Bank Failures Will Continue As The Economy Improves

The chart above shows the American S&L failures over 15 years. This puts into historical perspective our current financial crisis. The common denominator? If you guessed real-estate speculation...you're correct. Ageing has few benefits and you often find yourself in a state of deja vu.

Three more U.S. banks failed on Friday, bringing the total to 84 so far this year, as the industry continues to grapple with deteriorating loans on their books.

112 Banks have failed over the last three years

FDIC Chairman Sheila Bair said this week that bank failures will remain elevated as banks go through the painful process of recognizing loan losses and cleaning up balance sheets. The total of 84 failures this year marks a sharp rise over the 25 last year, and the three failures in all of 2007.

She noted that the banking industry's performance is a lagging indicator and will continue to suffer even as the economy begins to improve.

2,935 small Savings & Loans institutions failed between 1979-94, setting the stage for the rise of big national banks

The U.S. is no stranger to prolonged periods of bank failures, the Great Depression resulted in many more failures. America experienced the loss of the Savings and Loan industry between 1987-91. More than 2,300 financial institutions went under peaking with the failure of 534 banks in 1989. This became know as the S&L debacle or S&L crisis.

Now those perdicting impending doom, that everyone wants to hear in a crisis, point out how the prime loan and commercial real-estate crisis is just picking up loss momentum this year. Well, they are correct. Lenny Dykstra could be the poster child for both problems. Read the Lenny Dykstra Bubble Signal.

But this comes as no suprise to students of past real-estate cycles. At the dusk of day you can count on it getting darker outside. And just as dusk leds to the darkness of night...night leds to day. To us old-timers this is deja vu all over again. Like the stock market the roaing 20's witness a great real-estate boom. We saw it again after WWII from the 50's to the 70's and again from the early 90's throught 2006.

Now a harder forecast to make is estimating the impact of this crisis on the stock market. That will need to be the subject of another Article. Still, one doesn't need to be a financial wizard to recall that one of the greatest 20 year booms in the market began during the 80's financial crisis.

While the size of assets is greater, the cost to FDIC will be less

So, how does this crisis compare to the S&L failures. It's too early to compare total failures as history teaches more are coming. In terms of assets, bank failures for 2008 totaled approximately $370 billion. This compares to approximately $164 billion in 1989, which was the worst year for the savings & loan debacle. If we adjusted that total for inflation, it would be roughly $300 billion today. So, 2008 is the worst in terms of assets for bank failures compared to the worst single year of the S&L crisis.

However, during the S&L crisis, bank failures hit nearly $150 billion or more per year for three years running. Total assets of failed institutions back then was $519 billion. If we adjust for inflation, we get a total in today’s dollars of over $800 billion. But, based upon the current 2009 trends and 2010 estimates this crisis would clearly be much worse than the S&L crisis.

The S&L Crisis cost FDIC $125 billion

While totaling up the assets of the failed banks is interesting, a more important point for taxpayers is what is the likely cost to the FDIC of taking over these banks? An FDIC report cited $124 billion as the cost to taxpayers for the S&L debacle. This includes costs to the Federal Savings and Loan Insurance Corporation (FSLIC) and the Resolution Trust Corporation (RTC).

The FDIC estimates this crisis will cost $70 billion

The FDIC estimate for the cost of taking over these banks is not $370 billion. The lastest estimate (Aug. 28th 2009) for the cost (projected through 2013) to the FDIC for these failures is $70 billion. That’s a lot of money, but still modest given the level of assets at the failed institutions. Still, given the FDIC has already doubled the size of forecasted losses in just 9 months it may be wise to assume 12 months from now the estimates could be even higher.

Even if we assume the FDIC is off by 50%, then the total cost will be $105 billion. That’s still a long way from $124 billion for the over 2.395 S&Ls that failed over 15years. And after adjusting for inflation the cost is far less catastrophic then the S&L debacle.

So, as little Orphan Annie sang in the hit movie musical during the 80's recession,"The Sun is Going To Come Out Tommorrow."

Failed Bank List

FDIC May Need Help

The Official FDIC Statement

New Home Sales Hit Historic Bottom

The chart above shows the trendline of American new home sales back to the 1960's. The blue lines represent recessions and durations.

Declining new home sales markets tend to bottom in January. And this seemingly endless 5-year continuous decline ended this January 2009 at new historic lows. This bust surpassed every other American reale-state decline since the 1960's.

The magnitude of this decline is amplified by the fact the number of households in 2009 is around 112 million...more than double the 53 million during the 1960's.

Below are two real-estate news reports from the 1st quarter. Combine this depressing news with relentless negative news about Banks, stress-test...and it's no wonder we were a depressed Nation preparing for a Great Depression.

"New homes made another new record low, with sales down 10.2 percent to 309,000 units. Despite this reading, inventories relative to sales actually made a new high. The months' supply of unsold homes rose from 12.2 to 13.3, a new record high. This means that home prices will remain under downward pressure."

TERRIN GRIFFITHS, ECONOMIST, CALIFORNIA CREDIT UNION LEAGUE, RANCHO CUCAMONGA, CALIFORNIA:

"The drop in new home sales is not unexpected. Home buyers are remaining cautious as the current economic storm takes its toll on jobs and confidence and thus, home buying. Those forces against buying will remain strong so while there might be a slight boost ahead due to tax incentives, realistically things are going to remain weak for some time."

LAWRENCE J. WHITE, PROFESSOR OF ECONOMICS, NEW YORK UNIVERSITY'S STERN SCHOOL OF BUSINESS:

"This is of course yet another indicator that the housing market is in shambles and we are not out of the woods yet. There is a glut of supply on the market and more people want to sell than buy and that is driving prices down generally. A lot of people are seeing bargains, but are not ready to buy. Rates have fallen, but home prices continue to fall. People think they will fall more, so they are staying on the sidelines."

"Eventually we will get to a bottom and these people will kick themselves that they did not buy. At the very least, new home sales should continue to fall for the next few months."

Now with the benefit of hindsight and a chart we can see this was the bottom of a long and painful 5-year decline.

New home sales are now up over 30% from their lows, in yet another sign that the economy is improving. This, in combination with the more than doubling in the price of major homebuilders stocks from last year's low, constitutes strong evidence that we have seen the bottom in the housing market. All this activity also suggests that the combination of sharply lower prices and relatively low mortgage rates has created the conditions necessary to clear the housing market. Market forces are fixing the housing problem.

While the bottom in new home sales appears in more price declines are to be expected. And commerical real-estate trends tend to lag 1 to 2 years behind individual homes. Expect to hear more negative news in that sector.

Should you buy a major home builder stock now? By the looks of their stock prices you're already to late. Consider buying after the $8,000 first-time home buyer sugar high wears off or on any major market pull back. Still,the quality names were the first to rise. You might consider looking at two dogs (laggers) with fleas BZH and HOV.

Nationwide Home Sales and Prices Rise

First the Good News

More green shoots. Sales of new homes surged 9.6% in July. This is the fourth-straight monthly increase. Home prices in major U.S. cities rose for the second straight month in June in the latest sign the housing market may be steadying after years of declines.

The S&P/Case-Shiller index for home prices in 20 major cities in the three months ended June 30th was up 1.4% from its level in the three months ended May 31st. It was the first time the index rose two months in a row since mid-2006. Prices gained in 18 of 20 markets, but were still down 31% from their July 2006 peak.

The additional good news for home builders and sellers buried deep in the news is the fact that there were 271,000 new homes for sale at the end of July, down more than 3 percent from May. At the current sales pace, that represents 7.5 months of supply — the lowest since April 2007. The decline means builders have scaled back construction to the point where supply and demand are coming into balance

"Momentum matters," said Robert Shiller, the Yale University economist who helped create the index. "This is a sudden break in momentum." Robert also said "The really important things [affecting home prices] are unemployment and momentum.” I agree. I've been through three real-estate booms and bust in my lifetime. And any person with experience will tell you the three biggest variables impacting home-buying is Jobs, demographics and interest rates.

Now the Not So Bad News

So, is housing heading for a new boom? No, at least not anytime soon. Recent home-price gains have been driven, largely, by competition between first-time buyers and investors offering to pay cash for distressed properties. Demand also has been boosted by government intervention that helped drive mortgage rates to half-century lows in the spring and a tax credit of up to $8,000 for first-time home buyers. So, my forecast along with other "experts" is this momentum is not sustainable until employers start hiring again.

Now if you have been considering buying your first home and you are one of the 90% employed...my advice is...you need to act by November month-end to get the $8,000 cash. Read my "First-Time Buyers Get Gifts" article.

Forget about thinking prices will now rise back to those 2006 levels, anytime soon. Remember the July 2006 prices were a bubble fueled by easy money, little money down, no-document loans, aggressive sales practices, and extra high appraisals. In a poor economy, with low new job creation, I would expect more price declines in those areas which had the largest increases.

Unlike stocks real-estate is impacted by local market economic conditions. So let us know how the real-estate conditions are in your area by making a post.

More Green Shoots & New Market Highs

For the fourth straight month the leading economic indicators are pointing up. Now two regional manufacturing surveys show manufacturing activity is rising. And July home sales surged for the second consecutive month. All this positive news pushed the market to new highs last Friday August 21st, preventing the much expect market correction, for now.

Five More Positive Economic Indicators Denied Perm-Bears Satisfaction.

Since the March 9th market bottom, we have been witness to the greatest American stock market advance since the 1930's. Those brave investors who dared jump into the eye of the hurricane or stayed the course are to be congradulated for having faith in the long-run. But this is no time to party-hardy or dump a ton of new money into a market that has soared 52% in just 165 days. This is a time of thanksgiving and reflection. Now is also the time to question how likely is this good news to continue without some bad news and market pull-backs.

1. The Conference Board said its index of leading economic indicators rose for a fourth straight month in July. The index, intended to forecast economic activity over the next three to six months, suggests the recession has bottomed and the economy will soon start growing again. Six of the 10 indicators that make up the index rose in July.

2. A survey of manufacturers in the mid-Atlantic region on Thursday showed that factory activity rose in August for the first time in nearly a year. The report by the Federal Reserve Bank in Philadelphia followed a similar survey reported Monday by the New York Fed that also found an increase in manufacturing activity after months of negative results. The rise in both surveys indicates manufacturing is growing even in areas without significant auto-related production, economists said. The auto industry has enjoyed a big boost from the government's Cash for Clunkers programs.

3. July had the fewest job losses in almost a year. The government said companies cut 247,000 jobs in July, a large amount but still the smallest loss since last year. Yes, this is one of those less worse is good news. One can see the inverse correlation of declining new unemployment claims which peaked in February and have been falling for five months. Bears point out the last two weeks have seen claims rise.

4. The official unemployment rate drop unexpectedly to 9.4% in July its first drop in 15 months. Yes, many private economists and the Federal Reserve still think rates could top 10 percent by next year. Yet, this was a positive surprise as an increase was expected. And as any Economist will tell you unemployment rates are a lagging indicator.

5. Home sales in the Midwest surged 8.5 percent in July, the second straight annual increase, as new home buyers snapped up properties to take advantage of a temporary federal tax credit. Nationally, home resales rose 5.6 percent in July, the first annual increase since November 2005. Affordability is driving sales -- the median sale price fell 15 percent to $178,400.

"Looks like the recession ended in June," Tim Quinlan, economic analyst for Wells Fargo Securities, wrote in a research note. The National Bureau of Economic Research, which officially declares the start and end of economic cycles, has in the past set an end-date to recessions after two to three straight months of gains in the leading indicators, Quinlan said.

Now For The Bad News

The Mortgage Bankers Association, said more than 13 percent of American homeowners with a mortgage are either behind on their loan payments or in foreclosure — a record tally as the recession leaves more people unemployed. About a third of new foreclosures between April and June were prime fixed-rate loans, up from one in five a year earlier.

Markets are always forward looking. And it's ditto for this market too. Yet, this doesn't mean the market has ESP to foresee the 2010 economy. No, it just means it expects to see an improved second half of 2009. Remember the 2001 brief recession? It was declared officially started in March and ended around November 2001. The market after a climatic September sell-off after 9/11 turned and climbed into March 2002. The Market then tumbled all year long reaching new lows in anticipation of a disappointing weak recovery.

One of the real big economic worries is the need to create new jobs (not just maintain jobs). Scott A. Heintzelman, CPA, CMA, CFE a Partner with McKonly & Asbury, LLP has dug deep into the Bureau of Labor Statistics report to uncover their measure of labor underutilization a.k.a. Real Unemployment. The Real Unemployment Rate is 16.8%.

Market Results: The Biggest Advance Since The 30's - Thank you, I'm leaving the party early.

This has been the strongest market advance since the 1930's. The perm-bears have missed the greatest six month advance in their lifetime. Still, it's hard to image another 10% advance without more than a 5% pull back. But it's possible. In August 1981 the market rose for 12 straight months with only a few 5% pull-backs.

I'm thankfull for the last 1,000 point gift driven by so many green shoots. But I'm cashing in most of my general market chips (S&P Index Funds) before the party ends and the market disappointments arrive. I'll be happy to jump back onto the bandwagon after a pull-back.

What Would Jesse Livermore Do In This Market?

Would Jesse Livermore Sell, Buy or Fold?
If you are a market trader you've know nothing goes straight up or straight down for six months. So rather then debate if the market is moving in a rational or irrational direction based upon economic indicators let's just get down to protecting our assets.

I wonder what Jesse Livermore would do? Stay the course in what's been working? Short the market? Rotate out of the cyclical stocks that got us to the party into the health care stocks that missed the party? Cash in your chips and avoid the notorious months of September and October?

The Traders Motto
The legendary early 20th century stock trader Jesse Livermore said, "They say there are two sides to everything. But there is only one side to the stock market; and it is not the Bull side or the Bear side, but the right side"

Jesse Livermore started his trading career at the age of fifteen. He ran away from home with his mother's blessing to escape a life of farming his father wished him to have. He then began his career by posting stock quotes at the Paine Webber brokerage in Boston. He went from these humble beginnings to owning a series of mansions around the world, each fully staffed with servants, a fleet of limousines, and a steel-hulled yacht for trips to Europe. He married his second wife Dorothy, a beautiful Ziegfeld Follies showgirl when he was about 40 years old. So, Jesse Livermore's rise to riches and persona matched the roaring 1920's.

Was It Skill, Luck Or Manipulation?
The legendary trader status of Mr. Livermore leaves new hopefuls with the notion Jesse became rich, famous and lived happily-ever-after. The critics claim that prior to the new regulations of the 30's and in the days when news took time to travel, it was easy for stock manipulators and traders to make fast money.

The facts show, during his lifetime, Livermore gained and lost several multi-million dollar fortunes. Most notably, he was worth $3 million and $100 million after the 1907 and 1929 market crashes, respectively. He subsequently lost both fortunes and in 1940 committed suicide while married to his third wife. I found it interesting that his third wife had been married four prior times and all four husband committee suicide. I find no discussion of an investigation also interesting. Tragically his son and grandson also committed suicide.

So, much for living happily-ever-after Walt Disney style.

The Right Side Is The Only Side
Yes, knowing Jesse Livermore's whole life story gives new meaning to his famous quote, "...there is only one side to the market; and it's not the Bull side or the Bear side, but the right side".

Let, me know what Jesse Livermore would do now.

Details On Jesse Livermore Trading Advice

Modern Portfolio Theory MPT Fans

The Great Depression & Stock Market Facts

5 Reasons Bulls and Bears Disagree

Can the S&P 500 make it back to Pre-Lehman Brothers bankruptcy levels before a major correction?

The last September 14 S&P levels of around 1,200 is where the bulls now argue is the market's fair value. That target is of particular interest and importance to bulls who note that was the level prior to the Lehman Brothers failure, which was the brick that broke the market's porcelain camel's back.

Lehman Brothers filed for Chapter 11 bankruptcy protection on September 15, 2008. The news caused the DJIA to closed down just over 500 points in one day. This resulted in a financial nuclear chain reaction with Lehman's counterparties and financial markets. This was a bankruptcy with world-wide implications that lead to freezing credit markets; tumbling commercial real-estate values; panic in the junk bond markets; accelerated selling in commodities stocks; and increased financial service sector lay-offs in anticipation of a world-wide recession. Let's not forget to add - fear of the next great depression.

I must confess I was of the opinion the S&P would max-out at 1,000 (at best) before enduring a reasonable pullback of around 5% in August or September. But then a Bull gored me from behind and called to my attention the impact the Lehman Brothers bankruptcy had on the market. This logic had me reconsidering my positions but then, without warning, a Bear roars - get a grip on reality, bonehead. So I recorded their 5 best shots of logic.

The bulls' logic for a return to S&P 500 pre-Lehman Brothers bankruptcy levels:

1. The so-called Libor-OIS spread, a gauge of bank reluctance to lend, has narrowed to 28 basis points from 364 basis points on Oct. 10 2008. Greenspan said in June 2008 that he wouldn’t consider credit markets back to “normal” until the Libor-OIS spread narrowed to 25 basis points. Libor-OIS also became a barometer of fears of bank insolvency.

2. The VIX index, the volatility and nicknamed fear index has been trending downward for 8 months. Before the Lehman bankruptcy the VIX was around 22 and after the bankruptcy rose to a all-time high 80 level. Today, the bulls argue, it's holding around 26 only in anticipation of a quick correction after July's large run up. They rationalize it should fall to 22 given the credit crisis is at least as good as pre-Lehman bankruptcy levels.

3. The current bare bones inventory levels will force companies to resupply now and for upcoming Christmas season. Rising consumer confidence levels, $8,000 for new home buyers, $4,500 cash for clunkers, Government Stimulus package, stabilizing unemployment levels, ISM reports, world markets, all point to rising spending and restocking.

4. The weak dollar and healthy Asian and India economies will once again improve our exports while our recession has curtained our import spending thus reducing our balance of trade deficits.

5. GDP in the 3ed and 4th quarter will show a major improvement over the 1st quarter rising from a Negative 6% to a forecasted 2.5%. This would also be a major improvement over 2008 which had a less than 1/2% GDP (after revisions). See my prior post on World Green Shoots Economic Indicators.

The bears' scream that the current 50% rally is already built on a slope of hope and it's time for a correction:

1. Real Unemployment in the USA is near 16.8% when you consider the people working part-time who were full-time and those who are not counted simply because their eligibility for benefits ran out. The first wave of big reductions in eligibility will come in September 2009. And the USA is still an economy based upon consumer spending. One in three unemployed people, or five million people, have been jobless for 27 weeks or more.

2. No job growth, no spending improvement. So what if job losses were less than expected in July or bottoming out? If employers are not hiring back workers, there will be less consumer spending overall until the jobs return. And right now the market is higher than 2002 when significantly less workers were out of work and the housing sector was booming and the financial sector was considered on solid ground.

3. Banks must make loans to people who can repay. Gone are the 2001-2005 days of no-documentation loans and instant approval and fast money for everyone. The banker bubble economics that stimulated spending and GDP is gone.

4. Everyone is deleveraging. Unlike the 1999-2002 market decline, the consumer was still spending as half as many people were unemployed and easy money and job stability encouraged spending. This pulled us out of the hole and lead to a steady market advance back to the 1999 S&P 500 1550 levels by 2007. But this time around it's the reverse - both institutions and individuals are deleveraging and reducing their spending.

5. Insider Selling is at its highest level since October 2007 (the market top). Vickers Weekly Insider Report, published by Argus Research: In their latest issue, received Monday afternoon, Vickers reported that the ratio of insider selling to insider buying last week was 4.16-to-1, the highest the ratio has been since October 2007.

At this point even many bulls expect a 3-5% pullback before resuming the climb to S&P 1,200 before year-end. The bears say that's just the beginning of a major correction as we enter the market's notoriously bearish months of September and October.

The Bulls and Bears each gave me five good reasons. Now let us hear your reasons

World Economic Indicators Improving

The Institute for Supply Management™ ISM Manufacturing & Non-Manufacturing Report On Business® is considered by many economists to be the most reliable near-term economic barometer available. Six of the 18 manufacturing industries reported growth in July. Seven of 17 non-manufacturing sectors reported growth.

These reports are far from rosy. But they are a major improvement over the 2008 4th quarter and 2009 1st quarter. The improving trends are showing up around the world. The sightings of Green Shoots is no fantasy.

Manufacturing industries in the world’s leading economies are in a much better state than at the end of last year, according to surveys of purchasing managers. In three of the countries, China, Britain and Japan, the purchasing managers’ indices compiled by Markit, a vendor of financial information, are above 50, indicating that manufacturing is growing again. And in the USA, France, Spain, Germany and Italy major improvements over December 2008 have been made as indices rise above 45.

In December 2008 only China’s index was even above 40; in January Japan’s dipped below 30. In America, the Institute for Supply Management’s index rose by more than four points in July to 48.9, the highest reading since last September. That still implies contraction, though at a less marked rate.

Many Countries leading economic indicators are rising

The Conference Board is the leading organization monitoring and measuring world economic indicators. The July report once again showed the USA leading economic indicators rising. Moreover the pattern is similar around the world. We knew China and India were showing early signs of improvement during the first quarter. Now the Conference Boards latest July and August reports shows the Leading Economic Indicators are rising in Japan, Korea, Mexico, Australia, France, Germany and the UK. Germany just announced today their exports rose 7%.

Green Shoots are sprouting around the world. Everyone still agrees the climb out of the worst recession in decades will be long and slow. But you'd be in denial to ignore the improvements and economic facts. Yet, the debate over our economic monetary and fiscal policy will continue indefinitely. Keynesians' Economist and Austrian Economist still debate the effectiveness of the Great Depression policies of Hoover and Roosevelt. As for me, I'm just glad to see the world in a state of improvement instead of a economic nuclear winter.

It's now clear the collective wisdom of the stock market proved once again to be more rational then irrational.

Market Up 50% -greatest advance since 1930's

Will Newton's Law of Gravity apply in August?

After a 50% rise from the March 9th low any prudent investor would rationalize it's time for a 10% correction. Of course, in June after the DJIA had fallen 6% from a high of 8,600 everyone was talking..."head and shoulders"..."sell now were going back down to 7,500". Yet, the market denied many "experts" their prediction once again. It soared up over 1,100 points to reach 9,200.

The now 50 percent S&P rally from the March lows is the best move in stocks since the 1930s!!! The Nasdaq is up an astounding 59 percent. Stocks have recaptured the levels from early October.

What Now?

Ok, now what? Well, if you do not believe in little green shoots and assume this is a cyclical Bull in a secular Bear market like in 1929-34 then you're cashing in your chips or shorting any stock that's had a big run. But as I watch the daily market indicators I see mostly strength and little weakness. Why? How can this be? Is this rational?

Drawing Wisdom from past legends.

Let's draw wisdom from a man who needed his father to bail him out financial when he was nearly wiped out at the onset of the Great Depression in 1929...John Maynard Keynes said it best: "The market can remain irrational longer than you can remain solvent". And a more famous money manger legend, Sir John Templeton, said Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. I'd say were still in the "skepticism" phased based upon all the disbelief about "green shoots".

Adding in my insight.

Yet, is the market really irrational, rational or just plain emotional? Maybe it's all of the above. This I know...the market is always forward looking. The cumulative wisdom of the market is betting the economy will be better in the second half of 2009 then the first half.

And now investors in the market are being helped by two groups: FIRST -traders who believe the market must correct (so they short stocks) and SECOND -by the billions of Money in Money Market Funds where people are realizing their earning less than 1/2 of 1%. With 6 months of a positive market MMF people are now more emotional comfortable with moving money into the market which pushes prices higher and forces those short-traders to cover their bets. Thus, it's the inverse of last summer where selling begets more selling.

Historical facts about August

Since I'm not paid to make forecast for Finance Toolbox or selling investment news letter subscriptions let me just leave you with some additional education for you to consider. According to market research in an article written by Nick Godt of MarketWatch here are the facts:
The market, as measured by the broad S&P 500 index, has advanced in August 60% of the time in the 81 years since 1927, for an average gain of 4%, according to Standard & Poors. And since 1999, August has brought gains seven times out of 10.

Since World War II, August months have tended to bring gains but not by as much as in other months of the year, according to RDM Financial. Since 1945, August has returned 0.4%, placing it 10th among the 12 months of the year.

"However, when the economy is rebounding, then the market has tended to put in a much stronger performance [in August]," said Michael Sheldon, market strategist at RDM.

Many market observers believe that back in March, the market has hit its lows of the bear market that followed the financial crisis. And on the 14 occasions that have followed bear-market bottoms since 1932, the S&P 500 has risen 10 out of 14 times in August for an average gain of 1.2%.

"Past performance is never 100% guarantee of returns in the future," Sheldon said. "But the outlook for August continues to be more positive than some would think," he said . I'm with Michael the correction may have to wait until month end or September.

Life Lessons of Lasting Investment Value

I'm not here to sell a product or service. I'm here to share the cumulative wisdom and mistakes I've learned over 38 years through Investment experience and education. No, I'm not going to get into my own stock picks. Yes, I'm going to provide advice of more lasting value with a much higher probable outcome of success. From time-to-time I do promise to provide readers with links to articles on specific stock recommendations and market forecast from people I regard as worth reading.

Here is five of my best investment advice...life lessons of lasting value:

Lesson #1: Invest in your education and a profession first. Yes, knowledge is power -not just in investing but in securing a job and career. It took me about 10 years to fully appreciate the wisdom of a fellow finance student at lunch in 1975. Five of us BBA's were discussing what stocks to buy and the market trends. I ask one older student, who was just listening and smiling, for his views. He replied, "Guys, the best investment you can make is not in a stock. The best investment we'll ever make is to finish our BBA degree's and secure job's that lead to a career. If you earn just $15.000 more per year and save that money in a simply no-risk FDIC insured bank account earning a measly 4.25% over your 40 year career you will have $1.5 million more money at age 65."

Lesson #2: Forget thinking you're going to turn coal into gold. I see many young people thinking they're going to take their $5,000 in life savings and turn it into $5 million by becoming a full-time day trader of stocks, options and foreign currency markets. Lots of things are possible but this is highly improbable. Anyone can claim anything on the wild-west internet with little fear of investigation or fines for false or unsubstantiated claims. Many people lose more than they make and if you have less than $100,000 my advice...forget it...read Lesson #1.

Lesson #3: Seek professional help. I've learned over the years that I'm worthless as a carpenter or mechanic. So I forget the do-it-yourself mentality and hire a professional to do it for me. If your business needs an accounting system interview your local CPA's (I'd pass on a bookkeeper). You need taxes done right? Interview your local H&R Block or CPA tax pros. Not happy with your current Insurance company or agent? Search on the internet for a local CLU and CPCU. You will not pay anymore for your insurance but you'll be assured of competence. Got a legal problem? Talk with a lawyer not your brother-in-law. So, when it comes to your investments seek a professional with experience. Talk with a locally Certified Financial Planner (CFP) or Charter Financial Consultant (ChFc) or A Certified Financial Analyst (CFA). Ask if they have a college degree with training in finance, accounting, Modern Porfolio Theory (MPT). Ask about the training and resources provided by their employer. Think about it folks, would you rather buy meat that is FDA inspected from a trusted name brand source or from a foreign vendor on a street corner?

Lesson #4: Get A Plan First...Choose Investments Second. First things first. You need to think beyond next month and next year. You need to think about what you want or need in your investment account values at age 65. Forget asking for a hot stock tip or about the best performing mutual funds of last year. You need a destination objective. You need a financial goal and a financial plan to reach that goal. No ideas? Then think, "how much can I or should I save monthly".

Lesson #5: Spend Less, save more and save now. Remember this simple rule. Achieving long-run financial health means saving as much as you can...as soon as you can. Saving just $350 more per month and earning an average return of just 4.5% (compounded monthly) over 25 years means you'll have an extra $194,275. Putting off saving for 5 years and you'll have $57,922 less in 25 years.

If you are investing you can earn much higher returns which could double the value of these dollars to you. But you need to understand markets often decline and no one can consistantly provide you with an early warning buy or sell system. So, you'll need to maintain a long term plan that forces you to invest more during market declines and purhaps less after major advances using a rebalancing system which a local CFP can explain in detail.

Extra Credit Reading Material

Financial Planner

BalanceTrack Free Financial Education Chapter 1-5

Financial Long-Run Planning. The process begins with assessing your current financial situation, determining what you want to achieve and building tailored made solutions to achieve your goals. Whatever goals you have set for yourself, your financial advisor can help you build a clear, concrete plan to help reach them. Your advisor will develop a personal financial plan based on your needs and careful analysis of your specific situation. Once completed, you and your financial advisor can work together to move forward on your plan.

“The best way to predict your future is to create it.”...Stephen Covey

WARNING: Many less experienced people tend to extrapolate out average returns of 9-10% claiming that's the average historical return. This has often been true but it's not always true -a big difference. No one considered the fact that the S&P 500 Index return could be a NEGATIVE 3.5% average annually return -as it has been over the last decade. After the 1929 Market Crash the market took about 20 years to return to that level again. Another major flaw in planning is using fixed high average annual returns compounded monthly over long periods to show how money invested can grow. Stock markets and stocks are not bank CD's that may compound returns daily or monthly. Stock markets fluxuate daily not compound daily. So, you'll need a professional with some college level finance training in probability and statistics analysis who can show you growth outcomes using "Monte Carlo Theory" and utilizing a historical data base of monthly market returns. This simulation analysis will show you a range of most probable outcomes over various time frames.