Mad Money Machine

2 down, 8 to go

Ron Paul got 10% in Iowa. That was better than expected. Eight predictions for 2008 left to fulfill.

That was easy: 1 down, 9 to go

On show 92, I made the prediction that commodities would be in vogue again in 2008. And I said that gold would reach new all time highs (non-inflation adjusted). That was too easy I guess. Let me revise it to say that gold will go above $1000 per ounce. Much more interesting. Nice round numbers. Everybody loves nice round numbers. While I am predicting it, I hope just as passionately that it DOES NOT HAPPEN. So what do you do? Take the Risk Capacity Survey, invest appropriately, and ignore predictions like this one.

MMM-092: Predicting the Future

Rock Band. Mad Money Machine’s Ten Predictions for 2008. Step 12: Invest and Relax. A spin of the Guru Roulette wheel. If this is your first Mad Money Machine show, please do go and download another one at least. This is a year end shortened show. Next week: how the portfolios did in 2007.

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Predicting the Future [ 20:00 ] Play Now | Play in Popup | Download

The Mad Money Machine is proud to be sponsored by Index Funds Advisors at ifa.com.

Topics in this week’s show include:

• Ten predictions for 2008. Download and listen to the show for full details of each prediction

1. Cramer will write a new book published on Tuesday 9 December 2008 entitled Jim Cramer’s Mad Rules for Investing and will be about how to select index funds and ETFs, how to avoid actively managed mutual funds, and how to do other things besides watching the stock market. It will go further than his current book “Stay Mad for Life” in recommending passively managed investments, avoiding expenses and fees, and avoiding taxes. In conjunction with the book, he will begin featuring a weekly segment on his show Mad Money each Monday entitled “Index Fund of the Week” where he describes and index fund and why it is a good place to invest.”
2. Apple will release a tablet PC with a touch screen and Wi-Fi for surfing the Internet. It will have a USB port to allow connection of peripherals such as keyboard, external hard drive, camera, even external monitor. A later version will include a Bluetooth phone, connection via 3G, and an even later version will feature an extremely high resolution black and white screen mode for eBook reading giving tough competition to Amazon’s Kindle eBook reader.
3. Stock market will surprise investors. One of the recently strong segments will exhibit significant weakness in 2008. And one of the recent laggards will show significant strength. Either Fear or Greed or both will be rampant.
4. Ron Paul will do better than expected. Not hard to do when they don’t expect much at this point. Whoever bought Ron Paul futures on intrade.com for $8 will be able to sell at a nice profit.
5. Commodities will be in vogue again. You’ll be seeing a lot more of Jim Rogers. Gold will reach non-inflation adjusted record levels.
6. Ben Bernanke will resign as Fed Chairman citing a family matter instead of his actual frustration of being in a hopeless situation and not wanting to have all the blame fall upon himself.
7. Index funds will beat actively managed funds
8. A one-stop-shop ETF portfolio fund will appear that gives complete exposure to risk, reward, and diversification all for a low fee. It will include all of the SMILER components as well as some bonds, commodities, and even private equity and possibly even some selected shorts (A short of a bear fund, perhaps??)
9. MLS Soccer will continue to build. David Beckham will help score the winning goal in the MLS Cup. Other international stars will be brought into the MLS to raise awareness of this internationally popular (sans USA) sport.
10. Google will announce Google WESK: What Everyone Should Know” similar to a wikipedia but instead only includes what the sum total of the public deems to be the most important information that we all need to learn. It will have age–specific areas, topical breakdowns, and be ranked by the users and not a centralized board. You can check off the areas that you have learned and an indicator will show you your completion percentage of what you have mastered. It will be basically an FAQ for everyday life, a supplement to schools at all levels. They will also add real time stock quotes into their online spreadsheet tool.
11. Bonus: MadMoneyMachine.com podcast and blog will continue to innovate, expanding coverage into additional topics and media. Stay tuned.

• Our Guru this week makes bogus claims.
• Mark Hebner explains the 12th step: Invest and Relax
• Next week: The results from 2007

Music from music.podshow.com:
ALTA PLAZA – XRAY DOGS
Sound from the Future – Jesushairdo
This Future – emma cornwell
Future World – Gary Hunter
Maybe Tomorrow – Secondhand
Runaway Train – Under Feather

Email me: feedback at Mad Money Machine dot com, or comment, or Call me on the Mad Money Machine voicemail line at 206-734-4763

MMM-091: Give Everyone $1,000,000!

Origin of “Dollar.” I have the solution to your economic woes. Cramer says Paul is changing things. I Am Legend. Lazy Portfolio Smackdown. Cheating at VSE.

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MMM-091: Give Everyone $1,000,000! [ 23:24 ] Play Now | Play in Popup | Download

The Mad Money Machine is proud to be sponsored by Index Funds Advisors at ifa.com.

Topics in this week’s show include:

• Where did the word “dollar” come from?
• I have the solution for everyone’s economic problem, guaranteed to bring prosperity to every US citizen. Listen to the show to hear it.
• Jim Cramer says Ron Paul is “changing things with what you’re saying.”
• It is not just gobmint spending that is out of control. The company Christmas Party was pretty lavish too!
• I went to see I Am Legend. It didn’t look all that much fun to be the last man on earth.
• I am trying to run again, but it gets cold when the wind blows.
• Look for some updates to the web site in 2008.
• I invite you to play the Lazy Portfolio Smackdown.
• Business Week article: Jim Cramer says buy index funds.
• Yomomma2000 says the Virtual Stock Exchange (VSE) MarketWatch Portfolio Smackdown game is too easy to cheat?
• Jon gives feedback about prepaying loans. Yeah, but you really could come out ahead by borrowing at 7% and investing to get at least 9%, right?
• Dynamically-adjustable risk capacity? NO! Let Index Funds Advisors protect you from your own emotions in the market.
• Follow what I’m following at Del.icio.us/MadMoneyMachine get an account and post your own bookmarks for me at del.icio.us/for/MadMoneyMachine
• Call me at 206-734-4763 and leave a comment for show 100
• I give away a Jumpin’ Jimmy C book. Listen to see if you won.
• Take the Risk Capacity Survey

Music from music.podshow.com:
ALTA PLAZA – XRAY DOGS
Runaway Train – Under Feather

Email me: feedback at Mad Money Machine dot com, or comment, or Call me on the Mad Money Machine voicemail line at 206-734-4763

New for 2008: Play the MMM Lazy Portfolio Smackdown Game!

Win valuable prizes and fame by playing the Mad Money Machine Lazy Portfolio Smackdown Game in 2008: Email me your Lazy Portfolio before 2 January 2008 to enter!

In 2006 we had a portfolio smackdown between a portfolio of Cramer’s recommended stocks that I selected vs. a basket of ETFs I bought and held. The ETFs won. In 2007 we featured a portfolio smackdown between Cramer’s recommended stocks that 20 volunteers selected vs. the IFA Indexfolio 100. It is neck and neck, meaning being lazy must win, right? So next year in 2008 I would like to create a new competition I’ll call the Mad Money Machine Lazy Portfolio Smackdown in which we pit all the various lazy portfolios against one another. We will be judging not only on return but also risk, as measured by standard deviation. The Mad Money Machine Lazy Portfolio Smackdown will of course feature the IFA Indexfolios, which are the gold standard of reward vs. risk portfolios. We will also include the other lazy portfolios that I have mentioned here previously. But also to make this fun and community-involved, I will include YOUR suggested lazy portfolio.

The rules are simple:
1. Create a portfolio of ETFs or Mutual funds (not individual stocks!) and indicate the percentage holding of each fund. Please limit the number of funds to 15 or fewer as anything more than that is not lazy.
2. Email the ticker symbols and percentages to me at Feedback AT MadMoneyMachine dot com.
3. I will calculate on a weekly basis the YTD return of the portfolio and the YTD standard deviation.
4. I may also try to go back in time with the portfolio to show its historical annualized return and annualized risk. Obviously, most ETFs don’t have any long history, so I may use substitute funds.
5. Three winning portfolios will be selected based upon closing prices December 31 2008 and will be the ones that have the highest reward vs. lowest risk for the year in each of three deciles: 0% to 8% risk, 8% to 16% risk, and 16+% risk.
6. Winners will receive a copy of Index Funds: The 12-Step Program for Active Investors by Mark Hebner of Index Funds Advisors at IFA.com, will be crowned Lazy Portfolio Manager of the Year, and other valuable awards to be determined!
7. Entries must be received before 2 January 2008 so act quickly.

When worlds collide

The two men I follow most closely, Jim Cramer and Ron Paul, together. (Hey, you got chocolate on my peanut butter!) Absolutely amazing…

Jim Cramer, if you are sincere about wishing Ron Paul the best of luck, will you please help? Would you throw your endorsement behind him and use the power of your pulpit to give him the recognition he deserves?

MMM-090: Entering the Matrix

Take the Red Pill with me and learn the shadowy secrets. The Blimp! Recession Alert! Scrooge! The Matrix! Rxx Pxxl! Secret to be revealed! Guru says Watch Out! Time? Cramer! Prepay? Portfolio Smackdown going down to the wire! Celebrating two years!

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MMM-090: Entering the Matrix [ 32:47 ] Play Now | Play in Popup | Download

The Mad Money Machine is proud to be sponsored by Index Funds Advisors at ifa.com.

Topics in this week’s show include:

• Morgan Stanley issues full US recession alert
• Someone stop me talking about politics! (Vote at the right —>)
• The blimp is in the air!
• Time to celebrate Ebenezer Scrooge. We like the 1970 musical version with Albert Finney.
• I play a snippet from The Matrix. This is one movie that you can watch over and over, just like A Christmas Carol. Do you believe in fate? What you know, you can’t explain. But you can feel it. Do you want to know what the Matrix is? It is everywhere. It is all around us. You can see it when you look out your window. Or when you turn on your TV. You can feel it when you go to work, when you go to church, when you pay your taxes. It is the world that has been pulled over your eyes to blind you from the truth. You have to see it for yourself. Will you take the blue or red pill?
• Why is learning about the Federal Reserve like entering the Matrix?
• Red Pill -> Ron Paul
• Other movies to watch to give you a taste of a red pill
• The countdown is on toward MMM-100. I will reveal a secret on show 100 that you won’t want to miss!
• Our Guru says invest in EFA.
• It is TIME to play Step 4.
• Win Cramer’s new book by putting MadMoneyMachine.com on some blog post somewhere.
• Should I prepay my home equity loan or home mortgage? What, with today’s dollars?
• The Portfolio Smackdown competition is going down to the wire.
• Our Tool has lots of charts to ponder.
• The MMM celebrates two years on the pod-o-sphere.
• Coming up in 2008: The Lazy Portfolio Smackdown! and changes to the website and MORE FUN[D] STUFF.
• The next two MMM shows will be RAW. Please, lower your expectations now!

Music from music.podshow.com:
ALTA PLAZA – XRAY DOGS
Runaway Train – Under Feather

Email me: feedback at Mad Money Machine dot com, or comment, or Call me on the Mad Money Machine voicemail line at 206-734-4763

Some of Cramer’s Mutual Funds

In his new book, Jim Cramer’s Stay Mad for Life, he lists some mutual funds he likes. I thought I would look at a portfolio of these funds. I selected only those that existed on 1 Jan 2000. The results here are from then through 1 Oct 2007. Two things to notice: the risk seems higher than you may want and the expense ratio is also higher than you may want. The next thing an intelligent investor would do is to determine if all market sectors are covered by these funds. One could use Morningstar’s Instant X-Ray tool, for example. Would you own any REITS or Emerging Market exposure by buying these funds? How much international? Of course, being actively managed, you’d never really know would you? Another thing to think about is what is the turnover ratio of each fund. In a taxable account this would mean bad things for you. I don’t see an advantage of buying any of these over a diversified portfolio of index funds.

The "Cost per $100k" column indicates how much each fund would cost you for every $100,000 in your total portfolio. For every $100k in the portfolio, this would cost you $1,226 per year. That is higher than a typical lazy portfolio which usually comes in at about half of that.

Results thru 11 December 2007 show a 14% annualized return and a 16% annualized risk.

MMM-089: A Dynamically-Adjusted Risk Capacity?

Free markets at work. Feeling risk-averse? How about adjusting your risk capacity? Santa Claus rally. Really cheap portfolios. Time to buy silver coins? MMM: it’s delicious! Guru on impending catastrophes. Tool on what to read next. Cramer book giveaway.

MadMoneyMachine.com is the place to be.

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But, if you just can’t possibly deal with that then go ahead and
Play the new show right now

A Dynamically-Adjusted Risk Capacity? [ 35:47 ] Play Now | Play in Popup | Download

The Mad Money Machine is proud to be sponsored by Index Funds Advisors at ifa.com.

Topics in this week’s show include:

• An example of the difference between centralized planning and free markets
• Winter’s first snow
• Thank you for commenting in iTunes!
• Please use the widget at the right to vote for your Presidential choice. Let me know who my audience wants. No personal info required. (Pity the poor fool that wins!)
• Get your MMM 2008 Compact Calendar
• Let’s talk about risk. How do we protect ourselves from a potential dollar crisis? If you invested right now, would you still put everything in stocks or would you diversify into bonds and suffer a smaller drop at the expense of lower long-term gains?
• Bogle says to be risk-averse in 2008. But if you are genuinely fearful of impending disasters, doesn’t at mean your risk capacity is now lower? Is Risk Capacity dynamically adjustable?
• Mark Hulbert talks about the Santa Claus rally.
• The 13.65 basis point portfolio. Includes a commodities fund. The SMILER portfolio comes in at 22.7 basis points. Cheap!
• An Exchange Traded Note (ETN) is backed by the company. You have to have faith in the company that created the ETN not to go bankrupt.
• I’ve taken the Red Pill: Federal Reserve -> Dollar Crisis -> Buy Gold -> Survivalists -> stock up on canned goods. Be ready for when the SHTF.
• Our Guru says we need to be ready for four impending catastrophes.
• This week’s Tool helps you figure out what to read next.
• Take a look at my new del.icio.us bookmarks. Enter the show number for sites I’ve tagged for past or upcoming shows.
• Check out the Current Melt Value of Coins at coinflation.com. (I just love Mercury Dimes!) 
• We continue talking with Mark Hebner about Step 11: Risk Exposure in which he explains the value of diversification. He says you should make an attempt to measure the risk of your current portfolio (see a recent Tool of mine!).
• I give away two CD sets called An Audio Journey to Tradeless Nirvana and I give away one copy of Cramer’s new book.
• I want to give away ANOTHER of Jim Cramer’s new book Stay Mad for Life on show 91. All you need to do is refer to MadMoneyMachine.com in some other web page, forum, or blog comment. You may enter more than once!

Music from music.podshow.com:
ALTA PLAZA – XRAY DOGS
Dokken – Santa Clause Is Coming To Town – Monster Ballads Xmas
Runaway Train – Under Feather

Email me: feedback at Mad Money Machine dot com, or comment, or Call me on the Mad Money Machine voicemail line at 206-734-4763

Book Review: Jim Cramer’s Stay Mad for Life

You can understand why this book was written, can’t you? It’s like a shampoo brand that demands you use it in conjunction with their conditioner. Yet the more you wash and condition, the greasier your hair feels. So you gotta wash again. Jim Cramer’s Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer) promotes the TV show. The TV show promotes the book. ‘Round and ’round. Slap down 261 pages of stream-of-consciousness stock talk, put Jim’s bald head on the cover with his mouth open and hands in the air, and include the word "Mad" in the title. Reach an Amazon rank of 15 or so. Jim works himself into a lather. We rinse. He repeats next Christmas. But it’s a bad hair day.

We already have a Cramer book telling us to beat the market by picking stocks (Jim Cramer’s Real Money) and a book telling how to watch his TV show (Jim Cramer’s Mad Money). So what’s left for this Christmas season? Jim telling us that we need to save money. Jim telling us to make a budget. Jim telling us to invest in our 401(k). Jim telling us to buy bonds. Jim telling us to get a good mortgage. Jim telling us to buy stock for our children! 

Jim states up front the distinction between discretionary vs. retirement money. And while there are no charts anywhere in the book, he should have put a pie chart in that looks something like this:

And then go on to say that on his TV show and in his previous books he was focusing on that tiny slice of Discretionary money or "Mad Money" that is exciting, thrilling, fun (and lucrative for those who sell their ideas about which stocks to gamble upon). In the first few chapters he tells us that we should save, budget, and invest in a 401K to take care of most of the pie. And then in later chapters he gets back into his shtick of picking out the winning stocks and actively managed mutual funds for the tiny slice.

In many places his advice is confusing, such as when he takes both sides of an argument. Are index funds good or bad? Page 104:

Then there’s the index funds crowd that still believes in owning stocks, but not picking them. Their attitude is just another example of sour grapes… You can still read columns by people who think something like this: Only a tiny minority of mutual funds consistently beat the indexes, and if the pros can’t do it, it’s no wonder I screwed up, so you’ll screw up too! These types know that stocks are winners, but don’t believe anyone can consistently tell good stocks from bad, so they give up and smugly buy an index fund. Then they act like those of us who pick stocks are dopes for even trying. They can call us dopes all the way to the bank.

Then on page 126:

With very few exceptions, I’m a strong advocate of owning index funds. I think John Bogle, the man who created the first modern index fund and opened up indexing to nonprofessionals, is both a genius and, from what I saw when I brought him on my old TV show Kudlow & Cramer, a really good guy. Even if Bogle were a jerk, he’d still be right about index funds. If you really cannot or will not spare the time and energy to research and own stocks, index funds are a great way for you to get exposure to pretty much everything you need….

In any case, index funds are terrific.

Whew, my shampooed and conditioned head is spinning!

After getting all the Suze Orman-like material out of the way in the first few chapters, he goes into his tried and true collection of sure-fire rules for better investing. Similar to Real Money‘s twenty-five rules, this time he presents twenty rules. Some are repeats familiar: "Never turn an investment into a trade."  (like "Never turn a trade into an investment") Some appear to contradict previous rules: "If you buy a position to fill a need in a portfolio, don’t jettison it because it’s not working" replaces this rule from Real Money: "Your first loss is your best loss." If you are looking to invest by cracking open fortune cookies, here’s the book for you.

He continues with "Ten Things Pros Do Right but Amateurs Get Wrong."  Number 9: "Pros know that cuffing it without doing homework can reduce you to–well, no offense–an amateur!" This is Jim’s catch-all safety net any time someone complains that the stock or mutual fund they bought upon his recommendation didn’t work out: You didn’t do your homework!

The final two chapters give us twenty specific stocks and a dozen or so specific mutual funds.  They seem to focus on US stocks. What about the international or emerging markets Jim? He does mention that we should get into US stocks that have good international exposure so that "regardless of what’s happening in the domestic economy, regardless of all that chatter you hear endlessly about what the Federal Reserve might do or what the growth of the nation is or what the next quarters look like, these bull markets will hold up on their own." Yes but they are all still denominated in dollars. How about diversifying into stocks denominated in their local foreign currency?

Nonetheless, Jim’s specific recommendations are going to be fun indeed to watch over the long term and see whether they beat or lag a passive investing approach. My prediction is that they won’t beat the indexes and that all the time wasted doing stock picking homework and reading his books and watching his TV show could have been spent on more constructive pursuits. Like washing that man right out of our hair.

So, who wants to win a copy? I’ve got two more to give away. Make a comment here or write something on your blog referencing MadMoneyMachine.com and I’ll enter your name to win on show 90.

MMM-088: Lots of Books

So many books. Win Cramer’s new book here. What causes inflation? Is it Federal? Liberty Dollar and Microsoft Points. Congress votes to spend MY money. A nifty Tool for 2008. Our Guru says make it flat.

MadMoneyMachine.com is the place to be.

I ENCOURAGE you to Download this show thru iTunes!

But, if you just can’t possibly deal with that then go ahead and
Play the new show right now

Lots of Books [ 34:18 ] Play Now | Play in Popup | Download

• This is the best fiction I’ve read in a long time: This Perfect Day by recently deceased Ira Levin. Where has this book been and why hasn’t Spielberg made it into a movie yet?
• Other Books on my nightstand:
• Jim Cramer’s Stay Mad for Life
• Freedomnomics by John R. Lott, Jr. This is a good quick read correcting everything we’ve been wrong about.
• Discover Your Inner Economist by Tyler Cowen
• The Undercover Economist by Tim Harford
• The Constitution in Exile by Judge Andrew P. Napolitano
• A Foreign Policyof Freedom by Ron Paul
• The End of America by Naomi Wolf
• The Black Swan by Nassim Nicholas Taleb
• And I’m enjoying listening to Bruce Springsteen’s new album Magic. I play a snippet of “Last to Die”.
• I used to think inflation was just a natural phenomenon. Turns out, it is due to adding money to the money supply by the Federal Reserve Bank. Did you know that the Fed is no more “Federal” than Federal Express?
• I talk a little more about the Liberty Dollar. I don’t like it when websites say “If you act by [insert today’s date] you’ll get a special price.” A little cheesy. Why are the feds so upset? Maybe those Liberty dollars look too much like US dollars. Or maybe they don’t want Ron Paul coins being given out as tips all over New Hampshire and Iowa. But at least Liberty Dollars actually contain precious metal content, not just zinc.
• I understand why Microsoft uses Microsoft Points.
• Farrell vs. Cramer.
• Only one Congressman voted not to spend MY money to give Rosa Parks a medal. Keep a watch out for the BLIMP!
• Don’t we have enough books, movies, and podcasts by now?
• As I stated previously, I didn’t like the debate format. Let Digg pick the questions!
• Our Tool this week may help you in your Decision 2008.
• Our Guru wants to make things flatter.
• I talk with Mark Hebner of Index Funds Advisors about Step 11: Risk Exposure. Once you’ve figured out your Risk Capacity, then you need to figure out how to invest at that risk level. Mark shows us how.
• Jim’s book is different from anything else he’s done. Is he going to start talking about this kind of stuff on his show?!?
• A caller from Vancouver tells about his Excel spreadsheet system for keeping track of his investments.
• Win a copy of the 4-CD Set entitled “An Audio Journey to Tradeless Nirvana” by making a comment about this show in iTunes.
• Win a copy of Jim Cramer’s Stay Mad for Life by making a comment about this show in iTunes or on your blog or someone else’s blog.

Music from music.podshow.com:
ALTA PLAZA – XRAY DOGS
O Holy Night-Guitar Instrumental –Charlie Crowe
We Wish You A Merry Christmas Seven5Seven
Runaway Train – Under Feather – not played on this show

The Mad Money Machine is proud to be sponsored by Index Funds Advisors at ifa.com.
Email me: feedback at Mad Money Machine dot com, or comment, or Call me on the Mad Money Machine voicemail line at 206-734-4763