Radmila Khamzina's Blog

The Most Dangerous Bubble of All.

Radmila Khamzina (First World Mortgage) — Thu, 17 Feb 2011 16:59:27 -0800

The Most Dangerous Bubble of All

by Martin D. Weiss, Ph.D.

Author Martin D. Weiss and Safe Money editor Mike Larson

If you agree that the tech bubble of the 1990s and the housing bubble of the 2000s were extreme, then you must not ignore a bubble that could be the most dangerous of all - grossly overvalued bonds.

That's precisely the bubble we have right now! And in just a moment, I'll tell you why it's going to bust. But first, consider ...

The Swift and Certain Impacts
Of ALL Bond Market Busts ...

Let's say I pay $10,000 for a $10,000 face value bond paying 5 percent. I earn $500 in interest each year. No more, no less.

Now let's say the price of that bond plunges to $5,000. If you buy it at that price, you still get $500 in yearly interest.

But all you'll have to invest is $5,000. So your interest yield is not 5 percent. It's 10 percent! The price of the bond falls in half; the yield doubles!

In fact, the price and the yield of a bond are really two ways of measuring the same thing - much like a cup 3/4 full is the same as a cup 1/4 empty.

So when the bond market bubble busts, the inevitable and immediate consequence is that interest rates surge - not only on bonds, but also on mortgages, auto loans, business loans, and almost every kind of financing imaginable.

If you hold fixed-income investments locked in at today's low interest rates, you will almost definitely get hurt, regardless of what kind you own - Treasury bonds, Ginnie Maes, municipal bonds, mortgage bonds, corporate bonds, long-term bank CDs, plus many kinds of life insurance policies and annuities.

Either ...

You'll get stuck with miserable, below-market yields for years to come, or ...
You'll have to pay a tremendous price - losses in principal and/or stiff penalties - to switch to higher yielding investments.

Not a pretty picture!

On the flip side, though, you will also have the potential for large profits with a relatively high level of certainty.

How?

Well, years ago, it would have been very difficult or very risky. You'd have to be a government security dealer trading tens of millions of dollars. Or you'd have to get involved in futures contracts.

Today, fortunately, you can profit from rising interest rates with simple exchange-traded funds (ETFs) that any investor can buy in any standard brokerage account, online or offline. The more bond prices go down - and rates go up - the more you stand to make.

This is why Safe Money editor Mike Larson has been recommending these ETFs continually, and they're starting to pay off.

Take TBT, for example.

For most of last year, this ETF didn't do well - it fell in value because long-term Treasury bond yields were still going down.

But since September 2010, when those yields began to rise virtually nonstop, TBT has been going up in tandem - also virtually nonstop.

Moreover, it's designed to rise at TWICE the pace of the move in the bond market:

If Treasury bond prices fall by 10 percent, this ETF is designed to rise by 20 percent. And that's precisely what it has done - or better - in the past few months!

Why the Bond Market Is Undeniably a Bubble

The most obvious, telltale sign of a bubble is when asset prices are artificially driven higher by misguided government supports, subsidies, bailouts, or sheer greed and stupidity.

That was certainly the case of the housing bubble.

It was also true for some of the greatest bubbles in history - the Dutch Tulip Mania in the 17th century, the South Sea Bubble of the 18th century, the stock market bubble of the 1920s, plus many others.

And it's definitely the case here - not only in recent years, but going back for over a decade.

In fact, since the year 2000, one of the most frequently used - and abused - policy tools of the Federal Reserve has been to cut rates and artificially bubble up bond prices.

The Fed cut interest rates and supported bond prices to fight the technology bust, the 9/11 aftermath, the housing bust, the mortgage meltdown, the credit crunch, and the debt crisis.
The Fed did it again to help avert deflation, debt defaults, and other disasters. And ...
The Fed is still trying to do it AGAIN now, but with a big difference: Its bond-market buying binge is finally starting to backfire.

The facts supporting this thesis are undeniable and speak for themselves:

In the early 2000s (starting January 3, 2001), the Federal Reserve lowered short-term interest rates 13 times, to 1 percent, and then sat on them at that level for 12 months.
In the late 2000s, when the financial crisis struck the world, the Fed did it again, lowering short-term rates nine times to virtually zero.
And starting more recently, when the Fed ran out of room to lower short-term rates, it targeted long-term interest rates - by running the printing presses and buying up even more bonds.

The consequence is also undeniable: The biggest bond market bubble of all time. The only remaining question is ...

What Will Trigger a Bond Market Bust?

Take your pick (one or more) ...

Trigger #1. Inflation and Inflation Fears. Inflation has been so low for so long, that the complacency on Wall Street and Washington is bordering on the pathological.

Here we are - with massive surges in the price of gold, silver, agricultural commodities, and now, energy to boot - but STILL most bond investors, including the "smartest" banks and insurance companies, don't seem to bat an eyelash.

Here we are - with money supply and inflation surging in China and other emerging markets - and again, virtually no one seems to care.

These price surges are bound to pop up in the U.S. producer and consumer price indexes, which investors DO pay attention to. And when they do, an instant bond market bust is a likely outcome.

Trigger #2. Deficit Inaction. When the Congressional Budget Office recently announced that THIS year's deficit would hit nearly $1.5 trillion, bond prices fell and interest rates rose.

Bond investors knew that the Treasury would have to issue huge new supplies of bonds to finance the deficit. And they knew that big new supplies equal even bigger price declines.

What happens if the deficit balloons to $2 trillion? Another big decline in bond prices!

And what if Obama and Congress continue do little or nothing to make good on their promises of deficit reduction? Still MORE steep price declines!

Trigger #3. Dollar Collapse. Three out of every five dollars financing the U.S. federal deficit now come from foreign investors. Only two out of five come from domestic investors (other than the U.S. government itself).

Heck, the last time America was so dependent on foreign money, Benjamin Franklin was sailing to Paris to beg the French to help finance the Revolutionary War!

What happens next? As long as those foreign investors believe they'll be paid back in dollars that are worth something, they may hang on.

But as soon as they see the value of their dollars collapsing, the only rational response is to dump their holdings - driving bond prices down and interest rates skyward.

What if the economy sinks? Will that save the bond market?

Before he passed away, my father, J. Irving Weiss, who lived through - and even predicted - the Great Depression, answered a similar question in a very unique way. Here are key excerpts from his manuscript of the subject ...

The Bond Market Bust of the Early 1930s
by J. Irving Weiss (1908 - 1997)

In the early 1930s, I had one of the greatest income opportunities in history.

I could have gotten high, juicy, double-digit yields on the best bonds of the strongest companies in America. And I could have locked in those high returns for 20 or 30 years with virtually no inflation.

The yields on guaranteed government bonds were not as high, of course. But even there, the income opportunity was unusual.

Unfortunately, I missed it entirely. I made the mistake of believing the textbook theory on interest rates.

That theory was based almost entirely on the economy and inflation. When we had more growth and inflation, interest rates were supposed to go up. When we had less growth and inflation, rates were supposed to go down.

Nobody looked at interest rates as separate and apart from growth or inflation, and neither did I.

Boy, was I in for a big surprise! In fact, just as I began to watch rates more carefully, every single thing I had read about them went by the wayside.

Here's what happened: After the Crash of 1929, interest rates fell sharply, which was to be expected, because of deflation.

But then, something absolutely astounding took place: Although we were still in a deflationary era, although the economy was still sinking, interest rates began to surge dramatically.

The immediate reason: Bond markets collapsed.

However, in the early 1930s, when I saw rates surging, I didn't understand the cause. It didn't make sense because we had deflation. And with deflation, the textbooks said interest rates were supposed to go down.

So I asked myself: Was inflation coming back? Did I read the textbooks upside down? The answer to both questions was a flat "no." Yields were surging because bond prices were crashing, just like stocks. And that's when I began to look at interest rates as a powerful fundamental force in their own right, separate from the economy or inflation.

The yields on low-grade corporate bonds were the first to surge as their prices plunged. It was like an aftershock from the stock market crash.

This made sense because these were bad bonds and they traded almost like common stocks. They were issued by companies that were expected to default on their payments; and a lot of the companies did just that. So it was natural that their bonds should fall in value or even become worthless.

As always, the lower the prices, the higher the yields. And wow! Did those yields surge! They went to 15 percent, 20 percent, 30 percent, even 45 percent. But what good was it if you lost your principal?

Then high-grade corporate bonds also got hit hard. Investors feared that any company - regardless of rating - could go belly-up, and they were right!

At some companies, finances deteriorated so quickly that, by the time the analysts got around to downgrading them, they were already in the bankruptcy courts. As the price of these high-grade corporate bonds crashed, their yields surged.

And amazingly, they surged beyond their 1929 highs. Someone was obviously selling the heck out of them. But who?

You'd think that at least government-guaranteed Treasury bonds would be spared from this selling panic. They weren't. Investors sold them aggressively, driving their prices to new lows, following in the path of corporate bonds. Yields surged.

Where was all the selling coming from? One source was the U.S. Treasury itself. In the sinking economy, the government's tax revenues plummeted. So it needed to borrow more to replace the missing revenues. And that meant it had to issue more Treasury bonds - more bond supplies, lower prices, and higher yields.

But that still wasn't enough to explain it. It still didn't tell us what drove interest rates up when every textbook in existence said they should be going down.

It wasn't until later that my brother Al and I figured it out. To understand what was going on, we had to forget about inflation, deflation, money supply, the Federal Reserve, and all the theories economists swore by.

Instead, we looked at bonds like any other kind of investment - no different from stocks or commodities. When investors sold them, they went down in price. When investors bought them, they went up.

These investors didn't give a hoot about textbooks. All they cared about was the fact that they needed cash.

The banks needed cash to meet huge demands by savers withdrawing their money. Businesses needed cash to pay bills. Insurance companies needed cash to pay claims.

So the execs went to their financial VPs to dig up something they could sell off for cash.

"What's this stuff?" they asked.

"They're bonds, sir," came the answer. "They're solid investments - not like stocks."

"Can you sell 'em?"

"Sure we can. But bonds are good for bad times. You shouldn't be selling them now because ..."

"I don't give a damn if they're good, bad, or in between. Sell 'em! Raise cash!"

Thus, tremendous amounts of bonds were dumped on the market. High-grade bonds. Low-grade bonds. Muni bonds. Treasury bonds. It didn't matter what color or denomination. Everywhere, individuals, financial institutions, and businesses were getting rid of their bonds.

If they were low grade or on the verge of default, they got no more than pennies on the dollar. And even with higher grade bonds, many investors were simply throwing the baby out with the bath water, driving prices to new lows.

Looking back, I wish I could have had the foresight to convert my winnings from the stock market crash into the highest grade bonds. On top of the high yields, the purchasing power of the dollar improved. And throughout the entire Depression, bonds outperformed virtually every other investment in the world, with far less risk.

But by the time we had figured it out, the opportunity was gone. As the Depression progressed, rates fell back down again, and only those who had locked them in during that unusual period were able to enjoy the higher incomes. - J. Irving Weiss

The Key Lesson to Be Learned From Dad's Experience: Wait till you can get juicy, double-digit yields on some of the highest quality bonds in the world. Then, start buying! But whatever you do, don't get stuck in bonds when their yields have been driven down to the lowest levels in history.

Good luck and God bless!

Martin

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

"I am 63 and Tired" by Robert A. Hall.

Radmila Khamzina (First World Mortgage) — Fri, 10 Dec 2010 12:37:50 -0800

Robert A. Hall is a Marine Vietnam War veteran.
This should be required reading for every man, woman and child in the United States of America .

"I'm 63 and I'm Tired"
by Robert A. Hall

I'm 63. Except for one semester in college when jobs were scarce and a six-month period when I was between jobs, but job-hunting every day, I've worked hard since I was 18.   Despite some health challenges, I still put in 50-hour weeks, and haven't called in sick in seven or eight years.   I make a good salary, but I didn't inherit my job or my income, and I worked to get where I am. Given the economy, there's no retirement in sight, and I'm tired. Very tired.

I'm tired of being told that I have to "spread the wealth" to people who don't have my work ethic. I'm tired of being told the government will take the money I earned, by force if necessary, and give it to people too lazy to earn it.

I'm tired of being told that I have to pay more taxes to "keep people in their homes."   Sure, if they lost their jobs or got sick, I'm willing to help.   But if they bought Mc Mansions at three times the price of our paid-off, $250,000 condo, on one-third of my salary, then let the left-wing Congress-critters who passed Fannie and Freddie and the community Reinvestment Act that created the bubble help them with their own money.

I'm tired of being told how bad America is by left-wing millionaires like Michael Moore, George Soros and Hollywood entertainers who live in luxury because of the opportunities America offers. In thirty years, if they get their way, the United States will have the economy of Zimbabwe, the freedom of the press of China, the crime and violence of Mexico, the tolerance for Christian people of Iran, and the freedom of speech of Venezuela.

I'm tired of being told that Islam is a "Religion of Peace," when every day I can read dozens of stories of Muslim men killing their sisters, wives and daughters for their family "honor"; of Muslims rioting over some slight offense; of Muslims murdering Christian and Jews because they aren't "believers"; of Muslims burning schools for girls; of muslims stoning teenage rape victims to death for "adultery"; of muslims mutilating the genitals of little girls; all in the name of allah, because the Qur'an and Shari'a law tells them to.

I'm tired of being told that "race doesn't matter" in the post-racial world of Obama, when it's all that matters in affirmative action jobs, lower college admission and graduation standards for minorities charming them the most), government contract set-asides, tolerance for the ghetto culture of violence and fatherless children that hurts minorities more than anyone, and in the appointment of U.S. Senators from Illinois.

I think it's very cool that we have a black president and that a black child is doing her homework at the desk where Lincoln wrote the Emancipation Proclamation. I just wish the black president was Condi Rice, or someone who believes more in freedom and the individual and less arrogantly of an all-knowing government.

I'm tired of a news media that thinks Bush's fundraising and inaugural expenses were obscene, but thinks that Obama's, at triple the cost, were wonderful; that thinks Bush exercising daily was a waste of presidential time, but Obama exercising is a great example for the public to control weight and stress; that picked over every line of Bush's military records, but never demanded that Kerry release his; that slammed Palin, with two years as governor, for being too inexperienced for VP, but touted Obama with three years as senator as potentially the best president ever. Wonder why people are dropping their subscriptions or switching to Fox News? Get a clue. I didn't vote for Bush in 2000, but the media and Kerry drove me to his camp in 2004.

I'm tired of being told that out of "tolerance for other cultures" we must let Saudi Arabia use our oil money to fund mosques and mandrassa Islamic schools to preach hate in America, while no American group is allowed to fund a church, synagogue or religious school in Saudi Arabia to teach love and tolerance.

I'm tired of being told I must lower my living standard to fight global warming, which no one is allowed to debate. My wife and I live in a two-bedroom apartment and carpool together five miles to our jobs. We also own a three-bedroom condo where our daughter and granddaughter live. Our carbon footprint is about 5% of Al Gore's, and if you're greener than Gore, you're green enough.

I'm tired of being told that drug addicts have a disease, and I must help support and treat them, and pay for the damage they do. Did a giant germ rush out of a dark alley, grab them, and stuff white powder up their noses while they tried to fight it off? I don't think Gay people choose to be Gay, but I sure think druggies chose to take drugs. And I'm tired of harassment from cool people treating me like a freak when I tell them I never tried marijuana.

I'm tired of illegal aliens being called "undocumented workers," especially the ones who aren't working, but are living on welfare or crime. What's next?   Calling drug dealers, "Undocumented Pharmacists"?   And, no, I'm not against hispanics. Most of them are Catholic, and it's been a few hundred years since Catholics wanted to kill me for my religion. I'm willing to fast track for citizenship any Hispanic person, who can speak english, doesn't have a criminal record and who is self-supporting without family on welfare, or who serves honorably for three years in our military.... Those are the citizens we need.

I'm tired of latte liberals and journalists, who would never wear the uniform of the Republic themselves, or let their entitlement-handicapped kids near a recruiting station, trashing our military. They and their kids can sit at home, never having to make split-second decisions under life and death circumstances, and bad mouth better people than themselves. Do bad things happen in war? You bet. Do our troops sometimes misbehave? Sure. Does this compare with the atrocities that were the policy of our enemies for the last fifty years and still are? Not even close. So here's the deal. I'll let myself be subjected to all the humiliation and abuse that was heaped on terrorists at Abu Ghraib or Gitmo, and the critics can let themselves be subject to captivity by the Muslims, who tortured and beheaded Daniel Pearl in Pakistan, or the Muslims who tortured and murdered Marine Lt. Col. William Higgins in Lebanon, or the Muslims who ran the blood-spattered Al Qaeda torture rooms our troops found in Iraq, or the Muslims who cut off the heads of schoolgirls in Indonesia, because the girls were Christian. Then we'll compare notes. British and American soldiers are the only troops in history that civilians came to for help and handouts, instead of hiding from in fear.

I'm tired of people telling me that their party has a corner on virtue and the other party has a corner on corruption. Read the papers; bums are bipartisan.   And I'm tired of people telling me we need bipartisanship. I live in Illinois, where the "Illinois Combine" of Democrats has worked to loot the public for years.   Not to mention the tax cheats in Obama's cabinet.

I'm tired of hearing wealthy athletes, entertainers and politicians of both parties talking about innocent mistakes, stupid mistakes or youthful mistakes, when we all know they think their only mistake was getting caught. I'm tired of people with a sense of entitlement, rich or poor.

Speaking of poor, I'm tired of hearing people with air-conditioned homes, color TVs and two cars called poor. The majority of Americans didn't have that in 1970, but we didn't know we were "poor." The poverty pimps have to keep changing the definition of poor to keep the dollars flowing.

I'm real tired of people who don't take responsibility for their lives and actions. I'm tired of hearing them blame the government, or discrimination or big-whatever for their problems.

Yes, I'm tired. But I'm also glad to be 63. Because, mostly, I'm not going to have to see the world these people are making. I'm just sorry for my granddaughter.

Robert A. Hall is a Marine Vietnam veteran who served five terms in the Massachusetts State senate.

There is no way this will be widely publicized, unless each of us sends it on!

This is your chance to make a difference.

Personal accountability-the power of one!

Practice Creative Procrastination

Radmila Khamzina (First World Mortgage) — Mon, 29 Nov 2010 11:53:35 -0800

Practice Creative Procrastination
By Brian Tracy

Creative procrastination is one of the most effective of all personal performance techniques. It can change your life. The fact is that you can't do everything that you have to do. You have to procrastinate on something. Therefore, procrastinate on small tasks. Everyone procrastinates. The difference between high performers and low performers is largely determined by what they choose to procrastinate on.

Priorities versus Posteriorities
To set proper priorities, you must set posteriorities as well. A priority is something that you do more of and sooner, while a postieriority is something that you do less of and later, if at all. One of the most powerful of all words in time management in the word no! Say it politely. Say it clearly so that there are no misunderstandings. Say it regularly as a normal part of your time management vocabulary. For you to do something new, you must complete or stop doing something old.

Procrastinate on Purpose
Most people engage in unconscious procrastination. They procrastinate without thinking about it. As a result, they procrastinate on the big, valuable, important tasks that can have significant long-term consequences in their lives and careers. You must avoid this common tendency at all costs. Your job is to deliberately procrastinate on tasks that are of low value so that you have more time for tasks that can make a big difference in your life and work.

Set Posteriorities on Time-Consuming Activities
Continually review your life and work to find time- consuming tasks and activities that you can abandon. Cut down on television watching and instead spend the time with your family, read, exercise, or do something else that enhances the quality of your life. Look at your work activities and identify the tasks that you could delegate or eliminate to free up more time for the work that really counts.

Begin Today
Begin today to practice creative procrastination practices that will free up more time for the more important things in life. Set posteriorities wherever and whenever you can. This decision alone can enable you to get your time and your life under control.

Action Exercise
Examine each of your personal and work activities and evaluate it based on your current situation. Select at least one activity to abandon immediately or at least deliberately put off until your more important goals have been achieved.

The Law of Priorities

Radmila Khamzina (First World Mortgage) — Wed, 27 Oct 2010 13:45:38 -0700

The Law of Priorities
By: Brian Tracy

The very worst use of your time is to do what need not be done at all. The Pareto Principle says that 20% of your activities will account for 80% of the value of your activities. This means that, if you have a list of ten items to accomplish, two of those items will be worth more than the other eight items altogether.

To achieve great things, you must always be concentrating on the small number of activities that contribute the greatest value to your life and your work.

Determine the Consequences
The value of anything in your order of priorities can be measured by assessing the potential consequences of doing it or not doing it. Something that is important has significant consequences to your life and your career. Something that is unimportant has few or no consequences of significance to your life or career. The mark of the superior thinker is your ability to consider possible consequences before you begin.

Ask the Key Question
Continually ask yourself, "What is the most valuable use of my time, right now?" And whatever it is, work on that. Your ability to discipline yourself to work on those few tasks that can make the greatest difference in your life is the key quality that makes everything else possible for you.

Action Exercises
Here is how you can apply this law immediately:

First, make a list of everything that you do as a part of your job. Now, analyze the list and select the three to five things that are more important than everything else put together.

Second, imagine that you are going to receive a $100,000 bonus at the end of the month if you can work on your highest priority items every minute of the day. How would that change your behavior? What would you do differently?

GM proudly presents =)

Radmila Khamzina (First World Mortgage) — Wed, 27 Oct 2010 09:57:37 -0700

The New GM (Government Motors) Proudly Introduces The 2011 Obummer.

This car runs on hot air, bullshit, and broken promises.

It has three wheels that speed the vehicle through tight left turns.

It comes complete with two Teleprompters programmed to help the occupants talk their way out of any violations.

The transparent canopy reveals the plastic smiles still on the faces of all the happy owners.

Comes in S, M, L, XL and 2XL.

It won't get you to work but hey, there aren't any jobs here anyway!

WHY I'M DEPRESSED!!!

Radmila Khamzina (First World Mortgage) — Tue, 26 Oct 2010 21:39:09 -0700

WHY I'M DEPRESSED

Over five thousand years ago, Moses said to the children of Israel, "Pick up your shovels, mount your asses and camels, and I will lead you to the Promised Land."

Nearly 75 years ago (when Welfare was introduced), Roosevelt ...said, "Lay down your shovels, sit on your asses, and light up a Camel, this is the Promised Land."

Today, Obama has stolen your shovel, taxed your asses, raised the price of camels and mortgaged the Promised Land!

I was so depressed last night thinking about health care plans, the economy, the wars, lost jobs, savings, Social Security, retirement funds, etc. I called a Suicide Hotline.

I had to press 1 for English. I was connected to a call center in Pakistan. I told them I was suicidal.

They got excited and asked if I could drive a truck......

Time Management Techniques for Salespeople

Radmila Khamzina (First World Mortgage) — Tue, 26 Oct 2010 20:14:34 -0700

Time Management Techniques for Salespeople
By Brian Tracy

In 1928, the magazine Sales and Marketing Management surveyed American Businesses to determine how efficiently salespeople were using their time. They discovered that the average salesperson in America was only working 20 percent of the time, approximately one and one-half hours per day. This finding caused bells to go off throughout the sales industry. The idea that salespeople were only working ninety minutes per day became the emphasis for improved training, better time management skills, better supervision, and better control of the activities of salespeople.

Double Your Sales

In my sales programs, I teach what I call my minutes theory. It is based on a simple equation. If you are in sales today, 100 percent of your sales and your income are generated by the number of minutes hat you spend face-to-face with prospects and customers. If you want to increase the number of sales or the amount of money you make, you must increase the number of minutes that you spend in actual selling activity, face-to-face with people who can, and will, buy from you. My theory says that if you double the number of minutes that if you spend with customers, you will double your income, even if you do not improve in any other area of sales. If you manage your time as the top salespeople do, so that you are spending more time with customers, your sales will increase immediately.

The Job of the Salesperson

Let us begin with the job description of the salesperson. The job description of the salesperson is to create and keep customers. The measure of effectiveness of a salesperson is how many new customers she creates, or resales she generates, in any given time period. Everything else that salesperson does is secondary to creating and keeping customers. Therefore, the only time a sales person is working is when he is face-to-face, head-to-head, and knee-to-knee with a prospect or customer.

Begin with Clear Income and Sales Goals

Achieving Peak Performance and excellent time management in sales begins with your setting clear income and sales goals for yourself. The act of sitting down and deciding, in writing, how much you want to earn, and how you are going to go about earning it, makes it far more likely that you will achieve those goals than if you didn't set them at all. The goal-setting exercise I am about to share with you has led to the doubling and tripling of the incomes of many salespeople. It is powerful because it is simple and easy. You can learn it and apply it immediately.

Determine What You Will Have to Do

Once you have broken your income and sales goals down into monthly, weekly, daily, and hourly amounts, you then define these goals in terms of the activities necessary to achieve them. The critical element in this calculation is the factor of control. You cannot control your income or your sales on a day-to-day basis. They depend on too many other factors. But you can control your activities. You can determine and control what you do from morning to night, and as a result, you can indirectly control your income. If you engage in the activities necessary to make sales you want to make, you will inevitably achieve your sales goals.

Get Better at What You Do

Once you have determined your sales goals and worked out an activity schedule for each day, you immediately go to work on yourself to upgrade your skills in your key result areas. One of the best uses of your time is to get better at the most important things you do. Your goal is to upgrade your skills so that you achieve more and better results in a shorter period of time.

Action Exercise

Take charge of your sales career today; resolve to double the amount of time you spend face-to-face with prospects and customers.

Using Stumbling Blocks as Stepping Stones

Radmila Khamzina (First World Mortgage) — Mon, 25 Oct 2010 16:19:22 -0700

Using Stumbling Blocks as Stepping Stones
By: Brian Tracy

Everyone makes mistakes and the busier you are, the more mistakes you will make. The only question is "How well and how effectively do you deal with the inevitable ups and downs of life?"

In this newsletter, you learn the difference between a positive and negative worldview. You learn how to benefit from your mistakes and how to remain positive in the face of adversity.

Let the Light Shine In
This is achieved through the simple exercise of self-disclosure. For you to truly understand yourself, or to stop being troubled by things that may have happened in your past, you must be able to disclose yourself to at least one person. You have to be able to get those things off your chest. You must rid yourself of those thoughts and feelings by revealing them to someone who won't make you feel guilty or ashamed for what has happened.

Using Stumbling Blocks as Stepping Stones
There are two ways to look at the world: the benevolent way or the malevolent way. People with a malevolent or negative worldview take a victim stance, seeing life as a continuous succession of problems and a process of unfairness and oppression. They don't expect a lot and they don't get much. When things go wrong, they shrug their shoulders and passively accept that this is the way life is and there isn't anything they can do to make it better.

On the other hand, people with a benevolent or positive worldview see the world around them as filled with opportunities and possibilities. They believe that everything happens as part of a great process designed to make them successful and happy. They approach their lives, their work, and their relationships with optimism, cheerfulness, and a general attitude of positive expectations. They expect a lot and they are seldom disappointed.

Flex Your Mental Muscles
When you develop the skill of learning from your mistakes, you become the kind of person who welcomes obstacles and setbacks as opportunities to flex your mental muscles and move ahead. You look at problems as rungs on the ladder of success that you grab onto as you pull your way higher.

Two of the most common ways to deal with mistakes are invariably fatal to high achievement. The first common but misguided way to handle a mistake is the failure to accept it when it occurs. According to statistics, 70 percent of all decisions we make will be wrong. That's an average. This means that some people will fail more than 70 percent of the time, and some people will fail less. It is hard to believe that most of the decisions we make could turn out to be wrong in some way. In fact, if this is the case, how can our society continue to function at all?

Cut Your Losses
The fact is that our society, our families, our companies, and our relationships continue to survive and thrive because intelligent people tend to cut their losses and minimize their mistakes. It is only when people refuse to accept that they have made a bad choice or decision-and prolong the consequences by sticking to that bad choice or decision-that mistakes become extremely expensive and hurtful.

Learn From Your Mistakes
The second common approach that people take with regard to their mistakes, one that hurts innumerable lives and careers, is the failure to use your mistakes to better yourself and to improve the quality of your mind and your thinking.

Learning from your mistakes is an essential skill that enables you to develop the resilience to be a master of change rather than a victim of change. The person who recognizes that he has made a mistake and changes direction the fastest is the one who will win in an age of increasing information, technology and competition.

By remaining fast on your feet, you will be able to out-play and out-position your competition. You will become a creator of circumstances rather than a creature of circumstances.

Action Exercises
Now, here are three steps you can take immediately to put these ideas into action.

First, imagine that your biggest problem or challenge in life has been sent to you at this moment to help you, to teach you something valuable. What could it be?

Second, be willing to cut your losses and walk away if you have made a mistake or a bad choice. Accept that you are not perfect, you can't be right all the time, and then get on with your life.

Third, learn from every mistake you make. Write down every lesson it contains. Use your mistakes in the present as stepping stones to great success in the future.

Maximize Profits

Radmila Khamzina (First World Mortgage) — Thu, 21 Oct 2010 11:17:09 -0700

Maximize Profits
By Brian Tracy

Sales are only one barometer for success. Your ultimate goal is to increase profits in order to achieve the greatest possible return on your investment of money, time, and energy. Every customer, activity, product, or service yields a specific profit of a specific amount. In some cases, you may actually be losing money in one or more of these three areas. One of the most important things you can do for your growing business is to determine where to focus the investment of your time and money based on the return thrown off by this investment.

Personal Profitability
To truly analyze the profitability of your business, you must first examine your personal rate of return. From this personal perspective, what is your major expense? It's your time. By now, you should have developed the habit of continually asking yourself this basic question: Would I pay someone else my hourly rate to perform this task? If not, you are failing to maximize the return on your time. In other words, you are investing your time in an area that yields less than the optimum rate of return. You are incurring a "loss of opportunity" cost. This, in turn, affects the overall profitability of your business.

People Profitability
Payroll represents one of the largest expense items for most businesses. As a business grows, it typically hires additional staff according to the most pressing need at the moment. Once a person has been hired, often she or he can become a permanent fixture, even when the company's needs change. Many entrepreneurs are too busy creating products, designing services, and generating revenues to pay close attention to employee performance. Over time, the result can be an inefficient and ineffective staff and a bloated payroll.

Customer Profitability
Some customers are more profitable than others; some may actually be costing you money. Can you identify your most profitable customers? Do you know any who are unprofitable? There is not necessarily any connection between the size of the customer or the volume of business he produces and his profitability. There are several questions you should ask as you examine your customers profitability: How often does each customer purchase from you? What is the average size of each purchase? What is the profit margin of the product(s) purchased? How much time is spent providing customer service after the sale? What is the "product returns" record of each customer?

Concentrate on Profitable Customers
Many companies regularly "fire" the top 10 percent of their customers. They stop doing business with those who generate the least revenues or yield the lowest on their return purchases, choosing to concentrate on their more profitable customers and attracting more like them. At the very least, be diligent in rooting out those customers who actually cost you money-regardless of the revenues they generate. You cannot afford to carry this unprofitable load.

Action Exercise
Identify your most and your least profitable customers. Focus on the most profitable.

Finding the Best People

Radmila Khamzina (First World Mortgage) — Thu, 21 Oct 2010 10:31:46 -0700

Finding the Best People
By Brian Tracy

There are a variety of ways that you can find the people that you need. Most business owners have used them all at one time or another. None of them are perfect, but as we say, "Cast a wide net." The more ways that you have to find good people, the more probable that you will find the people you need at the right time.

Referrals
Fully 85% of key people are found through referrals and word-of-mouth. Someone knows someone who knows someone else and recommends that person to you. The way you tap into this invisible network of possible candidates is by mentioning regularly that you are looking for good people to join your company. Your word will soon get out and people will start to phone you to recommend someone who has just become available, or to express interest themselves.

Personnel Placement Services
These companies continually advertise for candidates. They interview them and check their past histories and experience. They hire some and then send them on to you while keeping them on their payroll. You should find one or two personnel placement agencies in your community and talk with them about your present and future needs.

These companies vary in quality, so you must be selective in finding a company that you are happy working with. They may charge a little more, but they can save you many hours of time-consuming interviews and frustrating experiences in employing the wrong person.

Newspaper Advertisement
These will attract the greatest number of candidates, but you must use the ads with care. You should be very clear in your ads about the results expected, the experience required, and the work responsibility involved. Even if you're careful and clear, nine out of ten people who respond to your ads will be totally inappropriate.

It is almost as if they are applying for every job advertised in the newspaper without even reading the requirements. If you advertise in the newspaper, create a five-to-seven part questionnaire that someone, even your receptionist, can ask anyone who phones. A few questions about the specifics of your ad will screen callers very quickly.

After a few questions, it will be clear to both you and the caller if there's a possibility worth pursuing. If the applicant gives appropriate answers to these questions, ask for a resume, either by mail, in person or by e-mail.

Action Exercise
Look for candidates with successful track records doing key jobs that you need to have done. How could you attract them to work for you?

Study Your Competition

Radmila Khamzina (First World Mortgage) — Wed, 20 Oct 2010 11:11:39 -0700

Study Your Competition
By Brian Tracy

Competition is a fact of business life, regardless of whether you work for an organization or for yourself. Price setting (either as a part of salary negotiation or a marketing strategy) is a good example. How would you answer this question: Who determines the prices you charge or the salary level you set for yourself? Would you point to your level of sales or your market share, or perhaps your years of experience? Many people would say that their customer or employees set the prices. Others would insist that they set their own prices. In fact, all of these are key determinants of your ultimate professional or business success.

Marketplace Competition
But the primary determinant is none of the factors mentioned above; it is actually your competition in the marketplace that sets your prices. You have competition whether your company sells its goods and services in the open market, or inside an organization where you are competing for advancement or scarce resources. For this reason, it is essential to thoroughly research your competitors and know them as well as you know yourself.

Don't Dismiss Your Competition
Many people in a competitive market situation make the mistake of dismissing the competition. The smart competitor does not look down on the competition, find fault with them, criticize them, or make light of them. She respects her successful competitors and makes it her business to study and learn from them.

Investigate Your Competitors
What do they do to win that promotion or get themselves hired for that job? What are their strategies and tactics for market penetration and market domination? How do they position their products or services? What alliances or networks do they build to ensure the success of their departments or divisions? Why do people buy from them? How do they service their customers and build relationships both within and outside of their organizations? What is their pricing policy? What new skills or training do they acquire to stay current? What is their approach to quality control? What volunteer or professional organizations do they join?

Look Outward
Once you have determined what it is that you do better than others in your career or business area, look outward. How will you position yourself or your product or service in the marketplace to capitalize on your area of excellence? What sales and marketing strategies will you adopt? Based on competitive pricing strategies, how will you price your products or services? Maintain the broadest possible scope when you are conducting research on what the competition is doing. For example, if you are in business for yourself, you may find that in some instances, the competition may not be another individual or company. You may find that you are competing against what appears to be another industry.

Action Exercise
Who are your most successful competitors? Why would your customers or potential customers buy from these competitors? What advantages and benefits do they perceive in buying from your competitors?

There are no shortcuts to any place worth going. -Beverly Sills-

The Law of Compensation

Radmila Khamzina (First World Mortgage) — Wed, 20 Oct 2010 11:02:38 -0700

The Law of Compensation
By: Brian Tracy

You Get What You Give
Ralph Waldo Emerson, in his essay, "Compensation," wrote that each person is compensated in like manner for that which he or she has contributed. The Law of Compensation is another restatement of the Law of Sowing and Reaping. It says that you will always be compensated for your efforts and for your contribution, whatever it is, however much or however little.

Increase Your Value
This Law of Compensation also says that you can never be compensated in the long term for more than you put in. The income you earn today is your compensation for what you have done in the past. If you want to increase your compensation, you must increase the value of your contribution.

Fill Your Mind With Success
Your mental attitude, your feelings of happiness and satisfaction, are also the result of the things that you have put into your own mind. If you fill your own mind with thoughts, visions and ideas of success, happiness and optimism, you will be compensated by those positive experiences in your daily activities.

Do More Than You're Paid For
Another corollary of the Law of Sowing and Reaping is what is sometimes called the, "Law of Overcompensation." This law says that great success comes from those who always make it a habit to put in more than they take out. They do more than they are paid for. They are always looking for opportunities to exceed expectations. And because they are always overcompensating, they are always being over rewarded with the esteem of their employers and customers and with the financial rewards that go along with their personal success.

Provide the Causes, Enjoy The Effects
One of your main responsibilities in life is to align yourself and your activities with Law of Cause and Effect (and its corollaries), accepting that it is an inexorable law that always works, whether anyone is looking or not. Your job is to institute the causes that are consistent with the effects that you want to enjoy in your life. When you do, you will realize and enjoy the rewards you desire.

Action Exercises
Here are two things you can do immediately to put these ideas into action.

First, remind yourself regularly that your rewards will always be in direct proportion to your service to others. How could you increase the value of your services to your customers today?

Second, look for ways to go the extra mile, to use the Law of Overcompensation in everything you do. This is the great secret of success.

Eleven Keys to Increasing your Productivity

Radmila Khamzina (First World Mortgage) — Sun, 17 Oct 2010 11:43:52 -0700

Eleven Keys to Increasing your Productivity
By Brian Tracy

Develop clear goals and write them down.
Because higher productivity begins with clear goals, goal setting is a key component of our coaching program. As you know, a goal must be specific and measurable to be effective in guiding your behavior. It must reflect your beliefs and be within your power to achieve.
Write a clear action plan.
Next, if you want to turbo-charge your productivity, make sure you have a clear, written plan of action. Every minute you spend in careful planning will save you as many as ten minutes in execution.
Set your priorities.
The third step is to prioritize your list. Analyze your list before you take action. Identify and start with the high-value tasks on your list.
Concentrate and eliminate distractions.
In this step, choose a high-value activity or task, start on it immediately, and stay with it until it is done. Focusing single-minded attention on one task allows you to complete it far more quickly than starting and stopping.

Lengthen your workday but increase your time off.
By starting your workday a little earlier, working through lunchtime, and staying a little later, you can become one of the most productive people in your field.
Work harder at what you do.
When you are at work, concentrate on work all the time you are there. Don't squander your time or fall into the habit of treating the workplace as a community where socializing is acceptable.
Pick up the pace. At work, develop a sense of urgency and maintain a quicker tempo in all your activities. Get on with the job. Dedicate yourself to moving quickly from task to task.
Work smarter.
Focus on the value of the tasks you complete. While the number of hours you put in is important, what matters most is the quality and quantity of results you achieve.
Align your work with your skills.
Skill and experience count. You achieve more in less time when you work on tasks at which you are especially skilled or experienced.
Bunch your tasks.
Group similar activities and do them all at the same time. Making all your calls, completing all your estimates, or preparing all your presentation slides at the same time allows you to develop speed and skill at each activity.
Cut out steps.
Pull several parts of the job together into a single task and eliminate several steps. Where you can, cut lower-value activities completely.

Action Exercise
What are your ten most important goals? Carefully review your ten most important goals. Select one that, if achieved immediately, would have the strongest positive impact on your life.

Be a Doctor of Selling

Radmila Khamzina (First World Mortgage) — Wed, 13 Oct 2010 08:53:28 -0700

Be a Doctor of Selling

By: Brian Tracy

Three Keys to Building Relationships
Top sales professionals see themselves as "Doctors of Selling." They see themselves as professionals, well educated, acting in their "patient's" best interest, and bound by a high code of ethics.

The medical process is the same everywhere. Whenever you go to any doctor, of any kind, for any condition, he will follow the three part sequence of examination, diagnosis and prescription.

Begin With a Thorough Examination
Just as a medical professional would never think of treating you without following these three steps in order, you as a doctor of selling, would never allow a customer to force you to sell without your going through your three stages as well. This is as applicable to selling magazines door-to-door as it is to selling oil tankers to Exxon.

In the examination phase, you ask excellent questions, carefully prepared, in sequence, which are geared to give you a thorough knowledge of the patient's condition, or the customer's situation.

Diagnose the Customer's Need Accurately
The second phase is that of diagnosis. In the diagnosis phase with a customer, you would repeat back the results of your examination and double check to be sure that the symptoms that you had detected were the real symptoms being experienced by the patient. You would ask additional questions to confirm and corroborate. You and the patient would mutually agree that this diagnosis seems to be an accurate description of the condition or problem.

Make the Right Prescription
Once this mutual agreement has been reached, that a treatable condition exists and that you have identified it accurately, you can move on to phase three. This is the prescription phase, where you show the patient (customer) that your product or service is the best available treatment, taking all the factors of the patient's situation into consideration for the ailment that you have diagnosed. You show that, on balance, what you are suggesting is the best of all possible solutions.

Professionals who sell in the way that doctors treat patients find that their sales activities proceed far more smoothly and result in better sales in less time.

Action Exercises
Here are two things you can do immediately to put these ideas into action.

First, take the time to do a thorough examination by asking excellent questions and by listening carefully to the answers.

Second, repeat back and check your diagnosis with the customer so that you both agree on the need or problem - before you recommend a solution.

The Psychology of Time Management

Radmila Khamzina (First World Mortgage) — Tue, 12 Oct 2010 09:41:35 -0700

The Psychology of Time Management

By Brian Tracy

The Psychology of Time Management
By Brian Tracy

The Law of Correspondence says that your outer life tends to be a mirror image of your inner life. Everywhere you look, there you are. Everywhere you look, you see yourself reflected back. You do not see the world as it is, but as you are-inside. If you want to change what is going on in the world around you-your relationships, results, and rewards-you have to change what in going on in the world inside you. Fortunately, this is the only part of your life over which you have complete control.

The Starting Point of Success
The starting point of excelling in time management is desire. Almost everyone feels that their time management skills could be vastly better than they are. The key to motivation is "motive." For you to develop sufficient desire to develop Time Power, you must be intensely motivated by the benefits you feel you will enjoy.

Gaining Two Extra Hours Each Day
Your productivity can dramatically change if you add to extra hours to your day. Two extra hours per day, multiplies by five days per week, equals ten extra hours a week. Ten extra hours a week multiplied by fifty weeks a year would give you 500 extra productive hours each year. And 500 hours translates into more that twelve, forty-hour weeks, or the equivalent of three extra months of productive working time each year. By gaining two productive hours each day, you can transform your personal and working life.

Improving Your Productivity Performance
Your productivity, performance, and income will increase by at least 25 percent over the next year. Two more productive hours, out of the eight hours that you spend at work each day, is the equivalent of at least a 25 percent increase.

Increasing Your Sense of Control
When you leverage the power of time, you will have a greater sense of control over your work and your personal life. You will feel like the master of your own destiny, and a power in your own life. You will feel more positive and powerful in every part of your life.

Take Control of your Time and Your Life
One of the keys to developing a stronger internal focus of control is to manage your time and your life better. The more skilled you become at managing your time, the happier and more confident you will feel. You will have a stronger sense of personal power. You will feel in charge of your own destiny. You will have a greater sense of well-being. You will be more positive and personable.

Having More Time for Your Family
You will have more time for your family and your personal life as you get your time and your life under control. You will have more time for your friends, for relaxation, for personal and professional development, and for anything else you want to do. When you become a master of your own time, and recapture two hours per day, you can use that extra time to chase your dreams.

Action Exercise
Figure out how you can add two hours of productivity to your day. Make a schedule of your day and find where you can squeeze two hours of time out for maximum efficiency.

Three Skills to Improve Conversation

Radmila Khamzina (First World Mortgage) — Mon, 11 Oct 2010 12:47:02 -0700

Three Skills to Improve Conversation
By: Brian Tracy

One key to becoming a great conversationalist is to pause before replying. A short pause, of three to five seconds, is a very classy thing to do in a conversation. When you pause, you accomplish three goals simultaneously.

The Benefits of Pausing
First, you avoid running the risk of interrupting if the other person is just catching his or her breath before continuing. Second, you show the other person that you are giving careful consideration to his or her words by not jumping in with your own comments at the earliest opportunity. The third benefit of pausing is that you will actually hear the other person better. His or her words will soak into a deeper level of your mind and you will understand what he or she is saying with greater clarity. By pausing, you mark yourself as a brilliant conversationalist.

Ask Questions
Another way to become a great conversationalist is to question for clarification. Never assume that you understand what the person is saying or trying to say. Instead, ask, "How do you mean, exactly?"

This is the most powerful question I've ever learned for controlling a conversation. It is almost impossible not to answer. When you ask, "How do you mean?" the other person cannot stop himself or herself from answering more extensively. You can then follow up with other open-ended questions and keep the conversation rolling along.

Paraphrase the Speaker's Words
The third way to become a great conversationalist is to paraphrase the speaker's words in your own words. After you've nodded and smiled, you can then say, "Let me see if I've got this right. What you're saying is . . ."

Demonstrate Attentiveness
By paraphrasing the speaker's words, you demonstrate in no uncertain terms that you are genuinely paying attention and making every effort to understand his or her thoughts or feelings. And the wonderful thing is, when you practice effective listening, other people will begin to find you fascinating. They will want to be around you. They will feel relaxed and happy in your presence.

Listening Builds Trust
The reason why listening is such a powerful tool in developing the art and skill of conversation is because listening builds trust. The more you listen to another person, the more he or she trusts you and believes in you.

Listening also builds self-esteem. When you listen attentively to another person, his or her self-esteem will naturally increase.

Listening Develops Discipline
Finally, listening builds self-discipline in the listener. Because your mind can process words at 500-600 words per minute, and we can only talk at about 150 words per minute, it takes a real effort to keep your attention focused on another person's words. If you do not practice self-discipline in conversation, your mind will wander in a hundred different directions. The more you work at paying close attention to what the other person is saying, the more self-disciplined you will become. In other words, by learning to listen well, you actually develop your own character and your own personality.

Action Exercises
Here are two things you can do immediately to put these ideas into action.

First, make a habit of pausing before replying in any conversation or discussion. You will be amazed at how powerful this technique really is.

Second, continually ask, "How do you mean?" in response to anything that is not perfectly clear. This gives you even more time to listen well.

Bill Gates' Speach: 11 things your kids did not learn and will not learn in school!

Radmila Khamzina (First World Mortgage) — Thu, 23 Sep 2010 11:45:42 -0700

Bill Gates' Speach: 11 Things your kids did not learn and will not learn in school!

Rule 1: Life is not fair - get used to it!

Rule 2: The world doesn't care about your self-esteem. The world will expect you to accomplish something BEFORE you feel good about yourself.

Rule 3: You will NOT make $60,000 a year right out of high school. You won't be a vice-president with a car phone until you earn both.

Rule 4: If you think your teacher is tough, wait till you get a boss.

Rule 5: Flipping burgers is not beneath your dignity. Your Grandparents had a different word for burger flipping: they called it opportunity.

Rule 6: If you mess up, it's not your parents' fault, so don't whine about your mistakes, learn from them.

Rule 7: Before you were born, your parents weren't as boring as they are now. They got that way from paying your bills, cleaning your clothes and listening to you talk about how cool you thought you were. So before you save the rain forest from the parasites of your parent's generation, try delousing the closet in your own room.

Rule 8: Your school may have done away with winners and losers, but life HAS NOT. In some schools, they have abolished failing grades and they'll give you as MANY TIMES as you want to get the right answer. This doesn't bear the slightest resemblance to ANYTHING in real life.

Rule 9: Life is not divided into semesters. You don't get summers off and very few employers are interested in helping you FIND YOURSELF. Do that on your own time.

Rule 10: Television is NOT real life. In real life people actually have to leave the coffee shop and go to jobs.

Rule 11: Be nice to nerds. Chances are you'll end up working for one

O.J. Simpson And the Demise of U.S. Prosperity

Radmila Khamzina (First World Mortgage) — Thu, 16 Sep 2010 16:47:10 -0700

O.J. Simpson And the Demise Of U.S. Prosperity

By James Dale Davidson

What do O.J. Simpson and the U.S. have in common? Both built up great wealth and fame... then squandered it all.

The big story of the next few decades will be the demise of U.S. prosperity. It's a story that many will refuse to believe, as the jury refused to credit the idea that O.J. Simpson had murdered Nicole. But assuming that the U.S. economy will give you a superior standard of living compared to the rest of the world can rob you of your wealth.

It's over... for many reasons.

In a sense, it has been over for a long time. The U.S. stopped earning its way decades ago.
The U.S. has been leveraging past glories for the past four decades. As Bill Clinton recently told an audience in New York, "There is a bigger problem here... too much of our growth was in finance ever since we went off the gold standard."

Precisely.

The move to fiat money directly led to greater wealth concentration. And it led to the end of real income growth.

It also eventually drove massive financial institutions to leverage their capital at a ratio of 100-to-1. This let them make whole-hog bets on subprime mortgages, guaranteed by the U.S. government.

That couldn't go on forever, and it didn't. Eventually, the subprime bubble burst. And trillions of dollars in explicit and implicit Federal guarantees, bailouts, and backstops were triggered.

This socialized the losses at your expense in two ways:

The banks and other insolvent financial institutions received a direct bailout worth some $700 billion.
Banks were borrowing Federal money for free, depositing it at the Fed/Treasury, and getting paid a wide interest margin (of some 3%-4%).

Yes, too much of what passed for prosperity was due to leverage. But the bigger problem, the one that affects you the most, is that most of what you have been promised and worked for - that great retirement you imagined - has been gambled and lost.

Most Americans won't be able to retire. You will have to work until you drop to pay interest on a national debt that exploded to bail out the big banks.

Who will receive that interest? Foreign governments that have lent real money to the Treasury. And, yes, the big banks themselves, of course, which were given Federal money for free to buy Treasury obligations that you have been indentured to pay.

The old feudal arrangements between the aristocracy and the serfs lacked the pure, breathtaking exploitation that has been packed into the fiat money system by "your elected representatives."

Put simply, due to chronic "deficit attention disorder," politicians assumed that the good credit of the U.S. was infinite. It isn't. But they have managed to see that its exhaustion was employed to bankrupt you rather than the big banks that gambled away your prosperity.

The "American Way of Life" is over, at least insofar as it can be realized in the U.S. Paul Krugman notwithstanding, the U.S. faces the greatest solvency crisis the world has ever seen.

The U.S. national debt plus the present value of unfunded Medicare, Social Security, and prescription drug benefits come to a sum in excess of $120 trillion. That is $50 trillion more than total world GDP, far more than the total wealth of the world.

I am going out on a limb to forecast that this debt will never be paid. It will be settled by repudiation. Either by outright default or by currency devaluation in an orgy of printing press money.

Attempting to pay it would be unpleasant, but not impossible if the U.S. could grow out of it. Based on the past, this is unlikely. A great part of U.S. wealth capitalizes income streams that were themselves dependent on more leverage. Since leverage is destined to drop for decades ahead, the result is that U.S. wealth will shrink drastically in the face of staggering liabilities.

In short, U.S. wealth is destined to decline as far as O. J. Simpson's reputation.

According to Rogoff and Reinhart in their comprehensive study of debt crises over the centuries, This Time is Different, housing price declines average roughly six years, while the downturn in equity prices averages about 3.4 years following a systemic banking crisis. On average, unemployment rises for almost 5 years.

We still have a long way to fall.

If we date the start of the "Great Contraction" to early 2008 with the collapse of Bear Stearns, it would be a big departure from the historic norm if the March 2009 stock market low marked a true bottom.

It would even be more remarkable for a sustained economic expansion to magically pick up where last year's huge dose of "stimulus" and bailout spending left off.

To the contrary, if this deleveraging crisis is no worse than normal, you should expect ...

A stock market low closer to mid-2011
A peak in unemployment near the end of 2012
And a bottom in housing perhaps by 2014

How will Americans shoulder the country's staggering national debt, along with more than $100 trillion in unfunded liabilities? They probably won't.

Five years ago, U.S. housing wealth totaled $21 trillion. Four years from now, at least $8 trillion of that value (40%) will disappear.

Since U.S. mortgage debt totals $15 trillion, that implies a more or less total wipeout of U.S. housing equity.

Look out below!

At that point, I would expect a further writedown in U.S. wealth by additional trillions as stock values drop to reflect much lower annual GDP growth.

What does all of this mean for you? The story of a "recovering market" that is parroted by the mainstream press is not real. The structural problems in the U.S. economy will take years to overcome. If, that is, they are solved at all.

And as time passes, the failure to address these issues will lead to more "debt crises" from indebted countries and companies all over the world.

The New Mental Diet

Radmila Khamzina (First World Mortgage) — Wed, 25 Aug 2010 11:27:17 -0700

The New Mental Diet
By: Brian Tracy

One of the most powerful personal programming activities you can engage in is positive self-talk. Be your own cheerleader and talk to yourself positively all of the time.

Think About Your Dreams
As it happens, the average person talks to himself in a negative way. As much as 94 percent of your inner dialogue tends to be about the things you fear, your worries, the people you're angry at, your problems, your concerns and so on. You have to consciously keep your words, your inner dialogue, consistent with what you wish to accomplish.

The Most Powerful Antidote
Psychologists have proven that the words, "I can do it," are the antidote to the fear of failure that often holds you back from trying. Repeat these words over and over to yourself whenever you feel fearful or doubtful about anything that you want to attempt. Say very enthusiastically to yourself, "I can do it, I can do it, I can do it!" When you start saying, "I can do it, I can do it," you drive that message deep into your subconscious mind. This message lowers your fears and builds your self-confidence.

Make A Million!
Another thing you can say to yourself is, "I make a million. I make a million." Impress that message into your subconscious mind. Whenever you think about your work, say over and over again, "I'm the best, I'm the best, I'm the best." Making any one of these three statements, or anything that is positive makes you feel good about yourself and causes you to be more motivated. You become more focused, more determined. Wealthy, successful people have a continuous inner dialogue that is positive and constructive and uplifting and consistent with their goals and objectives.

Feed Your Mind Continually
Feed your mind from morning to night with words, pictures, information and ideas consistent with your goals for financial success. Develop the habit of thinking positively and confidently about wealth accumulation. Read stories, books and articles about other successful people. Think about how you could be like them. Visualize yourself, imagine, fantasize, pretend in your mind that you are like the kind of people that you admire and respect and want to be like.

Select A Role Model
Psychologists have proven that role models are essential for magnetizing your mind with the qualities and characteristics that you wish to develop in yourself. Pick a person that you admire. Whenever you face any kind of difficult situation, ask yourself, how would this person act in this situation? What would this person do? How would this person behave? You'll find that when you think about how someone you admire might behave, your own thinking becomes better and you tend to act at your very best.

Become An Expert
Read everything you can find about your business. Become an expert in your field. The more you learn about your profession, your trade and your craft, the more confident you will become that you can do well in it.

Action Exercises
Here are two things you can do to put yourself on the new mental diet for financial success:

First, repeat to yourself, over and over again, the wonderful words "I can do it! I can do it! I can do it!" Whenever you are anticipating any new goal or opportunity. This affirmation builds your self-confidence and conditions you for success.

Second, monitor your mental diet the way you would your physical diet. Be sure that you feed yourself throughout the day with positive stories, words, pictures and conversations about the things you want to have in your life. Refuse to read, watch, listen to or discuss things that are negative or depressing. This will make a tremendous difference in how you feel and how you act.

The Propaganda Of Incompetents

Radmila Khamzina (First World Mortgage) — Mon, 09 Aug 2010 15:22:17 -0700

Posted by IBD editorial

Economy: As the "recovery summer" turns into a nightmare, one thing has become painfully clear: This is the most economically incompetent administration since the Great Depression.

Two years into the Obama era, when the U.S. should be enjoying a booming recovery from the 2007-08 meltdown, with millions of new jobs and higher incomes for all, all we see is economic wreckage from the unbelievably foolish policies pursued by the White House and the Democrat-controlled Congress.

Whether it's the $862 billion "stimulus" that turned into a welfare program for bankrupt states and public unions, or the $700 billion TARP program that became a giant dish of pork for Democrats and their supporters, or the job-killing duo of health care and financial reform, Obama, Pelosi, Reid et al. seem oblivious to the deep and lasting damage they're doing to America's economy.

Friday's frightening jobs report was only the latest in a series of releases indicating the "recovery" is faltering. Unemployment in July was unchanged at 9.5%, but a net 131,000 jobs were lost on top of 97,000 more than first accounted for in May and June.

"Recovery summer"? Time for another sobriquet.

The White House response? On Friday, after release of the jobs report, Labor Secretary Hilda Solis touted the economy's "turnaround" and credited "strong and immediate action" President Obama took after entering office. The only real problem, she hinted, was Republicans who refuse to support a $26 billion bailout for state and local governments and their pampered unions.

"There is no room for partisan roadblocks when Americans are depending on their government's action and the stakes are so high," Solis said. In this White House, economic recovery is always just one massive stimulus or bailout bill away.

Solis also repeated - with the stock market selling off 100 points as she spoke - the bogus claim made by the White House and uncritically parroted by its media pals that timely action "saved or created more than 2.5 million American jobs."

As we've said, this is utter nonsense. Completely made up. And, by the way, the official who made it up - Council of Economic Advisers chairwoman Christina Romer - quit on Friday to return to academia, her reputation for accuracy in tatters.

Here's the real record: America has lost 4.1 million jobs since Obama took office and 7.7 million since the recession began in December 2007. So most of the jobs lost have been under this administration. Whatever else you might call Obamanomics, "successful" isn't it.

Doing more arithmetic, since the start of 2010 we've averaged 93,000 new jobs a month. That's below the 120,000 we need just to soak up new job-market entrants. At this rate, it will take nearly seven years just to get back to 2007's number of jobs (see chart on Page 1).

Despite all this, Obama has resorted to blaming - who else? - President Bush for his own mistakes. And by name.

You'd never know that Democrats controlled Congress for Bush's last two years, or that policies they enacted during their many decades in power - in particular, using Fannie Mae and Freddie Mac to issue trillions of dollars of mortgages to unqualified borrowers - are the root cause of our crisis.

We've watched in amazement as the ruling Democrats continue to repeat their mistakes from the 1990s that caused our crisis, including leaving Fannie and Freddie untouched and raising spending by an incredible $17 trillion over the next 10 years.

Instead of slashing spending, as common sense and economic reality would dictate, some want to let Bush's 2001 and 2003 tax cuts expire. Those cuts were responsible for the economy's recovery from the triple whammy of the 1999-2000 stock market meltdown, the Y2K debacle and the 2001 recession.

At the same time, Americans will be hit with a blizzard of new regulations and higher taxes from this year's health-care and financial reform laws. That could sink the economy again.

The regulatory and tax siege has sent America's entrepreneurial, job and wealth-creating class reeling. The so-called progressive left now in charge of government has used class warfare to divide us - always blaming the "rich" (anyone who earns more than $200,000), entrepreneurs and businesses for not doing enough.

Virtually no one in Obama's cabinet has any experience of note in business or the private sector. As with most progressives, they believe bigger government is always the solution to our problems, which explains their egregious incompetence.

One example: White House spokesman David Axelrod and some in the media have questioned why businesses, which have a record $1.8 trillion in the bank, refuse to expand and hire new workers. The implication, of course, is that they're somehow subverting Obama and showing a lack of patriotism.

But the fact is, they're alarmed at the gross incompetence and sheer lack of economic understanding of this administration. With so much uncertainty hanging over the future, only a fool would commit huge sums of money to expand a business right now.

Don't believe it? Listen to what key U.S. business groups said Friday after July's disastrous jobs data were released.

"The current of employment is too slow to replace the more than 8 million jobs lost in the recession - not in the next year or two, perhaps even not in the next five years," said Bart van Ark, chief economist of the Conference Board.

"Policies that have increased taxes, increased regulation and increased uncertainty have clearly not been a prescription for returning America to work," said Martin Regalia, chief economist for the Chamber of Commerce. That about sums it up.

The light is going on over the heads of Obama's own advisers. In addition to Romer, who foolishly forecast in 2009 that unemployment wouldn't go above 8% if the $862 billion stimulus was passed, Budget Director Peter Orszag, his reputation damaged after gilding the data in Obama's budget for two years, also is leaving.

Sorry, but changing personnel won't help. Unless and until the policies change, the economy will only muddle along at best - and at worst, tumble back into recession.

Derivative Monster: Alive and Kicking Despite Reforms

Radmila Khamzina (First World Mortgage) — Fri, 09 Jul 2010 12:27:25 -0700

Derivative Monster:
Alive and Kicking Despite Reforms
by Martin D. Weiss, Ph.D.

Anyone who thinks the new financial reform law will save us from the next debt disaster must be dreaming. Here are the facts ...

Fact: The U.S. derivatives that helped cause the last debt crisis are merely being shifted around like deck chairs on the Titanic.

Fact: Nothing whatsoever is being done about the derivatives monster overseas, which is more than TWICE as big.

Fact: Most important, despite months of debate and thousands of pages of legislation, the two biggest risk-mongers of all - the Treasury and the Fed - didn't even get a slap on the wrist. They got more power.

Little has been done to address the huge derivatives risks that the Government Accountability Office (GAO) warned about 16 years ago in its landmark study, Financial Derivatives, Actions Needed to Protect the Financial System.

And nothing has been done to address the risks we warned Congress about 15 months ago in our white paper, "Dangerous Unintended Consequences."

Need proof? Then read on ...

Fact #1
Derivatives at U.S. Banks to Be Shifted
Like Deck Chairs on the Titanic

In its latest update, the Comptroller of the Currency (OCC) reports that the national value of derivatives held by U.S. commercial banks is $216.5 trillion, or nearly FIFTEEN times the nation's Gross Domestic Product.

Moreover, instead of diminishing, they're getting larger, up by $3.6 trillion - the equivalent of one full quarter of GDP - in just the most recent three-month period.

Yes, regulatory reform takes some steps in the right direction, such as getting a piece of this monster off the street and under the roof of exchanges. But how far is that going to go toward protecting investors if the beast keeps growing bigger?

Despite the new reforms, derivatives will continue to grow in size. And they will continue to be highly leveraged investments that put financial institutions, their trading partners, individual investors, and the entire financial system at risk.

Congress knows - or should know - what these risks are; the GAO explicitly warned about them 16 years ago, long before the 2008 debt crisis began. Derivatives create massive exposure to:

(a) credit risk, defined as "the possibility of loss resulting from a counter party's failure to meet its financial obligations";

(b) market risk, "adverse movements in the price of a financial asset or commodity";

(c) legal risk, "an action by a court or by a regulatory or legislative body that could invalidate a financial contract";

(d) operations risk, "inadequate controls, deficient procedures, human error, system failure, or fraud"; and

(e) system risk, a chain reaction of financial failures that could threaten the national or global banking system.

Are these risks addressed in financial reform? Only marginally.

Moreover, the GAO warned that a handful of big players accounted for the overwhelming bulk of the derivatives trading - a dangerous concentration of risk.

Has this risk diminished since then? No, it is even more deeply entrenched today: The latest OCC tally of the largest 25 banks (Table 1, pdf page 23) shows that ...

Just FOUR of the largest commercial banks - JPMorgan Chase, Bank of America, Citibank, and Goldman Sachs - control $205.3 trillion in derivatives, or 94.9 percent of the total held by all U.S. banks.
Only 25 of the top banks control $216.1 trillion in derivatives, or 99.82 percent of the total. In other words, for every $100 of derivatives, the big banks hold $99.82; while all the rest of the banks hold a meager 18 cents' worth.

Does the new regulatory reform address this intense concentration of risk? Hardly. In fact, I fear it could have precisely the opposite effect, tacitly giving the government's rubber stamp of approval to this dangerous oligopoly.

Fact #2
The Derivatives Monster Overseas Is Twice as Big.
But Nothing Whatsoever Is Being Done to Tame It.

The Bank of International Settlements (BIS) reports that, at year-end 2009, the total notional amount of derivatives traded on the over-the-counter market globally was $614.7 trillion.

In addition, the total traded on organized exchanges was $21.7 trillion in futures contracts and another $51.4 trillion in options.

Grand total globally: $687.8 trillion.

Problem: At this juncture, strictly the portion held by U.S. banks (the $216.5 trillion tabulated by the OCC) has anything to do with the new legislation. The balance of $471.3 trillion - TWICE as much - remains outside the realm of any reforms.

Fact #3
Financial Reform Does Nothing to Curb
The Two Biggest Risk-Mongers of All:
The Treasury and the Fed

The financial reform bill grants both the U.S. Treasury Department and the Federal Reserve new powers and responsibilities to control and monitor the risk-taking of large financial institutions.

What's ironic, however, is that these are precisely the agencies that have created - and continue to create - the greatest systemic risks of all:

The Treasury, by running the largest federal deficits of all time, exposes the U.S. bond market to the same kind of contagion risk that recently struck Greece, Spain, Portugal, and Hungary. And ...
The Federal Reserve, by massively increasing the U.S. monetary base, helps create the same kind of speculative bubbles that caused the debt crisis in the first place.

Clearly, Congress has done little more than tinker - fighting the last war, even as it sits on the powder keg of the next one.

My recommendation: Stay safe. And if you have speculative fund available, start now to stake out positions that stand to profit from the consequences of our government's failure to act decisively - higher interest rates and lower equity prices.

Good luck and God bless!

Martin

More "Stress Test" Hokum, this Time in Europe

Radmila Khamzina (First World Mortgage) — Fri, 09 Jul 2010 11:46:39 -0700

More "Stress Test" Hokum, this Time in Europe
by Mike Larson

Of all the questionable bailout and backstop programs the government rolled out in the wake of the credit crisis, the whole "stress test" episode for the banks stands out the most.

The idea was that the Fed and Treasury would evaluate whether 19 major U.S. banks could survive a recession without a catastrophic erosion of their capital.

The problem: The tests were never stressful enough!

One of the main reasons the whole exercise "worked" - and if by worked you mean it successfully propped up bank stocks - was that the government made clear that any at-risk institution would essentially get bailed out anyway. True "failure" was not an option.

Oh, and at the same time ...

The Fed was pumping hundreds of billions of dollars into the markets by buying mortgage and Treasury securities with newly created cash,
The government was offering tax credits to first-time home buyers to artificially boost the housing market,
And the Obama administration and Congress were showering the economy with almost $800 billion in stimulus funds.

Result: The 10-of-19 banks deemed to be needy had no trouble raising the required $74.6 billion in capital.

Europe's banking supervisor is conducting stress tests to determine how individual banks would hold up to economic and market shocks.

Hoping to achieve the same results, Europe is now conducting its own stress test exercise. The Committee of European Banking Supervisors (CEBS) is evaluating 91 banks that represent roughly two-thirds of the European Union's banking industry. The results will be released by July 23.

I don't think I'm going out on a limb here by saying that just about all the institutions will pass with flying colors. Sure, there'll probably be a few sacrificial lambs. But all in all, the banks will get rubber-stamped.

There's just one twist: I don't think the results will be anything like what we got here in the U.S., and I'll tell you why ...

This Time,
It's Different!

Those are dangerous words to use in the investing world. But they ring true now.

For one thing, we're not coming OUT of a recession like we were at the time of the previous stress tests. Instead, it looks like we're sliding IN to a "Double Dip" one! That means credit loss rates aren't peaking. They're about to start rising again.

For another thing, the credit crisis has morphed. We were worried about PRIVATE credit risk sinking the banks last time around. This time around, we're concerned about something much more serious - SOVEREIGN debt defaults!

In other words, it's not individual mortgage or credit card borrowers that are sliding towards default. It's actual European countries! That's a much bigger problem.

Still another difference ...

At the time of the U.S. stress test exercise, governments could borrow and spend all they wanted to in order to bail out failing institutions. Now the bond vigilantes are putting their feet down. They're forcing countries like Greece, Spain, Portugal, and the U.K. to stop throwing money at struggling institutions.

Last but not least, the European stress test assumptions look way too optimistic. That means the markets will likely disregard any rosy results.

Case in point: The CEBS is reportedly going to apply a haircut of just 17 percent on Greek sovereign debt when computing potential bank losses.

By contrast, credit markets were recently suggesting losses on Greek debt could be as high as 60 percent. And a JPMorgan analyst implied that anything less than 25 percent would be unrealistic.

Spanish bonds reportedly will get a paltry 3 percent haircut, compared with a more realistic 15 percent.

And no haircut at all will be applied to bonds issued by the largest European economies, like Germany and France. This despite the fact those countries are putting their own balance sheets at risk in order to bail out their profligate PIIGS neighbors!

Believe in Fairy Tales
At Your Own Risk

Washington was able to hoodwink investors, now Europe will try the same shenanigans.

Look, if some investors want to trust the happy talk coming out of European banking regulators and Washington spinmeisters, I can't stop them. But I sure don't buy it. I think this is a clear case of "Fool me once, shame on you. Fool me twice, shame on me!"

Bottom line: I find it extremely hard to believe that a bogus European stress test exercise will have the same impact the U.S. stress test exercise had more than a year ago.

So rather than load up the truck with bank stocks in anticipation of another major rally, I'd cut my exposure into any bounce. And I'd continue to batten down the hatches against the increasingly likely scenario of a double-dip recession.

Until next time,

Mike

Dealing With Overwhelm

Radmila Khamzina (First World Mortgage) — Wed, 07 Jul 2010 14:07:39 -0700

Dealing With Overwhelm
By: Brian Tracy

Too Much to Do, Too Little Time
The most common form of stress that managers experience is the feeling of being overwhelmed with far too much to do and having too little time to do it in. In fact, "time poverty" is the biggest single problem facing most managers in America today. We simply do not have enough time to fulfill all our responsibilities. Because of budget limitations, staff cutbacks, downsizing, and competitive pressures, individual managers are forced to take on more and more work, all of which appears to be indispensable to the smooth functioning of our company or department.

Become An Expert
The solution to this problem of work overload is for you to become an expert on time management. There is probably no other skill that you can learn that will give you a "bigger bang for the buck" than to become extremely knowledgeable and experienced in using time management practices.

Be Open to New Ideas
The most foolish manager of all is either the manager who feels that he has no time to learn about time management or, even worse, the manager who, while being overwhelmed with work, feels that he already knows all that he needs to know about the subject.

Never Stop Learning
The fact is that you can study time management and take time management courses for your entire business life and you will still never learn everything you need to know to get the most out of yourself while doing your job in the most efficient way.

The Keys to Time Management
The two indispensable keys to time management are: 1) the ability to set priorities; and 2) the ability to concentrate single-mindedly on one thing at a time.

Since there is never enough time to do everything that needs to be done, you must be continually setting priorities on your activities. Perhaps the very best question that you can memorize and repeat, over and over, is, "what is the most valuable use of my time right now?"

The Best Question of All
This question, "what is the most valuable use of my time right now?" will do more to keep you on track, hour by hour, than any other single question in the list of time management strategies.

Start With Your Top Tasks
The natural tendency for all of us is to major in minors and to give in to the temptation to clear up small things first. After all, small things are easier and they are often more fun than the big, important things that represent the most valuable use of your time.

However, the self-discipline of organizing your work and focusing on your highest value tasks is the starting point of getting your time under control and lowering your stress levels.

Action Exercises
Here are two things you can do immediately to get your time under control.

First, make a decision today to become an expert on time management. Read the books, listen to the audio programs, and take a time management course. Then, practice, practice, practice every day until you master time management skills.

Second, set clear priorities on your work each day, before you begin. Then, discipline yourself to start on your most important task and stay at that until it is complete. This will relieve much of your stress immediately.

State Pension Woes Only Worsening

Radmila Khamzina (First World Mortgage) — Tue, 06 Jul 2010 09:08:06 -0700

State Pension Woes Only Worsening ...
by Nilus Mattive

I know some investors right now who are making major mistakes when it comes to retirement planning ...

First, they have been consistently underestimating how much money they'll need down the line. In essence they are pretending that inflation doesn't exist ...

Second, despite the major losses they actually experienced in their portfolios, they are acting as if those losses haven't completely happened yet. Instead, they are basically just figuring that things will turn around if they wait long enough ...

And interestingly enough, when these same investors were winning big a few years ago, they put off contributing more of their current earnings into their accounts ... essentially letting their profits carry the day, or even borrowing money from their accounts!

Even today, with their balances way off what they should be, they are failing to contribute to their accounts. Some are even playing "shell games," by moving money around to make it look like they're in better shape than they really are.

All the while, they're creeping ever closer to their final day of reckoning.

The scariest part: I'm not talking about careless individual investors, but rather the politicians and trustees running state pension plans ... the collective retirements for hundreds of thousands of Americans!

State Pension Plans: Where Promises Meet Poor Planning

Solid retirement benefits have always been one of the big draws of getting a state government job.

After all, while state employees sometimes earn less than what they would receive in comparable private sector positions, they have continued to get guaranteed future retirement income even as major corporations have done away with their defined benefit pension plans.

But now, even state retirement funds are imploding, and promises are likely to get bent if not completely broken.

Consider Illinois. Joshua D. Rauh, a professor at Northwestern who analyzes pension funds, says the state's plan could run out of money by 2018 ... just eight years from now!

Oh, sure, the state is taking action: It recently raised the retirement age for workers to 67 and instituted a cap on the amount of a person's salary that can be used to calculate benefits.

Illinois is already patting itself on the back, claiming that the cuts will save about $300 million in the first year alone.

However, the legislation only applies to newly hired workers. Everyone else - existing employees and retirees - are unaffected. So it could be decades before that change has any impact at all!

As a recent New York Times article pointed out:

"Despite its pension reform, Illinois is still in deep trouble. That vaunted $300 million in immediate savings? The state produced it by giving itself credit now for the much smaller checks it will send retirees many years in the future - people who must first be hired and then, for full benefits, work until age 67.

"By recognizing those far-off savings right away, Illinois is letting itself put less money into its pension fund now, starting with $300 million this year.

"That saves the state money, but it also weakens the pension fund, actually a family of funds, raising the risk of a collapse long before the real savings start to materialize."

And this is just one example of states deluding themselves into believing they're making progress because making real progress is either politically painful or legally impossible.

New Jersey is the perfect example. Professor Rauh estimates the state's plan will go broke in 2019 - assuming it earns an 8 percent annual return going forward. And if it earns less, the plan may have just five years of solvency left.

Meanwhile, the state has only managed to reduce benefits for its future hires so far!

But how did it get to this point for so many states? Why are their plans so shaky in the first place?

Again, it boils down to sheer incompetence and a failure to balance reality with political jockeying. In other words, the very same thing that has bedeviled Social Security from day one!

New Jersey was underfunding its plan back in the 1990s ... and instead of getting back in the saddle, the state decided to borrow money from elsewhere to make the plan look like it was solid. Their ultimate hope was that they would earn outsized gains on the borrowed money and all would be well.

Then, since things did go pretty well throughout the rest of the decade, they decided to INCREASE promised benefits in 2001!

I repeat: They did not plan for a rainy day. They did not pay off the loans. Like good politicians, they just kept spending money they didn't have and kicked the can farther down the line.

And has anyone learned anything yet? Apparently not ...

New York State has been looking to emulate New Jersey's model by borrowing money from its plan.

The New York Times explained it this way:

"Under the plan, the state and municipalities would borrow the money to reduce their pension contributions for the next three years, in exchange for higher payments over the following decade. They would begin repaying what they borrowed, with interest, in 2013.

"But [Governor] Paterson and other state officials hope the stock market will have rebounded to such a degree by that time that the state's overall pension contribution burden will have been reduced.

"Another oddity of the plan is that the pension fund, which assumes its assets will earn 8 percent a year, would accept interest payments from the state that would probably be 4.5 percent to 5.5 percent."

File this one under "recipe for disaster," as far as I'm concerned.

And it's the same basic story from California to Pennsylvania, where my Dad currently has a state pension - governments are trying to rectify their promises with their poor planning ... and failing miserably.

Gov. Schwarzenegger just "terminated" some state worker benefits in California ... but he's still got a long way to go.

What will the final outcome be?

In many cases, already-retired workers may continue to receive the benefits they were promised, though future inflation adjustments could get canned. Existing workers will likely see some reductions in their promised benefits. And new state employees? Well, they're going to end up on their own with 401(k)s like the rest of us.

And as far as I'm concerned, all that falls under "best case scenarios."

If the state budgets don't improve quickly - state taxpayers may be on the hook for promised benefits via tax hikes and/or reduced governmental services.

Ultimately, Washington may also find itself stuck with some rather large bailout requests.

Of course then we get back to the same old question: How is Washington going to bail anyone out when they can't even balance their own budget and fund the retirement benefits that THEY promised?

I'll Say It Again: Do NOT Count on Any
Government to Pay for Your Retirement!

In a perfect world, everyone would follow through on their promises. Lawmakers would run things with reason and restraint. They wouldn't write checks their butts couldn't cash.

But as the latest news from states around the U.S. demonstrates ... we do not live in a perfect world. So you must have a backup plan of your own in place if you want to enjoy your retirement.

Three Key Markets Pointing to More Economic Pain Ahead!

Radmila Khamzina (First World Mortgage) — Mon, 05 Jul 2010 11:11:13 -0700

Three Key Markets Pointing to
More Economic Pain Ahead
by Bryan Rich

In the past two weeks, we've seen China de-peg its currency from the dollar, the UK roll out historical fiscal austerity measures and Japan release details on a plan to tackle its massive debt load.

The knee-jerk market reaction to these events was positive ... i.e. interpreted as a positive influence on economic growth and a bullish cue for risk appetite.

In fact, for a few weeks in June the markets embraced all suggestions of fiscal consolidation after:

Greece agreed to an aggressive austerity plan.
The rest of Europe followed vowing to slash budget deficits.
The UK announced its most severe tax hikes and spending cuts since the 1970s.
Japan followed with a plan to balance its books and cut debt.

However, make no mistake about it, all that austerity is not coming by choice but rather by market forces. When Greek bond yields skyrocketed to more than 19 percent in May, countries with bloated debt and deficits were put on notice:

"Get your fiscal houses in order, or you will be shut out of the public bond markets."

All the while U.S. stocks, perhaps the best proxy of expectations for global economic health, screamed higher, gaining nearly 10 percent in 10 days.

Then, the big piece of the puzzle the world had been waiting for: China. China announced that it would end its 2-year peg to the dollar and adopt a new exchange rate policy for its yuan - in other words, a yuan revaluation.

All Good Things for the Global Economy, Right?
Well, Not Exactly ...

China moved off of the dollar peg to a trading band based on a basket of currencies. While many think this was a concession from China to strengthen its currency against the dollar, I see it differently ...

Perhaps China's policy change indicates a concern for the global economy. And thus, it was a move to diversify China's exchange rate risk. As an export-oriented economy, what is China's exchange risk? Obviously, it's a stronger yuan.

As I've said in past Money and Market columns, historically, financial crises tend to breed sovereign debt crises. And sovereign debt crises tend to lead to currency crises.

If China foresees the possibility of a growing sovereign debt crisis, global currency devaluations and perhaps even a break-up of the euro, it doesn't want its currency pegged to the dollar ... a currency that will likely continue to strengthen as the world's safe haven currency.

China is an ardent defender of its export market. And a continued decline in the euro and potential fall of the currencies of its other trade partners makes China's exports less affordable - when pegged to a strengthening U.S. dollar.

The following three key markets are good proxies for what we might see coming for global economic performance and risk appetite. Take a look at what they are projecting:

Proxy #1-
Key Reversal Signal in Stocks

After retracing nearly 10 percent from its June low, the S&P 500 topped out on the day China announced its new currency policy. That marked a bearish outside day (circled in red in the chart below), a key technical reversal indicator.

Now the stock market has formed a head and shoulders pattern that suggests a move down to 860 ... 24 percent lower than the peak level seen just two weeks ago.

Proxy #2-
Ten Year Yields Below 3 Percent

While many market followers have been forecasting higher interest rates, the ten-year Treasury market is responding with the exact opposite.

As risks of sovereign debt problems rise and the probability of a double-dip recession for the world increases, global investors are continuing to pile into the U.S. Treasury market for safe haven. And that's driven 10-year yields back below 3 percent.

Proxy #3-
Commodities Breaking Down

Lastly, there's a famous historical study on sovereign debt crises by Harvard professor Kenneth Rogoff and University of Maryland professor Carmen Reinhart that suggests sovereign defaults are typically triggered by a collapse in commodity prices.

So what are commodities telling us?

Well, for one thing, the second quarter has been the worst quarter in more than a year for commodities. The total return index of 24 raw materials plunged 10 percent since the end of March.

If the following chart of crude oil is any indication, commodities could be headed much lower.

This week the price of crude oil broke through trendline support. Moreover, the technical pattern suggests crude could fall to the mid-50s, at minimum.

To sum it up, the key barometers of stocks, interest rates and commodities are all pointing to lower levels. And from a big-picture standpoint, the combination of these signals should concern anyone who is not prepared to weather another economic and financial market storm.