When Debt Prompts Death

German billionaire Adolf Merckle threw himself under a train this week as the stress from his crumbing business empire became too great. The Merckle family released a statement that confirmed that the anguish from a plummeting economy and fortune "broke this passionate family entrepreneur," causing him to take his own life.

Sound familiar? Back in October, I wrote about Joseph Luizzi, a veteran trader at the Chicago Mercantile Exchange who shot himself after racking up substantial losses in one particularly volatile session. Many of us are dealing with a lousy economy without resorting to suicide. What likely pushed these two investors over the edge wasn't bad bets, but bad bets with huge leverage.

A massive 2007 acquisition had saddled HeidelbergCement, Merckle's biggest asset, with unsustainable debt, six times the company's earnings before interest and taxes. Luizzi has just purchased a $1.1 million home for his family before getting hit with massive losses he couldn't possibly cover. Both cases, while tragic, reflect not poor judgment in investments but in technique. Had the leverage not been so large, both gentlemen might still be alive today.

The answer is not to avoid risk, but to take it in a sensible way. Excessive leverage, regardless if it's in a mortgage, business acquisition or stock portfolio, is what inevitably destroys portfolios. When you bet the farm, you've got to be prepared to lose it. That's not a risk I'm comfortable taking.

Former Losers Claw Back for Now

My analysis always starts not with the markets but with the portfolio I already own. And generally speaking, I'd much rather follow up on a risk I've previously taken that's starting to perform rather than delve into something new.

And slowly but surely, a number of the Japanese stocks I mentioned over the past few months, names like Kubota (KUB), FUJIFILM Holdings (FUJI) and Nippon Telegraph & Telephone (NTT), have plodded their way back from losses to near break-even. The recovery has been modest, but meaningful, with the benchmark Nikkei enjoying seven days of gains, the longest streak in almost three years.

A Rising Sun?

TDK, MITSY, PC - 3 months

I'm in no hurry to slosh vast amounts of capital into the market at one time. But based on the belief that one should "water the winners," I'll look to add additional exposures to broaden my risk should the asset class continue to climb. Japanese names on my watchlist include Mitsui (MITSY), TDK (TDK) and Panasonic (PC) .

The Rich Deserve a Rest

As Daryl Hannah's character Darien said in the 1987 film "Wall Street," "When you've had money and lost it, it can be much worse than never having had it at all."

That's a sentiment no doubt being felt by American millionaires, a group that's lost 30% of their assets during the economic crisis, according to data from Spectrem Group. Seventeen percent of all millionaires lost more than 40%, representing a massive destruction of wealth among arguably the most productive members of society.

We often think of "millionaires" as the caviar-eating country club set that spends all day playing golf and counting riches. Yet most have worked lifetimes to become wealthy, oftentimes through prosperous small businesses that drive the American economy much more than the Big Three auto makers.

Now these productive wealth creators are facing weak portfolios and even higher taxes. As has been astutely documented by Dick Morris, President-elect Barack Obama's tax plan would leave the majority of American voters with zero income tax liability, collecting money from the government rather than paying into it for the first time in American history.

With so much uncertainty, no wonder the rich are running from risk. U.S. money-market fund assets rose by nearly $46 billion last week to a record $3.805 trillion. The personal savings rate has climbed from negative levels hit in 2005, but is still nowhere near the 8-10% during most of the 1960-1980s.

Personal Savings Rate

Source: Federal Reserve Bank of St. Louis

Saving is a healthy habit, especially for those who live beyond their means. But now the same Americans who lead companies, employ workers, invest in stocks, buy products and generally power the economy forward will be hit with a higher tax bill just when we need their productive investment dollars the most. That's more likely to slow growth rather than stimulate it.

A Bawdy Bailout

Girls Gone Wild CEO Joe Francis and Hustler magazine publisher Larry Flynt are petitioning Congress to provide a $5 billion financial bailout for the adult entertainment industry, which has seen DVD sales plummet in recent months.

Certainly one could argue the porn business is much more essential and ubiquitous within the U.S. economy that the Big Three auto makers, which received $14 billion from the government late last month. Although intended as a publicity stunt, the request epitomizes the problem with the bailout culture that's developed in this country ever since Bear Stearns. Who's essential? Who's expendable? It's all in Washington's hands now.