From My Point of View | Thoughtful Investor Newsletter
FROM MY POINT OF VIEW
December 3, 2009 - WHAT A DIFFERENCE A FEW DAYS MAKES
October 20, 2009 - THE QUESTION IN MY MIND
September 20, 2009 - HOW CONCERNED SHOULD YOU BE ABOUT THE ECONOMY?
August 6, 2009 - RETURNING TO NORMAL
July 2, 2009- NEW CLIENT COMING FOR A VISIT
April 9, 2009- A RECEIPT FOR MAKING INVESTMENT DECISIONS
February 26, 2009 - A COLLECTION OF THOUGHTS
January 24, 2009 - IT IS STILL WINTER
FROM MY POINT OF VIEW-ON A COLD DECEMBER DAY
December 3, 2009
Lake level is high. Temperature at 38 degrees. Wind out of the North.
WHAT A DIFFERENCE A FEW DAYS MAKES. One specific client Timeless Strategies account:
From Nov. 1st to Nov. 27th. a gain of 1.94%. On Nov.30th., the last day of the month, the market declined and with it the account value by -0.61%. On Dec. 2nd. The account value was back up by +0.68%, slightly higher than the Nov. 27th account value. QUESTION: Which of these days does the client’s monthly statement show as the account value? You know the answer. The lowest value on the last day of the month. Move the end of the month back one day or forward two days and you get a different picture of the performance. Just drives me nuts.
Now I have that temporarily out of my system.
MARKET RECAP: From January 1st this year until early March, the markets continued to decline. Client accounts dropped but not anywhere near as much as the markets. By the second week in April our Timeless Strategies accounts were moving from a high cash position to more low volatility growth funds. Each succeeding month provided encouragement to reposition holdings in stronger growth funds. With the exception of October, each month has seen gains in account values. The portfolio has been a combination of high income producing funds, US stock, and International growth funds. Money market (cash) now accounts for 10%-15% of the portfolio.
The market pattern of higher highs followed by short time higher lows is encouraging for continued gains. Are there situations, financially and politically, that could return us to a losing market pattern? YES. And when it happens we will act to make changes to protect client’s interests. I don’t promise we will not see any decline in accounts but we will do our best to limit losses so they are far less than the market averages.
YOUR INVESTMENT WISH LIST. THIS IS IMPORTANT!!!!
I want and need your feedback. I am in the process of thinking about goals, for Financial Security Advisors, Inc. and myself, for the next ten years. It was five years ago when I shared a vision of the coming ten years. Now it is time to review and commit to goals for the next period of time.
Let me give you some insight into my thinking. I want to help more people be financially secure. That is why the company is named Financial Security Advisors. I want you to be able to recommend friends, family and associates to us and know they will be well cared for. In order to help more people, I need to provide what they desire and need.
1. What do you want to see us provide in investment management? Timeless Strategies has been our sole strategy for 16 years and has done especially well in difficult markets. It is a conservative strategy, meaning there is an emphasis on conserving account values.
Would you want us to offer an aggressive strategy? Or one focused on income? How about a moderate growth program? Perhaps you want an emphasis on natural resources (gold, silver, copper, other minerals and commodities). Another possibility is a “green” socially responsible strategy.
How about an investment program that uses individual stocks?
2. How often do you want us to communicate with you and what level of communication? Currently I send out one or two “From My Point of View” email messages each month. Once a quarter a more professionally designed newsletter, “The Thoughtful Investor” is emailed. Personal, one on one, emails are a regular occurrence. For those who do not have email we send the same message using the postal service. How important are personal visits?
3. What additional financial services should we make available? Are there areas in insurance where we can fill a need? Or, employers who need something better to offer employees in managing their 401k or 403b retirement programs? Should we offer debt/money management training?
The expansion of services does not mean I plan to become everything to everyone. Just as I did in Maryland, I can gather a group of “partners” who have expertise in various areas of financial services.
So, email fsamev@aol.com or FSAClients@aol.com or call me 800-396-0404 or 479-925-2939 with your thoughts, ideas, and suggestions.
ON THE LIGHT SIDE.
A public school teacher was arrested recently at John F. Kennedy International airport as he attempted to board a flight while in possession of a ruler, a protractor, a compass, a slide-rule, and a calculator. At a morning press conference the Attorney General said he believes the man is a member of the notorious Al-Gebra movement.
He did not identify the man, who has been charged by the FBI with carrying weapons of math instruction.
“Al-Gebra is a problem for us”, the Attorney General said. “They derive solutions by means and extremes, and sometimes go off in tangents in search of absolute values. They use secret code names like “X” and “Y” and refer to themselves as ”unknowns”. We have determined that they belong to a common denominator of the axis of medieval with coordinates in every country.
As the Greek philanderer Isosceles used to say, “There are 3 sides to every triangle”.
When asked to comment on the arrest, a high ranking government official said, “If God had wanted us to have better weapons of math instruction, he would have given us more fingers and toes”. Aides to the official told reporters they could not recall a more intelligent or profound statement by their boss.
It is believed that the Noble Prize for Physiques will follow.
ON THE PERSONAL SIDE.
Twyla and I enjoyed our time away last month. First, in Chicago, with a couple of days study time in sessions presented by the professional organization to which I belong, the National Association of Active Investment Managers. Then to Orlando and another several days at a financial advisors symposium.
Vacation time followed and included attending an annual regional Native American pow wow; a visit to the Kennedy Space Center; discussions with craft persons at the Kissimmee Pioneer Museum; time wandering among the gardens and listening to the Carrillion at Bok Tower and Gardens; a guided tour of Frank Lloyd Wright buildings at Florida Southern College; and watching performances of various sea animals at Sea World. There was more but those come immediately to mind.
Thanks for asking. Several people have asked, “Have you lost weight?” A couple of times it has been followed up with, “Are you, or have you been, sick?” The answer to the first is “yes”. I am down from 215 lbs to 190 lbs. The answer to the second is “no”. The weight loss is the result of consultation with my doctor, the Metabolic Research program, and Twyla’s support (she does all the cooking). The goal is 180 lbs and review if more is warranted. When I started the program I looked like I had swallowed a basketball that felt like the weight of a bowling ball. Now I feel more energetic, there is less pressure on knee and other joints, and I am off of blood pressure medication. Motivation for losing weight was helped by the realization that there is fat that can be seen externally and fat that is internal. External fat is unsightly. Internal fat is especially unhealthy because it surrounds and complicates the functioning of organs important to the body. I am healthier now than I was six months ago.
It is never easy to say goodbye. We left Orlando to drive back home. About an hour later I received a call from a family member telling me of the death of a friend and client Ruth (not her real name..privacy) the previous evening. She passed on after an extended time of treatment for cancer. We took the next exit and set the GPS for Bowie, MD., arriving there the next day.
Country singer Randy Travis has a song with the words in the refrain “It’s not what you take with you it’s what you leave behind” that is important. Part of what Ruth left behind were family members, friends, and co-workers who were recipients of her obvious Christian values. The quality of her life is reflected in her daughter, son-in-law, and grandchildren who cared for her needs so devotedly in her final days. And, she left behind a will and other legal arrangements that will make the burden of distributing her estate easier on the family. She is a more than worthy example for us to follow.
MORRIS
FROM A DIFFERENT POINT OF VIEW...October 20, 2009
A look at our house from the road instead of a view of the lake as seen from the house.
This installment of “From My Point of View” is comprised of recent news articles. The question in my mind, increasing in intensity, horror and repulsion, is: Regardless of party affiliation, do any of our federal representatives have the least bit of common sense and concern for the “average” citizen?
All the following articles have been edited for content and space.
INVESTMENT NEWS NOTE: Yesterday I looked at up-to-date market charts of virtually every index, industry sector and close to 1,000 mutual funds. The visual impression, and technical indicators, show markets have been struggling for a couple of weeks. There is no increase in momentum to carry values higher but not enough weakness to produce a fear of significant decline.
Accounts are back to a position of 20%-25% cash and a continuing emphasis on income producing funds.
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From The Wall Street Journal
October 20, 2009
Health Costs and History
Government programs always exceed their spending estimates.
Washington has just run a $1.4 trillion budget deficit for fiscal 2009, even as we are told a new health-care entitlement will reduce red ink by $81 billion over 10 years. To believe that fantastic claim, you have to ignore everything we know about Washington and the history of government health-care programs. For the record, we decided to take a look at how previous federal forecasts matched what later happened. It isn't pretty.
Let's start with the claim that a more pervasive federal role will restrain costs and thus make health care more affordable. We know that over the past four decades precisely the opposite has occurred. Prior to the creation of Medicare and Medicaid in 1965, health-care inflation ran slightly faster than overall inflation. In the years since, medical inflation has climbed 2.3 times faster than cost increases elsewhere in the economy. Much of this reflects advances in technology and expensive treatments, but the contrast does contradict the claim of government as a benign cost saver.
| Uncle Sam's Cost Overruns | |||
|---|---|---|---|
Year |
Predicted Cost * |
Actual Cost |
|
| Medicare | 1965 |
$12 bill. |
$110 bill. |
| Medicare Hospital | 1965 |
9 |
67 |
| Medicare Hospitalization | 1987 |
1 |
17 |
| Medicare Home Care | 1988 |
4 |
10 |
| Schip | 1997 |
5.4 |
6.8 |
| Medicare Prescription Drug | 2003 |
49 |
41 |
| *Predicted cost for year(s): Medicare and Medicare Hospital. 1990; Medicaid Hospitalization, 1992; Medicare Home Care, 1993; Schip and Medicare Prescription Drug, 2008 | |||
Next let's examine the record of Congressional forecasters in predicting costs. Start with Medicaid, the joint state-federal program for the poor. The House Ways and Means Committee estimated that its first-year costs would be $238 million. Instead it hit more than $1 billion, and costs have kept climbing.
Thanks in part to expansions promoted by California's Henry Waxman, a principal author of the current House bill, Medicaid now costs 37 times more than it did when it was launched - after adjusting for inflation. Its current cost is $251 billion, up 24.7% or $50 billion in fiscal 2009 alone, and that's before the health-care bill covers millions of new beneficiaries.
Medicare has a similar record. In 1965, Congressional budgeters said that it would cost $12 billion in 1990. Its actual cost that year was $90 billion. Whoops. The hospitalization program alone was supposed to cost $9 billion but wound up costing $67 billion. These aren't small forecasting errors. The rate of increase in Medicare spending has outpaced overall inflation in nearly every year (up 9.8% in 2009), so a program that began at $4 billion now costs $428 billion.
The Medicare program for renal disease was originally estimated in 1973 to cover 11,000 participants. Today it covers 395,000, at a cost of $22 billion. The 1988 Medicare home-care benefit was supposed to cost $4 billion by 1993, but the actual cost was $10 billion, because many more people participated than expected. This is nearly always the case with government programs because their entitlement nature - accepting everyone who meets the age or incomee limits - means there's no fixed annual budget.
A lesson for President Obama: Government programs always exceed their spending estimates.
The lesson here is that spending on nearly all federal benefit programs grows relentlessly once they are established. Every member who votes for it is guaranteeing larger deficits and higher taxes far into the future. Count on it.
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
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From The Arkansas Democrat Gazette - Friday, October 9, 2009
RANDOM THOUGHTS by Columnist Thomas Sowell
(1) Upon learning that the Constitution requires a president to be a natural born citizen, a college student said: “What make a natural born citizen
any more qualified than one born by C-section?”
(2) When politicians propose some hugely expensive new program and are asked how the government is going to pay for it, a standard ploy has been to claim that they will pay for it by eliminating “waste, fraud, and abuse.”
At a recent town hall meeting, a citizen raised the obvious question: “If you can do that, why haven’t you done it already?”
(3) After political crusades for affordable housing ended up ruining the housing market and much of the economy with it, many of the same politicians are now carrying on a crusade for affordable health care.
(4) Airlines that keep passengers trapped for hours in planes sitting on the runway should be prosecuted for unlawful imprisonment.
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From The Wall Street Journal
OCTOBER 8, 2009
Mrs. Pelosi's VAT
The Speaker floats a middle-class tax hike.
Candor about taxes is rare in Washington, so when House Speaker Nancy Pelosi admits that Democrats may have to impose a huge new tax on the middle class to fund their spending ambitions, believe her.
Speaking with PBS's Charlie Rose on Monday, Mrs. Pelosi mused publicly about the rising possibility of enacting a value-added tax, or VAT, as part of broader tax reform. "Somewhere along the way, a value-added tax plays into this," she said. "Of course, we want to take down the health-care cost, that's one part of it. But in the scheme of things, I think it's fair to look at a value-added tax as well."
The allure of a VAT for politicians is that it applies to every level of production or service, rakes in piles of money, and is largely hidden from those who ultimately pay it - namely, consumers. With a $9 trillion 10-yeaar budget deficit, $4 trillion in spending in fiscal 2010 alone, and a $1 trillion (at a minimum) health-care entitlement in the wings, Mrs. Pelosi knows that not even the revenue from the expiration of the lower Bush tax rates in 2011 will cover the bills. Nearly every European country that has passed national health care has also eventually imposed a VAT, and it's foolish to think the U.S. will be different.
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
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From Bloomberg
Wall Street 40% Bonus Rise Feeds Spending on $43 Steak, Co-ops
Oct. 20 (Bloomberg) -- A 40 percent jump in Wall Street bonuses this year may bring relief to New York City and Albany as the state and its biggest metropolis struggle with a combined $14 billion in budget deficits this fiscal year and next.
New York investment houses will dole out $26 billion in bonus checks by the end of March, said Alan Johnson, president of compensation consultant Johnson Associates Inc. The money will probably boost sales of multimillion-dollar co-op apartments and generate extra income-tax revenue for state and city governments.
“I don’t think this is going to make everybody think, ‘Oh, good times are here again,’ but it may ease things a bit,” said Lawrence White, professor of economics at New York University’s Leonard N. Stern School of Business.
• This year, Wall Street’s banks are set to pay near-record bonuses after the U.S. injected $700 billion into financial- services companies, guaranteed their debt and lowered the Federal Reserve’s benchmark interest rate to almost zero.
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From The Wall Street Journal
Why Medical Malpractice Is Off Limits
A few thousand trial lawyers have a lock on Democrats, who refuse to consider any legal reform.
By PHILIP K. HOWARD
Eliminating defensive medicine could save upwards of $200 billion in health-care costs annually, according to estimates by the American Medical Association and others. The cure is a reliable medical malpractice system that patients, doctors and the general public can trust.
But this is the one reform Washington will not seriously consider. That's because the trial lawyers, among the largest contributors to the Democratic Party, thrive on the unreliable justice system we have now.
Almost all the other groups with a stake in health reform - including patientt safety experts, physicians, the AARP, the Chamber of Commerce, schools of public health—support pilot projects such as special health courts that would move beyond today's hyper-adversarial malpractice lawsuit system to a court that would quickly and reliably distinguish between good and bad care. The support for some kind of reform reflects a growing awareness among these groups that managing health care sensibly, including containing costs, is almost impossible when doctors go through the day thinking about how to protect themselves from lawsuits.
On Aug. 25, at a town-hall meeting in Reston, Va., Howard Dean, former chair of the Democratic National Committee, was asked why there is nothing in the health-care proposals about liability reform. Mr. Dean replied: "The reason that tort reform is not in the bill is because the people who wrote it did not want to take on the trial lawyers. . . . And that is the plain and simple truth."
Trial lawyers are agents, and their claims are only as valid as those they represent. They argue, of course, that they are champions of malpractice victims. As Anthony Tarricone, president of the trial lawyers association (called the American Association of Justice) put it: "Trial attorneys see first-hand the effects medical errors have on patients and their families. We should keep those injured people in mind as the debate moves forward." But under the current system, 54 cents of the malpractice dollar goes to lawyers and administrative costs, according to a 2006 study in the New England Journal of Medicine. And because the legal process is so expensive, most injured patients without large claims can't even get a lawyer. "It would be hard to design a more inefficient compensation system," says Michelle Mello, a professor of law and public health at Harvard, "or one which skewed incentives more away from candor and good practices."
An effective justice system must reliably distinguish between good care and bad care. But trial lawyers trade on the unreliability of justice. It doesn't matter much whether the doctor did anything wrong - a lawyer can always come upp with a theory of what might have been done differently. What matters most is the extent of the tragedy and that a case holds potential for pulling on a jury's heartstrings.
Trial lawyers often claim that any alternative to the current medical malpractice justice system, such as specialized health courts, will only make it more difficult for injured patients to seek justice. But that's why you start with a pilot project. If these courts are unfair they will be rejected. But if they succeed—that is, are fairer to patients and doctors - they could provide a solid foundatiion for rebuilding an effective, less costly health-care system than we have today.
Mr. Howard, a lawyer and author, is chairman of Common Good (www.commongood.org).
Printed in The Wall Street Journal, Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
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From John Mauldin's Thoughts from the Frontline
Ponzi Finance
Van R. Hoisington and Lacy H. Hunt Ph.D.
The Federal Reserve reported that as of June 30, 2009 total U.S. debt was $52.8 trillion. Total U.S. debt includes government, corporate and consumer debt. Importantly, however, it does not include a few trillion in "off balance sheet" financing, contingent unfunded pension plans for corporate and state and local governments, or unfunded liabilities of the U.S. government for such items as Medicare, Social Security and other programs. Currently GDP stands at $14.2 trillion, so there is approximately $3.73 in debt for every dollar of output in the United States, a level unprecedented in our history (Chart 1). Normally, debt levels as a percent of GDP would be uninteresting and immaterial; however, the current level of debt is unique in two ways. First, the asset side of the balance sheet purchased by the debt is falling in price. Second, the money that was borrowed to purchase those assets was often fraudulently expended. Neither the borrower nor the lender really expected the debt to be serviced. Rather, each party expected the asset price to rise extinguishing the debt.
This type of financial arrangement was correctly analyzed by the famous American economist Hyman Minsky in his paper, "Financial Instability Hypothesis", in which he described three phases of debt financing. The first is "hedge finance", where the lender expects a return on both principal and interest. The second is "speculative finance" where the lender expects to get interest on the loan but perhaps not the principal. The third case, where the lender expects neither the principal nor interest to be returned, is referred to as "ponzi finance". This was typified in the last business cycle by loans issued without documentation, no down payment home loans, extremely low cap rates on commercial real estate, and the high leverage borrowing ratio of private equity funds. Even ponzi finance works as long as asset prices are rising. But once the bubble is pricked, the debtor is left with declining asset values that preclude the rollover of their obligations.
Presently, in this worst of all post-war recessions we are witnessing the collapse of asset prices that were inflated by the speculation of earlier years. The aftermath of that speculation and its impact on the economy has been thoroughly studied prior to our present business cycle by the economists of yesteryear who marveled at the mania in the collective mindset of private citizens and their elected representatives who produced such bubbles. The most famous of these economists was Irving Fisher (1867-1947), who in 1933 wrote about this problem of over-indebtedness (Irving Fisher, 1933, Econometrica, "The Debt-Deflation Theory of Great Depressions"). He stated flatly that over-indebtedness was the difference between normal business cycles (recessions), which occur frequently through "over-production, inventory misjudgment, or commodity price fluctuations" and extreme business cycle fluctuations (depressions). Based on his analysis of the great depressions of 1837, 1873, and 1929 he outlined a pattern of economic developments that will take place when the debt cycle is broken. Seemingly old news, but it is interesting to apply his sequence of events to today's economic developments as there are disturbing similarities.
The Impossible Promise
The federal government's promise to extricate the U.S. economy from this recession involves more spending (increasing public debt) and more subsidies for consumers, such as car rebates and home buying incentives (more private debt). In other words, more debt is supposed to solve the problem of over-indebtedness. The truth is that this policy merely indentures its citizens further without providing any income for repayment of debt.
FROM MY POINT OF VIEW…SEPT. 20, 2009
HOW CONCERNED SHOULD YOU BE ABOUT THE ECONOMY? THAT DEPENDS ON...
This FMPOV will be excerpts from various articles I have recently read. The content of most of it is not encouraging unless you are relying on active investment management. If you rely on a traditional strategy of buying and holding your investments through good markets and bad beware that the next market decline will happen. If you use traditional asset allocation for diversifying investments keep in mind that fixed strategies are inadequate in fast moving volatile markets. If you need an explanation of what I mean by “buy and hold”, or “asset allocation”, or “active asset allocation”, contact me. (800-396-0404 or fsamev@aol.com.)
What Recovery? The Dearth of Consumers and Jobs
Source: Kos Media I could hardly believe it when I saw this poll come out.
It's a testament to effective public relations that a majority of people believe that they will be better off next summer than they are right now. If perception was all that mattered then the mission of fixing the economy has already been accomplished.
Unfortunately for all of us, actual facts mean more than managing perception. With that in mind, let's look at those pesky inconvenient facts.
The often quoted statistic is that 70% of America's economy is consumer spending. That, in and of itself, is disturbing for reasons I will go into later on. In the meantime, let's look at what the consumer has been up to recently.
No matter how positive the attitude of The Great American Consumer (TGAC), it doesn't make a bit of difference unless he/she has an income. Without good jobs and higher income, the Great American Consumer simply can't step up and live beyond his/her means anymore. Almost every nation in the world is waiting for TGAC to restart buying things they don't need with money they don't have.
The reason that isn't going to happen is that the Great American Consumer no longer has an asset to borrow against. TGAC has already leveraged themselves to the hilt. He/she has nowhere else to turn, and is thus forced to save money and pay down existing debt.
Failure of a Fail-Safe Strategy Sends Investors Scrambling
By TOM LAURICELLA
Carl Mahler stood before a group of fellow financial advisers recently and voiced frustration and fear that a fundamental tenet of investing had been proved wrong.
"Hi. My name is Carl, and I'm a recovering asset-allocationist," the financial adviser quipped.
Asset allocation, a bedrock of investing for decades, appeared to fail miserably in 2008. The conviction shared by most investors -- that they should spread their money across myriad asset classes to minimize losses -- was shaken as nearly all markets tumbled in unison.
The financial crisis has sent many financial advisers, academics and investors back to the drawing board. Mr. Mahler told the group he was rewriting the playbook he had followed for much of his 41 years in the markets. "Asset allocation did not work," he says. "Everything went into the abyss."
Many investors came away from the carnage believing that last year was an anomaly -- that, in times of severe stress like that experienced in 2008, disparate markets will all tumble together as investors scramble to sell whatever they can and move into cash.
But a number of influential investors and analysts, from managers of massive funds such as Pacific Investment Management Co., or Pimco, to those at small school endowments, argue that asset-allocation strategies are fundamentally flawed. This wasn't a one-off failure, they say, but one that's been long in the making.
"You were increasingly seeing a breakdown" of perceived relationships between asset classes, says Mohamed El-Erian, co-chief investment officer at Pimco. "And that was way before the latest phase in the markets, which accentuated the problems."
Investors like Mr. El-Erian contend that the problems warrant rethinking those relationships to account for broad changes in the global economy and financial innovations that change the way people invest.
CREDIT ADDICT: Paying Later For Today’s Choices
By Kira McCaffrey Brecht
The current U.S. national debt has hit $11.6 trillion this year and continues to climb, according to the U.S. Treasury. That number is so mind boggingly huge that it is hard to understand what it actually represents. Admittedly, the U.S. deficit is not a sexy topic. It is filled with Congressional Budget Office (CBO) projections, and tax and spending dilemmas. It is easier to just turn away and focus on what to make for dinner, what new movie is opening or which team might play in the World Series.
But the issue cannot be ignored. The bottom line is that deficits can hamper long-term economic growth and take larger amounts of money out of your pockets for taxes to pay interest on the debt, for which you will get noting in return. The deficit problem directly affects our future standard of living.
“We’ve just gone through a major credit crisis; some are calling it the Great Panic of 2008. We are about to go through the worst federal budget crisis in our country’s history. This is serious,” says David Jones, a former Wall Street economist with 35 years experience and president of DMJ Advisors, a Denver based consultancy.
The deficit is simply the difference between the government’s tax revenue and its expenditures. “The government is expected to spend $4 trillion by September and take in $2.2 trillion in taxes. The difference is the $1.8 trillion deficit,” Jim Bianco, president of Chicago based Bianco Research LLC says.
The nonpartisan Congressional Budget Office says that based on President Obama’s 2010 budget, total interest payments due from the federal government could increase to $806 billion in 2019. And that compares to total interest payments on the debt of $170 billion this year.
To whom do we owe such massive amounts of money?
-Mainland China: $801.5 billion.
-Japan: $677.2 billion.
-Caribbean (off shore banking entities): $194.8 billion.
-Oil exporting nations:$192.9 billion.
-Brazil:$127.1 billion.
-Russia: $124.5 billion.
Are these people to whom you would want to owe enormous amounts of money?
That’s Enough For This Issue.
I have three other articles I wanted to use, but this is enough for now.
Active asset Allocation investment management uses various technical and historical resources to reduce market exposure in times of high risk to client accounts. Changes are made as market conditions dictate, not as an arbitrary date on a calendar or percentage change, as is done in traditional passively managed asset allocation strategies.
MORRIS
If you have interest in learning more about our services email us at MVSpecial@aol.com with your contact information.
NOTE:
It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of any securities referenced.
FROM MY POINT OF VIEW..Aug. 6, 2009
RETURNING TO NORMAL
The Corp of Engineers is lowering the lake to the normal level of 1120 feet of depth at Beaver Lake Dam. For many months the lake level has been up to the base of the knoll at our house. I prefer establishing a “new normal” based on the lake at its highest level possible. The Corp is in charge and they are returning the lake to their normal level, reducing our view and pleasure.
What is NORMAL? (1) A town in Illinois. (2) The name of a play (Looking for Normal). (3) The name of a movie. (4) A rap song (Everyday Normal Guy). (5) A bookstore in Baltimore. (6) According to Google another 509,000,000 references.
Or is “normal” an investment condition? Is it when stocks average increasing in value 10%-12% each year, calculated using a fifteen to twenty year time period? Based on market actions since the middle of March are we “returning to normal”? Will we return to the Old Normal or need to be satisfied with a less pleasurable New Normal?
MONEY MOVES THE MARKETS. In the movie “The Right Stuff” discussion focused on America’s future in the space race and what it would take to win. One of the characters said “Money! No bucks, no Buck Rogers”. A basic principle of investing is that where money flows is where gains will be experienced. There are three important influences that determine the flow of money into financial channels: The federal government, corporations & other institutions, and individuals.
The Federal government controls the printing presses that produce the physical representations of wealth we call “dollars”. The government influences where money flows by policies that favor or disfavor savings and investing. It has the power to provide money directly to areas of the economy. If enough legislators want to spend money by the billions and trillions they vote to do so. There is no requirement that goods be manufactured or services provided to produce wealth that adds to national value offsetting the additional dollars in circulation.
The observation has been made that recent favorable stock market gains are the result of the government stimulus money injected into our financial system. A healthy market requires that corporations earn profits in order for gains to have staying power. Selling goods and services to individuals provides companies the opportunity to make profits
.
Individuals buy goods and services enabling companies to make profits. When companies are profitable there is incentive for investors to buy shares, biding up value that benefits themselves, the company and the national financial health.
What is the current situation indicating about consumer interest in spending?
Given the depth of this recession, how soon can we expect a return to significant spending habits? Can we expect that the next several years will demonstrate a return to the “normal” of the past?
Manning & Napier, an investment manager of more than eleven billion dollars, comments:
“It is important to remember that while the severe credit-driven downturn may be behind us, we believe the U.S. consumer is likely to be treading water for years to come, even after the economy begins to improve. Facing declining income growth, limited access to credit, and falling net worth, consumers still need to work through heavy debt burdens that have built up after nearly a decade of spending growth. Because of these pronounced consumer headwinds, we believe the eventual recovery in U.S. economic growth is likely to be represented by annual growth rates of 1%-2% (i.e., the overall trend should be less than half of previous growth rates).”
FINAL NOTES: I strongly recommend the elimination of personal debt. If your current choice is to either spend or pay off credit cards, automobile loans and mortgages...pay off what you owe. As ordinary working families we have little influence with state and federal government representatives and their increasing fiscally irresponsible decisions. The less you owe the more you increase your flexibility in the event of an unexpected financial crisis. Owing nothing provides the maximum protection. Until next time. MORRIS
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FROM MY POINT OF VIEW…JULY 2, 2009
NEW CLIENTS COMING FOR A VISIT
I could not help them. They had no money. Only bills. (More attempts at humor later.)
Excerpts from a couple of recent readings:
This Time It's Different* (From John Mauldin, Outside the Box)
My premise for uttering the heresy "This Time It's Different*" is that the fundamental nature of the economic landscape has so changed that comparisons with post-WWII recoveries is at best problematical and at worst misleading.
First, we are at the end of a huge cycle of increasing private debt that ended in an overleveraged society. The process of reducing debt and unwinding leverage is going to take a rather long time. It will not be the typical one or two years and then things get back to an ever-higher normal. We are, using a phrase coined by my friend Mohammed El Erian at PIMCO, on our way to a new normal. We are hitting a massive reset button on our economic world, taking us to some new and lower level of consumer spending, leverage, etc. No one knows what the new level will be, although admittedly we are closer to it than we were a year ago.
At this new normal, we will not need as many malls or factories or stores or new-car plants or car dealerships or any number of other things to satisfy the new normal of consumer desires. As an example, and jumping ahead to a statistic for one minute, capacity utilization is now approaching 65%. Anything under 80% is anemic. Does anyone really think that businesses (in general) are going to invest more money in expanding capacity, in the face of the lowest level of production relative to potential since the 1930s?
The savings rate has shot up from zero to 6% in just a very short time. It used to be 12%. It would not be all that unusual historically for savings to go to 9% or more in a few years. That means that consumer spending will drop by 9%. Since consumer spending was 70% of GDP, that new lower level will become our new normal. And of course, due to population growth and hopefully increasing incomes, consumer spending will once again grow from whatever that new normal will be. But it is going to take some time for spending to reach the level of our productive capacity of a few years ago. We are going to have to shutter a few factories and businesses.
David Rosenberg, now with Gluskin Sheff, offers us this insight:
"What really struck us in the employment report of a few weeks ago was the fact that the only segment of the population that is gaining jobs is the 55+ age category. This group gained 224,000 net new jobs in May while the rest of the population lost 661,000. In fact, over the last year, those folks 55 and up garnered 630,000 jobs whereas the other age categories collectively lost over six million positions. This is epic."
"Moreover, the number of 55 year olds and up who have two jobs or more has risen 1.1% in the last year, the only age cohort to have managed to gain any multiple jobs at all. Remarkable. These folks have seen their wealth get destroyed by two bubble-busts less than seven years apart ... the Nasdaq nest egg back in 2001 and the 5,000 square foot McMansion in 2007. Both bubbles ended in tears ... and so close together."
FOLLOW THEIR LEAD? (Keith Fitzgerald, Money Morning)
In fact, my advice to proceed with caution extends to any comments that might be made by other investment legends as Warren Buffett, George Soros, or his former investment partner, noted author and commentator Jim Rogers.
A good place to start is by taking the time to understand precisely what drives these guys. Even though Rogers hunts for opportunities around the world, Soros tends to pursue investment plays involving currencies and macroeconomic trends, and Buffett is a deep value guy, they are more alike than they are different.
Nearly all have gone on record at one point or another talking about the importance of not losing money in the first place. They’ve also repeatedly stressed the importance of waiting until the really compelling opportunities develop before they put their money at risk.
Another common trait is that not one of these three investors believes that you can have to take big risks to make money. The bottom line is that Soros, Buffett and Rogers have demonstrated time and again that they’ll only make a move when they’re darned good and ready, whenn they’ve done all they can to scope out the situation at hand, and done everything possible to make sure that the percentages are in their favor.
TWELVE REASONS WHY YOU KNOW THE ECONOMY IS BAD:
12. CEO’s are now playing miniature golf.
11. I got a pre-declined credit card in the mail.
10. I went to the store to buy a toaster oven and they gave me a bank.
9. Hotwheels and Matchbox car companies are now trading higher than General Motors in the stock market.
8. President Obama met with small businesses: General Electric, Pfizer, Chrysler, Citigroup, and General Motors, to discuss the stimulus package.
7. McDonalds is selling the ¼ ouncer.
6. People in Beverly Hills fired their nannies and are learning their children’s names.
5. The most highly paid job is now jury duty.
4. Politicians have been seen with their hands in their own pockets.
3. Motel Six won’t leave the light on.
2. The Mafia is laying off judges.
1. If the bank returns your check marked as “insufficient funds”, and you have to call them to ask if they meant you or them.
(Submitted by active investment managers who have nothing better to do than post reasons why the economy is bad.)
WHAT TO READ, OVER AND OVER AGAIN. The Three Most Influential Documents in American History. The opening paragraphs of each:
THE BIBLE. Genesis 1:1. “In the beginning GOD created the heaven and the earth”. (The ten most profound words in human language)
THE DECLARATION OF INDEPENDENCE. In Congress, July 4, 1776. “The unanimous Declaration of the thirteen united States of America. When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.”
THE CONSTITUTION OF THE UNITED STATES OF AMERICA. “WE the People of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.”
THIS WEEKEND REMEMBER OUR RELIGIOUS AND POLITICAL FREEDOMS. We cannot separate them without doing harm to each.
MORRIS
FROM MY POINT OF VIEW…HERITAGE BAY, APRIL 3, 2009
A Receipt for Making Investment Decisions
I am sometimes asked if I lose sleep on days when the stock markets have significant losses, especially when there are multiple days in a row. The answer is “no”. However, because the markets have experienced gains for several days, I did wake up at 2:30 AM today wondering if I had missed the beginning of a sustainable rally.
So, let’s talk about what goes into the mixing bowl resulting in a sustained rising market. (Twyla will tell you I know very little about this as it relates to food preparation).
FIRST, make sure you have the correct size container to hold all the ingredients that go into the mix. Investing begins with the broad view of global markets. It considers information regarding the financial and economic health of not only the US but other countries. If publically traded companies are not making profits from their goods and services, with reasonable expectation of continuing to do so, there is little incentive to buy their stock or loan them money (buy their bonds). So the initial ingredient is the answer to the question: “Is the potential for making money greater than the potential for losing it?”
SECOND, decide if you are going to add ingredients based on a specific measured amount or an amount depending on your mood or guesstimate. This means distinguishing between Reality and Perception. This is the area of making decisions based on statistical data or sentiment (emotions). Both are present in decision making. One involves rational thinking and the other human psychology. There is a reason why healthy markets begin losing value, and why unhealthy markets begin to get well. When and why do you make changes in your investments to reflect changes in the market? This is where investing becomes part science and part art. It is where the recipe says “use a teaspoon full” and you decide, based on experience and other ingredients in the mix, to “use only a pinch”.
A health, sustainable, rising (bull) market requires both positive statistical evidence and a positive investor sentiment.
THIRD, decide how much flavoring to use to add the right amount of spice to suit your taste. Do you throw in some peppers and three alarm chili mix because you like it hot even if tomorrow you may have a gastric disorder? Or, do you take the safer chicken soup approach and moderate the risk of health problems extending into the future?
FOURTH, with all the ingredients mixed and in the oven you periodically check to make sure the conditions of heat and time are accomplishing what you want as results. You don’t look in the oven every few minutes but you do monitor the process in order to prevent damage to the product as a result of an unanticipated problem that arises. You may need to take corrective action if the heat source for the oven loses power or the mix begins to boil over and mess up what is being baked and the oven. Active ingredients and what affects them requires active monitoring of the process.
NOW, all you cooks out there reading this, how did I do with the analogy of cooking to inveesting?
Measuring the Dow Jones Indexes
The Dow Jones Indexes are twenty-two featured indexes measuring different areas of US and world markets. The indexes are owned by the Dow Jones Corporation.
In 2008 the best performing index was the Dow Jones CBOT Treasury Index with a gain of 15.60%. The worst performing was the Dow Jones BRIC (Brazil, Russia, India, China) 50 with a loss of 58.25%. The Index most referred to by US news sources, the Dow Jones Industrial Average lost 31.93%. The average of all twenty-two indexes was a minus 35.20%.
For the three year period of 2006, 2007, and 2008 the average loss of all twenty-two indexes was a minus 10.81%. Is there any wonder it has been difficult to make gains for the past several years?
Banks Face Big Losses From Bets on Chinese Realty
Twyla and I were participants in an investment tour of China a couple of years ago. One of the most interesting projects we toured was Star City, a luxury condominium development in Beijing. (Another presentation was a chicken farm with a strategy that sounded like a copy of Tyson’s.) I found this interesting summarized article from the New York Times, by David Barboza. NOTE: We did not buy at Star City and did not invest in the chickens either.
“Back in the good old days----early 2007----bankers from Merrill Lynch, Deutsche Bank and other financial giants placed heir bets on a 48 year old property tycoon who was supposed to be China’s next billionaire.
They lent his company $400 million, encouraged him to acquire large tracts of land and in early 2008 promoted a proposed $2.1 billion public stock offering by the company, the Evergrande Real Estate Group, in Hong Kong. One year later, China’s housing market has collapsed, Evergrande is mired in debt and the Wall Street bankers are facing huge losses because the company never sold stock to the public.
A Morgan Stanley real estate fund bought a tower in Shanghai for more than $240 million; the Carlyle Group acquired luxury villas; and in 2008 J.P. Morgan Asset Management held a 12% stake in R&F Properties, a big Chinese developer.
By making short term and sometimes hasty bets on China’s property market, analysts say some of the world’s biggest financial institutions may have lost as much as $10 billion.”
I have often wondered what happened to Star City. The chicken farm probably was a better deal. Do you notice how the same brokerage firms and financial institutions pop up on many lists of failed ventures?
If You Don’t Like the Value of Your Investments.Just Make Up Something.
A bank made $100 million in bad loans in real estate mortgages. The general “fair value” opinion was that only half the amount would be recovered. Generally accepted accounting rules required they value the portfolio of loans at $50 million dollars not $100 million. Based on showing far less assets the bank had less liquidity and was limited in the amount of new loans they could make. So, on April 2, 2009, the Financial Accounting Standards Board (FASB), an independent US organization that sets the rules for accounting practices, voted to change a key rule that let the bank value the mortgages at the full $100 million. This is what the “Mark to Market” discussion is about. By relaxing “Mark to Market” rules banks, and other financial institutions, can inflate the value of their corporate net worth above what is “fair value”.
A person decided to calculate their personal net worth in order to borrow money from the bank for a business venture. Let’s see, the person said, “my house a year ago could have been sold for $300,000 but now will only sell for $225,000. I’ll keep the value as $300,000. My retirement plan in October, 2007 was up to $200,000 but now is worth $125,000. I’ll report the value as $200,000, as in 2007. The previous value of other investments was $400,000 but now they are worth $300,000. All the values based on their highest amounts gives me a gross net worth of $900,000, not $650,000 the current value”. WARNING: Be careful how you use inflated figures. You might end up in jail. OR be a very popular investment manager.
Looking Ahead
In a month (May 2nd) Twyla and I will drive to Denver where I will attend an investment management conference for four exciting days. Then we will drive to Santa Fe, New Mexico for a couple of weeks of vacation. Have you been to the area? Do you know of anything we should see or do? Our Frommer’s book on the area tells of many interesting things to do and see but I like first hand suggestions.
As usual, I’ll be checking on the markets and client accounts each day. If any changes need to be made in investments we will have both computers with us.
The markets are very close to benchmarks that will either have us commit to growth investments or confirm we need to continue with being cautious. In the next week it could go either way.
MORRIS
ADDENDUM/INFORMATION
Morris Vickers is the Owner and President of Financial Security Advisors, Inc. a fee only registered investment advisor. Our individual client account management services are offered to various 401k, 403b, IRA and variable annuity retirement accounts. We also manage individual taxable and foundation accounts.
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Investment strategies presented are active strategies and may not be suitable for all investors. An individual’s investment objectives, risk tolerance, and financial position should all be considered before implementing any investment strategy. Investments are subject to market risk. Computer models do not provide, imply, or otherwise constitute a guarantee of performance. Any market exposure always entails the possibility of loss of equity.
END
FROM MY POINT OF VIEW
Heritage Bay - February 26, 2009
A COLLECTION OF THOUGHTS.
This is one of those “no common theme” writings. There is so much happening that I want to share with you. The thoughts expressed come from a wide range of reading I have done.
BANK LENDING
Lending in the US economy has not seized up. It did seize up for about two months after the September Crisis, but even by the end of the year loan growth had resumed, as figures from the major banks show.
As my investigative analysis of the nation’s top 12 banks last week demonstrated, most of the major U.S. banks are in better shape than we believe, and are actually making money. Other than a few huge “zombies,” most banks are now making good money the old-fashioned way, through the interest margin between borrowing and lending rates.
Yes, loans need to remain available for houses, automobiles and other purchases, but there’s no reason why they should not be somewhat expensive. To rebalance the U.S. economy the U.S. consumer needs to save more, not borrow more. (Martin Hutchinson, Money Morning)
CONSUMER SPENDING
Even in the midst of what may become the worst recession in the post war era, Americans still have the means to enjoy more luxuries than their parents or grandparents did a half-century ago, for now.
Necessities like food and clothing take a much smaller share of the household budgets, with plenty left over to pay for bigger homes, second or third cars and higher levels of education than families could afford back then.
Consumer prices were unchanged in January from a year ago earlier, the first time they haven’t increased on a twelve month basis since 1955, Labor reported today in Washington. Americans today devote 15.8% of their budgets to food and beverages, down from 28.6% 54 years ago, and spend 3.7% on clothing down from 9.8%. Back then you had to spend a quarter of your income to feed your family and now it’s about a sixth.
Transportation expenses, including cars, maintenance, fuel and public transport, account for 15.3% of household budgets, up from 11.1% in 1955. Education and communications, which didn’t even exist as a separate major category a half century ago, accounts for 6.3% of family budgets today. Telephone service, which until 1998 was included in housing because of fixed land lines, was moved to the new education and communications category as more and more people use mobile phones.
Other expenses have remained more constant over time. Americans spend 7.6% on energy today compared to 6% in 1955. Medical care takes up 6.4% of family budgets, up from 5.2%. (Bob Willis, Bloomburg) ((MV question - Do we have less money to spend today than in 1959 or do we have more things to spend money on that we consider necessities)).
NEWS REPORTING AND THE MARKETS
Market volatility remains high in part to a cyclone of news confusing the market. FACT: we have a lot of problems as a nation, more than some and less than others. But there is no nation on the planet better able to face and solve their problems than this one. The media however continues to focus on an Armageddon resolution. My personal belief is that the media GREATLY exaggerates the good news and opportunities at market tops much the same as they greatly exaggerate the dire possible future consequences at market bottoms. We lost an objective reporting media many years ago and we are left with a media hype, sound byte, ratings driven media today. (Name withheld at request of author).
THE BALANCE SHEET RECESSION
No two recessions are alike. Some have lasted for months, others years. Some have been marked by sharp, quick downturns followed by equally sharp recoveries, while others have been bookended by long periods of painfully slow growth. There is not consensus among economists about why some recessions are worst than others. In general, the business cycle has been well described, but it still is not well understood.
Comparisons have been drawn between the current downturn and the Great Depression. Most of these are over-wrought, and even comparisons to the severe recessions of the 1970’s and early 80’s seem premature. Up to this point, at least, we have not experienced double-digit unemployment (as in the recession of 1981-1982) or double-digit inflation (as in 1973-75 and 1981-82).
Debt loads have been increasing for years, but the rise in the past decade was remarkable. In 2000, households collectively owed debts amounting to $6 trillion, or 85% of their income. By 2008, their debt had more than doubled, to $13 trillion, and the debt ratio had soared to 125%. This increase was mainly driven by mortgage debt. By 2006 mortgage debt alone equaled 100% of household income. By comparison, back in 1990- the last time the country experienced a recession on the heels of a debt-driven real estate boom- this ration was just 55%. (Kerry Lynch, American Institute for Economic Research).
ACCOUNT PERFORMANCE FOR TIMELESS STRATEGIES AND TS EXPANDED
There is disappointing news and there is good news. Then there is what the news would be if adjusted by one month in 2007 and in 2009.
First: Account performance beginning October 1, 2007 (Markets topped out around October 8th) and ending February 24, 2009.
Based upon 26 accounts that had no additional contributions made to them and no withdrawals during this time the (disappointing news) average account decline is -12.34%.
Second: If we use November 1, 2007 as the beginning date the decline would be several points higher. If we use January 1, 2009 as the end date the decline would be several points less.
Third: The good news. Using October 1, 2007 through February 24, 2009 and performance of market indexes we find the following:
---Standard & Poor’s 500 (Large company) Index= minus 49.36%.
---Dow Jones Industrial Index (30 companies) = minus 47.10%
---Russell 2000 (small company) Index= minus 48.79%
---NASDAQ General Index= minus 43.98%
Fourth: If the market indexes are adjusted to begin November 1, 2007 they look worse. And if they adjusted to end January 1, 2009 they look a little better.
NEW FIDELITY FEES
Effective February 20, 2009 Fidelity began to charge a $75.00 fee upon cancellation or termination of an account. This applies to retirement and non-retirement accounts.
There still is NO annual fee on an account
IN CONCLUSION.
I know there is a lot of apprehension among investors these days. Like you, I see what is happening in my accounts. And, I am weary of monthly statements showing declines, even if they are far less than market index returns. This market cycle has been swift, volatile, and brutal.
I get angry with media types who begin negative reporting with the phrase “this is the worst ...since the great depression”. What is remembered most by the reporting? The words “great depression”. That is where the emotional reaction lives. Keep in mind, this is nothing like the great depression. When Franklin D. Roosevelt became President of the U. S. there was 25% plus unemployment. Most people did not own homes to be candidates for foreclosure. There were fewer occupational areas to provide employment. I was born well after the depression and do not have personal experiences to relate but my parents lived through it and have told some of what life was like in rural Alabama.
I have lived through the Lyndon Johnson financial crisis of the Vietnam era when we were spending (then) outlandish sums of money on military action overseas and significant expansion of social support programs in this country. We lived through the Jimmy Carter hyper inflation “malaise”. Like many of you I remember the days when buying gas for the car depended on if our address ended in an odd number or an even. There was the time when Richard Nixon took us off the gold standard because it was determined that the financial discipline it imposed would have resulted in a severe economic recession.
We will get through this crisis so we can face another one with its overwhelming challenge.
A depression, with significantly lower prices and a reduced cost of living, is not so terrible if you have no (or very little) debt and have cash on hand. I can’t do much about your debt level. But the objective of our management (and Biblically responsible thing) is to do the best we can to preserve value by having you increasingly in cash as market conditions worsen.
MORRIS
Regulatory Close
NOTE: It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of any securities referenced.
**FSA performance figures are actual results as calculated by taking an average of client accounts that have not added to or withdrawn from in the time period specified. Documentation is available.
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IT IS STILL WINTER
It is winter time at Heritage Bay and will be for awhile longer. But spring is coming. At first it will not be noticed as preparation begins before evidence of change. One day soon we will notice a difference in the shade of the grass and see buds on the trees. Not everything will happen at once. At some point we will look around and comment on how appearances are obviously different from what we experienced in winter. We may have a period of pleasant, moderate weather followed by a temporary, uncomfortable cold snap. We may ask, “Did I put away my winter clothes soon?”
It is winter but spring is coming.
The financial markets are like the seasons of the year. Multiple storms of unemployment numbers may shake the foundation of our financial house. Earthquakes of greed and corruption make rock the ground and make us feel uncertain and unsteady. The weathermen who advise us of coming conditions may be contradictory or uncertain, leaving us to our own imaginations. The broadcasters of news may only see doom and gloom, overlooking signs of hope and promise of better times developing.
IT IS WINTER BUT SPRING IS COMING, ECONOMICALLY. The signs are not yet obvious, but change is happening.
Massive liquidity is being pumped into the economy and will continue for months to come. It will have a dramatic positive effect on stocks. There is a slow building counterforce to move values to the upside.
Mortgage rates are lower as are house prices, making it possible for more families to become homeowners. More houses were sold in December than November. Trillions of dollars are on the sidelines waiting for systems to signify it is time to buy. Unleashed, significant investment gains are possible in a short period of time.
The current challenge is in determining to what extent to be safely in savings and how much to risk by investing.
This brings me to the subject of:
AVOIDING RISK OR MANAGING RISK?
What is the difference between avoiding and managing risk? The distinction is important because a change in investment attitudes is taking place.
Avoiding risk means using financial products that cannot decrease in value no matter how bad things get financially.
(1). Bank checking and savings accounts are a good example. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000 (or temporarily $250,000). If the bank goes “bust” your account does not. The account gains value by being added to periodically with interest earnings as a result of the bank investing or loaning money to businesses and individuals.
(2). Insurance company fixed annuities may be used to avoid risk to loss of principal. A fixed annuity is a contract with an insurance company. Deposits are “assured” by the financial stability of the insurance company. They are not FDIC insured. Generally speaking, the deposit is expected to remain with the company for an extended period of time...years not months. Earlyy withdrawals may result in significant penalties by the company.
(3). United States Treasury Certificates may be a third financial product associated with avoiding risk. Interest credits are guaranteed by the Federal government. Short term certificates (3 months) do not vary much with changing interest rates during the term of the certificate. They may be purchased directly from a US Treasury office. They are highly liquid and easily sold.
When you think of the words “avoiding risk” think of the word “saving”.
How is avoiding risk different from managing risk?
Managing risk means using financial products that can lose value but with a system or methodology that limits the potential amount of loss.
Risks may exist because of general market conditions or because of conditions related to a specific sector, industry, or company. Risks may be high (greater possibility for loss) or low (unlikely possibility of loss). Risks may be diversified (value spread among different opportunities) or concentrated (value limited to one or a few opportunities).
Losses can occur with investments when managing risk. However, with clearly defined investment rules, losses can be limited. The objective of actively managed risk methodologies is to avoid significant losses to a portfolio. It is also to participate in market gains when they begin to occur after a period of market losses.
Currently our investments are still heavily weighted toward reducing losses by maintaining a high cash position. We are partially positioned for gains on days when markets close higher.
When will we see gains and commit even more to growth? There is no specific date. It is not a matter for the calendar but of observing financial and economic conditions. It is a matter of determining financial weather patterns.
Can we expect more news of poor corporate earnings, additional layoffs, store closings and housing foreclosures? Yes. But, investment markets look forward while statistical data looks backward. For investments to gain value does not require that all our problems be solved, only that there is progress toward solutions to them.
DISTORTIONS IN THE DOW
A discrepancy in the reporting of the value of the Dow Jones Industrial Average (DJIA) lends to questions about its use to reflect stock market conditions.
“Dow Jones, the keeper of the DJIA, has an unwritten rule that any DJIA stock that gets below $10 gets tossed out. As of last night’s close (January 20), the DJIA had the following stocks in it priced at less than $10.
Citigroup (C) priced at $2.80
General Motors (GM) $3.50
Bank of America (BAC) $5.10
Alcoa (AA) $8.35””
(Courtesy of Jim Bianco of Bianco Research)
The Committee is obviously not doing its job. Can you imagine the heat they would feel is they replaced such prestigious companies as these?
The stocks that comprise the DJIA are “price weighted”. The observation has been made that if each of these four stocks dropped to $1.00 per share the DJIA would only decline by 157.3 points.
International Business Machines (IBM) is in the index and is priced at $81.98. If it dropped to $1.00 per share the DJIA would lose 652.95 points.
Because the index is price weighted, if IBM gains or loses share price the DJIA is affected more than all the financial and automotive companies, General Electric and Alcoa combined.
The health of the markets cannot be determined by looking at the reported end of the day results of the DJIA or any other single index.
NEW APPLICATIONS TO A 13 YEAR METHODOLOGY.
Are you participating in a 401k retirement program where you work? Or a 403b retirement program if you are employed by a church or non-profit organization?
The Timeless Strategies methodology has successfully worked for 13 years to help investors avoid experiencing significant losses in down (bear) markets. It has now been adapted for use with 401k and 403b retirement programs.
What losses have you experienced in employer retirement programs this past 1¼ years? Are you down 20%, 30%, or more? Because of the size of losses are you rethinking retirement plans and other financial decisions?
It is possible we can help prevent additional significant losses and rebuild account values through our active management methods. If you want me to look at your situation and see how we can help call (800-396-0404) or email me (fsamev@aol.com). It is never too late to make a better financial decision.
YOU WILL NOT NEED TO MOVE YOUR RETIREMENT ACCOUNT FROM ITS CURRENT CUSTODIAN.
IN CONCLUSION
With hope for a profitable 2009 and exercising patience until it happens.
MORRIS
Regulatory Close
NOTE:
It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of any securities referenced.
**FSA performance figures are actual results as calculated by taking an average of client accounts that have not added to or withdrawn from in the time period specified. Documentation is available.
If you know of other persons who may wish to be added to our email list send us the name and email address. Secure their permission first.
This email may be considered advertisement by regulatory authorities.