I have no idea when we might drop to the lower quintiles.  As you can see in the graphs, markets can stay over and under valued for decades.  So make sure you manage the risk!

This last graph shows that the PE10 has been lower 88% of the time historically.

Sources:

• http://advisorperspectives.com/commentaries/dshort_201112.php
• http://advisorperspectives.com/commentaries/dshort_20111.php

These typically includes real estate and oil partnerships, hedge funds and numerous other illiquid investments.

One way to qualify as an accredited investor, is to have $1 million in net worth excluding home equity. If you have negative home equity, that does count against your net worth.

If you will be investing in one of these opportunities, your due diligence burden is much higher.  And if they will be doing any kind of securities trading make sure they use an independent qualified custodian.

The Florida Attorney General produced a presentation documenting a number of the frauds that servicers and lawyers are perpetrating on the court. The slides include many example documents showing the shenanigans. It is fascinating to look through. I love the examples of people signing for companies with dates after the company ceased to exist and the back dating of documents uncovered by the use of notary stamps that didn’t exist on the supposed signed date.

Warning PDF: http://www.stayinmyhome.com/blog/wp-content/uploads/2011/01/Foreclosure-Report-from-Florida-AG.pdf

The Massachusetts Supreme Court is also looking at whether the incorrect transfer of mortgages and their notes invalidates foreclosure proceedings. If the court rules against the servicers, this would likely cascade into a big deal.

http://www.bloomberg.com/news/2011-01-06/foreclosures-may-be-undone-by-massachusetts-ruling-on-mortgage-transfers.html

And here are a couple of stories of banks acting badly (i.e., abusing people who have never missed a payment).

• http://ctwatchdog.com/2010/12/24/bank-of-americas-christmas-present-foreclose-even-though-not-a-payment-missed
• http://www.npr.org/2010/12/23/132285516/a-mistake-that-stole-christmas-a-foreclosure-story

First, the $5 monthly fee gets waived if you add at least $500 each month onto the card. Most actions with the card are free, but using an ATM does cost $2 + the local ATM fee.

The second feature is an associated savings account (limit 6 transactions/month).  If you have the prepaid card and you direct deposit your paycheck, they will pay 5.1% APR on balances up to $5,000 (virtually nothing on money above that amount).

While I would still recommend using a traditional cash back credit card along with a high yield savings account, this is a viable alternative for those with credit problems or spending problems.  It works best for those who typically spend $500 to $2,000/month on their credit card.

B.J. Fogg at Stanford’s Persuasive Tech Lab has been tackling this very problem and has released a behavior grid to guide people through making these changes.

He breaks down behavior into motivation, ability and triggers.

Motivation is broken down into sensation (pleasure/pain), anticipation (hope/fear) and social cohesion (acceptance/rejection).  In other words if you make a promise to your friends, social cohesion becomes a motivator to help you follow through.

People typically think that ability should be improved by training and practice.  But Fogg has discovered that it is much more effective to focus on making the task easier and more accessible.    For example, instead of trying to get yourself to do a full workout every day, promise yourself that you will do at least one push-up every day.  This will make it easier to establish the habit and naturally lead towards bigger workouts.

Lastly, triggers are cues, prompts, call to actions, requests, etc.  When establishing a new habit your want to link that habit to a trigger that occurs in your daily routine (i.e,. eating breakfast) or to your environment (i.e., whenever I walk into the kitchen).

Click on the box that is appropriate to your situation to see Bogg’s recommendations.

As you can see, the techniques work pretty well. They mainly fall down when PE ratios deviate from the norm for an unusually extended period of time. And these techniques currently project S&P 500 returns in the 5% (nominal) neighborhood. Using Shiller’s PE10 for estimating returns gives you a similar graph (see here for graph that includes Shiller data and for the technical details of how he does his projections).

If you assume valuations are not going to revert (i.e., stay at current high levels) and that inflation will meet expectations (around 2.7%) you could boost this number as high as 7% if you want to be optimistic. And if you think that tilting a portfolio to small and value adds another 1%, you could reach 8%. But expecting stocks to return higher than 8% over the next 10 to 15 years goes from “optimistic” to “dreaming”.

And emerging markets aren’t going to save this either. Their valuations are already on par with the US market and while their economies are growing much faster, this does NOT translate into much higher earnings growth for the stock market (it shows up as new capital formation/ new share issuance).

Health Care Costs as percent of GDP vs Year

Less than a 1000 people a year took advantage of this strategy, but with the increasing press, Social Security decided to be proactive and change the rules and will no longer allow people to repay their Social Security benefits and restart the clock after more than 12 months have elapsed since starting Social Security.

For those using the file and suspend technique, they have also tightened up on suspensions so that you cannot file a suspension retroactively (i.e., pay back monthly payments already received).

Here is the cost breakdown of the deal

• $458 billion ($75 billion for > $250K earners) – Two year extension of Bush tax cuts
• $56 billion – Extended unemployment benefits for 13 months
• $40 billion – Extension of various individual tax credits for two years
• ???? – Extension of business tax cuts (e.g., expensing investments) for 2011
• $120 billion – 2% Reduction in Social Security taxes for one year  (2011)
• $88 billion – Estate tax exemption of $5 million per person and top rate of 35% for next two years

Since the enactment of the tax cuts in 2001, Congress has made an important discovery. That many special interests are willing to donate a lot of money for and against the continuing of various tax measures. This leads to the perverse incentive for Congress to never make them permanent. By keeping them temporary they guarantee their campaign coffers will remained filled by their respective constituencies.

1. You Have “Inattention Blindness”
2. You READ FASTER With a longer Line Length But PREFER Shorter
3. You Can Only Remember 3 to 4 Things At A Time
4. You Imagine Objects From Above and Tilted
5. You Make Most of Your Decisions Unconsciously
6. You Reconstruct Your Memories
7. You Actually Can’t Multi-Task
8. Dopamine Makes You Addicted To Seeking Information
9. Blue and Red Together is Hard On Your Eyes
10. You Want More Choices and Information Than You Can Actually Process
11. Why You Can’t Resist Paying Attention to Food, Sex, or Danger
12. When it comes to technology, you definitely “act your age”
13. Want To Change a Habit? Use Fun, Surprise, and a Crowd
14. Reading Text Online Is Not Fun
15. If You Use Social Media Without Laughter You Aren’t Being Social
16. The Ability To Delay Gratification Or Not Starts Young
17. Your Unconscious Knows First
18. What People Look At On a Picture Or Screen Depends On What You Say To Them
19. It’s a Myth That All Capital Letters Are Inherently Harder to Read
20. Your Attention Is Riveted By Pictures Of People
21. You Overestimate Your Reactions to Future Events
22. Peripheral Vison — Keeping You Alive or Channel Surfing?
23. You Are Hard-Wired For Imitation and Empathy
24. You Are Most Affected By Brands and Logos When You Are Sad Or Scared
25. Trust Your Gut or Be Logical? It Depends On Your Mood
26. Culture shapes our brain
27. We go below the “fold”
28. Things that are close together seem to belong together
29. Brand Names Talk To Our “Old” Brains
30. Our “strong tie” group size is 150 people
31. The Desire For Control And Choice Is Built In
32. Synchronous activity bonds the group
33. Bite-Sized Chunks Of Info Are Best
34. Too Much Stress Results In Poor Performance
35. People Make Mistakes
36. People are Inherently Lazy
37. People Assume It’s You, Not The Situation
38. Even The Illusion Of Progress Is Motivating
39. Your Mind Wanders 30% of the Time
40. “You’re Easily Influenced, but I’m not”
41. Your Most Vivid Memories Are Wrong
42. We’ll spend more money if you don’t mention money
43. People Expect Online Interactions to Follow Social Rules
44. When Uncertain, People Look To Others to Decide What To Do
45. You Choose (And Vote For) The First One On The List
46. The more uncertain you are, the more you dig in and defend your ideas
47. People Value A Product More Highly If It Is Physically In Front Of Them