How Will You Become a Millionaire in the Next Decade? Find Out Here by Teeka Tiwari

Wednesday, December 23, 2009

The modern-day yardstick of wealth is an illusion perpetuated and encouraged by the marketing departments of the world's luxury-good makers.

The luxury brands have done a remarkably good job at convincing poor people to act like rich people by buying their products. The thing is, though, truly rich people fuel their consumption from their investment income.

In other words, they would never dream of tapping into their principal wealth to fund their lifestyle.

So I will tell you here and now, I don't care how much money you make -- and I know some readers of The Tycoon Report make a lot of money -- if your investments are not throwing off cash flow that is equivalent to at least your current expenses, then you are poor. You are just one flip of the coin away from living on the street.

What Does it Mean to be Wealthy?

Being wealthy has nothing to do with a set dollar amount or what car you drive or which labels you sport.

If the income and/or returns of your investments are more than twice the amount of your annual living costs, then you, my friend, are wealthy.

If you own a business and make millions of dollars, but the business will fail if you are not in it, then all you have is a very highly paid job.

Real wealth is about securing a stream of income for yourself that consistently throws off returns that are at least double your annual living expenses.

A Big Salary Doesn't Automatically Make You Rich

Getting rich takes a lot more than just securing a big income. Many who aspire to be multimillionaires stumble at this point.

They work hard, get promoted or build their businesses and start earning large amounts of money. but these "would-be" millionaires fail to fulfill their true wealth-building potential at this point.

You see, they get seduced by the illusions of wealth as portrayed by the aforementioned luxury-goods marketing machine that they see in magazines and on television.

Don't get me wrong; if you have a large income, you have a huge leg up over the person earning an average income. But if the odds hold true, then you are could blow that big advantage by overspending.

Are You an Aspirational Spender?

Aspirational spenders are above-average-income earners who yearn to possess the lifestyle of the truly wealthy but do not earn enough money to do so.

Instead, they employ credit card and home equity loan debt to acquire the trappings of wealth -- fancy cars, vacation homes, designer purses, designer suits etc.. They actively pretend (self-delude is a better word) that they are rich. This becomes an all-consuming pantomime of self-delusion, as more and more money is required to fuel this facade of wealth.

The aspirational spender typically earns between $100,000 and $150,000 per year. This is 2 1/2 to 4 times greater than the national average income.

In fact, it is more than enough of an income to get wealthy on within a 10-15 year period.

But these people never do develop real wealth.

Their incomes continue to grow, and they make terrific employees and are usually very good at their jobs, but their desires are always one step ahead of their income.

The Key to Developing Real Wealth

Many years ago, I read a book titled "The Richest Man in Babylon" by George S. Clason. In that book, I learned that I would never be able to satiate every single material desire that I have.

So, instead of trying to fulfill as many of my "wants" as possible, I started getting very picky about which "wants" I chose to indulge ... which "wants" I chose to postpone and which "wants" I chose to abandon.

Once I fully accepted that I'll never have every single thing that I may wish to possess, it was like a great weight was lifted off my shoulders; it was very freeing. It also allowed me to better appreciate what I already possessed.

But the most important thing it did was get me off the spending carousel and onto the road to living beneath my means ... and start saving and investing, which is the real route to obtaining large-scale sustainable wealth.

Your Desired Future is Just a Decade Away

Wealth can be created from any starting level; it is not income-dependent. However, in this article I want to highlight how much easier it is to get rich if you already have a large income.

It really doesn't matter which vehicle you use to create your wealth -- whether it be real estate, stocks, commodities, options or your own business. Any success that you find in any investment endeavor will be meaningless if you continue to spend more than you earn.

It is only when you start living beneath your means that you will truly be on the road to real wealth-creation.

If you earn over $150,000 a year, you have absolutely no excuse for not being rich!

What's the secret? All you have to do is live on 30% of your gross income and invest the rest.

Your 15-Year Plan to a Lifetime of Riches

At $150,000, assuming a 35% tax rate, your take-home pay would be a shade under $100,000.

If you want to get rich, start by simply living on $50,000 and investing the other $50,000. Do that for 10-15 years and you will be rich, period.

If you can average just a 12% compounded annual growth rate over 10 years, you'll have a shade under a million dollars.

Over 15 years, you'll have over $2 million -- two million dollars that is growing at 12% per year is more than enough money to last a lifetime.

That's it; pretty simple right?

Are You Ready to Sacrifice What You Want Now for What You'll Need Later?

So, what is the real way to measure personal wealth? The yardstick is whether our investment income covers our living expenses.

If it does, then you are well-off. If your investment income is 2x or more greater than your annual income, then you are well and truly rich!

I know I have now lost 99% of you. The thought of the relative deprivation that such living would require is probably too difficult for many of you to face squarely.

And that's OK; not everyone possesses the necessary discipline that it takes to acquire true wealth.

Don't beat yourself up about it. But, by the same token, don't fool yourself into thinking that you are rich just because you have a big salary, a shiny Benz and a nice sprawling McMansion.

We both know you are one pink slip away from financial Armageddon.

I'm here to tell you that you don't have to live that way anymore.

Downsizing is only painful when you are not emotionally prepared for it. Once you make the decision to be "for real" rich instead of "pretend" rich, the decision to downsize instead of "super-size" will be an easy one.

Downsizing Your Spending = Super-Sizing Your Wealth

Don't squander the opportunity that you've been given by being blessed with the ability to earn a large income. You have a huge edge over every other person earning less than you. You blow that edge when you over-spend and under-save.

Remember -- even if you win the lottery or increase your income dramatically, but refuse to spend less than you earn and refuse to save and invest surplus capital -- you will never be rich.

You will never experience true financial freedom, and you will always be at the mercy of your spending habits, your employer and the economy.

It's always a good time to re-evaluate your financial plan, but especially with the dawn of a new decade just around the corner, there's no time like the present to plan to become a millionaire. You'll thank yourself in 2020!

Your Blueprint For Retirement by Teeka Tiwari

Wednesday, December 30, 2009

At no other time since the 1970s has it been so in vogue to be frugal. An entire generation of Americans will leave this decade behind, indelibly imprinted by the trauma caused by their over-spending.

Exercising fiscal caution and self-restraint are no longer the social taboos that they once were in the 1980s, 1990s and '00s. The good news is that this is the very skill that one needs in order to become rich.

Outside of those with trust-fund-fueled wealth, I've never met a rich person who didn't get there by spending less than what they earned.

Just by changing this one thing in your life will get you on the road to creating a tangible net worth for yourself.

It sounds so simple -- almost too simple.

But you know what? Life really isn't that complicated, and making money isn't that difficult once you have the basic principles down.

It's That Simple ... and Just as Hard to Get Started

Spending less than you earn is rule No. 1. You've got to get this one wrestled to the ground first.

Sadly, most of the Western world's population will absolutely refuse to do this. And you can't really blame them because, everywhere you look, you get bombarded with images and programs that promote a utopian world of effortless and consequence-free consumption of luxury goods.

Our first step is to wake up from this media-fueled hypnotic dream. Learn how to channel your desire to spend your hard-earned dollars into fueling your wealth-accumulation goals rather than your wealth-dissipation goals.

That's easy to say and very difficult to do.

Going against the crowd is always a challenge but, if you don't do it now, you will be doomed to an old-age fraught with financial terror and humiliation.

You've got to find a way to make that real for yourself. Do what you need to do to motivate yourself to make that lasting change to your spending habits.

A Creative Visualization Exercise

Imagine your income as a great river and, instead of pouring those life-giving waters over fertile fields of investments, you simply dump it into the open sea.

That's exactly what you do when you overspend. You siphon away the future life-giving potential of your income.

Once those dollars are spent, they are never, ever coming back again.

But a dollar invested will come back in the form of investment returns again and again and again. In time, those returns will be greater than your income.

Start Saving Your Savings

Clothes, furniture, vacations, restaurants, fancy cars, timeshares, vacation homes, remodeling projects, alcohol and cigarettes all need to come under the axe. These are areas where you can save a ton of money.

But, you may ask, where's the joy of living without a bottle of Jack and carton of Marlboros?!

I feel you; I really do. It's a simple decision called delayed gratification.

The question to ask yourself is, "Do I take a little deprivation now in order to never experience deprivation again in the future? Or do I take no deprivation now and nothing but deprivation in the future?"

It really comes down to those two choices.

I used to read articles like this as a teenager and scoff at the author. "But I make a ton of money" I would think to myself. "Why do I have to be cautious in my spending?"

It wasn't until a decade later that I learned that what you earn is immaterial if you consistently spend more than you earn!

I call it high-functioning poverty, when any speedbump in your earning ability essentially puts you in the poorhouse.

I'm telling you, friends -- it's no way to live.

Your Roadmap to a Financially Healthy Retirement

The way I see it, there are five keys to wealth-building:


1. Spend less than you earn.

2. Expand your income; work diligently, and continue to get better at what you do. Do more than what you are paid to do and, soon, you will be paid more for what you do. Meanwhile, your saved money/investments will be growing, providing another income source.

3. Get clear as to exactly how much money and the type of lifestyle that you want, and when you want it. Visualize yourself already in possession of that wealth and that lifestyle.

4. Successfully invest your surplus earnings -- 12% per year is enough to fund your retirement over a 20-year period; 20% per year will make you rich. Find a safe way to run your money at a high rate of return. (Read more on this below.)

5. Make your wealth last -- withdraw no more than 40% of your net annual gains each year to live on after reaching your principal and/or time frame goal. Alternatively you can withdraw 2%-4% of your total account value per year as retirement income.


Remember, saving your money is only part of the recipe; it's not enough to bake the whole cake. You've got to find a way to make your money grow by at least 12% per year and, preferably, by 20%-plus.

Find Your Favorite Ways to Make Money -- There are Plenty to Choose From!

There are many ways to do this: mutual funds, stocks, options, Exchange-Traded Funds, real estate, buying and selling collectibles and/or employing an excellent money manager.

You name it; there is always a way to make money.

The key here is not to be afraid to just let your savings sit in a money market account until you've become very sure and very confident of how you will grow your money.

Take the time to become an expert in managing your own money.

You've got to find a wealth-creating endeavor that speaks to you and your interests. Again, it could be investing in real estate or stocks, or buying and selling vintage Rolexes on eBay.

Turn an Income Stream into a River of Profits

Think about this as one example. If you bought just one income-producing property this year, then another income-producing property every three years after that, you'd have 11 income-producing properties after 30 years.

At year 30, the first house would be paid off and, every three years thereafter, another house would be completely paid off.

The income from 11 houses plus 30 years of accumulated equity will fund your retirement for the rest of your life, and it will do so with dignity. You'll be filthy rich with a great big fat monthly income.

Real estate investing offers one of the most-accessible ways to create a massive ongoing income stream as well as large net wealth.

But its not going to just happen for you without a ton of work. And that's the ugly truth of it.

(To learn more about real estate investing, Tycoon's resident real estate expert Ethan Roberts has a ton of great information for you on our Web site. Click here to access his article archives.)

Anticipating Your Heart's Desires Can Pay off in Spades

It takes effort to get rich -- lots of effort, inconvenience and self-sacrifice.

But once you've put your work in, you reach a point where the income from your wealth-producing efforts begins to eclipse the income from your job. And this fuels you to do more as your dreams starts to become a reality.

You find yourself infused with more energy than you ever thought you could experience. You become possessed by an overriding determination and will to win.

It's a truly glorious feeling!

So there you have it; my New Year's gift to you -- a blueprint for wealth-creation and a dignified retirement.

But remember, don't beat yourself up if you don't have it in you to do what it takes to get rich; not many people do. It takes focus, self-sacrifice and a STRONG VISION to get and stay rich.

When you are ready to make that change, the opportunity will still be there ... just don't take too long! The quicker you start, the quicker you'll be able to kick back and enjoy the fruits of your labor.

WAT Christmas gathering - talk by Conrad

THE NEXT BUBBLE HAS STARTED

- S&P 500 has always been weighted with stocks that will lead to the next bubble.
- S&P is currently heavily weighted with healthcare and pharmaceutical stocks. However this is mainly due to these stocks being recession proof.
- The current PE ratio of the S&P 500 is 140.
- The global asset bubble (commodities) is just beginning and its going to be a huge bubble.
- Bond yields are flattening.
- Employment is still sinking
- Credit contagion is spreading to other countries. (Dubai, Greece)
- Asia is NOT immune.
- The recent rally in the dollar is because people feel that there is nothing safe to buy and hence is going for safety.


On a lighter note:

- There were no DFDM in November and December, indicating that there may be no nasty surprises.
- Oil run is starting now.


Sectors and stocks to watch (from the annual cycle of stocks/commodities):

Consumer – BEN, AB
Natural gas – Spikes in Sept and Oct and does a double bottom in July and August
Gold peaks in December
Grains – corn rallies from Oct to Jun (ADM, MON, CAG)


Sectors to watch in 2010:

Pharmaceuticals
Biotech ( STEM, GERN, JNJ) – watch out for JNJ in Feb and Apr due to the approval of cancer drug
Defense & Aerospace
Agriculture
Oil & Gas
Metals

WAT Christmas gathering - talk by David Caploe

Method to untangling and understanding this multi-dimensional/fast-moving crisis:

CRITICAL THINKING

Ability to evaluate competing accounts of the same situation.


Crisis in US has 6 distinct but inter-related aspects:
1) Financial
2) Economic
3) Ideological
4) Political
5) Intellectual
6) Media

- All countries either sell to the US to sells to countries that sell to the US.

- Solution to the crisis depends on the “good faith and credit” of all governments.

- At the moment, the biggest economic problem is that the political system in US had been broken.


US political system is in a state of advanced breakdown:

- Totally hijacked by corporate interests at the micro level, where votes of Senators and Representatives nakedly reflects the desires of their biggest campaign contributors in a way that would make even Karl Marx at his crudest blush with embarrassment.

- And at the macro level, completely unconstrained by a public discourse in which the most transparent nonsense is taken seriously.

Obama’s Biggest Mistake: “Bribing Middlesmen”

4 biggest issues:
1) “too big to fail” banks
2) Healthcare debate fiasco
3) Collapse of housing market
4) Mystifying “double down” in Afghanistan

Fundamental problem of the economy at this time is political.

Note: Everything that we need to know is in the NY Times. But we have to know where to look and how to read.

The Mind of an Achiever by Charles Faulkner (as written in the book The New Market Wizards by Jack Schwager)

I was just reading the book The New Market Wizards by Jack Schwager and i got to Charles Faulkner's interview. Charles is an expert in NLP and one part of the interview particularly struck me so much that i just want to write it out and keep it on the record.

During college, Charles was working as an orderly in the elderly patients sections of the hospital ward. Over the course of 3 years, he spoke to hundreds of people who were near the end of their lives. He asked these people how their lives had been, what they liked about their lives and what they regretted, if any.

In Charles' own words:

"I found out that falling in love at nineteen was important. I found out that the willingness to take risks into the unknown, like leaving one's small hometown, was important. On the other hand, just simply retiring because of age was something many of them felt was the biggest mistake of their lives.

One thing that really struck me was that not one of these people said they truly regretted anything they had actually done-what they regretted was what they had not done. They regretted that they had wasted their lives on petty pursuits. They hadn't identified their important values and then done everything they could to fulfill them. The lessons i learned from this experience was the same one emphasized years later in NLP: If we don't live true to our values and fulfill them, we experience disappointment and emptiness."

I totally agree with all the points that he said in the book. When i was lying in the hospital 8 years and 1 month ago and thinking that i might not walk out again, those were the exact thoughts that were going through my mind. I did not regret a single thing that i did, but there were deep regrets for countless things that i had not done. So i made up my mind to fight the supposedly incurable illness and continue living so that i can do those things. It's amazing what we can do when we are really determined.

And i agreed that everyone should take time off to work and live in a foreign country for at least 2 years of your life. Also, if you love what you do, it's foolish to retire. I love what i do so much that i hope i can sleep less so that i can have time to do more.

Lastly i realised that i had fallen in love with the girl who would become my wife when i was at 19. But i only got the courage to ask her out many years later after my brush with death. Btw, asking her out and marrying her was 2 of the things that i had regretted doing.

Swing Out Sister - Break Out

I was driving when i heard this song. Really thought the singer was singing about the Dow and S&P. Take a look at the lyrics and then the charts for the Dow and S&P. Enjoy the song while the indexes continue to trade in a range.




Daily chart of the Dow


Daily chart of the S&P


Swing Out Sister - Break Out lyrics

When explanations make no sense
When every answer's wrong
You're fighting with lost confidence
All expectations come

The time has come to make or break
Move on don't hesitate
Breakout

Don't stop to ask
Now you've found a break to make at last
You've got to find a way
Say what you want to say
Breakout

When situations never change
Tomorrow looks unsure
Don't leave your destiny to chance
What are you waiting for
The time has come to make your break
Breakout

Don't stop to ask
Now you've found a break to make at last
You've got to find a way
Say what you want to say
Breakout

Don't stop to ask
Now you've found a break to make at last
You've got to find a way
Say what you want to say
Breakout

Some people stop at nothing
If you're searching for something
Lay down the law
Shout out for more
Breakout and shout day in day out
Breakout

Breakout

Don't stop to ask
Now you've found a break to make at last
You've got to find a way
Say what you want to say
Breakout

Don't stop to ask
Now you've found a break to make at last
You've got to find a way
Say what you want to say
Breakout

Lay down the law
Shout out for more
Breakout and shout day in day out

Breakout

Breakout

Breakout

Lay down the law
Shout out for more
Breakout and shout day in day out

Market Analysis for 12/09/2009

Dow daily charts


S&P daily charts


I’ve deleted all the other indicators so that we can see the tight trading range of the market. The market is such that it had the bullishness in the market is running out (after a prolonged bull market since March 09) but the bearishness (to cause a correction) is not enough to tank the market yet. Hence it is consolidating in anticipation of the next major news.

I believe we will be seeing a market correction soon. I am not calling for a turn of sentiment from a bull to a bear market as yet because the signs of this rally continuing after a dip/correction are still strong. We might just see a Santa Claus rally this year.

However whichever way the market breaks out of within this tight trading range will be the direction that I will be trading in.

What I believe by Jimmy Koh (adapted partly from The New Market Wizards by Jack D. Schwager):

1) The markets are not random because they are based on human behavior and human behavior especially mass/herd behavior as seen in the stock markets are not
random. It has never been and it probably never will be.

2) The efficient market hypothesis is total rubbish and any academic who claims otherwise is an idiot.

3) There is no Holy Grail or grand secret to the markets. There is only hard work, discipline and consistency.

4) There are a million ways to make money from the markets. The difficult part is you have to stick to one and obey only the rules of that one method.

5) There is only one constant in the markets and that is change.

6) The secret to success in the markets lies not in discovering some incredible indicator or elaborate theory. The secret to success lies within you. In fact, I know of people who had traded profitably without any indicator.

7) I believe good traders are not born as but nurtured.

8) To excel in trading requires a combination of talent and extreme hard work; the same combination required for excellence in any field. Those seeking success by buying the latest program or by following the latest tip, will never find the answer because they haven’t understood the question.

9) Being a good trader is a matter of hard work, skill (which comes after lots and lots of hard work) and discipline, NOT luck.

10) Success in trading is a worthy goal but it would be worthless if it is not accompanied by success in your life and shared with your loved ones.

Long Term Investment report by Chris Rowe

Markets Will Trade Flat For Decades -- Here's How to Profit From It
Tuesday, December 1, 2009

By the year 2019, your retirement will be worth exactly the same amount as it's worth today -- at best...

Nearly 73 million Americans (or just under 50% of our working population) have a 401(k). But the average 401(k) has a balance of $45,519, and 46% of all 401(k) accounts have less than $10,000. Hardly enough for retirement.

The result? You'll see a reduced standard of living at retirement.

"Don't sweat it! I've got time!"

Oh, really? Sorry to tell you, but the next 10 or 20 years will be a period of long-term consolidation for the stock market -- meaning, it will ultimately trade sideways and end up in the same place it started.

If you're like most retirement account holders, you're passive, your 401(k) is largely tied to the general stock market, and you're still in shock, trying to digest what recently happened and what the future holds.

You're not alone. We are right in the middle of a "transitional period" for the economy and virtually all financial markets, so investors are experiencing the highest level of confusion we have seen in generations.

Don't think we will recover and just move on as usual -- just forget about that.

Banks are rehabilitating their balance sheets (by not doing any significant lending), and the sector is in the process of de-leveraging. As a result, you're going to see lower growth, lower investment and nominal GDP.

There are solutions to this nightmare of a problem, but unfortunately, only some of you will have the understanding you'll need to adapt to the new economy, and the new market opportunities.

Take a good, hard look at the chart below.

It's a chart of the Dow Jones Industrial Average from 1965 (when it was at 874) through 1981 (when it was at 875).

So, you could have held a portfolio of stocks that mimicked the Dow for 16 years, and you would have made 1 point.

That’s a long time to wait for a point!



It's almost a certainty that the stock market, for the next 16 years, will look similar to the the chart above (from 1965-'81). That's FINE, and could be a very profitable market to play in, as long as you aren't considering the "buy and hope" strategy that worked for the last quarter-century.

If you read the report we wrote in the end of 2006, "Tycoon's 7 for '07," we told you, in detail, what was going to happen in terms of the mortgage/real estate bubble leading to a credit crisis.

If you missed out on that opportunity, don't worry. Tycoon has a clear picture of what's going to happen next, and will be showing our readers and students how to make "Quantum" returns -- not only by explaining what asset classes hold the most strength and when, but more importantly, by training you and educating you so YOU can find it for yourself.

What are "Quantum returns"?

Well, in 1970, Jim Rogers and George Soros founded the "Quantum Fund." During the following 10 years, the portfolio gained 4,200% while the S&P 500 advanced about 47%.

It's all about trading in the right asset classes, and having just a BASIC understanding of technical analysis. There are simple and easy-to-understand strategies that you can use to know when to be bullish on a market as it's advancing, and even profit when it's declining.

We're going to bring you the education you need to make sure you aren't one of the MAJORITY of people who will have a stock account worth the exact same amount as it was 10-20 years prior.

And by the way, we have never had a period of time where the government prints lots of cash (as it has just done), that wasn't followed by inflation.

The U.S. is likely going to end up seeing runaway inflation.

So, even though most people will end up with the same amount of money in absolute terms, the fact is that the money might be able to buy you half as much stuff!

Not Convinced?

Look at the chart below that dates back to 1901. It's clear that long periods of economic expansions are followed by long periods of consolidation (trading sideways).

What's more interesting is that, if you compare the booms (green) to the consolidation periods that followed (red), you can see that, after very long-term stock market advances, the market generally takes about twice as long to consolidate!

You can even look at the boom and consolidation period within the 1929-'54 "consolidation period" (if you want to call it that), and you can see that the huge gain from 1933-'37 (yellow) took nearly three times as long to consolidate (blue).



Even if the recent expansion, from the early 1980s to the recent 2007 top, takes HALF as much time to consolidate (as opposed to the historic 1.7 to 2.88 of the time), we wouldn't revisit the 2007 high until 2019.

Some of those reading this article can't envision a market that doesn't advance over the long term. Who can blame you? Many of you weren't watching the market prior to 1981.

But the 24-year trend occurred because of corporate profits that were largely a function of cheaper and cheaper financing, and higher and higher leverage, combined with increasingly complex financial innovation and loose regulation.

This enormous bull market was also launched after a transition to low inflation and declining interest rates, beginning in the late '70s.



Here's what you have to do.

Now that we are IN THE MIDDLE OF the "worst crisis since The Great Depression," you are going to have to do something that investors haven't had to do in 40 years. ...

You're going to have to shift your mindset away from the way you've been trained to view the stock market over the last 25 years (for some, including me, that's as long as you can remember investing), and adapt to the new stock market -- one similar to the market from 1966-'83, or perhaps a better parallel would be the 1937-'38 period.

After a three-year stock market massacre (from late 1929 to late 1932), we had a massive 4.5-year rebound. The market would rally off of vast government expenditures and monetary kayos.

It was an artificial recovery (similar to what we are seeing today). The economy went downhill again beginning in 1937-'38 (followed by a brief rally and another four-year sell-off) because we didn't encourage private enterprise.

And the reason I think this time frame is a better comparison is because now we are seeing the same thing:

We have interest rates at nearly zero (and a strong fight by global governments to keep that intact for as long as possible), and massive economic stimulus by the government into the economy. (So, the gains are artificial, and Uncle Sam will eventually stop the massive "stimulus" that's causing the "stabilizing economic mirage.")


As a side note, notice the three colorful squiggly lines in the chart. They represent the market's price-to-earnings (P/E) ratio (the multiple to earnings that the stock market is priced at) at 10 (green: historically undervalued), 15 (blue: historically fair value) and 20 (red: historically overvalued).

When high growth is expected, the market trades at higher P/E ratios. When lower growth is expected, the market trades at lower P/E ratios.

So notice how, after 1938 -- the period in which the government propped up the economy (just like today) -- investors weren't willing to pay high multiples-to-earnings, with the exception of an 18-month period.



Sure, we have fiscal stimulus working in our favor, now. And we see early signs of a rebuilding cycle in play as well. But there is no motivation for the last key ingredient needed for stock market strength: private demand, whether it be consumption, exports or investment.

Now that the "expansion" phase had ended, it appears we will transition through a new period -- a revised version of globalization, re-regulation and de-leveraging -- and that's not the right environment for the economic airplane to take off.

Even when the current economy is seeing GDP growth quarter-over-quarter, the big picture is the United States becoming totally addicted to the current policy framework.

What you'll see, just like the late '30s - early '40s, is massive reliance on the government, followed by fiscal policy tightening to fight the inevitable inflation, and a country where private enterprise has been completely discouraged.

To put it simply, here's an analogy: The economy doesn't REALLY pick up again until the kid, who always had mommy and daddy paying his way, decides he is uncomfortable enough to get up and start a business of his own.

What the heck do we do?

Never fear!

Being forced to have your retirement account pegged to one of the major stock market indices such as the S&P 500 or Dow-30 is a thing of the past! This isn't the old days where your financial hands are tied!

There are plenty of other asset classes that will give us explosive opportunities, and if the stock market is your place of comfort, or if your 401(k) plan is restricted to the stock market, that's perfectly all right, too. You can make huge profits by TRADING the stock market instead of the "buy and hold" strategy that worked for the last few decades.

Before the roaring '90s, the stock market was a place that seemingly was meant for wealthy Tycoons only. We won't go back to that way of thinking, simply because of the access to information and education that you now have at your fingertips.

Tomorrow's market will be a place for different kinds of Tycoons! And you're one of them. ...

Look again at the chart from 1965-'81. What do you see?



I see nine opportunities:

4 major long-term downtrends (red arrows) -- profitable for bearish positions.
4 major long-term up trends (green arrows).
And perhaps the best part: one zig-zagging sideways trend -- a premium-collector's dream (think options).

Most individual investors will look at their retirement accounts and regular accounts in the next 10-20 years, and the value won't be much different from today's value.

You, on the other hand, can make "Quantum returns" in the same time frame, if you know how to view and trade the market.

(Remember, Jim Rogers and George Soros made 4,200% from 1970-'80 when the market gained 47%.)

How'd they do that?

The secret to making "Quantum returns" is to stop believing in "the market." If someone asked you what "the market" is doing, you'd probably tell them about an index of 30 stocks known as "the Dow Jones Industrial Average."

Most investors, who are unsophisticated, believe they are at the mercy of this basket of securities.

GET THAT OUT OF YOUR HEAD RIGHT NOW.

You can free yourself financially if you understand two things:

1. Understand that financial markets are broken down into many different categories.

You can trade stocks, bonds, currencies, etc. If you find, at the time, that equities (stocks) are where the strength is, the first thing you would do is find out which of the global markets are the strongest (U.S., China, Brazil, etc.).

Then you should find out if the strength is in large-cap stocks, mid-cap stocks or small-cap stocks.

If it's in large-cap stocks, is the strength in large-cap value or large-cap growth? If it's large-cap growth, is it in financials, energy, technology, etc? If the strength is in large-cap growth tech, would that be in software, semiconductors, computers, Internet, etc.?

Zooming back out, you have to view the financial market as a place that offers you many choices. You don't have to be in stocks. For instance: When we experience runaway inflation, you'll make huge Quantum returns in commodities.

2. Understand how to identify where the strength or weakness is found.

Whether the strength is in stocks, commodities, bonds or currencies, you can use basic technical analysis to spot the trend. And the trends you'll find will usually stay intact for a significant period of time.

You don't have to find strength in a group to make money -- you can make just as much money by identifying weakness.

If you have a 401(k) that's very restrictive, only allowing you to invest in a hand full of equity funds, don't sweat it! Once you understand how to view the market (one that offers you many choices on where to put your money), you'll know how to work that angle, too.

You can chose to invest in the funds, offered by the 401(k) plan, that are more likely to show the most relative strength. And when the market starts reversing lower, you can move out of that fund and into a money market account (which is similar to cash) until strength returns.

Transition to your richest days yet.

Use the current economy's "transition period" that I mentioned to educate yourself on how to break down the market. Make "Quantum returns" and don't sit there with your retirement at the mercy of a couple of indexes that are known as "the market." Those indices are nothing more than a distraction that are being used to manipulate market psychology like shaking shiny keys to distract a kitten.

Don't fall for it. Don't let them play you. Start studying and play the markets.

Market Analysis for 12/01/2009

I’ll quickly type out my market analysis for Tuesday. I’m supposed to catch the 9.30pm movie 2012.

Futures are currently up due to optimism over the Dubai incident but we shall see how the market fares after the Pending Home Sales report are out.

Dow daily chart


NASDAQ daily chart


S&P daily chart


All three indexes are right below the lower band of my MOBO bands which also acts as support resistance lines. Currently they are the resistance that the indexes need to break above in order to continue to rally, failing which the indexes may move down to test the 50 day moving average. (the red line)

I believe there will be a market correction in the next few days. Whether the correction remains a correction or becomes a market meltdown remains to be seen.

Market Analysis for 11/30/2009

In addition onto my report 2 weeks ago of the market reaching a turning point, all the major US banks in the US had been trending down since 2 weeks ago. It was as if they were anticipating some kind of catastrophe occurring way before it actually happened.

However a look at the 3 major indexes in the US now, we can see that all the major indexes are still in a bullish setup.

Dow Daily



Dow is the most bullish of the indexes. It needs to break and stay below the psychological support of 10,000 for the market to be considered bearish.

S&P Daily



Needs to break and stay below 1,073 to be considered bearish.

NASDAQ Daily



NASDAQ is considered the most bearish of the indexes and it is still slightly above the 50 day moving average which is acting as a strong support. It needs to break and stay below 2,130 to be considered bearish.

There is a good chance that the markets may bounce off their respective supports and continue rallying. However the momentum of this rally had been fading out for weeks and a correction had been long overdue. The non farm payroll will be out next week and the market’s perception of it should greatly affect the markets, especially since its in an undecided state now.

Back in Singapore!

Couldn't log onto blogspot for the 2 whole weeks while i was in China. Btw, blogspot is one of the websites currently banned there.

This is what i wrote while in the first few days while i was there;

Market Analysis for last week of Nov

I’m currently in China and not able to access the internet everyday. However with the help of my bro Chris, I’ve been able to keep up with the movements of the market with his daily sms.

I believe the market is currently at a turning point. The Dow and S&P are constipating at the 50 day moving averages and with these indexes’ 20 day and 50 day moving average moving so closely together, the market is clearly undecided where to go from here. I believe we will be experiencing a market correction soon but we may need a few more days for the sentiment to change and determine the direction of the market.

5th Elliot wave now?

I've been looking at the Elliot wave formation of the indexes for a while now and there seems to be stonger evidence that the rally is dying out. There should be a serious tank or at least a pullback coming soon. And the market has been constipating for the past 2 days. Looks like it's anticipating some major news and awaiting confirmation before starting a new trend.

Elliot wave formation for the longer term


Elliot wave formation of this rally from March 09

Market Analysis for 11/11/2009

After yesterday’s lackluster session, I believe the indexes are ripe for a pullback. I’m currently out of all positions waiting for this pullback. Even oil and gold seemed to have overshot and are losing momentum.

Market Analysis for 10/11/2009

Daily chart for the Dow


Daily chart for the S&P


Daily chart for NASDAQ


The Dow and S&P will be meeting some resistance at the 500 day moving average soon. (purple line) Only the NASDAQ seems to be good for a short rally after having bounced off the 20 and 50 day moving averages. (blue and red lines)

I think we should have 1-2 more days of bullishness before a dip. Whether this rally can continue will depend on the indexes staying above their respective 50 day moving averages.

Note: I still stand by my prediction of the Dow closing below 9,035 by end of the year. That’s more than 1,000 points from where we are now.

Market Analysis for 09/11/2009

I finally got back home to do my market analysis! The USD is on a downtrend for the whole day now and with the indexes being inversely affected by it, the market is bond to rally. The Dow broke previous high and the S&P broke up back into the wedge. I’m expecting both indexes to run for 2-3 more days with any dips being buying opportunities into this uptrend.

Market Analysis on the Dow And S&P for 06/11/2009

I finally got back home after a long day of work. Although the non-farm payroll was bad, the market dipped and rallied back up. This indicates that the market is still bullish and not ready for the major tank. Btw, I believe that the market is now on the last leg of a rally (target at around 1,120 on the S&P) and the sentiment may turn soon.

Dow daily chart



S&P daily chart



Although the S&P seems to have broken the trend line (and also the wedge) everything seems to be intact on the Dow. Usually both of them have to move together for the movement to be a significant one.

I believe that both the Dow and S&P are poised to hit the 50% mark before turning back down for a nasty tank.

Elliot wave on the Dow



This is the Elliot wave counting on the Dow. We are going to go down soon baby!

10 REASONS TO BE BEARISH

1) RISING UNEMPLOYMENT RATE -once it goes past the psychological level of 10%, we will likey see some strong reaction in the markets

2) CONTINUING BANK FAILURES - Banks are continuing to fail despite all the talk about recovery, the latest being CIT.

3) INCREASING COMMERCIAL PROPERTY DEFAULTS - were up 200% in the period from Jan 2009 to June 2009 as compared to the whole day of 2008. Surely increasing commerical property defaults indicates that the commercial sector has not recovered.

4) INCREASING HOUSING DEFAULTS - foreclosures and defaults are still rising

5) EXPENSIVE GOLD - Gold, the safe haven for investors is at an all time high and just broke 1,000. If there is a recovery then why are investors still keeping their money in gold?

6) HIGH CRUDE OIL PRICES AND THE HUGE DIVERGENCE BETWEEN CRUDE AND NATURAL GAS - Natural gas is usually used by the manufacturing sector and indicates the health of the manufacturing sector. The fact that Natural gas is at an all time low while crude oil is at a high indicates the weakness of the manufacturing sector in an environment of growing inflationary fears.

7) ULTRA LOW INTEREST RATES - as long as the interest rates stay down, we can be sure that the worst is not over.

8) EARNINGS ESTIMATES & ANNOUCEMENTS - seems like a whole lot of companies had beat earnings but they had forgotten to announce that their earnings estimates had been revised to such a low level that it is impossible not to beat it. And most of the revenues of the companies had actually decreased YOY.

9) FRE, FNM, AIG & C - With only 4 companies making up 25% of the stock activity in the market, this market rally is too biased for it to be an accurate reflection of the economy.

10) LOW VOLUMES - market volume is still low and with only 4 companies dominating the stock market activity, the market may spike in either directions (usually down) when market volume returns.

Dow and S&P market analysis for 02/11/2009

Wedge on the Dow



Wedge on the S&P



The wedge, as indicated by the 2 red lines shows the decreasing volatility that the indexes are going through. Usually, this indicates the calm before the storm. Whichever way that the indexes break out of the wedge, it may run in that direction for a while. In this instance, I believe there is a high chance that the indexes may break down. This rally had lasted way too long and a correction is long overdue.

Dow and S&P market analysis for 29/10/2009

Dow daily chart with moving average, MACD & McClellan Oscillator



S&P daily chart with moving average, MACD & McClellan Oscillator


See the channel that both the Dow and S&P made from the March 09 lows till now. Moved in a perfect upwards channel since then.

The Dow and S&P hit the base of the channel which is also where the 50 day moving average is now at. At the same time, the McClellan Oscillator is at an all time low of -300. This indicates that there is no more bearishness in the market. We might be getting a bounce over the next few days.

I believe that this bear rally that began on March 09 should hit 1,125 on the S&P and 10,345 on the Dow before beginning to turn back down.

Long Term Analysis of The Dow

Initially I wanted to retype what Conrad spoke about last Friday during the Trader gathering, but I did an analysis myself and found some rather surprising results. So I’ll be writing a report based on what I found instead.

As pattern traders, I will let the pattern on the charts speak for themselves; I have changed my candlesticks to lines so that we can see the pattern on the charts clearly.

Dow in the period leading up to The Great Crash of October 1929



Dow in the period leading up to the current Credit Crisis October 2007 (note the similiarity of the charts between the 2 time periods)



After the Great Crash of October 1929, the market lost 48%. Then the Dow proceeded to recover almost 50% after finding a bottom in November 1929.



Dow lost 54% from October 2007 to the March 2009 lows in the current Credit Crisis. As of Thursday 15th October 2009, we have recovered around 45% of the loss since the Credit Crisis began. (note the similiarity of the charts between the 2 time periods)



After the Great Crash of 1929 and the subsequent huge rally that caught millions of people including the father of Value Investing Benjamin Graham himself, the market went down another 90%. It practically went to hell.



Let me reiterate that economic cycles are not caused by any one individual or country. It is the movement and rotation of generations of different thinking and actions as a whole that causes these economic cycles. So there’s no way anyone country or countries can do anything to prevent them. We can only delay the inevitable but what will happen will still happen eventually. And due to the ‘preventive’ measures taken by governments, now we see that market downtrends are taking longer to play out.

Then I got itch fingers and drew a fibo for both charts and this is what I found.

Dow after 1929



Dow now.



That was exactly 80 years from today. For those who do not believe that the Dow will move to such a low level can take heart to know that in the writings of the Father of Value Investing Benjamin Graham, he also did not believe that the Dow could go down to such a low level of 42 in 1932. He almost got wiped out if not for the relatively large cash reserves that value investors always maintain in their portfolios. As for the siginifcance of this event being exactly 80 years from now, you can read the 4th Turning by Strauss and Howe.

I believe you can come to a conclusion for the report yourself.

Dow market analysis for 22/10/2009

Dow 5mins Intraday chart



The last hour tank by the US market last night signals that the market will be going through a period of weakness. Possible support levels are at 9900, 9825 and then 9625. If it tank beyond that, the current rally would be over and we might be going downhill for a while. This would be correction rather than a bear market. I have strong evidence to show that we might be rallying to 10,360 on the Dow before this sentiment will change.

Daily Chart of the Dow



My short term analysis is for the Dow to rally and hit 10,360 before any market tank to occur. My long term analysis is that the Dow will tank back to the March lows.

Wealth Summit Asia 2009

Had a wonderful time last weekend with Lillian Too and Jim Rogers. Celebrated Jim Roger's birthday with him and took a few photos. I will upload some more photos at a later date.

October 15, 2009 Trader’s Gathering

Conrad’s speech

October is good for the beginning of rallies. Refer to Conrad’s post http://www.conradalvinlim.com/?p=1788

Had not been able to pull any fibo for the indexes since Mar 09 because the rally had not had any 40% pullbacks.

1987 is the only real V shaped recession we ever had.

Natural gas is mainly used for manufacturing and production. Be careful if manufacturing and production stays low while natural gas spikes.

Sector rotation – as governments around the world seemed to be starting to increase interest rates, we might have a rotation of the sector investing model within this short period of time before the next big tank.

Conrad’s advice on position sizing – do not commit more than 50% of your account to trading. This is the time to be conservative.

Interesting videos – the crisis of credit visualized by Jonathan Janis
The weak economy and the dollar by Steve Forbes
Marc Faber’s 3 part interview on youtube

The Christmas gathering is on the 18th of Dec 09 from 6.30pm to 1am. Things to bring are $2 for the scalping challenge and laptops and extra monitors for scalping.

October 16, 2009 Trader’s Gathering

Speech by Richard Martin

Deflation is more devastating than inflation

The average American is now making less money than in the 60s in real terms – American’s standard of living had been on the decline since the 60s.

USA is losing its position in the world but they will not give it up without a fight. They will not allow their hegemony to diminish unnoticed.

The turning point of American power globally is on Aug 15, 1971 when President Nixon ended the gold parity with the USD.

Proof of American arrogance:
Iraq war – went to war without the support of the United Nations & without any proof of WMD
Tariffs on Chinese made tires without consulting WTO or other relevant international parties – introduced the tariffs due to lobbying from US businessmen and without any regard to international relations; this is usually how wars are started.

Singapore is at the forefront of the next economic resurgence in Asia and has established a financial niche for itself - Richard Martin himself had relocated here from the US to be at the forefront of the economic revival.

The Dow should lose 90% of its value from the peak of 14,000.

Interesting facts about the Dow

1901: Hit 100 for the first time
1941: Touched 100 for the last time Took 40 years to do this

1966: Hit 1000 for the first time
1982: Left 1000 for the last time Took 16 years to do this

Believes that none of us will see the Dow hit 14,000 again in our lifetimes.

Best track record of interest rates prediction over the last 25 years:
Lacy Hunt www.hoisingtonmgt.com

NOTES FROM WEALTHSUMMIT ASIA 09 AT SUNTEC CITY

4 PILLARS OF WEALTH (CRUCIAL TO WEALTH CREATION)

1) ECONOMIC CYCLES
2) ART OF FINANCE – GETTING MONEY FROM BANKS
3) COMPOUNDING
4) ART OF NEGOTIATION (DEAL MAKING)

CLOSING THE DEAL (DEAL MAKING)

1) BELIEF – ATTRACTS ATTENTION; PEOPLE WHO HAS MOST BELIEFS ATTRACTS MOST ATTENTION
2) RAPPORT – LUBRICATES INTEREST
3) AUTHORITY – REMOVE FEAR OF DISTRUST; KNOW WHAT YOU ARE TALKING ABOUT
4) DESIRE – CREATES BUYER ACTION; WHETHER THE PERSON WANTS THE PRODUCT

PEOPLE’S BIGGEST FEAR WHEN BUYING A PRODUCT IS THAT THEY WOULD MAKE A MISTAKE – GOT TO ESTABLISH MYSELF AS CUSTOMER’S RESOURCE

RAPPORT – WHEN PROSPECT KNOWS THAT YOU UNDERSTAND THEM (BEFORE YOU CAN CLOSE THE DOOR, YOU HAVE TO OPEN IT FIRST)


IMPORTANT WEBSITES
SHAREJUNCTION
AMAZON
EBAY
OPPORTUNITY AVE

THE MOST IMPORTANT PART OF ANY BUSINESS IS THE DATABASE.

Dow and S&P market analysis

The market is sure on a run now and I’ve changed from bearish to bullish now. As long as the indexes stay above the 50 day MA, the market would remain bullish. (since mid July) However I still believe that we are not out of the woods yet. The recession should be a ‘W’ recession and so we would be experience another big tank soon. According to a few indicators, the ‘soon’ seems to be sometime in Apr 2010.

I will put up more charts when I have more time tomorrow. In the meantime, trade safe and sleep well.

Dow & S&P 500 market analysis for week ended 04/09/09

I've been very busy with the bazaar lately. Learning a lot and having loads of fun. No time to do a proper analysis but this is the market analysis of my good friend David Elliot. Anyway i've learnt most of my trading techniques that i use today from him. So he's analysis should be better than mine.

04/09/2009

This week we saw our best market drop in several months.
Yesterday saw a three day pre holiday bounce that will most likely continue today without volume.
In addition the US$ continues to chop in a sideways pattern without breaking out of the range for the last two weeks. The US$ needs to breakout of 79.00 on a close to break free of this consolidation. US$ 77.85 on a close, remains our sell stop of last resort for the dollar.


Gold made a run at $10000, hit $999.50 before the sellers came into the picture.
Likely some more selling today.

This sideways/ bounce today should see some resistance at some of our major resistance targets and then start down for the beginning of a wave 3 down move.
Tuesday and Wednesday after the holiday weekend should see a continuation of the trend down that we started last week.


The DJ-30 resistance is 9383
The SP-500 resistance is 1007 - 1009.85
QQQQ resistance is 39.75.

End of the current rally

According to my bro Chris and his new found Demark technique, the current uptrend had ended last night. (Demark predicts turning points and trend terminations quite accurately) This has been further confirmed by the dojis that kept forming and the volatile behaviour of the market these days. Markets behave in a more volatile way close to the end of the trends, regardless of whether it is an uptrend or downtrend.

I'm now looking for the indexes to break the 20 day MA support and then the 50 day MA support. Once the 50 MA is broken, it is then that the downtrend will be confirmed.

Thoughts about this crazy rally...

This rally is crazy! All the talk about the market recovering and that we are out of the recession. This is just a bear trap waiting to consume everyone who are ignorant enough.

Anyway the McClellan Oscillator is edging up. It is currently at 217 now which is indicating that this current rally is running out of steam. Even if it continues to rally, it would have to dip and then rally in a wavelike manner. My opinion is that it would dip and then crash. We shall see in 1-2 weeks time whether this rally has legs.

Dow & S&P 500 market analysis for 07/14/2009 Tuesday

Dow & S&P 500 market analysis

We are now in a crucial stage of the market movement. Any big movement up will signal the continuation of the rally since March 09, and any big movement down will signal the end of the rally and also a confirmation a down movement that started from mid June 09 that may bring us to retest the March lows. However by looking at the behavior of the market, I’m in favour of a market tank down to retest the March lows.

But for this tank to happen, the market has to fail to break above 910 for S&P and 8476 for the Dow. So my market analysis for today will be up, to test the resistances.

Direction for 07/14/2009 Tuesday: Up


Crude Oil (USO)

Crude should be going through a period of consolidation between 59.30 to 62 for the rest of the month. The setup of crude seems to indicate a down movement which may bring crude back down to 53 and maybe beyond.

Direction for 07/14/2009 Tuesday: sideways

Dow & S&P 500 market analysis for 07/10/2009 Friday

Dow & S&P 500 market analysis

The S&P tanked throughout the week after breaking the 50 day MA. However we are now looking at a possible retracement to test resistance at around the 890-900 region if this tank is to be sustainable. This should be sometime next week. In the short term (1-2 months), I’m expecting S&P to rally to the 890-900 region and then tank to around 840. Longer term, I expect S&P to test the Feb 09 bottom by the end of the year.

Direction for 07/10/2009 Friday: Up


Crude Oil (USO)

I believe Crude had hit support at 59.60. It should consolidate for a few days before rallying up to test resistance at 62.20. This should take 2-3 weeks. Longer term, I believe crude should tank. The current level at 60+ is fundamentally unsustainable.

Direction for 07/10/2009 Friday: Up

Dow & S&P 500 market analysis for 07/06/2009 Monday

I'm finally back after a long absence. Was travelling Europe. Went to England, Scotland, France and Gerrmany and learnt a great deal.

Anyway the market from then till now had not changed much. It's still in a sideways movement though it seemed to be breaking down soon. We have what seems to be a head and shoulders formation on the indexes, and now we are all monitoring to see if it would break support at around 882 on the S&P and 8245 on the Dow.

If this support breaks, we will see some retracement and then it's down to 800 for S&P and 7500 for Dow. And should it break these 2 important support levels on the indexes, it should not take more than a month to complete the head and shoulders.

On the flight to UK!

I will be going off to UK today. Hence i might be unable to post any DMA during this time. I will be back if i can get a stable internet connection there.

Banks Won Concessions on Tests - Fed Cut Billions Off Some Initial Capital-Shortfall Estimates; Tempers Flare at Wells

By DAVID ENRICH, DAN FITZPATRICK and MARSHALL ECKBLAD

The Federal Reserve significantly scaled back the size of the capital hole facing some of the nation's biggest banks shortly before concluding its stress tests, following two weeks of intense bargaining.

In addition, according to bank and government officials, the Fed used a different measurement of bank-capital levels than analysts and investors had been expecting, resulting in much smaller capital deficits.

The overall reaction to the stress tests, announced Thursday, has been generally positive. But the haggling between the government and the banks shows the sometimes-tense nature of the negotiations that occurred before the final results were made public.

Government officials defended their handling of the stress tests, saying they were responsive to industry feedback while maintaining the tests' rigor.

Interactives: Compare Banks Tested
View Interactive

Bank by Bank Findings
View Interactive

More interactive graphics and photos When the Fed last month informed banks of its preliminary stress-test findings, executives at corporations including Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. were furious with what they viewed as the Fed's exaggerated capital holes. A senior executive at one bank fumed that the Fed's initial estimate was "mind-numbingly" large. Bank of America was "shocked" when it saw its initial figure, which was more than $50 billion, according to a person familiar with the negotiations.

At least half of the banks pushed back, according to people with direct knowledge of the process. Some argued the Fed was underestimating the banks' ability to cover anticipated losses with revenue growth and aggressive cost-cutting. Others urged regulators to give them more credit for pending transactions that would thicken their capital cushions.

At times, frustrations boiled over. Negotiations with Wells Fargo, where Chairman Richard Kovacevich had publicly derided the stress tests as "asinine," were particularly heated, according to people familiar with the matter. Government officials worried San Francisco-based Wells might file a lawsuit contesting the Fed's findings.

The Fed ultimately accepted some of the banks' pleas, but rejected others. Shortly before the test results were unveiled Thursday, the capital shortfalls at some banks shrank, in some cases dramatically, according to people familiar with the matter.

Bank of America's final gap was $33.9 billion, down from an earlier estimate of more than $50 billion, according to a person familiar with the negotiations.

A Bank of America spokesman wouldn't comment on how much the previous gap was reduced, though he said it resulted from an adjustment for first-quarter results and errors made by regulators in their analysis. "It wasn't lobbying," he said.

Wells Fargo's capital hole shrank to $13.7 billion, according to people familiar with the matter. Before adjusting for first-quarter results and other factors, the figure was $17.3 billion, according to a federal document.

"In the end we agreed with the number. We didn't necessarily like the number," said Wells Fargo Chief Financial Officer Howard Atkins. He said the company was particularly unhappy with the Fed's assumptions about Wells Fargo's revenue outlook.

At Fifth Third Bancorp, the Fed was preparing to tell the Cincinnati-based bank to find $2.6 billion in capital, but the final tally dropped to $1.1 billion. Fifth Third said the decline stemmed in part from regulators giving it credit for selling a part of a business line.

Citigroup's capital shortfall was initially pegged at roughly $35 billion, according to people familiar with the matter. The ultimate number was $5.5 billion. Executives persuaded the Fed to include the future capital-boosting impacts of pending transactions.

Stress Test: Complete Coverage
Wells, Morgan Stanley Quickly Raise $11 Billion WSJ.com/Finance: More stress test news Vote and Discuss
Do the stress test results paint an accurate picture of the financial industry? Weigh in at WSJ.com/Community SunTrust Banks Inc. also persuaded the Fed to significantly reduce the size of its estimated capital gap to $2.2 billion, after identifying mathematical errors in the Fed's earlier calculations, according to a person familiar with the matter.

PNC Financial Services Group Inc., saw a capital hole materialize at the last minute. As recently as Wednesday, PNC executives were under the impression they wouldn't need to find any new capital, according to people familiar with the matter. Thursday morning, the Fed informed PNC that it had a $600 million shortfall.

Regulators said other banks also were told they needed more capital than initially projected.

The Fed's findings were less severe than some experts had been bracing for. A weeklong rally in bank stocks continued Friday, with the KBW Bank Stocks index surging 10%. Investors were especially relieved by the relatively small capital holes at regional banks. Shares of Fifth Third soared 59%, while Regions Financial Corp.'s $2.5 billion deficit led to a 25% leap in its stock.

With the stress tests, government officials were walking a fine line. If the regulators were too tough on banks, they risked angering their constituents and spooking markets. But if they were too soft, the tests could have lost credibility, defeating their basic confidence-building purpose.

All the back-and-forth is typical of the way regulators traditionally wrap up their examinations of banks: Regulators often present preliminary findings to lenders and then give them time to respond. The process can result in changes to the regulators' initial conclusions. Some of the stress-test revisions, for instance, were made to account for the beneficial impact of the industry's strong first-quarter profits.

On Friday, some analysts questioned the yardstick, known as Tier 1 common capital, that regulators chose to assess capital levels. Many experts had assumed the Fed would use a better-known metric called tangible common equity.

According to Gerard Cassidy, an analyst with RBC Capital Markets, the 19 banks' cumulative shortfall would have been more than $68 billion deeper if the government had used the latter metric, which accounts for unrealized losses.

Federal officials said their projections reflected the most comprehensive analysis ever conducted of the industry.

The test results showed that the 19 banks faced a total of $599 billion in losses over the next two years under the government's worst-case, Depression-like scenario. The Fed directed 10 banks to add a total of nearly $75 billion to their capital buffers to insulate themselves from potential losses.

Banks pressed ahead on Friday with plans to fill their capital holes by tapping public markets. Wells Fargo raised $7.5 billion in stock through a public offering. The bank originally planned to raise $6 billion, but expanded the offering, which was valued at $22 a share, due to robust demand. Shares of Wells Fargo rallied $3.42, or 14% to $28.18.

Morgan Stanley, which is facing a $1.8 billion capital hole, raised $4 billion by selling stock. Shares of Morgan rose $1.06, or 4%, to $28.20.

NOTES ON THE WESCO FINANCIAL ANNUAL MEETING

NOTES ON THE WESCO FINANCIAL ANNUAL MEETING
May 6, 2009, Pasadena, California by Bud Labitan

The meeting was called to order promptly at 2:00 p.m. and carried on at a leisurely pace until ad-
journment at 2:04 p.m. The question-and-answer session then commenced. However, in a style he later
characterized as “Socratic solitaire,” Charlie Munger both asked and answered the first several questions.

SOCRATIC SOLITAIRE

How serious is the present mess?
“Deadly serious.” “You can’t tell what happens when people get disappointed enough of a dysfunctional
civilization.” The Depression led to Hitler. The government has been right to react vigorously.
What caused the mess?

It was an example of a lolapalooza effect: the result of a confluence of causes acting in the same direction.

• Abusive practices in consumer credit, namely extending credit to people who couldn’t handle it, knowing they couldn’t handle it. Sometimes you have to resist sinking to the level of your competitors. But fomenting bad practices often becomes its own punishment. “If you do things that are immoral and
stupid, there’s likely to be a whirlwind” that sweeps you away.

• The “scum of the earth” in mortgage credit who “rejoiced in rooking” their borrowers.

• “We had Wall Street go crazy,” pursuing any way of earning money short of armed robbery. In Merrill
Lynch’s last purchase of a mortgage outfit, they knowingly bought “a bunch of sleazy crooks,” thinking
that if it makes money, who cares that they’re crooks.

• Poor regulation and legislation. Some of the legislators genuinely thought they were being pro-social
in helping poor people buy houses, but they weren’t; you need sound credit just as you need sound
engineering. Some of the problem was Democrats pushing Fannie and Freddie to lend, some of it was
“Republicans who overdosed on Ayn Rand” and thought unrestrained free enterprise was as good for
the finance industry as for the restaurant industry.

• The repo system of credit allowed this: “one of the best ways to create excess credit ever invented.”
Credit default swaps that let you profit if someone else fails are a terrible idea; in buying life insurance,
you’re wisely required to have an insurable interest. Mark-to-model accounting on derivatives let both sides show a profit; “the accounting was phoney because all the customers wanted it phoney.” But Charlie’s never met an accountant who’s ashamed of his profession. People like Greenspan made what was going on respectable by endorsing it, but “it isn’t like free enterprise in restaurants”—more like legalized armed robbery. In the end, “We had to save a lot of these people whether we liked it or not.” To nationalize Fannie and Freddie and then lower interest rates so good borrowers could buy houses was “very smart government.”
In the old days, regulators kept silent about banks until they had to act, then announced a fait accompli;
“put me down as dubious” about the public stress-testing. Charlie probably won’t like what Wells Fargo
is made to do. Warren and Charlie think more highly of Wells Fargo than others do because of their low
cost of funds. Charlie’s willing to put up with less than perfection from the government; on the whole, “it’s working out fairly well,” and “a lot of it has been done beautifully.”

What are the long-term consequences for Wesco?
“Practically none.” Wesco’s holdings will go back up, and indeed some of them have already gone
back up quite a bit. Its businesses will take advantage of the recession, Carnegie-style, to strengthen their positions.

What has the government done wrong?

• Ethanol is stupid. The use of fossil water and loss of topsoil isn’t accounted for, you barely get out
more energy than you put in, and driving up the cost of food for the poor is “monstrously stupid.” But
ethanol appears to be waning.

• Cap-and-trade is an “insane idea.” The Chinese aren’t going to decrease their emissions. But cap-and-
trade might fade away too. What we should worry about is using up hydrocarbons too fast; they have
uses, as in fertilizer manufacture, where we have no substitutes. Solar is the way to go; we don’t want
everybody, North Korea included, having atomic power plants. Solar, a smart grid, and battery cars.
Charlie thinks solar will come down in cost by 50%, but it’s worth switching even if it doesn’t; he agrees
with Freeman Dyson that somewhat increasing the cost of energy wouldn’t be a big deal. “We should
listen more to Freeman Dyson and less to Al Gore”; one knows how to think and the other doesn’t.
China stands to gain from solar too; they’re choking on the emissions from the brown coal their power
plants burn. Israel gets half its water from desalination driven by electricity. Cheap power could benefit the Arab nations too, and decrease tensions. “To me these are just ABC. Every bright high-school student in the room should be nodding his head. . . but I’m not sure that’s the effect.”
We could handle a rise in sea level; look at Holland. “Nervous Nellies” see trouble ahead, but we should
see plenty. We do need to override obstructive local governments to get the smart grid built. We need more of the Chinese approach. One of India’s problems is that it has too much due process.
How fast will improvement come?

Japan went all-out with stimulus and lowered interest rates to zero, yet they got stasis instead of a
return to 4% growth. That would be terrible in this country, where there’s less social cohesion. “Japan is
a very interesting and threatening example,” but Charlie doesn’t know how our case will play out. Japan
wasted much of its stimulus filling every pothole three times and leveling every street. We should build that smart grid.

Here’s Charlie talking economics, never having taken an economics class in his life. “I’m not apologizing,”
and not impressed with academic economics.
What about stock prices?

Charlie’s agnostic on what they’ll do but would be willing to buy at current prices. Coca-Cola is worth
what it’s selling for, and so is Wells Fargo. He wouldn’t expect miracles from them, but it’s generally a bad idea to expect miracles anyway. If you wait for a bottom, it’s often too late to buy by the time you know you’ve seen it. Charlie’s pretty fully invested himself. This might be a mistake, but that’s his thinking, and “you’re entitled to know, because you’re cultists.”

What kind of reregulation should come to the financial industry?
An investment bank that is too big to fail shouldn’t be allowed to be anything but a fairly boring
business, making markets, underwriting offerings, and so on. It used to be that way. Partners didn’t
make much money. They were conservative people, they actually owned the business, and they’d seen the Thirties. It’s “crazy” to let bright young men buy what they want in the repo market with enormous
leverage. Gambling on high leverage ought to be banned. We don’t need options exchanges or credit default swaps. A man doesn’t deserve high pay for ballooning a balance sheet at a tiny spread. “Any idiot could do it. In fact, many have.” We don’t need a world where large numbers of very bright people are trying to get rich by outsmarting each other. Charlie admires Obama for saying he’ll reduce the power of New York, but isn’t sure he’ll have the guts to do as much as Charlie would like done. It’s “not pretty” to make your money by being a better card player than other people, whom you lure into the game.

Buying Berkshire vs. buying Wesco?
“As always,” Berkshire is a better buy at current prices. Wesco gets bid up “because you people are
cultists,” but if Charlie were buying today, he’d buy Berkshire. Berkshire is becoming a bigger and better
known thing all the time; Wesco is just a byway, and it’s only an independent company by accident.

PRESS QUESTIONS
(Harper’s Magazine) If you were Secretary of the Treasury?
“They’ve been doing pretty well.” Paulson deserves credit, as do the current Secretary and Summers.
They’re very able and will do a good job, though constrained by politics: sometimes you know what should be done but can’t do it for political reasons. Considering what they are facing, Treasury has done a good job.

(Motley Fool) If you were Obama, what would you incent?
Charlie would reduce the incentives to go to Wall Street. He’d the markets less deep and liquid, more
inefficient. He’d promote the smart grid and do away with the ability of every state and hamlet to block
it. He’d promote electric cars. As for Detroit, it’s an “example of a problem where, if you argued for the
solution that had a chance of working, they’d bat you over the head and remove you.” Toyota has tough challenges; what hope is there for Detroit? Wringing out everything through bankruptcy and emerging with a single domestic company would have a 40% chance of working. What they’re actually doing has 0% chance except by constantly adding money. It wouldn’t be the end of the world if domestic auto manufacturing died out. It happened in England. Rochester used to prosper on the strength of Xerox and Kodak, and Buffalo
has dwindled but is still a pretty nice place. This sort of change, some falling while others rise, is natural.
“If someone my age can cheerfully die,” we can put up with the declining communities.

(Kathy Kristof ) Many individual investors are disillusioned, seeing both Wall Street and Main Street business as corrupt, and have sworn off stocks. Are they right to feel that way?
Individuals should maximize their Social Security benefit. That isn’t going away. After that, to expect
a lot from stocks, bonds, or whatever is sort of irrational. The best way to achieve felicity is to aim low.
Warren’s standard advice, low-cost index funds, is perfectly good for most people, and certainly better than trusting the average stockbroker. (The stockbrokers in the room are different, but “they’re not normal.”) It’s in the nature of markets to go down sometimes. Some people in this room can earn twice the normal return, and Charlie has himself, but he can’t teach everyone how to.

(Gurufocus.com) How do we avoid losses like last year’s? Or can we?
It can’t be done. “If you aren’t suffering a little right now, you haven’t lived a life that’s right.”

(Paul Larson, Morningstar) Book recommendations?
Outliers, by Malcolm Gladwell. “There’s a reason it’s a bestseller.” “I tend not to read self-help
investment books. It’s kind of like soap operas: I figure I know all the plots.”

FLOOR QUESTIONS

How to hedge against inflation?
Charlie can remember the 2-cent stamp, the 40-cent-per-hour minimum wage replacing the 25-cent wage. Inflation didn’t ruin the investment climate over his lifetime. When the mass of people can vote, you have to expect inflation. It was a miracle that we had no inflation from 1860 to 1910. But is Berkshire shorting Treasuries or buying TIPS? Berkshire is “aware” that inflation is “the way of the world,” and we do what we can. But we bought a lot of utility bonds paying 9 and 10%. That’s not good if you have inflation, but it’s better than government bonds paying 3%. We don’t have a one-size-fits-all solution.

How can Berkshire invest in Goldman Sachs while inveighing against Wall Street behavior and excessive
executive compensation?
The merits outweighed the defects.

What effect will problems in commercial real estate have on GE Capital?
“They will lose some money.”

Isdell and Kent seem much more successful at Coca-Cola than their immediate predecessors, yet it’s the same company. Why?
The current CEO is “exceptionally gifted.” You can expect good results when a gifted CEO runs a
good company.

What will the business model look like for banks like Wells Fargo going forward?
They’re well situated and have bright prospects. More regulation wouldn’t be a surprise.

Can one teach executive leadership?
Some people are more teachable than others, just as some dogs are. Capitalism keeps filtering out the
people who don’t do well and replacing them with people who do better.

What qualities do you look for in a leader?
Trustworthiness; good judgment. Warren’s right that an IQ of 130 is enough (though Berkshire wouldn’t
be nearly what it is today if Warren’s own IQ was 130). Overreaching is the problem, and is encouraged by salesmen.

How do the long-term prospects for the investment climates in India and China compare?
If you’re asking whether Wang Chuanfu of BYD will do well, he’ll do “amazingly well.”

Why is growth emphasized? Are there limits to growth?
Yes, of course. The material world is finite.

Berkshire’s invested a lot in railroads, but freight volumes are down, and a smart grid with solar and wind
would be bad for coal hauling. What would change your views on railroads?
Burlington Northern would still be hauling freight. Railroads have competitive advantages over trucks.
They look pretty foolproof; they’d be more foolproof if there isn’t a shift away from coal.

How long would it take to design a smart grid?
Charlie doesn’t know. We’ll need regulatory streamlining to get it built, but it’s perfectly doable.

(Whitney Tilson) Newspaper reports made the Berkshire meeting sound like a gloom-fest, and I wondered whether I’d been at the same meeting. How do you see opportunities today and their effects five years ahead?
Sure we have opportunities, and a smart grid would be good for Berkshire. The guys running Berkshire’s
utility business are very good; for one thing, they get along with regulators by giving them what they’d want if they were regulators. There’s “considerable opportunity” for Berkshire to be bigger in utilities.

Human misjudgment?
Like sunshine, it will always be part of the world. At Berkshire, there’s less of it than elsewhere, and
this provides an advantage. The best chapter in Outliers is the one about the guy with the 200 IQ who was a total failure in life.

Will there be oil to meet demand in the next five years?
We’re near peak oil, whether the peak is just behind or just ahead. On the other hand, there’s a lot of
new gas, and that’s surprised everybody. The world will adapt to whatever the price of oil is, “because it
has to.” Oil at $200 a barrel wouldn’t crater America. We’d change our ways and adapt.

What questions are you asking yourself? What should we be worrying about?
There are bad things to worry about. If Charlie were asked the odds of atomic weapons being used in
the next 30 years, he’d put them “pretty high.” But you work on things you can change, and “suck up your gut” about the rest. Japan is still a decent place despite 0% growth, though it might not work out the same here; being monoethnic helps them.

What do you think about insuring, or buying, municipal bonds?
Charlie doesn’t want Berkshire insuring an endless amount of municipal bonds. A lot of politicians
might yield to the temptation to throw their troubles on some insurer instead of on their taxpayers.
It sounded, at the Berkshire meeting, as though $100 million per year on advertising was maintenance cap-ex for GEICO, and the other $700 million on advertising should be thought of as growth cap-ex. Is that right? Yes.

Have you read Snowball?
Yes. It’s an interesting book, covering a life in such detail. By and large it’s reasonably accurate, though
any book that thick will have errors. And she made a lot of money.

What do you think of reverse mortgages?
They make sense, but they involve big commissions and dealing with frail old people, so Charlie is leery
of them, as of anything sold on high commission to the old.

Berkshire’s an example, in some ways like a university without walls. Could we someday have documentation of decision processes released, even if long after the fact?
Berkshire’s example hasn’t had much influence. Charlie compared it to a surgeon he knew of who
did a very difficult procedure. Other surgeons admired him but didn’t dare imitate him. Charlie likes
Ben Franklin’s idea of not paying government officeholders and would like to see it extended to corporate directors. A fee of $250 thousand is a lot of money to, say, an university professor, and he’s going to do what it takes to stay on the board, and try to get on more boards. But university trustees serve without pay, and directing a public company is a similar public service. “You can argue that Walmart is more important than Harvard” in its cultural and economic impact. Being a director is interesting; why should you need to pay?

Will the coming inflation be like that of the Seventies?
Inflation coming is a good bet, but there’s not necessarily a good way to bet on it. TIPS have drawbacks.
Real estate can drop in price, as we’ve seen. Keep your expectations reasonable.

Charlie told the story of a man who owned his house clear and had $1 million invested, letting him live
in his house on the dividends. His broker talked him into selling puts on Silicon Valley bubble stocks. He
lost his money and his house and took a restaurant job, all from trying to get more when he already had
enough.

When will deflation stop and inflation start?
Omaha had no real estate boom and hasn’t had a bust; if you want a house in Omaha now, buy it.
Every market is different. Pasadena real estate is expensive, but it’s a well run city, and if Charlie wanted a house in Pasadena for his family to live in, he’d probably buy. “Now, I might buy it at foreclosure. . . .”

Why did China cease to lead in science 500 years ago?
A dumb, self-satisfied emperor and Confucian bureaucrats “like French Literature at Yale.”

Do you see something special about China?
Charlie likes Confucian values, especially the respect for elderly males. They have a strong work ethic.
They’re family-minded. When Wang Chuanfu needed $300 thousand to start BYD, a cousin provided it to
him. (That was the best investment the cousin ever made.) Their leaders are engineers: “That’s my kind of Communist.”

Is AIG still underpricing risk? Will the disruption in insurance create opportunities for Berkshire?
Scandal has been bad for AIG’s business. They’ve been “very unlucky.” They’ll survive but have a
difficult hand to play. It could happen to Berkshire, or anybody else, if they make dumb decisions.
What’s the future of finance education, giving recent overwhelming evidence that diversification, for example, doesn’t work?

Charlie doesn’t think much of finance professors. Some of them try to turn finance into physics, but it
can’t be done. He can’t tell you how to get a good academic finance education.

How can an individual shareholder, who can’t meet management, judge trustworthiness?
There’s no one answer. If you go to Mass. General and say you want to learn to read bone-tumor slides
well, they can’t teach you. “No one’s any good at it who hasn’t been doing it for eight years.”

Are corporate lawyers’ fees too high?
Yes. On the other hand, if you can get into a good law school, you’re surrounded by bright people, half
from the opposite sex. It’s a good place to meet a mate. And lots of people go to law school without intending to practice. But law in big firms has been too prosperous. Charlie has a lawyer friend who suggested that his firm cull one customer per year, on principle. Charlie thinks it’s a good idea, but the friend’s colleagues shot it down. Charlie’s big early success in business was firing lots of his customers, the ones who didn’t want to let the firm make any money.

What’s the future of the two newspapers you own?
The ordinary daily paper will perish or perhaps become something like public broadcasting, subsidized
by one or two big backers.

What do you think about California tax-free bonds?
We have a crazy legislature, gerrymandered to contain only “certified nuts” from the left and the right
who naturally hate each other. Charlie doesn’t know how it will play out. You can’t assume good will win.
Sometimes evil wins.

Warren has said a weak dollar isn’t enough to resolve the U.S. trade deficit. How might it resolve?
Sometimes the completely unexpected happens. Who could have foreseen Margaret Thatcher and her
sweeping changes after 20 years of Labour? “Warren is more pessimistic than I am.” Warren thinks China
will tire of sending us goods in exchange for bits of paper. Charlier thinks China is gaining enormously, and the loss of purchasing power on their bits of paper is a small price to pay. The gains don’t show up in the equations of economists, but that means the equations are wrong. Getting good at manufacturing is a form of wealth.