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One of the best things about blogging is the instant responses we receive. There are many times you have to be thick skinned when receiving criticism or just tolerant of the foolish people who are either rude or unknowing.

This brings me to Mr. noitall (small 'n' his choice) and the following commentary which followed my recent post $700 billion is real money!

"Well, maybe I was labeled a cynic about 2 years ago when I said the Fed is in a "check-mate" situation, where they will have to choose between saving the stock market, real estate market, or the dollar, but it most likely fail at all three. I don't think I am a cynic, just a realist, and it looks like I was right. Another thing I will say is massive greed, ignorance, arrogance and our willingness to believe in fantasies allowed this to happen. Maybe when a "cynic" questions some of the well known "facts", like the "buy & hold" theory, people should listen & give it some thought, before they believe the "historical data" they are given."

Mr. n and I often find common ground and he is telling the truth when he writes that two years ago he predicted the speculation and down market we are faced with today. While I must say that I find his view bleak, it has to be said also that people should be better prepared for poor markets and tough times.

While Mr n. is correct today and maybe tomorrow, his bearish outlook may not hold true next week or month or year. He does not mention the folly of straight-line analysis, but I am sure he would agree that good times do not necessarily follow good times and for the same reason bad times to not proceed in a linear fashion either.

It must be time to pay the piper. It seems all of our efforts to avoid the consequences of a recession in the aftermath of the technology bust in 2002/03 has just created an even more disastrous recession in 2008/09.

When you reach a point where the fear, and pain, and worry, are so great that valuations have no meaning as a consideration in business transactions and investments you have a dire situation. When you can no longer assess what something is worth you really are in trouble. Regardless of what my brain thinks, my heart feels we are there.

The Dow Jones Industrial Average tumbled again today relentlessly seeking a bottom that was not there. If not for the market closing the it might have kept falling. It ended the day at 9447.11, down 508.39 losing another 5%.

In retrospect the economic soft landing that Alan Greenspan manufactured with very low rates, that were kept low for far too long resulted in interest rate euphoria. That allowed the desire to buy a home to ramp up into wild speculation, ever increasing valuations, and development, and onto home equity loans at 100% of bloated values. Valuations that were unsupportable. When that started to run dry people started to tap into their credit cards with reckless abandon supporting their unrealistic lifestyles, and on the other end of the spectrum just to 'make ends meet'. Well, the 'ends are not meeting any more'.

Earlier today I posted No Cramer, now is not the time to panic! and I have not changed my mind but in watching my fellow investors increasingly scavenge for little bits of liquidity during this discouraging tail spin it seems only time and a lower standard of living will settle things. I think folks understand the time element and are willing to tighten their belts too. I am not sure most people have come to grips with the fact that we may be entering a new economy -- and it is not the one that was advertised.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money..

My colleague (sort of) James Cramer has suddenly turned into a giant, growling bear. He has been moving in that direction for a few months and now he thinks we all should go into hibernation for five years. He is so wrong!

First of all, it is never a good idea to make decisions while you are in panic mode. Second, Jim's guidance is moving with the market so he is not making any serious prognostication, just staying slightly ahead of the mob. He might as well stick his finger in the air.

Are things bad? Yes! Could they get worse? Yes! Would I run for the hills? ABSOLUTELY NOT! Even though I agree we are in for some tough times, I think the market is reacting to more than meets the eye (see All bets are off -- stocks' irrational downside).

If I recall correctly, 50% of the significant gains in the Dow Jones Industrial Average were made on 7% of the up days. You have to be in the game to win the game. If you are in panic mode you should alter your investment portfolio so that you can rest easy. Diversification helps and speculation hurts.

Most people who have been investing for any length of time have heard of dollar cost averaging. This is where you put a certain amount of money into an index fund regularly each month, so that when the market is up you are buying fewer shares at higher prices and when the market is on sale, like it may be today, you are buying more shares at a lower price. This allows you to grow your portfolio consistently while paying a reasonable price for the shares you add -- on average.

There is a lot of bad news affecting the stock market and prices are falling for some very important reasons. These include reduced expectations for earnings, higher unemployment, a lack of liquidity, a housing market that has not bottomed yet, federal spending gone wild, and the collapse of some venerable financial institutions to name a select few.

The Standard & Poor's 500 Index: started the year (Dec 28, 2007) at 1,478.49 and as of Friday October 3 it was 1,099.23, down 25.7%.

There are concerns about recession and even a depression and the global market for most commodities has softened.

Given all this how can I believe that the market is becoming irrational to the downside and values abound?

For one reason I know that many people are selling stocks out of fear of the market going lower and they do not want to be the last one out of the pool. That is a legitimate reason to sell but has nothing to do with the intrinsic value of a company or stock. If the index is being sold off then that means the good are being sold along with the bad.

Another factor pressuring the market relates directly to tight liquidity. I recently refinanced my home and the bank wanted me to reduce my home equity line to comply with its much tighter lending requirements. I sold some stock to accommodate them but this had nothing to do with stock valuations. I also sold some stocks and funds to buy down a commercial real estate loan in the past month. I had no pressure to do so because the loan to value is very low, but we are looking to acquire additional property as distress sales turn up and want to keep our powder dry.

Many people have been allowing their credit card debts to increase but facing little hope of growth in the stock market; those that can are selling stocks to buy down their debts where they can. This too has nothing to do with the intrinsic value of the stocks they are selling.

The index for comparison is the Standard & Poor's 500 Index, which closed on June 30, 2008 at 1,280.00. The S&P closed Friday at 1,099.23 , down 14.12%.

Each of my five picks is beating the market and three of the five are actually up despite crushing news in the financial sector, unemployment and housing. Congress did pass a Wall Street backstop/bailout bill that President Bush has signed, but only after adding another 450 pages and $130 billion to the amount. Although the five stocks have averaged a 0.35% loss, as intended, they easily beat the S&P by 13.77%.

Here are the five stocks that I still think are worth considering. For my original rationale see the linked story above.

1) Johnson and Johnson (NYSE: JNJ) -- when recommended, the stock closed at $64.34 and paid a 2.89% dividend yield. It closed Friday at $66.16 -- up 2.75%. JNJ was featured in Barron's this month as the most respected from the top 100 companies in the world.

The market is bouncing around with every bit of news leaked from the Congress as well as company warnings and Federal reports. 'My pal Warren' is frequently being asked his opinion about the stock market and his 'stock answer' is that he ignores the overall market and its daily gyrations and focuses on individual investments and price (value).

Buffett drew plenty of attention this week when he invested $3 billion dollars in General Electric (NYSE: GE) preferred shares set at a permanent 10% return with a buyout clause allowing GE to get them back at a 10% premium. In addition Berkshire Hathaway (NYSE: BRK.A) received warrants to buy an additional $3 billion worth of stock anytime in the next five years at a strike price of $22.50.

The company recently announced that it would curtail its stock buyback plan in favor of maintaining its dividend and its rare Triple-A financial rating. Given the vote of confidence expressed by Buffett (he got a great deal again) and the dividend yield of about 5% this stock is just screaming at me to buy more, but at what price.

Well, I have no crystal ball, but if you can buy GE at something less then the BRK.A warrant price and below its ten- year price you have to at least give it consideration.



Even though GE warned that earnings would fall below expectations for the quarter, (they report October 10, 2008, in one week), they are still earning more than they were the last time they were at this price. As a matter of fact, the metrics are far better now than they have been, according to this weeks Barron's recent follow-up story dated September 29, 2008.

They report that revenue has gone from $13 per share in 2000 to $19 now; cash-flow has increased from $2.00 to $3.30; earnings are up from $1.29 a share to $2.00 and the dividend has escalated to $1.25 from $0.57, yet the stock is 50% off recent highs.

As I have stated many times in other stories, if you are looking for an alternative to bonds or low paying treasuries that will give you a very healthy yield and the potential of sizable appreciation GE is a place to look. And now you can call Warren Buffett partner...sort of.

UPDATE: GE closed today at $21.57. Disclosure: We bought in at $22.00.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of BRK.B & GE.

Wachovia (NYSE: WB) changed direction early this morning as it left behind an FDIC maneuvered deal with Citigroup (NYSE: C), deciding to hitch up with the Wells Fargo's stagecoach instead. It was announced they have "signed a definitive agreement for the merger of the two companies including all of Wachovia's banking operations."

Wells Fargo (NYSE: WFC) last night presented Wachovia with a signed and board-approved offer to purchase Wachovia Corporation as an intact company and without government assistance in a stock-for-stock merger transaction. Under the Wells Fargo proposal, each share of Wachovia common stock will be exchanged for 0.1991 shares of Wells Fargo common stock, representing a value of $7 per share, based on Wells Fargo's closing stock price on Oct. 2, 2008.

The deal valued at about $15 billion, means Wachovia will combine with the only AAA-rated financial institution in the United States.

IN pre-market activity Wahovia and Wells stocks are up while Citi's is down 10%.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of WFC.

Oil prices are significantly down from the summer high of $147 per barrel. Wednesday October 1, New York's main contract, light sweet crude for November delivery, lost $2.11 to close at 98.53 dollars a barrel.

Now Merrill Lynch (NYSE: MER) is slashing its outlook for oil prices. Not only do their analysts believe that oil will drop below $90 a barrel next year, but they add that there is a possibility it may drop below $50. Demand is shrinking and it's hard to call a bottom.

Given all the turmoil in the financial markets this year and with a looming "consumer credit bubble" being discussed in most business publications, it would be very advisable to use any savings from lower oil prices to pay down credit card debt.

• Southern Company (SO) has been the biggest addition to our family holdings. It is now in at least seven portfolios and I have sold naked puts for November 30's. I AM NOT RECOMMENDING ANYBODY SELL NAKED PUTS. Selling naked puts is very risky and as they say..."don't try this at home folks." I like Southern because it is near a 52-week low, but has had five years of continuous growth. It pays a huge dividend, as utilities traditionally do, and it is located in a part of the country that has relatively low wages, cheap land, good weather, a favorable tax environment and it has seen tremendous growth in the past two decades, which I believe is very likely to continue.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of SO.