Selling Your Life Insurance Part 2

According to today’s WSJ, cops arrested Florida insurance agent Steven Brasner and it wasn’t for the usual financial misdeeds miscreants are normally accused of doing when playing with OPM. In addition to state charges of alleged grand theft, fraud and other offenses he faces civil charges by so-called clients who allege they lost money buying now worthless insurance policies.

The story begins, dear reader, post bubble, when insurance agents back in 2004-2008 were selling insurance policies on people to investors. These policies were called SOLI, or stranger originated life insurance. In fact Steven and his wife owned a motor yacht named precisely that.

The scam works when an insurance agent contacts a senior and offers them a percentage of the face amount of a life insurance policy that a hedge fund would buy, pay the premiums and be the owner of the policy. The deal involves a waiting period of 2 years in order to pass the incontestable period after which the retiree would change the beneficiary to the hedge fund.

The twist was that the agents would lie on the application to get the retiree to qualify for jumbo insurance policies. Someone who earns only social security income does not normally qualify for mega-million dollar life insurance policy. The insurance companies need to see some sort of either financial or emotional loss to underwrite a policy of that size. A gray haired lady living in a Florida mobile home park generally doesn’t qualify.

Financial inducements to buy a policy is illegal and lying on the application to buy the policy is also illegal. Included in the application is an agent statement that asks who is paying the premium, will the insured be selling their policy and would the premiums be financed. There are insured application net worth and income questions which the insurance companies allege Mr. Brasner falsified and not the client.

Reading in-between the lines I deduced the insurance companies went after the clients of Mr. Brasner with criminal intent until those clients agreed that they did not complete the application and that they were lied to. The retirees were then let off the hook in return for their testimony against Brasner. ( I think they use that same technique on Law & Order),

According to records hedge funds and investors bought the policies Brasner originated. No word if authorities will pursue them or simply concentrate on eliminating Mr. Brasner from selling future insurance policies.

So far it is not illegal to sell a policy that you have owned and paid for. It is however illegal to lie on an application for insurance or have a stranger buy and pay premiums on a policy for you. The insurable interest rule comes into play for the first two years of the policy life.

As always whenever you have questions about transactions that may not be in your best interest contact your lawyer or tax professional.

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 their money.

 

 

Largest 30 Fund Company Rankings

 

Do you, dear reader, remember when I wrote that I would be more impressed with the amount of money a fund manager has invested in their own mutual fund that they personally manage then the number of stars Morningstar awards? Well, the recent Morningstar ranking of the top 30 fund companies just came out and there were no surprises. The funds that you expected to be on top were and those that you don’t hear too much about weren’t. 

PIMCO Funds lead with the best return and why not? They are fixed income specialists and have the largest mutual fund that is a bond fund. With equity markets barely treading even or worse for the year it isn’t a surprise to see solid numbers being posted by the fixed income folks at PIMCO. Bill Gross heads their investment management team and he’s considered the brightest fixed income manager anywhere.

The interesting thing is that PIMCO managers do not place a significant amount of their own money in the funds they manage. That honor goes to the people at Dodge & Cox followed by American Funds and Franklin Templeton.

The number one fund company overall in the Morningstar rating is T Rowe Price. Morningstar’s criteria involves more than total return to have a fund family ranked. The #2 is American Funds followed by Dodge & Cox, Vanguard, MFS and Janus. Franklin is #7 but there is a lot of faith amongst the investment management talent and the average manager has over $500,000 invested in their own funds. American Fund managers have close to $600,000 of their own money invested. T Rowe Price people are either not paid very well or are doing other things with their money. Even though they rank as the overall #1 fund firm the average fund manager has only slightly more than $200,000 invested in their own funds.

When you come right down to it some of this reporting is darn embarrassing. Consider the #30 fund family ranked and that is ING Funds. The average fund manager tenure is an astonishing 20 years but the average investment per fund manager into their own cooking is a dismal $13,700. As I said, sometimes it is embarrassing but ING Funds is #30 out of 30 and maybe that says it all.

If you want to see all the numbers and how all the reported fund families rank go to www.morningstar.com.

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.

That Was The Week That Was –4th Week in June

•   Investors awakened Monday to a new day dawning with grumpy staid China agreeing to allow its dollar or yuan to float against the U.S. currency. This news brightened investors in Asia and Europe. The U.S., not so much. Markets closed down after spending all day in positive territory, Experts, according to MarketWatch expect the yuan to move 3-5% a year against the dollar. This news is also good for exporters as it is a positive for Chinese domestic consumption companies being prime beneficiaries. Key winners- instant noodles, tobacco and alcohol.
• Princeton Professor Paul Krugman makes a significant point in explaining why the US should wait before enacting budget cuts and tax increases. It was the same philosophy in 1937 that sent the unemployment rate soaring just as the economy started to get some footing. Great Britain has plans for just that exact painful remedy. We’ll see how well that works out.
• Middle Class Bush tax cut extension is being considered by top Dem House Majority Leader Hoyer. (See the chart below)

•  Common sense, according to CNBC Fast Money, there is no double dip recession on the horizon as companies are paying and increasing their dividends. As we well know, corporations are extremely parsimonious when it comes to sharing money with shareholders if it means pain for board members or their executives. 
• FYI -Spillback distributions – You may get a spillback from your mutual fund as it represents income or gains from 2009 that were not distributed at the end of the year. These were gains from Nov –Dec and not distributed. Tax is payable in 2010.
• The much ballyhooed yuan rally fizzled. I was going to write the Big yawn yuan rally fizzled, but that was plain silly. Tuesday markets started off even and stayed that way through most of the day, either on one side or the other. Existing home sales were off 2.2% after 2 months of gains and realtors were expecting a tough summer. The news caused markets to fall along with more concerns about the banks and oil stocks.
• The White House vowed to fight the recent reversal on their 6 month moratorium on deep water drilling.
• Citi suggested to investors that Chinese stocks are at valuations that historically provided good entry points for investors. Hong Kong’s benchmark for China shares, according to MarketWatch’s Chris Oliver, are down 10% from a year ago. 
• Bill Gross, making an appearance Wednesday afternoon on CNBC, suggested interest rates will remain at or close to current levels for two years. Two year note currently yielding .67%, take in modest inflation and taxes and savers losing money. Expert in Thursday morning’s WSJ confirmed that rates may not be increased until 2012.
• It’s no secret that I believe in the long-term value of our domestic automakers. Morningstar took a look at the auto business in their recent essay about Automakers- Dead End or Open Road. They stated that outside of a possible double dip they think it is reasonable to expect ‘strong’ sales recovery over the next two years.  
• G-20 meeting will be every country for itself. Obama has preached fiscal stimulus which is ‘in your face’ contrary to austerity measures in Canada, UK, Germany and Japan. Expect fireworks.
• Domestic markets feel Fed gloom as the Chairman reported recovery not as robust as expected. ( I knew that –You knew that too!)
• Markets were down Thursday on worries about the final bank bill. Small banks were give reprieve with smaller capital limits and Senate rejected that banks pay for the winding down of Fannie and Freddie.  Real estate woes were also in the news but some argued that sales were not as bad as being reported. Sometimes I feel like Roseanna Danna Danna, ‘It’s always something.’ The Dow was down almost 150 points. The ten year bond was up as investors dashed to quality.

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

A Tax Increase Is Coming – You Bet

 

 

There is no right or wrong time to increase taxes but Congress is getting ready to get-er-started in 2010. The following table is not carved into stone but a possibility of what increases are in store for all of us. 

 Congress appears to be getting ready to make the American citizen pay more this year with a bevy of new taxes. First to feel the hit will be the top two tax brackets with the highest earners.

According to Barrons Sunday June 20th the income tax brackets will also be increased with the disappearance of the 10% bracket to 15% and increasing the 25% to 28%, 28% to 31%, 33% to 36% and 25% to 39.6%.

If Congress cannot raise enough taxes to reduce the deficit it may do what other countries have already enacted and that is a Value Added Tax or VAT, which is nothing more then a Federal sales tax. A 5% VAT could raise, according to the Tax Policy Center, as much as $3.3 trillion dollars by 2019.

Clients are suggested to call their tax advisor and begin planning on ways to reducing future tax increases. This is not going to go away.

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

 

Rules For 401k Plan Success

 

 

 

Many of my clients are retired but a good many still work and make contribution to a retirement plan. Some work at non-profits and save through a 403b, which is a plan much like a 401k but structured for employees at hospitals,  churches, government agencies and schools. There are other non-profit organizations that have the 403b but you get the idea.

The retirement plan market is extremely competitive. The biggest players are mutual fund companies but a lot of exchange traded funds are showing up.

Insurance companies are also deep into the 403b market with variable and fixed annuities. Mostly the insurance companies are in school systems and small to medium size companies that want all retirement plan services bundled into one package.

I’ve always preached simple is best for managing your money but in some 401k plans the offerings are like Chinese take-out menus, almost everything looks good and there is a lot to choose from. If you don’t know what you’re doing the best advice I can give is to choose a Target Date Fund and use that as your investment vehicle. It’s probably not the best but certainly not the worst thing you can do.

But, I’m not writing to tell you where to invest but some simple rules for not messing up your plan so that at retirement you end up with less than you put in.

• Invest as much as you can without taking food off the table. Remember you get a tax benefit so the$100 isn’t really $100 but something less than.
• You may plan on working the rest of your life but employers and the economy may have other ideas. Plan accordingly.
• Don’t fall into the trap that you won’t invest unless the company matches. The company doesn’t care if you eat beans or less at retirement. Open those baby blues understand this and invest for yourself.
• Be prudent with how much you put away into the company stock. Some firms have gone kaput, remember Enron, dear reader? K-Mart? G.M.?Enough said.
• Don’t invest by using the rearview mirror and checking out what did the best yesterday. Sometimes the bus leaves early and you missed it. If you can’t spell ETF stay away from them unless you know what you’re doing. I mean REALLY know what you’re doing.
• Don’t borrow or cash out money from your retirement plan unless you absolutely positively have too.
• Take advantage of professional advice if it is offered. But, don’t be blind to those handing out freebees. Some are not so smart so check credentials. I’ve met guys who were plumbers one year and financial gurus the next.
• Check your values quarterly. You just go nuts looking at stuff everyday. Forget rebalancing unless you really love that sort of thing. Don’t react to economic events like its the end of the world. Try not to do the same thing that your co-workers do, they usually don’t know what’s happening anymore than you do.
• When you leave an employer take your plan with you. Don’t think your employer is going to be there forever.

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 their money.

The Week That Was – 3rd Week In June

 

• Photo above oil slick Gulf of Mexico.
• Monday Moody’s downgraded Greece’s bonds to junk while Euro-zone factories ramped up production at a record rate, according to Monday’s WSJ. Germany seems to be the go-to country with factory output increasing some 14% over last year. Big ticket items are what’s been driving production along with exports. This does not help small fringe countries such as Ireland, Spain, Greece and Portugal. Gold down, oil up, indices mixed for the day as nervous traders took money off the table killing a solid rally. (S&P already had previously rated Greek bonds as junk).
• Steve Goldberg in May Kiplinger reports on the one class of stock that will come close to matching the market’s long-term return is the so-called mega-stocks. The chief investment officer at Jermemy Grantham predicts that these mega-stocks are today dirt cheap. The only other sector that they like is emerging markets.
• IPO alive and well- Tuesday saw the last privately owned financial exchange go public and do it in a big way. Shares of CBOE –Chicago Board Options Exchange traded at the top of their IPO range and ended up +12%.
• Tuesday also saw triple digit gains hold and gain strength to the close of business. JP Morgan loves tech and tech was the engine on Tuesday. The euro also climbed but this could be a ‘temporary situation’. Traders cautioned as not reading too much into the day as volume was thin.  Oil jumped to $77.
• The new ‘in-words’ for columnists and analysts, double-dip recession, like we’re so much out of this one we’re ready for another. Nothing that $9 trillion coming back to the market couldn’t cure.
• New financial regs a-coming. Locking in higher FDIC insurance for mom and pop at the bank and and letting rating firms slip off the hook.  Instead of having oversight on them lawmakers decided to spend more time investigating that option until the idea dies a long slow death, or the day I forget how to use a spoon. The rating firms are the folks that gave AAA a bad name in the name of money. Need a bond to sell to a gullible bank? Slap on a AAA rating.
• Expect banks to start charging for checking, debit cards to make up for the billions lost due to their own foolishness.
• France, ze country, announced Wednesday they were upping the retirement age to 62 from 60. It’s unclear if this is for government workers or all workers, no word on that. The unofficial 20 hour work week and 2 months mandatory summer vacation is unchanged. Viva la France!
• Wednesday you may as well have stayed in bed. The Fast Money crowd from CNBC report that the ‘stealth Bull market is alive and well.’ It indeed be very stealthy as all indices are either even or down for the year. I call that stealthy, wouldn’t you?
• You quasi-government at work. Fannie & Freddie are off the NYSE and being traded OTC. Both traded not that long ago at $50-60 per share and have fallen to penny stocks.
• Banks in Great Britain will be regulated by a triumvirate headed by the Bank of England. 
• Dow is 700 points lower than April high. Each time it falls lower on bad news and is unable to recoup previous high on rebounds. With thin volume and entering earning season we may see this as the pattern for the summer.
• Tesla preparing IPO may price around $15 a share. (That’s the new electric car semi-promoted by Toyota.).
• Going once, going twice…The Argentinean MercadoLibre (The South American E Bay), saw its top institutional holder unload $41 million in shares.
• Showtime with Congress people getting face time telling off BP big shots. Torquemada would be proud. BP CEO sidelined  Friday for someone with a personality.
• According to Chuck Jaffe at MarketWatch, the government is not going to limit the size of banks. Suitability standards for bank brokers may also not pass. Client needs will come secondary to the firm. (Lobbyist's are working hard to weaken any new regulations while opening loop holes to take advantage of.)
• Fed officials are signaling, according to Tuesday’s WSJ story, interest rates will be kept low for a really extended period of time. Inflation not a concern the economy & productivity is. RBS position paper stated with the fall of the euro by 20% the dollar was the world’s main safe haven.
• Friday closed up. Yep. Two up weeks in a row. Be still my beating heart. Michigan loses #1 unemployment spot to Nevada. Gold up on a flurry of speculation – can anyone say, ‘Look out below?’

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.

 

Mid-Year Market Guessing Report

 

Twice a year soothsayers and analysts dust off crystal balls and Ouija boards and report where they think the market will be at the end of the year. This is a far easier job to do at halftime then those who had the job of guessing at the beginning of the year simply because there is less ground to cover and whatever momentum has developed will usually carry forward.

Given a choice I personally would prefer doing the halftime analysis more than say the pre-game. There is nothing worse then telling folks about the up-coming big game and telling the world that it’ll be a tight fought contest and come back in an hour only to see one team absolutely pummeling the other into dust motes and then trying to explain, with a straight face, why you were so off the mark at the start of the show or switching gears and doing the old holding out hope sales talk that the team crawling back into the clubhouse is just gathering itself and with a few lucky breaks will be back in the game. No matter what you say the viewer knows it’s BS.

If you don’t think financial writers do this in some way or fashion about investing I have a bridge I’d like to show you. The biggest knock on CNBC has always been it’s been a cheer leader for equities and doesn’t give viewers an impartial look at reality.

Even magazines and web sites several times a year promote their must read features such as‘what funds to buy now’ or ‘best funds for retirees’, or the oldie-but-goody, ‘ five funds that will give your portfolio a boost’, using an arcane algorithm with dubious pedigree. Sometimes writers who know how to write but couldn’t pick out a value fund from a growth fund use outside help like their next door neighbor while hanging over the fence who considers himself an amateur Warren Buffett, Or, the old ‘let’s see who wrote what’ and plagiarize research analysis.

Even the experts have been so wrong you wonder what it is that they do to make so much money.These really smart folk can be extremely wrong folk as we saw a few years back. Guys like Bill Miller, Warren Buffett and the like all didn’t see the locomotive heading down the track, or if they did they didn’t do much about it. Certainly none of them raised their paw to give us any warning.

Pimco and BlackRock have had diverging views on the Treasury bonds all year. Pimco has urged investors to lighten up while BlackRock has recommended investors to either stay the course or buy bonds for the duration of the year. So far BlackRock is the leader at half-time. Still investors are unsure what to expect for the next six months. The Pimco argument makes sense as does BlackRock.

CNBC ‘Fast Money’, a show showcasing traders, have their own views on the markets. I often wonder if it’s simply one big tout for filling their positions. One just doesn’t know anymore.

Every morning and throughout the day I check the news on Bloomberg, Barrons, MarketWatch and WSJ, just to name the biggies. I also look at Yahoo and watch my share of CNBC on cable. The thing is that for every point I see against the economy I read another for.

I have just that kind of bi-polar piece on my desk from Barrons, and Steven Sears reports on an ‘antsy market’, which he is being way too kind. Maybe his people don’t let him use bad language. Steven write that the major trading desks are in a tug of war with each other. Ah, that makes sense. You have some traders telling clients one thing and others another. His point is that there is a method to this madness and the end result is not for the benefit for the average investor.

That’s truly the rub, dear reader. There is way too much information, or should I say commentary, out there for any investor to digest. It’s especially bad for the average person trying to build a portfolio. In the old days folks bought a few mutual funds, put them on the shelf and checked their values when they had nothing better to do, or when the taxes were due. They had no idea what they owned or what the fund did. Now it’s life and death everyday with average investors working with conflicting information and trying to emulate the Gates and Millers, and finding it frustrating that the economy is not cooperating.

So maybe, just maybe, we all take a step back and agree that 2010 is a lousy year and that there is absolutely nothing anyone can do anything about. So as long as the funds we bought haven’t changed their investment philosophy, managers or risk I suggest that we agree to stay where we are, put our feet up on the ottoman and watch the rest of the game for it’s entertainment value and not like we have five big ones laid out with Knuckles Kowalski.

My half time prediction is that it is going to get better, much better; I just don’t know when.

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.

Selling Your Life Insurance Policy

There are two types of life insurance. There is the policy that lasts for only a specific period of time and builds no cash value and the policy one can own until death and builds a cash account. All insurance policies are modifications of either term life or whole life. Until the last few decades the only options people had with their insurance policy, if they did not want it, was to use any cash to buy a paid up policy or send it back to the insurance company and surrender the policy for whatever cash had accumulated.

Almost everyone who has borrowed money from a bank or relative knows  you can assign a policy for a debt or obligation to someone or something as long as the owner of the policy is copacetic with the assignment. Someone somewhere decided if that was the case why not buy a life insurance policy from a complete stranger who was ‘really’ sick,  make themselves the beneficiary and owner, pay premiums until that person died and then collect the death benefit. Comparing how much money an insured would get from simply cashing the policy for its value versus selling it became a living boon to the policyholder. A future windfall for investors.

The problem was picking a specific morbid illness that the investor knew someone was going to die in a relatively short period of time. What disease, wondered investors, was 100% fatal with many prospects? The answer, back in the day, was AIDS. Buying insurance policies from AIDS patients was a huge moneymaker. It was a slam dunk. The insured's needed the money for medicine and treatment, the policies only needed to be paid by investors for a relatively short period of time and the return on investment was guaranteed, and huge.

Then modern medicine got into the mix and patients started living longer, some even improved and investors found themselves paying premiums for far longer then they expected which, naturally, cut into their returns.

Innovators then turned their attention to another group of people the elderly. Here was a group of folk that had outlived their need for insurance, contemplated dropping it and wanted cash for living expenses more than a future death benefit. This was so well received that some old poops got into the business of buying  life insurance on themselves simply to sell it to investors.

Seniors selling their insurance became such a huge hit with investors that major institutional investors gathered a few years back in New York to consider buying en masse blocks of life insurance and repackaging them as  bonds. Ghoulish? You bet but when looking at possible annualized returns close to double digits it suddenly became very palatable.

Naturally the life insurance companies are not thrilled by what was happening. They were not about to allow investors manipulate a well designed actuarial plan in the name of commerce. Insurance companies need  and want people to cancel policies before they die not keep or sell them. The last thing insurance companies want is someone to actually have a claim. Insurance companies are in the money of collecting and investing premiums and not in the claims paying business.This is all calculated into the premiums people pay. If everyone who bought a life insurance policy held it to final maturity it would make the premiums much more expensive then they are today. Plus, the insurance death benefits currently on the books could possibly bankrupt several insurance companies.

The other cogs are the beneficiaries who suddenly develop convenient amnesia when a death claim occurs and they see huge life insurance benefits going to strangers. There are hundreds of court cases with whining family members demanding that what mom, pop or aunt Sally did was illegal or a result of some slick talking shyster who conned their beloved relative out of their life insurance policy.

A case in point is the Kramer family in New York where the wife Alice is refusing to give up the death certificate on her deceased husband who had taken out and sold over $56 million in insurance coverage. Mr. Kramer knew full well what he was doing as he was founder of the law firm that bears his name. In fact Kramer used some high priced talent to buy and sell the policies, almost like flipping a house, and putting the cash into Trusts with his children as beneficiaries. It is alleged that Kramer did not put a penny into any of the policies and established an entity of ‘strangers’ to buy the policies on his life that he ultimately sold. The wife demands that she and not the kids or Trust get the insurance benefits. Experts contend that she may get some but certainly not the full face amount.This is a complicated, convoluted and not textbook life insurance settlement. The case involved 7 life insurance policies along with 4 life insurance companies. It all reads as if Kramer had gamed the system and allowed his family to clean the center ring after the circus left town.

No one knows if what the Kramer case is something that was concocted by both Kramers before he died or something that just happened after his death. To avoid something like this most life settlement companies have beneficiaries sign off on the policy.

Still there are plenty of folks in the life settlement business, that will attempt to take advantage of a situation so it is suggested that you do your homework when you enter into any discussion about selling your life insurance policy. Remember it is not illegal to sell your life policy. A lawyer, accountant and financial advisor on your side of the table will help with any business inequities. Here are a few more tips before you start the process:

1. Check with your state for any licensing regulations for life settlement brokers.
2. Do you still need life insurance? Can you buy new life insurance?
3. What information will the purchasers receive about you and your family and how will it be used.
4. The proceeds may not be tax free. Check with your advisor.
5. Creditors may be able to attach proceeds.
6. Will you lose public assistance or Medicaid if you get a cash settlement?
7. Establish an independent bank to handle escrow while funds and policy are being transferred.
8. Always use an advisor for your negotiations.

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.

 

 

Are We On The Yellow Brick Road or Heading For A Cliff?

A client called the other day and said he read that I was positive about the economy and asked if it was a misprint and I said, no, even with unemployment hovering at 10% I think the worst of it is past and we are on the road to recovery. The light at the end of the tunnel is sunshine.  What makes me believe this is that the consumer is spending money. Whenever you go to the stores and see people writing checks, handing over plastic, bumping and clawing each other over the sale bin, you kind of know that things are getting better.

Profits are also up at the brand name products. Colgate, Unilever and Proctor and Gamble posted huge profits and increases that shout people are coming back to those products that sell at a premium over discount and no-name brands.

Ford posted $2 billion profit and that’s extraordinary since Ford has virtually no presence in India and China and is basically starting from scratch in those countries due to lousy management before Mulally took over.

Even Wall Street believes and is betting, according to Bloomberg, that President Obama is leading the U.S. to an enduring recovery. Catch that? Enduring. You haven’t seen that word in ages and it speaks volumes. The other side of the coin is that investors have snagged close to $100 billion of junk-bonds this year alone. This return to investment risk is flashing neon that the economy is coming back. The refinancing of the high yield market is helping those weaker companies avoid bankruptcy because they can now roll over that debt. Another signal is that the default rate in the junk bonds has decreased from 13% to roughly 10% and is expected to decline to a more stable and moderate 2.8% by year-end, according to Moody’s.

Yes, there will be days like the Greek meltdown and the Gulf disaster where markets fall and stumble but the question asked and answered is are we looking for a double dip depression or for a full recovery? Fed Chief Bernanke said in testimony before the House Budget Committee that the economy is healing and repeated what I just wrote that consumer spending and business investment should make up for fading government stimulus.

In the meantime you and i have been here before in 1990, 1994, 2000, 2001 and 2002. For some that remember we were here in 1987 when the markets collapsed but came roaring back for one of the longest Bull markets in American history. The markets will continue their volatility but if you do all the things that smart investors have learned to do: reinvest dividends, buy on dips, reduce withdrawals and keep things simple,  the long-term prognosis for your success is clearly positive.

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

 

The Week That Was –Second Week In June

• Monday following the huge Friday sell-off found the markets like a New Years Eve hangover that had everyone tip toeing and avoiding loud noises or surprises. The lack of long-term investors allowed traders to do their thing and by the final 60 minutes the DJIA shed over 100 points toute de suite.
• ‘It ain’t a double dip!’ Weakness brings out the worst and while domestic fundamentals grow slightly better with each passing day investors fret a double dip depression. Fed Reserve board chairman Bernanke said that consumer spending and business investment seem strong enough to keep the economy growing, albeit at a relatively subdued pace.
• Free cash flow. Companies with cash that they can use to pay dividends, buy back their stock or use for acquisition are growing. In troubled times free cash flow is a beautiful thing.
• From the Financial Advisor News, nearly every hedge fund strategy in May lost money.
• Tuesday markets moved higher at the open, lost ground and then finished with a triple digit flurry not seen in weeks. All this as advisors and talking heads worried investors to take money off the table in the final 60 minutes of trading. Just what the markets needed was a little less confidence. CNBC with Marie Bart…reported oil going to $78 a barrel by year’s end.
• It  was ‘Ladies Night’, on Tuesday last as the ‘New’ political Supremes reigned in campaign 2010. Carly, Nikki, Meg and Sharron came, saw and conquered in  races for governor and U.S. Senate.
• Morningstar reports the proliferation of Long-Short mutual funds. They’ve been around for years, haven’t really been impressing but took in over $10 billion in 2009. So far there have been 22 long-short fund launches in the past 12 months. The problem, according to Morningstar, is the fund companies are chasing flows, which are in turn chasing performance. It’s a compelling ‘ my-broker- tells- me’ story but no cigar.
• Wednesday markets opened higher. CNBC reports short upside before falling back. Fed Chairman Bernanke told Congress the recovery is on track despite head winds. He also urged Congress and the White House to come up with a plan to whittle down record federal budget deficits. ‘At some point,’ he said, ‘(if nothing is done) things will come apart,’
• Here we went again. Wednesday saw a strong market unhinge in the final hour of trading. It’s a traders dee-light. Money doesn’t sit overnight as investors move on before the closing bell.
• Bargain? BP collapsed from $60 to close under $30 a share.  (Moved off lows by end of week)
• Pimco versus BlackRock- both bond mega-mega goliaths, Pimco warned of Treasury ownership, BR said nay. BR right. Pimco added more U.S. Treasuries changing its philosophy and moving markets.
• Gold is no longer for the faint of heart. Huge moves to either side make this an extremely volatile trade. Eventually it is possible to get caught on the really wrong side. Silver is not moving in tandem.
• Triple digits held Thursday best since May 27th. Don't get excited because too much uncertainty for long term investors who are still not convinced to participate.
• Huge positive, that should put smiles on investors, is corporate CEOs holding massive amounts of corporate cash. With two major recessions in a decade corporations have learned their lesson. According to CNBC the minute confidence comes back there is something sitting there that the markets have never seen. Piles of cash for M&A, stock buy-backs, acquisition and increased dividend. Whoa, Nelly! 
• Friday weak retail sales numbers started the trading day on a sour note. Still a positive week for the first time in a month. Small gain eked , naturally it happened at closing, as markets mixed most of the day. According to Morningstar railroad service ‘rebounding’ at record clip. May’s 15.8% year-over-year monthly carload growth was the second greatest gain in the U.S. since tracking volume began in 1990.
• TARP repayments surpass loans! $194 billion collected on $190 billion debt. However, there may be losses ahead. (Can you say AIG? Anyone?)
• Lyrics your great grandchildren will never hear, ‘Find me a Mercury and cruise it up and down the road.’ Sigh.
• Marc Pado, US market strategist for Cantor Fitzgerald, said in Sunday’s MarketWatch, ‘Technically, fundamentally, geopolitically, and globally, there is a huge wall of worry that has been build since the April high.’ He finished by saying that the good news was there are companies that have been anticipating worse economic conditions and now sitting on a pile of cash, keeping inventories tight and a lid on new hires.
• Red flags in muni-market. Buffett trims holdings. Investors finding it tough to weed out possible defaults, according to Monday’s WSJ. Gaps between revenue and expenditures are unsustainable, say some market specialists.
• NYTs Sunday report $1 trillion in mining metals in Afghanistan,  Could be the Saudi Arabia of lithium.  MarketWatch report poo-poos wealth for the common Afgan. Look at Africa.
• #82 year to date bank closed 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.

New Rules Strategic Default

 

In the old days you’d rather be in an auto accident  wearing dirty underwear then default on your mortgage or file for bankruptcy. It just wasn’t something proper people did, and if so certainly not shared with anyone.

Not anymore. It seems folks of all ages are just walking away from their home if it is valued at less than the mortgage. It even has a name, ‘Strategic Default’. This sounds better than Dead Beat. Now I am not talking about folks who walk away because they have medical bills or lost their job and can’t make their mortgage payments. These are people who earn good money and bought a home five or six years ago and today, with the real estate market in the toilet, think it is perfectly okay to simply stop paying their mortgage and walk away. The rationale is that businesses do it so why can’t they. And, they don’t keep it a secret but let the world know they are deadbeats.

The one bad corporate real estate deal these people point to as an example that allows them to do what they’re doing is the New York $5.4 billion Stuyvesant Town deal that went south. The property not only lost half its value but the cash flow dried up making this the biggest real estate collapse in America’s history. The investors lost billions.

The difference between corporate America losing and walking away is corporate America has and had a significant investment in the real estate unlike many of the ‘Strategic Default-ers’, who bought their home with little or no money down and their only real investment over the years has been their mortgage, taxes and insurance payments.

I can only assume what many of these ‘smart’ Strategic Defaulters think is that by walking away they can rent a home somewhere else for about the same or less and in five or seven years they can come back and buy a similar home at a ‘cheaper’ price and be back in the money. They figure the only one that gets hurt in this deal is the bank and who cares about banks? They don’t think about their community or their future beyond the next mortgage payment.

Not only are these people getting bad advice about playing jingle keys with their banker but in five or seven years the chances are the current home market will have recovered somewhat and real estate will be substantially higher than it is today. Interest rates will certainly be substantially higher and if anyone wants to buy a home it will cost them more of a down payment then it did yesterday.. That alone will take the air out of any future value of getting a better deal years down the road.

There are businesses that have materialized to service this odd financial market and their job is more handholding then business consulting. For a fee they counsel home owners into accepting what they are doing as perfectly sound and basically do a moral intervention. I call it a moral-ectomy. It’s the homeowner equivalent of Gordon Gekko and ‘Greed is good,’ mantra.

What the rest of us need to know about this group of people is that there will be no contract sacred or one that they ever can be trusted to honor. Unfortunately credit reporting agencies clear bad events after a period of time. These people having learned that they can do this once will do it again, and again.

For some reason these people have their priorities screwed up. They think they are thinking like business people but sound business practices don’t suggest that you walk away from obligations, or reduce the value of your community, or financially damage your neighbor’s property. Successful business people live up to their liabilities not walk away from them.

The concept of Strategic Default wounds neighborhoods, reduces home values, weakens the community tax base and damages schools and public services. And people do this because they found themselves with a temporary weak home value and they do not like it.

As a business person I don’t want to be on the other side of any contract with people like this. I would not want to sell them a hot dog for fear they would eat it and then demand their money back as it failed to meet their expectations. As a homeowner I would not want to live next to such people, or have them in my neighborhood. To say these folks have a screw loose is probably the biggest understatement of 2010.

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.

 

Who’s Sorry? The New Michigan I’m Sorry Law

Most of us didn’t know until we read the Detroit  Freep on Memorial Day that there is such a thing as an ' I’m Sorry Law’. Before you get excited thinking that your garage mechanic is getting into the eating humble pie business when he screws up your brakes this bit of legislation is for doctors only. Michigan, it seems, is only one of 15 states without extra protection for physicians who apologize for something bad that happened to a patient they were treating. It seems that doctors who apologize have been able to reduce the costs of malpractice claims by a whopping 40%.

That explains everything. All this while I thought some doctors were just arrogant. Without the new law and in some convoluted way saying your sorry by a doctor to a patient or his family is an admission of guilt and could be used against them in court. With the new law in place saying you’re sorry can’t be used as an admission and theoretically  saves the malpractice insurance carrier bokoo dollars.

Folks used to apology if they did something unintentionally that discomforted or inconvenienced another. People don’t do a lot of that anymore. Usually a rude gesture is what you get or an invitation to step outside, even if you happen to be outside.

Apologies are usually forthcoming, especially in criminal trials, after someone is found guilty of doing something bad and just before sentencing. You expect apologies right about then and at the same time distrust them because you just don’t know how earnest someone is who’s just been found guilty. It’s not so much as saying ‘I’m Sorry’ as it is the ‘Don’t Send Me Away For Life’.

The folks in the oil business are probably on the same page as Michigan doctors and not in the apologizing mood when they do something wrong. We saw this on television as it was ‘Pass The Buck’ and ‘Blame Them Not Me’ before a Congressional hearing on the BP disaster. BP could apologize to the moon and back and still folks know they’re guilty of a lot of things.

Some people in the investment business who threw a monkey wrench into the global economy are not forthcoming with apologies anytime soon. GS is being sued for fraud and doesn’t say it’s sorry but stands on its hind legs and proudly proclaims it did nothing wrong. They allegedly sold products that just about everyone, except the buyer, knew was a pile of crap. Instead of, ‘We shouldn’t have done that.’, the order of the day was, ‘The buyer should have known better.’

AIG , the giant insurance company, was kept in business and used taxpayer’s money to pay their insurance claims to keep banks and brokerage houses in business and no one said they were sorry.  There was no one that stood up and said, ‘Thank you,’ either.

What they did do was say they needed more bonuses and more money to pay certain executives because these were the only people who knew how to fix what they did wrong. My question is if they knew how to fix it why did they screw it up in the first place?

People and institutions make mistakes all the time. We all can understand how accidents happen. When something that is supposed to have redundant checks and procedures to minimize accidents and all of them are either ignored or minimized then what happens as a result is not an accident.

Do something once and it’s an accident or misfortune. The second time could be coincidence but the third means that this is now a habit.

There isn’t a day that goes by that each of us isn’t exposed or makes a mistake that we expect or offer to rectify. We get the wrong change, someone gives us the wrong size, the DVD doesn’t format, the shirt shrank, someone put mayo when we asked for plain. We say, opps, we’re sorry and fix it.

Regulators and elected officials haven’t stepped up and said they’re sorry about the mortgage mess. Unless they were living in caves during one of the  biggest mortgage giveaways in American history, both regulators and elected officials had to know that people were getting homes and money they couldn’t afford nor qualify for. Excuse me for reminding folks but back in the day it seems you couldn’t turn on the TV, radio or internet without someone shoving a fistful of money at you. And, folks in Washington, DC didn’t think any of that rather strange? Or, were elected officials so blasé about having money tossed at them that they figured it happened to everyone?

It wasn’t as if this game show with houses for prizes only happened for a day or two. This was a continuous systematic fraud that was being perpetuated against the American people and against certain government agencies for years. And no one steps up and says, ‘I’m sorry?’

Now it doesn’t matter. After reading the Freep I realize that saying ‘I’m Sorry’, simply means that I hope you cut me a break and only sue me for half of what you were originally contemplating. It’s a ruse, a way of doing business, it doesn’t mean much at all.

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.

 

 

The Week That Was–First Week In June

• In The Month That Was, May was the worst month for the DJIA since FDR was in office in 1940. As a reminder there was the ‘flash crash’, fears over Greece, new fears over Spain, oil collapsed in price, the euro fell but the dollar gained and the 10-year U.S. Treasury was also up. On the last trading day of the month the markets seemed to cruise along until the last few minutes when the bottom fell and the Dow finished off over 122 points. Good riddance to an awful month for investors.
• Conflicted? Don’t feel alone. In the most current Fortune.com two articles, side by side, almost by accident; one warning of the markets slide to S&P 800 and the other, by a respected mutual fund manager, exhorting investors to pick up bargains.
• Stock market history buff & columnist Jason Zweig reported May 29th WSJ on the ‘Flash Crash’ of 1962. He writes that after a 27% run-up in stocks in 1961 and with Polaroid and Texas Instruments trading at up to 115 times earnings and without warning stocks ‘broke; and plunged May 6, 1962. The Dow fell 5.7% or off 34.95 in volume so heavy the tape took two hours to completely print after market close.He is drawing parallels to that and today.
• Free Money? According to CNBC’s morning round table on June 1st current Fed philosophy allows huge opportunities for large cap stocks trading at reasonable valuations.
• From the Department of Misleading Idioms ‘Beggars, it seems, can be choosers.’ Prudential, PLC, not the ‘Rock’ insurance carrier but the London based, turned away from AIG who demanded more money then what Pru offered them for their Asian insurance unit. How much you ask? The $23 billion in cash would have made a big dent in the $$$s or $132 billion owed the American taxpayer.
• Markets were down on Tuesday at the open, gained strength on more good news throughout the day and then collapsed in the final hour of trading. 
• Friday the DJIA plunged below 10,000 as nervous traders, looking for any good news, saw an impressive triple digit rally disappear with a so-so jobs report and news that Hungary may default on its debt. Market corrections of this magnitude rarely occur in an environment that is ‘fundamentally improving,’ words uttered by market strategist Mike O’Rourke. Other ‘savvy’ investors have issued more upbeat pronouncements.
• I-Couldn’t-Have-Said-It-Better, ‘If 2000 was the peak of irrational; exuberance, with investors paying for companies without earnings, today has to be the era of irrational pessimism,’ James Paulson said in a June 5th, 2010 WSJ article.
• Finally, short term emotions do not mix well with long-term investment objectives.

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.

People You Need On Your Speed Dial

Maybe you’re handy with your hands, have a garage or basement filled with tools and can build a home with nothing more than a shovel, hammer and screwdriver, I can’t. One of the top five people on my speed dial is  a guy named Joe the handyman. Joe can stop a leak, replace a fuse box and rebuild my back deck. I can’t do what he can and he’s on my list.

The other necessary person on my speed dial is my attorney. It’s taken me a lifetime to find but I don’t do anything without talking to him.  Trust me, if you don’t have an attorney one day you’ll need one and you’ll pay an arm and a leg to find one that you can trust. Why put yourself into that position. You need a Will, maybe a Trust, start the search today and get that person on your speed dial.

People with complicated income tax returns still do it the old fashioned way. I don’t get it, maybe I never will. I learned the hard way when a bookkeeping firm did my income taxes when I first started in the business, I was audited and couldn’t get the bookkeeper to represent me.  Find and treasure your CPA firm. It only costs a bit more to go first class. They belong on your speed dial.

I need a good casualty insurance company that answers their phone, talks to me, handles claims and doesn’t make things complicated. I shop service as much as price. Ages ago I left the Alphabet insurance company because the service was bad. In the past year I’ve had several claims from a tree falling on my truck to having power go out when I was not home and having a freezer filled with spoiled food. Both claims were processed easy-peasy and paid. Buying cars, homes and switching coverage is made easy with one call and they fax, e and do the rest. Number 4 on my speed dial.

Finally, you need someone like me. I know most investment portfolios my clients own, what stage of life they are and how much risk they feel comfortable with. I don’t do anything fancy but specialize in investment planning and analysis by keeping things simple and communicating with clients. I should be on your list and no matter where you live it’s toll free.

If you have questions call Paul, or put him on your speed dial 877 783 7080, or write him at pstanley@westminsterfinancial.com. Share this with someone who cares about their money.