Scams

  We all need to be extra careful out there. Seems every day there are more people who are dedicated to trying to take away what is ours.The other day I got an email from my personal email  provider stating that I needed to update my credit card info since my payment was rejected. The email looked legitimate and sounded plausible since my cards expire at various times and I had this happen a few years back and I was about to click on the link on the email but something stopped me and  I sent an email to another address I had for my provider and it came back stating there was no problem with my credit card and that it was a phishing scam, so whew!, I missed the bullet. But a lot of people fall for scams like this.

The worst scams are those like Bernie Madoff stealing client’s money. The best way investors can protect themselves is to simply call the company holding their securities to make sure their money and investments are where their supposed to be. Just this past week a broker in New York was arrested for stealing millions from his high profile clients. You would think people like Uma Thurman and Nora Ephron would have had strict investment instructions and oversight but that was not the case. Yes, the rich are different, they lose more money then you and I.

Con artists work fast taking advantage of situations. In the month of May stock con artists sent out bogus propaganda on companies that were allegedly helping BP clean up the mess in the Gulf. Promoters of the scam worked chat rooms and sent blast faxes to get suckers to buy into the stock and once the price got high they unloaded a ton of shares they bought for pennies.

Jeff Opdyke in his WSJ column writes about the possibilities investing in motion pictures. If you hear or get close to this one stay away. While Opdyke suggests the riches one can get for a mere pittance the real facts are that some motion picture producers know how to manipulate monies so no investor ever sees a penny. This is a lose-lose and you can’t drink this investment pretty no matter how hard you try.

Finally, a decade or so back an acquaintance of mine loved the horse race track. He and his two buddies were there several times a week. After years of losing money betting on the ponies they decided to become horse owners and bought a thoroughbred at a claiming race. They were excited about the possibilities because the horse had a solid record of winning. But they needed to feed, house and train the animal which also cost a lot of money. They felt that they could cover their costs plus get the VIP treatment at the Jockey Club with the winnings derived from their new investment. Win-win, right? Well, not so fast, Hopalong.

One of the first things they did was hire a trainer but, from the time they handed him the reins, their horse did nothing but lose every race it ran. It was like it had become a totally different animal from the one they bought. After months of pouring money into the horse for feed, shelter and the trainer the three amigos wanted to know what was wrong. The trainer said their horse had ‘psychological’ issues and it may take years to get him well enough to win. The three investors reluctantly decided to sell the horse to the trainer at a substantial loss.

Sure enough, the following race and almost every one after the horse miraculously recovered and either won or finished in the money.

There are  lessons here but I’ll let you fill in the blanks. Like the old Sarge said at roll call, ‘Be careful out there.’

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 – 3rd Week July

•  Monday markets opened acting cranky ala Paul and didn’t get chipper until the close, up 56 points on the Dow. IBM missed guidance after the close and experts predicted another day of grumpiness for the markets on Tuesday.
• Hello, gold! Lately the shiny stuff has fallen out of favor with talk of deflation. It now looks like there may be another trade coming as technical's suggest lower prices a-coming.
• Success makes some people believe they’re omnipotent.   
• Holy Moley, did you see the markets Tuesday? From the depths of despair the markets pulled itself up by its bootstraps as investors realized that this was earnings season and the numbers, while not stellar, were still very good. From almost triple digits down at the open because Big Blue didn’t make numbers the day before the markets pulled a U -turn and ended up 75 points.After the bell investors were treated to huge numbers from Apple and Yahoo. U.S. Steel and A.K. Steel Holdings both gained 7.5% and 6.7% respectively. Materials are tied to economic growth…hint…hint.
• Housing stumbles. The administration cancels incentives at precisely the worst possible time but they seem to have gotten very good at exactly that sort of thing. One million mortgage defaults while inventories climb. Worries about job security cancel some potential buyers thoughts of buying.
• AARP is about to liquidate its mutual funds. Yes, the old poop network that makes money recommending a plethora of services and products  is finally tossing in the towel trying to make a go in the fund business. Fund investors will get screwed on taxes for sure since AARP simply decided to close the doors and shareholders either can take a check or find another fund family to have assets sent. Look for a possible tax hit this year. Just one more reason I’m not a member.
• The Mistress of Disaster, Jamie Gorelick pops up representing….BP! Wherever there is a mega-crisis you are almost assured that Gorelick either has been there or is in the vicinity. Her talents at disasters knows no equals. Gorelick was Deputy Attorney General who drafted the separation or wall to prevent foreign intelligence and criminal investigative communities from collaborating leading to the 9/11 failure. After that fiasco in 2002 she was at Fannie Mae, getting paid millions, where she answered Businessweek’s inquiry into the health of the agency as, ‘ Fannie Mae is one of a handful of top-quality institutions.’ And, you know how well that turned out. It’s estimated she’s been at the center of two one-trillion dollar disaster events and now BP.
• Hey. you, start spending some of that dough! Experts contend that getting our financial houses in order is sending the country right down the toilet. The United States is a debtor nation and works well spending it like we got it. Retail spending accounts for one-third of the GDP. Got it?
• Wednesday, ahh, what a day. Markets percolated right from get with EBay profits up 25%, Starbucks chimed in with +37% profits, Netflix set a record, Wells Fargo profits up 12% and Morgan Stanley was up 13 fold over the year before. Thirteen fold! Then Dr. Doom Ben Bernanke started talking and before the day was over traders were slitting their wrists, hanging themselves from the nearest balconies and investors were sipping arsenic laced wine coolers. Depressed wasn’t the word. Anytime anyone in this administration opens their mouth it signals an end to anything good. It was criminal and Bernanke did not say anything we didn’t know but he killed a rally of the first order and sucked all the good news right out of the investor’s souls. The Dow fell 109 points.
• According to WSJ the interest rate futures markets now virtually eliminated any chance of a quarter point rate hike in March, 2011. It’s a bet that rates may stay as is until next summer.
• The first casualty of the new financial reform law: FoMoCo pulled a recent bond offer off the market because rating firms will not allow their ratings be published for fear of being sued. (This is currently being reviewed by policymakers).
• Target Date funds under pressure by the SEC to clean up their act. The need for more disclosure came about when the most conservative Target Funds tanked during the economic meltdown. Now the SEC is demanding funds disclose their asset allocations in all marketing materials. (I told you fund managers would start edging up risk to get performance, didn’t I?) 
• GM buys finance house as it gears up announcing their IPO next month.
• What a difference a day makes as the markets shook off Dr. Doom and surged to close 202 points on the Dow Thursday. Strong numbers and guidance from Cat and 3M trumped administration cynicism. We await European bank stress tests to see if cold water will kill this rally.
• Hold the phone, dear reader, Michael Kahn, technical analyst writing for Barrons Friday wrote,’…we see a mixed bag rather than group-think on one side or the other. …reactions to earnings reports have been poor.’ Bear warning.
• Laugh of the week. Ken Feinberg, Pay Czar, attempts to shame Wall Street by releasing report on the most ill-advised pay at 17 banks. Don’t kid yourself, Kenny, some investment bankers will have it framed.
• Friday the morn brought muddled market all awaiting the European bank stress test like an expectant grandparent and the news was anti-climatic as only 7 of the 91 banks failed the test. Domestic markets rocked soon after the news with GE announcing a partially restored dividend, Ford crushed numbers chiming in was Barrons gushing that the company shares have more to go and the DJIA ended up 3.2% for the week.
• Worries still cloud next week as small caps announce earnings along with AK Steel, Boeing, Eastman Kodak and Visa.
• Finally bank closings year to date 103.

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.

Estate Planning 101

 When I taught basic money management at the adult-ed center a section of the class was devoted to estate planning where a good friend and client explained wills and trusts. He is  an attorney who specializes in this sort of thing and the folks who attended got the real deal. The reason I bring it up is that the estate tax code is now at an awkward stage. We’ve never faced this before because no one knows what’s going to be the permanent exemption and the Federal estate tax. In 2009 the tax on an estate did not kick in until the estate exceeded $3.5 million. This year, 2010 there is no estate tax even if the estate is worth billions because Congress did nothing to either continue the same- old- same- old or create a new tax. But if a rich loved one hangs in until January 1, 2011 the estate tax only allows $1 million of exemption down from the $3.5 million that was enacted under the Bush administration.  Today you need a scorecard to keep up with the cost of dying but it also translates to a whole lot of money starting next year for the Federal government if nothing is done to keep the 2009 rates and exemptions or institute new ones.

You’d think with the kind of stock market and real estate years we recently had that a $1 million estate would be a rarity  but when you add up the values of homes, cars, savings and the odds and ends collected over a lifetime you too could be a millionaire.

The 2011 estate taxes on the excess over a million dollars would make Knuckles Kowalski green with envy. The maximum estate tax the government will be charging will be 55%.  Remember that most of the assets a person has accumulated already have been taxed at least once and in some cases several times before the final indignity when the government steps in for one last time.

The inception of the estate tax came about in 1797 when the US navy needed to rearm and required the purchase of Federal stamps for wills and estates. It was finally dropped four years later. In 1862 a direct tax on estates was enacted to help pay for the Civil War. Today the estate tax exists because, according to social historians, it is a means of redistributing income.

Today estate planning experts are at odds on what to do to cope with this mess with no tax in 2010 and back to the medieval tax-days if nothing is done in 2011. Congress hasn’t given a clue as to what they will do and so the best recommendation for someone caught in-between is to do nothing regarding estate planning until a clear direction is presented. President Obama has signaled he would like the exemptions to remain at 2009 levels.

In the meantime lawyers are setting up Trusts and people are implementing them with little knowledge why except that it is something responsible grown-ups do  when they reach a certain age. It’s like drinking prune juice, at some point it’s supposed to be good for you whether you like the taste of it or not.

The reasons given to set up a Trust by the pro-Trust folk, which include estate planning attorneys and bank Trust departments, is that by having a Trust an estate (1) avoids probate (2) avoids guardianship or conservatorship and (3) keeps things private.

The arguments against establishing a Trust include: (1) Set-up costs are high (2) Funding is a pain and most people are not aware that they need to do it (3) People still need a Last Will & Testament and finally, (4) Most of us really don’t need a Trust.

A great many families can manage on a simple Will and designating proper beneficiaries on their bank and investment accounts. A lawyer can also explain a Quick Claim Deed on real estate and whether it is applicable to a family’s situation.

Remember I am not a lawyer or practicing estate planner and you should always contact your attorney or tax professional before making any decision regarding your estate.

If you have any 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 – 2nd Week July

•  The Big News was Huge Hefner announcing the possibility of buying back Playboy and taking it private- again. The pajama clad publisher caused shares in PLA to soar to their highest value in 2 years to $5.55 a share. Rival Penthouse hearing the news suggested that it may join the bidding for the publication.
• Markets see-sawed all day Monday waiting for guidance. After hours Alcoa showed great earnings and predicted 12% growth for the remainder of the year. Investors said AA report hit all the right notes. Shares fell after hours on the news but popped up the next day.
• Hedge Funds had their worst …excuse me, their 4th worst half since industry performance tracking began.
• Comex gold for August delivery lost $10.
• As I predicted earlier this year and now confirmed in a July 12th WSJ report, the small investor is fleeing the market. Just as the small investor fled the market in 1929 today’s do it yourself investor has packed up and left the building. Reasons cited were growing disillusionment and lack of confidence. Other reasons for running were moving in and out of the market at the worst times and owning concentrated blocks of tainted, and designed to fail, stocks and bonds.
• Tuesday markets moved higher based on growing sentiment the worst may be over.
• Intel showed strong earnings and Mark Hulbert wrote in MarketWatch that the markets may continue their run for several weeks based on better then expected earnings and guidance.
• History shows that whenever the Dow is up for six straight days the Dow gains an additional .4% over the subsequent five days. (I love history.)
• Not so fast, say skeptics. Volume has been thin and this rally may be born of a reaction to an oversold market then an improving economic situation.
• Stocks took a breather Wednesday as the Dow squeaked ahead less than 4 points while the rest of indices were down. Mortgage application were at worst levels in 13 1/2 years.
• Who’s your financial planner, baby? Seems like one of the Russian spies sent back to Moscow Tuesday was a financial planner in the New York area while living with her husband in Montclair, NJ. By all accounts she was a good planner but there is no verification if her recommendations included invisible ink manufacturers, itsy bitsy camera companies or really cool fast cars that shoot rockets and such.
• According to MarketWatch curmudgeon Paul ‘The Sky Is Falling’ Farrell, who has never seen a market he likes, a politician outside of Lenin he respects, and thinks the entire world is going to you-know-where in a hand basket, reports that ‘lazy’ simple investment portfolios worked best. Best 10-year is the 6 fund Yale U Unconventional with a 4.45% average annual rate of return.
• Sob. So close. The markets were heading for a double digit loss when the late afternoon surge started and the Dow on Thursday posted its first loss in 8 sessions, down  7.41.
• Liar, liar, pants on fire. Citi now admits it  hid risk from regulators. Apple said of their iPhone they knew of antenna risks. Goldman settles with the SEC for 550 million dollars for duping customers. The small print in today’s WSJ reads that ‘other’ banks may pay because of similar wrong doing. Oh, who can we now trust if not American’s leading financial and corporate leaders?  
• Banks reported less than stellar earnings Friday and traders punished stocks. Dow closed off 261 points.  GE, Google, Citi and Bank of America all were the culprits as the selloff started early and held throughout the day. Gold was off huge during trading hours but recovered in after hours trading. Some analysts based sell off also on consumer confidence but CNBC talking heads agreed that if profits were reported with strong guidance confidence would have been a non-issue.
• This is a traders markets, you bet.
• Inflation, nyet. Deflation, da. Consumer prices fell 0.1% in June from May.(Just trying to brush up on the socialist lingo. You too, comrade?)
• Small cap stocks fell 3% for the week. Huge drop as the overall markets were slightly up.
• Wal-Mart signals the recovery won’t stall, according to Bloomberg Businessweek’s Feld and Willis. Wal-Mart historically tends to outperform in slumps and lag when the economy rebounds. The stock has underperformed this year.
• Finally, 6 more banks were shuttered with 1 in Michigan Friday.

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.

 

Social Security

Social security is a economic-political-thorn that has bedeviled politicians, economists and social historians almost from the day it was signed into law. But out of all the programs enacted by FDR in his New Deal none has removed abject poverty from Americans as much as has social security. It is also a program that has been misused and mismanaged, Almost every one of us is required to pay into the program but few fully understand how exactly it works. The fact that politicians can and have increased, decreased or eliminated benefits is certainly documented but may not be that well known or understood. Many Americans assume that  social security is a guaranteed entitlement as a gift from some higher order. On my radio show, when I’ve talked about the government extending the age of a retiree before receiving retirement benefits, I’ve had irate callers state that the social security money was theirs and the government had no right to steal it from them. Then there are others who have no idea how social security works or  even when to begin receiving income, or who to ask.

Prior to the global market collapse President Bush the Younger attempted to revamp social security by allowing people to manage their own  social security pool. Thankfully clear  thinking  individuals and groups turned that away or we’d be up to our belly-buttons in broke begging blue hairs. Most folks have a tough enough time managing their 401k without being given the responsibility of a lifetime income portfolio.

Social security  represents  for most people the single largest pool of income producing money they’ll ever accumulate. The average monthly primary social security income in 2010 is roughly $1, 170.00. In order to get that same income from an annuity an individual would have to have saved about $400,000. It is safe to say that Social security represents the core income for most retirees.

Recently I have been distressed to read that there are certain financial organizations and talking heads who are recommending that people wait past normal retirement before they start taking their social security retirement income benefit. The reason these financial experts give is that people will be able to lock in a higher income level for life by waiting and there is also the possibility of reducing their income taxes by spending down their personal savings and especially retirement accounts before getting social security income.

Most financial planners recommend that retirees begin social security benefits as soon as they are eligible since waiting even three years to start may take 14 years just to make up the difference or get to the break even point. Today the average male dies at 78 and the average white female dies at age 81. It doesn’t take a math whiz to figure out that waiting is a definite losing proposition. If a male starts at age 70 instead of 67 the income will be higher but he will not catch-up with the total amount he missed in the previous three years.

The recommendations to wait come from such august authorities as Prudential Life and Morningstar which baffles me. Inflation and longevity both play roles in the decision on when to begin taking income and yet neither paper I have reviewed mention those two possibilities.

Social security has a web site with income and benefit calculators along with their 1-800 phone number to establish an appointment locally. I advise anyone who is within five years of receiving social security to go on-line and check out their benefits with the social security benefit calculator. Please go to www.ssa.gov. There is no reason that anyone should stumble blindly toward retirement without knowing exactly what is in store for them.

And, as always, if you have any questions or desire to have me calculate your total income based upon your portfolio growth, please contact me.

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

 

Investing Like A Millionaire

 

  Robert Powell wrote last week in his MarketWatch column how the average investor could emulate the investment habits of the rich. He reported that according to the Capgemini and Merrill Lynch Global Wealth Management 2010 World Wealth Report high net worth individuals had, on average, 29% of their assets in stocks in 2009, 31% in bonds and 17% in cash. They also kept 18% in real estate and 6% in alternative investments such as commodities and venture capital. (If you’re adding the numbers as I am that comes to 101% which may explain why the rich are richer than you and I).

Powell goes on to report that the rich are not risk takers with their money. In 2011 they are expected to invest 35% into stocks, 31% into bonds, 13% in cash, 14% in real estate and 8% in alternative investments. (Which still adds up to 101%).

The uber-wealthy, according to Powell, are more likely to invest a greater percentage of their assets into illiquid investments. Wealthy investors, the report goes on, are allocating more funds to their home regions. Assuming worldwide markets it is currently 45% domestic and 55% international- give or take a point or two.

The wealthy investor is diversified but owns a great amount of less risky more liquid short term assets – namely cash. The riskier assets are earmarked for long-term growth and are illiquid.

Powell’s states that many investments the rich own can be purchased by the average investor through mutual funds and Exchange Traded Funds. Commodities, hedge funds and exotics such as currency all can be bought with these new liquid funds. The average investor can also short the market or sector and also buy options on individual stocks or exchange traded funds.

Outside of access to high minimum hedge funds or specifically designed partnerships most products that are available to the rich are also available in some form or other to the rest of us.

The average investor can also learn some of the basics of the very rich and these come from Warren Buffett probably the most successful investor:

• Be Frugal
• Resist the urge to buy and sell
• Be a contrarian – don’t follow the crowd
• Buy companies cheap
• Stick with what you know

Still even the venerated Warren Buffett was caught in the economic downdraft which only proves no one is immune to sudden global catastrophes. The important lesson there was not to panic and sell but to hold and if possible add stocks as they became attractive.

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 – First Week July

• GM plans to file for $20 billion IPO by the middle of August, or so say the rumor mongers. More later…
• Tuesday markets opened with optimism. Asia and Europe all higher and domestic markets moved sharply higher into triple digit territory before collapsing mid-afternoon and ending up 59 points on the Dow. 
• The US dollar may lose its exalted status and eventually be replaced by the ‘doomed’ currency namely the euro. That according to John Desauer of John Desauer’s investment advisory services. The reason is that Europe is dealing with cost cutting and the US is not.
• In early Wednesday trading financials and tech lead the way for a broad market surge. Better than expected earnings on the financials afforded traders an opportunity to leave Treasuries for equities.
• 2 day winning streak – not since June 16-17 but on light volume. Markets explode with all 3o Dow stocks up for a solid Wednesday. Yummy.
• Want to spoil the next financial meltdown? Tax it! Narayana Kocherlakota in a Montreal speech said no law can prevent mistakes that lead to a financial crisis. Instead, he suggested, is to internalize the societal costs of risky investments. (Want to bet someone redefines investment risk?)
• Thursday made it 3 days with solid results. A bit scary as markets opened higher, kept climbing and then sold off around the middle of the day. But it was final hour that made the difference.
• Gold is lower and it’s been a week since any hype from the precious precious metals sector.
• Credit card late payments fall to 8 year low as consumers get their house into order.
• President Obama, faced with high unemployment, voiced that the US has more hard days ahead. (I don’t want to hear that. Someone tell him we don’t need to hear that.)
• A short week but stocks wrapped up the best in nearly a year with the Dow up 58 points. The DJIA +5.5% for the week and we’re entering earning season with confidence that they will beat expectations and give relatively strong guidance. And guidance is what will drive the markets for another quarter or until something happens we don’t see or think about.
• Google got it’s license renewed in China. Thank about it. (Or did I mean Think about it?)
• In Barrons weekend MKM Partners predicted that the economy is set to grow through the second half. Corporations have held back some $2 trillion in corporate cash flow that now could be unleashed for a more robust recovery. The Employment Trends Index continues to signal job and income growth over the months to come. (If you can say Pip-Pip, I got a Hooray!)
• Bloomberg Businessweek reports on a new hedge fund that bets on sports. So far UP over 8% on World Cup Soccer. The firm employs traders and gamblers. Minimum investment one hundred thousand pounds but expectation is for 15-25% returns after fees.
• Chrysler is thinking about preparing its IPO. Oh, you forgot there was a Chrysler? Expect the company to go public sometime 2011. Fiat owns 20% of the company, which they paid $0.00, a gift from the auto task force and with the rest of the company owned by the usual suspects:UAW, United States and Canada. Fiat first came to the US 30 years ago and failed miserably. Smart-alecs would say that Fiat stood for, Fix It Again, Tony’. Today no one laughs at the car’s design or engineering. More later.
• Finally, Bank of America admits to hiding billions of dollars in debt in 6 transactions from investigators to cook the books and make the bank’s balance sheet meet internal targets. This is similar to what Lehman did to hide its insolvency but was forced into bankruptcy. Good grief! 

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

Who’s Spending Your Money?

 Most people don’t like to fess up and say they messed up. It’s a lot easier on the psyche to blame someone else. We get ‘The Dog Ate It’. ‘Flat Tire’, and a close relative conveniently dying all as popular excuses.

Rarely do I meet someone regarding becoming his planner and hear someone tell me that they messed up, they didn’t understand what someone was telling them, they gave carte blanche to a complete stranger, or it sounded good at the moment and take a reasonable amount of responsibility for losing significant amounts of their own money.

If you are investing your money you should know some of the basics and if a broker or sales person tries to sell you something outside your level of education it should be a warning to slow down, possibly even stop, until you know more so you can make an intelligent decision. Lots of folks don’t. They think the broker knows best and go with whatever the broker recommends until it’s too late.

Some people just can’t get their minds around anything to do with money and math. If that’s the case then spend a few dollars and either hire a fee planner or see your CPA and get advice you can count on.

People don’t like to pay money to someone when they think the information should be free. Sometimes they think if they pay someone it is an admission that they are ignorant of basic money management.

There’s a sob story in the recent Time Magazine about how Cedar Rapids, Iowa was a victim of a broker and a Goldman Sachs product and indirectly billionaire John Paulson.

In July, 2007 Cedar Rapids treasurer Sue Vavroch was looking for a safe place to park $6 million for 90 days. She put out bids and a Wells Fargo broker responded with a product paying 5.4%. It wasn’t until after she invested the money that she learned that the investment was an unregulated private investment which had no duty to disclose to investors exactly what it was buying.

Needless to say the investment went bust and Cedar Rapids lost almost half their money. Obviously there is a lawsuit but this story is only one of hundreds in small towns throughout the country.  It was a Goldman product and one where Paulson picked those bonds that would guarantee to fail so he could buy insurance on the bonds.

Poor Cedar Rapids and treasurer Sue Vavroch were victims but they did not have to be. Bells should have sounded at Treasurer Vavroch’s office when the yield was announced. One question regarding liquidity and transparency would have told the rest of the story but it seems the yield was more then enough to convince her to plunk down $6 million of taxpayer money into an investment she knew nothing about.

This is not an unusual story. All any of us have to do is look at our own city elected officials, the local school board or the elders at our church to see the financial ignorance that is making daily decisions with our money. School districts in Macomb and Wayne County have lost millions because of inept and criminal board members.

We appoint people to positions of financial responsibility because we either like them or they have shown that they have a measure of maturity about them. It doesn’t mean they can add past 20 without taking off their shoes and socks. It also doesn’t mean that they know how to examine a bond, a note or a fixed income investment. They also don’t know what to do with pay, bonuses or benefits or where to go to get the information.

Sue Vavroch never returned Time Magazine’s phone calls and there is no doubt in my mind that she screwed up royally. She could have gone to her local credit union and dumped the money there for 90 days, which is what she should have done. But Sue wanted to hunt with the big dogs and found herself at the rear of the pack.

Now, before you think I am picking on someone who got stung by some fast talking broker please go to your city hall, your church and your school board and look up all those trustee’s credentials. Betcha’ you can’t find one with extensive banking, investment or accounting background sitting on any of those boards while spending your tax dollars. Scary, huh?

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

 

 

 

Deflation is More of a Concern

 

Mortgage interest rates fell to their lowest rates of 4.07%  in fifty years but lending activity, according to the Washington Post, is still quiet. While those of us who are thinking of buying either a car or a cottage nestled near a babbling brook the fear of economists is that deflationary pressures and not inflationary are insidiously creeping in the economy and once ensconced will be virtually impossible to get rid of.

Jeffrey Gundlach, a former star bond trader at TCW, thinks that the next few years will be the most difficult for investors in decades. He credits debt as being the main culprit and offers the following numbers in support:

This is the domestic credit market debt as a percentage of gross domestic product:

• 1933-299%
• 1951 –130%
• 2001-276%
• 2009 –353%

He also points out that the US has $62.3 trillion in liabilities versus $14 trillion in GDP.

2016 is when Social Security and Medicare go negative.

The US has never been able to get more than 20% of tax receipts as a percentage of GDP.

He goes on in a Morningstar interview to point out another 30 talking points and suggests that investors may do well to buy long-term government bonds as a method of making money out of this difficult deflationary situation.

Gundlach obviously has a motive as a bond trader but his is not the only voice. Other bond and equity traders throughout 2010 have not given up on the US long bond as a source of investment opportunity. For the longest time I have been harping on this theme that the Fed is in no hurry to raise taxes and opportunities have narrowed to either buying dividend producing funds, ETFs and stocks or US government bond funds.

Chairman Bernanke said in just recently that the economy is not responding as well as the Fed had hoped. Interest rates will be kept low for an extended period of time and Bill Gross interprets that as staying the course for at least 2 years.

Individual investors have choices and can:

• Sit in money markets for the duration and earn nothing.
• Attempt to trade stocks and or ETFs. Gamble on the risk and volatility.
• Buy specific funds, stocks and/or ETFs for dividend income.
• Buy an allocated portfolio of bond funds/ETF’s.
• Keep current fund/stock/ETF allocation and wait this out.

Eventually we’ll work our way out of the mess other people have created. I just hope that we learn our lesson.

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 – End of July

• Oh, my, the G-20 agreed to debt reduction instead of promoting stimulus spending. Obama capitulated. The compromise was to have language to cut deficits with ‘growth’ as a priority. Germany argued moving later rather than sooner to reduce debt could produce unsustainable debt levels and even defaults- see Greece, Spain, et al.The US argued growth friendly, which is where it ended.
• Reverse Mortgages reduce up-front fees. Problem is less equity in homes.
• ‘Smoke if you got ‘em.’ Markets responded to the Supreme Court’s refusal to a tobacco industry ruling which the government sought $10 billion for smoking cessation programs and disgorgement of $280 billion in profits. Tobacco stocks rose as did telecom stocks on Monday. The rally petered out by the close as markets fell slightly.
• China stocks fall Tuesday morning and drag the rest of Asia and Europe along with them.Concerns over the IPO Ag Bank of China suggests that investment activity slowing.
• China AgBank IPO may be largest ever but not the best China has to offer.Pricing of shares may come 6th of July.AgBank banked by the government with a specific mandate to narrow wealth gap between city and rural citizens.
• In May it was the G’s that dragged markets down: Greece, Governments and the Gulf. June it’s the C’s with China and Consumer Confidence. I don’t have enough in me to do the whole alphabet, how about you?
• Markets off emulating overseas- Dow off 268 points. Huge disconnect between perception and reality driving average investor’s nuts. Tuesday’s massacre was telling investors, according to Jimmy ‘Ze Mouth’ Cramer, said on his show Tuesday night, ’last house built, last car made, last loan given because the world ends here. Sarcasm played well to whatever audience wasn’t drowning their sorrows with vintage May 2010 red.
• Hedge fund billionaire Paulson is wildly bullish on the economy while economist Paul Krugman argues that we face a third depression. Interestingly Ann Benjamin, CIO of leveraged asset management at Neuberger Berman see plenty of good companies that have been downgraded by the rating’s companies and will be soon see their credit ratings upgraded. (This should not surprise any investor)
• Save a tree – Stop a law: 1935 Social Security Act took 28 pages to explain. 2010 Financial Reform Bill filled 2,319 pages.
• Nancy Pelosi wants greater oversight of the CIA and other intelligence agencies to be expanded to all of Congress in contrast to the President’s more conservative  view of only a select few, notably the gang of eight. That should eliminate any secrets in Washington.
• Finally in the I’m With Stupid Department, AG Eric Holder had a tete a tete with Afgan Prez Karza about the $3.2 billion dollars of cash and aid being flown out of country to parts unknown by peoples in the  Afgan government. Karza denied knowledge of any wrongdoing and agreed to investigate. Wonder which one was crossing their fingers.

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

 

Gaining Perspective

Life is cruel. It usually does bad things to people when they least expect or able to cope. Take the markets and how they built expectations this year and just as investors anticipated getting a bit more to where they were the rug was yanked from under their feet and suddenly it was losses that were recorded and not gains.

Some investors called and expressed how this seemed to be cruel and unusual of the first order. I agree except the problem is that investors are confusing investing with trading and doing one while being pummeled by the other.

Investing is like baseball. It’s a game that has no rules on when it is over. It just keeps on going on and on.  The odds always favor investors when they approach it as a long-term hold. That’s why it’s called investing and not gambling or trading.

Let’s say you started investing in 1980. I would venture you have more money today, even with three major recessions in the last decade than when you plunked your first dime into a mutual fund. There probably isn’t more than a handful of  gamblers that can say the same. There were some past great investor years and some horrific ones.

But trading is a much shorter and well defined game. It starts early in the morning pretty much every workday and wraps up by late afternoon, unless you want to trade after hours. You know immediately how much you lost or gained by the end of the trading day. You could conceivably start with your entire fortune in the morning and by noon be broke. Some traders even are able to get filthy rich, but they take the risk of losing it all. Investors never do that.

Long term investors don’t know how well they will do or when and the purists of that genre don’t really care. The true investor understands that there will be days, weeks, months and maybe years that they will have their ears beaten back. But, give them time, allow them the opportunity of hanging around those markets and something magic happens – they earn more then in just about any other savings method.

Investors are not the only one’s who complain. I hear the same complaints from people about their real estate. My home, they exclaim, is barely worth what I paid for it. It doesn’t matter that they have no plan on selling, leasing or moving. They would just feel better knowing their pile of bricks is worth more or greater than it was the year before. They would not sell or move because their home is worth less today then when it was four years earlier. People just like knowing where they stand. It’s human nature.

Investors have patience. They take advantage of down markets by making sure their dividends are reinvesting and if they have spare cash they go against the grain and  buy what is being laughed at. The really great long-term investors have an Asian discipline. Traders do not.

Traders are like card players at a casino. They want the dealer to hurry up and deal because the more hands played the better their chances of making money. They also have a better chance of losing money, too.

I am willing to state that five years from now everyone who reads this and is an investor will have more assets under management then they have today. I also think that home values will be higher but not as high as they were just before the bubble. In the meantime you may as an investor complain to your heart’s content but just remember you’re complaining about something when you’re not playing the same game.

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.

 

 

New Rules: The Care & Oversight of Sus Domestica Investment Bankeritias

Until recently the Domestica Investment Bankerkitias was allowed to free range. The beast did pretty much what it wanted and when it wanted. Only after devouring everything in its sight and pooping over everyone and everything, causing a global mess of the first order, has the United States government decided to rein in the animal’s voracious appetites.

Unlike its feral cousin, which has some restraint, the domestica investment bankeritias will eat until it is sick and some will even continue until they have cleared an entire city, state or country of anything of value.

Usually these animals travel with their own specific genus but  with tough new laws bringing restrictions on their feeding and pooping , they have recently banded together.

Congress announced last week a unilateral bill  that would limit how much a domestic investment bankeritias could eat, how much and where it could poop and the reasons for its slaughter. This law, soon to be signed by the President, negate the old ‘Too Big To Fail’ concept. In  the future being a big fat pig is no longer an excuse for clemency or for government assistance to prevent extinction of the pin-stripped beasts. The cost of extermination for those that break the rules will be shared among the surviving bankeritias.

Government oversight will be handled by a 10-member council of non-peers who stand on their own hind legs and are headed by the secretary of Treasury. More power will be given to the Federal Reserve to oversee consumer protection and ensure that the regularitius domestica bankeritias, a sub specie of the domestic investment bankeritias, abides by what is fair and reasonable when dealing with human consumers. This includes credit cards, mortgages and short term loans.

Both regularitius and investment domestica bankeritias squealed to high heaven when the new rules were announced last week.

I will keep you informed of any new developments.

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