That Was The Week That Was – 4th Week January

•   Civil protest in Egypt was conceived, organized and maintained by and through social networks such as Facebook and Twitter. However late Thursday last the government was able to turn off the internet to the entire country with a series of ‘phone calls’. The government was able to do this because there are only a few large providers and they sell service to others. The one address that did not shut down was for the Egyptian stock market.
• Expect a volatile week. Gold sold off Monday morning but expected to run higher as the Egyptian crisis continues. The Chinese Lunar New Year holiday falls on February 3rd and many Asian markets will be closed from the middle of this week in observance.
• The  U.S. owns a Trillion dollars of Treasuries.
• Historically the 3rd year of the presidential cycle is regarded as bullish for the stock market.
• Barrons.com reports that Jeremy Grantham is less than bullish with the cautionary, ‘be aware that you are living on borrowed time as a bull; on our data the market is worth 910 on the S&P’s 500 (it was 1280 on Friday)… and most risky components are even more overpriced.’
• An analysis from HSBC bank - five nations will experience the fastest growth in their working age populations between 2010 and 2050. Sixth on the list is India on track to exceed China’s population by 2028. Rich, older nations will grow more slowly than emerging ones. It is expected that China will be the emerging power with 24% of world GDP by 2030 or twice that of the United States.
• ‘Telling people you cannot beat the market is like telling a six-year old that Santa Claus doesn’t exist. The six year old doesn’t want to believe it. Neither do people on Wall Street. –Burton Malkiel, Princeton University professor of economics.
•   Apple passed PetroChina to become the second biggest company in the world by market cap.
• James B. Stewart, (Not the but the lesser known)writing for Common Sense in the WSJ, argues that Facebook may indeed be a bargain even at $50 billion. He ponders that it may be that rare entity, a natural monopoly. He defines that as being a business model or technology impossible to replicate, meaning it can extract high profit margins for the foreseeable future.
•  Bloomberg’s BusinessWeek reported that in the past 5 years stocks of 6 Western oil company giants have logged an average annual return of just 5%. Small oil companies have earned an average of 8.3%. The energy giants are putting their low-growth assets on the selling block in order to use the money for activities that bring higher risks along with better returns.
• Markets rediscover fundamentals.  This a break with what has been a fear for investors to lock in long-term investments. In the past the on-off trade was because of fear and not long-term value. Lately the market is getting back to basics, according to Mark Gongloff in his column, Abreast of Markets in the WSJ. Good for us- bad for traders.
• Triple digits up on Monday. Whispers that China no longer looks to the U.S. for investment guidance  as they once did. The global economic flushing cured them of any thoughts of our expertise.
• A two-speed economic recovery will continue this year according to the IMF. The International Monetary Fund said that the U.S. will grow 3% while China and India surge. China is expected to grow 9.6% and India 8.4%.  The IMF also warned about weak balance sheets and high leverage at certain countries.
• Hot Research at Barrons.com points out that General Motors is making money at building 12 million cars while the old GM could not make money at 16 million units. The stock, according to Craig-Hallum Capital Group is a buy because of its exposure to emerging markets and current market price.
• Tuesday markets backed off 12000 on the Dow closing off their lows. Gold off as were commodities. Merrill settled SEC trading charges for allegedly (I love it when someone pay millions and you have to report ‘allegedly’) ‘back-running trades after customer’s orders. Merrill’s trading desk booked trades for the firm after learning what institutional customers were allegedly buying. Back-running is not front running where the broker places the order for himself before he buys for the customer. It is the reverse but just as deadly and taking advantage of confidential information.
• Dirtiest hotel in the United States according to TripAdvisor.com is Grand Resort Hotel & Convention Center in Pigeon Forge, Tennessee. (I don’t know a soul that ever vacationed in Pigeon Forge, you too?) The Hotel Namaskar in New Delhi wins the yuckiest award for India and the Cromwell Crown in London may not win top honors for being the most foul but guests report, ‘When you walked on the carpet dust came out.’  silly me worried about bedbugs….
• Thursday last S&P cut the rating on Japan’s long-term sovereign-credit rating to AA- from AA. The yen dropped on the news. Who’s next?
• The Federal Open Market Committee aka FOMC agreed to keep buying bonds, as much as $600 billion in long term Treasuries until the labor market strengthens. For bond investors good news as this will provide some stability expected at least to June.
• A day after Obama’s speech the CBO announced (Congressional Budget Office) the deficit would be UP $60 billion more than the White House projected last year. It’s time, ladies and gents, to STOP the insane spending and start cutting. Until the government gets it America’s businesses will not start hiring and expanding.
• Thursday last Amazon missed numbers but Microsoft topped estimates with $6.63 billion quarter! Gold off 1% for the day. Oil fell under $90. Durable goods fell 2.5% plus unemployment (due to weather and temp Holiday help) rose did not help markets. Unrest overseas certainly has the Asian and European markets spooked.
• Gold off 6% in 2011. A small hedge fund attempted to corner the gold market and held $850 million gold contracts – the cost to quit the trade was over $7 million! Ouch! Alive and well are hedge funds! John Paulson, manager who made billions betting on the collapse of the mortgage market, earned another $5 billion in 2010. It was done with steady, but not spectacular, investments and returns. While assets at hedge funds have increased by 20%, according to Gregory Zuckerman in the WSJ, investment returns average just 10.49% in 2o10.
• I got one of those cold calls last week  from a huckster promoting HIS oil well. He was still blabbing as I clicked off.
• Markets hit with Egyptian worries Friday as the Mid-East exploded. Crude and gold rose as traders fretted over what they did not know. The 10-year Treasury got better looking as the notes rose and yields fell to 3.333%. Amazon and Ford lead the losers. According to Saturday’s WSJ the news out of Egypt may have offered an excuse for a pause in financial markets that some skeptics say have come too far, too fast in recent months.
• Expecting state bond defaults has unintended consequences as states are under pressure to refinance their debt to mom and pop investors. Both institutional and retail investors are exercising more caution in 2011 before buying municipals. To combat this fear Illinois, New York, New Jersey, Maryland, Tennessee and California are marketing and allowing individual investors to buy bonds ahead of the institutions. States are creating web site to promote the sale of their debt and also working with more brokerage firms in an effort to reach a broader group of investors.
• Liam Denning writing for Heard on The Street reports on the bump in the road Ford took Friday as 4th quarter earnings came under consensus forecast. It was Ford’s first miss in 2 years, according to Morgan Stanley. The biggest drag was a $1 billion hit because of costs compared to the prior quarter. The making of cars is an expensive business. Ford did raise guidance for the balance of 2011. The stock is trading at a modest multiple of 8.5 times earnings.

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

Defensive Portfolio – Just In Case The Bastards Are Right

From the Mayan Doom calendar that predicts the world is toast on December 21, 2012 to the current unrest in the Middle-East, as the poor riot for food and jobs; I have come to the conclusion that maybe there is something to getting defensive by owning food, water, precious metals and energy stocks and funds.

In the past and in my personal portfolio I have made wrong Big bets on oil and shorting the domestic economic recovery only to have my kiester handed to me. Which is my mea culpa saying that I could be just as wrong as wrong can be for writing what comes next.

Right now we have a world that is changing and probably changing quicker than a lot of us old poops can wrap our little gray cells around.

The so-called emerging markets are full fledged modern semi-capitalist countries with their population no longer isolated from what is happening elsewhere in the world. The poorest of the poor get news about Big Macs, fancy cars, air conditioning along with better food, health care and education. They are our competition for food, energy and resources. The latest civil unrest in Egypt, Jordon and the rest of the Middle East is sheer proof of that.

We know that right now food and agricultural prices are skyrocketing because more people want to have better nutrition for their children and families. Not only that but populations are growing. There is simply not enough to go around. Clean potable water accounts for only about 1% of the entire supply. Mining for materials that make cars, computers and infrastructure is getting more costly. New homes, cities, office buildings are being built where none existed two decades earlier. Need for fuel is increasing across the globe. Major oil companies have been selling their non-performing assets (See January week 4 Blog) to reinvest into new wells.

If all this is happening and we ignore and limit our investments to the traditional small, mid-cap and large cap companies we may indeed be short-sighting where a portion of our monies need to be invested.

A few years, okay, maybe last year, I would have laughed at someone recommending investing in water. The need for clean water is growing by the day as are the other mentioned basics.

It may be just that time that as investors we create, within our investments, a smaller but defensive portfolio comprised solely in those companies that provide food, water, precious metals/mining and energy.

In the past we’ve skimmed across words from professional investors who’ve suggested we buy only those things that can be grown, mined, eaten or drunk. The need for those basics may indeed be more valuable on a continuing basis than investing in gold or silver, with less possible downside.

The basic investment theme of buying those products/materials and supplies that are limited or diminishing because of a greater or increasing demand and need holds true for these basic necessities that support modern life.

Call me for questions and additional information that may fit your portfolio and comfort level.

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

 

Rearview Mirror Investing: Perils or Profits?

  Investment management has its share of rules. Some make sense and others  sound like they should make sense. Here is one rule that I used to follow and today have some misgivings about.

I taught at the local Adult Ed night school a class on basic  money management and one of my topics was that students should not use the ‘Rearview Mirror Method’ of investing. The rearview mirror method is buying those domestic stocks or sectors that have already performed well and making the assumption that they will continue to do well. The reason that I gave was that rarely does the #1 performing sector and /or stock repeat its stellar performance for two or three years in a row. I now admit I was wrong.

We all should know that one of the worst myths is that lightening rarely strikes twice in the same place. Lightening in fact has a propensity to strike the same place just as hurricanes are formed in the same part of the world and Tornado Alley earned it’s moniker because of the constant severe weather.  The  information I got by reading and listening to investors who I thought were smarter than me about ignoring past great performing investments was truly bogus but I didn’t think too much about it at the time.

I urged my Adult Ed students to create an asset allocation that would provide a shotgun approach to their investing. In this way the amateur investor would be assured of having at least some money exposed to whatever would be the future leading sector instead of the past best performer.

Today we know that the theory of asset allocation is pretty much a recipe for investment  mediocrity and, as we learned, does absolutely nothing to protect a portion of, or any, assets in a global economic meltdown. And, as I will explain, rearview mirror investing may be just what you should do and indeed produce gains that other methods will not.

Financial and investment planners are  back to the basics, after having their egos and credos bruised, and are dusting off the old asset allocation doctrine and trying to explain away 2008 as an anomaly to anyone who will listen. They are saying it’s quite alright to return to the church of  Modern Portfolio Theory, even though secretly most of them should, or do, know the concept is seriously flawed.

Conservative investors smart enough to ignore asset allocation from 2000 to 2009 and invested wholly in the bond sector  were well rewarded as the sector outperformed the S&P 500 index for the entire decade.  Opportunity was not only knocking but trying to kick in the door to whomever had a bit of common sense. Past performance was an important issue for those ten years. If not ‘the’ issue.

The same was true in the 1990s when technology was the best performing sector. Ignoring the rear-view mirror method of investing cost investors significant profits.

As we enter 2011 equities are a sector many investors do not want to approach for fear of a 2008 repeat. But, the sector has had two years of solid performance, even though most of 2010 was underwater. The final quarter in 2010 significantly outperformed fixed income. Going forward it’s easy to understand that fixed income is close to the end of its run and equities are where investors should be.

For many investors reallocating their portfolios to take advantage of the equity markets is a daunting, if not impossible task. Left to their own devices they’d leave things be. What they need is a simple and easy method to guide them.

The confusion stems into what specific equity sector to invest. There are large cap, mid-cap, small cap plus growth and value along with blended fund choices. The experts contend that large company stocks have been seriously neglected for years. But if history is a guide, moderately- aggressive investors may well want to overload their portfolios with small to mid-cap growth/value (or blended) investments as they are what have lead the equity performance in 11 out of the past 13 years.

In the last 13 years large cap stocks have lead equities as best performers only twice.

There is no science to this system of buying funds, stocks or ETFs using the rearview mirror. At the close of the year simply check what was the best performer and either add or modify your holdings to include it.

Most small to midcap funds and stocks pay no dividends and may be inappropriate for some investors. Still it bears some serious consideration to have some money invested by tailgating on the previous year’s leading investment sector. Check with your financial advisor or planner before adopting any plan that seriously deviates from your current set strategy; especially if your plan is to maximize current income.

And before a talking head pooh-poos this concept please remember that almost every financial planner, analyst and broker reviews past history of a fund, stock and manager before accepting or rejecting it, or them, as acceptable for their clients.

Finally, if you’re an active investor you’re bound to come across news about a hot stock or fund that some money manager or uber- investor bought a lot of. Before you follow that manager or investor you better check to see where the price of the investment he or she bought is before you commit your money. Many times the news filters down to the amateur investor long after the stock has had its run and is about to head to the land of profit taking. A case in point was Bill Gross at Pimco who invested over $21 million of his money into two Pimco closed-end funds. By the time news reached the average investor share price on both closed-end funds had climbed dramatically making the buy at a significant premium while Gross had bought at a significant discount.

It’s okay to play follow-the-leader only don’t be silly about it.

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 – 3rd Week January

•   You knew it was going to be the kind of week to pull the covers over your head  and hide till Sunday when you heard the news that Steve Jobs, founder and CEO, of Apple would be taking indefinite medical leave. Concerns on how well The Apple would fare without his leadership was compounded as investors demanded that The Apple release some of its cash hoard estimated to be $50 billion, an amount that exceeds the GDP of two-thirds of the world’s countries.
• Chances are you own The Apple if you own shares in a mutual fund. The Apple is the most widely traded and owned stocks and is the most prominent and successful American companies.  It also makes up 10% of the iShares Morningstar Large Growth Index and 15% of the iShares Dow Jones US Technology Sector Index ETF.
•  One nice quarter not a year makes and already doubters are preaching the Dow on borrowed time, according to the ‘Abreast of The Market’ reporter J Cheng. Mark Arbeter, lead technical analyst for S&P. thinks the market is showing signs of fatigue. He postulates a pull back of about 12 1/2%. Others point to 2010 where the markets had a nice run for 7 weeks and then fell dormant until September. Jerry Rubin, head of research at Birinyi Associates, said, ‘We are not at extreme levels and the market has the ability to go higher.’ 
• Renting? Get prepared for double digit rental increases as occupancy rates are at all time highs coupled with a severe shortage of multi-family housing units. With stiff banking rules on home buying and a large population losing homes the rental market is enjoying a boom. For every 100 units available, Robert Greer of Michaels Development said, there are 800 applicants.  
• Apple blew the doors off expected earnings with net income for the quarter at $6 billion and…excuse me…$60 billion in cash not $50 billion. Apple mum about the condition of Jobs.
• Where to invest for the next decade? Experts are again polishing crystal balls for answers and we have  a better chance playing the Lotto than minding what the professional scribblers and economic soothsayers think. (I’m still wrapping my gray cells around the Mayan doom calendar.) According to Wilmington Trust, founded by members of the DuPont family in 1901, they’re bullish on international stocks and emerging equities. Robert Doll, vice chairman and chief equity strategist for fundamental equities at BlackRock, Inc. said investing in equities over the next decade will not match the boom years of the 1980s and 1990s. No word from Uri Geller what his thoughts may be.
•  According to WSJ last Tuesday factory hires are up, creating more jobs than it eliminates for the first time in a decade. Mark Zandi, chief economist at Moody’s Analytics, said manufacturing is going to be a significant source of job growth over the next decade. Manufacturers are still able to get greater productivity with less people.
• Social Security officially went into the red October, 2010. The annual report of the Social Security Trustees published in August, 2010 forecast that the Old Age and Survivors Insurance Trust would not exceed receipts until 2018.  They were wrong. The shortfall was a whooping $40 billion before the ink dried on their report. Trustees blame the recession.
• Asset Allocation is defined as the reverse correlation between investments. When one investment performs poorly another different sector should do well. That is why highly respected and talented investment folks buy bonds, foreign and domestic stocks for their clients with the expectation that not everything will go poof at the same time. We know that it doesn’t work as the past week vividly points out. Banks didn’t make numbers and all sectors fell and when China had an inflationary problem the rest of the world tumbled too. Worst day for the S&P 500 index last Wednesday in 2 months. 
• Spain is doing it! It plans on pouring billions of Euros into its troubled banks, according to WSJ. Ya’l l stand and shout, ‘Hurra!’
• In case anyone asks, credit line extended to Macedonia. (Please don’t ask.)
• 2010 saw the biggest outflows from the biggest funds as American, Fidelity and Vanguard were punished by investors for poor overall performance, according to Morningstar.
• Mention bad news and investor take heed as Lipper reported investors pulled $4 billion out of muni-funds in week. On December 19th Meredith Whitney, uber-analyst, predicted on 60 Minutes that there could be 50 to 100 sizeable municipal bond defaults.
• Coming back to the stock market is Mrs. Watanabe, what Japanese traders call Mom and Pop investors that have been absent for some time. Retail Japanese investors are especially interested in foreign currency since the yen paying close to zero.
• American banks laying off workers. Am Express  500 employees and Synovus Financial announced 13% cut and closing of 39 branch offices. Others looking to cut costs were PNC and Fifth Third.
• Commodity risings and fallings. Cocoa and cotton up while oil, gold and silver fall. Dan Veru, chief investment officer of Pailisade Capital Management told Bloomberg Monday last, ‘ ‘Concerns about China is actually a good excuse to sell after a sharp run-up in stocks and commodities.’
• Michael Swanson an analyst at Wells Fargo said he expects an average American barbeque increase by $10 this summer as food prices escalate. ‘Nuff said.
• Google beat expectations! Earnings were $8.75 a share versus expectation of $8.06. When $8.06 expectations were published on-line Google search engine asked, ‘Did you mean $8.75?’
• The U.S. Dept of Census reported that 1 out of every 4 Americans live in the four states that had the most bank failures.   
•  It was GE  that lead the markets on Friday. (smack! Who would have thought!) GE! Ever since beloved Jack Welch left the company has been battered and bruised by traders. Friday it lead the pack with better than expected earnings. Shares jumped over 7%.
• They call you Dumb Money. Jason Zweig wrote in his editorial Saturday the 22nd in the WSJ as professional traders were wondering where the small retail investor was and if he/she would ever return to the markets. The bullies have always feasted on the small guy, selling off just as they bought. Charles Biderman of Trim Tabs was quoted, ‘The money managers who have been buying are looking for the greater fool to take them out, and the greater fool has always been the little guy.’ Now that stocks have run up 100% both bulls and bears are concerned that the small investor will not come in and buy. Remember the retail Japanese investor mentioned earlier (Mrs. Watanabe) was absent from the Japanese markets for over a decade before coming back last year. The hedge fund and other managers may just have to learn how to manage money the old fashioned way, with caution and expertise.
• Eight. That’s the number of weeks the Dow has been up. Eight. The S&P 500 Index was off a smidge.

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

SIPC- Securities Investor Protection Corporation

Most investors confuse SIPC with  FDIC but the two are nothing alike. FDIC protects bank customers against a loss up to a certain amount per customer. SIPC has nothing to do with the risk of investment but protects a customer in case the brokerage firm fails, files for bankruptcy or experiences financial difficulty.

SIPC will not protect an investor from fraud such as that perpetuated by Bernie Madoff.

The amount of coverage per customer account is $500,000 including a maximum of $250,000 for cash.

How can you tell if a firm is a member of SIPC? The answer you’d think is in the business cards, stationary and sign posted in the business itself. The only true way is to call SIPC Membership Department at 202 371 8300.

What doesn’t SIPC cover? It does not cover those individuals who are sold worthless stocks and other securities. It does not cover commodity futures contracts, fixed annuities, currency and limited partnerships that are not registered with the U.S. Securities and Exchange Commission.

Example: A brokerage firm is shut down and you have an account at the firm with 100 shares of XYZ stock which trades at $100 per share. Once a court appointed Trustee is established and SIPC steps in they will ensure that a client receives the 100 shares of XYZ stock or the current market value of the stock. Each customer will be provided with a claim form in order to recover their cash and securities. This is not as difficult as it may seem since customers receive quarterly statements illustrating their holdings.

FINRA has some suggestions on how investors can help themselves:

• Read and keep all documents/or keep copies.
• Check all trade confirms.
• Review statements and call if you notice anything wrong.
• Do not make checks to your sales person but to your SIPC Member.
• Report something not right immediately by phone and in writing to the broker/dealer.
• Not satisfied go immediately to the FINRA website and report your problem on the Investor Complaint Center.
• More info please go to www.sipc.org

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 January 2011

•   Portugal, the land of Vasco de Gama and Emeril Lagasse (does The Emeril appear a bit too prosperous around the jowls?), was the latest European country to fall victim to investor worries about possible default. Portuguese sovereign  bonds soared Monday last with 10-year over 7%. The European woes coupled with telecom’s musical chairs as Verizon gets to carry the new Apple iPhone caused domestic markets to stutter and stumble January 10th.
•  Apple may sell in 2011  10 million Verizon iphones, so sayeth Hot Research Department from Barrons.com.
• According to WSJ of 1-11-2011 (Play the number, Finster.) solving the Portuguese problem doesn’t solve the EU problem.
• Notice that the Commodity index took a break last week? Barrons’ Technical guru Michael Kahn writes last Tuesday that Commodities are not done yet. In fact expect higher prices going forward for at least several months.
• Old Hef not only got his mojo but also his Playboy back by beating out a bid by Penthouse and shares in Playboy got an unexpected lift (No pun intended).
• How many times did I tell folks I like the auto industry going forward? Now GM wants to buy some or all of old GMAC back. The problem is that GMAC is now Ally Financial and an independent bank. The good thing is that Ally is 74% owned by the U.S. Government and a deal could be done.
• What a difference a year makes. Alcoa lost money one year ago and made a complete turnaround to a profit in 4th quarter 2010. Orders tripled for aluminum from 2009 to 2010. This on top of price increase for aluminum of 11% in the fourth quarter up from the 7% increase in the third quarter of 2010. (Musing on both a commodity and stock play?) Morningstar analysts poo-poo the continuum pointing out several Chinese aluminum smelters are down and a reversal is in the cards when they go back on line.  Alcoa promptly gave up gains on Tuesday.
• Overheard and printed at the Detroit Auto Show, Chrysler will go public sometime in 2o11 after paying back the government. Sales of the Jeep Cherokee up 68% over 2009.
• Snow Day expected on Wednesday as traders headed for the burbs and didn’t plan on coming in to the office as snow storms ripped through the northeast Tuesday night. Lots of traders closed positions before leaving Tuesday.
• Oil prices may chill the economic recovery. As The Bernanke attempts to revive the economy with QE2 and inspire trade by reducing the value of the dollar oil soars. Gas is at $3 and oil is at $90. Without wage inflation (and it ain’t there, dear reader), consumers have less to spend on other things. It’s the school of unintended consequences.
• Everybody was digging deep to help the EU on Tuesday last. Japan announced it would buy more of the securities issued by the European Financial Stability Facility. China also announced it would buy 4-5 billion Euros of Portuguese debt. And folks accuse the United States as being the only one to play Kick the Can Economic Policies.
• Snow Day- No Way as markets caught fire and went on an unexpected Wednesday last rally lead by financials and energy. Citi closed over $5 which makes it available to margin (ya’ll can’t margin a stock trading less than five dollars).
• Copper, oil, gold soared as U.S Ag Department cut estimates of key crops globally. There is concern about food supplies as strain is causing many policy makers nervous. Michael Swanson, an agricultural economist at Wells Fargo & Co., said in WSJ, he expects retail food prices in the U.S. to rise between 3.5% and 4% this year compared to 1.5% in 2010.  
• Bigger used to be best but today’s investor thinks small and have grown disenchanted with the way execs have managed the behemoth conglomerates. We’ve seen Motorola split and Sara Lee divest to get to core business. Now ITT announces it’ll split into three publically traded companies by year-end. The reasons, explained by company execs, it would unlock investor value and make the management of the three more nimble.  ITT was founded to provide phone service in Cuba and Puerto Rico. In the 1970s it went on a buying binge that included the New York Knicks, at one point, and anything connected with hotels, defense and electronics.
• Economists still see recovery in the USA accelerating while the ‘boys’, S&P and Moody’s, toss cold water and remind investors that we have debt problems just like, or similar to, or maybe something like, that of EU sovereign nations. The ‘boys’ have a way to go to get back their credibility so they keep repeating the obvious.   Fitch reports that some municipalities are experiencing troubles as borrowing costs are up, a recent New Jersey bond issue was forced to cut its size by forty percent. Vanguard put the kibosh on creating three new muni-funds. Letters of credit that are backstopping a lot of muni-debt are coming due and banks are shying away because of rules that allow how much of that kind of debt they can hold. In addition some pension plans have backstopped some muni-debt and the spillover may be disastrous.
•  Hey, Picasso, Ze art world is going on-line. Art.sy is a new site set to launch this spring which the promoters say will appeal to the tech-savvy generation that is beginning to invest in art. The savings alone on cheap Chardonnay and Cheese-Whiz  should pay for the start-up.
• J.P. Morgan soared as banks lead the markets on Friday. But the big news was that banks were back in the lending- folks- money- business. Chairman Dimon said that the consumer is getting stronger. Many analysts expect this bullishness to pour over into the auto, home builder and retail markets.
• Friday metals off as silver dumped and talking heads on CNBC dumped on gold. Markets up for the day and week.

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

Getting Filthy Rich

How would you respond when a stranger cold calls you and tells you that he can make you filthy rich by buying and trading stocks? Most of us would hang up but there are people who think maybe there is something to the getting rich by a stranger’s generosity and listen a bit too long.

Before you laugh I’d like to remind you that Harry Markopolos was the first to uncover the Bernie Madoff investment Ponzi scam years before Madoff was brought down by the 2008 recession, and eventually sent to several lifetimes in prison. Markopolos tells of his madding frustration, after uncovering that Madoff was a crook, in getting the Securities Exchange Commission and investors to listen him. In his best selling book, ‘No One Would Listen,’ Markopolos details his being turned away simply because people did not want to not believe in Madoff. In fact when Markopolos, a well respected investment manager himself, went to wealthy Madoff clients, both overseas and here, and brought his suspicions and proof to their attention they wanted nothing to do with the truth.

The investment industry is going through some extraordinary times especially with the 2008 market meltdown, the corruption of supposedly safe investments, and the theft of billions by those the industry once blessed as leaders. Some investors, who normally know better, think they have a golden opportunity when approached by these con-men. In fact, plain old lying and stealing is still being practiced  by boiler rooms and representatives. Once these outfits have their hooks in you it’s almost impossible to wiggle away.

The con is not in churning your account for the commissions but to steal ALL your money and make it seem like a trade gone sour. Sometimes these firms are using your money to pay previous investors who have gotten suspicious or have asked for some or all of their money. The bottom line is they make it seem like you are a special investor and they are going to make you rich.

Fancy brochures and a good story are the basics to get someone hooked. A flashy website is less expensive and just as impressive as an office building on Wall Street. Someone in Columbus can’t see the office but they can click a link and see a group of smiling faces and a office building staffed with busy workers. Usually the office is a boiler room in a basement, loft or someplace with a Wall Street mailing address but with none of the panache or staff.

The story they weave is that they’re the Experts and have consistently outperformed the best money managers in the world. This bit of chum is sprinkled throughout their web site, conversations and brochures although no respected accounting firm has ever audited the results. (Remember Madoff used a small accounting firm and not one of the major firms to audit his results.) Madoff himself was once Chairman of the NASDAQ.

Unbelievably extraordinary returns are posted on a consistent basis on the victim’s investment statements. Yep, forget those losing years, days and weeks. This firm only cranks out winners. They beat the best but you cannot find them listed by Morningstar or any analytical firm.

We’re brand new but our managers all have vast experience at…. ‘and they name hedge or private money managers, using their extraordinary history as their own.

Because you’re special is not spoken but suddenly this investment house is going to make you rich. Returns that would make any hedge fund blush are bandied about to you as ordinary, You wonder but never ask why the firm doesn’t market their skills to institutions, retirement plans, pensions or the uber-wealthy but instead wants your money? The answer is simple; because they know you’re due diligence usually stops at asking only how much money can they make for you.

Always requesting more and more of your savings. Soon after they’ve discovered they have all your money you find yourself in a bad trade that went suddenly south (that you've approved) it is way too late to do anything.  So sorry, but we knew the risk on this trade and you approved it. We’ll get it back next time. Only you’re out of dough and there is no next time and hundreds of thousands of retirement dollars are gone.

Cagey investors think they can pull the plug and get away from a ‘losing’ trade with investment stops don’t realize it is never the trade but the con is for all the principal.

How can you protect yourself: when something like this starts unfolding common sense usually leaves and greed walks in. An investor has to step back and do some basic homework:

• Request an audited history of past performance. It has to be a firm that is recognized such as a major accounting firm you can call.  If you’re so good- prove it!
• Check with FINRA and also the state regulators to see about complaints and any investigations.
• A list of names of people who have invested with the firm (This is usually not a good source but puts the firm on notice you plan on doing due diligence before you hand over your dough).
• Who is the money manager? When you get their Curriculum Vitae make sure you do call and check them out. Sometimes the expert does not work at the firm but has their identity hijacked. 
• If you’re already invested request for a substantial portion of your investment to be wired back to your bank. Thieves hate to give what they once have worked hard to get and will do anything to dissuade returning even a penny. (Although I do know of an investment crook in California that returned 100% of the investment back to his victims only to be able to get that plus more from them).
• Never buy the adage that more money invested means more returns for you. If they’re so good a small amount of your nest egg should be enough for them to make you millions. The whole game is to get ALL your money and lose it in one big trade.
• Every brokerage firm hires legal and accounting firms to represent them- get those names, research them and call.
• Finally, if it’s too good to be true it usually is and you can stop right there.

If you know of someone who’s been a victim let me know so I can share with everyone.

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

The Pert Near Goof Proof Retirement Plan

     Too much has been written on how the economic global meltdown has devastated portfolios and not enough has been offered to reassure people  that they can indeed plan and be on track for retirement.

The Pert Near Goof Proof Retirement Plan simply copies, on a modified basis, what has been used by corporate and government pension plans for years. Before the defined contribution retirement plan there was, and still are in some organizations, defined benefit plans. When first introduced the 401k was never designed to be the only retirement plan until corporations and institutions discovered they could use it to get out from under pension  obligations by eliminating one and instituting the other. The 401k has switched risk, contribution and responsibility to the employee from the employer.

If you use the basic plan of a defined benefit pension you can create an almost worry free personal retirement plan. The secret is not so much in what to invest but how much to invest and the return on that investment. Given time and a reasonable attainable rate of return anyone can do this and it takes but minutes to recalculate and keep one on track.

Corporate pension managers managed defined benefit plans using a more complex formula but the basics work for those that want a way to stay on track and have a definite goal. This method eliminates hunting for the perfect fund, maximizing returns and worrying about risk and all such foolishness.

Defined benefit pensions were designed to fund a specific income or lump sum for an employee when reaching a particular age or number of years of employment. The premise was to provide an employee with a lifetime fixed income beginning at a certain age and then work out a formula on how much to set aside to provide it.

Lets say you want one million dollars accumulated by the time you retire in 30 years. You assume a consistent 5% per year return on investment. The calculation will tell you that you need to invest $15,051. per year for 30 years to reach your goal.

This assumed rate of return is not only reasonable but achievable over the long term. The bad news is that nothing works in a straight line and your portfolio may experience economic crashes, as we all did a few years ago. Let’s say that was you a few years back with a portfolio loss of 37% and you were 14 years into the plan.

If you recalculate how much you need to invest after the crash and at your new portfolio numbers you’d discover you have to increase your contribution to $28,134.  to stay on track to reach your goal of one million dollars. Assume you have the wherewithal to do this. The following year the markets recapture some of the previous year losses and so you have to recalculate again your remaining years working and find you now need to invest $23,402 per year for the next 14 years (assuming nothing changes) to get to your one million dollar goal.

There is no such thing as a plan failing. It is all about an investor’s determination to keep it on track.

Unless the markets make a drastic uptick you may consider that an additional $8,000 each and every year is too much of a strain on your budget. Your next calculation is to either reduce your dollar goal or increase the number of years to work and save. By increasing the remaining years from 14 to 17 you will still achieve your goal of one million dollars and keep your savings outlay at a reasonable $14,447 per year. Naturally you still recalculate how much you need to save each and every year.

There are other variables that you can input into your plan design. You can increase your rate of return from 5% to 6% (if you think that’s an appropriate and reasonably attainable number) or you can decrease the number of years you have to save, or decrease the amount of money you wish to accumulate.

What happens if in one year or several you should earn far in excess of your projected rate of return? As some of my east-side friends say, ‘Forgetaboutit’. Earnings in excess of projected rates of return are not counted when the time comes to recalculate the next years contribution. This excess is there as a cushion for the probabilities of future unforeseen market corrections. The next year contribution remains the same as the previous year. Another idea is that investors may, if they desire, move those excess returns into money markets to be used when markets fail to perform.

Most people manage their retirement plan the way I hit a golf ball.  They are all over the course. Keep it simple and here’s a recap:

• Pick a dollar goal, retirement time frame and reasonable rate of return.
• Establish a simple allocation.
• Check and recalculate your contribution once a year.
• Either increase annual contributions or recalculate number of years to retirement or the total amount you plan on accumulating after severe market declines.
• Don’t readjust contributions during spectacular total return up years.

Anyone who has played blackjack or poker will tell you that it is the money management that ensures whether you win or lose and not so much the cards, although they certainly help.  You can lose two hands out of every five and still be a huge money maker. The same is true in pension management. You can have some of the most horrific fund selections and terrible economic times but if you manage and adjust to situations  you can be successful.

 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.

 

Whispers 2011

Here we go. Hope you missed me the last few weeks as I’ve been organizing some great new ideas to share starting with what the experts are predicting for the coming year. Someone always has a hot tip, a no-lose opportunity, an obscure facto or a better crystal ball than yours or mine. Here are a few ideas from other investment folks about 2011.

Let’s start with Harry Shultz’ last testament. If you like the smell of Napalm with your morning coffee Shultz is just the investment guru for you. Shultz just finished his last investment news letter, retiring at age 87. According to Peter Brimelow at Marketwatch Shultz the last few years has been brilliant predicting the economic collapse. Here is what Shultz wrote, ‘ Roughly speaking, the mess we are in is the worst since 17th century financial collapse. Comparisons with the 1930’s are ludicrous. We’ve gone far beyond that. And, alas, the courage & political will to recognize the mess & act wisely to reverse gears, is absent in U.S. leadership, where the problems were hatched & where the rot is by far the deepest.’ Shultz writes favorably of David Stockman, former Reagan Budget Director, who suggested, ‘Get some gold, beans, water, anything that Bernanke can’t destroy….If a sell-off of U.S. bonds starts, it will be an Armageddon.’

Kate Gibson at Marketwatch.com writes that current stock market optimism raises the prospect of a pullback. The end of December investment sentiment is showing a lack of fear. Marc Pado at Canto Fitzgerald comments that January may be strong with a mild pullback late winter. However Pado is convinced of a strong equity market in 2011.

TIPS are the bonds du jour, according to Kevin Giddis, president of fixed income at Morgan-Keegan in Memphis, Tenn. In 2010 TIPS gained 6.07% and Treasures posted 5.65% according to Barclays index data.

The Bloomberg BusinessWeek Jan 3-Jan 9 2011 predicts for 2011 the following from their Bloomberg Surveys:

• Average price of oil in 2011: $87
• Average price per troy oz for gold: $1400.
• Fed Funds 2011 average: 0.50%
• 10-year Treasury yield average in 2011: 3.53%
• U.S. Unemployment Rate 2011 average: 9.4%
• U.S. Housing starts in 2011 (from The Nat’l Assoc of Home Builders): 29%
• The dollar versus the Euro average in 2011: $1.30

Read carefully, dear reader ( and bond holders), Berkshire Hathaway was the first investment grade issuer out the gate in 2011 with a $1.5 billion of senior unsecured notes on January 3rd. What made this interesting is that while everyone was talking higher rates Berkshire was selling $375 million of three year floating rate notes. Berkshire is saying through this offering they believe that the Fed will not raise rates through 2013. GS Group chief U.S.  economist, Jan Hatzius, thinks that the Fed won’t raise rates until 2013, saying the 9.8% unemployment rate will stave off inflation that could prompt an increase.

Irwin Kellner at MarketWatch.com reported that corporations are looking at a glass half-full and not half-empty. Better days ahead for American companies in 2011 and here are a few reasons, ala Kellner, why:

• Stock market ended 2010 on a high note
• Tax uncertainty is off the table and set for 2 years
• New Technology available
• Profits up and going up – rose 2010 26% above 2009
• Oodles of cash in their coffers – 49% higher than 3 years earlier
• Banks are loosening purse strings and rates are low
• Sales are climbing due to pent up demand

The IPO market plans on being bigger and better than the last few years (except for the General Motors initial public offering of 2010). Facebook, with an evaluation of $50 billion, is planning its debut in 2012 so save your nickels and dimes and Ill keep you up to date as we get close to the actual date. But, in 2011 there are some dandy offerings which include Nielsen, the folks that call or send you a quarter in the mail, and get your opinion about what TV show you like or TV dinner you don’t. HCA is the largest hospital operator and it’s planning a $4.6 billion offering. Toys ‘R’ Us is coming back as a public company after having its retail stores spruced up and its internet stores streamlined. Zynga has created some of the hottest on-line games and is expect to launch publicly this year. Linkedin is looking to get a leg up on Facebook and be the first social network site to go public. Whispers at the Motley Fool, among others, has it that it has a value in excess of $2 billion and shares are expected to sell for $23.

Finally, Brett Arends writes that we shouldn’t trust Wall Street’s top picks rather invest in what they like least. He points out that if you invested in the S&P 500 index in 2008 you’d have lost 39% But if you listened and invested in the top 10 picks of Wall Street Analysts you would have lost 48%! But for all you who still cling to the belief that someone knows something here is the hot list for 2011. Pssst…in 2010 Ford, AIG, Sears and Berkshire Hathaway were on the least liked list.

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

Taking A Break - Happy 2011

 

Taking A Break Be Back With More Blogs In 14 Days

 

 

Q’s for Paul call 877 783 7080 or write him at pstanley@westminsterfinancial.com.