Getting Back To Even – The Quarterly Report

 

  This is an end of the 1st quarter and looking forward, on the short term, things look positively peachy as long as interest rates remain depressed, unemployment high and working folks spending to replace what they need the markets will flourish in 2011. So far the domestic markets have been ignoring everything from earthquakes, nuclear meltdowns. skyrocketing oil prices, commodity price hikes and Middle East unrest.  It is almost as if traders and investors are on another planet as domestic markets and corporations motor along oblivious to worldwide carnage all about them.

All the while this is going on Americans are spitting mad at our nations leaders for playing politics instead of creating jobs or incentives for jobs. On the evening news last week a freshman Congressman admitted that in his first 100 days he has yet to hear anyone of any stature in his party or the other bring up the problem of jobs, incentives to create jobs and/or reducing the rate of unemployment. In addition CBS news and other networks report that out of those first 100 days Congress was in fact in session for only 35 days with an attendance of only half of those elected.

Seventy-five percent of all Americans polled disapprove of Congress and the President and the job they are doing.

While the overall economy is slowly getting traction, the dollar continually sinks because of The Ben Bernanke buying of treasuries causing commodities to get more expensive and keeping interest rates low. We can all light an alter candle to The Fed for their historic low rates which has boosted the domestic stock market. The question is what will happen when The Fed begins to raise rates and begins draining all that money out of the economy?

Two divergent schools of thought: One, lead by PIMCO’s Bill Gross has been selling long Treasuries believing that as rate are raised ‘it will be a big event’; while BlackRock’s Rick Rieder thinks that the Fed’s exit will be more benign. ‘If rate drift up it will be modest.’ Rieder said in a WSJ interview over Easter weekend. It is no secret that Gross loves emerging market debt and has been on a tear buying all he can.

As investors we can only wait and see what happens this coming June when the Fed ceases their QE2.

Right now the cost of servicing America’s debt is lower than when it was at the height of the Clinton boom in 1998. This will end and hopefully the Fed has a plan to ease the markets into a soft landing.

The problem, dear reader, is not in the short term but in the months and years after.

Politicians, as we have seen, on both sides of the fence, have no stomach for the hard calls and to do what has to be done to reduce our debt, even with our threat of political banishment. Our hopes for elimination of the debt is in the hands of The Fed. If they are able to raise rates, drain excess liquidity, stimulate jobs creation and in doing so boost the economy to increase taxation and eliminate the debt it’ll be a trick worthy of greatest economists of any 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 – 3rd Week April

 

•   Last week started with concerns that Congress would wait until the last second before raising the debt ceiling. Both WSJ and Bloomberg’s BusinessWeek urged readers and elected officials to not play chicken with the debt. This game of politics, according to experts, would make the U.S. look more like an Argentine government and diminish our respectability among world leaders.
• The problem facing Congress is to focus on the long-term debt. A special committee called ‘The Gang of Six’, which is comprised of Sen. Mark Warner, Sen. Saxby Chambliss, Dick Durbin, Kent Conrad, Tom Coburn and Mike Crapo; will offer up their blueprint of sharply curtailing the growth of entitlements, shrinking or eliminating home-mortgage interest deduction and charitable-giving deductions. It also plans on reducing tax rates for the richest citizens.
• Reasons why Congress needs to get their act together – The U.S. risks triggering the following events according to WSJ: Shake investor confidence, Undermining the recovery, Roiling global markets and Disrupting the flow of government services.
• Michael Santoli, in ‘Streetwise’ in the Sunday Barrons.com, wrote there is bear-watching as we  approach the ‘sell in May’ part of the year. But, there are optimistic reasons for being bullish on stocks. John Roque, technical strategist at WJB Capital said, ‘I wonder, in this environment, if the rails aren’t as good a bellwether as we might need?’ Rail stocks are up 10% offering credence both to commodity-demand strength and the general global recovery story.  A big fan is Warren Buffett who bought Burlington Northern and made $14 billion.
• People like exotic pets and the most exotic is the recent love-fest with raising Honey Bees. Ever since there has been talk of the bee’s strange demise people have taken up raising them in backyards throughout the nation. Over 125,000 Americans are now registered beekeepers, and there is no telling how many more raise bees off the books. Some communities have laws against raising honey bees and as one council person explained, ‘You can’t put a leash on a bee.’
• Emerging Markets will see more from Private-Equity investors. Institutional investors are under pressure to find growth opportunities and emerging markets are a compelling story. Sarah Alexander, president and CEO or Emerging Market Private Equity Association, said, ‘… while China and India still top limited partner wish lists investors also include less penetrated markets of Latin America and Southeast Asia.’
• Hedge Funds the domain of the rich are baaaaaack! The funds that cater to the wealthy individuals, pensions and large investors are approaching $2 trillion in assets. The asset growth does not match returns. So far the S&P 500 index is up 5.4%, according to WSJ April 18, 2011, but the average hedge fund’s gains are a lackluster 1.6%.
• The Chinese love pecans. Boy, do they love pecans! Five years ago they bought hardly any and in 2009 the Chinese bought 25% of the U.S. pecan crop. Pecans, according to Chinese lore, are good for the brain. Nearly 20% of every dollar spent by the Chinese on U.S. goods went for food. The price of the nuts have tripled ever since the Chinese developed a taste.
• From rubberstamping AAA quality on garbage CDO’s that lead to the global collapse, for Goldman and others, Standard & Poor’s strapped on its high and mighty act last Monday  and roiled domestic markets by warning that they may have to revise their long-term outlook from ‘stable’ to ‘negative’ on United States debt.  The reason they gave is that if the government does nothing or too little to tackle the debt issue the U.S. may have to pay more to borrow money. S&P worried that the White House and Congress would continue to play the politic game. The stock market feared that this would cause a lack of liquidity, with higher interest costs eminent,  immediately tanked and ended the day with the Dow off 140 points. Treasuries, contrary to what one would expect remained steady, an indicator that this has already been priced into the fixed income market.
• The equity markets, technically, were already in precarious position after stalling near its February high, according to Michael Kahn at Barrons.com in his Getting Technical column.  Kahn believes the markets can retreat another 5%-10% before recovering.
• Tech is a hit. It’s like the good old times with Silicon Valley as venture capital firms jockey for position to throw money at start-ups. Why it’s like 1995 all over again and the question is will investors be smart enough to side step the inevitable bubble? Even scarier is will there be a Bubble and investors simply miss the boat?
• Google’s Anti-Wall Street, according to their credo, and that’s cool as long as it’s their money and not pension plans, institutions and regular folks. Co-founder Larry Page dissed analysts when he joined a conference call for three minutes and walked away. Wall Streeters were not happy campers with the insult. Since Page came back aboard shares in the firm have fallen 12%. Bring back the grown-ups.
• Hot Research at Barrons.com likes Hyatt Hotels (H) and offers up a rating of outperform with a princely price tag of $49.
• Muni-defaults? So far nary a word and wonder is if in fact there are any out there. So far no cry from investors.
• Apple, the stock, according to Minyanville.com, has been acting poorly since Jobs took his sick leave. According to the Wise Boys and Girls at Minyanville, the stock Apple looks tremendously undervalued. They repeat in their Tuesday last blog that many analysts still have price targets of Apple at $450 a share.
• Tuesday is my neighborhood garbage pickup day and with all the Monday concerns about U.S. downgrade you’d expect a garbage market day. The opposite was true and the Dow was up 65 points, as were metals and oil and all other indices. It was as if investors simply tossed Monday’s news out with their old TV dinner trays.
• Intel crushed estimates with revenues almost up a Billion….yes, dear reader, a Billion dollars. (This is some serious tech market, by gum!)
• China is attempting to gussy up their currency the Yuan to make it easier to use throughout the world. The new rules would make it easier for global customers to boast their China business. They could access cheap funding in the Hong Kong Yuan bond market and then use it to expand their business.
•  
• This would upset the current dollar dominate global currency markets but experts say in the WSJ April 20, 2011 that this still could be a long-way off.
• Wow! Profits drove the market as manufacturing output grew more than four times as fast in the first quarter as the ESTIMATED rate for the overall U.S. economy. The sector is being fueled by companies flush with cash who are spending on computers, machinery and other equipment. Wednesday the Dow ended up 187 points while the Nasdaq gained 58. Oil closed over $111 a barrel and gold piled on another $9 an ounce.
• Throwing cold water on the mighty fine day was David Callaway in his commentary at MarketWatch.com who wrote and wondered if the tech sector was strong enough to help lift the moribund financial services sector out of their doldrums. He reports that Goldman, Morgan, Citi and Bank of America all have been dogged by weak lending and lackluster institutional activity among clients. Even darling Wells Fargo has been hurt by continued weak loan demand. It is no wonder that banks look at Washington’s reform at killing their business and this summer looks like a lobbyist dream as they battle reformers. 
• There are analysts who love Ford and telling clients to buy because they believe Ford will deliver solid numbers this coming Tuesday. Ford down 15% is expected to deliver first quarter earnings between 36 cents-60 cents.
• Remember when I wrote about life insurance settlements and how insurance companies and state insurance commissioners were all getting their shorts in a bunch because regular folks were selling their life policies for far more than the cash surrender value to investors? AIG, that’s the American International Group, the company that insured all those so called… hrmph…CDOs that went bust and the government had to bail it out in order it could pay Goldman, Morgan and others  have announced a securitized investment nicknamed blood pool of life insurance policies. The sale, unfortunately, isn’t going so well as AIG cannot get a rating on the pool from Standard and Poor’s. S&P, suddenly acting like it belongs at the Royal Wedding sipping high tea with its pinky in the air, is in the middle of reinventing itself as an entity that can be trusted after stamping AAA on all the CDOs that AIG insured and Morgan and Goldman and others laughingly sold and which almost all went bust. Someone give me a pill!
• General Electric blew the doors off in profits up 77% over a year ago, increased its dividend for the 3rd time in a year, and still had its stock punished. (lemme repeat The Street hates this stock ever since Jack Welch left!) Almost every analyst piled on after the mind-blowing profit number stating everything from ‘ …wind turbine problems…operating earnings were flat…weak industrial margins…and finally…GE gave us little to be excited about…’ Morningstar seems to be the only one that likes the stock at fair value $25 and it traded last Thursday under $20.
• Credit Suisse, the investment banker, in Barrons.com., likes Lear, Ford, GM, American Axle and Magna International. Yes, dear reader, they also reported a least favored list of manufacturers which included Kar Auction and TRW.
• Expect huge oil profits to be announced.
• Markets ended the week up on Thursday.

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

Life Insurance Needs After Retirement

 In the late sixties, after my USAF stint and looking for work, a recruiter for MLPF&S made  me cool my heels for two hours in the dead of winter in his unheated downtown Detroit reception room. Needing a job I walked across the street and signed a contract as a life insurance agent. A few years later I began my self-study for my securities license. At the time life insurance companies wanted nothing to do with investments and stock brokerage firms wanted nothing to do with insurance. Banks, on the other hand, slobbering as always, wanted to get into both. Today everyone does everything and you can’t tell the players without a scorecard. It’s gotten so that many agents and brokers now specialize and it isn’t often you run into someone who does everything from investments to insurance, and does it well.

Life insurance products have gotten complicated and for the purpose of this blog I won’t get into the why’s and what-for’s. Suffice to say sitting down with an insurance agent to discuss the purchase of a simple policy may make a vein ligation a more enjoyable experience.

For most Boomers the need for life insurance expires when the mortgage is paid, the lads and lassies leave the house and the dog dies. The focus then becomes on reducing cost of living and maximizing the use of investment dollars for retirement income. So why do some retirees still own and pay for life insurance? There are a few reasons:

1. To replace the loss of social security and/or pension income upon the death of one spouse or the other.
2. Pay off those nasty credit cards, a mortgage or second.
3. Pay for final expenses which can run about $25,000 for a swell send-off to about $10,000. This may also include some medical bills.
4. Estate tax if you’ve accumulated more than three million in assets.
5. An extra amount to give to charities, church, grandkids or college/university.
6. The newer policies also have riders for long-term care living expenses which help in the total insurance premium outlay department.

Owning insurance past 60 can be a bit on the pricy side unless the policy was purchased earlier. Buying pure term, while less expensive initially, can escalate in price faster than Glenn Beck can uncover a conspiracy. Still paying for life insurance need not be a budget breaker. For small face amount policies there are choices available from the local credit union or converting a portion of your employer’s group insurance. A spousal rider may also be converted and carried as an individual plan once the employee retires.

Probably the best method to pay premiums on existing insurance is use one of the non-forfeiture provisions available in all cash value policies. The insured may request a paid up policy using the cash value of the old policy- usually $10,000 of cash will provide a $20,0000 paid up policy. Or, the insured may have the dividends and interest used to buy paid up additions of life insurance rather than reducing premiums or allowing them to accumulate.

When shopping for new insurance make sure the company has a grade A claims paying ability and get several quotes. (One agent can usually do all that for you). You can get that info on-line at A.M. Best Company or ask the agent for a Best report. Also, be aware that some of the newer policies have clauses which allows the company to increase premiums to stratospheric levels, which would probably happen at the most inopportune financial time for the insured.

Finally, stay away from policies that mix equities with life insurance. If the investment side collapses you will find yourself with higher premiums or less insurance. The entire concept of insurance is for the insured having someone else accept the risk.

Review and update policies, beneficiaries and other cash values associated with the insurance as you would any property. Don’t worry if you lose or misplace a policy and keep it where the beneficiary can get their hands on it. Locking it up in a safe deposit box may seem prudent but often cash is needed to pay bills and waiting to get the policy out of a safe deposit box may only cause needless grief.

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 April

•  Bloombergs BusinessWeek April 11-April 17 reported that oil traders  are focused on a new age of uncertainty and while Libya only produces 2% of the world’s energy resource there are chances of civil unrest spreading throughout the region. Currently, according to Goran Trapp, Morgan Stanley’s chairman of oil liquid’s in London, the risk of a Saudi-Iran war are not even priced into the market. He does not see a reduction of the fear premium in oil prices to disappear any time soon.   The New Yorker’s James Surowiecki, writing in The Financial Page April 18, 2011, said, ‘The price of oil has risen $30 a barrel since February and more than 40% since last summer. The fear is that the price of gas will bring back stagflation, as it did during the oil crisis of 1973 and 1979. But, Surowicki reports, ‘…not all gas-price increases put a significant dent in growth; between 2002 and 2006, for instance, oil prices rose 150%,  yet the economy continued to grow briskly.’
• The Japanese earthquake essentially stopped the makers of everything from Japanese fish meal to chemicals. American business has geared up to fill the void: Hallmark Fisheries supplies Black Cod at a dollar premium from last December, Smithfield Foods has seen an uptick in Japanese demand for fresh pork as did Tyson for chicken. Apache a provider of natural gas becomes more relevant as do Dow Chemical and Occidental Petroleum that provide the raw materials to make plastic bottles.
• Talk to the Hand, said Icelandic voters who rejected their government’s deal to repay Britain and the Netherlands $5 billion for their citizen’s deposits in a failed on-line bank Icesave. (Iceland’s officials should take a lesson from U.S. government and just pay the deal and bill citizens with higher taxes or reduced services and benefits.) Too darn democratic those Icelanders.
• Barron’s.com asks the question is the recent low investor volume a beginning to a sell-off? As usual there are answers on both sides of the fence  with Jeff deGraaf of Renaissance Macro Research, who studied prior low-volume rallies, notes that the late 1998 rally came on below average volume and that volume also was unimpressive in the 2003 rebound.
• Hey, buddy, wanna lose money? Currency trading firms in the highly leveraged, lightly regulated foreign currency exchange trading have 75% of their clients lose money. Ze problem, dear reader, is that once burned investors turn away to the tune of 15-25% a year. This, according to the two giant retail currency trading firms, (Gain and FXCM both public companies) is not a sustainable business model.
• You don’t try to change who you are. Wal-Mart is going back to the basics. The flubbed fru-fru moment cost the firm customers and more importantly money and now a new campaign to urge old customers to come back in a very creative campaign next month called, ‘It’s Back.’ (That’s the Wal-Mart I know and love!)
• 
• The US spends more on health care than 29 other developed countries and has less to show for it. The average cost per person is over $7500 and still the average lifespan is 77.9 versus the average in the advanced nations of 79.4 (Trust me, you’re not missing much. The last few years are usually the worst anyway!)
• Monday was the beginning of reporting season and Alcoa blew the doors off and promptly was punished as analyst Brian Yu at Citi say it wasn’t enough. The entire market saw losses. Oil and metals were sold as were the autos and tech.
• One trader, reports Barrons.com, bet $1 million that silver ETF (SLV) would fall 37% by July!
• Oil fell but according to MarketWatch.com the next hot spot may be Nigeria with elections coming this month. Expect oil to hold at or above $100. a barrel.
• The Federal Reserve is downplaying inflation and sent signals that it is unlikely to follow the European Central Bank in lifting interest rates from rock bottom levels anytime soon, according to Tuesday’s WSJ. Under Chairman The Ben Bernanke rates have remained near zero since 2008.
• Bloomberg reported that auto sales may top analyst’s earlier estimates. Total sales may rise to 13 million. Despite it all, people still need cars, said Jessica Caldwell an analyst at Edmonds.com. Both Ford and GM closed plants due to disruption of supplies and stocks of both companies were substantially off Monday. Toyota said it lost 140,000 units of production due to the Japanese crisis. There is a pent-up demand for newer vehicles said Robert Morris, president of several GM dealerships near Cleveland. Still auto stocks are significantly down from their 2o11 highs.
• Tuesday markets stumbled as Dow, oil and metals all fell on critical Japan news and commentary by Goldman Sachs to its clients on selling commodities for a 25% uptick versus waiting for 28%. This roiled the markets as the Dow fell 117 points and got traders thinking did Goldman really know something or was this just plain profit taking and coming back at a cheaper price. The Goldman call was just one more ‘piling on’ according to The Street as the Int’l Energy Agency on Tuesday said high oil would contribute to a potential global growth roadblock; Mastercard reported the 5th consecutive week of spending decline; a IMF report that lowered growth for the US and Japan; interest rate hikes for China and the European Central Bank were announced earlier.
• According to Andy Xie, China may be heading toward stagflation but what’s holding back the full blown crisis is the belief that the yuan will appreciate. Xie writes in MarketWatch, ‘China could see a devaluation-triggered financial crisis similar to what the United States has experienced. The difference is that China’s system is not robust enough to maintain stability during such a crisis.’
•  Cisco may have bottomed, reports Barrons.com writer Teresa Rivas. The company that eleven years ago traded over $70 a share now dwells under $18.00. Favorable comments from a plethora of analysts that say events on the horizon look to benefit Cisco. 
• Tata Motors owns Jaguar and Land Rover and for those of you who haven’t driven one or the other both are sweeeeet. The Jag, with automatic and standard engine, is just nasty taking off from a standing start. It’s not the granny car it once was. In a WSJ article Ratan Tata talks about how his company has been held back from growth in his home country of India by government bribery and  corruption. The company also owns luxury hotels in India and abroad – the Pierre Hotel in New York- and Tetley tea.
• You can’t keep a good crook down. Marc Rich, rogue oil trader and tax avoider, pardoned by President Clinton, created what will soon be one of the world’s largest mining and ag companies. In 1994 Rich sold Glencore to his lieutenants which he had formed 20 years earlier. A pending IPO will create, according to MarketWatch.com, an unrivaled integrated commodity producer and marketer  by raising $9-$11 billion. Unrivaled is the appropriate word.
• The stench of Goldman was in a Senate report that stated Goldman privately described the home mortgage business in less than flattering terms while selling packaged bonds and quietly shorting the same. Goldman bankers, according to April 14th WSJ, refrained from putting their real feelings into emails but other traders called the CDOs, ‘Pigs, Crap,  A white elephant…’  and still it motors on….oblivious… Michigan Sen. Levin wants the head of CEO Lloyd Blankfein and other execs who lied and can now be charged with perjury ala Martha Stewart on a spike.
• Oil recovered slightly on Wednesday contrary to Goldman client communication.  A two day selloff stopped as stability returned to the markets.
• Safest bonds in the world, according to a report by Brett Arends, could be from Norway. Only a handful of countries are really rock solid, according to the IMF. a 10-year Norwegian Bond, which can be bought in the USA, yield 3.9%. A 10-year U.S. Treasury: 3.5%,
• On Wednesday investors looked to safer defensive stocks: Tobacco, food and drug companies while volatility was being shunned in tech and small caps.
• Time Magazine reports on Baby Boomers 1 out of 4 have problems with retiring. The same number of Boomers have saved nothing for retirement.  Nothing. As in zero.
• Inflation Expectations Index rose significantly in March as consumer’s income expectations soured, according to Lynn Franco, head of consumer research for the Conference Board. Consumers were expecting inflation of 6% to 6.5% but reality core inflation was at 1.1% in February.  Adding food and energy the February inflation numbers came in at a tame 2.4%. Expectations are higher due to the visible signs of inflation at the gas pump and food aisles. Still, I expect inflation to be a significant worry going forward. Expectations have nothing to do with fact. I wanted a bicycle for Christmas – that was my expectation.
• Thursday markets managed 14 points on the Dow while gold was up and oil fell to close a skosh under at $107.94. Zipcar was the hottest IPO opening at $18.00 but flying high up $11 a share. Google posted huge numbers but missed by two cents analyst’s estimates and the stock closed lower. Profits were $7.04 a share in 2011 versus $6.06 a year earlier. Higher operating costs cut into profits and shares fell 5.4%. Mark Hulbert in Barrons.com expects a near term possible pullback in gold writing that;’…every other time in recent years in which gold bullishness rose as high as it is currently, bullion soon suffered a significant correction.’ Significant is the significant word, dear reader.
• Several weeks back, when the world looked to be a darker place, a few investors took their money off the table. Almost instantly the markets went on a semi-tear until this past week when the Dow finally gave up 1/3 of 1% for the week. Friday the Dow was +57 points along with Oil closing over $109 (Sorry, Goldman!) and gold tacked on $14 for a huge gain. It was energy stocks that gave back the most for the week.
• Inflation? We got no stinking inflation! The government reported that suggested inflation remained subdued even though in March gas rose 5.4% and food was up 1.1%. Other items were merely grazed as apparel prices fell 1.5% and cost of owning or renting a home, which makes up a third of the consumer price index, fell 0.3%.
• Whispers the gold may retreat this summer. Whispers.
• Feds cracked down on poker web sites – PokerStars, Full Tilt and Absolute Poker. lemme see, Washington, DC, Dah-anywhere else Nyet…
• Friday markets Pharma up. Banks down. Bank of America crushed as it failed to hit number and CFO out along with a new legal chief. Profits fell by over $1 billion from a year earlier and, according to analyst Glenn Schorr, called it an ‘eyebrow raising event(s)…’. Barrons.com came right back and recommended BAC for the long term at the close of business Friday.
• Six more banks were closed by the FDIC bringing the total in 2011 to 34.

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

Saving (A Few) The Boomer Generation

  There was an article in the WSJ about  Boomers waking up to find themselves upside down financially and running out of time before retirement. I thought that with the markets roiled with Mid-East tensions, Japan crisis, higher energy costs, Portugal going broke and domestic unrest I’d add my two cents into why many Boomers make it to retirement and others don’t. I’ll also share some ideas on how some, not all, Boomers can enhance their retirement.

In our day (Boomers) there has been a complete lack of formal education about how to manage money. Years ago a Detroit Piston (who actually graduated college!) went into a furniture store to outfit his manse and when he tried paying for it with a check he couldn’t figure out how to do it. A Detroit singing group (Boomer age) out of Motown Records was given a huge advance royalty check and told to invest it somewhere safe. They did. They put the un-cashed check into a safe deposit box and it remained there for several years!

 ‘We thought we had the perfect plan…we were buying $60 a bottle wine and thinking nothing of it and now we drink box wine,’ said Patti Webster in a WSJ  Feb 2011 interview, ‘Boomers Find 401(k) Plans Come Up Short.

Is there anyone besides me that sees in that statement that the blame is always on the 401k plans, the economy or rotten Wall Street brokers and banks and not on the actions of the individual. The one thing that we know for certain is that some Boomers who fail will not fault themselves.

‘She (Webster) has cut back spending on entertainment and organic food…” WSJ, February 19, 2011. (Of course, that’s one of the first things I do is cut down on my Whole Foods shopping and latte’s at La Starbucks when I feel financially pinched.  Are we even on the same planet here?)

I won’t bore you with the entire  WSJ article, which was extensive and definitely weird, but it basically reported that the income needed by the Boomer's Webster is about $35,000 a year above and beyond Social Security and the people described don’t have the assets to create that kind of income. It doesn’t take a genius to figure those folks were living the life and not worrying about tomorrow. The blame for coming up short, of course, is on the 401k plan and the two recessions in the last 13 years. It is never about themselves. It’s all about the other guy, the plans that don’t work and the thumb sucking poor-poor us.

According to Time Magazine one out of four Boomers knows that they will have to work until they drop. This same percentage, or 25%, of all Boomers have saved nothing for retirement.

The strange part is that millions of others not only survived the recessions and the global meltdowns but are in financial positions pretty close to where they were before the 2008 depression.

A French diplomat said, ‘The Chinese save and export, the Europeans consume and the Americans buy and borrow.’

The reality is that today, and for decades past, there are more ways to be rewarded in saving money through tax deferral and benefits than at any previous time. There are 401k plans, IRAs both Roth and Traditional, 529 Plans, Variable Annuities and information on how to manage money from a wealth of sources.

Our grandparents never had the kind of resources we have today and somehow managed to survive, raise families and retire with dignity and comfort. Today some Boomers have a tough time making ends-meet with two incomes when previous generations had but one.

Live within your means means living within your means.

Some Boomers just don’t like living within their means. Some Boomers want to live like the people who are on television. Some Boomers just don’t get it.  Some Boomers, and I know a few, will never get it. I know Boomers that don’t like to cook, clean or work with their hands. Given a choice between doing yucky things for a living and starving they’d pick starving. I’m willing to bet you know people like that too.

In the day, pre-401k and defined benefit pension, our grandparents actually paid cash for their purchases, used something called a lay-away and set aside a certain amount each paycheck for emergencies, education and retirement. This was before social security, pension, Medicare or Medicaid. Our ancestors understood that they had to take care of themselves because no one else was going to do it. Some of our grandparents, fresh from a foreign country, even spoke English.

Initially Social security and employer sponsored retirement plans were not meant to be the be-all-end-all .

Following their parents and after the rescuing the world from Fascism the Greatest Generation, during their working lifetime, were able to browbeat and blackmail employers with union demands, get unsustainable benefit packages and lifetime entitlement packages. In the Greatest Generation’s Day there wasn’t just a chicken in every pot there was a two car garage, the suburban lifestyle and a color television. They passed those negotiation tools down to their children to continue the social and unrealistic experiment, ‘The Corporate Welfare State’.

We all know the story of the GM laborer who swept floors for thirty years earning almost one hundred thousand a year by the time he retired. If you told that story to a Chinese laborer they wouldn’t believe you. In the USA this was more common when working for the Big Three then not. In the Greatest Generation’s day there was no need for an education but only a strong labor union.

Back in the day if you were a Boomer working for one of the auto companies or suppliers you need not save, invest, buy insurance or worry about retirement. All that was negotiated and paid for. Boomers also had health care, free or close to it legal services and later a toll-free line to day-trade their 401k retirement account.

Boomers grew up in that Everything- paid- by- the- company  environment and it was only natural that they wanted more.   It was the old ‘Company Store’ with no downside. There were more toys, more labor saving devices and more leisure time. All that came with a silent insidious future cost.

Not that long ago I’d ask a few part-time working wives if they thought of putting away some of their earnings into an IRA and they’d look at me as if I was nuts. ‘Why should I save,’ said one in a huff, ‘my husband works for GM and everything I make is for me to spend.’

Those days are gone. Here are a few ideas for those Boomers with a skill, education and employment that want to turn around their retirement:

• Decide you are going to be a cash only rather than a credit person.
• Create a budget- examine all charges, lunches and items bought/charged to understand your spending habits. (Secret is that very few actually budget or understand how to budget.)
• If possible remortgage at current rates if you still have a mortgage.
• Don’t roll your credit card bills into a new mortgage.  
• Shop credit cards at bank/credit union loans to pay off credit cards at a reasonable fixed rate. Go to www.bankrate.com to shop rates and credit cards nationally and locally.
• Don’t cancel your current credit cards because it will create a black mark on your financial record.
• Reexamine your retirement plan. Reallocate or have someone who knows how to manage money to reallocate.
• Start cutting costs or eliminating things you do not need: Go to basic cable, shop cell phone, car, home and life insurance, eliminate  or cut entertainment costs (www.groupon.com) etc. Learn how to use coupons (www.coupons.com) buy generic groceries, visit on-line sites that help in becoming a frugal shopper.
• Add any savings into your 401k or retirement plan.
• If you’re healthy, and able, work as long as you can and invest as much as you can. (Try living on a retirement income as a test.)
• In financial hot water - Don’t hire those 1-800 We’ll Take Your Money Budget Firms advertising on late-nite television. Do talk to your CPA or financial advisor.
• Successful businesses have a Business Plan. They know where they are, where they want to be and what to do if things go upside down. Learn and do a business plan for your life. Call your advisor or planner for help.

That’s my dozen do’s. The most important thing is to use common sense as you go about rebuilding and resaving for yourself.

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

 

Target Date Funds – The Be All Fund Manager?

  They are hot and hold billions of investor dollars and I’m not a big fan. Their fund literature informs investors that Target Date Funds are  the retirement cruise control of the investment world and owning one gets automatic asset allocation as the investor gets closer to retirement. There are Target Date funds for just about any year you plan on retiring. You pick a year and there is a Target Date for it. Plenty of mutual fund families have them. Mostly they are evident in company sponsored 401k plans. Many employers make Target Date funds the default investment when an employee indicates that they know little if anything about saving and investing.

Target Date Funds are great for those people who do not want to be bothered with a broker, a financial planner or thinking about money management.

Target Fund aficionados have raved about these mini-allocated so-called jewels that have not lived up to their hype. Proponents of Target Date Funds argue that critics should just give them some more time as the funds are in growing pains and finding their way. I say there is more wrong than right about these mutual funds.

Fans of Target Date Funds say that the funds are getting better. This is no help to those that have already bought and been experimented on.

I do indeed get the part that if I don’t know a dividend from a box of kitty litter that a Target Date Fund is a better place for my money than a money market fund. That I do get. But, what I don’t understand is what kind of return can I expect, total portfolio value or income when the time comes for me to retire and sit on the couch watching The Price Is Right for all eternity.

All the Googling in the world doesn’t tell me anymore than Target Date Funds operate under a recipe based upon either date of retirement or investor risk. It doesn’t tell me whether I’ll have more or less or a lot more than I contributed to the plan. More importantly it doesn’t tell me what to do to create an income plan once I retire.

Target Date Funds create more questions and possible problems than answers or solutions. What happens at retirement? Does the investor reallocate and what investments should he or she use? There doesn’t seem to be an answer and I don’t know if a Target Date investor starts over or buys bonds or just hauls the money to the nearest bank.

Experts tell you that when using Target Rate mutual funds you should use them exclusive of any other investments. In other words, opportunities that become available because of the economy or the markets could very well be lost because of the insistence on Target Fund management being the be all fund manager.

The Target Date literature brags that investors get professional management. If that is the case Target Date Funds certainly did not protect assets when the global markets collapsed. An investor in a Target Date Fund lost asset value just like any other investor. The sad part is that if an investor is planning on retiring not many years after the market crash chances are that the fund will not recover the losses because of its investment mandate of getting more conservative as time goes on.

I could have owned a 2010  dated Target Date Fund in 2008 and still watched my portfolio tank.

The other thing is that not all Target Date Funds are equal. If planning on retiring in 2020 you’d expect that the allocation and returns would be similar between various fund company’s Target Date Funds for 2020. They are not. Which leads me to think that perhaps some fund companies define conservative or moderate as something different than another fund company. I don’t understand how that can be.

Researching I read Investopedia’s take on Target Date funds and they did the analysis (because someone has more time than me) and reported that not only was the asset allocation different from one similar dated Target Fund but so was the risk and style. Some funds use active management and others use index funds. So funds are managed differently even though they have the same maturity date goal.

Target Date Funds are not inexpensive. The cost of managing them across a wide range of assets is more expensive than investing in a single mutual or exchange traded fund. The average expense charge is 1.45% versus an average equity fund expense charge of 1.00%.

The Target Date funds all increase their portfolios with bonds and cash the closer an investor gets to retirement age. The purpose is to reduce the volatility (which it did not as we look back at 2008). The average Target Rate Fund with investors two years from retirement still lost on average more than 20% of its value.

A better way to explain it would be that as time goes on the fund eliminates the opportunity for growth.

The conclusion I arrived at was that Target Date Funds are better than simply socking money into a money market. For the semi-sophisticated investor it is still a lot of work to manage your retirement using a Target Date Fund. There are too many unknowns from one company fund to another. It’s like getting on an airplane and you don’t know whether your pilot is going to be Sully Sullenberger or some character that doesn’t know a horizontal stabilizer from an aileron.

Buy Target Date Funds only if your choice is that or money markets and you don’t really care where you end up at retirement or with how much. For the rest of us there are better and more efficient ways to manage your retirement portfolio.

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 April

•  Something funny happened when the government reported the private sector added 216,000 jobs in March and the jobless rate fell to 8.8% a full percentage point in as little as four months – no one got that excited! You’d expect the markets to really pop and they did for a bit and then reality set in as traders realized this is only a small step to barely keeping even and the economy is still fragile. A 50 point gain on the Dow after the report was announced is not an indicative of a stunning market number for the jobs report.
• The President reiterated his so-called energy policy and said the United States should be using its natural resources like….natural gas. We got trillions of cubic feet of the stuff, if not in fact jillions. Most of the resources are trapped in shale – a dense rock- and can only be extracted by going down 8-9,000 feet and using a technique called fracturing. In the 1990’s it was developed but with the prices then nothing was really done but now the price is up and the US is a major holder of the commodity. Energy companies are bidding up dirt in Ohio to the tune of a billion dollars as the state sets over a huge pocket of shale. A plan presented by the president to have 10% of all new autos to be fueled by natural gas in 7 years would require at least one natural gas pump at every gas station by 2018. (Lotsa luck, I can’t find a new window squeegee at my local gasateria let alone believe they’ll have a new gas pumping gizmo!)
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•  When I was teaching Money Management I called it ‘The Dog Eating It’s Tail’, as low interest earned on savings and a fixed amount of money needed to live collided.  The end result was a retiree dipping into principal to make up a difference when the interest failed to provide enough income. The result was there was less principal to earn the small amount of interest and so a bigger chunk of principal was needed the next month and so on and so on. Eventually folks went broke. In 2009 data from the Labor Department illustrated the average annual investment income for the 24.6 million households headed by people 65+ amounted to $2,564; this is 34% less than the number in 2007 and the lowest since 2003. The result is that one out of every three retirees had dipped deeper than they planned into their savings to pay for basic expenses in 2010. –EMPLOYEE BENEFIT RESEARCH INSTITUTE.
•   Be thankful you are not Super Rich as the IRS is targeting the uber-rich as part of a multiyear crackdown on tax avoidance. The 2 most common questions, according to WSJ April 4, 2011: Mortgage interest and charitable giving deductions.
• Six Degree of Separation won’t get you to Kevin Bacon if I said Mount Rushmore but more probably Warren Buffett’s favorite investment bank which happens to be – Wells Fargo- located just down the road apiece in Sioux Falls, South Dakota. Wells bought Wachovia back in 2008 in a panic sale for less than $20 billion. Now the SEC is preparing to bring civil charges against Wachovia for allegedly overpricing those mortgage bond deals everyone on Wall Street seemed to love at the time. According to a former Wachovia controller the banks hid losses when selling its commercial-mortgage backed securities to investors. Settlement of civil charges would seem to be the end result but years down the line. And I mean – years.
• Rebalancing is going to whack Apple stock as the NASDAQ announced the upcoming event of its NASDAQ-100 Index. Apple, you see, comprises 20% weighting of the index, more than Google, Microsoft or the other 97 storied stocks. And as the Index is rebalanced, making Apple a less weighting, those funds that mimic the Index will sell Apple in order to keep the index in the same perspective. 
• Credit Suisse upgraded Ford to Neutral from Underperform. The stock was downgraded on a poor 4th quarter (compared to the previous three), but with debt down to $2 billion from $15 just a year earlier the stock has very reasonable valuation. General Motors, writes the same analyst Chris Ceraso, sees a 20% upside in the stock over the next 12 months and has a Buy rating on the stock. Commodity prices may hurt the two going forward.
• Oil up as Libya fighting continues. 108 a barrel at the close Monday last. The DOW was up 23 points and closed at a 34 month high.
• Welcome to the land of mergers and acquisitions as CHEAP money allows companies to go shopping. Yes, boys and girls, and dear readers everywhere, rather than hire people corporations are on a deal making spree. Over $2.4 trillion in corporate cash and a fear a rival may one-up them is making companies fight for position. The latest was Texas Instruments $6.5 billion bid for National Semiconductor. 
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• Only because I like you, don’t tell anyone- stock in McDonalds has been upgraded by Teresa Rivas at Barrons.com in her Barron’s Take column. Mickey Dees plans on hiring 50,000 people and folks at Barrons believe that shares could climb to $90 from their current $76.
• Pssst….hey, Comrade, there is a new plan  afoot  floated by the Russian state bank, Vneshekonombank, aimed at attracting private investment to the tune of $60-$90 billion over the next five years. This plan will officially be kicked off this June by current President Medvedev and be labeled as the Russian Direct-Investment Fund to overhaul Russian’s outdated industry and infrastructure. The Russian government plans to invest $2 billion this year and each year thereafter for five years as good faith or seed money. The fund plans to invest across the Russian economy except its natural resources. A partner at a major US investment fund (after he stopped laughing) said that it is highly doubtful that anyone would commit billions of dollars on this. It is called the Wild West (Russia) because there is no law there. (Referring to the Russian gangsters and murders of foreign businessmen.)  That’s a strong Nyet, Boris.
• Markets stumbled Tuesday ending a 2 day bull. Indecision marked the day with low volume as traders tried to sort out rising gold and oil along with recent M&A activity and Naz rebalancing. Only so much can traders keep juggling.
• Lots of demand for Junk – as in bonds and LBOs- leveraged buyouts-There is a huge stockpile of cash in the Tech sector and in sovereign wealth market. Expect a huge wave of corporate buying and selling as companies reposition themselves into the marketplace. According to MarketWatch that’s a good thing for lawyers and bankers. It may also be a rising tide that lifts all boats even though a recent study showed that 90% of all deals didn’t meet expectations and KPMG found that only 17% created any real value.
•   Build a better mousetrap  and the government will open a antitrust investigation into your dominance. Google lost a few dollars as share Tuesday as news of the U.S. Federal Trade Commission is considering such became public.
• Squeaky clean is the image you get of Warren Buffett and he has had in place at Berkshire Hathaway a policy regarding trading and procedures that all his (well, ok, he’s only got a few people working for him) employees have to follow. Breaking rules blatantly was his heir apparent who did so in such a way that he was shown the door quickly and we’re still curious as to the noise from Omaha when the Buffett discovered the infraction but publicly said no one did anything wrong.  (and I have a bridge I’d like to sell you…)
• Wednesday markets shook off their doldrums and with the help of Cisco made a late rally and the Dow finished over 3o points, as oil, gold and silver all made new highs.
• Oil falls but need in Japan is still there.
• I have good news and bad news. The good news is that you can get a solid 9% on a 10-year bond. The bad news is that you may never see your principal. Portugal, home of Vasco de Gama, threw in the towel Wednesday and asked for a bailout from the European Union and the latest world piggy bank- The International Monetary Fund. The Portuguese government failed to pass austerity methods and rating agencies downgraded the country to almost Junk status.
• Morgan Stanley gushed and googly-eyed over Toyota joint venture with electric car Tesla reported that shares were targeted for $70. The shares moved up a bit on the news but since have settled. Tesla is developing a $30,000 mass market electric car.
• On the flip side Microsoft announced a working relationship with Toyota using the Microsoft cloud computing technology. Shares of Microsoft edged up a smidge on the news.
• There are Real Estate mutual funds that invest in REITS with good cash flow and management. The problem is that Malls and Shopping Centers are facing 11% tipping point vacancies.  Not all have suffered. Simone and Taubman have trimmed their vacancies to 7% and lower.  Still more people are shopping on-line, saving on the cost of gas. The loss of Borders and Blockbuster stores have not helped landlords. Other landlords are shying away from the big box stores, that used to bring in the customers and now look to add restaurants, entertainment venues and fashion boutiques not available on-line. A contrarian play as the job market warms up and as gas prices either are assimilated into the budget or fall.
• Bank of Japan puts up $11.73 billion cheap interest money for rebuilding. It won’t be enough.
• According to CNBC the latest rally is courtesy of Bear investors giving up and this, according to the experts, is the biggest switch in sentiment in 7 years. Bullish investors make up 57% of last week’s survey but the worry is that this survey is used as a contrarian indicator. For example in October 2010 the Bulls were as few as 29.3% to buy and at the end of October 2007 they were at 62%. Yogi just may be coming back sooner than expected for his picnic basket.
• Another quake but worldwide markets remained bullish, taking a small Dow loss. Oil on Friday morning topped $111 a barrel. Gold and silver found new highs- silver at $40. CNBC reported on Thursday night that oil’s true price is around $80-85 a barrel and markets need to reign in the speculation and algorithm's that create the volatility. The fact is that the world wide trading of oil may be too big to contain. Get thy short oil ETF ready –United States Short Oil –DNO. 
• Smart money or scared? GE Asset Management selling risky assets on fear of a downturn. The wise ones at GE have been selling off commercial mortgage securities, emerging market debt and high yield corporate bonds in anticipation of a reversal in investor sentiment on the economy. Paul Colonna, CIO, (chief investment officer), said he didn’t think it would amount to a double dip but some assets like commercial mortgage bonds are up 20% and it’s time to sell and put more of GE’s money into ….( are you ready?) the longest –term Treasuries! IS THIS A HEAD FEINT OR ARE THEY FOR REAL?
• WSJ report the U.S. has targeted HSBC Holdings, PC to disclose the names of U.S. customers who have opened secret bank accounts. Seems some U.S. taxpayers of Indian origin have opened accounts in recent years with HSBC. The bank has been quietly seeking customers with the supposed intent that their accounts would remain secret in India. (It’s like Vegas – What happens in India- Stays in India- Unless Someone at The IRS Wants to Know!)
• Rates hiked in Europe – The European Central Bank was the first developed economy authority to raise rates a signal that cheap easy money is over.
• Here’s a dandy! The Federal securities regulators are considering easing decades old constraints on shares issued by private companies as part of start-up capital. In a nutshell a lot of the disclosure and reporting rules would be eliminated by start-up or growing companies and allow venture capitalists, hedge funds and investment banks to provide a lot more capital. This would allow companies to remain private much longer before they went public and allowed both large and small investors to buy shares. The winner in all this would be those most successful of start ups such as Facebook and Twitter and their deep pocket fat cat investors. Shares at the IPO stage would be bid up to reward them and provide little incentive for the smaller investor. Basically this would eliminate any chance at the most lucrative IPOs for the smaller investor. (It’s all about an even playing field – and I have another bridge I’d like to sell you.)
• Friday closed with another slight up week but markets down for the day lead by Cisco? and Alcoa. Oil was up as was gold and silver.
• Farm subsidiaries by the U. S. government are being taken off the table. The once sacred cows are being trimmed or eliminated and consumers can start getting used to higher produce costs- especially corn-as the farm economy has been booming while other parts of the labor market have not.
• Yikes, check out this chart of gold versus the dollar/euro as investors have been bidding up the metal versus currencies. Investors who believe that inflation can be held have been buying currencies in countries where central banks are raising interest rates to control prices – this isn’t happening, by the by, in the USA.
• Finally – On-line poker gets the nod in Washington, D.C. Opening the district to gambling will finally legitimize on-line gambling as Florida, California and Nevada are debating bills to allow and control intrastate on-line gambling. The reason: Its the tax dollars, dear reader, the almighty tax dollars.

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