Darnell Williams Vs. The World

Data is from Morning Star Investments

Name ------------------------------------Type -------------As of Date -----------YTD


Morningstar Stock Indexes

Broad Market
US Market --------------------------------TR ---------------12-24-09 ----------29.85%


Style
Large Growth -----------------------------TR ---------------12-24-09 ----------45.38%
US Growth --------------------------------TR ---------------12-24-09 ----------44.16%
Mid Growth -------------------------------TR ---------------12-24-09 -----------3.67%
Small Value -------------------------------TR ---------------12-24-09 ----------43.29%
Small Core --------------------------------TR--------------- 12-24-09 ----------42.48%
Mid Core ----------------------------------TR ---------------12-24-09 ----------41.32%
Mid Cap -----------------------------------TR ---------------12-24-09 ----------41.17%
Small Cap ---------------------------------TR ---------------12-24-09 ----------40.12%
Mid Value ---------------------------------TR ---------------12-24-09 ----------38.40%
Small Growth -----------------------------TR ----------------12-24-09 ---------34.45%
US Core -----------------------------------TR ----------------12-24-09 ---------27.45%
Large Cap ---------------------------------TR ----------------12-24-09 ---------25.88%
Large Core --------------------------------TR ----------------12-24-09 ---------22.68%
US Value ----------------------------------TR ----------------12-24-09 ---------19.43%
Large Value -------------------------------TR ----------------12-24-09 ---------12.54%






Other Domestic Stock Indexes
NASDAQ Composite PR -------------------PR -----------------12-25-09 ---------44.94%
S&P MidCap 400 --------------------------TR -----------------12-24-09 ---------39.78%
NASDAQ Composite PR -------------------PR -----------------11-23-09 ----------37.98%
Russell 2000 TR --------------------------TR -----------------12-24-09 ----------28.86%
S&P 500 ----------------------------------TR -----------------12-24-09 ----------27.70%
NYSE Composite PR --- -------------------PR-----------------12-25-09 ----------26.02%
DJ Industrial Average TR -----------------TR -----------------12-24-09 ----------23.74%

Morningstar Bond Indexes
Broad Market
Intermediate Core Bond -------------------TR -----------------12-23-09 -----------5.82%
Core Bond ---------------------------------TR -----------------12-23-09 -----------4.90%
Short-Term Core Bond --------------------TR -----------------12-23-09 -----------4.48%
Long-Term Core Bond ---------------------TR -----------------12-23-09 -----------3.38%


Corporate
Long-Term Corp Bond ---------------------TR -----------------12-23-09 ----------20.03%
Intermediate Corp Bond --------------------TR ----------------12-23-09 ----------19.67%
Corp Bond ----------------------------------TR ----------------12-23-09 ----------17.21%
Short-Term Corp Bond ---------------------TR ----------------12-23-09 ----------12.44%


Government Short-Term


US Govt Bond-------------------------------TR ----------------12-23-09 -----------1.33%


Intermediate


US Govt Bond -------------------------------TR----------------12-23-09---------- -0.87%
General US Govt Bond ----------------------TR---------------- 12-23-09 -----------2.41%


Long-Term


US Govt Bond -------------------------------TR ----------------12-23-09 -----------8.85%

Other
TIPS ----------------------------------------TR ----------------12-23-09 ----------10.82%
Mortgage Bond ------------------------------TR ----------------12-23-09 -----------6.03%

Other Bond Indexes


ML US HY Master II TR ---------------------TR ----------------11-30-09 ----------52.72%
BarCap US MBS TR --------------------------TR ----------------12-24-09 -----------5.99%
BarCap US Agg Bond TR ---------------------TR ----------------12-24-09 -----------5.95%


USTREAS T-Bill


Auction Ave 3 --------------------------------------------------- 11-30-09 -----------0.16%


BarCap US


Government TR -----------------------------TR----------------- 12-24-09 ----------2.06%


USTREAS T-Bill

Cnst Mat Rate 10 ----------------------------TR----------------- 11-30-09 ----------5.41%

Municipal Indexes
BarCap Municipal TR USD -------------------TR----------------- 12-24-09 ---------13.06%

Foreign Indexes
Hang Seng HSI PR HKD ----------------------PR -----------------12-03-09 ------1,100.69%


MSCI EM


Latin America USD ---------------------------PR ------------------12-25-09 --------95.06%
BSE SENSEX India INR ----------------------PR ------------------12-24-09 ---------79.95%
Shanghai SE Composite

PR CNY --------------------------------------PR------------------ 12-25-09 ---------72.53%
BSE SENSEX India INR ----------------------PR ------------------12-21-09 ---------72.08%


MSCI EM USD PR ----------------------------PR ------------------12-25-09--------- 71.80%


MSCI Pacific Ex Japan NR USD ---------------TR -----------------12-25-09 ----------67.56%


MSCI AC Far East Ex


Japan USD -----------------------------------PR ------------------12-25-09 ----------61.69%
MSCI EM LCL --------------------------------PR ------------------12-25-09 ---------56.89%
MSCI Hong Kong USD ------------------------PR ------------------12-25-09 ---------52.40%
Hang Seng Hong Kong Composite TR HKD ----TR ------------------12-24-09 ---------50.94%
DJ Malaysia PR USD --------------------------TR ----------------- 12-25-09 ---------45.30%
MSCI Europe NR USD ------------------------TR ------------------12-25-09 ---------34.90%
MSCI World Ex US NR USD ------------------TR ------------------12-25-09 ---------33.02%
MSCI AC World USD -------------------------PR ------------------12-25-09 ----------31.55%
MSCI EAFE NR USD -------------------------TR ------------------12-25-09 ----------31.08%
MSCI North America NR USD ----------------TR ------------------12-25-09 ----------29.60%
Euronext Paris CAC 40 TR EUR --------------TR ------------------12-24-09 ----------26.80%
MSCI Pacific NR USD -------------------------TR ------------------12-25-09 ----------23.92%

FSE DAX TR EUR ----------------------------TR ------------------12-23-09 ----------23.85%
MSCI Europe LCL ----------------------------PR ------------------12-25-09 ----------27.37%
MSCI World Ex USA LCL ---------------------PR ------------------12-25-09 ----------21.28%



Morningstar Global Equity


Indexes EM GR USD -------------------------TR -------------------12-24-09 ---------85.64%
Gbl Ex US GR USD ---------------------------TR -------------------12-24-09 ---------38.98% Developed Ex US GR USD --------------------TR -------------------12-24-09 ---------36.43%



Morningstar Commodity Indexes
Long-Only Commodity-----------------------TR--------------------12-24-09 ----------16.37%
Long/Flat Commodity -----------------------TR--------------------12-24-09----------- 2.81%
Long/Short Commodity ---------------------TR--------------------12-24-09------------4.85%
Short/Flat Commodity ----------------------TR --------------------12-24-09-----------6.40%
Short-Only Commodity----------------------TR--------------------12-24-09----------15.50%


The above returns are simple averages.
USD: in dollars
NR: net dividends reinvested
R: total return
PR: price change
LCL: in local currency

Let’s compare my portfolio to commodities, stock, and bond indexes around the world. Darnell’s Junk Bond Portfolio as of 12-24-09 is 52.62% YTD. According to most retail sales financial consultants working in American Brokerage Firms, they are only promising between 8% and 10% this year. None of the American indexes or the American funds out performed my Junk Bond Investments. Many of the Asian and Pacific funds and indexes did better than my portfolio. One bond index out performed my return. So did a Latin American Fund. But remember, the members of these funds have to pay fees so their net returns may not be as high as my net returns.



If you recall, I reported in my blog in January; a Financial Analyst said that investors should not invest in bonds because they will give a poor return. On Bloomberg TV, an Analyst complained that bond holders were made whole while other investors were not. He should have known this from Finance Class 101 in his first year of college. Here is the reason why investors can't rely on Financial Analyst working for brokerage firms. They do not have your interest first. They have the brokerage firms interest first, their interest second, while your interest is last. Only you have your interest first.



Answer this question; Would you turn your life savings over to any salesman that knocks on your door? People do that all the time then wonder why they loose their money!

Corporate Power, The Series

Darnell’s Picks

Short Sell

First Solar (NASDAQ: fslr) shorting at $121.93, cover at $80. Darnell does not have a position in this security.

Buy Long

Kazakhstan Gold (Stock Symbol: kzg) recently traded at $8.28 on the London Stock Exchange. Darnell does not have a position in this security.

Non Investment Grade Bond

Smithfield Foods 7s08/01/2011 priced at $965.00, Standard and Poor’s B-, YTM of 9.23%.
Darnell does not have a position in this security.

******************************************************************************
The three types of people in the world.

I classify people by three types around the world. The first type is the elite. They are the people who own everything. They can tell governments what to do. The Trilateral Commission had its last meeting April 25 to April 26, 2009 in Tokyo, Japan. The next meeting will be in Dublin, Ireland, May 7 thru May 9, 2010. To find out more about this secret society see this site: http://www.trilateral.org/about.htm.

The secret society called the New World Order is made up of very powerful families around the world. See this site for more information:
http://educate-yourself.org/nwo/.

There are other even more secret societies around the world that work with these two organizations to bring about their view of future world government.

To get into these organizations, you have to go to the right Universities and meet the right people. The first President Bush’s father did just that. This allowed the president to join and work for these organizations. President Obama was recruited years ago and is now a leader in the trilateral Commission, appointing several members to positions in the organization. He has demonstrated to many world leaders that he has what it takes to be a world leader. I look for him to be front and center in a more centralized world government after he leaves office.

I am not passing judgement on what these organizations do. What I am telling you is that these are the people who run the world. They start and stop wars. They solve world problems to their advantage. They exist to serve their members interest.

The second type of person are the lawyers. They work for the governments and corporations owned by the elite. Anyone can rise to a position in government or business. You do not have to be a lawyer but you better have access to good competent legal help to be successful. Obama, a lawyer, started as a community organizer. He won a seat in his state legislator. Then he made it into the US Senate. After showing the elite what he could do as an organizer, he became President of the United States. He is now one of the elite.

CEOs and Presidents of large corporations are in this group. Many who run Wall Street and the large banks are members of this group. They are people who have demonstrated that they can run a business or industry. That does not mean that they can run it in the interest of employees or the country. That means that they have demonstrated that they can run it for the interest of its owners.

Third, most people around the world are retarded worker bees. I say we are retarded because most of us have not grown from our child stage of social development. It is not our fault. The lawyers and the elite do not want that to happen. Just like children, most of us live from day to day with no thought of what we want for our children or for society in general. We range from wanting to be rich but don’t want to do anything to get to that level, to not wanting anything but a handout.

We are lucky to get a job making enough money to pay for our living expenses. We have high living expenses because we allowed the media controlled by the lawyers to tell us that we can’t be happy with what we have. We need to buy more. Not only that, we have to borrow money that we can’t pay back to pay for the things we don’t need. That is why most of us say, "the more we work, the more we owe."

We are going to talk about what the retarded worker bees can do to become a lawyer type.

　
Part 2: Wanted: A New Type of Union

I did not grow up like most people. At 8 years old, I was already trying to figure out how to become rich. I started learning all that I could about the stock market. By 18 years old, I understood Generic Engineering and could have gown into that field while that field was just starting out. Instead, I went into the computer field that was also just starting out. Instead of hanging out on the corner with my friends, I was hanging out in the brokerage firms with the retired steel workers in downtown Pittsburgh, Pa. They thought I was young and funny so they did not mind telling me what they were doing in the financial markets. I was very happy to take notes. After getting my Associates in Applied Science Degree from Allegheny Community College at age 25, I was accepted at Robert Morris College in their Management program. While at Robert Morris, I wrote my first book, A Guide to Stocks and Bonds for the Beginner.

At that time, I met one of my corporate idles, Siggi B. Wilzig was the CEO of Wilshire Oil of Texas. Siggi found himself in a NAZI concentration camp in Germany. His crime according to the NAZIS, he is Jewish. After the war, his family and friends moved to Texas where he worked in the oil fields. In the 1950s, they decided to create the Wilzig Investing Group with the objective of acquiring Wilshire Oil Company. It took several years before they ran several members for seats on the board. The organization controlled 25 percent of the stock. They did not win.

However, management was impressed by their leadership. They knew that it was only a matter of time before they gain the voting stock that they needed to gain real influence, that they negotiated with the Investment Group. As a result, in the newly organized company, they gave the investment group four board seats. Later they approached Siggi Wilzig to be their CEO of the company. Siggi died in the 1990s. This story is on page 92 of the book.

If people want to stop companies from moving away from employees then the employees will have to start challenging the management of the company. Using stock is the only weapon that employees have. We have to take over the company for our own survival.

In the 1950s, 50 percent of the stock was owned by the public. Today, most stock is owned by institutions and mutual funds. Here is the reason why our jobs are leaving our communities and going to other countries. Institutions do not have families and have no ties to a community. Your public schools do not give you an education to protect your interest. They give you an education that preserves the interest of the elite.

Part 3: Creating Your Investment Club

You and your friends can take over a small company. If you want to have a club where interesting conversation takes place, people can work for a common goal, and you can look after family interest, create or join an investment club. To get started in creating your club, do the following:


1. Talk to your friends, coworkers, and relatives about creating a club. Make sure you have an objective in mind. That objective maybe to make money in the stock or bond market. Or you may have a small public company (take over target) that will be worth owning and making a living off of.

2. Read over the information in the Better Investing Website. http://www.betterinvesting.org/public/default.htm

3. Form your organization and create your bylaws based on the information from NAIC. Usually a club has 10 to 20 member. If you are creating an organization to take over a company, the more people you have, the more money you can raise.

http://www.ag.ndsu.edu/pubs/yf/fammgmt/fs583w.htm

4. Elect your officers and start conducting business.

Over the coming years, make your plan then work your plan!

My Fourth Quarter Picks

I called the bottom of the junk bond market at the end of January 2009. Since then, the discounted bonds that I recommended making up my portfolio rose 33.62% while the Dow rose from 8,000.86 to 9,712.65 or 21.4%. Most of the bonds that I recommended in January have matured and I purchased bonds to take their place. The new bonds mature in 1 to 2 years. Here are my Fourth Quarter Bond picks as well as their recent prices, Yield to Maturities, and Ratings. The bonds on my recommended list are;

ALLIED CAP CORP NEW SR NT 6.625% 07/15/11
Price $832.50 YTM 19.455% Rating B1/BB
Total Return $359.75 for 21 Months.

AMERICAN GEN FIN CORP INCOME NOTES 4.050% 05/15/10
Price $871.98 YTM 17.39% Rating Baa3/BB+
Total Return $151.65 for 7 Months.

DOLE FOOD INC SR NT 8.875% 03/15/11
Price $100.00 YTM 8.875% Rating Caa1/CCC+
Total Return $125.02 for 17 Months.

HILTON HOTELS CORP NT 8.250% 02/15/11
Price $800.00 YTM 11.875% Rating NR
Total Return $310 for 17 Months.

MBIA INC NT 9.375% 02/15/11
Price $993.50 YTM 9.477% Rating Ba3/BB-
Total Return $131.50 for 16 Months.


These bonds are for investors. I am a believer in a “Buy and Hold” strategy for IRA and small speculators when purchasing stock. This way, a speculator can accumulate stock on a regular bases at a low price. As time goes by, the stock appreciates in value and the speculator sells years later at a high price. I still believe in purchasing Ford Motor Company at $7.50 or below.

Who should take advantage of this?

As most of you know, in the past 30 years more and more experience people have lost their jobs. Many of them have 401k or pension plans with tens of thousands of dollars in them. Many people are suddenly put in a position where they must decide in a matter of days where to put this money. I prefer to create self directed Individual Retirement Accounts (IRA) for this cash so that the money can be tax deferred until retirement. I also recommend buying discounted corporate bonds such as the ones I recommend to make money as well as protect capital.

Where should you go to create your IRA?

To create a self directed IRA where corporate bonds can be purchased, I suggest using a brokerage firm that deals in corporate bonds. The world is full of such brokerage firms. I use Zion’s Direct 1-800-524-8875 because of their large inventory of discounted corporate bonds. They are on the internet at: https://zd.zionsdirect.com/

Margin Accounts a Three Part Series

Part 1: Would you like to own a Bank?

How does "My Own Bank of My House" sound to you? Do you know that your household, family, or your inter circle of friends can own their own bank? All you, your family, or your friends have to do is come up with some capital, form a club with family or friends, and open a margin account at a brokerage firm. You may want to borrow money to buy a house, car, furniture, or some securities. Why not go to your bank and set your own terms? Your children may need a loan for college/trade school or to get out in the world starting a family. Why not help with the financing of that new house? All you need is your bank to do that.

I can see people now telling me that the average person can’t do that. Well I am average. Some say that I am below average. I have been doing this since 1976. All you have to have is some start up money, some common sense, and know how Margin Accounts work.

"Margin" is borrowing money from your broker to buy assets and using your investments as collateral. Investors generally use margin to increase their purchasing power so that they can own more stocks, bonds, or other securities without fully paying for it. They also use it to get loans to buy hard assets such as cars, houses, or even take vacations. But margin exposes investors to the potential for higher losses. This is why it is best to understand how margin works before you use it. Here's what you need to know about margin.

Know the Good and the Bad About Margin

Let's say you buy shares of "Darnell Corp" for $50 and the price of the stock rises to $75. If you bought the stock in a cash account and paid for it in full, you'll earn a 50 percent return on your investment. But if you bought the stock on margin – paying $25 in cash and borrowing $25 from your broker – you'll earn a 100 percent return on the money you invested. Of course, you'll still owe your firm $25 plus interest.

The downside to using margin is that if the stock price decreases, substantial losses can mount quickly. For example, let's say the stock you bought for $50 falls to $25. If you fully paid for the stock, you'll lose 50 percent of your money. But if you bought on margin, you'll lose 100 percent, and you still must come up with the interest you owe on the loan.

In volatile markets, investors who put up an initial margin payment for a stock may, from time to time, be required to provide additional cash if the price of the stock falls. Some investors have been shocked to find out that the brokerage firm has the right to sell their securities that were bought on margin – without any notification and potentially at a substantial loss to the investor. If your broker sells your stock after the price has plummeted, then you've lost out on the chance to recoup your losses if the market bounces back.

When talking about creating your own bank, you don’t want your cash invested in a volatile investment and you want to have a safety margin in a volatile market. This is why I suggest using bonds instead of stock because bonds are more of a stable investment than stocks. You can borrow more on bonds than you can on stocks as well.

Margin accounts can be very risky and they are not suitable for everyone. Before opening a margin account, you should fully understand that:

1. You can lose more money than you have invested;

2. You may have to deposit additional cash or securities in your account on short notice to cover market losses;

3. You may be forced to sell some or all of your securities when falling security prices reduce the value of your securities; and

4. Your brokerage firm may sell some or all of your securities without consulting you to pay off the loan it made to you.

You can protect yourself by knowing how a margin account works and what happens if the price of the securities purchased on margin declines. Know that your firm charges you interest for borrowing money and how that will affect the total return on your investments. Be sure to analysis whether it makes sense for you to trade on margin in light of your financial resources, investment objectives, and tolerance for risk.

Part 2: Know the Mechanics of a Margin Account

Do not rely on other people to create your business model for your personal bank. Remember, other people such as your banker, broker, investment advisor, and others have their own interest. In most cases, they will have no idea what you are talking about in the first place. They will be driven by profits for themselves not for you.

To open a margin account, your broker is required to obtain your signature. The agreement may be part of your account opening agreement or may be a separate agreement. The margin agreement states that you must abide by the rules of the Federal Reserve Board, the New York Stock Exchange, the National Association of Securities Dealers, Inc., and the firm where you have set up your margin account. Be sure to carefully review the agreement before you sign it.
As with most loans, the margin agreement explains the terms and conditions of the margin account. The agreement describes how the interest on the loan is calculated, how you are responsible for repaying the loan, and how the securities you purchase serve as collateral for the loan. Carefully review the agreement to determine what notice, if any, your firm must give you before selling your securities to collect the money you have borrowed.

The Federal Reserve Board and many self-regulatory organizations (SROs), such as the NYSE and FINRA, have rules that govern margin trading. Brokerage firms can establish their own requirements as long as they are at least as restrictive as the Federal Reserve Board and SRO rules. Know these key rules;

1. Before You Trade Know The Minimum Margin

Before trading on margin, FINRA, for example, requires you to deposit with your brokerage firm a minimum of $2,000 or 100 percent of the purchase price, whichever is less. This is known as the "minimum margin." Some firms may require you to deposit more than $2,000 no matter what securities you will invest in or trade.

2. Amount You Can Borrow – Initial Margin Percentage

According to "Regulation T" of the Federal Reserve Board, you may borrow up to 50 percent of the purchase price of stock that can be purchased on margin. This is known as the "initial margin." Some firms require you to deposit more than 50 percent of the stock purchase price. The Initial Margin requirement is different depending on the security purchased and collateralized. Also be aware that not all securities can be purchased on margin. Some firms restrict the type of securities that can be margined. Here is the reason why I do business with a Bond Broker/Dealer instead of a general stock broker.

3. Amount You Need After You Trade – Maintenance Margin Percentage

After you buy securities on margin, FINRA requires you to keep a minimum amount of equity in your margin account. The equity in your account is the value of your securities less how much you owe to your brokerage firm. The rules require you to have at least 25 percent of the total market value of the securities in your margin account at all times. The 25 percent is called the "maintenance requirement." In fact, many brokerage firms have higher maintenance requirements, typically between 30 to 40 percent, and sometimes higher depending on the type of securities purchased.

Here's an example of how maintenance requirements work. Let's say you purchase $16,000 worth of securities by borrowing $8,000 from your firm and paying $8,000 in cash or securities. If the market value of the securities drops to $12,000, the equity in your account will fall to $4,000 ($12,000 - $8,000 = $4,000). If your firm has a 25 percent maintenance requirement, you must have $3,000 in equity in your account (25 percent of $12,000 = $3,000). In this case, you do have enough equity because the $4,000 in equity in your account is greater than the $3,000 maintenance requirement.

But if your firm has a maintenance requirement of 40 percent, you would not have enough equity. The firm would require you to have $4,800 in equity (40 percent of $12,000 = $4,800). Your $4,000 in equity is less than the firm's $4,800 maintenance requirement. As a result, the firm may issue you a "margin call," since the equity in your account has fallen $800 below the firm's maintenance requirement.

Many times Corporate Bonds have a 25 percent your money to 75 percent borrowed money requirement. Here is another reason why I use Corporate Bonds and a Bond Brokerage House. If a bond increases in rating, the power to borrow will increase as well.

Recently:
Aaa down to Baa3 -- Initial: 100% * Bond Market Value, Maint.35%;
Ba1 down to B3 -- Initial: 100% * Bond Market Value, Maint.50%;
Caa1 down to C -- Initial: 100% * Bond Market Value, Maint.70%.

4. Understand Margin Calls – You Can Lose Your Money Fast and With No Notice

Please remember, your brokerage firm is not a baby sitter or a hand holder. If your account falls below the firm's maintenance requirement, your firm generally will make a margin call to ask you to deposit more cash or securities into your account. If you are unable to meet the margin call, your firm will sell your securities to increase the equity in your account up to or above the firm's maintenance requirement.

Always remember that your broker may not be required to make a margin call or otherwise tell you that your account has fallen below the firm's maintenance requirement. Your broker may be able to sell your securities at any time without consulting you first. Under most margin agreements, even if your firm offers to give you time to increase the equity in your account, it can sell your securities without waiting for you to meet the margin call.

If you, family, and friends are going to start your own bank, write up a business plan first. Know what requirements you are going to have for you and your members before you start investing and conducting business. Make sure that your investments are valued higher than your liabilities at least initially. Make plans to take care of decreasing values before it happens.

Part 3: Make Sure You Understand Your Risks

Do you know that margin accounts involve a great deal more risk than cash accounts where you fully pay for the securities you purchase? Are you aware you may lose more than the amount of money you initially invested when buying on margin? Can you afford to lose more money than the amount you have invested?

I had a friend who bought a commodity on margin, invested $5,000 of his money and cashed in with $33,000 in 6 months. In the next year, he lost his house, his savings, his in-laws money, and his wife because his margin account went "south" on him. I would say, he did not understand the risk.

Make sure you take the time to read the margin agreement? Ask your broker questions about how a margin account works and whether it's appropriate for you to trade on margin with the investments that you want to use? Make sure your broker explains the terms and conditions of the margin agreement?

When I was a "young Pup," I shorted warrants that were 24 months before expiration. One day, I started getting these margin calls. Then I found out that the broker can force me to cover my warrants when the broker needed them covered. It was in the agreement that I really did not read. It cost me money!

Are you aware of the costs you will be charged on money you borrow from your firm and how these costs affect your overall return? Are you aware that your brokerage firm can sell your securities without notice when you don't have sufficient equity in your margin account?
In my bank model, I always made sure that I had at least a two percent spread between the interest of my bonds and the interest that the broker charged my account. That way my costs were covered by my bonds at all times. But my brokerage interest fluctuated so I had to make sure that I had sufficent equity at all times. When the business became unprofitable because of increasing high rates, I shut down the business until it became profitable again.

Having your own bank based on a margin account can be very rewarding and very profitable. But it can also be a head ache when things start going wrong. I have used them to buy cars, make down payments on homes, and to help out my children. But I have also seen people loose their homes, their cars, and their family just because they did not understand the risk involved in Margin Accounts.

To learn more about Margin Accounts Requirements read the following: http://www.interactivebrokers.com/en/p.php?f=margin&ib_entity=llc

A Six Part Short Selling Series

So You Want to Be a Short Seller?

Do you know that you can make a big profit when stocks go down? Professional money managers do it all the time, in bull markets and especially in bear or down markets. I am going to talk about this now while the market is going up because many people see this type of transaction as Un-American because you, the investor, is betting that the economy will contract. I expect to get a lot of negative comments for bringing up the subject.

Many investors make money on a decline in individual stocks. They really make out in a Bear Market. Brokerage firms do not promote this type of speculation with retail customers or with the working person. However, the concept of short selling is hard to understand. That is why we will talk about this over a six part series.

Many people think of investing or speculating as buying an asset, holding it while it appreciates in value, and then eventually selling to make a profit. Before speculators transact business, they will set up an account with a business or a brokerage service company. The account that's set up is either a cash account or a margin account. A cash account requires that you pay for your stock when you make the purchase, but with a margin account the broker lends the speculator a portion of the funds at the time of purchase and the security acts as collateral.

In purchasing stocks, you buy a piece of ownership in the company. The buying and selling of stocks can occur with a stock broker or directly from the company. When a speculator goes "long" on an investment, it means that he or she has bought a stock believing its price will rise in the future.

Brokers are most commonly used when purchasing "Long" positions. They serve as an intermediary between the speculating buyer and the seller. The broker will charge a fee for their intermediary services.

Shorting is the opposite of buying long. A speculator makes money only when a shorted security falls in value. More specifically, a short sale is the sale of a security that isn't owned by the seller, but the security is promised to be delivered. When a speculator goes short, they are anticipating a decrease in the price of the security.

Short selling has many unique risks. The mechanics of a short sale are relatively complicated compared to a normal buy and sell transaction. Here speculators face high risks and pitfalls for potentially high returns. Speculators must understand how the whole process works before they get involved
　
When speculators short sell a stock, the broker will lend the speculator money to make the transaction. The stock or some other security will come from the brokerage's own inventory, from another one of the firm's customers, or from another brokerage firm. The shares are sold and the proceeds are credited to the speculator’s account. Sooner or later, the speculator must "close" the short by buying back the same number of shares. This is called "covering." The security is returned to the speculator’s broker. If the price drops, the speculator will buy back the security at the lower price and make a profit on the difference between the buy price and the sell price. If the price of the security rises, speculator may have to buy back the security at the higher price. If this happens, the speculator will lose money.

　
Part 2: You Are Shorting Because?

　
Generally, there are two main reasons to short. The first is just pure speculation. The other is to hedge positions that you already have in your portfolio. Usually the people who short sell are; wealthy sophisticated investors, hedge funds, large institutions, and day traders.

Day traders are individuals who engage in the transfer of financial assets in any financial market, either for themselves, or on behalf of someone else. The main difference between a speculating day trader and an intelligent speculator is the duration for which the person holds the asset.

Most intelligent speculators tend to have a longer term time horizon, whereas day traders tend to hold assets for shorter periods of time in order to capitalize on short-term trends.

One main problem with engaging in short-term trading is commission costs. Because day traders frequently engage in short-term trading strategies to chase after profit; they often rack up large commission fees. However, an increasing number of highly competitive discount brokerages made this cost less of an issue.

It takes a certain type of person to short securities. Many short sellers have been thought of as pessimists. They are rooting for a company's failure, but they have also been described as disciplined and confident in their judgment. Not everyone can do it. It involves a great amount of time and dedication. Short sellers need to be informed, skilled, and experienced speculators in order to succeed. They must understand how securities markets work, trading techniques and strategies, market trends, and the firm's business operations.

Speculation

When you speculate, you are watching for fluctuations in the price of securities in order to quickly make a big profit off of a high-risk investment. Speculation has been perceived negatively because it has been looked upon as gambling. Playing the Pennsylvania Lottery is gambling because the risk is not to the players advantage. However, speculation involves a calculated assessment of the markets and taking risks where the odds appear to be in your favor. Speculating differs from hedging because speculators deliberately assume risk, whereas hedgers seek to reduce it. Speculators can assume a high loss if they use the wrong strategies at the wrong time, but they can also see high rewards.

Hedge

The majority of speculators use shorts to hedge securities that are already in their account. This means they are protecting other long positions with offsetting short positions. Hedging can be a benefit because you are insuring your stock against risk. The down side is that it can be expensive, meaning that a basic risk can occur.

If you recall, I suggested that people buy Ford Motor Stock at $7 or below. I also suggested selling half of your position at $14 and the rest at the top of the market. But instead of selling the stock, let’s hedge the stock by shorting it at $16 and shorting the rest at the top of the market. This strategy is called, "Shorting Against The Box." Let’s say that you were able to accumulate 600 shares averaging $5 per share. You "Shorted Against The Box", 300 shares at $16 per share. That locked in a profit of $3,000 ($4,500 minus $1,500). Let’s say that the market started moving sideways and Junk Bond prices started to show low interest rates. You decide that the market is at or near the top. You short the additional 300 shares at $80, locking in an additional profit of $22,500 ($24,000 minus $1,500).

No matter what happens to the market and the stock, you hedged your bet or "boxed in" your $25,500 profit. If the stock goes to $2,000, you keep that profit by buying back the stock and getting out of your short position. If the stock goes to $5 after the next stock market crash, you cover your stock (buy it back and give it back to the broker) and you have the stock and the $25,500 in cash in your account. Remember, you owned the stock in the first place.

　
Part 3: What are the drawbacks to Shorting?
　

Shorting securities is not as easy as I make it out to be. You have rules that you must follow and these rules might get in the way of you making money. Shorting must be done in a Margin Account. That is an account that would allow you to borrow cash and securities. Once in the 1980s, I borrowed the money to buy myself a new car putting up my securities as collateral. I had the title to the car but the broker had the title to my securities. If the price of my securities in my portfolio would fall, I may have to come up with cash to put into my account in three business days. If I do not, my securities are automatically sold. Someone in their superior wisdom may decide months or years later to declare that my securities are no longer marginable. That could make my debt become due in three business days.

Most of the time, you can hold a short for as long as you want, although interest is charged on margin accounts, so keeping a short sale open for a long time will cost money over a period of time. However, when shorting, you can be forced to cover if the lender wants the stock you borrowed back. Brokerages can't sell what they don't have, so in your account, you will either have to come up with new shares to borrow, or you'll have to cover. This is known as being "called away." It doesn't happen often, but is possible if many speculators are short selling a particular security.In shorting stock you don’t own, you are borrowing stock then selling it. You must pay the lender of the stock any dividends or rights declared during the course of the loan. If the stock splits during the course of your short, you will owe twice the number of shares at half the price.
　
Restrictions

Many restrictions have been placed on the size, price, and types of stocks, traders are able to short sell. For example, Penny Stocks cannot be sold short, and most short sales need to be done in Round Lots or 100 share increments. The Securities Exchange Commission (SEC) has these restrictions in place to prevent the manipulation of stock prices. As of January 2005, short sellers were also required to comply with the rules set in place by "Regulation SHO", which modernized the rules overseeing short selling and aimed to provide safeguards against "naked short selling", that is shorting stock that the speculator does not own. For instance, sellers had needed to show that they could locate and get the securities they intended to short. The regulation also created a list of securities showing a high level of persistent sales to deliver. In July of 2007, the SEC eliminated the "up tick or zero plus" rule. This rule required that every short sale transaction be entered at a higher price than that of the previous trade and kept short sellers from adding to the downward momentum of a security when it was already experiencing sharp declines. The rule has been around since the creation of the SEC in 1934. One of the reasons it was put in place was to slow rapid and sudden declines in share prices that can occur as a result of short selling. In July of 2008, the SEC used its emergency powers to put an end to market manipulations, such as spreading negative rumors about a company's performance and sharp price declines. The markets had been volatile as a result of the mortgage and credit crisis. The SEC wanted to establish a renewed confidence. For a month, it didn't allow naked short selling on the stocks of 19 major investment and commercial banks, which included the mortgage finance companies Fannie Mae and Freddie Mac.

The SEC took further measures in September of 2008, once again using its emergency authority to issue six orders to minimize abuses. This included a move to halt short selling in shares of 799 companies in cooperation with the United Kingdom's Financial Service Authority. 170 companies were later included in the ban, which ended after the passage of the $700 billion U.S. bailout plan in October 2008. Another order required short sellers get a sale and immediately close it by making sure the shares were delivered. It later became a rule.

　
Part 4: Doing a Naked Short Sell

Let’s say as a new speculator to naked short selling, you want to do your first naked short sell. You find that XYZ Stock is over priced in your opinion. The stock is currently trading at $65, but you predict it will trade much lower in the coming months. In order to capitalize on the decline, you decide to short sell shares of XYZ Stock.

What steps would you take to make this short sell a reality?

Step 1: Set up a margin account with a brokerage firm. Remember, this account allows you to borrow money from the brokerage firm using your investment or cash as collateral.

Step 2: Place your order by calling up the broker or entering the trade online. Most online brokerages that allow online short sells will have a check box that says "short sale" and "buy to cover." Here, you decide to put in your order to short 100 shares.

Step 3: The broker, depending on availability, borrows the shares. According to the SEC, the shares the firm borrows can come from:

1. the brokerage firm's own inventory
2. the margin account of one of the firm's clients
3. another brokerage firm

Keep in mind, you should consider the margin rules and know that fees and charges that can apply. For instance, if the stock has a dividend, you need to pay the person or firm making that loan.

Step 4: The broker sells the shares in the open market. The profits of the sale are then put into your margin account. One of two things can happen in the coming months:

1) The stock goes to $40, the target price that you set for yourself. You borrowed and sold at $6,500 - $4,000 giving you $2,500 profit.

2) The stock price goes against you. You get a "margin Call" at $90 and you don’t have the money to cover it. Because of the rules of your brokerage firm, you are forced to cover, $6,500 - $9,000 giving you a loss of $2,500.

Short selling can be profitable. But then, there's no guarantee that the price of a stock will go the way you expect it to go. You have the same problem with buying long.

　
Part 5: Naked Shorts Are Very Risky!

Naked Short Sales are not the opposite of a regular buy transaction like people would have you believe. The mechanics behind a short sale result in some unique risks.

1. Short selling is a gamble. History has shown that, in general, stocks have an upward drift. Over the long run, most stocks appreciate in price. For that matter, even if a company barely improves over the years, inflation should drive up the stock price. What this means is that shorting is betting against the overall direction of the market. So, if the direction is generally upward, keeping a short position open for a long period can become very risky.

2. Losses can be infinite. When you short sell, your losses can be infinite. A short sale loses when the stock price rises. A stock is not limited in how high it can go. So a speculator has unlimited risk to the upside. For example, if you short 100 shares at $65 per share, hoping to make a profit but the shares increase to $90 per share, you end up losing $2,500. But what is the stock goes to $100, $200, or $1,000 per share? The best you can do in making a profit is the stock goes to zero. On the other hand, buying long, a stock can't go below zero, so your downside is limited. As a result: you can lose more than you initially invest in a short sell. The best you can earn is a 100% gain if a company goes out of business and the stock loses its entire value.

3. Shorting stocks involves using borrowed money. This is known as Margin Trading. When short selling, you open a margin account, which allows you to borrow money from the brokerage firm using your investment as collateral. Just as when you go long on margin, it's easy for losses to get out of hand because you must meet the minimum maintenance requirement of 25%. But this margin requirement may change due to your brokerage house rules, SEC Rules, or Federal Reserve Rules. If your account slips below the maintenance requirement, you'll be subject to a Margin Call, and you'll be forced to put in more cash/securities or they will liquidate your position. I can’t stress that enough!

4. Short squeezes can take the profit out of your investment. When stock prices go up, short seller losses get higher, as sellers rush to buy the stock to cover their positions. This rush creates a high demand for the stock, quickly driving up the price even further. This problem is known as a "Short Squeeze." Most of the time, news in the market will trigger a short squeeze, but sometimes traders who notice a large number of shorts in a stock will attempt to create a Short Squeeze. A Short Squeeze is a great way to lose a lot of money extremely fast. This is why it is not a good idea to short a stock with high short interest. Short interest is the total number of stocks, securities, or commodity shares in an account or in the markets that have been sold short. These short shares have not been repurchased in order to close the short position. It serves as a barometer for a bearish or bullish market.

5. Even if you are right, it could be at the wrong time. The final and largest complication is being right too soon. Timing is everything! Even though a company is overvalued, it could conceivably take a while to come back down. In the meantime, you are vulnerable to interest, margin calls, and being called away. Speaking of timing, take a look at the dotcom bubble. Speculators could have made a killing if they shorted at the market top in the beginning of 2000, but many believed that stocks were grossly overvalued even a year earlier. The people who did are in the poorhouse now if they had shorted the Nasdaq in 1999! That's when the Nasdaq was up 86%, although two-thirds of the stocks declined. This is contrary to the popular belief that pre-1999 valuations more accurately reflected the Nasdaq. However, it wasn't until three years later, in 2002, that the Nasdaq returned to 1999 levels.

One big rule that you want to follow, never stand in the way of momentum in the market place. Whether in physics or the stock market, it is something you don't want to stand in front of. All it takes is one big shorting mistake to kill you. Just as you would not jump in front of a 100 car freight train, going 80 miles an hour, don't fight against the trend of a hot stock!

Part 6: Ethics In Short Selling

Short selling is another technique you can add to your trading toolbox. That is, if it fits with your risk tolerance and investing style. Short selling provides a sizable opportunity with a hefty dose of risk. As I told you in so many words in the beginning of this series, Short Sellers aren't the most popular people on Wall Street. Many investors see short selling as "un-American" and "betting against the home team" because these speculators are perceived to seek out troubled companies and act against them. Some critics believe that short sales are a major cause of market downturns, such as the crash in 1929 and 1987.

But despite its critics, it's tough to deny that short selling makes an important contribution to the financial markets:

1. Short Selling adds liquidity to share transactions. The additional buying and selling reduces the difference between the price at which shares can be bought and sold.

2. Short Selling drives down overpriced securities by lowering the cost to execute a trade

3. Short Selling increases the overall efficiency of the markets by quickening price adjustments

4. Short Selling acts as the first line of defense against financial fraud. In 2001, famed short seller James Chanos identified fraudulent accounting practices that occurred with Enron Corporation, an energy-trading and utilities company. The company's activity became known as the Enron scandal when the company was found to have inflated its revenues. It filed Chapter 11 bankruptcy at the end of 2001.

While the conflicts of interest from investment banking keep some analysts from giving completely unbiased research, work from short sellers is often regarded as being some of the most detailed and highest quality research in financial markets. It has been said that short sellers actually prevent crashes because they provide a voice of reason during raging bull markets.But short selling also has a dark side, thanks to a small number of traders who are not above using unethical tactics to make a profit. Sometimes referred to as the "short and distort," this technique takes place when traders manipulate stock prices in a bear market by taking short positions and then using a smear campaign to drive down target stocks. This is the mirror version of the "pump and dump," where crooks buy stock, take a long position and issue false information that causes the target stock's price to increase. Short selling abuse like this has grown along with internet trading and the growing trend of small investors and online trading.

If you want to study more about Short Selling, read the following books at the following web site:
http://www.hedgefund-index.com/shortselling.asp

The Economic and Financial Market Cycle

The 7 Phases of the Financial Markets

Based on the World’s Economic Cycle.

1. Bottom of the market – Time to buy Junk Bonds short term.

2. Beginning of the next bull market – Time to buy stocks that have been beaten down by the market and the economy.

3. Bull Market is over 2 year old – You should be fully invested in stocks and bonds. You should have little investment cash left. You are in position to take advantage of the next great economic and financial move up.

4. Everyone including your dog, cat, and the groundhog digging in your back yard is talking about how well the market is doing and how they are going to make a killing in it. Junk bonds are only returning 3% to 8% and most of your target investments are selling at par or at a premium. This is the top of the market. You should be careful of Junk Bond purchases. In most cases I would not purchase Junk Bonds at this time. You should be getting out of stocks or if you have an advance education in how stock transactions work, you should look for “Short Selling” opportunities.

5. The start of a Bear Market – This is the time when the people on TV, Radio, and in the Newspapers start mentioning a correction. They will call it "Profit Taking." The market starts going down and the Market Experts start talking about buying opportunities. You should be accumulating cash in your portfolio in the form of CDs, Treasury Bills, and etc. You are well into your “short” positions and they are making money fast. The market always falls faster than it went up.

6. The Bears on Wall Street are tearing up the place. At this time the market is falling fast and it becomes front paper news. People at work and on TV are talking about how bad the market is and how much money everyone is losing. Companies are starting to report financial trouble and news people are starting to report companies that you know and use that are filing chapter 11. You are accumulating cash in your accounts and watching your “shorts” make money.

7. The people at work are selling their stocks and mutual funds at a loss. Everyone is blaming everyone else for the failed economy. You should be checking the Junk bond market looking for opportunities such as short term bonds (maturing less than 1 year) selling at deep discounts and yielding over 10%. It is time to start buying. The market is at or near the bottom.


The world economy has a cycle. The stock and bond markets are leading indicators of this cycle. These seven phases may happen as little as 4 years and as long as 20 years. If you pay attention to where you are in these cycles, you can make money by using them to invest in stocks and bonds. Stock prices are depressed at the end of a recession or depression. Junk Bond yields are relatively high compared to other times in the economy. The public is not buying at this time because of the shock of the past stock market disaster. The public generally will not buy Junk Bonds because they have been “brain washed” against them. This is the best market buying opportunity in the economic cycle.

My dog thinks in the present. She only wants food when I have it or she is hungry. She never thinks that she will be hungry next year and how to prevent that. When it comes to investing at the bottom of the market, people never think that stock prices will be higher next year at this time or bond yields will be lower pushing up the price of bonds. At the top of the market, people never think that stock prices will fall a year from now. That is why most people buy stocks when the market has already entered its final phases.

The investor and speculator build their portfolio in the first two years of the Bull Market. At the end of the second year they should be fully invested (over 90% invested). It is hard not to follow the crowd when it comes to the market. But if you think about it, the crowd can’t be right because there is not enough money to maintain a bull market if the crowd is in it fully invested. At the top of the market, it must contract because of it own economic weight. That is why most people lose money in the stock market. Here is why when everyone is talking about making money in the stock market and the TV News Stars are putting it on the 6:00 news, it is time to get out!

At this point, you know that a bear market is coming. You have to prepare for it just like you prepare for a Bull Market. This is when you sell your stock, “short sell” your stock, or buy such things as CDs, Treasury Bill, Money market funds, and things that are highly liquid and does not go up and down in price. (We will spend a full lesson on Short Selling later..)

Then you look for signs that the bear market is just about over. These signs are Junk bonds yielding 10% or more with maturities less than one year. The stock market stops falling in the past 3 months. Everyone is losing their jobs and companies are filing for bankruptcy. This is when you start buying Junk Bonds and as the market start moving up by say 20% since the bottom, you start buying beaten down stocks.

Political Noise in the Financial Markets

Don’t Get Caught Up In Financial Market Politics
　
http://www.brasschecktv.com/page/671.html

This investment expert claims that the financial markets are not as liquid as they have been. He says machines run the markets today, not buyers and sellers. From the video that you just saw, we have several things to keep in prospective;

1) With any asset, only people can place a price on it.

2) Computers or any other machines cannot place a price on assets.

3) Liquidity is the ability to convert investments and other assets into cash.

4) Velocity of Money Circulation is the rate at which money circulates throughout an economy during a particular period, usually a year.

My dog does not value anything except food, seeing me, and taking a walk around the neighborhood. She does not care about what goes on in the news. She has no opinion on Obama, the state budget impasse, or Mayor Reed leaving office. Everyone that I know places a value on things that goes on and everything that they have or what their neighbors have.

Computers place less value on things than my dog. At least my dog will place a value on food, me, or a walk around the block. If people like me stop programming and running programs on computers, these machines would just be another piece of junk in the corner of a room. People program computers to give things value and that value is measured by the programs placed in it by people.

Velocity of Money Circulation is the rate at which money circulates throughout an economy during a particular period, usually a year. Liquidity is the ability to convert investments and other assets into cash. If 10 of my friends placed a value on a book and sold it to each other over a period of 10 minutes, that book would be very liquid in that room and demand a high velocity. But what if I had been trying to sell the book over the past 40 years and in the forty-first year, I found a buyer? This book would not be very liquid and the velocity of money circulating around that book would be very low. Cars usually have a high velocity of money circulating around it. Missiles usually have a low velocity of money circulation around it.

I said all this to say that stocks on the New York Stock Exchange are more liquid than most Corporate Bonds. However bonds sold on the New York Bond Exchange are more liquid than stocks sold on the "Pink Sheets." Most Stocks and Bonds sold on exchanges are more liquid than Real Estate. Know how you want to use your money in the future. Learn how to place future value on things, not project present day value for future sale. For example, the people who bought copying machine stocks in the early 1970s lost money in relation to inflation thinking that in 2008 these stocks would be worth 100 times their value. In this case timing was everything.
So what this man is talking about in this video means nothing to the average investor or speculator.

The moral of the story is listen to what everyone says but know how to determine what is political noise and what you can use in the financial arena. This may sound trivial but knowing this fact could save investors and speculators a lot of time and money in the long run.

My 6 month Report in the Junk Bond Market

Well it has been 6 months since I told the public to rearrange their IRA accounts so that they are buying Junk Bonds or as they say now, “non-investment grade Corporate Bonds.” As many of you have read in the Business Section of such newspapers as the Patriot News, they quoted financial experts as saying that junk bond investing is a risky business. You can do better in the stock market as they would say.

The Dow Jones Industrial Average Index has come back from 8,000.86 at the close of January 26, 2009 to around 9,068.83 at 3:00 PM today, July 24, 2009. That is a gain of 13.25%. If you listen to the experts and you guessed right in picking the right stocks or mutual funds, you could be doing as well as the Dow. I confess I am not that smart. That is why I am not an expert. Instead, I told you, the public, to buy junk bonds, the same junk bonds that I was buying for my own accounts. In six months, my accounts have gone up 27.95%. That is twice what the Dow has done in the past 6 months. Since I buy these bonds in my IRA, I make this money tax deferred. That means that when I retire and I have nothing but Social Security coming in, I will start withdrawing my money at a 15% tax rate.

As my bonds mature, I am buying new bonds. In the coming months, I will tell you what I am buying. But sometimes, under the right conditions, I will buy stock. The conditions in which I will buy stock is now. I use a strategy called, “Buy and Hold, Cost Averaging.” I buy stocks of companies that have been beaten up by the economy and by the stock market. When the stock market is booming and the economy is running at top speed, I sell my stock to the unsuspecting greedy people just coming into the market.

For the past two months, I have been buying Ford Motor Co (Stock Symbol f). As you know, I have been telling you to buy Ford Corporate bonds. Many issues at the time were giving as much as 36% interest. Over the past two months this stock sold for as little as $5.26. Lately, it as been selling for $6.75 to $7.10. The car manufacturing business is cyclical. At the moment, they are seeing hard times. Ford is the only one of three domestic companies that has not been forced into bankruptcy. The stock was as low as $1.43 per share because no one could figure out if all three companies would go under. Remember, in bankruptcy, the bond holder gets paid before the stockholder. So bonds are a safer bet than stocks.

But in the past two months, the smoke cleared a little to where most business people felt that the company will turn around. This is the time to buy and buy over a period of time. My buy range is under $7.00 per share. My sell range is over $14.00 per share for 50% of my holdings. I will sell the rest when Ford cannot keep its car in the show rooms because of the high demand. At that time, the stock should be over $30 per share. At $14.00, I would have taken out my investment. After that, I would only have my profit making more profit.

But keep in mind, when we talk about stocks we are talking about speculation. That means that we have no idea how much money we can make. We have a higher risk of giving your money away. When we talk about bonds, we have an amount that we expect to make and a time when we will have the money. That is called investing. Bonds have less risk than with stocks because bonds are first to be paid interest before stock dividends and return of our investments before stockholders when a bankruptcy occurs.

How is Darnell Doing Compared to the Big Boys?

When most Investment Analysts give investment picks for your portfolio, they never return to them and tell you how well they have done. Jim Cramer, star of the "Mad Money" TV show on CNBC, a NBC financial cable station is always giving investment picks for investors to invest in. Recently he gave a "buy" signal on a major bank only 4 days before it went insolvent and went out of business. That was really embarrassing for Jim.

Most media promote their "Jim Cramer" types as experts in the field. The Harrisburg Patriot News Business section in January told the public to stay away from Corporate bonds and buy stock or mutual funds. I sent in a "Letter to the Editor" with a rebuttal to the article but since I am not a corporate client, it was dismissed and not printed. These media analyst act has if they know all about the market and how to make money in them. In reality, they know how to sell the public on investing in mutual funds and in major corporate stock issues. They take their invest picks from the firms investment analyst. Usually they give their picks depending on who they have for corporate clients. If "XYZ" is trying to raise capital and is an important client for the firm, "XYZ" would make that firms "buy" list. This is why the investment brokerage firm did not see the stock market crash of 2007 through 2009. This is why the bear market of 2001 escaped them. Here is why the public lost over a trillion dollars in retirement money.

If you or I would rob the bank with a mask and a gun, we would go to jail for 25 years. But if the "Jim Cramer’s" of the investment world would take your money, they stand to gain a bonus and a better contract.

I gave a list of bonds from December 2008 to April 2009 that I invested in personally and told the public that they should do the same. From January 31, 2009 to May 2, 2009 (90 Days) the Dow Jones Industrial average went from 8,174.73 to 8,016.95, down 1.97%. In that same 90 days, my bond portfolio went up 13.43%. This is 13.43% after all brokerage and other fees were paid.

So I pose two questions to the investing public. One, if the media analysts know so much, why are stocks performing so badly? Two, why aren’t the media analysts promoting investing in corporate bonds (not bond mutual funds) for the investing public?

Second Quarter Discount Bond Picks

Junk Bond Picks for the Second Quarter

As I explained earlier, a bond investor can make money in this market by buying short term bonds of companies that are in serious trouble. Since then, the stock market has stabilized and you can pick a stock now for long term and make a lot of money. That is if you pick a stock that will go up. Even at the beginning of a stock bull market, I still would stay with Junk or non-investment grade bonds. As my bonds purchased last year matured, I bought the following bonds.

HILTON HOTELS NOTE 7.200% 12/15/09 does not have a rating. The Yield to Maturity is 19.12%. This issue matures in 9 months. This bond is not rated. The price is $866.60.

FORD MTR CR CO CONTINUOUSLY OFFERED BONDS RETAIL 5.450% 06/21/10. Yield to Maturity 36.303%. This issue matures in 14 months. Yield to Maturity is 36.602% with a price of $719.10. S&P rating of this bond is CCC+.

DOLE FOOD INC SR. NOTE 8.875% 03/15/11 matures in 23 months, with a Yield to Maturity of 17.38%. The price of this S & P rated bond is B- is $865.

REVLON CONSUMER PRODUCTS CORP SR. NOTE 9.500% 04/01/11 matures in 24 months, with a Yield to Maturity of 28.225%. The price of this S&P rated bond is CCC+ is $730.

Since I had to change strategies selling longer term bonds and buying shorter term bonds, I had a bad last 6 months. I only made 15% return. But that is still better than the negative returns that other people made. Just with the bonds above, I should make between 20% and 30% over the next two years. I am not greedy. I can live with that.

From Zions Direct Brokerage

Total(Min) Bonds in Inventory

Price YTM Moody/S&P

318(20) American Gen Fin Medtm Sr Listed 4.625 of 05/15/2009 98.215 26.008% Baa2/ BB+

30(10) American Gen Fin Medtm Sr Listed 5.375 of 09/01/2009 95.250 18.715% Baa2/ BB+

14(1) American General Finance Listed 3.875 of 10/01/2009 95.000 15.468% Baa2/ BB+

Here are three more bonds that you may want to investigate. American General Finance has a bond that matures on May 15, 2009 giving 26.008%, September 1, 2009 giving 18.715%, and October 1, 2009 giving 15.468%. All three bonds have an S&P Rating of “BB+.” Zions Direct, a member of SIPC has these bonds in its inventory. The May and September bonds have to be bought in lots of 20 and 10 bond per trade. The October bonds can be purchased one at a time.

Investment Models and Strategy Introduction: Part 2

Strategies Are Made to Change

Investment Models are about working toward a given life style. Life styles change depending on the conditions that surround you. Investment strategies are about funding the life style that you want to live by. Your investment strategy should be influenced by the economic conditions that surround you. That is why they are a "Work in Progress."

Your aggressive investment broker will tell you that you should trade stocks to get that large percentage of growth. I read a book that said that you can get over 500% growth out of stocks in a year. No one ever seems to make it. Conservative investment brokers tell you that you should have a "Buy and Hold" Strategy. You buy the right stocks a little at a time then when they are as high as you think they will go, you sell them getting a large profit. But no one tells you when you reached that high. Then we have the income stock broker. They have you buy stocks that give large dividends such as 3% to 5%. As the companies grows, so will the price of the stock and its dividend. This does work as long as the stock grows. In this market, good luck!

They are not wrong. But they are only right when the conditions in the economy, the business, the industry, market conditions, and investor psychology dictate that the strategy is correct for you. That is a lot of variables. But it is better than going to the race track and betting on "Stuball" in the fifth race. At least you will not loose all your money.

With bonds, your investment strategy is simple. You pick bonds that will pay you. With Junk bonds or non-investment grade bonds, you pick companies that you believe will pay you and stay in business. With discounted junk bonds, you pick the company that you believe will pay. You pick the company that you believe will stay in business. Plus you will pick a company that will pay principle on the maturity date. These returns can be very large.

As far as strategy, in good economic times, you may buy bonds that may mature 10 to 20 years out, giving you 8% to 25% per year. In bad economic times, you should limit your investment to bonds that mature in one year or less, keeping your eye on their ability to pay you, the investor.
I recently had to change my bond investment strategy, once I realized how bad this depression is going to be. I went from bonds that mature in 4 to 7 years to bonds that mature in 3 to 9 months. That meant that I had to take some losses but nothing like the losses that the stock and mutual fund investors are taking. Some of these people lost most of their portfolio. I lost a few dollars in comparison.

You can watch the financial news channel and financial internet sites to find out who can pay, who the government is helping to pay, and who can’t pay. From that news you can figure out what bonds to buy and at what maturity. When the bonds mature, you buy more with more money and so on and so forth. Just continue to turn the money over. Here is an example of part of one of my portfolios;

Nova Chemicals Corp. 7.4% 04/01/09 bought at $800; now $982.50, will return $224.32 for an 87 days per bond investment. A simple 28.04% return. The company is being bailed out by the Canadian Government.

Ford Motor 8.5% 09/21/02 bought at $750, now $737.80, will return $304.70 for a 6 month per bond investment. A simple 40.63% return. They are in line to get a US Government bailout.

Dole Food 8.625% 05/01/09, bought at $920 now $985 will return $115 for about a 90 days per bond investment. A simple 12.5% return. The company will pay off bondholders early. The company is financially independent but the bonds were under pressure by the financial bear market.

City Group 3.375% 04/01/09, bought at $850, now $988.82 will return $161.10 for a 120 days per bond investment. A simple 18.95% return. The company is being bailed out by the Federal Government.

Now who and where did you think all that government bailout money was going to? It is going to people like me!

Investment Models and Strategy Introduction: Part 1

Why You Need an Investment Model And an Investment Strategy!

Since I started this blog on Corporate Bond Investing back in late November 2008, the stock market has fallen more than 25%. From the stock market all time high in 2007, the fall has been almost 60%. In all this time, the experts have been telling clients to "Stay the Course." If you had, you have gone down with the ship. So the evidence shows that the experts have no clue what they are doing. It is not that your broker or your brokerage firm is incompetent. Their problem is that they never experienced a market like this before. Never have I. However, as a student of market history, I have looked at financial markets going back 200 years and anyone who follows stock and bond markets would have seen this mess coming from at least 10 years ago. In my book, "Building Wealth With Corporate Bonds," written in 2004, talks about investments in the stock market. I say that it is a very bad idea. It is next to gambling.

Brokers go to class to learn how to sell stocks, mutual funds, and other securities to clients. In college, they are taught how to sell products/services, manage companies, and purchase products/services. They are not taught how to react to changing investment and business situations. On the job, people learn how to keep their mouth shut and get promoted. The person who can play the best corporate political games moves to the top. The person who knows what is going on and speaks out stays on an entry level. So it takes about 30 years for your incompetent people to rise to the top and mess up everything from the economy to your small business. I am talking about people like George W Bush, Bernard L. Madoff, and the leaders of GM.

Here are the reasons why the world economy is in the situation that it is in today; top political leaders corrupted; business leaders walking away with billions while their company goes into chapter 11, laying off most of its workers; and your broker telling you to stay the course while you watch your returns decrease as much as three percent per month. The stock market will come back one day. The stock market came back from 1929, in 1956. If you can wait that long then the stock market is for you. But if you are in this to make money then you may want to do what people have done from the beginning of the Twentieth Century to the 1970s. That is to create an investment Model for yourself. From that, create an Investment Strategy.

Your Investment Model includes these three things; financial (like a house), temporal (such as time spent together) or emotional (such as in the welfare of the children). When I was Eight Years old, I started developing my investment model by looking at people in several stages of their lives; my sister and brother who was in their early and mid teen years, older teenagers, people in the area who were in their 20s, married people with children, people in later stages of their lives, and the retired old people. I started looking at their needs, their problems, and what they were doing to fix their personal problems. Looking at these things gave me an idea of what I wanted to do, how I wanted to get there, and what to avoid. Now your model and strategies are a "work in progress." At 8 years old, I can't be set in my ways because in the next 60 years, I have to adjust to future economic and social conditions. In 1959, I did not know that I would live under a Black President, let alone that I would be able to eat at the best restaurants in town. In 1959, in many places in the country, I was not allowed in the business establishment or use their bathroom.

Your Model and your strategy is personal. No one knows where you want to go in life better than you do! It is best to get ideas from other people but other people's top priority is their interest, not your interest. That is why no one prepared you to be in the Blue Jay group instead of the Red Bird group in second grade. No one taught you how to play basketball early so that you can be on the championship basket ball team in High School. That is why your next door neighbor got into Yale while you went off to work at Wal-mart. That is why the people running your 401K told you to "stay the course," while your investments fell 60%. That is why Obama, the son of an African, is President while you sit at your desk worried about being next in your company layoffs.. Your family has been in this country for the past 400 years and no one has gotten past entry level employment. It is all because you and your family had no Model and no Strategies. They did.

Next let's talk about creating that strategy to finance that model.

Using the Discounter

The Discount Brokerage Industry: Part 2

You want to use discount and specialty brokers when you feel that you have enough confidence in yourself to make your own buy and sell decisions. Discount brokers are far less expensive than the full brokerage firms. That also means that you will be offered less services than what a full brokerage firm will offer you.

Discounters have a broad range of services. Discount brokerage firms can offer almost the same services of a full brokerage firm to just offering stock and bond execution services. So you have to know what services you want and ask questions as to what the discounter is offering. You have to interview the firms just like if you were going to hire them to do a job. In fact, you are hiring them to do a job. So know what they can do for you before you commit your money to an account with them. If you are hiring them to buy and sell bonds for you, know if they have a large enough bond inventory to choose from. If it is stock execution that you are after, make sure that they have computer equipment that can buy and sell for you in less than 5 minutes at a very cheap price. If you are looking to have some "hand holding" such as research or advice but at a price less than you would pay at a full brokerage firm, make sure that they can help you with the special need that you require.

The dark side of bond executions with a discount or specialty broker is that you as a client is closer to the trading than if you would use a full brokerage service. Because of the change in the economy, I was forced to change my investment strategy or model to fit the current investment climate. I called my discount bond broker Zions Direct in Salt Lake City, Utah to execute the trade for me. I asked that my long term bond issue be sold at a specific price on the next days trading. At a full brokerage firm, my personal broker would have taken care of that for me. But not with a discount or specialty firm such as Zions Direct.

When selling Corporate Bonds you have to tell the broker who answers the phone that you are interested in selling your bonds. When the market is trading, the firm will put the issue out for bids to other firms around the world since the Corporate Bond Market is mostly an "Over the Counter" Market. As a client, you will have to check back with the firm in about 30 Minutes to see if someone offered to buy them and at what price. At that time, you except the price and sell or refuse to sell. If you refuse to sell, you may want to put them out for bid a few hours or days later. So you as a client may have to act as your own Bond Broker Dealer.

With discounters, you may have to use the library and the internet to do your own research on companies that you are interested in. Some discounters have news services where you as the client can look up public company information and opinions from professional investment analyst.

Next we will look at short term bond strategy for use in your investment model.

What Brokerage Firms to Use

Who To Use For a Broker? Part 1

So you want to get into the stock and bond markets but don’t know what to do. Back in the 1970s when I first walked into a brokerage firm things were a lot different. You could stand around and talk to the retired people who had nothing to do all day but stand around and talk about the market. At that time, a person at age 21 and Black was a rare sight. The old timers would call you over and teach you a few things that wasn’t in the brokerage booklets.

Today you don’t have board rooms where people could hang out. Because of 401K programs and layoffs, people of all ages and colors have to use brokerage firm if they want to increase their retirement holdings over time. The problem has become for many people, how do I select the brokerage firm for me? First you have to know what you want to do with your money. Do you want to invest in stocks, bonds, mutual funds, insurance products such as annuities, or other products that they sell or broker?

The Full Brokerage Service

If you know nothing at all about investments and you are too lazy to learn on your own then the Full Brokerage Services might be what you need for starters. These are the big firms such as A.G. Edwards, Morgan Stanley Dean Winter, Merrill Lynch, or my families firm, Smith Barney (Citi). While these firms have much higher commissions and fees than the discount brokers, they do offer a much wider range of services than other firms. They have a wide array of search sources to reference from. They also can give you guidance on your investment program. Full brokerage firms employ financial planners who can help with Wills and Trust (working with your lawyer), college planning, retirement planning, and other major mile stones in your families life. Your personal broker will suggest investments for your portfolio and give you advise on when to buy and sell.

Brokerages have begun offering Visa Check Cards which work exactly like a credit card. The difference is, the money you spend is taken directly out of your brokerage account. This way, you have the combined functionality of a checking / savings / money market account with a stock and bond investment account. It is tremendously convenient and can help simplify your finances. If you are looking for an all-in-one solution to your banking and investment needs, an Asset Management Account may be a more attractive alternative.

But there is a downside. In the 1987 crash, my full service broker would not pick up the phone. In fact, all I got was a busy signal. In the 9/11 bear market, I heard stories from people who told me that they followed their broker’s advise not to sell their investments. After the market hit bottom, they lost almost half their investments. They listened to their broker again in 2007 not to sell but this time they lost most of their investment. Now they can’t retire. Brokers are tied to their firm and most of the time will do what their brokerage firm tells them to do. In most markets, the advise will be right but in that one in a 20 to 50 year market they can be totally wrong. But it is you that will pay that price if you don’t understand the markets and your risk.

Next time we will look at discount and specialty firms.

Do you need Tuition Insurance?

What about College and Private School Tuition Insurance? Part 2

I saved my money every month from the time my children where born to the time they started college. That was the only way I was going to put them through college without putting me or my children in the poor house. But there is one thing that I never thought about while they were in college. What if my children had to leave college in mid semester due to illness, death, or some other disaster? For some of these people who pay for their children to attend a private school from K thru 12, what if the parents job goes south for one reason or another? What if the major breadwinner confronts a job layoff? What if they have to move away because the job demands it? What if your angle of a child gets a student's suspension from school?

In a few schools, if a child withdraws in a short time after starting, they will be refunded all or in part by the school. Many schools have other refund policies. Some schools provide up to a 60% refund if the student withdraws for mental health or emotional reasons. You should protect your investment in your child by asking the school administrator what the policies are for mid-semester withdraws. Many schools offer a third party insurance policy that may be something that you as the parent or the student may want to consider.


When figuring out if you do or don’t want to take the risk of losing tuition, you must think of two issues. The first is, who is paying for this education? If the person paying for this education has a job where the employer has a history or reputation of laying off workers, it might be reasonable to consider insurance, especially if the tuition is high at that institution. The second is the condition of the student. Does your child struggle with disciplinary problems? Is the child an angle at home but a devil away from home? If so, an insurance policy may come in handy.


For the parents who have children in a private school from K thru 12 grade, I have two extra questions? Do you, the parent, have a job that has a history of job transfers to other parts of the country? Are the parents in careers that require them to transfer to other parts of the country? If so, insurance is a good way to protect your children’s tuition.


According to Kenyon College in Gambier, Ohio, about 13% of students bought tuition insurance in 2007. Most people would rather self insure themselves. But for a small minority of students, the protection is worth the cost of insurance. With tuition rates skyrocketing and a weakening economy, obtaining tuition insurance may be the way of the future.

Insurance Contracts

Insurance vs. Investments: Part 1

Several years ago, I got a job as a Part Time Flex (PTF) at the Harrisburg Main Post Office. I needed a part time job (so I was told by the family.) I thought that the name meant part time but I forgot I was dealing with a federal government corporation who does not know that slavery ended in 1865. I worked 12 hour days for 5 days then one day at 8 hours. Most of the time, when a holiday was not involved, I got one day off. That day was for sleeping.

One day, someone got me out of bed by ringing my door bell. It was an insurance salesman who came to give me a free book that I ask for. I did not know that this free book was connected with an insurance company. I filled out the card in the Post Office Cafeteria and mailed it in. This man wanted to talk to me about buying an annuity giving me 6% guaranteed. All I had to do was give his company so much money a month for so many years and I could get $25,000. I calculated the payment over time in my head then said, "You mean to tell me, if I give you $51,000, you will give me a guaranteed $25,000 back?" He looked at me then looked over at my book shelf, full of mathematical, computer, and financial books. He got up, collected his information, and said good day. That was the last that I seen of this salesman.

Most people do not know that insurance and investments are two different subjects. Insurance is protection against loss. You buy insurance to protect your families way of life incase you, the bread winner dies at a young age. You buy car insurance to protect you from being sued and loosing everything you have because you killed someone in an accident or caused some property damage. You buy umbrella insurance like O.J. did so that you can hire high priced lawyers to defend you in court in case you slander someone or incase you are involved in a wrongful death suit.

According to Dictionary.Com, the definition of insurance is;

1. The act, system, or business of insuring property, life, one's person, etc., against loss or harm arising in specified contingencies, as fire, accident, death, disablement, or the like, in consideration of a payment proportionate to the risk involved.

2. coverage by contract in which one party agrees to indemnify or reimburse another for loss that occurs under the terms of the contract.

3. the contract itself, set forth in a written or printed agreement or policy.

4. the amount for which anything is insured.

According to Dictionary.Com, the definition of investments is;

1. Investments are Property or another possession acquired for future financial return or benefit.

2. A commitment, as of time or support.

You buy an $18 US Savings Bond for 10 years giving $25 at maturity. That is an investment. You buy a corporate bond for 3 years, giving you 4% a year with payments to you of $20, every six months. These are investments. You know them because they give you more money in the end than you put into them at the beginning.

Annuities are insurance contracts. Along with insurance policies, it will pay you so much money in case you do not suffer the loss that you had expected. Some people use them as expensive savings accounts like the insurance salesman was trying to talk me into buying. You must know what product to use to meet your objective, protection against loss or to later maintain your own way of life.

By now, you heard of financier Bernard Madoff. The 70-year-old former NASDAQ stock market chairman was arrested Dec. 11 on securities fraud charges alleging he duped investors out of as much as $50 billion in a giant Ponzi scheme. The real problem was, he took the rich for everything they had. If it was a bunch of poor people, it would not be in the news and he would not have been arrested.

What he appeared to have done was bought stock then wrote "PUTS" against the stock and made 1% a month on the investment of "PUTS". He also wrote what is called NAKED PUTS". "PUTS" are insurance contracts against loss in case the stock unexpectedly would go up. "NAKED PUTS" are "PUTS" that are written but are not backed by stock. In the 1980s, 1990s, and until last year, stocks in general, always went up. So the people who bought his "PUTS" lost their money and Mr. Madoff made his money.

Then we had the big crash from 14,000 to 8,475 in less than a year. Many stocks fell 60% or more. Mr. Madoff had to pay off the people who bought his"PUTS" in stock. If he did not have the stock, he had to pay them off in cash. Just like in 1929, he had to give away his new clients money to cover his old clients contract obligations. So he and all his clients went broke. The clients had no idea that they were in the business of writing insurance contracts.

Moral of the story, know if you are dealing in investments or insurance. Next time, we will learn about using insurance to cover your children’s education fund.