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Look no further than Chindia, 2 economic powerhouses, both with explosive growth. Expect it for the next 10 yrs while the DOW and NYSE cannot sustain even half that amount. With a potential recession around the corner and a falling dollar, the economy of the US will remain flat. This will not translate well into thriving stock exchange. However, this does not mean all sectors of the US will fail to disappoint.

Technology is still in the upswing as Oracle, Cisco, Apple, Rimm, Google continue their dominance in the marketplace. Agriculture is also strong with commodity prices being pressured upward as energy costs continue to escalate. Look for companies to Mosanto to keep delivering excellent numbers. Another industry that may not be thought of much is shipping. Buffet has invested heavily into into BNI (Burlington Northern), a railroad company shipping between the East and West. Don’t forget RIG and DRYS as they continue to move shipments around. NOV, an oil play on the discovery of oil should be checked as well as they focus on the dominance of their drilling rentals.

Financials, you might think may have bottomed or have begun to bottom out. But the worst may be yet to come. Trying to catch the bottom of an industry is very difficult. Although the industry as of this writing is completely oversold, 24% on the BPI index, it is still risky. Homebuilders are in the same category and should be bought with very careful deliberation. The government may bail out the financial banks, but they will not be bailing out the homebuilders. Buy best of breed in the hottest sectors and avoid the fallout of what could be a challenging 2008.

Quoted from Georges Yared:

1. It’s your money and no one cares about it more than you!! You cannot outsource your money. You can outsource the management of it, but you are the final decision-maker. It’s up to you to nurture and monitor its performance. Got it? It’s your money!

2. Do not get emotional about any stock, bond or mutual fund. These are not your kids or spouse. It’s just money. It’s OK to love a company’s products or services as a consumer, and still, take a hard-nosed, emotionally detached approach as an investor.

3. Be patient. Some investments take time to develop or to be discovered by the masses. Patience requires strategy and timing. The key question to ask over and over again: Is the fundamental story intact, improving or regressing?

4. Trust — but verify. Respectfully challenge your broker/advisor’s recommendations with a few key questions: “Why do you like this stock or mutual fund? Tell me more about the track record of the analyst who recommends this stock, or the portfolio manager running this mutual fund.” Get the facts, the figures and the thesis down pat before putting a dollar into anything. Ask questions until satisfied.

5. Think independently. The best investors do not run with the crowd. What products, services, devices, technologies, etc. are winning in the market place? Are they sustainable and priced for mass consumption? Open your eyes and ears to the world around you.

6. Longer-term savings should be in growth investments, either stocks or bonds. Face it, this stock market has expanded 15-fold since 1982. Businesses are built to grow and stock valuations will ultimately reflect that fact. Always has, always will.

7. Investors invest, speculators speculate. If you are sold on a speculative idea, treat it as such. Ask yourself, What is the “key event” I am expecting to happen? If it does not happen, what is the risk profile of the investment? A true investor is strategic and understands the components of his/her portfolio.

8. Define your approach and stick with it. Are you more comfortable with stocks or mutual funds, or a combination? Are you more fixed-income oriented? Are current dividends or interest payments important? What makes your investment clock tick is important to understand, define and implement.

9. Have some fun and don’t beat yourself up. You will miss some easy layups and miss selling some dogs. Go easy on yourself. There is always an opportunity to find a great story to invest in.

10. Do not try to time the bottom or top of any market or stock. Whether you get to the top (or bottom) has a lot to do with luck (good and bad).

Monday, October 1

10:00 - ISM Index (for September): Consensus 52.5

Big Picture: The index has fallen from the 14-month high of June, as the level remains consistent with the improvement in actual demand and production. June new orders showed the strongest level in 16 months, as production rose to the highest since July 2004 — those levels have returned to the mid 50s. Inventory draw down left weak early year levels as the foreward view depends on business investment given the weaker growth outlook. Business investment has some supportive fundamentals — large profits, cash loaded balance sheets and a high capacity utilization rate urging continued labor saving investment. The lift in manufacturing activity comes with stronger capital investment, as the effects from autos, housing and bloated inventories have lightened, with economic growth expectations providing the forward view.

Implications: The ISM report is a national survey of purchasing managers which covers such indicators as new orders, production, employment, inventories, delivery times, prices, export orders, and import orders. Diffusion indexes are produced for each of these categories, with a reading over 50% indicating expansion relative to the prior month, and a sub-50% reading indicating contraction. The total index is calculated based on a weighted average of the following five sub-indexes, with weights in parentheses: new orders (30%), production (25%), employment (20%), deliveries (15%), and inventories (10%). The ISM is one of the first comprehensive economic releases of the month, typically preceding the employment report. Though it covers only the manufacturing sector, it can often provide accurate hints regarding the tone of subsequent releases. During periods of inflation concerns, the prices paid and vendor deliveries indexes often determine the bond market’s reaction to the report.

17:00 - Auto Sales (for September): Consensus 5.1M, Truck Sales (for September): Consensus 7.2M

Big picture: Buying incentives have provided a bouncy path for vehicle sales over the last few years and drive the monthly pace of domestic sales. High gasoline prices provide the advantage to fuel efficient imports and domestic autos, but SUV sales have not shown a strong decline, given the larger discounts awarded and domestic preferences. Reduced discounting softened the pace of 2006 sales to a 12.8 mln average pace from 13.4 mln in 2005. Year to date 2007, the average is a still weaker 12.3 mln given the 20-month lows reached in both June and July. With a 20% weight in retail sales, autos provide the monthly swing to consumer spending.

Implications: Auto and Truck Sales measure the monthly sales of all domestically produced vehicles. They are considered an important indicator of consumer demand, accounting for roughly 25% of total retail sales. Demand for big ticket items such as autos and trucks tends to be interest rate sensitive, making the motor vehicle sector a leading indicator of business cycles.

Wednesday, October 3

10:00 - ISM Services (for September): Consensus 55.0

Big Picture: Despite rumors of household spending getting pinched by higher gas prices and eroding home values, the wealth effect appears to be hanging in there, fueling spending & consumption. New orders popped back up in August after July’s dip. Exports have lost their edge over imports, despite the weak U.S. dollar and a strong global economy.

Implications: The non-manufacturing ISM report is a national survey of purchasing managers which covers new orders, employment, inventories, supplier delivery times, prices, backlog orders, export orders, and import orders. Diffusion indexes are produced for each of these categories, with a reading over 50% indicating expansion relative to the prior month, and a sub-50% reading indicating contraction. The index should be far more indicative of the broader economy given its inclusion of service- producing as well as good-producing sectors outside of manufacturing. However, the short history of the index dates to only July 1997 and doesn’t provide the insight of a longer period inclusive of varied economic climates.

Thursday, October 4

8:30 - Initial Claims (for 9/29): Consensus NA

Big Picture: Weekly initial claims can be volatile, as the trends reflect some easing in the tight labor market. Layoffs (seen in initial claims) remain subdued given the lean supply of available workers, while hiring (seen in continued claims) has cooled, as reflected in the 20-month high in the early September 4-week average and the dip in August payroll growth. Claims provide a nearly real time read on layoffs and the labor market, as low 4.6% unemployment reflects the broader combined read of layoffs and hiring.

Implications: Initial jobless claims measure the number of filings for state jobless benefits. This report provides a timely, but often misleading, indicator of the direction of the economy, with increases (decreases) in claims potential signaling slowing (accelerating) job growth. On a week-to-week basis, claims are quite volatile, and many analysts therefore track a four week moving average to get a better sense of the underlying trend. It typically takes a sustained move of at least 30K in claims to signal a meaningful change in job growth.

10:00 - Factory Orders (for August): Consensus -2.5%

Big Picture: Volatile factory orders finally topped the September 2006 record level in July. The struggling auto and housing sectors added to the softening in business capital investment, as orders and production are back on the rise. Some of the fall-off was due to the drawing down of unwanted inventories. The underlying fundamentals of flush corporate balance sheets and high capacity use helps support capital investment and factory production, but the growing risk is that business will slow investment as the growth outlook softens.

Implications: Factory orders consist of the earlier announced durable goods report plus non-durable goods orders. The report is very predictable, with nondurables the only new component. Nondurables consist of such items as food and tobacco products, which grow at a fairly consistent monthly rate, so that market forecasts for this report are far more accurate than for the durable orders report. In addition to seeing nondurables for the first time, the market also watches for revisions to the durable orders data, which can be significant. At present, durable goods orders add up to about 54% of total orders.

Friday, October 5

8:30 - Nonfarm Payrolls (for September): Consensus 100K, Unemployment Rate (for September): Consensus 4.7%, Hourly Earnings (for September): Consensus 0.3%, Average Workweek (for September): Consensus 33.8

Big Picture: August showed the first decline in payrolls since August 2003, as unemployment is ever so slowly rising from the March low of 4.4%. The relatively low labor participation rate continues to leave lean worker availability despite the weak 44K average growth in payrolls over the last three months. Employment trends lag the economy as final demand — in excess of labor productivity — feeds in to labor demand. Earnings growth is holding steady near a 4% yoy rate — off the 4.3% yoy high of December. The decline in payrolls signals increased disruption in economic growth.

Implications: The employment report is actually two separate reports which are the results of two separate surveys. The household survey is a survey of roughly 60,000 households. This survey produces the unemployment rate. The establishment survey is a survey of 375,000 businesses. This survey produces the nonfarm payrolls, average workweek, and average hourly earnings figures, to name a few. Both surveys cover the payroll period which includes the 12th of each month.

15:00 - Consumer Credit (for August): Consensus $9.0B

Big Picture: Consumer credit includes household non-mortgage loans. Tax cuts and cash out mortgage refinancing provided consumer funding in past years as 7% yoy income growth and weakening equity and home price gains now provide the means outside of credit. Credit cards (revolving credit) make up 37% of total consumer credit, which stands at $2.5 trillion. Nonrevolving credit helps finance auto purchases, tuition, vacations and other forms of consumer borrowing. Annual growth of 4% has shown acceleration from the 3.4% yoy decade-low of April 2006.

Implications: This monthly measure of consumer debt is volatile and subject to massive revisions. It is also released well after every other consumer spending indicator, including weekly chain store sales, auto sales, consumer confidence, retail sales, and personal consumption. For these reasons, the market almost never reacts to the consumer credit report.

Why Invest in Gold?
Historically, gold has been a proven method of preserving value when a national currency was losing value. If your investments are valued in a depreciating currency, allocating a portion to gold assets is similar to a financial insurance policy. In the past year, the climb in the price of gold above $700 per ounce is due to many factors, one being that the dollar is losing value.

Reasons to say NO to Gold

Gold doesn’t pay income or interest.
Except for the last four years, gold has been in a bear market after a peak in 1980.
Central banks have tons of bullion which they occasionally threaten to sell.
If you don’t count the last four years, gold stocks have not done well.
Since gold funds have made big moves over the past four years, it’s time for them to drop back.
Your broker probably won’t recommend gold funds.
Reasons to say YES to Gold

The dollar is weak and getting weaker due to national economic policies which don’t appear to have an end.
Gold price appreciation makes up for lost interest, especially in a bull market.
The last four years are the beginning of a major bull move similar to the 70’s when gold moved from $38 to over $800.
Central banks in several countries have stated their intent to increase their gold holdings instead of selling.
All gold funds are in a long term uptrend with bullion, most recently setting new all-time highs.
The trend of commodity prices to increase is relative to gold price increases.
Worldwide gold production is not matching consumption. The price will go up with demand.
Most gold consumption is done in India and China and their demand is increasing with their increase in national wealth.
Several gold funds reached all-time highs in 2006 and are still trending upward.
The short position held by hedged gold funds is being methodically reduced.
U.S. government economic policies over the past decade have systematically projected the U.S. economy down a road with uncontrollable federal spending and an uncontrollably increasing trade deficits. Both will cause the dollar to lose in international value and will increase the price of alternative investments, such as gold.
With the recent devaluation of many international currencies, the U.S. dollar was the international safe haven of last resort. We are seeing signs of this ending due to many financial factors, the most important one being a falling dollar.
There are over One Trillion dollars ($1,500,000,000,000) of U.S. debt owned by foreigners which could be repatriated under certain conditions. This could cause a major decline in the value of the dollar and a soaring gold price.
If you believe in ‘buy low, sell high’, gold is still low, but climbing.
Independent opinions on investing in Gold

A perspective on gold … from The Privateer

Different opinions about gold … 321Gold page

A page for silver investors

Real World Ways to Invest in Gold

Gold bullion. - Refiners produce gold bars from one gram to 400 ozs.
Gold coins. - The most popular are one oz coins such as the American Eagle, Canadian Maple Leaf, the South African Krugerrand, and the Austrian Vienna Philharmonic. They are easy to keep and transport and closely match the price of gold with a small premium. More specific details.
Numismatic coins. - Older coins which fit the description of collectibles have a premium to the value of gold included in the coin. The holder is dependent upon an accurate and fair appraisal.
Gold certificates. - A certificate which represents ownership of gold bullion held by a financial institution for convenient and safe storage. There is a fee for storage and insurance.
Gold futures and options. - A futures contract traded on one of the futures exchanges, such as the COMEX in New York. This method is generally leveraged and options provide price movement much more than that of gold itself. It can be used to sell short and can be used to benefit from a drop in the price of gold.
Gold Mining stocks. - Stock ownership of a company traded on one of the exchanges. The price movement is dependent not only upon the price of gold, but also upon the future of the corporation and management. It’s price movement is almost always more than the movement of gold itself. Market Vectors Gold Miners ETF (GDX) is one way to invest in stocks.
Jewelry. - Representing the largest consumption of gold each year, jewelry is a major method of savings in developing economies.
Exchange Traded Funds (ETF)- Perhaps the safest method of buying and owning gold by buying shares in a fund based solely on the existing market price of gold. No leverage or storage problems. GLD, GDX, and SLV.
Gold Mutual funds. - A relatively safe method of buying and owning gold stocks allows the owner to diversify among many stocks and allows the investing decisions to be made by a professional. Investment methods vary among funds and provide many different styles of portfolio management for an investor to choose from. Prices move faster and further in both directions than the price of gold.
Why Invest in Funds?

The 22 funds evaluated by EagleWing Research can be bought, sold, or exchanged on any market day, do not have a storage or liquidity problem and will quickly send you a fund prospectus upon request. Each is easy to get into and to get out of.

In general, gold funds:
a. Provide professional management and diversification within the gold sector.
b. Are more volatile than the S&P index.
c. May or may not have any correlation with the general market.
d. Move daily with the price of gold, but not always.
e. Move proportionally more than gold, up and down.

Which gold fund?

When selecting a fund, an investor should be aware of significant differences between funds:
a. Investment style…………….Very conservative or daring.
b. Type of load…………………Front-end, Back-end or No-load.
c. Expense ratios………………Varies from .4% to over 2%
d. Portfolio turnover…………..Varies from 2% to over 500%.
e. Fund sizes…………………….Varies from $30 mil to over $3 billion.
f. Net Asset Value(NAV)…..Varies from $4 to over $60.

Some funds have special relationships with discount brokers.
Some funds invest in South African mining stocks.
Some funds allow hedging, shorting and option writing.
A few funds have heavy bullion holdings.

Since 1989 sixteen gold funds have dissolved(quit) and seven more have changed management.

One gold fund terminated as recently as November 2001.
One new fund started in June 2002.
Some funds are closed to new investments.

By John Schroder

Clients often ask us, “Is it true. Is it really possible to invest tax free with an offshore account”?

Yes, It is true. But there are some things you need to be aware of when contemplating your investment strategy.

For example, most people do not know that US brokerage accounts titled in the name of a foreign person or entity are exempt from capital gains. As a result, there is no “Tefra” or back-up with- holding on profitable stock trades. Clients of course are required to complete a W-8 form, stating it is a foreign account in order to take advantage of this (if the account is titled directly in the name of offshore structure or foreign client).

However, while the US is a good place to do your stock investing, it is not advisable for “fixed income” investments. Fixed income investments would include any type of interest bearing investment, such as Bonds, Bank Certificates of Deposit, Bank Savings Accounts or Commercial Paper. The reason for this is, while capital gains are exempt, US Banks and Brokerage Firms are required to with-hold up to 30% of any dividend or interest payment at source. Stated another way, any US account coded with a “W-8″, will result in an immediate deduction by the computer system when the interest payment is credited. Banks and Brokerage Firms then in turn must remit this “Tefra” or tax deduction to the IRS within 30 days. You can of course file a tax return the following April, claiming this money back. But with plenty of tax-free higher interest bearing alternatives readily available elsewhere, why even bother?

Many countries do offer special incentives for investors to deposit their money without local
taxation. In some jurisdiction, bank account interest is completely tax-free for both locals and foreigners alike. An example of a so-called “high tax” country that imposes high income taxes on it’s citizens, but absolutely no taxes on bank account interest for foreigners, is the country of Sweden. In fact there are a number of other “high tax” jurisdictions that have this same policy. In these cases, many countries would with-hold income tax payments directly “at source” for their own residents or citizens, but allow foreigners (or a foreign entity such as a Foundation or Company) to enjoy bank account interest 100% tax-free. If an account is coded as “foreign”, it does not even get included in the reporting information the bank would send to the local government. So in essence, you have a tax-free bank account in a country not even considered to be a tax haven, (but for you as a foreigner, it is).

The other option is to do your banking in a country that offers completely tax-free banking, regardless if you are a local resident or not. Such countries on this list would include Panama and the Dominican Republic. In the case of the Dominican Republic especially, investors have the opportunity to earn up to 8% or more with US Dollar Bank Certificates of Deposit or 90 day commercial paper. Since the only reason why any financial institution would report bank account information is for the assessment of taxes, and there is no local taxation on bank account interest in these two countries, there is no local reporting that takes place. With that said, there certainly is no reporting to foreign governments as well.

Setting Up An Anonymous Brokerage Account

Almost all non US or “Offshore” Banks maintain a relationship with a US Bank or US Stock Broker for the purpose of providing access to the US markets for their clients. There are two ways that this is done. One of these ways is known as a “fully disclosed” basis, where in effect all accounts carried with the US Bank or Broker are directly in the name of client.

In essence, the foreign or offshore bank is really acting as a sort of branch office in this regard. With this type of relationship, the client would receive a statement directly from the US Bank or Brokerage Firm, since of course “they know who you are”. Not necessarily the best route to take, if confidentiality and privacy are your goals.

The other and more common type of relationship, is through what is known as an “Omnibus Account” or “Custodial Account”. With this type of relationship, the client is not disclosed to the US Bank or Brokerage Firm at all. Instead, the foreign or offshore bank has one master account, titled in the name of the bank, which is being used to execute and carry all investment activities of the bank’s clients. Your brokerage account is then directly carried with the offshore bank, and any statements would come from them. In reality, your offshore bank is really performing what is called “sub-accounting”, which means that they are “breaking down” the master-account and are issuing a monthly statement to you with your holdings and activities. The US Bank or Broker does not know who the underlying clients are, or what investments each client owns. They simply know that they have a “custodial account” or “omnibus account” with “ABC Offshore Bank”, that happens to be valued at say ten million dollars.

This really is the best route to take, because what you in essence have is an anonymous US brokerage account (just remember what we said earlier about capital gains vs. interest or dividends) with the same SPIC or insurance protection of any other direct client that maintains an account with them.

The only down side to some offshore banks or offshore brokers are the fees involved. In the past, anyone that has dealt with some of banks in the Bahamas or Europe can tell you that full service brokerage fees look like a good deal after getting a rate schedule from some of the offshore banks offering similar brokerage services. The good news is, that is starting to change, and there are some very good banks in both Panama and The Dominican Republic offering very very competitive fee schedules.

For additional information about establishing an offshore account or offshore structure for tax-free investing, please contact our office.

To follow what the pros are doing. Guys like Warren Buffet and George Soros don’t make decisions by throwing darts, but instead they have large groups of people that understand the market. They predictably do not return 100+% every year because the conform to a strategy of investing only in businesses they understand.

Look at the companies they choose to invest in. AMEX, UNH, SunTrust, AG, etc. These companies do not ring a bell to the average day trader because they don’t have the excitement created by dotcoms or tech companies. If you look at when the Billionaires invested in these companies and their stock charts, you will see they all trend up.

These aren’t bold statements or new revelations, but most of us still will not follow this strategy. What’s in your portfolio? How well do you know your companies? The recent run-up may end soon and only strong companies will see appreciation.

As the tumultuous summer stock season continues, at least enjoy a nice day off filled with fireworks!

I’m soliciting for writers, if you are interested drop a note to admin@helpfulfacts.net.

Next week, I’ll discuss a not so new strategy on investing, but it is certainly effective and any disciplined investor should follow.

Summer months are here and this usually spells doom for investors. Volatility becomes rampant and your portfolio can see increased losses. Statistically between the months of May and October, these are traditionally the worst months for the Stock Market.

Tracked for the past 50 yrs+ by Stock Trader’s Almanac…here’s the summary:
If you invested in the Dow from November through April, and switched to fixed-income investments from May to October, over a 54-year period (1950-2004), your returns would have been quite dramatic. Using this strategy, a $10,000 investment in the Dow compounded from 1950-2004 produced a $492,060 gain in the November - April period, versus a loss of $318 for the May-October period.

If I told you there was a market much larger than the New York Stock Exchange, where you have the potential to double your money in hours — with limited risk — you’d probably think I was trying to sell you something. “If it sounds too good to be true….it probably is” kinda thing. But if you are a trader, you must at least in- vestigate the Forex markets.

What is the Forex?

Forex is an acronym for “foreign exchange,” and involves trading pairs of currencies, i.e., buying one currency and selling the other in a single transaction. For example, USD/JPY is buy US dollar/sell Japanese yen. In this case, you expect the dollar to appreciate versus the yen, the yen to depreciate against the dollar, or both.
The foreign exchange market is gigantic: over $1.5 trillion in daily Forex trades, with national banks such as the Bank of Japan, money center banks such as Citicorp and large pension plans and hedge funds being the major players. It’s mainly the larger currencies that are involved, together with the US dollar. While there are several currency pairs that offer good opportunities, these four are the most widely traded: Euro/US dollar (EUR/USD), US dollar/Swiss franc (USD/CHF), US Dollar/Japanese yen (USD/JPY), British pound/US dollar (GBP/USD)?

Why Trade Forex?

There are plenty of good reasons to trade Forex, and if you have experience trading stocks or futures, you have a definite edge over the crowd. Let’s take a look at why you should consider this market:
Huge Leverage
Incredibly, you get can 200:1 leverage on Forex pairs. In a mini account, $50 controls a $10,000 position! $500 controls a $100,000 position. This obviously means potentially huge profits. But what about the risk?

Limited Risk

With Forex, your stops are always honored, even on gaps. If you have a position on into the weekend and it gaps against you Sunday night, you will be filled at your stop price — provided you have a stop in place. Plus, if your account should go to 0.00, your broker will automatically close out trading, so you can’t possibly lose more than your margin deposit. If you’ve ever had a maintenance call from a broker, you’ll appreciate this.

24-Hour Trading

If you just can’t get enough trading out of your system during regular NYSE trading hours, you’ll love the fact the Forex trades 24 hours a day, from the beginning of the Japanese session Sunday evening about 8 PM EST to the end of the US session on Friday at 4:00 or 5:00 PM EST. European bourses open at 3:00 AM EST, and the US session opens at 9:30 AM EST. The slowest periods are between 4:00 PM EST and 8:00 PM EST, between the end of the US session and the beginning of the Asian markets.

No Commissions/Low transaction costs
There’s no question but that stock commissions have come down a lot, but with Forex, there is no commission — your fee is the dealer spread. The spreads are small, usually about 4-5 PIPs. On a mini account, that’s $4-$5.

Tremendous Upside Potential — And Fast
Because of the incredibly high leverage, you have the potential to double your investment quite rapidly — in hours even. I’ll show you a trade shortly to make this point.

Low Capital Requirements
many brokers will let you open an account with $2000, and you can even open a mini Forex account for a few hundred dollars. This obviously is substantially less than the $25,000 requirement for day traders. Mini Forex trades can be put on for as little as $50.

No Bull or Bear Markets
With stocks, 70% of the move is due to the market, so if the market isn’t moving, it’s harder to find good stocks to trade. Not so with Forex, as the many combinations available mean there is always some currency pair moving.
No Restrictions on Selling Short
Shorting stocks has always been a little tricky, with the up tick rule and now that bullets are gone, life just got tougher. In the Forex market, there are no restrictions on selling short.
Low Correlation with Equities

As with most commodities, currencies have a very low correlation with equities and fits in nicely with the concept of portfolio risk reduction.

In conclusion, there is no doubt that Forex trading should be considered for the above reasons. However, one must consider that most country governments take an active interest in manipulating their currencies and using technical analysis might be less reliable due to the large part that domestic and international politics play in price movements. Oh well, nothing is perfect-particularly in the world of finance and investing.

By: Richard Stoyeck-2657 Stock Investing has told us here at StocksAtBottom.com that it has been more than 25 years since Japan’s automotive juggernaut served notice on Detroit that we are going to eat your automotive base for lunch. Each successive year since then, our domestic car manufacturers have given away market share to the Japanese. For General Motors, Ford and then Chrysler before the Daimler merger, the only question was how many car sales are we going to lose this year to the Japanese.

Each of the Big Three must put together 3 to 5 year budgets in order to project their cash flow needs. Ford for the next three years in their budget process is showing continued market share erosion in each of the next three years. It is likely that both General Motors and DaimlerChrysler are acting out the same scenario.

UAW Union Caving to Facts of Life

Jerry Sullivan is the head of the largest UAW car worker’s union at Ford. He has 36 years with Ford, and the last 10 years as head of UAW Local 600. Sullivan is urging his fellow workers to accept the present Ford buy-out agreement which is on the table for Ford workers to consider.

Ford lost almost $13 billion in the last 12 months. The union recognizes that Ford’s back is up against the wall, and it’s time to try to save the company. Ford is reorganizing the way it builds cars, more along the lines of Japanese manufacturing techniques. As an example, many of their employees are now working 4 day shifts of 10 hours. These shifts can include weekends. The workers are agreeing to work at regular wages as opposed to overtime rates.

This summer, the national Union will be negotiating health care benefits among other issues. Right now health care costs are at least 50% higher than overseas employees. It’s very tough for Ford, or anyone for that matter to make up the incremental difference in these costs, and still sell cars at a competitive price in view of world markets. The Japanese operating under a different pricing structure are in a position to simply put more goodies into the cars, and still sell them at a cheaper price than our domestic products, and then there’s the quality issue.

Let’s look at it this way. Our stock research shows that the average car Ford produces compared to Japan has about $2400 of additional profits built into the Japanese car compared to the American produced vehicle. About half of that gap is higher labor costs for the American product, and about half of the labor costs are higher medical care costs for retired automotive workers. The Japanese companies have -0- costs, that’s right, zero associated medical care costs for their RETIRED employees. This is because in Japan those medical care costs are picked up at the national level by the government, who picks up medical costs for all retired people.

General Motors Delays Filing

General Motors like all publicly traded companies must file its annual report with the Securities Exchange Commission on a timely basis. Would you believe that GM has asked the SEC for an extension for its filing to March 16th of this year? GM continues to be unable to act its financial act together. This coupled with an inability to manufacture cars that people want to buy makes the future not altogether too bright for America’s largest car producer.

GM has also expressed an interest in acquiring the Chrysler unit of DaimlerChrysler which is up for sale. This assumes there will be bids for the Chrysler unit. DaimlerChrysler in German has announced that if there are no bids, they will keep the unit, and continue to attempt to turn it around.

It’s seems that GM’s latest problem is their General Motor Acceptance Corporation (GMAC) subsidiary. The financing subsidiary was partially sold to a group of private equity players last April. The problem is when you do such a deal; you have to put in stipulations that everything is beautiful, or just as it should be. Apparently GMAC has quite a few creditors who are what you would call subprime borrowers.

If you have been reading the newspapers lately, subprime is not so prime anymore. With the housing market still on its back, borrowers with less than super credit seem to be in trouble. Translated, that means they are not paying their bills on a timely basis. This entire huge market is called the subprime market. When the economy has something of a downturn historically, these borrowers surface as individuals who just can’t keep up with their debt payments.

A number of companies who have been catering to them, all of a sudden start to take hits. If you are a company doing business with a subprime borrower, you have a certain reserve or cushion built into your numbers for the statistical number of people that you believe will default. It is becoming increasingly apparent in our stock research as stock investors that the subprime companies involved with such borrowers have FRANKLY lost control of their numbers. These companies simply have no idea where their borrowers stand today in their ability to service their debt.

Witness what is happening with Countrywide Financial Corp. which is the largest U.S. home mortgage lender. At the end of 2006, the number of people at least 30 days late is 2.9% of their prime home-equity loans. The number for 2005 was 1.6% and 0.8% for 2004. It is our opinion at StocksAtBottom.com based on stock market information that we use, and stock investing that we do that the subprime industry players RIGHT NOW have no idea where they stand in reference to their loans. The industry is hanging on by their thumbnails hoping that it gets better.

GMAC is in the same position as the subprime industry, and that is why in our opinion they have asked the SEC for a delayed filing authorization. They are literally trying to figure out where they stand. Assuming the situation is worse than what they told the private equity players who purchased a majority of GMAC last year, GM will be responsible depending upon the covenants in the agreement to ante up additional cash to the buyers.

This is just one more illustration of inept management at General Motors. They are a management team that lets things happen to them. They are in a reactive mode as opposed to being out in front of the problems trying to anticipate, and fix them before they get blown out of proportion. At our firm we have been observers of the American automotive adventure for several decades. We know there are Lee Iacocca type individuals out there that can turn around GM, Ford, and Chrysler. These guys just aren’t in the automobile industry anymore.