was used frequently and this puzzled me since I had difficulty with the concept that people who knew each other only in cyberspace could really love each other. It was several years ago that I started visiting this "room." There is a designated time that the participants have set aside to meet and I usually try to attend most of the time. I do consider these individuals as friends, one of which I have visited several times via instant messages and discussed numerous problems that each of us may occasionally have.

The main reason I have included this story is that my definition of a caregiver has changed over the time I have participated in this group. The reason for this is that I have discovered a common thread among the participants. My theory is that they are caregivers, not because they spent time caring for another person, but because they continue to do things for others. There are countless examples among this group of people. Common characteristics are unselfishness, empathy for others, strong sense of community, and a strong set of principles. If we think about it, we all know people who fall into this category. The bottom line is that you aren't a caregiver because of what you do. It's because of what you are.

Not Much Progress. When I weighed in on Sunday, I weighed the same 167 pounds that I have observed for three weeks. In addition, my glucose levels remain higher than normal. These results illustrate how we can let our health deteriorate to the point that it becomes very difficult to manage. I have allowed this to happen over an extended period and now I realize how hard it will be to change it. There are two principles that apply to my future prospects. 1. Tenacity. When we find a goal to be very difficult to accomplish, we often decide that it is no longer worth pursuing. 2. Stupidity. Continuing to do the same thing while looking for a different result is stupid. I am not going to give up and next week I am going to try some different tactics. I will let you know how this works next week.

REFLECTIONS ON A SUNDAY AFTERNOON

This Picture Look Upside Down? It isn't. Actually its a picture of the water. If you look in the upper right hand corner, you can see the white swan that is on land. With the exception of the tree branch in the center, the remainder is in the water, as a reflection of the blue sky, clouds and trees. I love the way the lake changes the landscape. On some days, the texture of the surface is ruffled by the wind and on days like this one, the surface is so smooth it's hard to tell what is real and what is a reflection. Another thing different about the appearance of this post is the type size which I increased as an accommodation to one of my readers who told me it was difficult to read. Hopefully this will help.



Did You Get Out Of The Market Last Year? If you did, you did it against my advice. It's very difficult to stay in a falling market hoping it will get better. A lot of my clients could no longer bear the pain of seeing their assets drop to levels that we had previously thought impossible. If you will read my posts I did warn that the market was vulnerable prior to this drop. While we changed our strategy prior to the drop to reflect our decreased optimism, (We raised more cash and moved away from high P/E stocks) we were still vulnerable and took a hit along with everyone else, although perhaps not as much. What hurt us the most was that some companies in our portfolio with a long track record of increasing dividends cut or eliminated the dividend. Some did this within weeks of announcing that they were totally committed to continuing their dividend policy. There are ways to determine which dividends are most likely to be cut and we will monitor those more closely in the future.



The Market Averages Have Increased By 80% Since March of 2009. If you got out close to that date, you were likely to have cemented in a huge loss. We had several clients who did that. As I have preached for years, there are market forces that prompt you to sell when markets are low and buy when they are high. I will admit that I don't know how to predict the markets well enough to be either 100% in or 100% out at any given time but when everyone says "run for the hills", its probably time to begin buying again. I do not know how much the current market trend will last but I predict that we have another 3-4 months of strong markets. This prediction is based strictly on statistical principals which show that from September to the first of the year, the markets show the strongest increase of any other period.



Having Trouble With Weight Management. I weighed in at 167 again this morning. Despite constant efforts to eat less, I still weigh the same as I did last week. Glucose levels are also about the same. I had to give up and do some occasional injections during the day to keep it down. I am still not giving in totally and will work even harder next week to drop some weight and reduce insulin levels.