That Was The Week That Was-5th Week October

To all clients and friends on the East Coast my thoughts are with you. I certainly hope you were able to brave the storm with as little damage as possible.

The Current Retirement Plan Crisis- Jack Bogle, former Vanguard Executive and known as the Father of index investing, is often a major pain in my- you- know- where because he feels that everyone should be able to handle their own investments. He’s been preaching, with slight modifications, that everyone can reach Retirement Financial Nirvana by owning only two mutual or index funds- one for equities (stocks), and the other for bonds. By keep the same percentage as one’s age in bonds a saver can, Bogle said, be successful with minimum thought and effort. I’ve always disagreed with this simplistic assumption because it’s a bit more complicated but I’ll leave that argument for another time. Here I want to agree with what Bogle recently said about- our retirement plan system- it stinks. In a Morningstar interview Jack said our retirement system is a train wreck- but remember it was set up to take the responsibility from employers to employees from defined benefit to defined contribution plans. His argument for changes are that the current 401k system allows for people to take money way too easy. You can borrow it out, cash it out, roll it over to a personal IRA and then spend it on other stuff. If one were allowed to do that with social security, the Bogle mused, can you imagine the mess for seniors? Both retirement and social security need to be fixed. One needs to eliminate the ability to have retirement plans as saving/thrift accounts with easy access to the money. On Social Security Jack said it would take anywhere from half an hour to a week to fix the system. Bogle is right. Talking to some folks at an independent insurance firm they’ve seen 80% of the people who retired from Ford and GM take the money and roll their pension money  into their own IRA even though it is impossible to get anywhere near the benefit income the Prudential is guaranteeing. It’s easy enough to see that it won’t be long before all that retirement money will be spent. An entire new class of poor created as the Ford and GM reduces its obligation.  Wonder if you’re retirement is on track? Call or e and I’ll run hypothetical's based on your criteria and needs.

Strike my 1-800 number- Most all folks have cell phones and after a two month review of total calls I will be cancelling the 1-800 number. 586-783 7080 is the number to reach me. Or, through the email.

Markets were closed for the first time for two days in a row last week since…cheez, I can’t remember. The storm was devastating and again to all my client and friends on the east coast I hope all are well.

News that purchasing of stocks may again be rounded off in 1/8, 1/16, etc. rather than pennies has raised consternation with those in and those six times removed from the investment business and who worry more about fees than execution and return. Keeping fees and expenses low always returns more to investors.  I’ve been a big fan of decimalization as that has put billions of dollars into customer accounts. But a bad stock or an inefficient mutual fund or ETF with low expenses is no bargain either. Hedge funds who cater to billionaire and multi-billion pensions charge mind choking fees – usually 2% on all assets plus 20% of all gains- plus many have lock-up periods where an investor cannot bail out for several years without incurring more healthy fees and penalties. Critics of decimalization say that bringing back the good old days will bring back the Main Street investor but me  thinks they’re spiking their coffee with something other than Splenda.

Thieves, doing business as investment-types, continue to plunder unsuspecting and trusting investors by either setting up phony  accounts using the names of well known major firms or having investors make checks payable to the thief’s own bogus company. James Wan, out of Texas, raised over a million dollars and used a significant portion to pay commissions to un-registered sales reps and the rest on personal travel, dining and a new Benz. Investors are again cautioned to verify where investments are, who the custodian is and the investment specifics in the account. One phone call usually can save many sleepless nights. Look up the number for the firm holding your securities and call them.

Fiscal Cliff? Robert Schroeder of Dow Jones writes that out of five possible outcomes only One is a disaster. If re-elected the possibilities include:

1. Over the cliff and doom on all of us.
2. Punt- meaning re-jigger and work out alternatives after the new year.
3. Meet in the Middle-make a deal that makes both sides somewhat happy.
4. A Grand Bargain- meaning, according to experts, that the White House and Congress come to some sort of a bargain before the end of the year.
5. New Deal- adopt someone else’s advice- like the Bipartisan Policy Center= highly unlikely.

Putting Things in Perspective: Chuck Jaffe at MarketWatch,com writes of the lessons his father taught him regarding investing. None will make you a better stock picker or find hidden gems. But they may make you worry less. Here’s a few:

• Don’t mess it up. Have more than you need or when just enough- time to go on defense.
• Focus on what you have and where you are.
• There is no ‘right’ way.
• The easiest way to make sure you get more out of what you have is put more in the beginning.

Cost of Extended Care…

The cost of living longer just got more expensive. The cost has risen faster than inflation. Choosing the right care, according to Tuesday’s WSJ, is dependent on needs and skills. Does the patient need complete care of maybe help dressing, or taking meds? Some seniors are moving into independent living apartments that have added non-medical services such as transportation, meals and a concierge desk. There are also ‘respite-care’ programs where an older adult taken care of at home can check in for a weekend, or longer, when the caregiver needs a break or vacation. And, there is hospice care that may have Medicare support at less cost than a private skilled care nursing facility. Need information on care insurance- either an individual policy or as an add-on to an annuity call me at 586-783 7080 or E at: pstanley@westminsterfinancial.com. The information and above chart from the October 30, 2012 WSJ.

Ghoulish? Opportunistic? Natural Disaster Stocks…

• Home Depot
• Lowes
• Waste Management
• Tractor Supply
• Briggs and Stratton
• General Holdings
• Steri Cycle
• Lumber Liquidators
• Storage Lockers were also mentioned in passing on CNBC as having a bump in stock price as home owners rent them to store whatever household goods they could salvage.

The above information gleaned from TickerSpy on October 30th.

Wednesday just waiting for the markets to open. Zacks looks into their crystal ball and says markets likely hold on until after the election…and after that a Santa Claus rally-

Ford has problems- according to Consumer Reports- on Quality 1. Still the company posted better than expected earnings boosting stock price on Wednesday’s open.

Morningstar’s a tough analyzer and sometimes too tough and investors miss opportunities. But, I pay for and use Morningstar as a reference against everyone else’s opinion. On the tech sector Morningstar’s Grady Burkett said not to give up on it simply because of some bad numbers. A lot of the bad news has been product cycle news and Burkett see value in Cisco and Intel. Another stock trading to a 30% discount is Check Point Software, according to Grady.

George Lucas, 68,  sold Lucasfilm, Ltd for a tad over $4 billion to Disney. This includes Star Wars, a legacy that Lucas wanted to keep alive through his life and generations beyond.  In addition Disney gets digital-effects house Industrial Light & Magic. Shares in DIS fell slightly, closing at $49.12 a share. Morningstar calls fair value around $50. a share. Disney also owns ESPN, Marvel Entertainment, Pixar, DreamWorks Studios and theme parks.

MarketWatch listed top 13 cities nationally going broke….in Michigan- Detroit & Pontiac. Really?…When the city of Pontiac sold the Pontiac Silver Dome, one time home to the Lions football team, for $550,000, after turning down an offer of $20 million and the Dome cost to build over $50 million, you don’t have to stretch to figure out why Pontiac and Detroit are in financial trouble.

Markets opened up and then modestly closed down Wednesday.

General Motors up big! Shares popped almost 10% on Wednesday and continued their surge Thursday. Investors cheered higher cash flow even though the company reported a 13% drop in third quarter profit. The company is sticking to its plan of Not building cars without a dealer order- seems to be working.

A necessary condition for a market crisis is that no one expects it.

Emerging Markets. Two decades back investors didn’t want anything to do with foreign funds. For  some reason just the name, ‘Foreign’, conjured concepts of mud huts, cobblestone streets and tots studying by candlelight. Brokers finally convinced investors that London, Paris, Berlin, Madrid were just as civilized as Topeka or Abilene.  Today most investors know emerging markets are those that are a smidge close to a G7 economy but missing it by that much. These include Brazil, Russia, China and India. In addition you have Israel, Chile, Poland to name a few more. Emerging markets have had a nice run and many believe that this sector still has tremendous growth potential. Some are even calling the sector a core holding. There are some very nice equity funds that specialize in emerging markets along with a few emerging market bond funds that have done well - and should find a spot in your fixed income sector. If you want my picks on emerging markets both fixed and equity either send me an e-mail or call.

Stocks had a rally Thursday. It started at the bell and continued throughout the day. On Wednesday stocks fell and Thursday they gained. (A relief rally?) Manufacturing numbers came in better than expected as it continued to expand, according to the Institute of Supply Management. Consumer confidence remained at highest levels since 2008. This should boost spending on durable goods- cars, appliances and furniture. The rally was broad based. The dollar strengthened and gold fell but found support at $1700. The dollar is measured against a basket of six currencies.

   and…stocks gave it all back on Friday, on lower materials and energy stocks. Consumer discretionary increased. Companies in this sector are McDonalds, Tim Hortons, Nike, VF Corp and Genuine Parts. Gold was really off its feed, losing $30.00 an ounce, closing $1678. The Naz was also off as Apple’s down 18% from its $700 high, and Morningstar still has a $750 a share price on it. Kirk Spano at Dow Jones writes of the coming inflation threat just as I am putting finishing touches on my breakfast meeting for 2013 on inflation. For the very short week stocks were off. Next the election and we’ll see where we go from there.

Finally…FDIC closed banks in Florida and Illinois bringing the total year to date of bank failures to 49. 

Questions, problems, concerns call or email Paul at 586 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.