Rational Advisor

DID YOU KNOW??????
**** Information you MUST know!****
…and now you know!

The liquid inside young coconuts can be used as a substitute for Blood plasma.

No piece of paper can be folded in half more than seven (7) times.

Donkeys kill more people annually than plane crashes.

You burn more calories sleeping than you do watching television.

Oak trees do not produce acorns until they are fifty (50) years of age or older.

The first product to have a bar code was Wrigley’s gum.

The King of Hearts is the only king WITHOUT A MOUSTACHE

American Airlines saved $40,000 in 1987 by eliminating one (1) olive from each salad served in first-class.

Venus is the only planet that rotates clockwise. (Since Venus is normally associated with women, what does this tell you!)

Apples, not caffeine, are more efficient at waking you up in the morning.

Most dust particles in your house are made from DEAD SKIN!

Walt Disney was afraid OF MICE!

PEARLS MELT IN VINEGAR!

The three most valuable brand names on earth? Marlboro, Coca Cola, and Budweiser, in that order.

A duck’s quack doesn’t echo, and no one knows why.

Dentists have recommended that a toothbrush be kept at least six (6) feet away from a toilet to avoid airborne particles resulting from the flush.
(I keep my toothbrush in the living room now!)

And the best for last…..

Turtles can breathe through their butts.
(I know some people like that, don’t YOU?)

Okay, I lied about that being all … here’s a few more interesting facts -

If you yelled for 8 years, 7 months and 6 days you would have produced enough sound energy to heat one cup of coffee.
(Hardly seems worth it.)

__________________

If you farted consistently for 6 years and 9 months, enough gas is produced to create the energy of an atomic bomb.
(Now that’s more like it!)

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The human heart creates enough pressure when it pumps out to the body to squirt blood 30 feet.
(O.M.G.!)

___________________

A cockroach will live nine days without its head before it starves to death.
(Creepy.)
____________________

Banging your head against a wall uses 150 calories a hour
(Don’t try this at home,maybe at work)
_____________________

The male praying mantis cannot copulate while its head is attached to its body. The female initiates sex by ripping the male’s head off.
(’Honey, I’m home. What the….?!’)
_______________________

________________________

The catfish has over 27,000 taste buds.
(What could be so tasty on the bottom of a pond?)
_________________________

Elephants are the only animals that cannot jump.
(okay, so that would be a good thing)
_____________________________

A cat’s urine glows under a black light.
(I wonder who was paid to figure that out?)
______________________________

An ostrich’s eye is bigger than its brain.
(I know some people like that.)
_______________________________

Starfish have no brains
(I know some people like that too.)
________________________________

Polar bears are left-handed.
(If they switch, they’ll live a lot longer)

My wife and I were sitting at a table at my high school reunion, and I kept staring at a drunken lady swigging her drink as she sat alone at a nearby table.

My wife asks, “Do you know her?”

“Yes,” I sighed, “She’s my old girlfriend. I understand she took to drinking right after we split up those many years ago, and I hear she hasn’t been sober since.”

“My God!” says my wife, “Who would think a person could go on celebrating that long?”

So you see, there really are 2 ways to look at everything.

Enjoy

virtually everyday, we get a comment, email or concern around the death of the USA

it goes something like this

- The debt is too high
- Their losing the War,
- Their president is useless
- The currency will fall to zero
- Nobody wants US dollars
- The credit crunch is going to close down the country
- The US consumer is spending too much money, and doesn’t have any assets to speak off
- The US is going into a recession
- The Fed is failing

Yep, all of these and a lot more

Well, this is how I look at it

We are not investing in the USA, the country, we are looking at or investing in US companies that get their revenues globally.

Like

- Procter and Gamble (a global consumer products company, who happens to be headquartered in the US, with a dividend yield of 2.14%)

- Wal-mart (a global retailer, that happens to be headquartered in the US, with a dividend yield of 1.81%)

- Archer Daniel Midland (a global corn company, that happens to be headquartered in the US, with a dividend yield of 1.06%)

- Connoco-Phillips ( a gloabal Oil company, that happens to be headquartered in the US, with a dividend yield of 2.15%)

- Altria Group (a global consumer products company, that happens to be headquartered in the US with a dividend yield of 4%)

- McDonalds (a global fast-food company, that happens to be headquartered in the US, with a dividend yield of 2.96%)

- Pfizer Inc (a global pharmaceutical comapny, that happens to be headquartered in the US with a dividend yield of 3.1%)

- General Electric (a global conglomerate, that happens to be headquarteed in the US, with a dividend yield of 3.57%)

So, as you can see, the US debt doesn’t mean much to these “global” companies.

As long, as you Keep eating at McDonalds, keeping taking those magic blue pills from Pfizer. keep on driving your car to work and using Oil, Keep on shaving and brushing your teeth everyday with Gillette or Crest, Keep on Shopping at Wal-mart, Keep on eating anything with Corn in it (including Corn Oil), Keep on using machinery manufactured by GE, or paying your car leases etc

You are giving money to these companies, irrespective of whether the US dollar has fallen, irrespective of what war is going on in Iraq, Iran, etc, irrespective of which presidential candiate is doing what to whom

Stay Rational - and let these Chicken little have their worlds fall apart. Let the doomsayers predict the end of the world (for them)

You just remain rational, and take advantage of them

Here are some terms that people have asked me about

Beginner’s glossary

Bear

Describing someone as bearish does not mean they are large and hairy, but that they have a cautious and conservative outlook, and are more inclined to be pessimistic. A bear market is characterised by falling share prices and poor returns. Bear times are bad times

Bull market

Share prices are consistently rising. Think “bull in a china shop” – excited, but potentially dangerous

Bear market

Share prices are consistently falling. Think bear with a sore head – just sort of grumpy

Credit crunch

With all this free publicity it could become the name of a biscuit snack. But it refers to the seizure in the money markets caused by the fallout from US sub-prime mortgage customers defaulting on their loan payments. Big banks refused to lend each other money and while some banks hoarded their cash, others were left exposed without enough cash in their pocket. Think Northern Rock

Growth recession
Not male pattern baldness, but very slow economic growth, which can have a similar effect on consumers as a recession

Sub-prime mortgages
Home loans granted to people with troubled credit histories. Those who have missed a few credit card payments are classed as “light” sub-prime, while others who have become bankrupt in the past or who have court judgments against their name for nonpayments of debts are “heavy” sub-prime

Lee Ainslie’s Maverick Capital made roughly 50 per cent of its 2007 returns by shorting financial stocks, but the firm expects the sector to reverse course this year. In his keynote address at the GAIM conference at Boca Raton, Florida, limited partner Steven Galbraith said that financial services companies are probably a ‘quarter away from the bottom’. The USD12bn firm is now ‘cautious’ as regards emerging markets, which are ‘priced to parity with developed markets’ despite higher risks.

INteresting this manager believes we are a quarter away from a reversal in Financials, and he has reduced his emerging markets exposure - this does tie in with all the other talks that I have heard around Financials.

Wether we like it or not, Financials (Banks, nsurance COmpanies) are stalwarts of all economies, and a necessary industry group.

There are alternatives for OIl, there are alternatives for Gold, there are also alternatives for countries - but everyone needs their Financials - it’s a s necessary as food - try not to deal with anything to do with Financials for a week - so, how hard it is.

Rational

Three top bankers two different views

JP Morgan - everything will be fine (they were not involved in the subprime mess)
Citigroup - we are only half way through this (was involved, but received capital from Abu Dhabi etc)
Merrill Lynch - It will take longer

and one accountants opinion - Deloitte - UK is in its bleakest moment (when an accountant gives economic predictions I really get worried - They are usually way behind the curve)

Please Note: No one has said the World would be ending! No body used the A-word (Armageddan), they just said it woudl take longer. Whatthis means is that we can expect more fireworks, we can expect more interest rate decreases, we can expeect the markets to recover. This maybe the best buying opportunity in a decade!

Economy ‘will cure itself’ of subprime ills

By Hamish Rutherford City Correspondent

ONE of the world’s most influential bankers has given an upbeat forecast on the world’s economic woes, saying the subprime problem will cure itself and the job is “half done” already.

Speaking at the World Economic Forum at the Swiss resort of Davos, Jamie Dimon, chairman and chief executive of Wall Street bank JP Morgan Chase, praised central bank intervention and said the subprime mortgage issue was simply a casualty of a housing bubble.

“There was a housing bubble in the United States. The bubble burst and subprime was the first casualty,” he said at a closing panel at the summit yesterday.

“That will cure itself, and in my opinion it is half done already.”

Dimon would not say whether he believed the US economy was already in a recession, but he maintained that intervention by central banks – such as last week’s surprise three-quarter-point rate cut by the Federal Reserve – was helping the situation.

“Central banks are doing a great job to mitigate the effects of this downturn,” he said.

Dimon is a hugely influential banker, named by Time magazine in 2006 as one of the world’s 100 most influential people. Before joining Bank One, which was later bought by JP Morgan, he was a senior executive at Citigroup, and was credited with helping build it into the world’s largest financial group.

But his upbeat views are in sharp contrast to those of many experts in the financial community, and indeed other leading Wall Street figures who were at Davos at the weekend.

Citibank chairman William Rhodes said there could be worse to come for banks. “It’s going to take some time for these things to work their way through the system,” Rhodes was reported as saying. “In a nine-inning ball game, I think we’re in the fifth inning”.

Merrill Lynch chief executive John Thain warned it would be “a while before you see a return of normalcy in banking and markets”.

Dimon’s comments also contrasted with an economic forecast for 2008 and 2009 by Roger Bottle, an adviser to Deloitte, which argues the UK economy is entering its bleakest period of growth since the recession days of the 1990s.

“The coming slowdown in the UK economy looks set to be a fundamental adjustment rather than a brief pause for breath,” Bottle wrote.

His report, It’s crunch time, predicted that weak economic growth would lead to house prices in Britain falling by 5 per cent this year and 8 per cent in 2009, despite interest rates as low as 4 per cent.

Bottle also forecast that the number of people claiming unemployment benefit would rise to one million, while “real” unemployment could be as high as two million.

His predictions were qualified by the potential for policymakers to respond the situation. If the monetary policy committee was allowed to cut interest rates sharply, the sterling exchange rate could drop sharply. He said: “Along with lower house prices and higher savings, (a lower exchange rate] could ultimately pave the way for a period of stronger and better balanced growth.”

http://business.scotsman.com/business/Economy-39will-cure-itself39-.3715808.jp

The article below is from the Scotsman, a Scottish based newspaper

Despite the uncertainty, regular investment is still the safest way to save

SCRUTINEER

By Bill Jamieson

SELDOM has the gulf been wider than it now is between the spasms of apocalyptic gloom in financial markets and the day-to-day reality of business life. The mood in the real economy is indeed downbeat and apprehensive. But it is nothing on the scale suggested by the recent gyrations in stock markets. The FTSE 100 index fell just 33 points last week, but this masks some of the most violent swings in 20 years, with the index having traversed a 635-point trading range, a move of almost 12 per cent

The question every investor now faces is whether we are experiencing a “conventional” – if notably turbulent – cyclical downswing, or some massive, epochal breakdown in the financial system. Because a recession we can live with – downturns in the business cycle are hard-wired into business life and culture. Interest rates are cut, fiscal policy relaxed, and after a painful interval of re-adjustment, the cycles turns up again.

Interestingly, last week saw some sharp rises in shares in the UK commercial sector on the view that the falls have been overdone. British Land rallied 9.2 per cent, Hammerson 12 per cent. House building companies also enjoyed a rally. And in America, there are signs that an end to the slump in the housing market may now be in sight.

But a recurring undertone in the massive sell-offs of recent weeks is that the global credit crisis is getting worse and that this is more than a periodic shift in the market cycle. The violence of the sell-offs, both in speed and scale, suggest a structural problem at the heart of today’s capital markets and the dramatic growth of derivative credit products over the past 20 years. This view is echoed in remarks such as those of veteran hedge fund manager George Soros, who said recently: “This is not a normal crisis, but the end of an era.”

First, sub-prime mortgages, then credit derivatives, then worries over monolines, or credit insurers, and now, late last Friday, talk of hedge funds being in trouble: the bolder the action, the more the problem seems to spread and grow. US banks are still holding more than $230 billion of high-risk loans and bonds on their balance sheets, while the tally of bank write-downs related to sub-prime loans has already crossed $100bn. More huge write-downs are feared.

Lower interest rates, while they certainly help cushion the impact on household budgets and consumers, do not really address the structural problems that have arisen and the loss of trust in the sophisticated financial instruments that lay at the heart of the credit and housing boom of recent years. That is why, despite the conventional policy responses by the Federal Reserve and the US government, the Dow has failed to rally.

Faced with this huge turbulence in markets, millions of pension fund and long-term savers feel utterly powerless. Savings, built up over a lifetime, much of them out of after-tax income, are slashed by several percentage points in one day. And for those coming up for retirement, these dramatic gyrations in markets are particularly worrying, cutting through the most careful financial planning.

Last week, the former UK chancellor, Nigel Lawson, pronounced on BBC’s Newsnight programme to the effect that we have had a huge borrowing binge and now we must live with the hangover. In the studio, heads nodded gravely in agreement. Mine didn’t. The people suffering the hangover are the prudent savers, while the borrowers – the people who went on the binge – are not suffering a hangover at all. In fact, central banks have now poured neat alcohol into the party punchbowl.

Yet the calls now come thick and fast for households to cut borrowing and boost saving. Mervyn King, the Bank of England governor, took up this theme in his speech last week. Such calls are scarcely credible when you consider how easy it became for households to take on huge debt while pension funds suffered tax raids and ISA savings plans were made less attractive. Inheritance tax is the final insult. Until we stop penalising savers, we will not effect the change in culture required to get us out of the debt mess.

What, in the meantime, is the private investor to do? There is no better strategy than to keep one’s nest egg spread over different asset classes – cash, fixed interest, and property as well as shares – and to feed regular amounts into broadly-based funds over a long period. This is because, over time, equities have delivered superior returns to those from a building society or gilt-edged stock.

Regular investment can ride out the storms, and can show outstanding growth when income is automatically re-invested. But these investments have to be balanced by holdings in other assets to help reduce overall volatility and prevent unwanted shocks as retirement approaches.

In the meantime, we should allow time for the rate cuts and (in America) the fiscal stimulus to work. We may not know until the second half of the year how extensive this crisis really is. For the moment, sit tight, and keep the seat belts on.

http://business.scotsman.com/business/Despite-the-uncertainty-regular-investment.3715824.jp

Here’s a list of Wall Street’s 10 worst crashes, according to a number of websites, including stocktales and about.com:

- April 1930 to July 1932: This was the granddaddy of all crashes with the Dow Jones losing 86%, falling from 294.07 to 41.22 in 813 days and investors losing 86% of their money. This crash, combined with the Crash of 1929, led to the Great Depression.

- March 1937 to March 1938: Just when investors thought the worst was over, the Dow falls from 194.40 to 98.94 over 386 days, for a 49.1% loss.

- January 1906 to November 1907: This crash was called the Panic of 1907. The Dow fell from 74.45 to 38.83 for a 48.5% loss in 665 days. The U.S. Treasury bought $36 million in bonds.

- September 1929 to November 1929: Dow falls 47.9% from 381.17 to 198.69 in 71 days. Investors lose half their money.

- November 1919 to August 1921: After a Roaring ’20s post-war boom, the Dow falls from 199.62 to 63.9 in 660 days, losing 46.6%.

- June 1901 to November 1903: The oldest crash. Dow falls from 57.33 to 30.86 in 875 days for a 46.1% loss.

- January 1973 to November 1974: In these days of Watergate and the Vietnam War, Dow takes a 45.1% tumble, falling from 1,050.70 to 577.60 in 694 days.

- September 1939 to April 1942: Dow falls 40.4% from 155.92 to 92.92 over 959 days. It took three years to recover.

- November 1916 to December 1917: First World War and Dow falls from 110.15 to 65.95, for a 40.1% loss.

- January 2000 to October 2002: High-tech bubble bursts and the 9/11 terrorist attacks send Dow crashing from 11,792.98 to 7,286.27 for a 37.8% loss.

Why are these crashes important to understand, because, even though they were very scary. The markets did recoever from each and every one of them. Even if it took a long time.

The markets are made up of real businesses, that have to earn real profits. It’s these real profits that are the truths in the markets, not the “fear” being spread out there.

As long as there are businesses that can generate revenues, the markets will continue to go up.

Don’t be fooled by temporary fear and greed in the amrkets. Be rational about the long term profits of the businesses.

Recently after the Candian Interest rate was dropped one of th emanagers in the Bonds and Dividends portfolio told me why they were chaning to shorter duration Bonds. Eseentially like having GICs of 1 year vs 5 yrs.

Here are some fo their comments, and why it made sense to me

- Irrespective of whether we are in a sideways or rising market for long term bond. Yields in the future and the risk-adjusted rate of return for longer term bonds likely will not compare well to that of shorter term bonds. In the current secular environment investors should favour shorter duration bonds over longer duration bonds.

In a secular bullish phase, average annual total returns are positively correlated to term to maturity. In a secular bearish phase, average annual total returns are inversely related to term to maturity. In other words, in a secular bearish phase, shorter term bonds exhibit higher average annual returns than do longer term bonds.

And since the economy is facing a slowdown, this is something that all agree upon, it’s wiser to be shorter in term.

What the Central Banks are doing is really lowering short term rates, to influence spending and borrowing now - as opposed to long term saving and borrowing - they want to stick handle through this near term issue.

Dropping rates is never a good idea in the long term, as it fuels inflation.

What does this mean - less volatility in your bond portfolio.

CNN Money had an excellent article

I think it’s worth repeating

Bear market: Don’t get spooked
Human beings tend to get emotional in a down market. But those that can endure the pain, will reap the benefits
January 23 2008: 9:17 AM EST

NEW YORK (Money) — Question: I’m seeing my account values take a daily dive and I’ve lost all of my gains from the past year, and then some. I’m hearing recession predictions and I’m wondering if I should cut my losses and get out of the market now. Do you think this is the beginning of a bear market?

The Answer: Don’t panic! The bad news is I have absolutely no idea what the market will do in the short-term, nor does anyone else. The good news is that I’m 100 percent confident that:

The market is a great long-term investment.
The ups and downs of the market impact our financial futures a whole lot less than our reactions to it.
Unfortunately, we seem unalterably programmed to buy high and sell low. And even though history shows us time and again the error of this, we keep doing the same thing and expecting a different result.

The market is now down about 10 percent for the year and more than 15 percent from its high in October of last year. Sensationalistic headlines read something like “worst start ever for the stock market,” and “as January goes, so goes the year.” Such anxiety-inducing hype makes it virtually impossible for us to ignore the doom and gloom and just stay the course, but that’s exactly what you should do.

Behaving badly
The current crisis du jour in the market, like almost all of them, has its roots in how we invest. It was incredibly easy three months ago to say that we have a high tolerance for risk. We had just seen our U.S. stock portfolio nearly double and our international stock portfolio nearly triple. With such a whopping gain, one would think we would surely be able to handle a small 15 percent pullback, right?

The truth is that most of us are fair weather investors. Our tendency to be risk tolerant in good times, and risk averse in bad times, causes us to feel a bit bullet-proof. The result is getting into stocks when the market is up, and doing the traditional “panic and sell” when it turns downward.

It may be hard for many of us to remember back to October of 2002 when stocks bottomed out, having fallen by nearly half since 2000. To jog your memory, go back to an article written by Jason Zweig, at the bottom of the bear market: Are you wired for wealth? Jason gave us a glimpse into our minds and explained why most of us were panicking and selling at the exact wrong time.

How to be an investor
It’s easy to consider yourself an investor in good times, but it’s the down markets that separate the real investors from the speculators. An investor understands that, after five straight up years in the market, a pullback is just part of the game. It’s okay to feel the pain as long as you don’t let it drive you to panic. As much as I hate to admit it, I look at my own portfolio daily for some reason I’ll never be able to explain. I feel your pain, but I know my instinct to sell is dead wrong.

An investor needs to understand and have faith in the fact that capitalism works. Not to mention the fact that in the history of the U.S. stock market, it has only lost value a couple of times over a ten year period. Because rebalancing is a critical part of one’s investing, now is the time to reallocate more toward equities, as long as one had a proper asset allocation strategy in the first place. After all, it’s better to buy things on sale, isn’t it?

My Advice: If you can’t sleep at night wondering how much more stocks will fall, then the stock market was never right for you in the first place. Moving in and out of the market is likely to give you a low return.

On the other hand, if you can accept that bear markets are a necessary part of stock market investing, then look at this as a buying opportunity. If the market goes down further, it’s an even better buying opportunity.

In the words of Warren Buffett, “Be fearful when others are greedy and greedy when others are fearful.” That may be easier said than done, but it’s good advice.

http://money.cnn.com/2008/01/22/pf/ask_the_mole.moneymag/index.htm?section=money_markets

Rational