Now the consequences of those actions are coming to create several problems:

Mortgage Mess
As I have written earlier, they were handing out NINJA loans for a few years.  These are loans with NO INCOME, NO JOB. No problem.  When things got tight, people even browed against their equity with a home equity loan.  Then add some credit card debt and we’re in the middle of the mess were in now as interest rates climb. 

Boys Toys
If you look over the past few years, the extravagance of spending for “things” from new plasma/flat screens to upgrades to houses, or I should say mansions, to boats and cars, is outrageous.  I lived during these times in Bethesda, Maryland (USA) and I found it amazing that the land was so expensive, people could buy a house from the 1950, tear it down and build a “mac mansion” that took up 80% to 90% of the properties space.  I had not idea who was going to live in such a huge place.  Well, an entire generation could live there.  Things add up and they certainly did in this case.
Easy Credit
Fueling a lot of this was easy money and easy credit.  It is a proven fact that when you have to save $10,000 and then spend it, you’ll think twice or even more before spending it.  However, when the money comes on a plastic card and it was just given by a bank, the spending it is rather easy. Rather quick.  And the reality of what happened is only realized *after* the bill comes much later.  This is the type of environment that we easily loose site of what our motivations to purchase are, and our self-restraint to pay for things that we need most vs. buy things that we don’t need.
Paper Profits
Another factor in all this is when people pushing various types of paper – financial instruments –are earning a lot more than the “common man” who toils in the fields or works at a factory.  In the business world, now there are companies, especially in some VERY HOT SECTORS that are earning tons of money merely buying and selling OPTIONS on certain products and services.  These operations are “pushing paper” and making money overnight.

Recently I discussed such trades with a shipping broker, who had made millions for his company just by purchasing options on available shipping capacity.  Sure the underlying business model is hot, but on top of that millions are made in other ways.

The problem with all this is where is all the money coming from?
Fiscal Irresponsibility
Just like we’ve over spent, so has the government.  They have spent like there’s no end to the money chain.  Even worse, they have promised a lot more than they can deliver.  How’s all this going to be done?  By borrowing more and more.  Those people who started borrowing funds as students in the 1980’s are now the same people in charge of spending the hard earned money of taxpayers.  They have no problem spending it.  In fact, they’ll dip into the monies that are yet to be earned by your grandkids and promise it to the retiring baby boomers.

Where is all the money coming from?  Several Asian countries, and some creating printing of cash needs.  Wonder why the dollar is headed lower and lower, as it never had before.  Well, now you know.  Printing of money is the realm of third world dictators after they ruin the economy.

And foreign adventures
This is a classic case of spending on things by the government that creates even more of a mess and results in even more spending.

If the total cost of the Iraq war is taken into account, the American taxpayer is looking at the multi-trillion dollar tab.  Then add the interest that money will cost, since it may take another 10 years to pay for all of it and you can bet another trillion can be added to the final bill.

Where is all this money going to come from?  Will it be “saved” by buying oil at lower prices for the next 50 to 100 years?  Probably not.

My final word on all the government spending is that if the military budget was cut in half and more money put into the space program for example, a lot more solutions to the common problems will be found.  It is common knowledge that a dollar put into the Viking Missions of the early 70’s resulted in 10 times the return.  When does the government spend money where they get return like that, AND goodwill from the world?

After all of this, will a perfect storm brew?  Not if they get their act together quickly.  I don’t see that happening until a new administration purges the current war hawks.  If the policies and free markets are allowed to take their course, business, growth and governing will return to a more ‘healthy’ atmosphere. 

Something that will help this greatly is new leadership.  Taking a very tough stance on the way government is run. And spending only the money that the government revenues allow.
When things go back to basics, we’ll all enjoy a very healthy investment environment.
Rich Sage

When I wrote about this in an earlier post, I pointed out that the mess is *still* ahead of us.  We’ve just seen the tip of the iceberg and just a bit more below the waterline.  The really, really ugly stuff is still ahead.

While reading about this today, I could not help but notice the words used by the financial reporters describing how $7.9 Billion US Dollars were wiped off the balance sheet at Merrill Lynch.

In one AP article the words used were “writedown”, “bad bets”, “shortfall”, “value of these investments has been difficult to determine” (not at purchase, but now…) and finally, the icing on the cake, “poor risk management”.  Duh.

This leads me to a few questions — When investment houses buy loans that have names like NINJA LOANS, which stands for No Income, No Job, exactly what type of return are they expecting from those types of paper?

In my previous blog, which is getting an upgrade to Wordpress, I pointed this out back in 2006 when I got out of most financial stocks.  Everyone with half a brain knew back that that the speedy train was headed for a very nasty wrack when things like NINJA loans were flying out the window.

While things were going nicely, it looks like a lot. 

That leads to this –where did all the money go?  Well, when you follow at first the money trail, and then down the end path to where things originated, it all ends up at the individual homes that created the paper when they financed the loans.  The end result being that several hundred billion or even a trillion or two of value across the homes of America got wiped out.

So, in the end, “writedown”, “bad bets”, etc, etc. came off the backs of real people, who worked really hard to make things work.  Then a meltdown in the financial industry took the value away.

One of my investment philosophies is that it DOES MATTER what type of products the companies are working with, and over a little time, that will reflect on what happens in their financial reports.

At this time I am sitting on such a “time bomb” in one of the shipping companies that I’ve picked for the NSS Growth Portfolio.  The shipping company is now making money using paper.  Sure their fixed business and assets are making very good money, but on top of that they are using paper instruments to further their profits.  The problem is when those are the things that people focus on and forget about the underling business and the value of it.

It does not take much to get people carried away and think that there is a new paradigm on the horizon. When I hear things like that, I run for the exit  Well, not a run, but more like getting sucked out an airplane at 40,000 feet. Get out!

Sure things like this happen. Otherwise, people will never get back to the real businesses that they need to run.  That’s why an occasional “shake out” is good to remind everyone how things are done.  I am sure that financial text books are getting a few pages added to explain this one away.

The problem is that in the process, a lot of real people with real lives, got “Lynched” and they were not in the Merrill Tower…

Rich Sage
Disclosure: SR.RS does not own any MER shares. And don’t plan on it.

Way back in August, as the Stock of the Month, I described a stock that I had picked for it’s outstanding growth potential.

That stock is NETSCOUT SYSTEMS INC (NTCT), and as of today, the stock as risen 30% in a few weeks, from the buy point that I issued.   You can learn more about it via: http://finance.yahoo.com/q?s=ntct

I feel that NTCT, as long as it continues in the current path, has the potential to rise a few more times in it’s price and if the growth outlook improves further, who knows what can happen.
The company which develops enterprise software recently made its own acquisition and continues to provide outstanding value to it’s corporate customers.
Given the turnaround and current progress, I see  lot of good things coming in both corporate performance and the value it will establish in the markets.
There are a few things to note with this announcement:

1. The stock of the month announcement is rarely issued at a buy point.
2. The stock is first revealed to my InnerCircle, and then to my list subscribers –FREE Members.
3. Then I will discuss it here, at NEXT SuperStock.

How NEXT SuperStock Can Benefit You:

The stock of the month is discussed with Innercircle Members on or about the first week of the month.  The InnerCircle club members can then research the company in their own time.  The following week the registered FREE Members of NEXT SuperStock can review the Stock of the Month.  Lastly, sometime during the month OR when the buy point is reached, the stock is announced to our readers.

Rich Sage.

Disclosure: The Rich Sage is always an owner of the Stock of the Month.

The NEXT SuperStock October Stock of the Month is a USA based company helping Hospital and other heath care organizations drastically cuts costs using their state-of-the-art patented invention.

As I discuss this stock with my InnerCircle Members, the stock is trading at less than $0.10 per share. That’s right, less than TEN CENTS for each share, however, as this invention gets out to the market place, the corporate fundamentals are going to change drastically!

I can say that the company is a NSS BUY anywhere below $1.00 per share –yes, that just a buck a share, and still a deal.  I think the company will grow in the coming years to a share price of $10 to $20 as this great invention helps heathcare organizations greatly cut costs. 

How NEXT SuperStock Can Benefit You:

The stock of the month is discussed with Innercircle Members on or about the first week of the month.  The InnerCircle club members can then research the company in their own time.  The following week the registered FREE Members of NEXT SuperStock can review the Stock of the Month.  Lastly, sometime during the month OR when the buy point is reached, the stock is announced to our readers.

Rich Sage.
Disclosure: The Rich Sage is always an owner of the Stock of the Month.

As the quarter started, the stock markets hit new highs and the Dow Jones Average closed above 14,000 point.

Time to Celebrate?

Actually, now is the time to be ultra-cautious for this reason:  When euphoria hits the market is the time to really look at what’s happening. 

I tend to look into companies when everyone is worried.  That is when good returns are made.  If you look at the past 3 month, during the mortgage paper crises and the infusion of capital from many governments, the market cooled off.  Then it rallied when the Fed cut rates.  Suddenly, the fallout from the mortgage paper mess is history.

HOWEVER, while many may forget the mess (or at least the press does), the autual reporting of that issue in corporate balance sheets is yet to come.  The “mess” as I call it will show up on a lot of balance sheets when companies start to report their results later this month. 

All this can mean a sudden correction, when everyone is joyous about the “new highs”… How can we protect against this mess?  Just to watch each sector and to do what I do –Keep a good eye on the ratio between winners and losers on Wall Street.

Even while the markets are going up, because the market is a reflection of large multinationals, the overall WIN/LOSS Ratio can “go south” very quickly.  That is the only way to keep from “messes” catching up with independent investors.  Keeping a good eye on the win/loss ratio can get us out of the market quickly –before the “mess” catches up to everyone else and it’s too late to “get out”.

Rich Sage.

The investment club that I’ve founded with a few participants entered into the market in late August with a buy on DryShips (DRYS) which led the leaders for the quarter.

The portfolio was rounded out by the medical and IT sectors, but the overall leader by far was the shipping sector which had two candidates hitting buy points.

Not a bad start. However, now begins the documentation for the membership I am creating allowing hundreds, if not thousands of readers to see the stock picks, research and charting that will lead to my goal of an annual 100% return without using margin or options.  Of course, given good market conditions I use options and margin.

Rich Sage
NSS Editor

The NEXT SuperStock September Stock of the Month is in the Health Care field and is growing rapidly.  Yet, the stocks price has not broken the buy point that I’ve issued (it’s trading at less than $10 per share).

It seems the company is back to doing business as it should.  The fundementals are very strong, as is the return of equity, which is also one of my criteria for picking a stock of the month.

I don’t see the September Stock of the Month staying near the current trade price for very long as the company keeps growing as it does!

The actual details of the stock will be released to general readers in October 2007.  At this time only InnerCircle Members can get this information.

How NEXT SuperStock Can Benefit You:

The stock of the month is discussed with Innercircle Members on or about the first week of the month.  The InnerCircle club members can then research the company in their own time.  The following week the registered FREE Members of NEXT SuperStock can review the Stock of the Month.  Lastly, sometime during the month OR when the buy point is reached, the stock is announced to our readers.

Rich Sage.
Disclosure: The Rich Sage is always an owner of the Stock of the Month.

• The NSS Membership has two services — The Inner Circle, composed of people I know, who I aide with NSS information to help grow an outstanding portfolio.
• The next service is a Membership that gives access to the information I share with the Inner Circle as a weekly update in the membership area.
• Lastly, NSS runs a free email subscriber list that updates with the Stock of the Month.

The objective of Next SuperStock is to follow the below business model where funds are distributed between high-risk ventures to lower-risk projects, and continuously grow funds that are moved from the pinnacle to the base of our model.

Expanding on Points #1 to #5:

1. NSS Venture Portfolio:  This is where I actually started with –even the Next SuperStock.com is part of that effort.  My goal via the site is to create two products. Additionally, to advertise companies that have great growth potential, but lag greatly in their market value.  This effort has already started and I have sold several memberships to the Inner Circle.

   I now have 26 positions left. 

2. NSS Stock Portfolio Small Cap:  These are usually the small cap stocks that I feature as the Stock of the Month via the NSS Membership. 

3. NSS Stock Portfolio Mid Cap: These are companies that I research using a proven formula with market caps around $500 million to $4 billion, but with great growth opportunities in their stock valuations.  These are primarily the stocks that I work with to grow the Inner Circle Members portfolios.

4. NSS Stock Portolio Large Cap: These are companies that I have already invested in but have growing considerably since first entering at the Small or Mid cap range. These companies don’t have a lot of growth left, but still present several buying opportunities to grow a large portfolio.

5. NSS Commercial Real Estate:  This is part of the portfolio that I will help the Inner Circle Members maintain after substantial growth of the stock portfolios.  At this time the Inner Circle is still several years away from the first of such expansions.

The above is the business model for the Next SuperStock.  Of course, the elements of #2, #3 and #4 will be featured at the Next SuperStock Membership area, the mailing list and the member only access areas that I maintain.

Sam
NSS Editor

The August 2007 stock of the month has great earnings per share, sales growth and margins.  Because the company has strong earnings, great margins and a bright future, there is no reason for the price to stay at current levels –especially when peers are trading at 4 to 10 times the multiple that this company is trading for at this time.

I’ve concluded that around $10.00 (exact buy point to members only) is a buy point with the potential to reach $20 to $25 per share by Mid 2008.

The actual details of the stock will be released to general readers in October 2007.  At this time only InnerCircle Members can get this information.

How NEXT SuperStock Can Benefit You:

The stock of the month is discussed with Innercircle Members on or about the first week of the month.  The InnerCircle club members can then research the company in their own time.  The following week the registered FREE Members of NEXT SuperStock can review the Stock of the Month.  Lastly, sometime during the month OR when the buy point is reached, the stock is announced to our readers.

Rich Sage.
The Rich Sage is always an owner of the Stock of the Month.

At this point, the DOW is down about 400 points.  This was the market mini-correction that I called at the start of the summer.  It was just a matter of time before the oil prices, mortgage mess and the multi-year increments in interest rates caught up with the positive trend.

So, I am about a month off, but again, I was cautious because some of the smaller caps had showed their signs of downward trends a lot earlier than the larger caps.

Much of the positive gains were due to M&A activity.

Now the question is what next?  Well, the trend will continue until some of the problems that have surfaced for many months clear out.  Problems like what?  Well, the downward trend in the housing market, the rise in oil prices and the settling down of M&A activity.

Take this for example –at this time ABN AMRO is up for bidding near $100 BILLION DOLLARS.  Where’s all this speculation coming from?

There’s a lot of risk floating around and all that has to settle a bit.

Is there any good news?  Yes, if you look at the EPS numbers, they are not very high.  In fact, the average is around 16 Times Earnings per Share.  The stocks are priced at around 16x Earnings.  So, that is not bad at all. 

This summer has been a time to raise cash, and that trend continues until there are clear signs that the market has “turned positive again”.

Rich Sage