That Was The Week That Was – 4th Week February

• Markets plummeted Tuesday last on Mid-East worries. All domestic and foreign indices fell but closed off their lows. Worries about oil disruption in the Middle East sent the price of crude to new 2011 highs. Libyan dictator vowed to stay the course Tuesday. Worries that civilian discontent could spill over to Saudi Arabia and Iran drove market fears.
• The coming week will be dominated by OIL, according to The Street. Jobless numbers plus auto sales will be announced but will oil continue to gain or drop like a stone? CFO Almir Barbassa of Petroleo Brasileiro, SA, one of the world’s largest energy company, stated on Sunday that oil prices will find themselves between $70-$90 in the short to medium time.
• Warren Buffett said in his letter to clients, ‘…we live (American citizens) six times better than when I was born.’ He continues to say that he expects 2011 to be an outstanding year, housing will begin to recover next year and he is eager for new acquisitions. Net income in Berkshire Hathaway increased in the 4th quarter 43% over the year before. He also said there is an abundance of opportunity in the United States.
• Wal-Mart same store sales fell even though the retailer posted a 27% jump in profits; problems persist as the company fights the dollar stores. Management has been slow to get lower price goods into their stores. Sales have fallen for 8 consecutive quarters – the longest losing streak in company history.
• For several weeks Middle East unrest didn't faze the markets. But with the push into the oil producing countries along with 2 1/2 year market highs a pullback was in the cards. Certainly this was a lesson that owning energy funds still make sense.
• Amidst the unrest companies still report earnings but all attention is on the Middle East as Libyan conflict overtakes all the news, the price at the pump rises and worried traders wonder if civil unrest will transfer to other dictatorships in the region. Talking heads confuse the issue as one pontificates that $150 a barrel oil will kill the economy while another head tut-tuts with, ‘We’ve been there and done that,’ attitude, So far there is no oil disruption just traders nervous and bidding up the price.
• Wednesday last the markets started off swell and then someone reminded someone that there was trouble on the horizon and the tanking began. All indices off, the Dow triple digits.
• Buying junk by investors has paid off big time. Investors who had the guts to buy bonds of troubled firms that were in default, bankruptcy or in some measure distressed were well rewarded.  Often times, a Moody’s study found, companies use the threat of default as a bargaining chip so that bondholders ride  to the rescue and bail the firms out. MGM the film studio used that tactic, according to Moody’s, and was rewarded with elimination of $4 billion in debt. Lenders later recovered 44 cents on the dollar.
• Markets mixed Thursday last with Apple and IBM showing gains. Experts from CNBC and the Trading ‘Getting Technical’ suggest another 10% before Bulls cut in and waltz.
• Didja know that you can invest in the IPO market, especially with huge investor interest in the coming Tech stocks, by buying an exchange traded fund? Not a one of us has enough clout to get shares at the IPO price so the ETF called The First Trust U.S. Index Fund buysan IPO seven  days after issue and sells after 1,000 days. The ETF has outperformed the NASDAQ over the past 2 years but not the past five years. Russel Kinnel director of mutual fund research at Morningstar says he wouldn’t buy the fund. (Russel is worse than Warren Buffett when committing dollars on the cheap and has a history of waiting way too long.)
• The Justice Department is waging a war of extinction on the tobacco companies. They want the industry to state that they purposely deceived Congress and the public for years and publish this in newspapers and on their product. (There has to be a reformed smoker somewhere in this mess.)
• According to U.S. officials current oil stockpiles are sufficient to meet any supply disruption.The White House said the U.S. and the world community had the ‘capacity to act’ should a major disruption of supplies occur following events in Libya. (Ya’ll know what ‘capacity to act’ means, doncha? If you ever wondered why the USA keeps its Big Boats in that part of the world, now you know it’s the capacity to act.)
• It’s not nice calling China sneaky but according to the WSJ the country’s government wealth investor last year more than doubled their investments in major Japanese blue-chip companies very quietly.
• Stocks closed the week with a slight bounce but still off 2 1/2% their 2 1/2 year highs. (Hey, you can buy that number straight or box it!) Oil settled off highs but smart traders say the deal with Saudi Arabia to step in and even out the rough spots may not be all that it is supposed to be. The country may indeed be in the crosshairs of civilian change.  James B Stewart in Saturday’s WSJ, ‘Common Sense,’ said he wouldn’t be selling oil related stocks but adding to them for the long haul.
• Barron’s Cover reported that 3M is the 3rd most innovative company in America with a machine that introduced 1,300 products last year while the stock moved only up 7%. According to Barrons the company may be entering a ‘sweet spot’ for its stock. The company is into health care, energy conservation, touch screen gaming and 3-D technology. (Yeah, it make those sticky things, too.)
• India’s economic growth slowed to 8.2%, the expansion was below the expected 8.6%. (in case you were wondering why emerging markets slipped the last quarter). This compared to USA 4th quarter grew at 2.8% rate down from 3.2%.
• Nasdaq is looking for a partner to team up and buy venerated NYSE Euronext’s stock trading biz. The Naz has been super aggressive with their financial policies and their triple B bond rating is two notches above junk. As you recall the Germans have been on the prowl to add the venerated NYSE to their German exchange.

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

 

Nurturing Your Inner Investment Guru

In the roaring 1990’s, when everyone was going to get rich betting on tech and day-trading sprouted its baby teeth, investment experts proliferated like weeds. It was when kindergarten teachers were schooling me with their high tech picks that I should have had that V-8 moment, picked up my marbles, and taken a time-out. Instead I stuck it out only to watch the NASDAQ crash and burn at the beginning of 2000. It was a time of investment irrational thought and action and the NASDAQ index hasn’t seen those pre-crash numbers since.

Before that happened the guy who printed my business cards  postulated that the markets would never go down because too much money was being invested and the sheer weight of in-coming dollars was enough to provide perpetual growth. He never understood, nor would he listen. that what went up could come down.  The concept of immediate liquidity was lost on him and countless millions of other investors.

From that time to this day in almost every business, factory, government building and job site there exists a self-proclaimed investment expert in which every other employee reaches out for counseling and advise. It doesn’t make any difference if this expert’s ideas are about as cockeyed as an Australian Emu race people take his or her words as gospel.

Some of the worst investment advise came out in 2008 when the markets collapsed. Even respected investment professionals were completely wrong. Just before the crisis escalated Jimmy (The Mouth) Cramer appeared on The Today Show and pleaded with a national audience to get into cash if they needed any money over the next five years. Five years!! In six months he was back on the same program proclaiming the crisis over and everyone should get back into the markets. And he wasn’t the only one. All across the country self-styled gurus were preaching from the same hymnal. Get out and stay out. Abandon ship. Climb back aboard. Nutty times.

We know for certain that those who bailed are still far behind and may take years longer to get anywhere near the asset value they had before the crash. Those that ignored the guru’s bleating are in much better financial shape than those that didn’t. 

Which brings me to the point who you should listen to when times get complicated and you need to make a big decision. Who’s your guru?

Inside each and every one of us is a little germ called common sense who’s sole duty is to protect us from making too many silly decisions. Common sense has saved each of us a lot of grief. It’s that little voice that whispers in our ear. I don’t how it works but common sense has saved me from climbing a water tower tank and riding the big revolving light on top at midnight to not voting for Sarah Palin. 

It’s an override switch that filters all the world’s horse poop and somehow makes us do things that eventually turn out to be the right things. Anyone who’s been to a high school or college reunion and seen their old boy or girl friend twenty years after graduation knows what I mean. What could have been and what was and we get a cold shiver just thinking about it.

Common sense doesn’t, unfortunately, work in a vacuum. In order for the germ to work at its optimum it needs to be primed with knowledge and experience. The good thing about common sense is that it doesn’t need a lot of education. In fact it needs just enough information to be able to ask questions. Questions and a little knowledge are like yeast for common sense. Somehow it makes things work better. Whenever some self-anointed water cooler swami  crosses their arms, adjusts their turban and pontificates what you should be doing with your money or your life a little knowledge creates questions that your inner guru  says need to be answered.

Nurturing your inner financial guru takes only a small amount of effort. Make time each day to read something about money, how it works, investments, mutual funds or Google a lesson on dividends or bonds. While its an infinite amount of information that neither you nor I will never be able to work our way through what we do learn will be enough to keep our common sense working at its optimal best.

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

 

The Dangers of Default for Defined Benefit Pension Plans

 You don’t have to be an actuarial genius to understand that defined benefit pension plans are in trouble. The global market collapse hit plans twofold – less investment dollars being invested into the plan because the companies simply did not have the money plus assets invested fell to cruel levels. As far back as 2005 alarm bells were being sounded as airline pensions were going kaput and the Pension Benefit Guaranty Corporation reported to a Senate Committee that promised pension benefits may not be available for a good percentage of  employees in certain industries. And, unless things changed, PBGC would not be able to guarantee even minimal retirement payments since its charter was not backed by the good faith and credit of the United States government. The company is supported by fees from member corporations.

In 2004 there were 44 million workers who depended on PBGC to ensure their getting benefits. Even though 401k plans have taken over as a primary retirement funding plan for many workers about 40% of those retiring baby boomers are relying on income from a defined benefit plan. The defined benefit plan is funded by the employer for the benefit of the employee. Usually it provides a guaranteed retirement income using a formula based on the employees tenure and earned income.

In 2004 the scale of corporations that were underfunding their pension plans was alarming and pervasive the agency estimated that total underfunding (2004!) was around $600 billion.

When PBGC reported to the Senate Committee 70% of their insured losses were from two industries – steel and airline. Today we can assume that those losses have accelerated across a wide spectrum of businesses.

The problem gets worse when you realize that PBGC does not cover government employees. Those employees have to look to the state or city for their guarantees, or rather the lack of them. All of us in Michigan know how mismanaged the City of Detroit’s Employees Pension has been with the F.B.I. investing alleged corruption and possible theft.

The fallout to current and future retirees from mismanaged or underfunded pension plans will at best result in far less guaranteed income than had been projected and promised. The worst that can be expected is no benefits at all. Add the fact that municipalities and states are having budget troubles and shortfalls and its no stretch to understand that this is a problem with possible distressing consequences.

Unfortunately there is little an employee can do except be vigilant regarding their pension benefits.  Don’t assume that because you’ve retired and the income stream has begun that everything is okay-dokey. The danger of default for iffy firms is a constant concern.

How do employees check on the health of their defined benefit retirement plan?

• Make sure that you are getting an annual report.
• Call and ask about the financial health of the plan if you do not understand the report.
• Talk to your Human Resources department. Sometimes they do not know and you should take your suggestion to your supervisor to find someone that does know.
• If the firm has had a bankruptcy that often impacts the pension but not always as in the GM bankruptcy.
• Finally go to www.pbgc.gov and check their records and on-line files for information about your private defined benefit pension.

You should always have a systematic retirement or savings plan set outside your workplace. This can be a valuable asset for children’s education, an emergency fund and last but not least a supplemental retirement plan.

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 February

•   The New Presidential(proposed)Budget indicates higher taxes for those in the upper tax brackets, according to Barrons.com writer Randall W. Forsyth. The Obama budget is making muni’s more attractive (ignoring the possibility of default). Budget cuts over the next decade would only attack the deficit by one-quarter of the suggested proposal by the President’s own budget commission. Citigroup called the President’s proposal disappointing.
• Monday last started off with markets mixed.  A major freeze in Mexico earlier in February has resulted in a shortage of tomatoes, cukes, bell peppers and other veggies.  The freeze was the worst in 50 years and consumers get hit with the double whammy of higher costs plus shrinking supplies.
• For a ‘Buy and Hold’ investor Warren Buffett pulls the plug when a holding reaches fair value. In his 4th quarter report The Buffett sold stakes in Bank of America, Nike, Lowes and Nestle plus others. He increased his holdings in Wells Fargo. He now holds only 25 U.S. companies. The fewest the $53 billion portfolio has held in several years. Yes, you read right – 25.
• China’s prices rise 4.9% an indication that it and other Asian countries may be losing the fight against inflation. Rising food prices blamed as prime culprit. Them tidy-whities may soon be made in some other place.
• Fed-Ex cuts profit target blaming weather and increased fuel costs for fiscal 3rd quarter. Incidentally, across the street, the folks in Brown also cited bad weather as a 1st quarter headwind.
• The credit wars are just beginning as providers will be rolling out smart phones with an embedded chip allowing consumers to buy things simply by waving their phone over an item. AT&T, Verizon, T-Mobile and Discover have formed a joint venture to roll this out by the end of next year. Can anyone say, B B B B Billions…?  (there’s a trade here…anyone?)
• Markets mixed but off their lows Tuesday last. Fund managers are more bullish on global equities at any time in the current decade, according to Myra P. Saefong of Marketwatch. This higher appetite has been accompanied by a dramatic downsizing in allocation to emerging markets. But, this respite is but a temporary moment.
• Say Cheese! Kraft’s cannot keep prices to consumers up with increasing costs of food materials has seen the food giant report a 24% drop in profits. The Oracle was against the recent purchase of Cadbury by Kraft and now you know why Buffett’s the Oracle.
• It’s in the Brew as Heineken profit UP 41%.
• Banks are wanting bigger down payments from home buyers. Gone are the handshake and here’s the keys to the front door daze. Now the average down payment is 22% nationally. Not surprising a study by the Federal Reserve Bank of St Louis found that those who had smaller down payments had a greater chance of defaulting. (I could have told them that – you too?)
• While home prices keep falling farmland keeps rising. Fueled by rising crop prices irrigated land has increased 14.8% and non-irrigated by 12.9% in the latest quarter in the farmland belt of Missouri, Nebraska, Kansas, Oklahoma, Wyoming, Colorado and northern New Mexico. Bankers suspicious and waiting for crop prices to fall. They may indeed have a very long wait.
• Markets up mid-week. South Korea’s national pension fund- the world’s 4th largest- is planning on investing in alternative assets with $4 billion overseas. The usually conservatively managed fund is trying to ensure supporting retirees in a nation with one of the longest life spans and lowest fertility rates in the developed world.
• The Detroit Pension Fund Trustees allegedly work under a different set of rules than those mandated by FINRA. The newspaper Detroit Free Press reported in 2009 that pension trustees had few ethical or financial disclosures rules and were allowed to travel the world with virtually no restriction and accept gifts, trips, tickets and expensive dinners from money managers, law firms, investment advisors and others seeking business on the board. The Feds be investigating.
• N.E.S.T.L.E.S., Nestle’s spells the very best…’ and the company reported profits tripled in 2010 but it wasn’t why you’d think. Profits were helped due to the sale of its eye care business and increased emerging markets sales and nutrition division. A Swiss company with deep American roots. (The company owns Kit Kat candy and Lean Cuisine.)
• Dow is getting Big in the water biz while DuPont looks to expand into the food business.
• Cisco missed numbers last week and traders punished the stock. Morningstar gives it 5 stars.
• Dutch navigation systems Tom Tom fell as profits crashed 29%.
• AOL’s CEO buys $10 Million stock in company. AOL is reinventing itself after buying blogger Huffington Post for $315 million.
• Foreign banks find loophole in Capital Rule to avoid adding more capital in order to operate in the USA.  Barclay’s attorneys said that having the additional capital trapped was just not worth it. Ah, the games afoot.
• Ford Motor stock falls but news it allies with Russian auto maker. Ford is #2 in Russia and sales were up 24% in January.
• Stocks roared again Friday last and closed at 2 1/2 year highs. Still many small investors are sitting things out and waiting for the bottom to fall out. Some think that those that missed the rally are hoping the markets crash again in order that they can get in and rectify their mistake. ‘This is a market that just has momentum and it wants to go higher,’ said Dan Genter, CEO, CIO, of RNC Genter Capital Management.
• Violence in the Middle East and oil falls. This doesn’t seem right. Buying either the Oil ETF or the refiner VLO may make some sense.
• A Double-Dip is virtually off trader’s investment screen as 419 of the non-financial companies in the S&P 500 list were up 49% from three years ago. Profits were higher with $1.64 trillion, the highest in four years according to government data at the end of 2010.
• Stocks up 100% from March 2009 lows and Barrons’ The Trader calls it a love fest. Already this year almost 1/3 of investment into China Index Fund and the iShares Emerging Markets has been pulled by traders to be invested in USA stocks. Earnings are still strong in emerging market stocks and China looks to have another banner year but all the attention is on domestic stocks.
• So How High the S&P? According to Chief Technical Strategist Mark Arbeter another 2% from current closing….but….that’s just the resistance level based on March 2007 low. Smart money guesses 10% from this point because of a lack of sellers.
• Markets were closed Monday for President’s Day.

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

Saving Social Security

The Social Security System could be saved overnight if Congress, the President and the American public wanted. The Washington Post reported that by 2037 all reserves would be drained and  the system would be able pay only 75% of required benefits. There is no secret the fixes could be made quickly and place the system  firmly into the black. There is nothing stopping it except for the political bickering and juvenile emotion associated what is perceived as a guaranteed entitlement.

Without question Social Security through its income programs for those widows, widowers, orphans, retirees, sick and disabled has made life acceptable if not comfortable for millions. We all know that it was never created to be what it is today. In the beginning it was to provide needed income for those reaching age 65 at a time when the average person barely lived to 63. Today the average life span has exceeded that by over a decade and it is estimated that in any one family benefits may be paid out for as long as 26 years. Not only are millions more on the receiving end than the creators of the program ever imagined but the benefits are far greater than what was originally designed.

The real problem, according to Eugene Steuerle of the San Francisco Chronicle, is that Social Security has morphed into a middle-aged retirement system.

In October, 2010 Social Security first went into the red paying out more in benefits than it collected. This was a shock as it was anticipated the program would continue until 2018 before reaching this milestone. In 2011 there will be more red ink and it’ll only get worse unless someone steps up and does something.

Both President’s Bush and Clinton, at different times, suggested moving some social security assets to personal accounts or to be invested in the stock markets. I was against that then and even more so today. Thankfully no plan was ever implemented or we’d be really looking at an Alice in Wonderland scenario.

The tragic minefield that politicians have to tread is the outcry from Social Security recipients and those contributing to the plan. It is truly looked by many as  something that is engraved in stone and that each of us is entitled to. If the mini-public employee revolt in Wisconsin in February 2011 is any indicator of public outcry to change and reduction of benefits the wrath of many Americans will be directed to those that attempt to make changes or save Social Security.

The attitude has always been that people have been paying into Social Security and that they better get everything they paid into it out or else.

Here are a few ideas, certainly none of them new or mine. The problem with entitlements is just that – folks get to thinking that they deserve the benefits no matter what their economic situation.

1. Index retirement benefits based upon net worth, pension income or assets.
2. Raise normal retirement age benefit to start at 70.
3. Reduce COLA formula or freeze them.
4. Increase percentage contributions by workers
5. Raise ceiling on contributions to $150,000 or on all earned income

All the above will work and save the system if we really want to have it continue. The problem is that greed and the entitlement attitude gets into the way of common sense. The most important thing to remember is that Social Security benefits the young and infirm along with the aged. Lets make sure the benefits continue to those that truly need it. For more info on Social Security please go to www.SSA.gov.

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

 

Retirement Income Methods

    For some investors it’s like the baseball player who can hit but  can’t field or throw. There are investors who can accumulate money in a retirement plan but haven’t a clue how to get a steady stream of income from their savings when they stop working. 

Income plan and design is as important, if not more so, than the accumulation of retirement assets. When investors are planning income their saving days are at an end. There are no second chances to return to the proverbial work well and start over in case a mistake is made in plan design and implementation.

Setting the wrong plan and income design and retirees may well find themselves running out of money well before they run out of life.

There are five methods for income withdrawal. Depending on the investment portfolio, personal risk level and the amount/percentage of withdrawal a retiree may use one or a combination of the following.

Cash

Uncertain on the retirement plan future account value? Moving a year or two of income into the cash or money market fund sector will provide worry-free monthly income. Sometimes you hear sales people refer to moving buckets of liquid assets to money market or savings. This is what they’re talking about. Cash investors will get a smooth ride, have money for emergencies and worry about the bulk of their invested portfolio down the road.

Interest

Individual Bonds and bond mutual funds (both open and closed) and exchange traded bond funds pay interest which can be reinvested or paid in cash. Using bond interest as income is as old a method as there is. In fact there are more bond investors than equity. Laddering of individual bonds (with varying maturity rates) to create a portfolio that constantly takes advantage of current interest rates is the key to buying bonds and building a sustainable income plan.

Dividends and/or Capital Gains

Stock investors may not get the highest percentage of income from their portfolio but they may own companies that should have a history of providing continuous and increasing income in the form of dividends. Those investor who own mutual funds and Exchange Traded Funds may also create portfolios that provide income through dividends and the annual payment of capital gain distribution.

Systematic Withdrawal

Mutual fund companies created the systematic withdrawal income plan. Simplicity is key for the retiree to receive monthly/quarterly income by having the fund company redeem shares in a percentage that exactly matches the amount or percentage needed. Dividends and capital gains are reinvested and fund shares are sold (without charge) to the third decimal. Retirees are able to request and receive the highest income stream from this method.

Annuitization

Buying an annuity for income is still a smart thing to do if the insurance company is fiscally sound.  Generally fixed annuity incomes should not be purchased when interest rates are at all time lows. Annuity income is based on interest rates, the annuity option and retiree age. There are a variety of confusing income options available and the annuitant would be smart to have someone who knows how those options work explain them in detail. It is all too easy to make a mistake and choose an income option that disinherits a spouse or significantly reduced benefits.

While I have made the income withdrawal plans sound simple they are extremely complex to implement. Retirees would be wise to make sure they review and update their income plans and investments every six months to ensure that they are on the right track.

Finally, there is a reason why some men wear both a belt and suspenders, they really are afraid their pants will fall down. Use the same reasoning in income plan design. There is no reason why retirees cannot use several  of the above methods to ensure successful continuous lifetime income.

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 February

• Happy Valentine’s Day!
•  Whispers at CNBC say that corporate execs would prefer to buy-back corporate shares rather than hire people this year. It’s the ugly secret and a beneficiary of QE2. The bond buy-back by the Fed has made the stock market recover nicely and folks just don’t want The Ben Bernanke to stop. Chief Market Strategist Nicolas Colas at BNY ConvergEx said, ‘The power cord for the stock market runs right to the Federal Reserve.’ If employment doesn’t improve by summer expect The Ben Bernanke to implement QE3. Good for investors, bad for America.
• Back to Fundamentals This Week-As Egyptian Crisis cools traders focusing on what’s happening here.
• Michael Kahn, technical analyst, and writing for Getting Technical a column in Barrons.com reported that no matter what low rates The Ben Bernanke wants if the Street wants higher rates, rates will go higher. And, according to Kahn, prices started moving up last November and continue to do so. ‘We cannot call it the end of the 30-year trend towards lower interest rates, but it is the necessary first step in making that change.’ Consensus is that the Fed will raise rates by December. Mark that.
• Cash buyers are lifting housing. In some markets, according to the WSJ, buyers are snapping up homes in all-cash deals. In the Miami-Fort Lauderdale area last year half of all deals were cash. In Phoenix paying cash hit 42% of all purchases. This activity helped contribute to the markets jump of 69 points on the Dow Monday last.
• Lady Analyst Meredith Whitney who correctly called the fall of the Big Banks is being verbally pummeled for her latest prediction of 50-100 municipal bond defaults in the coming years. The ‘Boy’s’ say it ain’t so that Whitney is only looking for publicity but a  glance at the chart of states in trouble with tax revenue shortfalls and revenue gaps have to give the sista some credence.
• Apple sold 16 million iPhones last quarter and analyst pumped up their valuations. The company is considered the most valuable on earth. Brett Arends writes that shareholders should watch for ‘rumors’ of Steve Job’s demise which would cause the stock to fall and rumormongers would scoop up shares at discount.
• Fund manager Charles de Vauil was asked what assets he liked and said it would be better if he answered what he didn’t. ‘Avoid emerging markets, all commodities except oil and gas, small cap stocks and most European stocks are no bargain either.’ He is even ‘edgy’ about gold and said it wasn’t acting like gold but rising like everything else.
• Inflation worries are spreading: Brazil is expected to increase its overnight rate which is already at 11.25% because of inflation. China is raising rates by 1/4 of 1%, this is the 3rd time in 4 months. Some expect Chinese inflation to hit 6% in 2011. In the USA still under 2% even with rising food and energy. 
• Risky Business: Last year Congress ordered bank regulators to calculate which financial companies are the riskiest and turn the list over to the Federal Reserve so they can be supervised more closely. The names of these banks will be named later in 2011. However, Bloomberg Businessweek reported that in event of a 40% market meltdown that currently the riskiest of the big banks is (drum roll): Bank of America.
• One of my favorite snacks – apple crisp- is on my no-no list as the apples used in the recipe are grown in China. I emailed the company and asked if the USA had run out of apple orchards and still waiting for a reply. Food products from China and other Asian countries are on my ‘Don’t Buy List.’ Most fish we buy is harvested overseas and grocery chains and Big Lot stores buy and sell because the product is cheap and loaded with profit. Until other countries get the concept of ‘safe food’, I’ll do my dining with products grown and raised in U.S.A.
• Wednesday markets down until the last few minutes and then managed a slight gain.Cotton futures highest since the Civil War. Sugar is also up.
•  After 219 years the NYSE is looking to be acquired by Deutsche Borse AG in a deal that WOULD create the world’s largest financial exchange. Alan Abelson calls it the Schnitzel Takeover. Tongue firmly in cheek he writes in Barrons.com that it’d be plain silly to see the floor traders prancing around in lederhosen. Combined value of the company would be $25billion-or 7 x’s the value of Twitter. One veteran Wall Street trader said, ‘I hope these guys know what they’re doing.’
• Speaking of Twitter tech is starting to resemble the 1990s. Talks with execs at Facebook and Google are exploring alliances and how to unlock advertising value. Twitter value has increased exponentially.
• Blockbuster puts itself on the block. Emerging from bankruptcy the firm is looking for a buyer who understands brick and mortar and late fees do not make a business plan. (has anyone been in a Blockbuster lately?) Speaking of bankruptcy say bye to Borders as the Ann Arbor firm is shuttering stores, laying off employees and allowing itself to be reorganized in bankruptcy.
• Dow broke its string of 8 winning sessions Thursday last. Cisco stubbed its toe and Dow followed. Oil and gold up…a smidge.
• Detroit ranked #6 nationally in foreclosures. (In case you didn’t know.)
• Troubled Finnish telecom hooking up with Microsoft. The NOK has long struggled although it is the #1 handset maker. A Microsoft exec compared Nokia to a man standing on a burning oil platform who jumps into icy waters to escape the flames. NOK shares fell 9.7% on the news of the alliance.
• You read it here: U.S. corn stocks will be down this year 70 million bushels, a decline of 1.8 million metric tons. Corn futures have nearly doubled from late last June. According to Morgan Stanley analysts prices of corn need to move higher to ration demand. (Corn the caviar of vegetables)
• Morningstar analysts like in the year 2011 natural gas, materials and some tech. According to a recent report current natural gas prices are unsustainable and look for them to pop.
• The World’s Most Respected List of Companies has Apple numero uno with Amazon next followed by Berkshire Hathaway. You don’t want to know where Toyota was listed. No, seriously, you don’t want to know.
• Friday markets meandered, or if you’re from out west, moseyed close to even with no direction until the news that legendry Egyptian strong-man Mubarak had packed his bags and family and skedaddled to his beach house while taking the hint and retiring. Markets moved up and closed that way for the week with gold and oil down. Oil way off its highs.
• Ford stock up Friday last when it announced another $3 billion bond buy-back.
• This coming week see what the U.S does diplomatically and more from the retail sector.
• Finally blogger and wag Al Lewis  describes USA inflation as biflation. This is where everything you own goes down in value and everything you need is going up. Biflation happens when the Fed creates trillions of new dollars out of apparently nothing, but mostly just gives it to the banks.

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

 

Liar’s Poker

Liar’s poker is betting game with two or more players using the serial numbers off paper currency to make up a poker hand. Bluffing is in integral part of the game hence the name. But in real life when it comes down between you, your money and a salesperson the odds favor the one who knows the rules best.

A long time ago an insurance agent I knew bragged to me how he sold a multi-million dollar policy and made a five figure commission simply by changing the interest rate assumption on the policy dividend. When I pointed out that it was illegal he smiled and said that he covered his tracks by highlighting the disclaimer which said rates were not guaranteed. At the time the highest rate most insurance companies paid on the excess premium or dividend was five percent. The agent simply dialed up the projection and won the business on a lie. Not only was this illegal he could have lost his license.

Today that would be difficult but not impossible since insurance companies are responsible for their illustrations and make their computer programs more difficult to change. That doesn’t mean that things don’t happen. If numbers seem out of line (or extremely cheap) on an illustration have someone you trust look at them or get a second opinion.

The fixed annuity that sells under a variety of names but the most common is an Indexed Annuity.  Because of its name people think it has something to do with the stock market. The policy has about as much to do with investing in actual stocks as I have of running a marathon but agents routinely sell the policy as investing in the market. The cool part of the annuity, salespeople say, is that when the market’s hot  the annuity is invested in the market and when it’s not it’s in cash and the policyholder doesn’t lose a penny.

The fact is that the annuity simply invests using a complicated equation that provides the policyholder NOT with the actual market gains but a portion of those gains. And, when the market is flat the returns are not there and the policyholder is not exposed to any risk. The actual long-term fixed rates for the best performing companies are around five percent and certainly a long-way from actually representing actual market returns.

The old adage is still true that there is no free lunch.

The neighborhood mutual fund sales person isn’t above a little sleight of mouth. Assume they are selling a rather poor performing mutual fund. They say the fund has had an average annual rate of return of 10% a year for the last five years. The key words are average annual and not the annual rate of return. In reality the fund in fact had one banner year, lost its portfolio manager and had nine consecutive losing years culminating with an average annual rate of return of ten percent. It’s been on a downward spiral ever since. Ask to see a Morningstar report or order one on-line if the salesperson happens to be an in-law.

Your neighborhood bank isn’t a stranger to leading you down a path to locking in your money in a long-term certificate or an annuity. They know that the longer you keep your money with them the longer they have to make money using your money or make the huge commissions on the long-term annuity. It’s no coincident that most bankers recommend only certificates of deposit or an annuity. If you have questions make sure you have someone on your side to assist you. A good person is your CPA or tax professional.

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

 

Confusing Menu

 Just as the German’s are in talks to buy the NYSE, the very symbol of American capitalism, to become the world’s biggest financial exchange, the average investor is faced with confusing issues about where to invest and what to buy.

Who hasn’t been there. Time for dinner and too many choices from the fast, frozen or take-out food aisle. Finally you end up opening a can of something, eating a bowl of cereal over the sink or calling for the local pizza delivery. That’s what happened to the investment business. With all the talk of regulators ensuring full disclosure and transparency for the small investor it’s more confusing than ever.

Want a mutual fund? By the time you research, review, grade and decide which to invest in it’s time to retire. In 1945 there were 73 mutual funds. I am sure there were about 50 too many even back then but wait…in 1990 there were over 3,000 with over 3,100 number of share classes. By the time 2000 rolled around there were over 8,000 funds with 16, 738 share classes.  Today we’re still around that number of funds but the number of share classes, due to regulations, has swelled to over 21,000. (According to some about 1400 of those funds will be rolled into other funds or simply closed by this time next year.)

Let’s not forget how many stocks there are available on the legitimate exchanges. Commodities, you ask? You can bet on cotton, soy, gold, corn, sugar,wheat or just about anything that grows, moos, baas, oinks or is mined. Then there is the currency market. Even though most of us have a tough time making change (take a peek at the cash registers at Wal-Mart or McDonalds they do the thinking for us), the big thing this past year for the average investor is the currency markets. Want to bet the yen versus the dollar or ruble, someone will take that bet, leverage it and charge you for the privilege. Several firms went public this year that specialize in currency trades and more, you bet, are coming.

Did I forget the Exchange Traded Funds and Exchange Traded Note markets? From only a handful ten years ago to over 1,000 today and a lot of them cover the same territory. You can buy an S&P-500 index fund from a variety of vendors. The difference may be pennies in costs but with billions at stake management firms keep rolling out the product for your investment dollar.

Wait. Then there are the annuities being issued. There are fixed, variable, indexed and a combination of two or three. With thousands of insurance companies and each offering a full menu of annuity product I’d guess another 1,000, at least available to review and examine. Forty years ago if you went shopping for a guaranteed product there was fixed annuities, period.

Not satisfied the investment factories are working overtime creating new and complex products from the wild world of derivatives. Some of these hybrids are so exotic that a mere handful of people understand them; which doesn't stop the brokers from selling them to Joe & Judy Mainstreet. Remember CDOs? Those collateralized debt obligations that few understood but sold to every bank in every corner of the world, their back.

I forgot to mention penny stocks, hedge funds, private investments, limited and general partnerships. Did I include closed-end mutual funds? The biggest market is still the bond market with corporate, government and municipal offerings in all manner of grade, yield and maturity.

Then there is the foreign markets with some of the biggest overseas companies listed on our domestic exchanges as ADRs.

If that doesn’t catch your attention there is the IPO or Initial Public Offering market of new stocks or old companies taken private gussied up a bit and brought back as new companies (GM, Dole to name two).

On top of that you cannot turn on your computer without an ad from Joe Blow selling you on a chance to become a millionaire by buying his investment news letter. Which if you do you won’t.

Getting cross-eyed? I’m in the business and this is getting nuts. I cannot imagine what this business will look like in another decade. I bet it’ll be bigger, more complicated and expensive for the average investor. It’s the way it is heading.

But, no matter if the business dials itself down or grows to a giant pumpkin the one thing that will never change is risk. As long as the average investor understands that all the products and concepts are there to attract saving dollars and make money for banks and Wall Street and are not created to guarantee return of or on principal; you will be just fine.

I thought I’d remind you one more time.

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 – 1st Week February

•       January ended up 2.3%, the best performance since 2007. Led by the energy sector (ahem, Egyptian crisis gave it a boost), stocks shrugged off revolt and discontent as investors realized Egypt was and is not a major trading partner, has no natural resources and the Suez Canal remained open. A pop in the price of crude was more reactionary than permanent. Exxon and Alcoa lead the closing day of January.
• MarketWatch reports Wall Street will get a crack at another good week. The correction of 166 points had come and gone, according to Robert Pavlik, chief market strategist at Banyan Partners.
• In ‘Getting Technical’, Michael Kahn writes for Barrons.com that the price of food commodities are rising across the board from wheat to coffee. The oil crisis in 2008 saw commodity prices spike as a traders got greedy. Still corn is 16% under 2008 prices with soybeans, wheat, oats and rice lagging  but ready (according to Kahn’s charts) to break out. Kahn hastens to add that there is resistance but if a break-out occurs prices could increase by 30% in a matter of months.  And, a just completed study in the U.K. concluded that the price of food will soar by 50% by 2050 and could push 1oo million people  into hunger.
• General Electric, yes, the company traders love to hate, back in the news as the stock is recommended by Argus Research Company as a Buy from Hold. The company that builds every things from jet engines to finance factoring and has been ignored by The Street, is back. It doesn’t hurt to have the President appoint the CEO of GE to head the President’s Council on Jobs and Competitiveness. In 2011 the new mantra is: What’s good for GE is good for America.
• O.k., sports fans, mark March  3, 2011 as the beginning of the end for professional football this season. Negotiations between the NFL and players do not look positive and may just kill the season. ' (The Commish said, ‘We’ll have a contract.’
• Markets last Tuesday went gangbusters as across the board all indices closed at their highest level since June, 2008. Crude fell while gold was up. Auto sales were all up when all expectations were for negative sales but investors ignored gains with the admonition that while gains were better than 2009 they were lowest since 1993. Sob, it’s- what’ve- you –done- for- me -lately-syndrome.  Excellent read in this week’s BusinessWeek about Ford and its new CEO.
• ADM Archer Daniels Midland beat estimates and the food processing giant surged 6%.
•  Emerging Markets drove gains for Tupperware as homemakers in Indonesia and South Africa are increasing the use of the ‘burpable’ containers. TUP up 15% Tuesday last. (alliteration?)
• Good News as the manufacturing index was UP, much stronger than anticipated. Economists had projected a reading of 58.4 and instead the index rose to 60.8.
• In the El Grande Game called ‘Get Rich Off The Life Insurance Company’s’, is played when old poops buy humongous  insurance polices, let them marinate for 2 years, past the contestable period, and then sell them to strangers for a mountain of cash. The old poops are now turning on those fast talking swells that got them into the deal in the first place. They are claiming, what old poops always claim, diminished capacity and not understanding the consequences. It seems a lot of seniors are stuck with their policies as there are no buyers. Seniors who bought into the selling their life insurance policy are now suing life insurance agents for talking them into the buying and then selling life policy scam. But it’s really all coming down to investors not wanting to risk capital if the insured, whom they’re buying the policy from, isn’t knocking on Death’s door. Insured’s, on the other hand, wanting to boogie with the boodle while the boogie’s still good, and want return of premium and damages.  I’ll keep you posted.
• Markets on hold Wednesday as digesting rioting and unrest in the Middle East. Low volume except for Tuesday as reported by Art Cashin on CNBC and Director of Floor Operations for UBS Financial.
• A word from a Bear, Richard Russell of Dow Theory Letters wrote recently, ‘I’m changing my position on the stock market…I believe the Dow is being seen as a hedge against the dollar.’ He goes on to write that he believes the Dow is acting as a currency hedge.
• CEO Ellen Kullman leading DuPont into the 21st FOOD century. Barrons.com reported that the chemical giant has a knack for changing with the times. It produced gunpowder for the Civil War, paint for early automobiles and Teflon and Corian for the modern kitchens. Now, reports Barrons’ reporter Erin Arvedlund, the company is poised to provide food for a hungry world. The company has a bid (likely to get) for one of the largest producers of food ingredients, Danisco. The company does everything from making products that keep bread fresh to helping people lose weight. The iconic chemical company, DuPont, is becoming a powerhouse in agriculture.
• Shoppers are Back! I predicted that when folks ran out of tidy-whities, clothes for kids and necessities they’d be back and back they were in January. Retail analyst Jharonne Martis reports her top retail pick is Limited Brands which is parent company to Victoria’s Secret and Bath & Body Works had an astonishing 6.7% gain for January. (Okay, so one person’s tidy-whitey is different from another’s.)
• From ‘It Ain’t Gonna Happen’ –WSJ reported China has linked with a tiny unprofitable California company to bid for U.S. defense contracts. They may make our socks but not our guns.
• Bad Day last Thursday for 2 of the nation’s biggest and most respected banks. J.P. Morgan Chase has been sued by the Trustee liquidating the Madoff investment firm and searching for assets. Trustees allege that the bank ignored the possibility of Madoff running a Ponzi scam and earned hundreds of millions of dollars from its relationship with Madoff. And –Bank of New York Mellon used a foreign exchange system called ‘Charlie’ to create fake trades and overcharge Virginia pension funds by at least $20 million, according to Virginia court records. In a separate whistle blower case in Florida the AG alleges the bank overcharged Florida pension funds for foreign-exchange transactions.
• Alive and doing very well, thank you…
• General Motors is expected to post a one billion dollar profit for the 4th quarter 2010 compared to a $3.4 billion loss for the same period in 2009. While costs are rising the health and profitability of the autos is spilling over to suppliers. Suppliers are looking to 2011 with enthusiasm.
• Baseball, apple pie and Bernie Madoff? According to Irving Picard, trustee appointed to hunt for the missing Madoff billions, the NY Mets were the beneficiary of $300 million in other people’s money (OPM). The Met’s owners cry, ‘Foul ball! How were we supposed to know when Madoff even fooled government regulators?’ The owners are looking to sell the franchise.
• For the week- Markets ended higher. Copper extended it’s run with broker and analyst at FuturePath Trading commenting, ‘ At the moment we’re gunning for $5 copper.’

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

Taking Advantage of Being A Boomer

 It’s little things I’ve been noticing the last few years. The young lady that modifies the few thinning strands of hair on my big head helps with with my coat and gives me a gentle hug as I pay for my haircut. Women now open doors for me. Cars slow down as I walk in the shopping center parking lot instead of hitting the accelerator. The only thing missing is the Boy Scout helping me cross the road.

I also have noticed that I hear better in one ear than the other and I slow my car in order I don’t misread a road sign.

My eating habits have changed. No triple omelet and bacon, cheeseburger or (sigh) double chili dogs with extra onions. It’s counting calories, checking for Trans Fats and making sure I get my daily dose of veggies and fruits. I’m doing what I used to make fun of and read food labels and use substitutes for butter and salt.

There are millions of us near sighted poops who creak with every step, cock heads to one side to hear better and wear trifocals. We also avoid bending or squatting since it would involve us spending the better part of the day trying to get back up.

Don’t think all this is being ignored by those marketing folks with stuff to sell us. There are 76 million of us oatmeal eating trans fat avoiding Boomers and we account for half of the total U.S. consumer spending. And while mama and papa may think they are as hot at Britney and Justin (and they may be) we spend on different stuff than the younger generation. We may be getting slower but not dimwitted as we should take advantage of investing in those companies that are catering to us.

Boomers differentiate between themselves and old people. Someone who’s in his or her eighties Boomer’s consider old. A Boomer believes they’re in mature middle age. Today’s 65 year old doesn’t want to spend three decades in a chair reading books or watching the tube. A Boomer wants to travel, volunteer, work out, play golf, bowl or stomp around a tennis court and is active in something. Boomers also want to look well and dress well. David Cohen, VP of the home-care division of Church & Dwight Co., said, ‘Our research shows that 60% of boomers who are near 65 claim to feel much younger than their actual age.’

At the Aging in America Conference held in Chicago March 2010 there was a diverse list of sponsors from Wal-Mart to Southwest Airlines.

There are companies that are changing some of their marketing to cater directly to Boomers. While this is incomplete the list includes:

• Walgreen Company
• CVS Caremark
• Kimberly-Clark
• Diamond Foods
• Sherwin-Williams
• Kohler Company

At the ‘Center for Mature Consumer Studies’, their studies found that the stigma associated with being old is disappearing. Marketing organizations are breaking down Boomers in groups that include Ailing outgoers, Frail recluses and Healthy indulgers. Each demographic has specific needs and can be marketed to using direct mail, cross selling or the internet.

There is and will be opportunities with home builders who will create downsized mini-mansions. Travel companies and cruise lines. The home health care business. The life insurance companies that offer Long Term Care and annuities. Hospital and nursing home groups. Surgical appliance companies. Don’t forget funds that invest in consumer goods and ETFs. As investors  and Boomers we should invest in and take advantage of those organizations that provide and adapt the best to our needs.

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

Arbitration – A Few Things An Investor Should Know

The process of arbitration is the legal remedy that an investor or employee of a broker/dealer has in order to right a possible injustice or financial wrong. Do not confuse arbitration with SIPC. (see my January 2011 blog on SIPC)

However if a registered representative and/or broker/dealer recommend and invest client money into unsuitable risk investments and/or do illegal or unprofessional acts such as churning an account simply to earn commissions there is recourse through a process called arbitration.

A good example of a reason someone would file for arbitration is if an investor requested to have money placed in U.S. Treasury cash management and subsequently discover the broker invested the assets in riskier, less liquid investments that lost significant money; chances are there is more than a probable case for arbitration.

A bad reason to go to arbitration is because investment accounts fell in value due  to the global recession. There has to be intent to deceive or a criminal action.

Everyone who invests in the legitimate market with a broker/dealer signs an agreement that states they agree to arbitration and give up their right to  suing the representative and broker/dealer in a regular civilian court. The agreement is usually in every new client account form. .

The arbitration process is supposedly less expensive than taking someone to civil court however it is still very expensive. The fee to file is around $1,250 plus the cost of your attorney. Arbitration is not something the lay person can handle by themselves as if it were a  small claims court.

If you plan on suing someone in the investment business  you have to decide if you were criminally damaged and by how much. In my estimation if the damages suffered are not in excess of $25,000 costs of arbitration may actually equal that amount. And, usually, in arbitration each party pays their own legal bill with very remote chance of being reimbursed for their costs if they should win.

The second thing is to get the proper representation. The lawyer that handled your estate plan, divorce or bankruptcy is not, in most cases, the attorney most qualified to handle a securities arbitration. Finding a securities lawyer or one who specialize in securities law is a chore in itself. I suggest you interview several candidates and the best place to get their names is from a referral from your current tax and legal advisors.

A securities law firm will handle all the paperwork and lead you through the process,

Time frame is usually 12 months to have your case heard from the time your attorney serves the necessary papers with FINRA and to the defendant.  FINRA is the Financial Industry Regulatory Authority, Inc.

The rules of law pretty much apply in arbitration as in civilian court. There will be a discovery and  deposition. Both sides will be able to interview the other including any witnesses. The arbitration panel may be comprised of either two or three persons depending on the amount you file for damages. One of the arbitrators will be the chairperson who will act as the spokesman and control the proceedings. Usually arbitrators are lawyers or people who are active or retired from the investment/securities business.

At any time prior to the actual arbitration either party may settle or offer to settle. Once this is done than FINRA is notified and the case is closed. FINRA will then send the results to your attorney who will communicate with his or her client.

The arbitrators, or judges are not to be thought of lightly. These are well educated people with extensive experience. Their rule is  the absolute final word. Don’t think you can appeal if things don’t go your way. The arbitrators will ask questions, interrupt, clarify and make rulings. They have an extremely active role in the proceedings.

If you think that the arbitration itself will be quick I have news for you. Your attorney will be extremely active for the year prior to your case being heard; asking for documents, sending requested documents and conducting depositions. Even f your case is not unusually complicated it may take four-five days of hearings. Your lawyer or team of lawyers will be charging by the hour.

Unlike a court case where the judge or jury deliberates right then and there; in an arbitration once all testimony is heard and closing arguments on both sides are completed the arbitrators dismiss everyone and leave to deliberate from whence they came. It may be weeks or months before anyone knows what the result is and once made there is no recourse or do-over.

Some people think that the arbitration process is rigged in favor of the investment community. That is not so. After the market collapse in 2008 there have been an unusual amount of new cases flooding FINRA but the results still are split between investors and the investment community on the awards.

If you want to learn more about FINRA and arbitration go to www.finra.org.

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