Dealing With Good Bad Ugly News -Again

The latest worries specific concerns –deflation, the deficit and the falling dollar? They’ve been blown way out of proportion.

The psychology of doom.  After so many unpleasant surprises, investors have come to expect the worst. According to this view, various shadowy problems will combine in a downward spiral to create a double-dip recession.

You’d think that I pulled the above from a current WSJ or Barrons but in fact I was cleaning up a mess in my basement this morning because my ‘highly recommended’ dishwasher’s heating element burned a hole in the tub, sprang a leak, and soaked kitchen, basement and everything in-between. Moving water- logged boxes around when I stumbled across an old Money magazine. Inside was an article I had earmarked, probably for my radio show. The article was written in July 2003 when the stock markets were still touchy after the dot com mess which started in March 2000 and took all of about 2 years to run its course.

If you remember back in the late 90s you couldn’t swing a yo-yo without hitting someone who wasn’t pushing a dot com stock or the new-new math where 2+2 equaled 5 or any number some wide eyed analyst wanted it to be. Today it’s different players and different sectors but close your eyes and it’s still pretty much what we went through 10-years ago. That’s because the basics of fear and misunderstanding have not changed.

When we get into such catastrophic economic events it is truly hard to see the forest for the trees. Emotion clogs up reasoning about as well as a Five Guys Burger an artery.

Yes, there are differences between 2000 and today. If you owned large caps instead of small cap or dot com stocks you only had one bad year back in the 2000 crash. Things started perking up in 2003 but investors were still wary. Today we’re getting our investment portfolio back but housing is years off the mark and jobs don’t seem to be improving anytime soon. You didn’t have that back then.

The big difference between 2008 and the 2000 dot com meltdown was that the 2000 mini-crash  didn’t kill global employment or housing. It did expose that some mutual funds cheated customers and Wall Street touted bad companies simply to keep their investment banking lines open.

The ‘08’ recession is worse with far more people financially hurt even though they had absolutely nothing to do with investing or housing. It didn’t make any difference this time if you were an investor or someone just working to make ends-meet. Everyone’s been hurt.

Hopefully we will not experience another meltdown for at least a generation but if we do here are some tips to managing your money and sanity:

• Don’t panic- you’ve been through recessions before.
• During market free-fall don’t sell assets. You don’t know how deep or shallow the drop.
• If Jimmy (Ze Mouth) tells you to sell stocks, hide in your basement or run to the woods, ignore him.
• Don’t do anything for 30-180 days. You need to have the dust settle and some of the emotion to leave the market.
• If it’s a significant sell-off cut loose your most speculative holdings if you need immediate cash for the next 12 months.
• Check your investment’s histories on how well individual stocks and funds performed during other market sell-offs. This may help you sleep better at night.
• If you have the financial resources continue to buy the same investments you currently own.
• Have patience. Economic events don’t bounce right back. You need time to get things going right again.
• When things seem to be where they should be this will be the time to re-evaluate where you are and what you own. Don’t try to do it in the midst of a crisis.
• Finally: A glass of burgundy is always good for the digestion and nerves.

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

That Was The Week That Was –4th Week September

•   From the Department of, ‘Gee, I Didn’t Know That’, the recession ended June, 2009. This news gem courtesy of an obscure think tank who’s only function is to determine when recessions begin and end called the National Bureau of Economic Research. The announcement came just before the markets opened last Monday. In the meantime, as folks celebrated, the unemployment rate is still stuck at 9.6% and 16% of all working-age Americans lack a good job. All the while large companies sit on a stockpile of $18.4 trillion of cash and liquid assets.
• The good news tickled the markets fancy and off it went on a triple digit spree. The dollar down, gold and oil up.
• Was this the shot the market needed to trigger a Dow Theory buy signal? For Jack Schannep it was but for traditionalists like Richard Russell, editor of Dow Theory Letters, he’s not quite ready to say even a short-term buy has been generated.   
• Not so fast with that ‘recession is over’ talk, said the Oracle of Omaha, Warren Buffett. The country still remains in a recession. His defines a recession differently, ‘It ends when real per capita gross domestic product returns to its pre-downturn level.’
• Someone in the Administration must have given a policy speech because the markets ended mixed on Tuesday.
• So why the nice run for stock these last few weeks? Folks at CNBC think they know: A Reversal of Double Dip Fears –Valuations are Holding –More M&A Giving Confidence and finally – Shorts Had to Cover. (Now your turn to make up reasons.)
• SAIC, the Chinese auto maker is thinking of buying into the GM IPO in November. Interested in the stock once it becomes public let me know.
• Blockbuster filed for bankruptcy. The stock trades in the pinks in pennies. I could never understand the business model for renting movies and games.
• The old Admin economic team is being broken up. Latest to be shoved out the door is veteran egotist Larry Summers who loses the political battle with Geithner. Back to Harvard for Larry with the excuse du jour that his tenure would be lost. Sure, believe that and there’s a wee bridge to Windsor I’d like you to buy.
• Jen Granholm yakking it up on CNBC prime time Tuesday with Maria B. (Yes, our Gov. Granholm.) She was doing a lot of Granholmization as she bragged up the state of Michigan and all the benefits it held for the business world. (Can someone tell me where the hell she’s been for the last eight years? Now, out of a job she’s doing what she should have been doing. It’s like bad Presidents acting Presidential after they’ve been voted out of office.) Maybe she’s auditioning for a reality show?
• From the Department of ‘It Ain’t Gonna Happen’, to repay the government 100% what it borrowed shares of GM stock have to sell at $133.78 per share. Rumor has it, according to 247/Wall Street blog, GM shares will be priced around $20.00.
• Markets broke their 5 day winning streak Wednesday as all indices down. Gold surged as investors flocked to the metal and Treasuries.
• Thursday markets couldn’t make up their minds as jobs data came in much worse than expected. Last hour all indices collapsed except oil and gold were higher.
• More jokes from Washington as, according to WSJ, Dems put off plans to eliminate Bush tax cuts before the mid-term elections. Frightened, finally, of voter backlash, Dems threw in the towel last Thursday saying, ‘…we’re not going to pass what needs to be passed…’
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• Friday markets closed up-up=up! A triple digit day ever with bad news in the mix traders squinted them to good news and all indices powered up at the open and never let up closing near their highs. This may be the best September in 50 years with positive returns of eight percent for the month. Still there is caution ahead as Michael Kahn at Barrons.com shares that the Nasdaq 100 seems to be stretched too thin and be close to a pullback. Of course Michael and all my technical chart reading friends don’t count on momentum and just plain investment exhilaration to continue the market’s move up.
• Randall W. Forsyth predicts the dollar is going lower (bodes well for stocks), and gold higher. Gold, he says, is no longer a commodity but being treated as a currency.
• Friday Fed Chief Bernanke reiterated his dissatisfaction with the course of the recovery in a speech he gave at Princeton (boola-boola). He said the Fed may downgrade its forecast for economic growth when it next meets.
• Credit Unions… betcha didn’t know this…see the chart…and you thought they were safe and sane…
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• And 2 more banks were closed Friday bringing the total ytd 127.

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

Your I.R.A. ‘Honey-Do’ List

  If you’re looking for longevity both in life and money here are two basic rules: Everything in moderation and don’t forget to manage your Individual Retirement Account.

I can’t help with the moderation but I can about managing IRA assets. Some of us ignore our inactive retirement accounts like the blinking red engine light on the car dash and that’s a shame especially during a time when every penny is needed.

For most of us who are employed the IRA is not the largest or most important asset we own. It probably falls behind the 401k or equity in the home in value but still shouldn’t be treated like a fourth cousin. Craig Copeland, a senior research associate at Employee Benefit Research Institute, estimates that there is about $13 trillion in IRA assets. So before the year- end pull out all your most recent inactive retirement account statements and make sure you’re up to date on your ‘honey-do’ list:

1. If you’re of the age 70 1/2 and older make sure that you’ve taken your Required Minimum Distribution. If you own an inherited IRA and you’re doing the stretch make sure you’ve taken the necessary income from the plan. If not it will bite you to the tune of 50% of what you should have taken out. Yes, this is a huge ouch. If you were supposed to take out $5,000 and don’t the punch-line is $2,500. Got it?
2. Did you make excess contributions or non-deductible contributions? Make sure there is a paper trail and remove any excess before the year is up.
3. Did you move stuff around? If so make sure that whatever you did that it went to an IRA and not a non-IRA. You may blame the bank clerk if there is a mistake but chances are they’re long gone and you’re stuck with the jumbo taxes and penalties. (The excuse, ‘I didn’t know what I was signing’, doesn’t work for adults.)
4. Did you inherit an IRA this year? Make sure you’ve decided on how to take distributions.
5. Beneficiaries? You & I know you want your kids to get the money but when was the last time you checked who was getting what? The beneficiary could be two spouses back and it needs to be changed. Don’t forget the secondary beneficiary.
6. Check your investment allocation and does it match with where you are today? If not- update.
7. Got an old 401k, 403b or deferred comp somewhere? Bring it into your IRA. You have more choices, probably less cost and much more control then you do leaving it out in the cold.
8. If you leave your retirement money with your old employer and they file for bankruptcy you may have to wait and wait and wait before being able to move your IRA. Do it before bad things happen. It’s easy to move & call me with Qs and forms you need.

Do all the above and you’re good to go for another year. Call me if you have Qs.

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

Investment Ed- Core Holding

 You’ve heard about it at seminars or asset allocation discussions and may have wondered exactly what is a core investment holding. In the 1950s mutual funds provided a complete one fund does it all allocated investment plan. Funds were then off-shoots of professionally managed investment plans designed for the wealthy. At that time mutual funds were designed much like Target Date Retirement plans are today. MFS, Investment Company of America and Pioneer Fund were three such mutual funds. Over the years new funds morphed into specialization from their asset allocated roots but lately there has been the question of what fund should be an investor’s core holding.

Those that believe in asset allocation and Modern Portfolio Theory think of a core holding as the Sun and other assets as planets whirling around it. Investment allocation, MPT idealists preach, should be designed around the one core holding. Have too much risk and the core over-powers the portfolio during downturns. Not enough risk and the portfolio stagnates during upturns.

On the other side of the coin are professional money managers who don’t look at a core holding as something special because they are always buying and selling. Their core is whatever they want it to be.

Because of the name , ‘Core Holding’, some investors believe that the fund they choose should be the largest asset and be concentrated in one major sector such as Large Cap Growth or Large Cap Value. These same asset allocation idealists believe that investors should also own several smaller non-core funds like energy or technology. Their reasoning is to minimize downside risk and increase the total return. Investors  add specialty funds that they hope assist performance during up markets and stabilize on economic downturns.

Many investors have found that this core fund plus sector funds may not be that necessary as an investor can buy one fund and have as good a performance as someone who has created a portfolio using MPT.

Some financial planners insist a Core fund doesn’t have to be a large cap growth fund. An example of a non-traditional but truly workable core holding for a young child’s education fund could be a  small-cap, mid-cap or emerging markets fund. These are three asset sectors not traditional to being treated as a core holding but when you stop and think of the child’s age and when monies needed and additional dollars invested over time; they make perfect sense. Certainly not something a person in their 60s would use as their core. (It is an idea that is in direct contradiction to those parents that invest their kids education money into fixed low yield guaranteed accounts).

Traditionally an investor’s core holding should provide a wide market exposure. For example if it’s domestic stocks then it should emulate the S&P 500 index or a fund that invests in large cap multi-national or domestic companies that pay dividends. If an investor is looking at fixed income then the core fund should match a particular bond index such as the Barcap Aggregate Bond.

One way to check if your core has wide sector exposure is to check its R-squared number by reading the Morningstar report on the fund. A high R-square gives you an idea how close to the sector you’re looking to match is held by the fund. A 90 number is exactly 90% of the sector. You can use this test both for fixed and equity core holdings.

And when starting out don’t worry about core or non-core. The object is to make money in the most prudent method possible. Owning just one fund versus a baker’s dozen is a lot less complicated and easier to manage. And, as we found out during extreme economic stress MPT is about as effective making money during downturns as matching nickels with Knuckles Kowalski. 

 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 September

• Allowing banks almost a decade to get their financial houses in order set the stage last Monday for the domestic and foreign markets to rally. If this wasn’t so stupid I’d laugh. Regulators demand that banks raise their capital ratios in order to prevent another economic meltdown – but give them 8 years to get ‘er done. It’s like giving Lindsay Lohan probation…maybe…sometime. In eight years the financial, economic and political landscape will be totally changed. In the meantime some EU banks are in danger of possible default.
• Whoa, Nelly! The Hartford, according to Chuck Jaffe at MarketWatch, decided to encourage current variable annuity clients to exchange their old policy for a brand spanking new one. Not only were clients to lose some valuable benefits with their old policy but the advisors who sold the policies were not informed until the company had proselytized their clients.  The Brits would call this, ‘ Rather cheeky’.  Lawsuits will soon follow.
• Last Monday all indices up.
• Did Facebook wait too long to go public as Google and Twitter both announce adding social networking? Or, are Google and Twitter late to the party?
• Tuesday last Japan intervenes yen and their markets soar. Finally government is able to drive their money lower than the dollar enhancing their markets.
• Corn Syrup aka Fructose wants a new name. Seems the current name has bad connotations; namely cavities and obesity.  The twins, Cane and Beet Sugar, are promoting themselves as the ‘pure’ sweetener in order to increase their market share. It doesn’t help the image that ‘Corn’ Syrup hangs around with ‘Beef’ Burger and ‘Greasy’ Fries.
• Drag out the wine press, Tony. The Chinese have discovered wine and not just any vino but the 2009 Bordeaux is supposed to be the best in the last 32 years according to wine expert Robert Parker. Bottles of the supremo vintage (if you can find them) are selling for $1900.
• Markets mixed on Tuesday as retail numbers came out slightly, very slight better, but better but not enough to promote excitement across all indices. Experts remark retailers had loaded up with back to school clothes and may not need to reorder for the Holidays.
• According to CNBC there is a $6.6 trillion gap between what people need to retire on and what they currently have.
• Markets up on Wednesday. The New Frugality is a new label of the U.S. consumer – spending cautiously and only as their income allows, according to Kathleen Madigan of Dow Jones. Consumer spending, she writes, will be closely tied to income growth. But, you knew that. I knew that.
• Money markets work the new rules and try new risk. WSJ reports funds are becoming more aggressive but working within the rules.
• MasterCard buying back shares as uncertainty still clouds the two major credit card companies. 
• Gas prices still at high levels even though oil has tapered off.  Oil has been tracking stocks until lately.
• Poverty rate accelerates to 14.3% the highest since 1994. The deterioration in the labor market from 2008-2009 was the worst seen, according to Heidi Shierholz, with the Economic Policy Institute, a Washington think tank. Real median income also fell 1.8% for family households but rose 1.6% for nonfamily households. 
• More people renting and not buying. Sigh. Remember this 2005 Time cover?

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• Thursday markets edged up on tech news. Fed Ex expects a slower economic growth going forward.
• Michael Kahm tech analyst at Barrons.com, suggests this is a 2004 market readying to explode.
• Many of the large pension funds will be underwater- again- as their expectation of an 8% 2010 return is unfulfilled.
• Gold closed higher. Many still bullish but warn, as did Marc Faber, ‘Gold could pullback 20-30% in a day.’ Not a trade for the faint of heart at these levels.
• Finally, six more banks closed Friday bringing the year to date tally to 125.

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

Third Quarter 2010- Where We Are Today.

If you have questions on why our investment accounts are muddling along here are some answers. You may have seen these charts on the internet but for those of you who have not here they are.  One year ago folks couldn’t gab enough about the V styled recovery. Looking at the chart of the S&P 500 you can see that since then we’ve managed to stay within a small range.

Inflation was going to trigger massive returns on fixed investments. So far inflation has been non-existent.

Some economists actually worry that we may fall into a period of deflation, much like what has ruined the Japanese economic machine for the past 11 years.

You cannot have a recovery without jobs. The latest numbers show a tad under 10%, and that is probably a low number. In the city of Detroit experts state 24% un-employment as a realistic number.  The job picture improves slightly from quarter to quarter but not enough to handle all new workers coming aboard.

With high unemployment and over 100,000 homes foreclosed just last month housing is a no-go. Home values have fallen again, even in the most affluent areas.  New home sales have fallen to their lowest level in 50 years. 

The consumer is still holding onto his and her pennies. Retail sales increased slightly but not enough to   convince investors that this Holiday season will be bright and cheery. The good news is consumers are paying off their credit card and bank loans at a record rate and getting their financial houses in order.

Until a strategic recovery is devised we can expect to continue to muddle in this narrow range. So far all we’ve had are band- aid fixes, confusing plans, political bickering and no leadership.

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

Mortgages –Buying, Selling, Investing and Just Stuff You May Never Thought Of.

Angelo Mozilo the former CEO of Countrywide Financial, once the largest mortgage lender in the country and now owned by Bank of America, is standing trial in Los Angeles for allegedly providing sweetheart mortgage deals for members of Congress and other influential individuals. Immediately after this trial ends the SEC is scheduled to step in with their civil-fraud case and then  the U.S. attorneys are waiting in the wings to see what happens and possible indict with their criminal allegations. Mozilo may be spending a good portion of his retirement visiting various courtrooms around southern California.

Mozilo, who looks more like a 1960s Las Vegas pit boss then a corporate CEO, has offered no comment about his fall from grace. It was but a few years earlier that Mozilo was a regular blabber mouth, often a guest on CNBC as a mortgage rate expert and heading one of the most successful mortgage factories.

In cahoots with Countrywide was the FHA which insured the mortgages that Mozilo and company originated.  The pledge by government officials and politicians was to make home ownership attainable and realistic for all Americans. This philosophy was just one part of the 2008 financial meltdown.

Today the FHA is doing a 180 and making it more expensive to borrow. In the good old days if someone had a pulse, even if on life support, they qualified for a mortgage. Today it’s a different story. The quasi-government agency expects this year to ensure 30% of all originated mortgages. FHA down payments on home loans are the lowest at 3.5% as opposed to the normal 20% required by banks but require higher monthly fees which can be as much as 1.5% of the loan. The FHA is also demanding a credit score, something in its 76 year history it has never required. They also want to weed out sellers who artificially inflate the sales price of the property by limiting them to a seller contribution of 3% of the selling price  from a current six percent. In the past this bit of tomfoolery allowed sellers to artificially prop up their selling price while paying for, or a portion of, closing costs or points or both.

Those potential buyers with a substantial down payment that are looking for competitive traditional mortgage rates and a faster turnaround time may well avoid the big banks and concentrate on smaller local banks and mortgage brokers. According to the WSJ, August 15th,  small banks pay their people on commission, and sometimes on thinner margins simply to get a higher volume and the loan completed.

Profit margins at the smaller banks and originators has fallen from $1,088 in 2009 to $600 today. Rates are also lower and buyers may see mortgage interest rates drop even further before this year is over.

If you’re shopping for a mortgage and don’t know where to turn one resource is www.bankrate.com. Currently the best rate for a 30-year mortgage is 4.4%. This, of course, is for the best most pristine credit rating and with ample equity – something many homeowners do not have.

As an investor looking for ways to increase yield you may want to consider mortgage backed security mutual funds that have outperformed the equity indices but are seeing recent tougher sledding with rates falling. However, according to MarketWatch.com, while MBS have under-performed Treasuries for the past week many fund managers may be able to cherry pick attractive securities and ride out this temporary cycle.

Over the long-haul mortgage backed security funds have outperformed Treasuries with much of that income coming with government support. If you’re building a fixed income portfolio this may be an asset class you can add as long as you do your homework which includes researching a fund manager that has been through several economic cycles.

This is a specialty fund that may complement your domestic, global and high yield funds you currently own. Make sure you understand all risks before you buy.

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