Week in Review with Jerry Robinson

By Jerry Robinson | FTMDaily.com

What a dismal week for economic and geopolitical news!


Of course, the big news last week came out of the Middle East. The U.S. announced new peace talks set to take place next month between Israel and the Palestinians. And after years of delays, Iran finally began loading tons of uranium fuel into their first nuclear reactor (Russian-built) on Saturday. Iran claims that they have a right to produce nuclear energy, and in an unusual gesture offered to allow oversight of their nuclear activities. Iran maintains that its intentions are peaceful.  Israel immediately denounced Iran’s new nuclear power plant calling it ‘totally unacceptable.’ In response to the news of an atomic Iran, Israeli Foreign Ministry spokesman Yossi Levy said:

“It is totally unacceptable that a country that so blatantly violates resolutions of the (United Nations) Security Council, decisions of the International Atomic Energy Agency and its commitments under the NPT (non-proliferation treaty) should enjoy the fruits of using nuclear energy.”

The U.S. appeared to disregard the political urgency of the news. Darby Holladay of the U.S. State Department told news agencies:

“We recognize that the Bushehr reactor is designed to provide civilian nuclear power and do not view it as a proliferation risk.”

However, the U.S. did admit that while Iran posed no immediate threat, they could potentially have a bomb through the conversion of fuel into weapons-grade uranium within 12 months. According to sources within Washington, U.S. and Israeli intelligence would detect such conversion “within weeks” and would have ample time to engage Iran in military strikes.

In classic form, Iran’s leader warned that an attack on the reactor would be met with a global and “painful” response.

I would expect that we will witness rising tensions followed by a full-scale war between the West and Iran within the next 18-36 months.


On the economic front, the weekly jobless claims reached 500,000, a 9 month high. Consumer bankruptcies hit a 5 year high this week.

And it appears that the U.S. government’s “chicken in every pot” policy regarding home ownership may be coming to an end as Washington attempts to “untangle the wires” of America’s housing and mortgage crisis.

Besides, “renting” instead of “owning” is fast becoming a new normal in today’s tumultuous economy. At least so says Fortune magazine in it’s new article entitled: Five ‘new normals’ that really will stick

Flight to Safety

Flight to Safety… In other news, small investors appear to be losing their appetite for risk by fleeing the stock market for the perceived “safety” of the bond market. According to the Investment Company Institute, small investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year. Click the chart to the right for more.

No Liquidity… And in a sign that American’s lack liquidity, Fidelity Investments reported this week that hardship withdrawals from 401(k) retirement saving plans rose to the highest level in 10 years during the second quarter.

When this news is coupled with the fact that most working Americans have very little liquid savings, it offers further proof that the Mutual Fund industry has successfully trained the American public to max out their 401(k) before building adequate liquid savings reserves.

The Mutual Fund industry sponsors many popular financial commentators today who fervently preach the “max out your 401(k)” gospel. Suze Orman and Dave Ramsey are just two examples of the droves of financial personalities who have been paid handsomely to pay little attention to the importance of adequate and diversified liquidity prior to “maxing out a 401(k).”

However, as of late, “abundant liquidity” has become a hallmark of many financial gurus like Orman and Ramsey. Unfortunately, this sudden emphasis upon liquidity comes late for the millions of Americans facing foreclosures and bankruptcies.

Consider for a moment that most people’s two largest assets are their primary residences and their 401(k)’s. Both of these assets are explicitly government-controlled. Diversification is the only weapon against a cash-strapped government hungry for revenue. When the government comes looking for cash where do you think it is going to look? With nearly $20 trillion in personal retirement assets, why not slap a higher distribution tax on your 401(k) and traditional IRA? Could they? Of course. What could you do about it? Nothing. Except maybe curse the Suze Ormans and Dave Ramseys of the world who told you to stuff money into a 100% government-controlled asset. Why not just put your money into a box and hand the government the key and ask them to give it back to you at retirement? That, by the way, is the definition of a 401(k)… minus Mutual Fund fees.

Across the Pond… Since making the news a couple of months ago, the country of Greece has imposed strict austerity measures. The result? Greece is in the grip of a depression. Purchasing power is dropping, consumption is taking a nosedive and the number of bankruptcies are on the rise. In addition, stores are closing, tax revenues are falling and unemployment has hit an unbelievable 70 percent in some places. Has Greece entered the death spiral? You can read more here.

Big Brother Alert… There’s more troubling news on the growing threat of government intrusion.

Biometrics R&D firm Global Rainmakers Inc. (GRI) announced today that it is rolling out its iris scanning technology to create what it calls “the most secure city in the world.” In a partnership with Leon — one of the largest cities in Mexico, with a population of more than a million — GRI will fill the city with eye-scanners. That will help law enforcement revolutionize the way we live — not to mention marketers.

The intrusion of constant government monitoring is slowly becoming a reality. We are already tracked like animals. But they won’t stop until they have total and complete control.

Is the real price of gold over $2,000 right now? My weekend radio interview with GATA Chairman, Bill Murphy, offered some unusual information. According to Murphy, the artificial suppression of the price of gold has caused the precious metal to be severely undervalued. Murphy states in the interview that if the price manipulation were to end, gold would be trading at around $2300/oz! If you are interested in the precious metals sector, do yourself a favor and take time to listen to this weekend’s radio program. You can listen to the entire show here. Or, if you prefer to listen to the show on iTunes, click here.

That’s all for this update. Look for a few blog updates this week and an excellent radio program next weekend. My guest will be geopolitical and economic analyst, Puru Saxena. Mr. Saxena will be joining me from Hong Kong.

Have a prosperous week!

About Jerry Robinson

Jerry Robinson is an economist, published author, columnist, international conference speaker, and the editor of the financial website, FTMDaily.com. In addition, Robinson hosts a weekly radio program entitled Follow the Money Weekly, an hour long radio show dedicated to deciphering the week’s economic news.


Weekend Update with Jerry Robinson – August 15, 2010

By Jerry Robinson | FTMDaily.com

It appears that despite the “best” efforts of Washington, the U.S. economy is continuing its miserable collapse. The jobless rates are more than just mere numbers. They represent agonizing pain of families who are in fear of losing their home to foreclosure and their creditworthiness to bankruptcy. In 2007, I declared that the bloated American empire was “bankrupt.” In 2008, I stood on platforms, in universities, behind pulpits, and in lecture halls and declared that the American empire was “bankrupt.” In 2009, I wrote a book entitled “Bankruptcy of our Nation: 12 Key Strategies for Protecting Your Finances in these Uncertain Times.” In that same year, I was interviewed on dozens of television and radio shows around the world. My message: The American empire is bankrupt.

Today, even in our current financial state, many are still living in an illusion of prosperity… just as they were 5 years ago. Oh sure, the magnitude of this economic crisis has given us a few new “arm-chair” economists. Many of them are filling our airwaves. And all of this new found desire to study economics on the part of some is good UNLESS… it is rooted in their desire to prove one side of the political aisle wrong. The “blame game” is the ultimate “fool’s” game in a declining empire. Instead of seeking to place blame, those who are concerned about this economy (and especially those already unemployed) should be turning off their political talk radio and focusing instead on their own financial game plan.

The news headlines coming out this weekend are unfortunately no better than the news from last week. The merciless drop in U.S. employment levels has led to the death of the American dream for many families. Adding insult to injury, a new report was released this week that employees of the Federal government work less, have more job stability, get better benefits, and get paid more than employees in the private sector. I think we are long overdue for draconian spending cuts at the Federal level. Don’t you?

Tensions continue at the Federal Reserve as deflation-inflation fears worry many of the banking cartel’s top officials. Kansas City Fed Reserve President Thomas Hoenig publicly warned that the Fed is currently undertaking a “dangerous gamble” by keeping rates at near zero for so long, and must start raising rates or risk damaging the nascent U.S. recovery.

This weekend, President Obama refuses to back down on his ardent support for an Islamic Center at Ground Zero. With the Obama administration’s stunning decline over the last 12 months, I am expecting an “October surprise” to prevent a huge Republican victory in this November’s mid-term elections.Stay tuned to the Follow the Money Weekly Radio Show every Saturday for more of my analysis on this topic.

The New York Times ran an interesting piece on the shadow war yesterday entitled: Secret Assault on Terrorism Widens on Two Continents.

If you are looking to get more out of your dollar on your next international vacation, consider this list of the world’s least expensive cities of 2010.

For those of you who like bizarre news stories (like me) here’s an unusual story from England… a 13 year-old boy was hit by lightning at 13:13 (military time) on Friday the 13th. “It’s all a bit strange” the ambulance team leader told a local newspaper… I would say.

Finally, take a moment to pray for the more than twenty million people left homeless after Pakistan’s worst floods in decades. It all began in late July when unusually heavy monsoon rains swept across the country. Many have been left with no shelter, no food, and no clothes.

And when you think about Pakistan, take a moment to realize how blessed you are if you have a roof over your head, food in your belly, and people who care about you. Yeah, I know, our economy is going south and there is much to be done.  But in all of your doing, try not to forget how billions of people from the around the world would love the opportunity to trade places with you.

Jerry Robinson

About Jerry Robinson

Jerry Robinson is an economist, published author, columnist, international conference speaker, and the editor of the financial website, FTMDaily.com. In addition, Robinson hosts a weekly radio program entitled Follow the Money Weekly, an hour long radio show dedicated to deciphering the week’s economic news.

The new gold diggers

When gold nuggets were found in the foothills of California in 1849, a frenzy of prospecting ensued. Now, thanks to the ‘Great Recession’, it’s happening all over again.

By Kevin Fagan | Telegraph UK
Published: 12:15PM BST 14 Jul 2010

Avery Rathburn and his highbanker along the Scott River,  California.

Avery Rathburn and his highbanker along the Scott River, California. Photo: SARINA FINKELSTEIN
Ken Oliver's gold nuggets and jewelry workshop, Scott Bar, CA

Ken Oliver’s gold nuggets and jewelry workshop, Scott Bar, CA Photo: SARINA FINKELSTEIN
Ken Valenta, 49er Mining Supplies, Columbia, CA

Ken Valenta, 49er Mining Supplies, Columbia, CA Photo: SARINA FINKELSTEIN

Not too long ago, David Basque was a carpenter living in northern California. In his early twenties, the work came easy and fast, and life was good.

Then came the Great Recession, and unemployment that spiked over 12 per cent in California alone, and 10 per cent across the United States. Construction dried up and even small carpentry jobs went away or paid just half of what they used to. It was, he says, very worrying.

Like so many others, David was sure things would work out. Then his savings dwindled and his optimism soon followed. But, when things looked darkest, he found he had an ace up his sleeve, the same ace thousands of people have been pulling out of their sleeves in the past two years as jobs dried up all over California and something approaching panic seeped through every county of the state. David turned to gold prospecting.

He’d panned over the years as a hobby. But with the downturn came an opportunity he had never anticipated. Just as in the recession of the early Eighties, the inflation crisis of the mid-Seventies and even the Great Depression of the Thirties, David noticed that gold had not only retained its worth – it had actually risen in price.

In fact, its value had shot through the roof – tripling to more than $1,000 (£658) an ounce since the start of the recession. Earlier this month, fears of a ‘double-dip’ prompted claims that bullion could hit nearly $1,500 an ounce. Encouraged, David spent some of the last of his money on some pans, a sturdy tent, a sluicer and a dredging machine, and hit the hills.

That was more than two years ago. The sturdy, trim Californian boy still does construction work, but he hasn’t lived in anything resembling suburbia since. Now, day after day, David rises from the floor of his yurt – a round tent patterned after an ancient American Indian design – grabs his machinery and hits the Klamath river.

His yurt is up in the hills west of the little frontier town of Yreka in far-north California and there are months when he can gouge $1,000 worth of gold out of the river. ‘I’d be in tough shape without it,’ he says.

There was a time – 1849, to be precise – when the desperate, the poor and those simply seeking a new life came to California from all over the nation. And when a handful of pioneers found gold in the Sierra foothills, Gold Fever turned into a frenzy. The idea was that you’d come here, sink your pick into the ground and make a fortune. Except it didn’t quite work out like that.

Certainly, the Hearsts and others made fortunes in the riverbeds and mines of the not-yet-Golden State’s mountains and backwoods. But for most, digging and panning was back-breaking work that rarely paid above subsistence. But even in the five-year frenzy that constituted the 19th-century Gold Rush of the 49ers (as they came to be known), many people were just fine with this.


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Shared sacrifice will be the new economic order

(Jerry’s Comments: Here come’s the message of sacrifice that I spoke of in my book, Bankruptcy of our Nation. Governments are going to begin appealing to the long forgotten ideal of “sacrifice.” Much of the global populace will not embrace this easily. I explain how this idea will translate into the American church and how it will literally transform our nation’s approach to “church.” Note my emphasis on the story below with bolds and underlines.)

The next phase of the credit collapse may be a change in the baby boom dynamic of spending to frugality, and that means a prolonged economic slump

David Rosenberg | The Globe and Mail

The laser-like focus on the global financial crisis means investors are back in contingency planning mode while the tools to fend off fiscal Armageddon are again being sharpened by governments and policy makers around the world. But, at times like these, it is important to understand where the real economic power resides, and that is with the people on Main Street.

Economic change occurs in stages. We have been through an intense financial stage of the secular credit collapse but now the fundamental economic part of the crisis lies ahead. It is reasonable to assume that the economic behaviour of the population in general, and the baby boom cohort in particular, is on the precipice of a dramatic change, as Main Street has enough understanding of the situation to start to take action to get its balance sheet in order.

Retirement is rapidly approaching for 78 million U.S. boomers. Remember, this is the segment of the population that sets the fashion and has the real power in society. The rest of society, and particularly the politics, will mirror the actions of these fiftysomethings.

So just as conventional wisdom has concluded that, fiscally, we are about to drive the Thunderbird off the cliff and into the banana republic territory, perhaps the Great Society Lyndon Johnson kicked off with his massive government spending is reaching its bubble peak. Most likely, what happens next is that the credit collapse proceeds on the back of a severe form of the “savings paradox,” resulting in a prolonged economic slump. The good news is that it will ultimately lead to a balance sheet rebuilding process, both at the household and government level, that can sustain the next secular economic expansion.

In the meantime, an enormous amount of shared sacrifice will be required.

Initially, we can expect to see less government, fewer entitlements and higher taxes. The Keynesianism that has dominated fiscal policy since the 1930s is just now in the process of being turned on its head. So instead of having a situation where an FDR followed a Herbert Hoover, Americans may well opt in the next election for someone closer to Ronald Reagan. Less government will require balanced budgets and this will contribute to continued stress in the job market, at least for a while.

Currently, the seeds are being sown for a radical restructuring of entitlements. There is a growing acceptance among public sector unions and civil servants that the way they spend and save is going to undergo some radical changes in the future. Furloughs, layoffs and now less-generous pension benefits for current workers and retirees are occurring for the first time ever. Across the nation, sweeping changes are taking place as pension trustees and legislatures push for higher monthly contributions to pension plans, a later retirement age and lower annual cost-of-living adjustments for current and retired workers. As an aside, this is why the U.S. is not Greece – there are few wildcat strikes taking place on this side of the pond.

At all levels of the social structure, starting with households and followed by unions and governments, the U.S. will be swept up in a sprint to frugality now that the baby boom has run out of time to speculate. They will be saving the old-fashioned way – more into the coffee can.

Out of necessity, the boomer population will be pursuing a strategy of working longer, saving more and reducing their debt obligations in order to secure a comfortable retirement lifestyle, while at the same time the public sector moves in the very same direction toward fiscal probity. In the case of government, solvency will be restored by reducing non-essential services and severely means-testing entitlements while increasing taxes and user fees.

On a more positive note, if the shift toward shared sacrifice is in fact what the next leg of the credit collapse has in store for us, then one also has to wonder if we are finally coming to the end of the bubbles that we have endured for the better part of the past two decades. It makes sense, after all, that there is such a thing as a post-bubble era – and perhaps we are finally entering into it.

Rather than looking at the situation from the lens of a V-shape rebound in inflation, it seems far more likely that what we could well be in for is a prolonged period of price stability or modest deflation. It is reasonable to assume that a resumption of strong GDP and earnings growth in the future and a resumption of inflation and appropriate inflation investment strategies will have to await the end of the rebuilding phase as it pertains to the household and government balance sheets.

David Rosenberg is chief economist and strategist for Gluskin Sheff + Associates Inc. and a guest columnist for Report on Business.

Seven Big Mistakes People Make When Hiring a Financial Advisor

by Chuck Jaffe
Friday, June 18, 2010

How to choose the right steward of your money.

I have given countless talks over the last 15 years to groups of people interested in hiring financial advisers or working better with the helpers they have, and I typically poll my audience to learn about their experiences.

I ask that people who are working with an adviser — or who have had one they stopped using — raise their hands. Then I ask them to keep them up if they hired the first financial adviser they met with or if they hired someone recommended by family or friends. Virtually all hands stay up.

Next, I ask them to keep their hands up if they did a background check on the adviser — and talked to an independent reference — before they agreed to work together. I have never had a single hand stay in the air.

Plenty of people do everything wrong in the hiring process and still wind up happy with the outcome, but you should still try to avoid the common mistakes. If you do, your chances of living happily ever after — or at least until the adviser retires and you have to hire a replacement — are infinitely higher than if you leave it up to fate to bring you someone you can work with.

Big Mistake #1: Interviewing Just One Candidate

You have come to a point in your life where you know you need help. Emotionally, that makes you like a man dying of thirst, unable to tell a mirage from reality and willing to drink sand if he can be convinced it will make him feel better.

The first adviser you meet could be a complete idiot, but almost certainly will sound great to you. That’s because his spiel makes it sound like he can solve your problems, and you lack the know-how to tell if he can’t and the comparison to any other adviser to establish how you truly feel about him. You have no clue if he is selling you a bill of goods, a one-size-fits-all plan that maximizes his take and minimizes your service, or if he truly is a cut above the other helpers in your area.

Another reason why investors hire the first person they meet is that they got the adviser’s name from a friend or relative whom they trust. That colors their judgment, because of the way they feel about the person making the referral, or the way they envision this adviser helping them live the lifestyle they see their friend or relative enjoying.

Years ago, a leading financial planner in Boston told me her life was so busy with books and her radio show that she had stopped taking on new clients, and that when people inquired about her services she gave them the names of two young “up-and-coming financial planners” in the area. Alas, she had never worked with these men, had done no background checks, and had simply picked them because they were “bright, energetic, and asked good questions at the [Certified Financial Planners] group meetings.” I’m sure the people she referred to them took her word as gospel; four years later, one of those advisers was under indictment for fraud.

Big Mistake #2: No Background or Reference Check

“He’s got a fancy office, drives a nice car, and has a lot of rich clients,” is not a background check; it’s a fitting description of almost every financial adviser charged with fraud in the United States over the last two decades.

Your retirement nest egg, college savings, and more are the biggest, most important assets you will ever accumulate and try to grow, and yet most people spend more time trying to figure out which vacuum cleaner or microwave oven is the best value for their money than they do trying to determine if an adviser is safe to work with.

Moreover, they rely on shallow logic as a reason to avoid a few phone calls or a search online. The adviser is on the radio, so he must be good. He’s been quoted in the newspaper by that columnist I like, so he’s qualified. He works with someone I know, and she has a nice house.

Now I’ll let you in on a few secrets that may change your opinion of the advisers you see in the media.

For starters, most journalists will call anyone to be a source when they are on deadline. They haven’t done background checks or vetted the so-called expert; they just got someone who seemed right, and who could talk about the subject at hand.

The radio fallacy is another good one. Most financial advisers on the radio have paid for the time, meaning they bought their own show to use as a personal advertising vehicle. The information they give may be fine and dandy, but the radio station didn’t vet their credentials or make sure they’re solid advisers; it simply cashed their check and gave them access to the airwaves.

Background checks can’t protect you completely. In 2007, I ran an adviser named Gregg Rennie of Quincy, Mass., through the full test and found everything on the up-and-up; Rennie was becoming a primary sponsor for my radio show, and I wanted to know if he was bad news. Alas, at some point over the next few months, Rennie’s personal financial picture changed, and he wound up selling fraudulent investments, basically starting down the road of a Ponzi scheme in order to stay afloat himself, according to the Securities and Exchange Commission.

Big Mistake #3: Focusing the Search on Cost or Payment Style

Cost is an object, but it’s not THE object.

The same goes for payment style, the various methods of working and compensating an adviser discussed in the last chapter.

Cheap advice is, well, cheaper, but not necessarily better, appropriate, or the elusive “right for you.” If you save a few hundred dollars in fees to the adviser, but wind up with someone who is incompetent and whose decisions cost you thousands of dollars down the line, you did not get a bargain. Likewise, if you go for more expensive counsel but can’t get the quality of service you desire, you’ll be unhappy no matter how respected the adviser and how sound his advice.

Look at what you are getting for your money and determine a reasonable balance between services, costs, and method of compensation.

If all you are looking to do is add a mutual fund or two that you can throw some money into every month and hold for years, you shouldn’t be paying a big fat fee for an overall asset-allocation plan. But if you require a needs analysis and a plan of action to get you from where you are now to your financial goals, you don’t necessarily want to make your lifetime decision based on “I hate paying commissions” or “This planner charges less by the hour.”

Big Mistake #4: Expecting Credentials and Designations to Make an Adviser “Good”

There are so many professional credentials and designations out there for financial advisers that you could drown in a sea of alphabet soup.

That said, every credential is different. Some are worthwhile, some are bogus. Within every credential, there are advisers who are good, and others who stink.

The real question about credentials boils down to “Does this adviser have the expertise I need?”

Credentials help to answer that but, on their own, they say nothing about the individual’s personality, manner, disposition, or ability to inspire your “emotional discipline.”

Your search for advisers is about finding “the right person,” not “the person with the right credential,” and there is a big difference. You don’t just want a skilled doctor, you want one with the right bedside manner. I know plenty of Certified Financial Planners whose personal style is so strange, different, or off-putting that the only way I could work with them personally is if I was in a coma.

Hire a person, not a credential; when times get tough, it’s going to be the human being –and not the letters after her name — that you rely on.

Big Mistake #5: Setting Expectations and Viewing Results Based Entirely on Returns

People hire advisers because they need help and want to get their finances in order. They fire advisers because they don’t earn a “big enough” return.

It’s a recipe for disaster.

If you are an average investor, you’re looking for a partner, someone who will help you develop strategies that enable you to reach your long-term goals. In most cases, achieving that success requires participating in stock market gains during good times without losing your shirt when the market sours. For most consumers, it’s more about avoiding surprises and losses than it is about getting rich quick.

And yet, when push comes to shove, advisers get dumped because they “failed to beat the market” each and every year.

What most people want from their adviser is long-term performance that allows them to ride the market rollercoaster and get off at the end with a big smile on their face.

Alas, too many financial-services customers want to jump off mid-ride. Despite what they said when they signed up to work with an adviser, they want to change the criteria for judging their counselor mid-stream, typically at just the wrong moment.

Big Mistake #6: Letting the Adviser Control Everything

You may be looking for hired guns to help with your finances, but there is one key phrase to remember in all this: “It’s my money.”

Advisers are partners in your financial success, but you have the most at stake and, therefore, you run the show. With that in mind, you are entitled from the very beginning of the relationship to ask about anything you want, from why a recommendation was made to why something cost more than you expected.

You need to be treated like “the boss,” too. Some advisers treat customers shabbily when the client doesn’t take their advice or make a suggested move. That reaction is an instant warning sign that the adviser respects his position more than yours and may have put his interests first.

Big Mistake #7: Hiring Friends and Relatives

In the mid-1980s, my wife Susan — the most patient and understanding woman in America — was convinced by a friend that we needed some financial planning help. The friend just happened to be a new financial adviser, and she wanted to be the one to advise us, fresh out of college and newly married, as we started building our lives together.

I didn’t think we needed help, but Susan sold me on the idea that Sandra, her friend, could help us find better financing options for our first new car. Sandra also could provide a second opinion to my judgment on mutual funds and asset allocation.

Best of all — and Sandra gave us this in writing — it was a money-back deal. If we weren’t satisfied or Sandra did not provide us with ideas and information we didn’t have on our own, we could get our money back.

So I signed the contract.

Obviously, the selection process was all wrong. No references, no background check, pretty much every mistake in the book (or at least this chapter).

The results were, sadly, predictable. The funds we owned were better; the bulk of her advice was about improving our cash flow so that we could purchase insurance products that, at the time, we had no need for and no real way to afford. Sandra advised us that the loan deal I had found was better than anything she could come up with.

We’re still waiting for our money back.

Despite telling Sandra that I was disappointed, I never got — nor did I pursue — my refund. With the financial relationship going nowhere, Susan and Sandra grew distant.

So we lost a friend and $250. Frankly, I’m bothered more by the lost money, because I came to realize that Sandra valued the friendship differently than I did, or she never would have jeopardized it with a business proposition.

For years, industry surveys have found that more than 40% of all people take financial advice from friends, family, and business associates, and an AARP Financial study from 2009 confirmed that more than half rely on people with close ties when they’re going through a life crisis.

Doing business with a friend or family member spells trouble for one big reason: You let your guard down.

Rogue advisers have no qualms about ripping off friends and relations. In the well-publicized case of Brad Bleidt, a Boston adviser/radio host who was busted in 2004 for running a longstanding Ponzi scheme, the victims included his mother and grandmother. Bleidt had sworn an oath that he would not “wrong, cheat, or defraud” his brother Masons or the lodge (ironically named the Golden Fleece Lodge) when he joined the group; it was there, however, that he started shearing his “brothers” of their life savings.

Likewise, many of Bernie Madoff’s victims were folks he met at his country club, on the golf course, at charity functions, or through some personal affinity; he counted on those ties raising trust and lowering resistance.

Working with friends adds emotions on all sides. Ask your best childhood friend to provide a written history of his business experience and credentials, and he may take offense; fail to ask a full set of questions, and you can’t be sure you have the right expert.

There is more than money at stake when you do business with friends and family. Factor the extra value of your friendship into your decision making; you’ll lose a lot more than just money if a financial relationship with a friend or relative goes bad.

Elliot Wave predicts triple-digit Dow in 2016

By Peter Brimelow , MarketWatch

NEW YORK (MarketWatch) — An investment letter that called the Crash of 2008 said that this would be a bad year — and it now says it will get worse.

A whole generation of investors think that Robert Prechter and his Elliott Wave Theory letters, Elliott Wave Financial Forecasts and Elliott Wave Theorist, are permabears. And they’ve certainly seemed that way for the last decade — although it should be noted that the stock market is now roughly back where it started. ( See April 26, 2002 column. )

But Prechter was very bullish after the 1974 low and, briefly, after being one of the very few services to make money in 2008. Then he announced that “2010 is the year when the bear market in stocks returns in full force.” ( See Jan. 22 column. )

Elliott Wave Financial Forecasts (EWFF) makes recommendations specific enough to be tracked by the Hulbert Financial Digest. (The Elliott Wave Theorist is too, well, theoretical.)

Over the year to date, EWFF is up just 0.4% by Hulbert Financial Digest count through May vs. negative 0.3% for the dividend-reinvested Wilshire 5000 Total Stock Market Index.

Over the past 12 months, its bearishness did cause it to gain just 4.75% compared to 22.89% for the total return Wilshire 5000. But over the past three years, the letter’s bearishness paid off handsomely. It’s up an annualized 5.25% against negative 8.12% annualized for the total return Wilshire 5000.

And even over the past 10 years, so badly damaged have stocks been that the letter was up an annualized 1.05%, outperforming a mere 0.22% annualized gain for the Wilshire 5000.

The EWFF issue published in early May said flatly: “The topping process is over for the countertrend rally that started in the first quarter of 2009. The next leg lower that commenced in April should now deliver a decline that will ultimately be bigger than the 2007-2009 sell-off. … Gold poked to a new high, but in doing so, likely completed a pattern in mid-May that will lead to a multi-month selloff. … The U.S. dollar index /quotes/comstock/11j!i:dxy0 (DXY 85.60, -0.48, -0.56%) is fulfilling EWFF’s forecast for a strong advance.”

All of which fits right into Prechter’s repeated predictions of a massive coming deflation.

In a rare comment on individual stocks, EWFF says: “Google Inc. /quotes/comstock/15*!goog/quotes/nls/goog (GOOG 502.40, +1.13, +0.22%) made its countertrend rally on Jan. 4, four months before the DJIA and Nasdaq, and appears to be locked in a decline the EWFF also forecast last August. Its early reversal is a bearish development for the broad market, as Google is an icon of the last great stock craze. The failure of its stock price to reignite is a clear sign that the animal spirits of the old bull market are all but gone.”

How bad? The clearest statement comes from the Elliott Wave Theorist, discussing a numerological technical theory with which it supplements the Wave Theory’s complex patterns: “The only way for the developing configuration to satisfy a perfect set of Fibonacci time relationships is for the stock market to fall over the next six years and bottom in 2016.”

“Stock market bulls and most economists think that a new bull market and economic recovery are underway. Most bears are looking for either a long sideways bear market à la 1966-1982, or a hyperinflationary run to infinity. Our Elliott Wave outlook opposes both of these scenarios. The most likely profile is a stock market crash of historic proportions.”

Elliott Wave Theorist offers several reasons, including: “This bear market is of Supercycle degree, the biggest since 1720-1784. It should therefore include a decline deeper that the 89% decline of 1929-1932. A decline of 91.5% or more would carry it below 1,000.”

There will be a short-term rally at some point, thinks Prechter, but it will be a trap: “The 7.25-year and 20-year cycles are both scheduled to top in 2012, suggesting that 2012 will mark the last vestiges of self-destructive hope. Then the final years of decline will usher in capitulation and finally despair.”