Tuesday Musing- Final Week in May

• International money is flowing to U.S.A., and who would have thunk only a few months earlier? As bad as we think we are financially most of the world is worse. Mortgage rates fall as money pours in to Treasuries. Monday euro continues its slide.
• Surprise as existing home sales revised upwards, WSJ reports May 24th that tax breaks for first time home buyers and low interest rates had an un-expected increase.
• Just as we were thinking we’d get a Monday bounce a late selloff appeared like a distant relative showing up at dinner-time. Financials, which were okay in early trading, lead the decline. The sell-off wiped out Friday’s gain and may have set the mood for the week ahead.
• Correction or Bear? Bruce McCain, chief investment strategist with Key Private Bank in Cleveland, thinks stocks are at the bottom and may well continue to trade in a narrow range for the foreseeable future. John Norris, managing director of wealth management with Oakworth Capital Bank in Birmingham, Ala., thinks the current European crisis merely gave investors an opportunity to sell.
• Bill Gross, co-chief investment officer of the PIMCO bond funds, put his own money-$7million- into 3 PIMCO bond funds, according to Tuesday’s Barrons. Gross has not invested into any of the three closed-end bond funds since 2007.
• How did the best performing analysts beat out their peers in 2009? According to WSJ’s Matt Phillips, May 25th, the winners were the most aggressive. They had bullish resolve in the face of adversity. The bought and bought often. Maybe not a lesson for all of us but something to remember and keep in mind.
• Stocks fell  at the open Tuesday as investors were disappointed on the US home price report and continuing problems in Europe. Interest rates fell as the 10-year hit the lowest levels since April,2009. A better than expected consumer confidence report had little impact as equities fell over 260 points only to make a stunning recovery just before closing. The Dow was down less then 23 points with the Nasdaq down 2.6 and the S&P up fractionally.
• From ‘I-Didn’t-Know-That’, Pabst beer is a ‘virtual’ brewer with the product manufactured by Miller-Coors.
• According to chit-chat on Fast Money on CNBC S&P correction may be to 950.
• Morgan Stanley called on Wednesday for clients to overweight emerging markets and global stocks. In their letter to clients, ‘…emerging markets don’t look expensive.’
• Rally started at the bell on Wednesday, petered out by noon and started again. Markets gained strength through the day as good news piled onto good news The OECD hiked its growth expectations for the balance of 2010 Plus 2011. The Commerce Department reported new home sales jumped almost 15% the highest level since May 2008. Durable goods increased 2.9% in April for the 4th rise in 5 months.  3:15 the markets turned chicken with a misinterpreted China statement and closed down almost 70 points.
• Thursday Bulls were ready-set- and go they did as China clarified that it was not selling euro bonds. It was a stunning day as markets got their wind and didn’t let up for a 285 point gain. Markets got stronger each hour which says something for a continuation.
• Friday morning Europe and Asia opened higher for the third straight day as our domestic market readied for a long weekend. U.S. Secretary Geithner said there was broad agreement between Europeans and the United States on how to go about overhauling global financial regulations.
• Michael Kahn, technical analyst for Barrons, reported Wednesday that the moving averages and market cycles still point to a weak stock performance for the coming months. ‘We can make a compelling case for market weakness all summer long.’ He concluded, ‘Rather than look for bargains in the stock market now, it would seem that it might be better to use any rebound to lighten up.’
• Gold prices scary? According to Randall Forsyth at Barrons, in his ‘Up And Down Wall Street’, it seems everyone, including billionaire Paulson, is piling into the gold etf GLD and Forsyth worries that gold is a possible bubble? According to Dow Theory Letters editor Richard Russell investors should ride a bull as long as they can. (Does anyone besides me remember the dot.com craze?)
• Shortened trading week coming up. Enjoy the Holiday weekend.

If you have questions call Paul at 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

Dollar Cost Averaging - Myth or Gospel?

You’re sitting with cash and maybe you missed the upside last year and maybe this is new money and you’re wondering how to get back into the market. You want to buy a few mutual funds for a long-term hold. You just don’t know if you should hold your nose and plunge right in or commit a little at a time, something even Suzie Orman says is a good thing to do and it’s called dollar cost averaging. Maybe these thoughts can help.

A few summers back a financial planner made millions writing a simple book about dollar cost averaging into mutual funds. He called his book, ‘The Automatic Millionaire’, and made some stretchable conclusions and observations that had people in the investment business in apoplexy. Summing up here are a few of his salient points:

• You will always earn an average of 10% per year.
• Start early enough and you’ll be a millionaire
• Pretty much all equity mutual funds are equal
• Even if you start late you’ll end up with a bundle

All the above are pretty much fairy tales and no one should take them as gospel. However, there is a ‘But’. In the world of investing there is always a ‘But’.

Dollar cost averaging is a systematic method of taking a fixed amount of money and investing it consistently into a mutual fund over a set period of time. The best example is the payroll deduction into an employer sponsored  401k. Most workers can only contribute to their retirement plan through a systematic savings so I’ll explore whether or not investors should do the same with their personal investments.

With the current market far below its high the question is whether an investor should now dollar cost average into a mutual fund or should he or she simply invest a lump sum of money? Which method would make the investor the most money?

The answer is – either and neither. Like the Viagra commercials it’s all in the timing. If someone invested a lump sum at the market high just before the 2008-2009 market collapse then that person has less today than someone who dollar cost averaged the same amount of money over the ensuing eighteen months.

Everything else being equal if you take the person who invested all of his or her money at the bottom of the crash versus someone who dollar cost averaged the same amount from then to now; in that case the lump sum investor is the winner. The problem is no one knows that ahead of time.

Dollar cost averaging does not guarantee that an investor will make more or less than an investor who makes a lump sum deposit. What it does do is provide more control over how much to invest and when to invest as compared to the investor who made a single deposit and is stuck with his timing and amount. Someone who is dollar cost averaging can also vary by increasing or decreasing the amount of money into the fund or funds, depending on what is happening in the world and take advantage of certain  situations.

Investors who dollar cost average complain that their investment performance is less then the actual fund performance and wonder why. Back in the 90s the average 401k investor barely eked out a return in the mid-single digit range when the average equity mutual fund was returning double digits. The reason was not the market but the length of time the money was invested. A fund measured performance over 12 months the investor only had  a small portion or 1/12th of their money invested for the full 12 months. The next deposit was 1/6th, the next 1/4 and so on. The final deposit had, in most cases, only had a few days to either earn or appreciate in value. In stellar years dollar cost averaging fund investors could not match those who made a lump sum deposit.

Except in rare occasions dollar cost averaging also has transaction costs or fees to pay on each deposit which also is not mentioned by the ‘Millionaire’ author. These costs reduce the total return. In a lump sum you have one and in systematic investment you have one on each and every deposit. The other problem is, as we have learned in previous blogs, there are only a few ‘special’ days that really make the entire investment year. If someone misses that moment with the bulk of his or her investment their portfolio will not come close to approximating what their funds return annually.

While I tend to agree, albeit reluctantly, with some financial writers that dollar cost averaging into mutual funds as an investment technique is not all what some would have us believe there is a definite benefit to investors.

• Allows investors with modest means to build substantial portfolios
• Smooth's out the investment economic bumps over the long term
• Eliminates the when to invest guessing game.
• Being able to start and stop contributions to control the amount of new money during an economic calamity and then being able to commit and redouble efforts when markets start to come back.

Most of us in the business do agree on one thing and that is the best time to invest is whenever we have the money to do so. When used as part of any investment plan dollar cost averaging can be a powerful weapon. It can make a small investor grow substantial assets and a large investor may use it to reduce share cost and increase total return if implemented properly.

There is also a psychological benefit that provides the dollar cost averaging investor control over future deposits while a lump sum investor may look on helplessly during times of extreme market volatility,

While dollar cost averaging may never make you a millionaire it is a simple method of investing in a world where complexity is beginning to be the norm rather than the exception.

If you have questions call Paul at 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

 

 

Mutual Funds versus Exchange Traded Funds Which Is Better For You?

Both mutual funds and exchange traded funds (ETF) are sophisticated financial products that require more explanation then I provide here. But if you are investor confused as to the difference and when to use one or the other perhaps this will help.

There is a lot of hype & myth surrounding ETFs versus mutual funds. The most common are:

1. ETFs are free
2. ETFs outperform mutual funds

First, nowhere, in the entire universe of investing is anything free. Sometimes we can get things reasonable but free is not something that trips off the tongue of investment houses, brokerage firms, money managers and the ilk. We, they, us are in the business of staying in business. You cannot stay in business by giving away time or knowledge.

Exchange Traded Funds, now numbering around 1,000, are basic off shoots of index funds. They mimic the performance of specific indices such as the Dow Jones or the S&P 500. There are those ETFs that do invest in country specific or sectors such as technology with defined stocks of that sector or country within their portfolios. For example if you bought a Korean country specific fund you will get only Korean banks, insurance, manufacturing and utilities to provide a complete cross section of the country. You would not expect to find Indian industries to be in the Korean ETF as you would in a world or global open ended mutual fund.

ETFs are like mutual funds in that they have a portfolio comprised of individual stocks and bonds but they trade like stocks. You can buy and sell them at anytime during the trading day. A mutual fund can be bought and sold only at the close of the trading day.

ETFs are bought from a brokerage firm and the broker will charge you a fee to buy and a fee to sell. Depending on the broker and how much or little work he, she or they do will determine the fee the broker charges. You cannot buy an ETF for free.  Again, reasonable comes to mind as being a fee that most brokers would charge a customer.

Many mutual funds you may buy direct from the mutual fund management company with no up-front commission.

ETFs also have an expense fee attached to them and  reflects the cost of managing the fund. This fee is basically the same type of fee that is charged by a mutual fund company. All funds have an expense fee that covers the cost of business.  It is called an expense ratio and covers the fund’s cost of doing business: including trading, investment management, custodial services, taxes, accounting and all bookkeeping.

Some people have said to me they can get rich buying only ETFs. What they omit is telling me which ETF is going to get them to Easy Street since performance of an ETF is not guaranteed and some, like all investments, do lose money and some even lose a lot of money. And some even lose a very lot of money extremely fast.

Most ETFs are index funds of one type or another. In that regard it is up to the client or investment professional or representative to create an allocation of ETFs that will provide:

• Reasonable safety
• Diversification
• Active Management

Most of us can buy an active managed mutual fund that can do all those things for us at a reasonable price. ETFs, like a new boyfriend or girlfriend, needs more than passing attention.

For most clients and investors the majority of their savings should be in plain vanilla mutual funds. One recent example comes to mind – the day in May when the markets experienced a sudden  flash crash of 1,000 points for no explicable reason.  What happened next was that some ETF investors did bail out as soon as the news was heard and took a tremendous loss before the markets readjusted. The mutual fund investor, who still wanted out, had to wait until the close of business to have his or her trade confirmed. The difference in timing saved the fund investor money while the ETF investor lost. (Remember mutual funds can only be bought and sold at the close of business and not during the trading day.)

While this is not a situation that happens every day the ETF investor should have a more sophisticated knowledge of investing.  Depending on the client, their experience, needs and sophistication, I do recommend ETFs to complete a portion of certain investment portfolios. It is the same with individual stocks. There is a time, purpose and situation for every type of investment.

An ETF investor should know the risk, cost and specific purpose of the exchange traded fund prior to buying it. Unlike an actively managed mutual fund some ETFs demand a greater amount of investor vigilance.

Most of the ‘I-Made-A-Million’ in the market myths associated with ETFs came about with the China funds and BRIC ETFs. Yes, a few did do well and may do well in the future. However there are emerging market mutual funds and foreign mutual funds with active management that also have performed well.

If you think you are ready to start adding ETFs to your portfolio you should do the following:

• Read Tom Lydon’s book, ‘ETF Trend Following Playbook’.
• Develop a sensible simple investment strategy.
• Understand ETFs are meant to be traded.
• Build slowly on your success or close the book if you find it is not your cup of tea.

Funds, ETFs and individual stocks and bonds all play a part and if used properly can add value to your portfolio.

If you have questions call Paul at 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

 

Why We Need The Financial Overhaul Law

It has been reported that some of the Dow’s 370 point loss on Thursday was due to the news that new tougher rules were a-coming to the Street. In Friday’s WSJ headlines, ‘Wall Street Firms Brace for Seismic Changes’.  Some investment analysts expect that the new reform law will cost major financial institutions as much 20% in profits. Don’t you believe it.

Before you blame the ‘Know-Nothings’ in Washington for making big government even bigger and getting their nose into businesses they know little about let me say that this time they didn’t have a choice. It would be nice if we allowed bankers and investment types to simply run their businesses like the corner dry goods shop and count on them to be honest and courteous to everyone. We wouldn’t need governments or security police-people to be looking over their shoulder and making sure they were on the straight and narrow to keep the rest of us safe from the possibility of them creating predatory practices or investments that go boom. But it seems we can’t and we need more laws and more oversight to keep the thieves out of the business.

It was Wall Street and bankers that killed their own golden goose because of their greed and supreme belief they could do anything, get rich at other people’s expense and get away with it. Well enough is enough. As someone who has been in the business for four decades it is embarrassing how some of the people in my business stole money and pretended they were not to blame. Then there were others who publicly proclaimed what they were doing as almost a sacred mission while privately deriding those that bought their toxic products as imbeciles. Then they were those who were supported in their alleged criminal actions by a billionaire old coot who had tens of millions to protect and said it was okay not to disclose anything to a buyer of toxic crap if the end buyer was that stupid not to be able to do their own due diligence. 

In  1934 Congress established the Securities and Exchange Commission  as an independent regulatory agency. Franklin D. Roosevelt named Joseph Kennedy as its first chairman because, as he reputedly said in private, ‘It takes a thief to catch a thief’.

The SEC was formed not because there were no laws overseeing bankers and investment firms at the time but because the bankers and investment types were getting around the rules that were on the books.

It seems that every time bankers and investment firms  are given more latitude by the government to police themselves or act in the best interest of the customer they take advantage of it with disastrous consequences. You never hear or read of an airline manufacturer or chicken farmer throwing an economy into a depression. It is always bankers and investment firms.

The new Financial Oversight Law will be lengthy and stringent and cover every almost every contingency that the Congress and their staff of lawyers and accountants can possibly think of but I am here to tell you that it will not be enough. By the time the ink dries on this law bankers and investment firms will have uncovered generous loopholes that will allow them to game the system and make billions of dollars at the expense of others. It is what they are and what they seem to do best.

I am not a proponent of big government. From the time that I could understand what a government is and does I’ve always felt that the main duty of government was and is to protect its citizens.   Today I believe that security extends to include protection against those that would also do us financial harm.

Today we are angry enough at those that threw the entire global economy into the toilet that we are not going to make it easy for them to squirm off the hook. To mollify us bankers are taking a proactive position. Already I am hearing commercials on radio promoting the goodness of the American banker. Hogwash. They screwed up trying to get rich quick. We bailed them out. They paid themselves enormous salaries as their way of saying thanks and stopped lending to every day folk who needed loans with the money we gave them and just hoarded it for their own self purpose. This is not my next door neighbor.

We also have to understand that this is, and should be, a never ending battle. Congress passed some very  strict laws after the last depression but as time went on we believed that bankers and investment people were more sophisticated and so we relaxed our laws and oversight in the name of economy and profit. And each time we did there were those that took advantage of us for their own greedy purposes. It happened before and it will indeed happen again. It may take another 85 years but it will happen and then happen again. You can be assured, unfortunately, no matter what we do today our great-grandchildren will be facing similar problems. It is who and what these type of people are.

Unfortunately this new law will create more government and make it more expensive for all of us to invest and save. We are paying to safeguard ourselves from those we are supposed to trust to manage our savings and future. It doesn’t make sense that we have to regulate people to do the right thing but we’ve seen what they do without close oversight and supervision. So don’t blame the bureaucrats this time. We don’t need to do this we have to do this.

If you have questions call Paul at 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

 

Tuesday Musing-Third Week In May

• For the week that was -It’s going to be a bumpy ride this summer.  Michael Kahn, technical writer for Barrons, reported the trend for the domestic market is down. Fear of the euro collapsing and some countries defaulting on their debt is a real expectation.
• Seth Klarman, “There is nothing natural about this market, everything is being manipulated by the governments.’ Keeping interest rates at zero forces people to invest. His suggestion: Buy today whatever is cheap, loathed and despised.
• Monday markets worked off triple digits losses as Asian markets followed our Friday selloff. Finally  found footing at the final minutes and managed to pull out a slight gain lead by techs.
• Germany’s been a partial thorn in this EU mess. German politicians first stepped up to support the EU and then the voters cried ‘Nein!’ And so politicians had to back stroke until after the elections. Friday it seemed the Germans would help, albeit reluctantly. Geithner is rumored to do more arm twisting over the weekend.
• China doing not so hot. Hong Kong down again. On the good news front-China increased US debt holdings for the first time in six months. Europe is especially troublesome for the Asian giant as well as us.
• Gas continues to stay high while oil plunges. Gasoline retailers took a lesson from bankers on how Not to give up increases as primary product costs are lowered. Note: bankers keep rates high to customers while borrowing money at next to nothing rates.   Every penny on cost of gas removes $1 billion dollars from consumer’s wallets. One B –illion.
• From the ‘Colombo School of Detecting’, Former Chairman of mortgage giant Taylor Bean and Whitaker, Lee Farkas, has been charged with siphoning more than $50 million for personal gain from the firm. It is alleged that he was aided in the theft by Desiree Brown, a former receptionist promoted to company Treasurer. Questions anyone?
• Proposed by the SEC a ‘circuit breaker’ for each individual stock. Trading will pause if certain stocks move 10% or more in a 5 minute period. Supposed to eliminate any future ‘ flash crashes’.
• Tuesday markets moved down triple digits and the VIX, an indicator of investor fear, popped to second highest close of 2o1o. Oil fell below 70, euro off. Germany bans some short selling.
• ‘The’ Oprah who employs a full time ‘purse holding person’ (I am not making this up nor do I know how you define ‘purse holding person’ on your resume), just stole Eli Broad’s personal money manager Peter Adamson. No word from Adamson or Broad, who, by the by, is not only a billionaire and philanthropist but a local legend building half of Southfield, Michigan with his partner under the firm name of Kaufman and Broad back in the 1950s-60s.
• Follow-up from Tuesday Germany put the kibosh on short sales sinks gold as German investors run to cash.  Politicians think its the traders causing the angst – they don’t get it nor do ours. Wednesday markets off with banks moving up. Oil down, gold crushed.
• Thursday markets closed down on every sector. Technical support levels were broken including the 200 day moving average. It did not help to have a surprising increase in the jobless rate. Friday is another day and no one expects the news to get better.
• Jimmy ‘The Mouth’ Cramer finally said something I agree with – bring back the uptick rule and make it tougher for investment raiders to short – it was good for about 65 years until it was decided it was old fashioned. It means you can’t short a stock unless someone pays more for it – in other words you cannot keep banging a stock into zero without giving someone a chance to buy it.
• Thursday 497 of the S&P 500 stocks down.
• Dow Theory still bullish. It is the oldest market timing system in use today and it is still bullish on the economy.
• Senate passes Financial Overhaul Bill. This amazing piece of legislation replaces the ‘theoretical’ hand-shake and my word is my bond’ with huge government expanse and oversight to make sure that bankers and investment types don’t lie, cheat and steal; and if they do, as they have proven to do so in the past, they will be severely punished. Sigh. It also is to define ‘too big to fail’.
•  FDIC reports that 1/10th of all banks have ‘problems’. There were 702 on the ‘list’ at the end of 2009 and 775 today.
• IBM insiders sold $40 million in stock. IBM is a bellwether – does someone know something?
• Start saving for the future – a new car company is a-coming. The electric car company Tesla found a $50 million backer in Toyota, plans on opening the old GM-Toyota plant in Fremont, CA, hire 1000 workers and have their IPO in January. Geeks and Gear Heads gotta love this! Call me for more info.
•  It was down, it was up, it fell down again and then with a flurry not seen since Rocky, but with more excitement, pathos and drama, the Dow ended up 125 points on Friday, ending the week with the market off 5%.
• We’re still in Bear territory-  one day doesn’t define the markets.
• FDIC closed bank #73 in Minnesota.

If you have questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

Who Do You Trust?

This country’s worst environmental disaster with the gushing blown out oil well off the coast of Louisiana continues with no definite date that it will be contained. The chairman of BP says that his company did nothing wrong, the company that supplied the rig said the same as did all the other officers of companies who provided equipment to drill one mile deep into the Gulf. It was either ‘it-wasn’t-our-fault- or-they-did-something-wrong’ finger pointing by some of the highest paid professionals in the oil business. In the meantime no one can tell us when this nightmare will end or the cost to clean it up.

To think that a major off shore driller had no contingency plan in case of an accident simple boggles the mind. Anyone who has been at sea or on the water understands the dangers and the need for a plan if something bad happens. These fools simply ignored basic safety rules. It may take a hundred years to get back what they destroyed.

A few weeks earlier it was America’s bankers on the hot seat doing the same song and dance as they testified before a Congressional subcommittee. Bankers knowingly and admittedly  sold ‘crap’ to investors while using credit default swaps to profit from their own created toxic investments. When asked if they did not think to warn or explain the products they were selling as being in the best interest of the client only one in four said that they did feel it was their duty.

Even the venerated money manager Warren Buffett said that if the client was so stupid that they didn’t know what they were buying – too bad.  

The average registered representative has an obligation to explain an investment to client. Bankers, it seems, do not.

Now we are involved in a global economic free for all. Certain countries, members of the European Union, ignored any budget restraints and the EU did not provide oversight to ensure these quasi-capitalist socialist countries stayed on track and managed their finances. Spying weakness certain hedge funds were reported to get together and ‘raid’ the euro, or drive it down and profit from such an action. A March, 2010 WSJ article reported such a Department of Justice investigation along with the tag, ‘It’s pretty tough to prove.’

The article went on to state that the argument for collusion is weak and to believe there is a conspiracy to undermine a currency is flimsy at best. This week Germany’s ban on short selling along with the euro falling to its lowest level against the dollar in four years has caused turmoil globally. (What do you think?)

Technical writer Michael Kahn. writing for Barrons, warns that the Bears have it and the charts look bad for stocks. On the other side is Jimmy Cramer who said on his television show on Wednesday that it is a fault of perception and our domestic fundamentals are just fine.

There are some that believe that this is the beginning of the end for the euro. Some advocate that either the Europeans cut costs so drastically that they throw themselves into a depression or a few of the ‘southern’ countries who are in the EU will simply walk away. No one has said it but Germany will lead that parade. In either case it will spell a disaster.

In the meantime China is having its own problems and being particularly inscrutable flung verbal hand grenades at the American banking system, which Beijing believes has tossed a monkey wrench into the Chinese global growth machine.

Unless something happens to clean up the economic mess and/or perception quickly investors will be best served if they put some of their assets into cash or bonds and wait this out until the fall. It seems sell in May has just been confirmed.

If you have questions call Paul at 877 783 7080 or write pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

 

Health Care Reforms New Tax Laws

My CPA friends forwarded me a thumbnail sketch of the new tax law.

The health care reform is made up of 2 new laws: The Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010.

Here are a few of the highlights:

• Individuals who earn more than $200,000 for the year ($250,000 married couples) will be paying an additional 0.9% in Medicare tax beginning in 2013.
• Individuals whose adjusted gross income for the year exceeds $200,000 ($250,000 for joint files), whether from wages or otherwise, will also be paying an additional 3.8% Medicare tax on net investment income, starting in 2013.
• Most individuals will be required to obtain health insurance or be subject to a penalty tax starting in 2014.
• Tax credits to subsidize the cost of health insurance premiums will be available to individuals earning up to 400% of the poverty level starting in 2014.
• A 40% excise tax will be imposed on high-cost ‘Cadillac’ employer-sponsored health coverage, starting in 2018.

A high cost Cadillac plan is considered to be those plans that the premium cost is $8500 per individual and $23000 per family with low deductibles. Many union and government employees have Cadillac plans.

• Limits on tax-subsidized medical expenses will be imposed by raising the itemized medical expense deduction floor for regular tax purposes from 7.5% to 10% starting in 2013.

As you know I do not practice accounting or law and cannot give you advice on this specific area. I suggest you see your tax advisor or lawyer for additional guidance on how this law impacts you and your family.

If you have questions call Paul at 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

Tuesday Musing-Second Week In May

• EU worked over the weekend to put together bailout before Asian markets opened on Monday. Guarantees and loans $1 trillion. ( I took four nerve pills before the open)Like the AIG bailout this was a creditor bailout and not a Sovereign debt rescue package.  Whatever- it worked and domestic markets soared 404 points, gold only slightly off.
• Whispers at the close this is the beginning of a correction. But- James O’Sullivan, chief economist for MF Global, said, despite headwinds the momentum domestically is building and the ‘odds are heavily stacked for solid growth’.
• Anyone else see 60 minutes report on what’s happening with homeowners who are under water with their mortgage but working  and afford the payment but decided not? Fancy name for being a deadbeat, ‘Strategic Default’. Based on this non-rational thinking everyone who buys a car, drives it for a week should return it because it’s underwater.
• Today’s Jack Jones, Michael Buble’.
• SEC cannot find smoking gun, what was responsible for the 1000 point market drop.  6 exchanges work out deal when markets overheat. (Yes, we can get along).
• Tuesday markets off slightly. Gold hits all time high. Toyota bullish, GM mulling returning to the car lending biz after selling its stake in GMAC.
• By the by –? Wasn’t saving GMAC by the administration so people could get GM & Chrysler car financing? (I am soo confused).
• Wednesday morning brings news US prosecutors investigating Morgan Stanley for misleading investors re: mortgage derivatives it manufactured and sold.  Just as Martha Stewart learned you do not mess with Uncle Sam.
• Boeing upgraded to Outperform.
• 2 sides to the coin- arguments that $1 trillion EU bailout doesn’t fool bond investors and then others that praise the move and preach euro will regain strength. In the meantime strong countries are listed as Canada, Australia, Norway, China and India.
• Gold and dollar do not lock-step. One is very wrong.
• Wednesday markets got a shot in the arm as IBM gave positive guidance over the coming five years.140 points on the Dow. Cisco profit up 63% give positive news on domestic growth.
• Coming to your 401k plan soon fixed income annuities. Labor Department mulling. I say let it mull. Adding income annuities will only create more problems.
• Market closed Friday down but up for the week.
• Asian markets closed lower Monday, Dow down on midday trading and gold stumbles as Euro is at 4 year low.

If you have questions call Paul at 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money

Dividends –The Old Way of Making Money

When I taught Adult Ed I’d tell the story of a grandma who was terrified of the stock market and  lived on the interest from the bank or credit union. As time went on and interest rates, with the help of Chairman Greenspan, were lowered, grandmas everywhere had to start dipping into principal to keep the same amount of income coming in the door. Basically they were spending themselves into poverty because if rates ever did recover grandmas would have less money to earn the new rates and would still have to pull principal out of savings to make ends meet.  And the end result would be that eventually grandmas would be packing their bags and moving in with you-know-who.

On the flip side were folks, pre-mutual fund age, who while working, bought individual stocks to grow their money and then at retirement turned to dividend paying stocks for income. 

Today buying dividend stocks for income is a lost art for individual investors. More and more people are turning to mutual funds and ETFs for income rather than building portfolios with quality stocks that have a history of providing consistent dividends.

Before we begin on what to look at when buying an income producing stock there are investors who still don’t have a clue as to where dividends come from. I get the question from a lot of people when I suggest an equity based mutual fund or a stock, ‘How much interest does this pay?’ It doesn’t.

Stocks pay a dividend and not interest. Dividends are a portion of the profit earned by the company and declared to be paid to shareholders by the board of directors of the company. Interest is what institutions and companies pay for the right to borrow someone’s money. You don’t own anything when you hand the bank money for a certificate of deposit. What you are doing is loaning them money for a specific period of time and at a specific loan interest.

Not every stock pays a dividend and not every dividend is equal in value and safety as every other dividend.

Before you buy a stock for dividend income you should do a little homework.

• How consistent is the dividend payment history?
• Has the company increased its dividends and how often?
• What is the company’s cash flow?
• Is the dividend in line with other companies in the same industry?
• Is the company involved in litigation that may hinder future dividends?

Buying a mutual fund that invests in dividend paying stocks is a good alternative to choosing individual issues. You will earn less but have greater safety and diversification. Historically dividends have accounted for about 40% of the total wealth creation in equities which makes investing in those stocks appealing both short and long-term.

The bottom line is that even if you have a portfolio comprised solely of mutual funds it doesn’t hurt to add some quality dividend paying stocks to increase your total yield.

If you have questions for Paul call 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

 

The Week of Wha… Happened?

 

After listening to investment analysts, talking to and reading everything from the New York Times to the back of my Rice Krispies box let me share what I think happened this past week.

Ever since January poked its head in the door financial experts have been beating the drums that the markets have been ahead of themselves and need to pullback.  The December 31st 2009 Barrons suggests that 2010 could be the beginning of a shift from equities to junk and Treasury bonds. Businessweek suggested an 11% selloff for the new year. So why are you surprised?

Two-thirds of all trades are computerized. Along with the Greek-fear in the air someone somewhere did something to cause a massive block of stock to be sold. Proctor and Gamble fell 35% while other sell orders flooded the NYSE with no buyers on the other side. Half of the computer trades are done as intermarket sweep orders which is a computer program designed to find which exchange offers the best price. When the NYSE halted for 90 seconds trading so everyone could catch their breath the trades simply rerouted to other exchanges. Accenture, PLC fell to a penny in that route. The machines need to be reigned in. The first time I saw this was in 1987 and circuit breakers were installed after that mess. This past week markets fell more than the entire 1987 Dow. We need a fix here.

This is a confidence issue. Global markets and partners make for a small world. In the old days Greece falling by itself was not a bad thing except for Greece. However it is now part of the EU and as a partner is a key member that deserves support. Greece cannot simply devalue currency. It is a euro nation. It is making its frugal neighbors angry as they must support their spendthrift fellow member. And, unfortunately that neighbor has identical siblings in Italy, Spain, Portugal and Ireland that have had similar spending patterns and may soon step into line to be supported by their richer relatives. (And the richer cousins don’t even like these people very much!)

Even with the computer trading mistake investment professionals are sending a strong message to governments and politicians that they have to clean up their acts and become responsible. This is especially true of our local and national representatives. Back home they still don’t get it.

Good news was ignored by investors as employment strengthened all across the board. More jobs in more sectors were created and fundamentally we are in better shape financially then many other countries although our debt to projected 2010 GDP is still a stunning, unbelievable 92.6%. Traders are telling us to look in the mirror because our day will come if we do not start to clean up our own economic spending mess.

It’s also about the euro and the dollar. If you invested in a foreign fund that bought foreign assets in euros and the euro sank no matter how well the investment did coming back the investor lost money unless the fund hedged the currency in other trades, which most mutual funds do not do. In World or foreign funds some of the money is invested in euro nation companies and while the investment may do well the euro could determine how long before we are able to enjoy the upside of a particular investment.

So there it is. Not very pretty but lots of clues and some explanation of what happened last week to cause a massive slide and losses all across the board.  A few clients and I did take advantage of what I think is an opportunity to buy certain stocks and will continue to do so.

Remember you could own the best, most productive investment and if investors dump shares to get to cash and there are more of them then there are of you then your investment will go down. It doesn’t matter how strong the fundamentals it then comes down to supply and demand.

If you have questions for Paul call 877 783 7080 or write him at pstanley@westminsterfinancial.com share this blog with someone who cares about their money.

 

Tuesday Musings – First Week In May of the Week That Was

 

• A day by day account of the week that was. 
• Monday markets shook off Greek concerns and embraced the good old America amnesiac consumer. Yes,dear reader, The Dow climbed 143 points as auto sales, consumer spending and manufacturing activity were up. A Commerce Department report showed that Americans cut savings and increased spending in March. You’ll never go broke not following the American consumer. They are the only peoples that are able to move global economies. Gold, the dollar and oil all up and Treasuries (watch this) down moving yields up.
• From the Department of ‘What The Hell Were You Thinking’, Wal-Mart, about as an American company as egg foo yung settles allegations of dumping hazardous waste at stores throughout California. Everything from pouring bleach down drains to disposing pesticides and other chemicals where kids were playing were the charges settled. Next on the list that big box store, Tar-get, for similar violations.  Tell me it isn’t so.
• Car sales improved for all three auto manufacturers.
• US Airlines made $7.8 billion in fees….that’s a lot of peanuts.
• GMAC swings to profit. Remember GMAC? Talking heads eighteen months past were prematurely eulogizing the lender and some even confused it with General Motors. We ignored the nay sayers sold and bought the bonds as fast as we could and got double digit returns. The real gutsy plays were buying the bonds out five years for a clear double. When I’m old and gray that’s the good old days I’m going to remember.
• Sell in May and come back in November? Not this year. History says yes as money managers love to window dress for their annual bonuses but lots of make-up to do this year and next.
• Steel industry hiring as autos, appliances and energy increase demand.
• Mamma Mia it was a selloff! The worst in 3 months as fears that 100 billion Euros may not be enough to stabilize Greece, and worries that it could be contagious to Spain and Portugal, sank the US and European markets Tuesday. Lazard stepped in as it was hired by Greece for financial advice and not for restructuring. Lazard helped restructure debt Ecuador, Argentina and Ivory Coast. The problem is that  with the rioting over wage freezes the Greek populace have not accepted the need for fiscal restraint. According to news reports Spain and Portugal do not seem to have those constraints.  
• Buffett still ticked that Kraft bought Cadbury. $8 billion invested and CEO ignores him.
• Bill Gross of PIMCO, or PIMCO’s Bill Gross, called the big 3 ratings agencies ‘timid & slow’. He’s referring to S&P, Moody’s and Fitch, also known as the 3 stooges for their exemplary work grading bonds for the major investment bank factories. Sigh.
• Wednesday’s market slide continued as Greek citizens rioted, called their government crooks and refused to accept austerity plans. Dow off 60 along with other indices. Oil less than $80 and gold slightly up. Euro falls to the dollar less than 130.
• American CEO’s more positive today then they were in January. Okay, slightly more positive but it’s still good news  & I’m trying to squeeze in as much good stuff as I can this week.
• Holey Moley, Superman, 1,000 point dive?! It was like  I was driving along, minding my own business, and a tree jumped in front of me. Thursday markets touchy over Greece complicated matters when an alleged Citi trader punched in waay too many zeros when selling shares of P&G precipitating a market collapse. NYSE did the smart thing and halted trading for 90 secs on those issues allowing people to think before making trades. Dow off 345. Trades simply automatically rerouted. 
• On Friday morn buying opportunities to take advantage of. Markets expected to still be iffy.  Investors sending strong message to politicians to clean up their act, stop spending, budget, conservative measures. Seems voters can’t do it so traders are pushing for change. Markets off over 130 points. All indices off. Oil down and gold slightly up for the week.
• Any other day except Friday and the markets would have soared with the jobs report. It was stunning, across all sectors and the best in four years. Yes, there was an uptick in the unemployment percentage as the hardcore unemployed decided to join the line of those looking for work.
• There should be a law that does not allow NPR broadcaster to report sport’s news.
• Finally, four more banks shuttered Friday by FDIC.

If you have questions call Paul at 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

Keeping An Eye On The Other ‘Flation

You don’t hear much talk about deflation. It’s something economists and investment managers don’t spend much time talking about. Deflation is as worrisome for a good many as watching Kate Gosselin attempting to pirouette on Dancing  With The Stars. (Oh, she’s gone and I can look now?)  

Japan spent a decade with deflation and couldn’t shake it. In fact deflation is an economic disease that once it gets into the system there is nothing the government can do except hope it works its way out as soon as possible.

There are some whispers, with the economic problems of Greece, of a creeping global deflationary trend. While it is not quite imbedded as a sure thing the symptoms are there so that it is causing some very smart people to worry.

With deflation, the opposite of inflation, prices fall because there is a lack of a demand for product. As prices get lower, more product stacks up on shelves and businesses have to start laying off workers until finally a lot of people cannot afford to buy anything and others are afraid to. You can readily understand why the recent surprisingly positive domestic retail report was so welcome to Obama administration big shots and investors.

Still there are global grumblings that need to be paid attention to. Dow Chemical reported that its prices on products fell worldwide 17% in 2009. Also, some consumer prices only increased by 1.3% in February 2010, the smallest increase in 6 years. European nations are already concerned about deflation. In Ireland prices fell for the 12th straight month and Spain and Portugal prices were down seven out of the previous 12 months.

So while we look forward to massive inflation the reverse could possibly happen and in that scenario there is little the government, Obama or business can do to right the economy in a relatively short time. If it happens on a global scale investment portfolios will need to be completely reallocated to prevent them from stagnating and even turning upside down.

If you have questions on this blog call Paul at 877 783 7080 or write pstanley@westminsterfinancial.com. Share this blog with someone who cares about money.

Rock & Roll and Look Who’s Selling Life Insurance

Selling life insurance was one way that ex-jocks earned a living back in the late 60s early 70s. That was before huge mega-million dollar contracts. I knew two of them, Gil Mains, defensive lineman for the Lions and pitcher Dick ‘The Monster’ Raditz. I don’t know how well they did selling insurance but they had name recognition in the Detroit area, knew lots of people and did not appear to be missing any meals when I knew them.

Times have changed and I read that Gene Simmons, of the rock band Kiss, is the newly appointed rainmaker for a recently created insurance marketing firm that is aiming to sell jumbo life insurance policies to really rich people. Gene, with his kids and ex-Playboy magazine centerfold wife, has his own cable reality show, endorses everything from condoms to caskets, and is one of those unique guys who is able to entertain and run a business. What he knows about life insurance is probably zip but Gene knows a lot of people and for that he was asked to be point-man  for the new insurance agency aiming to sell jumbo policies to rich folk.

Simmons is hooking up with Cool Springs Life Equity which is somewhere in Nashville, not exactly your city known as an epicenter for rock or movie swells.

Cool Springs is also offering to finance the insurance policies in order that the ultra-rich don’t have to reach into their pocket and pay those nasty life insurance premiums. The loan will eventually be paid back through the life insurance assets while living or at death by attachment to the death benefit.

It’s an old story and the rich are not anymore immune from it than Joe and Mary Next Door Neighbor. No one objects to owning lots of life insurance - it’s paying for it that is the deal breaker. Smart insurance brokers have gotten rich exploiting that very fact.

According to Simmons the insurance policies will be bought ‘direct’ so that their costs are low. Since Simmons is just getting his feet wet the WSJ article doesn’t explain what exactly this ‘buying-direct’ means; is the insurance a low-load life or no-load or just a regular jumbo policy with some cash value build-up in the first year? We won’t know and chances are Simmons doesn’t either, nor does he care. His deal is to talk the talk. He mentioned he is going in a few weeks to a ritzy party in Miami and inferred he is going specifically to talk insurance to whomever he meets while hovering over the potted shrimp.

Simmons isn’t the first nor will he be the last celebrity to tout life insurance. Ed McMahon was an insurance shill for years and Alex Trebek is a paid spokesperson for a 1-800 insurer.

Why buying insurance from a  Simmons or McMahon or any other celebrity is better for the consumer or makes more sense is beyond me. I guess we think of them as experts in all fields even though a good percentage of the celebrity glitteria have a tough time figuring up from down or counting to three.

Buying insurance through celebrity spokes-folk is not exactly the most sensible way of doing it. There is a lot that someone has to consider before forking over the dough-rey-me, even if you are rich.

There are insurance companies a bit on the iffy side of the financial ledger, which is to say they are in a not exactly in the best of financial shape.  Right now I know of one company trying to buy as much business as it can.  That’s why financials are so important to look at before you buy. You have to ask: Will the insurance company be around to pay future claims? Does it have a consistent conservative management that doesn’t take extraordinary risks with client’s premiums?

One way you can do your homework is going on line and researching an AM Best life insurance report. It is free, easy enough to read and they cover every type of insurance company from casualty to health.

And that is the rub. The rich don’t know if Simmons is fronting for an insurance company fraught with poor management and fragile assets or not. But , the rich, like you and I don’t think of those things because – it’s Gene Simmons, for crying out loud!

Potted shrimp anyone?

If you have questions about this blog call Paul @ 877 783 7080 or write pstanley@westminsterfinancial.com Share this blog with someone who cares about their money.

 

Tuesday Musings- Last Week In April

• Ouch- Monday banks fell as debate on final financial reform package hit a wall. Dow saw slight up Monday with all other indices down. The financials were off 1.7%. Whirlpool was a bright spot with a 10% gain that led the Dow. Office Depot was up 6% after being upgraded. It was week were losers outnumbered winners the combination of Greece and Goldman knocking the markets for a loop.
• Market guru Woody Dorsey says this could be the correction coming. He sees ‘global tightening trend’ emerging that may cause weakness in stocks. The coming April employment report could bring stocks down this week.  
• I remember when people used to smile.
• Dems pull derivative provision from proposed legislation after Warren Buffett explained he’d have to set aside $8 billion to cover potential losses. Sen. Ben Nelson (D Neb.) asked that the language be taken out of the proposed bill. Nelson owned between $500,000 to $1,000,000 of Buffett’s Berkshire stock as of last year. No word if he still does. Anyone want to bet?  
• Start hoarding kisses, candy kisses ‘cause cocoa surges on short supply. I love their bellsy Holiday commercial.
• Call the phone police! Cops bust California blogger who published reports about Apple’s next-gen iPhone. Reports said blogger’s computers and servers were seized by California’s Rapid Enforcement Allied Computer Team. No word if REACT team kicked in doors while wearing Teflon pocket protectors, or not.
• Tuesday F posts $2+billion profit. Euro &  Asia  lower as Greece worries just keep on coming up like a plate of too spicy mousaka. Ratings agency downgrades debt of Greece to junk and Portugal two notches but still investment grade. (I’ve always said what leads markets lower and higher is stuff you don’t think about, it’s there you just don’t think about it.) Markets drop over 200 points, dollar strengthens, oil falls and gold up. It was any excuse to sell, and downgrading Greece was the catalyst for profit taking.
• But the real action and taking center stage Tuesday afternoon was grilling junior GS execs by Carl ‘Torquemada’ Levin and Company. Better then any soap the Senators even got the investment lingo right and bored right in. What was surreal was watching GS stock rise and fall as CNBC showed it in a small picture box all through the inquisition.
• The SEC examining ‘side pocket deals’ where hedge funds do not allow investors to withdraw their money while still charging a fee. Also at issue is valuation of assets which the fee is based and charged.  All during the economic meltdown.  Still want to invest with a hedge fund?
• Wasn’t the stimulus supposed to create jobs, fix roads, bridges, crumbling infrastructure? Just asking.
• Wednesday markets moved up, albeit slightly. Germany ponies up its share of Greek bailout, not without grumbling. Total bill is estimated at 100 billion euro. Spain downgraded by S&P. Back home- Fed reiterated rates will remain low for an extended period of time. No def on extended period of time. Traders exhale after holding their breath for 2 days. Senate Financial Bills hits rut and stalls again x 3. Treasuries slip despite healthy 5 year note sale.
• HP makes premium cash offer for beleaguered Palm. Do you remember Palm? Does anyone remember Palm? It was hot IPO in 2000 and then there was Apple. Now do you remember Palm? HP said it paid less than six bucks a share. Some said it was worth zero per share.
• Markets stoked on Thursday up 122 on the Dow. Barrons made strong recommendation P&G and Unilver – both showed strong sales and profits at Unilever jumped 33% as the consumer is back to brand names. Exxon, Conoco & Occidental up as oil prices lift the majors. Natural gas off-down over 1/3 since January high. Lukewarm winter provided massive stockpiles. Lack of demand and huge supply may hurt this trade until 2011.
• Friday brought bad news as financials led the markets lower following a sell downgrade on GS. Feds also investigating criminal charges. Spain unemployment hits 20%. Greece agrees to new austerity measures. President calls off offshore drilling. US economy grew at 3.2% boosted by consumers. Economists say we’re not in the clear just yet. Core inflation increased 1st quarter 0.6%, that’s not counting energy and food. This was the lowest reading since 1st quarter 1959. The WSJ reports, consumer spending bodes well for the future. Business spending also increased by 4.1% through the end of March as inventories increased to satisfy growing consumer demand.
• Top 5 mutual funds with assets & % amount invested in Goldman Sachs: Natixis CGM Advisor Targeted Equity A: 8.29%, CGM Focus: 8.20%, Wells Fargo Advantage Large Co Gr Adm: 8% & CGM Mutual: 7.71%. Current clients have no extraordinary GS exposure through my current recommended funds.
• Warren Buffett defends GS, said ABN Amro & ACA as making a dumb credit decision. He went on to say he didn’t care who was on the other side of the trade it was up to the buyer to assess the credit. GS pays Berkshire $15.00 a second for its preferred. 
• Sarah Palin was in Clarkston over the weekend. Am I the only one that finds her voice annoying?
• 7 banks were closed this past week, including one in Michigan, making a total of 64 year to date. Last year 140 banks were closed.

If you have questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

Ye Olde New Bank Rules Coming Soon

Once upon a time there was a world where there were banks, insurance companies and investment firms, and it was a very good world indeed. In that not so long ago time banks did what banks were designed to do which was take in deposits and make loans. The function of life and annuity insurance companies was to sell and service insurance, usually through captive agents. Investments, such as stocks, bonds and mutual funds, were sold through the large wire house such as MLPF&S and their registered representatives. Everyone knew what their roles were and stayed on their side of the fence.  In fact all three worked together for the common good. Insurance companies worked with bank Trust departments as did investment firms, sharing information and clients. That was the order of things and they were never to change. One prominent insurance company VP swore his industry would never enter the investment business because risk was not what the insurance business was all about. Today that insurance company owns a very large and respected investment brokerage firm. All in the space of a generation. The VP is long retired and forgotten.

It was banks that first dipped their toe onto the other side of the fence by offering customers life insurance. Insurance agents thought it was the end of their business and that banks would have a monopoly.  That didn’t happen. What insurance agents didn’t count on was that bank insurance agents were also bank employees and did not get paid any more or less if they sold or did not sell insurance. Banks were so cheap they did not offer sufficient incentives to build their insurance business. What banks did do fairly well was fight the regulatory concept of continuing education for their bank licensed agents which was mandatory for all licensed agents. For a while it appeared that they would win but in the end they didn’t. I should have realized back then that banks do not like playing with other people’s rules. Rules, according to what I witnessed, and how banks view them both now and then are for others and not for them.

Citi broke the investment barrier by merging with Travelers Insurance which at the time owned Salomon and Smith Barney and this merger flashed the digit to regulators and dared them to do something, which they didn’t. Lobbyists won the day and the merger opened the floodgates and banks were into the investment business with both feet. This was the beginning of the concept of the financial supermarkets – one stop shopping with all financial products from one source.

What makes banks powerful is the continuing flow of deposits from customers. Banks don’t need a lot of capital if they have OPM. People open accounts for certificates of deposit, checking and money markets.   People don’t have to buy investments or insurance for banks to use that money in what is called proprietary trading. They trade for their own account using the money of customers, who usually don’t have a clue to what is going on, to make money for the bank and their shareholders. Banks do keep a small amount available in case a customer demands some or all their deposited money. But banks use OPM for their own purposes and if bank traders become stupid and lose significant amounts, as history has proven, the government through FDIC steps in to ensure the customer’s money and, depending on the size of the bank, may even bail the bank itself out from its own mistakes. And, we did see a lot of that lately.

The government, on the heels of the Goldman fiasco, is working on a bill to limit what a bank can and cannot do. It also is considering how to define what limits the government will go to to bail out a troubled institution. In other words how big and essential is big and essential. The public wants the government out of the bail out bank business.

Whether banks like it or not, and its pretty much guaranteed they won’t like it, the new law will hinder bank growth and seven digit salaries of bankers. Any new law that is passed will be good until memories fade and people start to think that they are whole lot smarter and can handle risk and allow banks to do things that they weren’t meant to do and the cycle starts all over. Throughout history every time we get an economic crisis it’s because of greed and someone thinking they’re smarter then anyone else and wanting to get rich over it without caring about the consequences.

Former Federal Reserve Chairman Paul Volcker, 82,  has an idea that is getting White House attention. Over the last few months the ‘Volcker Rule’ was consigned to the back seat as something too drastic but with the alleged Goldman fraud and the possible criminal charges it seems that the former Chairman has one last contribution to make.

The Volcker Rule, as it is being called, proposes that it would effectively bar banks from the lucrative trading for their own accounts if they are also in the business of loans and offering fixed products to regular people. In other words, banks have a choice, either service customers or trade but you cannot do both. Banks, as expected, are arguing that trading for their own accounts did not cause the economic crisis. But it seems that Volcker has been able to gather major supporters including the current CEO of Citigroup.

Not all banks trade for their own account. A good many are and were incompetent the old fashioned way and lost money to projects that  failed because the bank did not have sufficient collateral or did poor underwriting on the loan. The Volcker rule will not help or hurt those banks. What Volcker does is finally sets limits on gambling with customer accounts, making billions for the banks themselves while paying next to nothing to the very people who’s money was and is being used for that purpose. What Volcker is simply saying and wanting to make into law is what we all are thinking, ‘Enough is enough!’ Until the next time.

If you have questions on the blog call Paul @ 877 783 7080 or write pstanley@westminsterfinancial.com and share this with someone who cares about their money.