Thursday, December 31, 2009

On The Road Again

As I write this blog, my wife and I are traveling by car on new years eve, approximately half way to our condo in Savannah. Just ate at one of my all time favorite Midwest restaurants-Steak and Shake chains.

I will be in Savannah the month of January. Fly back for a week to frigid MN, then go back to Savannah for another month. I am able to work remotely while there. I am blessed in so many ways.

I do not usually write about my personal life on my blog, but hey, why not do so on the last day of the year.

Verizon has the best Internet card for laptops of all out there. The speed equals my DSL at home.

Make plans now to come to my 51st birthday party next July. I will be fronting a live rock and roll band, playing several short sets of tunes from Elvis, to today.

God Bless and have a great 2010.

Jerry Wade

Wednesday, December 23, 2009

The Rise and Fall of Empires

I originally wrote this blog almost six months ago. I have been holding off posting it due to the potential for some readers to be “put off” by the topic matter. As we head into 2010 with Hugo Chavez and the “mean little guy in Iran” forming more alliances, I cannot hold it back any longer.

War and peace and the rise and fall of countries have a direct impact on your well-being and personal wealth. It is for this reason that I have chosen to devote this article to sharing with you my opinion, not the opinion of Wade Financial Group, Inc. or its team members, on these related and somewhat sensitive topics.

In my opinion, the study and knowledge of world history are critical in discerning what is going on in the world, why it is going on, and what the potential future outcomes may be.

Since the beginning of history, great empires around the world have risen to economic and military greatness, enjoyed their peak status, and then suffered from an eventual and inevitable decline. Examples are numerous, including the Greek, Aztec, Mayan, Roman, Ottoman and British Empires. The United States has owned the empire crown for many years, but she is subject to the same forces that have brought all others down before her. These forces include living in excess, the nanny state, attempting to spread and control other nations via imperialism, government seizing power from its citizens, politicians too involved in feeding at the trough and eventually the weakening of a nation’s ability to defend itself. The fall of most empires has proven to be politically agnostic, with a nation’s citizenry and elected officials equally contributing to the downfall, regardless of political ideals. Throughout history, a typical empire has begun decline a bit after 200 years.

It is my belief that we are in the early innings of a long-term, multi-decade, secular decline in the United States’ economic, political, social and military standing and influence in the world. I believe this to be the trend and it began long before George Bush and/or Barack Obama took office. The U.S. and her image are getting no better treatment from the “little psychotic men” that rule North Korea and Iran as a result of a change at the White House.

As it pertains to investing, the short to intermediate term (next 10 years) navigation of the financial markets “may” remain disconnected from the immense, long-term secular changes that will unfold over the next 50-100 years. The gigantic +60% bounce of the U.S. stock market since the spring of 2009 is currently masking the ever increasing headwinds America will be facing. I worry for my children and future grandchildren what the world will look like when they reach my age. That said, I have recently come to believe that those of us in our 50s today may live long enough to actually witness the full brunt of the economic calamity that has always been thought to land at the feet of future generations. This new thought is based upon the rapid acceleration of debt and uncontrolled spending in Washington.
We are faced with seismic shifts in the “economic plates” of the world. The world is rapidly evolving (or devolving) with the U.S. potentially becoming a secondary player to the rising “Pacific Tigers” of China, India, etc.

Let’s look at some facts. At the core of China’s purpose is to become “the” world super power, both economically and militarily. Most people simply are not aware of this and/or do not get the implications for the U.S. and the rest of the world.

Islam and Israel are locked in a dispute that goes back to the Old Testament in the Bible. They did not like each other then, have fought ever since and are still fighting. Politicians, commentators and the majority of Americans fail to understand this and thus better grasp why regardless of who is running the United States, these two will simply keep doing what they have always done - fight.

What’s most worrisome on a long-term, secular basis is that the number of legitimate and rogue countries that do/will possess the ability to wage nuclear war is rapidly increasing. On a short-term basis, a single nuclear bomb going off would crater the world financial markets and wreak fear across the world about what would happen next. Chances are, the situation would be contained and the world would get back to running at its normal pace at some time. That said, the financial and psychic damage that such an event would unload cannot be overstated. Of greatest concern, over the long haul, are the following:

1) China desires to rule the world.
2) Radical Islam also desires to rule the world.
3) The cold war between the U.S. and Russia is back on, with Russia back to its old ways of supplying “assistance” to rogue countries. This assistance is of a dangerous variety, including nuclear and other military assistance.
4) Pakistan is an ongoing accident, waiting to happen.

In the past year, the Taliban came within 60 miles of the Pakistan’s capital of Islamabad. Pakistan is essentially run by its military. Experts believe that Pakistan has 50-100 nuclear warheads dispersed across a country twice the size of California. Terrorism experts believe that Pakistan’s military and government structure have to an unknown degree been infiltrated by enemies of those who desire to maintain the current tenuous, but safe nonetheless, balance of world powers.

If Pakistan were to fall into the hands of a Taliban/Al Qaeda regime, they would then control the military and Pakistan’s nuclear weapons. The U.S. and the rest of the world would face the biggest security threat in the past 100 years. The Cuban missile crisis was certainly dangerous, but today we are dealing with not just one, but a multitude of madmen all over the world, hell bent on returning the world back to the way it worked 700 years ago. Maybe a new mutual fund invested in “camel futures” is not too far off!

Ditto the above regarding Iran. They do not currently possess the nuclear arsenal that Pakistan does, but they are hell bent on doing so. The G-10 and the United Nations are impotent at stopping Iran.

P.S. Both China and Russia have been instrumental in assisting Pakistan, North Korea and Iran in the development of their nuclear programs. China is also “taking over” the U.S. by becoming the largest buyer of U.S. Government debt and they are increasingly purchasing U.S. corporations.
The “peace” that Reagan and Gorbachav committed to has been dead now for years ever since the KGB and the “mob” starting running Russia. It’s back to Russia wanting to rebalance the world power equilibrium and tilt it away from democracy and towards dictatorships.

China is pushing for the creation of a new “world monetary currency” that would shift power and location from the decades old safe haven of the U.S. dollar. Within the next 10-20 years, we are likely to live in a world where the U.S. is no longer the hub of the world economy. China is on pace to grow into the biggest economy in the world. The Wall Street of the future may be located in Shanghai or Dubai. This may be one of numerous secular shifts that will likely take place over the next 50 years.

In addition to the aforementioned increasing nuclear risks, the U.S. and the world are woefully prepared to fight an enemy sneakier and just as dangerous-cyber warfare. China and Russia were believed to be behind the “Titan Rain” attacks on U.S. defense and other firms a few years ago. China just doesn’t go away, does it?

Experts believe that the U.S. is woefully prepared for the looming cyber threat. A recent report requested by President Obama outlined the poor state of the United State’s ability to deal with Cyber attacks. The president has appointed a new “White House Cybercop.” This new position names and acknowledges the threat, but beyond that, there is no new plan in the works.

Experts believe that it will take a or 9/ to force the U.S. government to get behind the billions/trillions that are needed to defend the U.S. from the threat of Cyber attacks. Such catastrophes could include the electronic shut down of Washington, the collapse of the Internet, an electronic 9/11 on Wall Street, disabling our power grid and pulse bombs that can send an invisible electronic wave that can disable all electronic devices within a 50 mile radius.

On a positive note, it is highly likely that during this same 50-100 year time frame that the following will take place: The discovery of a new, renewable source of energy and the colonization of space somewhere beyond earth. However, this will not matter if the free world is unable or unwilling to defend itself.

I began this piece on the rise and fall of empires. I have laid at least a basic foundation for how and why this may likely take place over the next 50-100 years. I have no clue as to the specific details.

As to the question of why a financial commentator is opining about world history, we live in an electronic, global marketplace. My wife and others felt that the topics of this writing might be too sensitive, offend or scare someone. While I respect these views, I chose to error on the side of allowing the reader to be the judge.

We all need to recognize that over the coming years the world as we know it will be rapidly evolving. The rise and fall of countries, war and peace and the related impact on your personal wealth and well being are all highly interconnected. As before and after the Great Depression, WW2, Cuban Missile Crisis and the horrific inflation in the 70s, what has and is going on all over the world matters greatly to how one should approach the management of wealth and the associated risk of investing.

You may be hearing the phrase, “The New Normal,” in various investment articles. A minority of economic commentators believes that Americans will need to adjust to an investment landscape that does not recover coming out of this recession in lockstep with what “usually happens.” I am in this camp. What this means in the way of influencing the way I manage wealth is as follows:

1) Expect lower returns from U.S. stocks over the next ten years than the magic 10% historical average. More like 4-6%.
2) Stocks outside of the U.S. may outperform the U.S., thus, a heavier allocation to markets outside the U.S. will be in order.
3) “Cash is not trash,” meaning it will be very important at almost all times to maintain a minimum of two-three years worth of living expenses in cash.
4) With the potential for inflation and/or dramatic world events, an increased allocation to precious metals, commodities, etc. may be in order.
5) Owning high quality stocks that have great balance sheets, low debt, great cash flow and a record of increasing their dividends should be at the core of the equity portion of all investment portfolios that contain individual stocks.
6) Investors working with financial advisors who are willing to “adjust to the new normal” will likely benefit from an approach that is more forward looking than rear view mirror.

In Closing
It is my hope that what I have written will at a minimum cause you to step back and ponder the trajectory the world is on. All of us possess the power to alter the trend. This opportunity is provided every two to four years with our privilege to vote.

In the mean time and all along the way, I will continue to rigorously assess what is going on in the world, distill this information and leverage it to assist me with the risk management aspects of the privilege bestowed upon me to assist in the management of the wealth of others.

Jerry B. Wade, CFP, CFS
CEO, Chief Investment Officer
Wade Financial Group, Inc.

The views expressed in this article are the views of Jerry B. Wade as an individual and do not represent the views of his employer, Wade Financial Group, Inc.

Tuesday, December 22, 2009

The Primary Place for Most Alternative Investments-The Dumpster

Let’s start first by keeping the topic simple. The two largest Ponzi schemes in 2009 were Bernie Madoff and Tom Petters. Investors were lured into these “hedge fund” and “private equity” products by the too-good-to-be-true performance claims.

At my company, Wade Financial Group, Inc., we get calls weekly from “sales reps” for a myriad of investment product and wanting us to consider their products. Close to 90% never get in our doors. These “pitches” end up in our shredder or the dumpster.

We spent an hour with two reps from a company recently and didn’t find any reason to spend more time evaluating their funds. Here is a quick summary of the waste of the time that meeting was. They were unprepared and didn’t have all the fact sheets or prospectuses with them. Shocking but true. They also couldn’t explain how/why their products could create value for WFG clients…they could only explain the complexity.

Our conclusion was that they built their products to market, not to perform. Their core product has a long lock-up period for your money (i.e. you can’t get at it when the ship starts to sink) and has had lackluster performance. And comes with a very high expense structure. Their mutual fund charges 4% and has a high exposure to market neutral and long-short strategies so we wouldn’t want to own it when the market is cheap and there are cheaper ways to get defensive when the market is expensive. It is the same old story every time we look at these types of products. They pitch a potential gross return of 10%, have fees of around 4-5% per year, are illiquid and do not have good track records. The ones that do have good track records seem to be the ones that end up as Ponzi schemes!


Stay away from Hedge Funds and other illiquid and hard to evaluate investments that pitch returns that sound to good to be true–they always are.

Only by standing against the prevailing winds–selectively, but resolutely–can an investor prosper over time. Such a strategy may underperform during markets that are rising based upon the momentum of the herd vs. fundamental valuations.

Can “U” Handle The “Truth?” Avoid Placing Your Head in the Sand

The title of this blog says a lot. I have had several readers of my blog indicate recently that:

1) They believe I am being too negative in many of my posts.

2) Some have indicated that they are going to quit reading my blog because it is making them depressed.

I just returned from a trip to my home state of Indiana, having had dinner with some relatives. When asked for my feelings about the future, I shared my serious concerns regarding the significant headwinds our country is in and will be facing. I could tell from their response that they had hoped for a more positive outlook.

Look at it this way, when you go to the doctor, are you looking for the truth about your health, or are you looking for the truth to be sidestepped?

I implore all readers of this blog and clients of WFG and our mutual fund to face the reality of the reduced growth economy we are facing and not avoid the topic by choosing to “mentally check out.” Your wealth is as important as your health. If you have a heath condition, treat it. If you have a “wealth condition,” treat it as well by seeking advice as to what you can do to adjust to you current state of financial affairs.


Only by standing against the prevailing winds – selectively, but resolutely – can an investor prosper over time. Such a strategy may underperform during markets that are rising based upon the momentum of the herd vs. fundamental valuations.

Acting like an ostrich with your head in the sand is a very dangerous approach to addressing your finances and life in general.

Monday, December 21, 2009

The Folly of Economic Estimates

The consensus estimate for the year-end value of the S&P 500 index for 2008 was 1,632, which translated into an expected gain of 11.12%. Reality: The S&P 500 index finished down almost 50% in 2008. Oops!
At the start of 2009, 11 Wall Street strategists polled by Bloomberg came up with an average price target of 1,056 for the S&P 500 at the end of the year. This translated into an average estimated gain of 16.9% in 2009. As of 12/18/09, the index was up 24%.
So far, eight strategists have released their 2010 S&P 500 price targets (from the weekly Bloomberg survey), and ALL of them are expecting a gain next year from current levels. Oppenheimer has the highest price target at 1,300, while Credit Suisse has the lowest at 1,125. The average price target is 1,226.25, which implies a gain of 12.53% from here. With 100% forecasting a positive year for the U.S. stock market, you have to ask yourself what the odds are that they will be any where close to correct. My guess-not close, same as in 2008.
Bottom line: You need to build your financial portfolio on the “new normal” principles of investing and NEVER trust estimates of the future from Wall Street and vastly overpaid forecasters. These charlatans are on the same level of fortunetellers and palm readers.

I believe that the dominant focus this coming year will be on capital preservation and income orientation, via bonds, hybrids, and a consistent focus on reliable dividend growth and dividend yield from high quality stocks. The range of outcomes moving forward in the financial markets and the economy appear to be extremely wide at the current time. We will be focusing on maintaining defensive strategies and attempts to minimize volatility
Only by standing against the prevailing winds – selectively, but resolutely – can an investor prosper over time. Such a strategy may underperform during markets that are rising based upon the momentum of the herd vs. fundamental valuations.

Wednesday, December 09, 2009

Dubai’s Weakness Does Not Bode Well for a Strong Global Recovery

Below is an excerpt from "Dubai's Shot to the Moon," by Vitaliy Katsenelson.
“Dubai’s construction wonders were made possible by high oil prices and, more importantly, unlimited (at the time) global liquidity – subprime global lending on steroids.
Today Dubai, a city/state that could do no wrong just a few years ago, is defaulting on the debt it issued to finance its building boom. However, what is happening in Dubai is just the most recent, most vivid example of what took place all over the world until the economic crisis. Economically impossible endeavors with negative returns on capital were everywhere, and Dubai is just the latest to go bust.
Though everyone is talking about Dubai’s potential default, the scope of the problem is greater. Think about how much energy (oil, coal, natural gas), materials (steel, concrete), and industrial products (cranes, tractors) – in other words, stuff – it took to build these economically impossible wonders. China, the most populous country in the world, also masked its share of economically impossible projects through the guise of “stimulus” and at times outright censorship. China is the birthplace of the largest shopping mall in the world which is empty, and a city built on spec for a million people that remains mostly vacant. These two just scratch the surface. The rest of the world, including the US, (after all, we built a lot of now-empty houses and condos) is swarming with economically impossible projects. How many houses (or in the case of Dubai, mansions), factories, hotels, skyscrapers, shopping malls, and railroads will not be built because there are too many already built? And if this is not convincing enough, funding economically impossible projects will be difficult for awhile, as lack of liquidity and insurmountable losses suddenly turn bankers into … bankers. They find religion (at least for a little while) and start giving loans to folks who are expected to actually pay them back.
Dubai is the exemplar of economically impossible activities that have taken place everywhere, and why one can’t be optimistic that demand for stuff will return to levels even remotely close to what they were in the days when everything was economically possible and financeable.”
Only by standing against the prevailing winds – selectively, but resolutely – can an investor prosper over time. Such a strategy may underperform during markets that are rising based upon the momentum of the herd vs. fundamental valuations.

Monday, November 30, 2009

An Actual Case of the “Pot Calling the Kettle Black”

Seldom, from Wall Street, do investors ever get the plain truth. Wall Street is in the business of selling “free lunches” of which there is always a waiting line of investors unfortunately fighting for their place in line for the lunch.

The quote below is from Hedge Fund manager, Hatteras Group:

“Hedge Funds and Mutual Funds invest in the same ‘space,’
they just have different legal structures, and Hedge Funds are illiquid.”
Minneapolis Luncheon to RIAs, 9-30-09

Investing Lesson:

Based upon the above admission, why would you as an investor want to invest in the same thing as a mutual fund with the following negatives?

1. 3-4% annual fees vs. 0.5-2% for mutual funds
2. Limited SEC regulation vs. tight SEC review of mutual funds
3. Limited and inaccurate performance reporting
4. Limited liquidity

Said another way, Bernie Madoff sold Hedge Funds.

One of the primary benefits of working with a reputable, fee-only financial advisor is we are skilled at knowing what a trap looks like and adept at steering our clients away

Wednesday, November 25, 2009

GDP Revised Down-Now There’s a Surprise (Not)

The nation's economy didn't grow as fast as first believed, hinting that the economic recovery still has a ways to go.

Go figure.

I think a recent blog post of mine was suspicious of the GDP number. GDP = Gross Deception Picture

The Commerce Department said third-quarter U.S. gross domestic product grew at an annual rate of 2.8% in the third quarter. That compares to its initial GDP reading of 3.5% growth offered at the end of October.

Consumer spending grew at a 2.9% rate. Still, that's softer than the 3.4% rise estimated in the advance report.

Investing Lesson:

Things are not always as they appear.

Monday, November 16, 2009

Ignorance Is Bliss (Not Really)

The message from the markets and market pontificators and the like over the past few weeks has been, with increased confidence, that investors are getting “nice and comfy.” With a growing consensus forecast for a smooth and self-fulfilling recovery from the current recession in 2010 and beyond, they feel we are headed for smooth sailing ahead.
I am troubled that the herd has adopted the view that we are now at the start of a normal multiyear expansion that should resemble average expansionary phases in past business cycles.
Here is the sobering truth: In very short order, the experts that failed to see the recession coming then projected certain unrecoverable doom, then failed to see the coming +50% stock market blast off from the market bottom in March, now have a new forecast.
Next year's S&P 500 earnings forecasts are now moving toward $80 a share (as UBS estimated last week), a level that was unimaginable three to five months ago.
Also, while we are on the topic of forecasts you cannot trust, the latest craziness is the prediction that the Federal Reserve will not begin increasing interest rates until the fall of 2010. Forecasters can’t get what will happen next week right, let alone a year from now. I would put the odds of this forecast being correct at about 2%!
I don’t know about you, but I am not of the persuasion at this time to trust ANY of the consensus forecasts.
I have argued that a number of head winds coupled with a weakened consumer may likely result in a high degree of uncertainty and the potential for economic outcomes moving forward which are not market-friendly. I believe that market and economic challenges will rise as we enter 2010. Couple this with the eventual withdrawal of government stimulus and the threat of higher taxes and it “could get ugly.”
In bull markets, there is often no clear dividing line between fantasy and reality. Markets usually continue to advance, as “the crowd” and cash on the sidelines finally decides they are missing the party. Their confidence for entering is the fact that the market has rallied +50% so things must have turned around.
In a recent blog, I used the current example of how billion-dollar pension funds are now adding high yield bonds to their portfolios-AFTER high yield bonds have already advanced over 50%!
I believe that the market's potential to disappointment increases with each week that the world stock markets keep hitting new highs. There are many warning signs, for instance:
  1. A 17.5% (the real) underemployment rate,
  2. A steadily declining U.S. dollar,
  3. A weak consumer,
  4. Hurting small business owners,
  5. The continued increase in the price of gold and so forth.
These facts are simply being ignored as “likely to get better” as we enter 2010.
I will continue to monitor the economic landscape daily and make necessary and prudent adjustments to the portfolios managed by Wade Financial Group, Inc.

Wednesday, November 11, 2009

Did You Know You Not Only Own GM, GMAC, AIG, etc., But You Are Also Now A Landlord?

Last week’s Wall Street Journal had an article about how we, as U.S. taxpayers are now in the rental real estate business via Fannie Mae.
Fannie is now allowing homeowners facing foreclosure to stay in their homes and rent from you and me for a year. Fannie has already indicated that you and I will be willing to extend the leases. Problem is, you and I are not getting the rent checks.
This is yet another band-aid being applied to the U.S. housing decline that our government is not allowing to succumb to its final bottom. Stimulus and band-aids are keeping the “economic patient” alive but not treating the condition. The deficit for our heirs just keeps going up. Yes, George Bush never met a spending bill he did not sign either.
Fannie refused to disclose how many homeowners we will be renting to. Nice. Wow. #$%#%^#%^$.
Real estate industry insiders call this the “shadow inventory” of homes that will likely have to be foreclosed upon, thus, at that time, adding more pain to the very slow recovery out of this recession that this author expects.
At least we do not have to fix the toilets!
Investing lesson (Charles Ponzi pictured below)

Ponzi schemes, in the end, never work. How will all the shuffling of money by our government from one hand to another eventually end? In grade school, it was called musical chairs. I fear our offspring will be the ones left standing when the music stops. This is not political commentary; it is agnostic, economic reality. As grandma always told us, “Kids, there is no such thing as a free lunch.” Never has been, never will be.

Fire The Economists

A bedazzling 80% of economists now believe the worst economic recession of our generation is over. And around 100% of them never saw the recession coming!

By nature, economists are herd-following lemmings.

Cyber Threats Are Real And Increasing

SAO PAULO (AFP) – On Wednesday, Brazil sought to uncover the cause of a massive and mysterious blackout overnight amid concerns of energy supply stability for the 2016 Olympics host nation.
The outage lasted around four hours and plunged nearly half the country into darkness after the country's biggest power plant experienced supply problems.
An estimated 70 million people -- more than a third of Brazil's 190-million-strong population -- were affected, according to the energy ministry, mainly in the major southern cities, including Sao Paulo and Rio de Janeiro.
The blackout occurred two nights after the U.S. television network CBS broadcast a report in which unidentified former U.S. national security officials claimed massive power outages in Brazil in 2005 and 2007 were caused by cyber hackers attacking control systems.
Although Brazilian media were skeptical of that assessment, the U.S. channel said those incidents should serve as a wake-up call to the United States, which could see its own power supplies hit by computer sabotage.

Tuesday, November 10, 2009

What Asset Class Correlations Meant Last Year and What They Mean Today

Traditional “diversification theory” is based upon past history, where owning U.S. stocks, foreign stocks, REITs and commodities, etc., allowed for a reduction of downside risk in bear markets. That all fell apart in the autumn of 2008 when everything was collapsing; all asset class correlations essentially went to one. The only asset classes that held up were: Cash, U.S. Government Bonds and Managed Futures.
Since the market bottom in March of 2009, traditional asset class correlations have gone to one again. Since early March, when the rally began, the correlation between equities and high yield bonds, real estate investment trusts, industrial metals and oil are all 0.94 or higher. In other words, all those markets are moving in sync. Even gold has a remarkably high correlation of 0.76 with equities. Basically, an asset allocator could have thrown darts in March and found things that went up.
We do not throw darts. We rigorously evaluate asset classes and individual securities, looking for opportunities to reduce portfolio risk every day. Based upon the massive rally in the majority of asset classes, most investors and professionally managed portfolios are at high risk for another massive stumble, if and when it happens. We have significant allocations to the following, all of which have NOT been highly correlated with the stampede and should hold up well in the event of another turn down into a bear market:
  • Cash
  • Managed Commodity Futures
  • Managed Financial Futures
  • Gold
  • Merger Arbitrage fund
  • A Long/Short fund
  • Short Term, High Yield bonds in GMAC and Ford Motor Credit

Friday, November 06, 2009

Extending Unemployment Benefits and New Home Tax Credit: More Signs That This Will Be No Normal Recession

President Barack Obama is set to sign a $24 billion economic stimulus bill Friday, providing tax incentives to prospective homebuyers and extending unemployment benefits to the long-time jobless.

Monday, November 02, 2009

GDP = Gross Deception Picture

The band, Styx, had an album in 1980 called the “Grand Illusion."
Wall Street and the news media went hog wild with euphoria last week when the GDP (Gross Domestic Product) grew at 3.5% annualized rate. This is a grand deception. In reality, the majority of the 3.5% came not from consumer spending or increased factory production but from government spending. If you remove the government stimulus, you end up close to zero or even negative. Thus GDP = Gross Deception Picture.
Making matters worse, millions of dollars of the stimulus have ended up in the hands of fraudulent citizens. An example would be the “first time home buyer credit” of $8,000. The inspector general for the U.S. Treasury recently testified before Congress that 19,000 filers had NOT purchased a home that filed for the credit. Another 74,000 filers were not first-time homebuyers. This totals over $600 million going to fraud. Five hundred people under the age of 18, most notably a four-year-old, have also claimed the credit. To add further insult to injury, 53 employees of the IRS have been found to file illegal claims.
Investing lesson:
Our government is running a Ponzi scheme by artificially propping up the U.S. economy via racking up trillions in debt. When the patient is taken off of stimulus life support, it may get very ugly again. This is why I believe that this will not be a normal recession recovery and that we are likely entering a phase of low economic growth for the next 5-10 years.

Sunday, November 01, 2009

Why Invest With A Mutual Fund When The Manager Refuses To Invest With You?

Morningstar: 51% of mutual fund managers have ZERO invested in their fund. Just 9% of managers have more than $1M invested. If you do not eat your own cooking, the stew must not be very good. I have in excess of $1M invested in our mutual fund.
Investing lesson:
NEVER, EVER, invest with a mutual fund, company or financial advisor where they do not believe enough in the investment to invest in it themselves.

Wednesday, October 28, 2009

Investing And Entertainment Do Not Mix

Investing done right is quite boring for the average consumer. With the human emotions of greed and fear driving much of investor behavior, it should come as no surprise that investors fall victim to Ponzi schemes that they know, in their hearts, sound too good to be true, but go for it anyway. These range from Hedge Funds to Variable Annuities to TV “Pitchmen.”
Of course, that is not how it looks on TV: Jim Cramer yelling and Maria Bartiromo on the floor of the exchange for the closing bell. Why that's exciting stuff! Suze Orman as well.
CNBC + Investing = Action Sport.
Danger Will Robinson, Danger!
At the top of the tech bubble, investing became America's favorite spectator sport. Everywhere you went, CNBC was playing. I still think that there's something odd about sitting in your dentist's office watching CNBC, but back then you couldn't escape it.
It seemed to die down a bit as volatility dropped from 2004 to mid 2007.
Then it was back. Round-the-clock coverage of the "Financial Crisis" and insightful commentary from Jim Cramer. I have never been surprised that people watch Cramer. His show can be entertaining, but I can't believe that people act on what he says. It's like taking knife handling advice from a circus clown.
Investing lesson:
Take the time you used to spend watching “financial entertainment” and do something worthwhile or simply fun. Never, I mean never, ever, confuse “financial entertainment” for professional advice.

Saturday, October 24, 2009

Bear Markets Do Wonders for Retirement (If You Are Young!)

“The six-month bear market that wiped out nearly half of Americans' retirement savings threatens to scare away the class of investor who has the most to gain from it: young people”.
“Mutual fund manager T. Rowe Price says in a study that those who began to systematically invest in equities in severe bear markets were "significantly better off 30 years later than investors who began in bull markets".
Click to read the full article from: (TheStreet).
Investing lesson:
The article cited above is very consistent with my “contrarian philosophy." In other words, to succeed as an investor, you need to usually do the opposite of “conventional thinking."

Sunday, October 04, 2009

Words of Wisdom From James Stewart and WADEX Portfolio Moves

Most financial journalists are very poor at providing readers with advice that is "wise." One of the few good ones out there is James Stewart, who writes for the Wall Street Journal and Smart Money Magazine. Provided below are some pearls of wisdom from Mr. Stewart's 9/29/09 column.
"So the lesson of this rally seems to be that the strong are likely to get stronger, which is very much the hallmark of a momentum-driven rally. If you think this rally will continue, and want to buy now, this evidence suggests you should look for stocks that have already done well and appear to be overvalued. While it flies in the face of value-driven logic, these stocks could very well be the best performers in the last gasp of a rally."
To me, this is the logic of the hard-core trader and momentum investor. It not only depends on the rally continuing, but assumes investors will know when it’s over, and it’s time to get out. So far as I know, no one has perfected a system that can provide such perfect timing.
As I’ve said before, no rally goes on forever. The tide will turn, and when it does, I suspect the overvalued stocks will be the hardest to fall. That’s why I’ll continue to prune my exposure to the highest-flying stocks when and if we hit another selling threshold. Cash may seem dull today, but remember what it felt like just a year ago?

Thursday, September 24, 2009

Another Reason 2010 May Not Be So Great-Hooked On TARP

"There's no question that the Troubled Asset Relief Program is going to be extended into next year. Some members of Congress may not like it, but the financial sector and by extension the economy are addicted to TARP."

Visit Hooked On TARP! at for the full article.

Investing lesson:

Ask yourself if you believe that continuing to run up TRILLION dollar debts for the U.S.A. is a positive for the country and financial markets. While it "might be" short term, I believe this “over- stimulated chicken” will come home to roost in a not so pretty, tornado-damaged economic hen house somewhere in the future.

Wednesday, September 23, 2009

Attention CHRW Investors!

Wade Financial Group, Inc. (WFG) has been blessed with a large number of C. H. Robinson CHRW employees choosing our firm for Comprehensive Wealth Management and Investment Management services. The following link will take you to an interesting blog on CHRW:

This link is provided as a courtesy to our many CHRW clients. WFG neither agrees nor disagrees with this article.

Investing lesson:

Diversification across various asset classes and types has proven over long periods of time to assist investors in not only accumulating wealth, but just as important-protecting it.

The Wisdom of Mark Twain on Investing

"October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February".

Mark Twain

Monday, September 21, 2009

New Gold ETF Houses Bullion In Switzerland

At Wade Financial Group, Inc., we own several ETFs that own gold bullion, primarily SPDR Gold Shares (GLD). When used as part of a well-diversified portfolio, ownership of physical gold may potentially reduce overall risk and may ultimately assist with a greater wealth preservation of the portfolio. We believe having a small portion of a well-diversified portfolio in gold is prudent, especially at this time.

In our mutual fund, we own 0.5% in (GLD) and 0.5% iShares Silver Trust (SLV). Our fund also owns precious metals via Managed Futures contracts via several Managed Futures mutual funds and an ETF. We have recently purchased shares of a new gold bullion based ETF, ETFS Physical Swiss Gold Shares (SGOL).

Background on GLD

Each share in GLD is offered by State Street Global Advisors. The trustee for GLD is Bank of New York who does not deal directly with the public. The trust handles creation and redemption orders for the shares with authorized participants, i.e. State Street.

The gold that underlies GLD shares is held in the form of allocated 400 oz. London Good Delivery Bars in the London vaults of the Custodian, HSBC Bank USA. The custodian is responsible for the safekeeping of the gold held on behalf of the trust. The safekeeping methods are essentially no different from those that have operated without a problem in the London market for centuries. Those safeguards have stood the test of time for both individuals and institutions (including many governments) that store their gold in London vaults. State Street has tremendous confidence in the custodian's efforts to ensure the safety of GLD’s gold bullion.

Background on SGOL

The sponsor of ETFS Physical Gold Shares (SGOL), ETF Securities has established itself as a market leader in the European ETF market, with assets of more than $13 billion in over 130 products. JP Morgan serves as the custodian for the new ETF Securities fund.

(SGOL) is designed to cater to gold buyers who want to guard against extreme situations. The British company will hold its gold in Switzerland, which is "probably one of the most independent countries in terms of political influence," said William Rhind, head of sales and marketing for ETFS Marketing, the marketing arm for ETF Securities.

The vast majority of gold is stored in London and the U.S. SPDR Gold Shares (GLD), the world's largest gold fund, has all its bars stored with HSBC Holdings in London. (SGOL) will store its metals in Zurich in vaults managed by J.P. Morgan Chase.

"With regards of terrorism, war and all sorts of extreme events, the feeling is that Switzerland is probably the safest venue to store gold," Mr. Rhind said. “The feedback that we’ve received from investors is that they would like to be able to hold their gold in Switzerland for a number of different reasons including diversification of geography, vault, custodian and issuer.”

Don’t Buy Gold Coins Unless You Are a Coin Collector!

While most consumers hear/see the countless advertisements for investing in gold coins, etc, attempting to own gold in this fashion has several disadvantages:

  1. You never really know if you are “getting a good deal” as there is now “exchange” that would allow for daily pricing and liquidity.

  2. You will pay an imbedded commission as part of your purchase.

  3. You will then have to safely store your gold somewhere other than a drawer in your bedroom!

  4. It is very hard to get an ongoing picture of how your overall investment portfolio is doing, when you really have no idea how your gold is contributing (either positive or negative) to your results.
Investing lesson:

It’s OK to buy your favorite performing artists’ CDs and DVDs via 1-800 numbers but avoid investing in gold via such methods.

Wednesday, September 02, 2009

History, Today and the Folly of “The Experts”

Did you know that the Great Depression was preceded by a great real estate boom centered in Florida? The Florida real estate bubble burst in 1926, three years before equities.
Just as in 2007, no one foresaw a decline, let alone the seriousness of the decline. On December 4, 1928, President Coolidge sent the following message on the state of the Union to the reconvening Congress:
“No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment and the highest record of years of prosperity. In the foreign field there is peace. You may regard the present with satisfaction and anticipate the future with optimism.”
Harvard-How Great Thou Art!
Before and during the Great Depression of the 1920/30’s, the Harvard Economic Society, previously esteemed for its pessimism, turned bullish a few months before the market topped. In fact, the Society remained bullish all throughout the downturn until it was dissolved just before the depression ended.
One of the many blunders that lead to the untimely (though not soon enough for investors' welfare) demise of the Society, was its March 24th, 1930 assessment that; 'The outlook is favorable.' This was just days before the onset of the above mentioned second leg to new lows. The second leg reduced the Dow by another 47%, but it didn't stop there.
There are many modern-day parallels to the Harvard Economic Society. The Blue Chip Economic Indicator survey, a survey of private economists, is just one of them. According to their most recent survey, 90% of economists believe that the current recession will be declared to have ended this quarter.
Watch Out!
Interestingly, the consensus estimate of U.S. economists also believed that in March 2009 the market's worst was yet to come, when the Dow traded below 7,000.
* Source: much of the above was based upon, a research service that my firm, Wade Financial Group, Inc. subscribes to.
Investing lesson:
It may sound crazy, but the more college degrees and closer to academia a purported “expert” is, the further you should probably run.