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TAKE ADVANTAGE OF THE CURRENT OPPORTUNITIES
12/20/2011
Posted by
Linda Barlow, Love the Slowdown?
There is no question that these are scary times for you and your money. The economy is weak and there is talk of a deeper recession. Housing prices are in the basement. Our Treasury bonds have been downgraded-an historical event!
But, there are great opportunities for investors with cash and/or credit. Stocks are more attratively priced than they have been in some time. Pick up some bargains there. They won't stay down forever.
Interest rates are probably going to remain low for a while. Maybe you need to refinance your mortgage; clients are getting 2.75% to 3.75% fixed rates with excellent credit.
Investment properties are a steal! Prices are at levels not seen for almost a decade. This is truly the opportunity of a generation in income properties. Understand that rentals are a long-term proposition, but if you have the time and temperament, you can position yourself for a solid, steady income stream in retirement.
Be aware of what is around and shop for the opportunties that these dismal times present.
IT ISN'T TOO LATE TO SAVE TAXES FOR 2011
12/20/2011
Posted by
Linda Barlow, Save Taxes
As the year draws to a close, there are still some steps you can take to minimize Uncle Sam's bite next April.
Harvest some tax losses. Look over your portfolio and if you have some losers in there, go ahead and sell them. You may take the loss on your taxes. If you think the underlying company is a good one and is just going through a rough period, you may buy it back after 30 days.
Be sure to do all that you can do for a retirement plan. If you are self-employed, set up a SEP or 401k (i) which is an individual 401k. Those are available for the self-employed who has no employees. Both the SEP and the 401k allow for much greater contributions than an IRA. If you have employees, be sure you have a 401k or Defined Benefit plan. Those documents must be signed prior to 12/31 of the year in which you want to take the deduction.
Make charitable donations. The smartest way is to donate appreciated stock or mutual funds. That way, you don't have to pay the capital gains on them, but you get the full deduction for the current market value. And, the charity receives the full value as well.
Pay bills that are going to come due the first part of the new year anyway, if at all possible. Pay the second half of your property taxes so that you get the entire deduction this year. Pay the State deposit that isn't really due until 1/15/2012, but you may pay it now and take the deduction for 2011.
These, and other techniques, can help you save money when you sit down with your tax preparer next year.
HOW TO GET WHAT YOU WANT
12/20/2011
Posted by
Linda Barlow, Never Complain Again
With all the holiday rushing around, it's a good time to stop and think about how you can get what you want when you want it from those with whom you do business.
First of all, be loyal. Stores, and especially airlines, track customers and are quicker to respond to a repeat customer than to a one-time purchaser. So, get onto their 'frequent customer' programs. Often they have their own cards that they want you to use. Certainly, you'll be assigned a number. Use that number every time you do business with them - builds credibility.
Stand out in a good way. Noticing the name tag of the person waiting on you and calling them by name is always appreciated.
We all respond to the sound of our own name. Any service person will respond more quickly, and positively, if you use their name.
Don't be shy about asking for upgrades. There are often better rooms or seats that aren't sold and if you are polite when you ask, you just may be rewarded.
When you do have a legitimate complaint, go up the ladder. The person answering the phone may or may not have the power to help you. So politely ask to speak to a supervisor. Write a nice, formal letter, if necessary. Follow the letter up with a phone call. Sometimes you may need to write a second letter. If you direct the letter to the home office, you should get a respnse from their "Quality Control" Department.
You are the customer - you have the power - use it!
YOUR EMOTIONS CAN COST YOU MONEY
10/25/2011
Posted by
Linda Barlow, Roller Coaster Ride
Every day my clients are calling or coming in with the same comments: they're getting dizzy with all the volatility of the stock market in recent times. What they need, in addition to yoga, is a sense of stability - even if that stability comes from the absolute knowledge that this volatility is perfectly normal.
Unemployment, the debt, European defaults, all of these cause rollig freak-outs. Behavioral economics is a term that we're seeing more and more of. It's actually becoming quite trendy. Be aware, of course, that understanding your emotions doesn't lead to easy solutions.
It is very dangerous to make long-term decisions based on short-term emotions. Just because the stock market went down significantly last month is no reason to start selling out this month. Look at what your portfolio has done over the past five years. Remember that rule of thumb: if you can't be in the stock market for five years, don't be in it for five minutes.
People routinely tell me that they can handle large amounts of risk. They are baseing that on the fact that they still have several years to work, they have plenty of money (they think) or some other reason. Then, when the market drops 15% in one month, suddently they aren't the risk-takers they thought they were. Suddently they are very risk-averse. You need to stop an think if there is a gap between how aggressive you think you can be versus how aggressive you might feel after losing 15% of your portfolio.
This gap tends to promote undersaving because we can't imagine either the pleasures of an affluent retirement or the pains of a lean one. An effective strategy is for investors to set short-term goals designed to accomplish long-term goals. In other words, benchmark how much you are saving each and every week. Are you hitting the savings goal that will provide that comfortable retirement?
You see, most people focus on the rate of return on their already accumulated nestegg. Neither they, nor any professional they hire to manage that nestegg has any control whatsoever over the markets. The thing that the investor does have total control over is how much he saves. That is the element toward financial independence on which he should focus.
HOW ARE YOU HANDLING THESE TURBULENT TIMES?
10/6/2011
Posted by
Linda Barlow, What, You Panic?
Are you growing weary of these multi-hundred swings with the stock markets? Sometimes they swing 500 or 600 points in a day! This is going on and on and is rather unprecedented.
For all the scary headlines and CNBC alerts- an to be sure, the current economic outlook is nothing to whistle past - individual investors are remaining remarkably steadfast.
A few people are actually moving into cash, but not many that we know about. What's remarkable is how few people are hitting the panic button. Statistics have been issued by Vanguard that this is true.
Volume of trading is extremely high and was especially so right after the downgrade, but only 2% of clients did anything. History shows the staying power of the individual client - especially women. Women seem to understand that patience has a reward.
Most people don't cash all the way out; they simply reduce the exposure and/or select some investments that are more conservative.
There is no doubt that our faith in the markets is being tested. The crashes of 2000 and 2008 have taught us many lessons about staying power. Doing the best with what you've got is a these that we hear often. It does work out the best.
While nobody has a crystal ball, we all know that things to revert to the mean. Therefore, it makes sense to stay the course and within reason, make as few changes as possible.
WHAT'S UP/DOWN WITH THE STOCK MARKET
8/26/2011
Posted by
Linda Barlow, Investing in a Scary Economy
The recovery has hit some bumps in the road: double dip in housing, dismal job growth, downbeat consumer, government debt problems, etc. It's not been a pretty sight lately. The stock market has reacted as you might expect: very jittery.
It's not likely that we're headed for another recession. We are expanding economically, although with a very slow pace. Economists are lowering their previous predictions for our growth rate. Still, there are signs of recovery. At least folks are saving more. Before the recession, savings rate in this country was negative; now it's about 5%.
Despite what has happened lately, the DOW is up about 15% in the last year; bonds are up about 5%. The industries that usually do best at the beginning of an expansion are energy and industry. People spend money on smaller items during the recession. As things improve, they begin to spend on larger purchases and therefore these sectors do better.
Jobs will continue to be sparse for at least two more years, say experts. But it isn't too rosy. Wages have grown 1.9% over the past year while prices have risen 3.6%.
Corporations are sitting on huge stacks of cash, but they aren't going to let go until the government gives them reasons to do so. And so far the government has used most of the tools at its' disposal. Short term interest rates are near zero. Emerging markets have slowed way down.
Inflation is less likely to play a major role in our decisions about investing in the near term. If and when inflation heats up, you need to be in defensive stocks. These are areas that people use, no matter what. Solid household names come to mind, like Proctor and Gamble, Johnson and Johnson, etc.
And, just because it's slow in the US doesn't necessarily translate to greater growth overseas. We are a global economy these days. Europe balance sheets, in spite of what you hear, are still pretty solid. Northern Europe, especially. A solid diversified mutual fund in that area would be another good bet.
The most important thing to do is to realize that the markets always are going up and down. Be diversified, be balanced, in your investment portfolio. That way, you'll have some downside protection, no matter what happens.
SHOPPING AGRICULTURAL ETF'S WHILE GROCERY BILLS SURGE
6/23/2011
Posted by
Linda Barlow, Food Fight
What happened to the $ 1.00 burger? While we're continually told that inflation is low, we're watching the grocery receipt and the gasoline price climb higher and higher. Matter of fact, they're skyrocketing. Corn is up 69% in the past year. Coffee is up 65% during the same period, reaching its' highest level in 13 years. Wheat went up 47% because winter wheat acreage was the smallest since 1913. And, again, there is more than more demand worldwide.
Part of the reason for the increase in the cost of food is that emerging market countries are demanding more and more food and the United States is one of the main producers of food for the world. So how to make lemonade out of these lemons?
One way is to look at agriculture-related exchange traded funds (ETF's. These are growing rapidly as more and more people are entering this commodity world.
Concerns about a food shortage are becoming a reality. The world's population is quickly expanding. And the growing middle class around the world wants a more diverse diet. Jim Rogers, a commodity guru, has predicted that agriculture will be one of the greatest industries over the next 20 years. Also, clean energy laws and increased interest in green technology are leading to greater use of biofuels such as ethanol. That means that land ordinarily used to grow food is now being turned over to biofuel production.
One way to help beat the high cost of food is to invest in this growing market.
ETF's that invest in futures are one way. Some of them are the PowerShares Agriculture Fund (DBA) and Teucrium Corn (CORN).
Also, there are equities-based ETF's such as: Jefferies Global Agriculture Equity Index (CRBA), PowerShares Global Agriculture Portfolio (PAGG) and Market Vectors Agribusiness (MOO). These are just a few.
Investing in agriculture and commodities is mainly a pure bet on prices based on basic supply and demand models. With the choice of ETF's available today, there are many more possibilities for an asset class that was very limited only five years ago.
SEASONAL CUTS TO YOUR EXPENSES
4/19/2011
Posted by
Linda Barlow, Spring Into Summer
With some summer weather coming, it is a great time to look around your house for ways to reduce some expenses. Check out how your house survived the winter. If there is any peeling or cracking paint, do some small-job repairs. This can push back the day you'll need a full paint job.
Get rid of bare spots or poor lawn growth. Do some reseeding so that the summer heat will turn the grass a deep green.
Sweep and inspect your fireplace. This will help prevent fires and at this time of year the chimney sweeps are usually not busy and therefore the prices are much better than at the first cold snap, when everyone starts calling them.
Change the filters on your cooling system or if you have window units, take out the filters and wash them well.
Clean the lint out of your clothes dryer often. Clogged lint filters significantly increases how hard your dryer must work and are the main cause of house fires.
Check out your roof. If you have any spots that need repair, call a roofer to do some spot repairs. This will save a full roof replacement for quite some time. And, again, at this time of year the roofers probably won't be so busy as they are when the first winter rains come.
Turn on your sprinklers and make sure the spray doesn't hit your house. That can cause the wood to rot and you'll be using the sprinklers much more during the summer.
Clean out your hot water tank. Residue and other chemicals collect there. Drain the tank (turn off the power) and refill.
Termites and ants become active at this time of year. Look around the foundation windows and walls for signs, including mud tubes, piles of sawdust, small holes in the wood, or an army of ants. Most pest control companies will provide a free inspection and from there you can make your decision about how to handle it. But get them now before they multiply in the warm weather.
QUESTIONS YOU NEED ANSWER TO START YOUR ESTATE PLAN
3/28/2011
Posted by
Colleen Barney, Esq. of Albrecht & Barney
Colleen Barney, Esq. of Albrecht & Barney, a law firm in Irvine, CA, shares the following topics you need to think about when looking at your estate plan for the first time
Your net worth
• Do you have to worry about estate taxes?
• Are your assets going to be subject to probate?
• Do you have hard to value, hard to distribute or hard to sell assets?
• Do you have assets your heirs are likely going to fight over?
Your heirs
• Have you thought about possible beneficiaries other than your children – parents, siblings, charities?
• Do your beneficiaries have different needs requiring different percentage distributions?
• Have you considered what happens if a beneficiary predeceases you?); and
Your fiduciaries
• Have you chosen an executor or trustee that is the same age or even older than you?
• Have you chosen a child or children that may not get along well with the others?
• Have you randomly selected a fiduciary based on age-order or location, rather than on capability?.
Working with a capable planner
When you start to really think about the hard questions of an estate plan, you should:
• Hopefully come to the conclusion that estate planning is not just about filling in a couple of blanks.
• Be working with a capable planner who can help you think through the harder questions.
• Be thinking about the fact that your estate plan is the last written reflection you are leaving of yourself.
• Not be guided into a “one-plan fits all” estate plan. You and your family do not look like the couple down the street, the widow and her children around the corner or the single guy next door, so your estate plan should not look like their estate plans either.
More than just Money
Too many people focus so much on the money part of their estate plan they forget there is more to their estate plan than just money. You should be thinking about:
• Whether there are ways to protect your beneficiaries from creditors or potential divorcing spouses.
• Whether you want to leave some money straight to the grandchildren without them waiting for their parents (your children) to die.
• Whether different beneficiaries have different needs and not draft provisions that are inappropriate for some, just to make them the same as the others.
• Who is really the best choice to handle your affairs not only after you die, but in the event you become incapacitated. (And it might not be the same person!)
• The relationships among those you leave behind, and be honest about this. Parents want to believe their children love each other equally and unequivocally, but that is more the exception than the rule.
Do not put your beneficiaries and fiduciaries in a position that will just cause strife among them. These few issues just scratch the surface of what needs to be covered when you first set up your estate plan. But, by just taking that first step you are that much closer to ensuring your family is properly cared for after your death.
DON'T DROP THE BALL
1/31/2011
Posted by
Linda Barlow, CFP
Everyone is wondering how the recession will affect their retirement plans. The same rules still apply: diversify and rebalance your portfolio.
Re-examine your expected retirement earnings. Add what you may get from employers, your expected Social Security, and any other investments. Test out your living for six months; could you live on that? If not, you need to make some adjustments.
The biggest adjustment that most people overlook is to actually earn more money. If you could bring home more money by improving your job skills, start working on that. Take night courses, or computer courses. The more you earn, the more you should be able to save. The saving is much more critical to your retirement lifestyle than how much your portfolio has earned in the last year!
Annual review of your asset allocation can help enforce a buy low, sell high practice that may lower your overall risk and improve your investment returns.
If you have job security concerns or a volatile job income, it may be a good idea to fatten up the cash stash before maxing out your tax-deferred accounts.
Speaking of tax-deferred accounts, there are some pundits who believe we're in the lowest tax environment that we will see in our lifetime. If that were true, it would make more sense to pay the taxes now rather than waiting for the future rates. Just a thought.
Invest systematically to take advantage of the power of compounding. Be sure to take advantage, as well, of any employer match to your savings. Be sure your overall portfolio is allocated according to your personal risk tolerance.
There will be money made over the next several years. Just be sure you're one of the ones who is there to take advantage of it.
WISE Holidays: FUN WHILE FRUGAL
11/24/2010
Posted by
Linda Barlow, CFP
It's that time again! The time when we start to get those holiday lists ready. There are some things that we can do to minimize the damage to our wallets.
First of all, maybe your extended family can draw names so that you're only responsible for getting one or two gifts instead of a dozen or so.
Second, shop with a list. I know it's a tried and true saying, but it does work! List all the people and items that you wish to buy and then stick to the list.
Set a limit for how much you will spend and don't go over that. It's much easier these days to stick with a limit because if you don't find that "perfect gift" you can get a gift card for your loved one's favorite store.
Clip coupons and watch the papers for the ads. Retailers are very anxious about the holiday season this year and are working overtime to beat each other with the best prices. The shopper wins in that contest!
Remember that the gift of time is the most precious thing of all that we can give. Maybe your gift could be spending some quality time with the person. Or, bake some cookies or make them something with your very own hands. Those gifts usually have much more meaning.
Be safe and make it a great holiday!
TIPS FOR SAVING MONEY
10/20/2010
Posted by
Linda Barlow, CFP
Most all of us find ourselves tightening our belts these days. There are a few standard tips for saving money that you may not have considered. Let's look at some of them.
* House payment, including taxes and insurance shouldn't exceed 30% of your gross income.
* All vehicle payments shouldn't exceed 15% of your gross income.
* Total debt shouldn't exceed 50% of gross income.
* Rule of 10: on big purchases, think of how you'll feel about it in 10 days, 10 weeks, and 10 years. That new car is great and you're excited about the smell and performance for 10 days. In ten weeks it's just the machine used for transportation. In ten years, you'll barely remember it.
* Car repair: if the repair bill is less than one-half of the trade-in value of the car, get it repaired. Otherwise, consider getting a certified pre-owned car.
* Gifts: spend no more than 1.5% of your gross income on holiday gifts.
* Savings: Save 10% of your net pay.
* Life insurance: If you have dependents, get six to ten times your gross annual income.
* Emergency Fund: Keep a rainy day fund of three to six months' of expenditures.
* Organic produce: if it has a thin skin that you'll eat (like an apple) go organic; if it has a thick skin that you won't eat (like a banana) save your money.
* Choose experiences: in deciding between spending on things or experiences with other people, choose the latter. It's much cheaper and research shows it makes us happier.
* Don't carry caredit card balances.
* Don't lend money to friends and relatives.
* Don't borrow from your 401k.
* Don't buy extended warranties.
* Don't pay fees on a checking account.
* Invest your saved money in things that you understand.
THIS WEEK'S MARKET WRAP
9/10/2010
Posted by
Consuelo Mack
As of the end of August, the S&P 500 had plummeted 14% from its April 23rd 2010 high. So far this month it has rebounded better than five percent. Who knows what the rest of the month, let alone year will bring. If you feel that financial markets are more unpredictable and arbitrary than ever, it is not your imagination! Unless you lived during the Roaring Twenties and the Depression-era thirties, you have never seen anything like it, until now. This week’s guest says “fasten your seatbelts,” the roller coaster ride will continue.
One of the true treats of WealthTrack is our ability to talk to some of the most creative and original thinkers in the investment world. And today’s guest is right up there with the best of them. This week’s “Financial Thought Leader” is Andrew Lo, Ph-D economist, professor of finance at the MIT Sloan School of Management, director of MIT’s Laboratory for Financial Engineering, and author of numerous articles and several books, including A Non-Random Walk Down Wall Street. Professor Lo also puts his ideas to work as an investor. He is the founder and chief scientific officer of AlphaSimplex Group, an investment firm whose slogan is “adaptive strategies for evolving markets.” In recent years, the firm has introduced several mutual funds under the name of its parent company, Natixis, which are designed to help investors protect themselves in these ever evolving markets by limiting their portfolio risk and volatility. We’ll find out about the strategies he employs to do that. I’ll also ask Professor Lo to talk about some of the biggest changes he sees in the markets and how individual investors can adapt to them. You will be fascinated by his analysis of “internet time”, the emerging markets and gold.
If you can’t catch the show on public television, it will be available online starting late Sunday or Monday at the latest. Please follow the link on the resource page above.
Have a great weekend and make the week ahead a profitable and a productive one.
STEPS TO FINANCIAL RECOVERY
9/9/2010
Posted by
Linda Barlow, CFP
These days many people have experienced some of the worst financial disasters of their lives: lost jobs, underwater with residence, benefits reduced or cut entirely, the list goes on and on. It isn't hopeless, although at times it may appear to be so.
There are some steps that you can take to remedy the situation until things turn around:
1) Budget and save - everyone needs an emergency fund. If you're out of work and living on unemployment, it is even more important to budget.
2) Cut your spending. It almost goes without saying that if there isn't as much coming in, then there shouldn't be as much going out. But some people have gotten into such a rut that they believe everything they buy is an absolute "need". Re-examine that.
3) Track daily expenses. You know, it isn't the mortgage or utility payments that catch us off guard - we know about those. It is the $10 or $20 that we drop during the day as we're managing our lives and we don't know where that went. You must know!
4) Set goals. Yes, set some goals even in these times. Make them very realistic and doable so that you will be successful, but set some goals.
5) Take a second or part-time job. Anything will help out during these times.
6) Pay off high interest loans systematically. Organize your payments into a spreadsheet that immediately shows you how much you owe and how much the interest is. Then start to work on that spreadsheet.
7) Pay bills automatically online. This is such a time-saver and helps to avoid missing a due date.
8) Find out your credit score. Don't assume that you know what it is; get a copy and then write the reporting agency if there are mistakes or things that you think should not be on there.
9) Fix credit report errors. This takes some time and patience because they move slowly, but you'll want good credit when the economy improves.
10) Do periodic checkups. At least every six months re-do your Net Worth statement and examine exactly how you're doing in your financial life.
Stay positive during these turbulent times. Exercise, get plenty of rest and you'll be much better off all the way around.
THIS WEEK'S MARKET WRAP
8/27/2010
Posted by
Consuelo Mack
Can you feel the fear building again? I can. And there are records being set to prove it. Yields on several different U.S. Treasury issues hit all time lows this week. Today the Treasury sold seven-year notes at a record-low yield of 1.989%. Earlier this week, it was the two and five year notes which sold at history making, meager yields of 0.498% and 1.374% respectively. Meanwhile the Dow fell below the 10,000 level today for the first time since July, but its fifth time this year. Get used to it!
There is no question that U.S Treasuries are benefiting from an escalating flight to quality. Investors are worried as they watch economic indicators weaken. Housing bore the brunt of the damage this week. Existing home sales plunged 27.2% in July to their lowest level in 15 years. New home sales fell 12.4% last month to their lowest level since the figures were first tracked in 1963. Analysts are placing some of the blame on the expiration of the federal tax credit on April 30th. However, there is much more weighing on home buyers: job insecurity, unemployment, debt loads, and much tougher lending standards which are offsetting falling mortgage rates.
Falling interest rates help the government carry its massive $1 trillion plus budget deficit. They make borrowing easier for businesses and individuals, but they punish savers. And according to Wolfe Trahan’s crack investment strategist, Francois Trahan, low rates also have a disproportionate effect on financial stocks. According to Trahan, “one of the biggest drivers of earnings (and therefore stock performance) in the financial space is interest rates. When yields on Treasuries are falling, financial companies often take a hit on the bottom line as lower interest rates tend to lead to lower margins.” This connection is one of the reasons Trahan is recommending underweighting the sector.
Financial stocks have become the pariahs of many in the investment world. They bore the brunt of the financial meltdown. From the October 2007 peak to the March 2009 trough, the S&P Financial sector plummeted 82.6% versus the market’s 57% decline. The Financials then recovered the most, soaring 170% from the March lows to the April 2010 high, compared to the S&P 500’s 80% gain. Since then, the Financials have once again taken over as the worst performing sector.
This week, we have a rare TV interview with one of the hottest mutual fund managers around. To the surprise of many, he has invested over half of his five star fund in financial stocks. He is Bruce Berkowitz, portfolio manager of the Fairholme Fund, which he founded in 1999, and whose assets have been growing while the assets of many other equity funds have been shrinking. The Fairholme Fund is ranked in the top one percent of all large blend funds by Morningstar for the past three, five and ten year periods. Over the past ten years, it has delivered average annualized returns of over 12%. That’s 13 percentage points a year better than the S&P 500.
But market and peer beating performance are not the only reason Morningstar named Berkowitz Domestic Stock Fund Manager of the Year in 2009 and its first Domestic Equity Fund Manager of the Decade. It also considered his ability to minimize the risks he took to achieve those results. And it’s that risk avoidance quality that some say he has now lost with his most recent concentration in financial stocks. Just under 60% of his stock holdings are in companies such as AIG, Citigroup, Bank of America, Goldman Sachs, CIT Group and bond insurer, MBIA. I will talk at length with him about the reasons why.
If you can’t catch the show this weekend on public television, it will be available online starting late Sunday or early Monday at the latest. It is an interview you will not want to miss. Go to the resources page above and follow the link.
Have a great weekend, savor these waning days of summer, and make the week ahead a profitable and a productive one.
NEW CREDIT CARD LAWS
5/25/2010
Posted by
Linda Barlow, CFP
Did you know that some new laws regarding credit cards recently went into effect? Some of the provisions will impact most of us so you need to be aware of them. The credit card companies are responding to this law, so you certainly should know what they're doing. Here's a quick summary:
INTEREST RATES
The new rules make it harder for credit card companies to raise a customer's rates across the board. In the past, if you were late with a payment, the company could raise your interest rates for future balances. Now, the company won't be able to change the rate for the first year that you have the card on existing balances. But, if your introductory rate expires after six months, they can raise the rate. Also, they can raise the rate if your rate is "variable" so read the fine print.
OVER-LIMIT FEES
When a customer charged more than the limit in the past, most companies would let them continue right on charging. Now, a customer will need to "opt-in" for over-limit charges.
PAYMENTS TO BALANCES
Now, companies will have to apply payments to the part of the balance with the highest interest rates. This one is good news for the consumer.
MONTHLY STATEMENTS
Statements will have to show how long it will take to pay off a credit card if only minimum payments are made. In addition, the sttements will have to show how a consumer may pay off the entire bill in 36 months if payments are increased.
OTHER SOURCES OF REVENUE
Of course, with these changes, the banks will be seeking other sources of revenue. Watch out for "ticky-tack" fees like the airlines sometimes do - charges for various and sundry things that they call justified in the "normal" course of doing business. Rewards transactions and international charging will probably be the most affected with this one.
Hope this helps those of us who use the plastic regularly - and who doesn't these days?
THIS WEEK'S MARKET WRAP
5/21/2010
Posted by
Consuelo Mack
Here are today’s headlines:
The first major stock market correction since the start of the bull market in March of 2009
The lowest inflation number in 44 years.
The first decline in leading economic indicators in a year.
Is our economic/investment cup half full or half empty? There are numerous ways to interpret this data. The Dow and the S&P 500 have not suffered ten percent plus declines since the rally began off the bottom in March of 2009. This is either the pause that refreshes or a harbinger of weakness to come. Low inflation certainly takes the heat off the Federal Reserve and justifies keeping short term interest rates near zero for an “extended period”. But is it signaling disturbing weakness in the economy? Rather than celebrate the recent decline in commodity prices such as copper and oil, should we be wringing our hands? Has the year long advance in leading economic indicators really come to a halt, or is this too a temporary lull?
No matter what your answers are to these questions, one thing is for sure- we live in an unsettled and unsettling world. If you climb to a higher vantage point, as we try to do on WealthTrack, you will discover that some traditional economic “rules” are being turned upside down and a new world order is emerging, with significant implications for investors.
Whereas the financial crises of yesteryear occurred in developing markets: the Mexican peso devaluation in 1994, the Thai baht implosion in 1997 and the Russian debt crisis in 1998, today’s financial blowups are originating in advanced economies. The bursting of the credit bubble originated in the U.S. in 2007 and 2008. This year’s government debt crisis is happening in the Euro Zone.
Debt happens to be the latest focus of the world order shakeup. Several major emerging markets are now in better financial shape than some of the biggest advanced economies, including the U.S. Case in point: government debt as a percentage of gross domestic product, or GDP. China’s debt is 16% of its economic output and Brazil’s is 39%. Compare that to Japan where government debt is 196% of GDP and the U.S., where it has reached 71%. Incidentally in Greece, the epicenter of the Euro Zone crisis, government debt is 101% of GDP.
Then there is the new world order of where growth is coming from. There is no question that the new kids on the block are running faster and packing more punch than the old timers. By recent estimates, emerging economies now provide 55.3% of global growth. China is the biggest single contributor accounting for 15.5%, trailed by the U.S at 13.4%!
History tells us that money flows to where the growth is. However, global stock market values do not yet reflect the new reality. The U.S. still has by far the largest most liquid market in the world, accounting for 43% of global stock market capitalization, followed by Europe, the U.K. and Japan. Emerging markets are valued at less than 13% of the world’s equity value.
How long can this discrepancy last? What does it mean for your investments?
This week’s Great Investor interview is with Dennis Stattman, the founding portfolio manager of BlackRock’s Global Allocation Fund which he has overseen for 21 years. Stattman was a finalist for Morningstar’s International Fund Manager of the Decade Award. He delivered annualized returns of nearly nine percent in the last decade with less risk than the markets. His mantra from the beginning has been to go global and he has, typically investing in over 700 securities worldwide including stocks, bonds, cash, and some alternative investments. We discussed the new world order at length and the opportunities and considerable risks he sees across the globe. We also talked about where retirees can find income and why the investigation of Goldman Sachs could be a game changer for Wall Street. I think you will appreciate his very thoughtful and educated analysis.
As always, this week’s show will be available on our website starting early next week, along with information about our guests and their One Investment recommendations. You can also download it as a podcast or streaming video.
Have a great weekend and make the week ahead a profitable and a productive one.
THIS WEEK'S MARKET WRAP
5/14/2010
Posted by
Consuelo Mack
Wherever you look in the markets, the economy, and politics, volatility is back and changes are afoot. Last week, the Dow dropped nearly 628 points, a 5.7% decline that rivaled the slide during the market lows of last March. So far this week, the Dow has recovered more than 400 points of that loss including a nearly 405 point advance on Monday. According to Gluskin Sheff’s widely respected economist Dave Rosenberg, 400+ point Dow days are rare. There have been only 16 such rallies in the past. However, he cautions that 12 of them happened during the bursting of the credit bubble- 10 in 2008 alone- and the others took place around the tech wreck between 2000 and 2002. His take away is that these massive rallies are bearish, not bullish. Only time will tell if he is correct in that conclusion, but the market trend seems to be toward more extreme moves.
The unsettled feeling has been drawing more investors to gold, which set new records this week. Today it closed at $1,242.70 an ounce. Many of our WealthTrack guests have recommended gold for what the late, great Peter Bernstein called its role as an insurance policy against “extreme outcomes”, as well as its diversification role in a portfolio. It tends to zig when other more traditional holdings such as stocks and bonds zag.
Another source of uncertainty is Washington. As PIMCO’s articulate and insightful Fed watcher and economist Paul McCulley has put it, we are seeing a shift from the “invisible hand” of the markets to the “visible fist” of governments. That fist looks like it will become reality with a financial reform bill that could change the way major Wall Street firms and even the Fed does business. Federal Reserve Chairman Ben Bernanke has strongly objected to some provisions regulating derivatives saying they could weaken financial stability.
Ever since the financial crisis, Wall Street has been under attack. The biggest financial firms, most notably Goldman Sachs, the most profitable of the big investment banks, have been under fire from Congress and under investigation by the SEC and federal prosecutors. This week The Wall Street Journal reported that the probe has widened to other major firms including J.P. Morgan Chase, Citigroup, Deutsche Bank and UBS.
But Wall Street is a generic term that encompasses many different types of financial firms. And the distinctions are significant and important. As this week’s “Great Investor” guest Brian Rogers of the investment firm T. Rowe Price points out, mutual fund companies like his don’t trade derivatives. They don’t put the firm’s capital at risk. They don’t underwrite securities of any sort. They take what is known as a fiduciary role and invest money on their client’s behalf with their client’s interest as their guide and priority.
And in T. Rowe Price’s case, they have been recognized for doing it successfully over many years. The firm has just won the 2010 Lipper Fund Award for “Best Overall Large Company” in the mutual fund industry, and Morningstar gives T. Rowe Price its highest stewardship grade, an A, for its culture, low fees, strong management ownership and spotless regulatory history.
Brian Rogers is Chairman of the Board and Chief Investment Officer of T. Rowe Price and he is also portfolio manager of the Equity Income Fund, which he has run since its inception in 1985. Over the past ten years Equity Income has returned five percent annually, handily beating the S&P 500 index and outpacing its large value peers. In a wide-ranging interview, we talked about the financial crisis, investment strategy and why he believes we are returning to some of the old fashioned financial values that have made this country great. I think you will enjoy the conversation.
If you would like to see an extended version of some of our other “Great Investor” or “Financial Thought Leader” interviews, you can access them on this website by going to the Resources page above and follow the link.
Have a great weekend and make the week ahead a profitable and a productive one.
THIS WEEK'S MARKET WRAP
5/7/2010
Posted by
Consuelo Mack
“The world is unsafe and unstable.” So said FPA Capital’s Robert Rodriguez on WealthTrack last year. Today proved him right yet again. Short term, the investment climate is becoming even more unstable and investors are responding. The Dow suffered its biggest intraday loss since the 1987 crash. It turns out the drop was exacerbated by a trading error in Procter and Gamble’s stock which sent it down 37% at one point, before recovering to a more modest 2% plus decline. But there was real damage. By day’s end, the blue chip average had rebounded more than 600 points to close with a 348 point drop, a 3.2% loss. Investors flocked to the safety and liquidity of much maligned U.S. Treasury bonds as the Euro fell to a 14 month low and yields soared on weaker European credits, including those of Greece, Spain and Portugal.
Unless you have very strong convictions, which this weekend’s WealthTrack guest does, this is no time for most of us to place large bets. Among the concerns weighing on the markets:
-- Greece’s problems are not going to be resolved with the solution now being offered. Drastic tough love is not politically or economically feasible.
-- Fears of counterparty risk are no longer limited to the private financial sector. It is spreading to the public sovereign debt markets.
-- The European Central Bank, which voted to keep short-term rates at 1% today, is not taking seriously enough the risk that Greece and its contagion represents. The markets are losing confidence in the ECB’s willingness and ability to respond to this financial crisis.
--According to independent research firm Strategas, financial regulatory reform in the U.S. has moved to an “increasingly aggressive posture,” including possible moves to restrain credit as well as restraining the Fed from providing liquidity in future crises.
As Strategas notes, “stability in the rules is the minimum standard so volatility in the markets until the rules are clear (even with profits very strong, which is the underlying support) should remain the norm."
This week we are continuing our Great Investor series with a television exclusive with Legg Mason’s legendary portfolio manager and Chief Investment Officer, Bill Miller. Miller, you might recall, is the only fund manager to beat the S&P 500 fifteen years in a row, a feat he accomplished from 1990 to 2005 with his flagship Legg Mason Capital Management Value Trust. That stellar performance was succeeded by a swift descent to the lowest regions of mutual fund performance- in 2006, 2007, and 2008, Value Trust underperformed the S&P 500 by steep margins especially in ’08 when the fund lost more than 55%. Then, in an equally remarkable turnaround, it gained 41% last year leaving the market in the dust. The cumulative effect of recent losses is still weighing the fund down however. Its ten year annualized return is slightly below that of the S&P 500 index.
That is not the case with Miller’s less well-known fund, Legg Mason Capital Management Opportunity Trust, which he started in 1999. Focusing on midcap value with considerable investment flexibility beyond that, Opportunity Trust has beaten the market over the last decade, although it too had a disastrous decline in 2008, this one of 65% before rebounding 83% last year.
If as Confucius said, “Our greatest glory is not in never failing, but in rising every time we fall,” Bill Miller is back in his glory. He has analyzed his past performance every which way to understand what worked and what went wrong in the financial crisis and is completely candid about the good, the bad, and the ugly decisions. He and his team have made some changes as a result, which you will hear about in the interview.
Miller is also known as one of the most creative thinkers in finance. His renowned analytical skills were in full view when I visited him in his Baltimore headquarters, so be prepared to pay close attention. He packs a ton of knowledge and insights into this interview. As with most of our other Great Investor guests, I have more conversation with Bill than we can fit into any given WealthTrack, so we plan to offer the full interview to you at a later date in our new WealthTrack Extra feature.
If you would like to see an extended version of some of our other “Great Investor” or “Financial Thought Leader” interviews, you can access them on our website by going to WealthTrack Extra.
As always, this week’s show will be available online starting early next week, along with information about our guests and their “One Investment” recommendations. Go to the WISE Resources page above and look for the link.
Have a lovely Mother’s Day weekend and make the week ahead a profitable and a productive one.
THIS WEEK'S MARKET WRAP
4/2/2010
Posted by
Consuelo Mack
The market recovery continues. The Dow has now advanced for four quarters in a row. This first quarter's 4.1% gain (4.8% if you add in dividends) puts the blue chip average 66% above its low of a year ago March and 23% below its peak of 14,164.53, reached in October of '07. The bull is on a run, with some noticeable divergences. In the U.S. risk is still outperforming quality, as it did last year. The small cap oriented Russell 2000 gained 9.7% in the first quarter. However in overseas markets the opposite seems to be happening. Quality is starting to trump risk. Japan's Nikkei, a relative laggard last year was a market leader in the last three months with a 5.2% gain, whereas last year's star markets, Shanghai's A shares and Hong Kong's Hang Seng index both lost ground.
Also of interest, the bond market has extended its impressive rally and once again, risk pays the most. One widely followed high-yield index hit a record high this week, up more than 80% from its December 2008 low. What happens to the bond market when the Fed really withdraws from the market remains to be seen. The Fed has officially ended its trillion dollar plus program to purchase mortgage-backed securities, but according to The Wall Street Journal, "it still has to take delivery of $87 billion in mortgage securities that it owns but hasn't paid for yet." In addition Fannie Mae and Freddie Mac will remain a major force in the market as they buy an estimated $150 billion in delinquent loans.
Sometimes it is necessary to stand back and take stock of the bigger picture, something that many WealthTrack guests and I have done in recent months. We are still processing the psychological and investment damage done during the financial crisis and its aftermath. We are figuring out what it all means for our risk tolerance, investment expectations and strategies going forward.
What are some of the lessons learned from the biggest financial upheaval of our generation?
For this week's WealthTrack I have culled some of the wisdom gleaned from a few of the "Great Investors" I have interviewed in recent months. I will share some basic principles told to me by money managers including Bruce Berkowitz, Robert Rodriguez, and Jean Marie Eveillard.
In addition I will be talking to two financial thought leaders, who are among the most thoughtful and insightful students of the art of investing.
Charley Ellis is a legendary investment consultant to large institutional investors, government organizations and wealthy families. He is also the author of fifteen books including "Winning the Loser's Game", an investment classic. His latest book is a gem, its called "The Elements of Investing". He co-authored it with Princeton economist, and "Random Walk Down Wall Street" author, Burton Malkiel.
We'll also be joined by one of Charley and my favorite financial journalists, Jason Zweig. Jason writes the highly respected "The Intelligent Investor" column for The Wall Street Journal. He is also the author of "Your Money and Your Brain" a fascinating tale of how biology drives investors to make stupid mistakes! His most recent book is "The Little Book of Safe Money", a necessary guide in these challenging times.
Both of our guests will share their "One Investment" recommendation for a long-term diversified portfolio. And in my action point I'll discuss a frustration expressed to me many times on WealthTrack by some excellent investors, the fact that individual investors consistently underperform the very funds they invest in. On WealthTrack, we call this the underperformance trap. I'll talk about how you can avoid it!
As always, the show will be available on the website starting early next week, along with information about our guests, their "One Investment" recommendations and our action points. Go to the Resources page above and follow the link.
Have a happy Easter weekend and make the week ahead a profitable and a productive one.
THIS WEEK'S MARKET WRAP
3/26/2010
Posted by
Consuelo Mack
We are living in a world of financial extremes. Stock markets have flipped from excessive declines in 2008 and early 2009, to record setting advances. The S&P 500 is now up 72% from its March lows.
Short term interest rates are trading at historic lows, while spreads, the difference between yields on Treasuries and other bonds have switched from near lows to record highs and almost back again in the space of a few years.
Consumer credit has experienced an unprecedented string of monthly declines. Banks have been cutting lending to both individuals and businesses alike, while the exact opposite is happening on the government side. Federal debt has exploded to levels not seen since World War II and is climbing. For the first time ever, social security will pay more in benefits then it receives in payroll taxes.
And for those who need income, there is one interesting change in the markets. High quality dividend-paying stocks have been outpacing the market so far this year by a full eight percentage points. According to top ranked investment strategist Francois Trahan, dividend-payers offer the best of both worlds: a bit of offense in your defense. Francois believes that ‘if dividends can lead the market higher and provide shelter in a pullback than they are a must in every portfolio at this time.”
What other changes should we be tracking? What other investments are a “must” in your portfolio? This week on WealthTrack we’ll get the advice of two exceptional investors.
We’ll be joined by Bill Wilby, who was the award-winning portfolio manager of the Oppenheimer Global fund. It was rated the number one global equity fund for the dozen years he managed it. Bill Wilby is now a private investor, and is still actively investing and plugged into the global investment scene.
We will also hear from value investor Wally Weitz, founder and President of Wallace R. Weitz and Company based in Omaha, Nebraska. Wally manages or co-manages four stock funds with superb long-term and near term records, although they had a rough go of it in 2007 and 2008.
If you would like to see an extended version of some of the “Great Investor” interviews we have done recently, we have launched a new feature. It’s called “WealthTrack Extra”, and it offers exclusive, never before seen material with investment stars such as Morningstar’s Fund Manager of the Decade, Bruce Berkowitz and finalist Steven Romick.
The show will be available starting early next week, along with information about our guests, their One Investment recommendations and our action points.
To view, click on the Resources page above, and follow the link under “Watch & Listen.”
THIS WEEK'S MARKET WRAP
3/19/2010
Posted by
Consuelo Mack
Eight straight days of stock market gains, the Dow at 17-month highs, flat consumer prices, falling jobless claims and once again the Fed promises to hold short term rates steady for “an extended period”. Just about everywhere you look around the world economies are turning around. It’s what top ranked independent research firm ISI Group had been calling an “unprecedented synchronized global upturn”. From China, to the Eurozone, to Canada and the U.S., economic indicators are recovering and global investors are responding.
However, looking beyond this recovery, there are other truisms that bear watching, which have negative economic and financial implications. One is the yawning level of U.S. debt in both the private and public sector. In a little over a decade the level of debt in the private sector has exploded from 215 % of private sector GDP, or economic output, to more than 375%, largely thanks to the unprecedented boom in mortgage debt. But the private sector is cutting debt. Not so the government, which is taking more of it on, with wild abandon. Government spending, particularly interest payments and Medicare and Medicaid obligations are ballooning as a percentage of GDP. If the Healthcare reform bill passes the burden will soar even more.
How is the U.S going to finance these expenses? What do they mean to our future as an economic and military power?
This week on WealthTrack, we will tackle those questions as we re-visit an episode from our “Financial Thought Leaders” series with British historian Niall Ferguson. Niall is erudite, articulate, energetic, charming and professionally prolific, in other words an interviewers dream! He is the author of several excellent best sellers, including his most recent “The Ascent of Money”, which I highly recommend.
If you prefer a TV treatment it has also been made into a fast moving and entertaining PBS special.
This week he will focus once again on putting the events of the last two years into historical context and explaining their long term economic and investment significance for Americans and the U.S. as a whole. Listen and ponder.
We have mentioned before that when time allows we try to do more extensive interviews with some of our “Great Investor” and “Financial Thought Leader” guests. Such was the case with Niall Ferguson. We plan to make the entire, wide ranging interview available to you in the near future as a WealthTrack Extra. You’ll be able to access this on our website www.wealthtrack.com in a week or two.
View Consuelo Mack WealthTrack online, as streaming video or as a podcast, starting early next week. Go to the Resources page above and follow the link.
Have a great weekend and make the week ahead a profitable and a productive one.
DELIVERING REAL SERVICE
3/15/2010
Posted by
Linda Barlow, CFP
These days we're all searching for more and better ways to manage our money. There are so many tools available to help you keep an eye on your finances. One of them, mint.com, has tripled it's membership in the past year. Banks are missing out on a big opportunity since banks are twice as likely to be trusted by the public with sensitive information.
Bank of America and PNC banks both offer ways to create budgets, track spending, and monitor rewards, etc. Several other smaller institutions are offering some tools.
The credit crisis has certainly reinforced the idea that your parents' way of saving for a big item before buying it is solid financial practice. How could you put that plan into action? Studies show that when people set specific savings goald, they are far more likely to achieve them. So you want to be able to earmark accounts for certain savings purposes.
ING Direct lets you create unlimited buckets for your money. That is easier than opening different accounts for each goal. SmartyPig and Bank of Internet offer 2% and 1.75% on their savings accounts, which is far better than most banks these days.
Credit unions are responding to current needs much better and quicker than traditional banks. They boast higher rates than banks on most all accounts. One of the best credit unions is San Francisco Fire Credit Union, which let's customers get their credit score four times a year for free.
Many banks are making it easier to get to talk to a live person. Some also offer live web chat. TD Bank has coin counters in lobbies where anyone (not even customers) can walk it, deposit coins, and get 100% of the cash back - no charges.
"Free checking" is an old come-on. No one expects to get great service and novel tech apps for free, but when banks make you pay for them through "gotcha" practices like high overdraft charges and soaring ATM fees, they're setting themselves up for complaints.
One in three people who switch banks are doing so because of the high fees. Hence, many banks now have overdraft protection with the customer's savings account that is paying a high rate of interest. When a check is presented for payment that exceeds the amount in the checking account, the needed amount is automatically swept from the savings account to cover it. No charges.
So, banks are trying. They don't have it perfect yet, but they are moving in the right direction.
THIS WEEK'S MARKET WRAP
3/11/2010
Posted by
Consuelo Mack
This week on WealthTrack we are re-visiting an episode from our “Great Investors” series - an extended conversation I had last year with PIMCO’s bond king, Bill Gross, at PIMCO headquarters in Newport Beach, California. Having just read Bill’s March Investment Outlook, now available at www.pimco.com, I can assure you our discussion is still remarkably fresh and relevant. Plus, he shares some of his personal, longer-term investment ideas.
Much has happened since then to confirm Bill’s considerable investment skills, including a recent honor. Bill has been named Morningstar’s first “Fixed Income Manager of the Decade”.
As Morningstar said, “no other fund manager made more money for people than Bill Gross. Investors in his flagship PIMCO Total Return fund are $47 billion wealthier for the decade.”
Bill’s PIMCO Total Return fund, which has grown from $30 billion to $200 billion dollars plus in assets in the past ten years, handily beat its intermediate bond fund category with its 7.7% annualized returns. According to Morningstar, Gross has stayed ahead of the competition throughout the past decade by “making the right calls at the right times.”
Gross sees 2010 as a year of “exit strategies” where asset markets “will soon be priced in a world less dominated by the government sector.” If, in 2009 PIMCO recommended “shaking hands with the government”, Gross now wonders “which” government, and cautions “that the days of “debt issuance without limit” may be numbered for all countries.”
He is recommending fixed income investors favor countries where national debt levels are low, such as China, India and Brazil among the developing countries and Canada and Germany among the developed.
Among our other topics of discussion is how he is reconciling his big picture, secular views of lower investment returns with his higher-return oriented investment goals. He also shares what he is doing with his own money. You won’t want to miss any of it. Please go to the Resources page to see more on Bill Gross.
THIS WEEK'S MARKET WRAP
3/4/2010
Posted by
Consuelo Mack
Late last year we devoted an entire program to our conversation with Bruce Berkowitz, the Portfolio Manager of the Fairholme fund, as part of our “Great Investors” series. Since then Morningstar, the independent research firm that tracks and rates mutual funds, has honored Berkowitz, not once, but twice.
First, it named him Domestic Stock Manager of the Year for 2009, highlighting his 39% gain, which outperformed the Standard and Poor’s 500 by 12.5 percentage points. As Morningstar pointed out, his 2009 performance was even more impressive because he managed to keep the fund’s losses well below the market’s in 2008, a year when many managers “lost their pants”.
A week later, in mid-January, Morningstar bestowed an even greater honor on Berkowitz - its first, “Domestic Equity Manager of the Decade” award. Not only did Fairholme deliver 13.2% annualized returns during a terrible decade for stocks in general - but it also buried the competition in its large blend category.
Morningstar explained that its Manager of the Decade award is not just about returns, but also considers the risks taken to achieve those results, as well as the size of the fund. As a general rule, the bigger the fund, the harder it is to deliver superior results. The Fairholme fund has grown to more than 11 billion dollars under management.
Berkowitz and his Fairholme team run an unusual portfolio. It is tightly focused with about 15 to 20 stocks and it maintains hefty cash positions averaging around 17%. Despite the increasing lure of overseas markets, Fairholme is sticking to what Berkowitz calls his home team advantage, investing in U.S. based companies. As if his job were not challenging enough, the former bond manager is going back to his roots. He just launched a bond fund, the Fairholme Focused Income fund.
A man of many memorable lines, one of his slogans is “the right time to invest is always”. You will be fascinated by Bruce’s unusual investment strategy which involves a highly concentrated portfolio and focus on cash. He’ll also explain why he has brought Berkshire Hathaway back to the portfolio after selling it a couple of years ago. In addition he’ll share his “one investment” recommendation for a long-term, diversified portfolio with us. It’s advice you won’t want to miss!
If you are not in front of your television set to watch us this weekend, you can always see Consuelo Mack WealthTrack online. Just go to the Resources page and click on the link.
THE LOWDOWN ON ROTHS
2/8/2010
Posted by
Linda Barlow, CFP
With the start of 2010, the questions (and misconceptions) about ROTH IRAs, ROTH conversions, etc., are flying around.
Let's start with a basic premise: the traditional IRA contribution limit is $5,000,
$6,000 if you are over 50 years of age but there are income limits restricting deductibility of the contribution. Notice that I said there are limits restricting only the deductibility; everyone may contribute to a traditional IRA. Taxes are paid when the money is withdrawn and there are mandatory withdrawals that must begin when you reach the age of 70 1/2.
ROTH IRAs have the same maximum contribution limits but they have some income limits which determine whether or not one can even contribute. The contributions are after-tax money and there is no requirement for withdrawing the money at any age. When/if you do withdraw from a ROTH, the money is tax-free.
The major thing that is changing in 2010 is the ability to convert a traditional IRA to a ROTH. During 2010 there are no income limits restricting your conversion. The conversion, of course, isn't tax free. The income taxes must be paid on the conversion.
Also new for 2010 is a choice of when one reports that income that came out of the IRA. You may select either (A) report the income on your 2010 taxes and pay it all then or (B) report one-half of the income in 2011 and the other half in 2012. What you are risking in order to hold onto the tax dollars a little longer is whether or not tax rates will increase.
If you believe that tax rates will be lower when you retire and are maybe withdrawing the money, then it doesn't make sense to do a conversion. Just pay the tax on the traditional IRA money as you withdraw it.
Also, remember that if you convert, you should pay the tax with dollars that don't come out of the IRA. So you must have other money available for the taxes.
The younger you are the more advantageous a ROTH is because it has longer to grow and become an even larger number that you could withdraw without taxes.
All of this is quite complex and one should take advantage of the many online programs to help you determine whether or not converting in 2010 is a wise decision for you. Also, you may want to seek the advice of a professional.
THIS WEEK'S MARKET WRAP
2/6/2010
Posted by
Consuleo Mack
The bulls and bears each have some fresh ammunition for their defense. The bears need only cite today’s broad based market rout which took down stocks worldwide, as well as commodities from oil to gold and the government bonds of high debt countries including Greece, Spain, Portugal and Poland. As respected economist Dave Rosenberg said in his “Breakfast with Dave” report, “risk appetite is, in a word, fading.”
On the bull side, the headline came from Cisco’s CEO John Chambers who said the economy has entered a new “phase of recovery” after the maker of networking gear reported a 23% jump in quarterly profits and an 8% gain in revenues, its first in a year. And for those of you following contrarian indicators, the American Association of Individual Investors survey shows 29.2% in the bull camp and 43.1% in the bear camp as of this week, vs. 41% bullish and 26% bearish at the beginning of the year.
We like to follow big trends on WealthTrack, and there is a whopper of one playing out in this country and across the globe with profound implications for economies and markets. It is the tug of war between savers and spenders, creditors and debtors, and the contest is being writ large in America. The private sector, individuals and businesses are increasing their savings while the public sector, the government is accelerating its spending and increasing its deficit.
Right now, the government appears to be winning. Its spending to prevent economic collapse is swamping the saving of the rest of us, driving the national savings rate as a percentage of GDP lower and lower into negative territory.
Meanwhile the world’s investors are taking note, increasingly shunning debtor nations’ securities and embracing savers and financially strong investments.
What is the outlook for the stock, bond and art markets, especially given the disparity between savings and debt in this country and across the globe? This week we are talking about the road ahead for housing, stocks and art with three experts in the field.
Our first guest is WealthTrack regular, Richard Bernstein. Rich is now CEO of his new investment firm, Richard Bernstein Capital Management. For many years he was Chief Investment Strategist for Merrill Lynch, and then for Banc of America Securities – Merrill Lynch. He’s been voted to the Institutional Investor All-America research team 18 times, 10 of those times as number one portfolio strategist.
Also joining us will be Michael Farrell, a man who knows the credit markets inside out, especially the mortgage-backed securities markets. Michael is CEO of Annaly Capital Management that invests in U.S. residential mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae. Annaly is a sponsor of WealthTrack, but Mike is here due to his proven expertise as an analyst and investor.
We’ll also get an overview of the global art markets from Caroline Sayan, International Commercial Director at Christie’s, the world’s largest global auction house. She oversees the firm’s sales strategy and art investment portfolio, and she’ll tell us what is selling where in the world of art.
Our guests will each share their “One Investment” recommendation for a long term diversified portfolio. And in my action point I have some thoughts about investing in small company stocks.
Do check out Consuelo Mack WealthTrack online, just go to the Resources page above and look for the link.
Have a great week ahead and a productive one.
THIS WEEK'S MARKET WRAP
1/29/2010
Posted by
Consuelo Mack
We have been talking about potential game changers recently. One was averted today when 70 U.S.Senators overcame the opposition of 30 to confirm Federal Reserve Chairman Ben Bernanke to a secondfour-year term. Still, the level of dissent was unprecedented, surpassing Paul Volcker’s 16 opponents in 1983, after he had caused a recession by raising interest rates as high as 20%. The rise in populist sentiment in Washington has become more pronounced of late. Last week President Obama, with former Fed Chairman Paul Volcker at his side attacked big banks and the business risks they are taking. In his first State of the Union address last night, the President took the rare step of directly criticizing the Supreme Court. With six judges in attendance he took aim at the court’s recent 5-4 decision to loosen restrictions on corporate election spending. Meanwhile, the markets are under pressure from political and economic events. The Dow lost more than 100 points today to close at 10120.46, sending it 2.9% lower year-to-date. Mixed messages from the economy are not helping. The biggest residential real estate deal in U.S. history went bust. Tishman Speyer properties andits primary partner BlackRock defaulted on the 4.4 billion dollars in debt they had used to finance their 2006 purchase of the Peter Cooper and Stuyvesant Town apartment complex in Manhattan. Unable to reach a deal with lenders they gave the property back to the creditors. And December’s nearly 17% plunge in existing home sales, plus the 7.6% drop in new home sales raises questions about the housing recovery. What happens when the government’s tax breaks for home buyers wind down later this year? The Federal Reserve took much of this into consideration when it met to discuss monetary policy this week. The Fed left short term interest rates unchanged, but upgraded its assessment of economic activity from “weak” to “moderate”. What do recent game changing events in politics, policy and the economy mean for investors? This week on WealthTrack we’ll get some answers from three seasoned professionals. Few understand the Washington political scene and its impact on the markets better than Tom Gallagher, head of the Washington policy research team for ISI Group. Institutional Investor has ranked Tom the number one Washington analyst for seven years running. Few have a better investment track record than Steven Romick, one of five finalists for Morningstar’s new “Manager of the Decade” award in the equity category. Steven has run the FPA Crescent fund since its launch in 1993. Over the past ten years, Crescent has delivered 11% plus annualized returns putting him in the top one percent of money managers. And few have the experience Charles Maxwell has in the energy sector. Charley, the Senior Energy Analyst at Weeden and Company, has been called the “Dean of Energy Analysts” by Barron’s and he was ranked the number one oil analyst on Wall Street for many years. Our guests will share their “One Investment” recommendations for a long term diversified portfolio. And in my action point I’ll discuss why you might want to consider investing in Canada. If you are not able to watch WealthTrack on public television this week, our shows are available on this site. Go to Resources and click on Watch & Listen.
THIS WEEK'S MARKET WRAP
1/15/2010
Posted by
Consuelo Mack
Our focus on this week is a critical topic for many of our viewers - retirement income. Only 13% of Americans say they are “very confident” about having enough money to live comfortably in retirement. That’s the lowest level since the Employee Benefit Research Institute started gathering such data in 1993. It is not surprising… some four trillion dollars in retirement savings have been lost in “the great recession” that started in late 2007.
Despite one of the biggest stock market rallies in history last year and the fact that the Dow Jones Industrial Average hit a new 15 month high today, the blue chip average is still 24% lower than it was at its peak in October of ‘07. And the stock market isn’t the only source of losses. Home values, a substitute for savings for many Americans in recent years have declined around 30% from their peak in July of 2006. That’s translated into a loss of some four trillion dollars in home equity over the past few years.
Adding to retirees financial stress are historically low short-term interest rates. Today the European Central Bank kept its benchmark rate at a record low of 1%. Yesterday, New York Federal Reserve President William Dudley told PBS’ Nightly Business Report that in the U.S. “short-term rates are going to stay low for a considerable period of time.” And don’t expect much relief from stock dividends. The S&P 500 is yielding below 2% right now. Last year S&P companies cut their dividends by a record breaking $52.61 billion. In percentage terms the 21.4% decline is second only to the 38.6% plunge of 1938. In a recent report, S&P’s Howard Silverblatt said the “damage done to dividends over the past two years will take years to recover.”
Not surprisingly, this new environment is changing the way people are thinking about preparing for retirement. During the heady years when the stock and housing markets were climbing, many people focused on reaching a nest-egg goal – “the number” that would assure a comfortable retirement. Now the focus is shifting to another number - how much annual income you need to cover your expenses.
This week on WealthTrack, we are talking with three retirement income experts about how you can maximize your retirement income in a low return environment.
We’ll be joined by Mary Beth Franklin, who has devoted many years to the retirement question. Mary Beth is Senior Editor of Kiplinger’s Personal Finance magazine and Editor of Kiplinger’s indispensable annual retirement planning guide.
Also with us will be Harold Evensky, President of the financial planning firm, Evensky & Katz. He has been cited as one of the five most influential people in the financial planning profession by Financial Planning magazine. He is a sought after speaker and prolific author. Among his books is the award winning: “Retirement Income Redesigned: Master Plans for Distribution ”.
And we’ll hear from WealthTrack regular, Jonathan Clements. For 18 years Jonathan was the widely read personal finance columnist for the Wall Street Journal. Now he is Director of Financial Education for Citi Personal Wealth Management. He’s also author of “The Little Book of Main Street Money ”, which is on our recommended WealthTrack Bookshelf.
Our guests will share their “One Investment” recommendations for maximizing your retirement income streams and in my action point I’ll discuss the importance of reviewing your retirement income planning.
If you miss this week’s show, you can always see us online, both as streaming video and as a podcast. Just go to www.wealthtrack.com or simply click on resources above and see the link under “Watch & Listen”.
THE PLANS CAN BE GOOD DEALS
12/22/2009
Posted by
Linda Barlow, CFP
This time of year (enrollment is Nov. 15 thru Dec. 31) you and/or your parents have some critical decisions to make regarding Medicare. Among them is shold you go with one of the Medicare Advantage plans offered by private insurers as an alternative to traditional Medicare?
Such plans must cover the same services as regular Medicare but can do so in different amounts. The monthly premium averages $39 - on top of the standard $96.40 for Part B. So it's possible to have lower out-of-pocket costs with an Advantage plan.
Beware, however, of plans that add benefits you wouldn't use: gym membership, for example. The plans typically operate like HMO's with networks of local providers. Bcause you'll pay more to go out of the network, MA doesn't make sense if you winter in another state or if your doctors don't participate.
You may have fewer options because of cutbacks in federal funding and increases in regulations. If your plan is offering the Advantage again for 2010, still reassess since providers are often changing what they will cover.
Figuring out which plans might be right for you can be daunting but it doesn't have to be. Just go to medicare.gov and click on "Compare Health Plans" and take it from there. This tool estimates your out-of-pocket including drug costs in your MA options and traditional Medicare.
There's been a lot of talking (and griping) on Capitol Hill lately about the government spending more on the MA plans than on traditional Medicare. So health reform and other legislation may alter the program in future years.
Don't let future possibilities put you off; your coverage can't be changed midyear and you'll have another chance to evaluate next December.
TEN SIGNS AGING PARENTS MAY NEED HELP
11/25/2009
Posted by
Linda Barlow, CFP
The holidays are a terrific time; a time for friends, family, and fun. Often we visit relatives, especially parents, whom we haven't seen in months - sometimes years. It is at these times that we may discover some frightening things. We need to be alert to these and ready to take some action, if necessary.
Some warning signs that it might be time to bring in some outside help follow:
1. Mail and bills are allowed to pile up. The task of opening, separating, and handling the mail may have become too much. Observe, too, if they are still able to make out checks. Are they able to make appropriate change when going shopping?
2. The house is cluttered or unkempt; maybe the chore of cleaning has become too much. This would be especially true if the person is usually tidy and has clean surroundings.
3. Food in the refrigerator is spoiled. Preparing and eating the food has become too big a chore. Also notice if the senior is losing weight; their nutrition may be suffering.
4. Scorching on the bottom of pots and pans. They may be forgetting to move them off the range when finished cooking.
5. Wearing dirty clothing and other hygiene items. Is there a smell of urine? Are they bathing or showering regularly?
6. Missing doctor's appointments. Maybe they don't have adequate transportation nor trust themselves to drive there.
7. Repeated phone calls at odd hours.
8. Forgetting to take medication.
9. Inappropriate behavior. This can be loud talking or performing other actions in public which should be done in private. For example, removing ones' dentures in public.
10. Symptoms of depression. Seniors often feel isolated and alone - often because that is the reality! They need to be motivated to regain interest in pleasurable activities.
If more than one of these is apparent, you need to contact a Geriatric Care Manager. That is someone who will look in on the senior frequently and report to you any changes which may need attention.
Don't let these items spoil the precious time that you have with your seniors, but be ready to notice these. It is a relatively new problem since many seniors continue to live alone these days.
Help your senior to make the most of these precious holidays!
THIS WEEK'S MARKET WRAP
11/20/2009
Posted by
Consuelo Mack
You might have noticed that many of the select group of “Great Investors” we have been interviewing in recent weeks consider themselves to be value investors. It is a term they do not wear lightly. As legendary value investor Jean-Marie Eveillard once told me - the reason there are so few successful long term value investors is that it is too difficult and painful to stay the course. Remember Sir John Templeton’s advice, “Buy in periods of maximum pessimism and sell in periods of maximum optimism”? Following that uncomfortable dictum is so contrary to human nature that it is almost an unnatural act!
This week on WealthTrack we will hear from a successful money manager who seems to revel in being contrary, studying the new low list and headlines of corporate disasters for investment ideas. As he told us, “my starting point is to be opposed to the prevailing opinion.” It’s been a winning formula for this father of 4 - ages 7 to 30 - who hails from Oshkosh, Wisconsin and got to Wall Street after a stint as an economics professor.
Robert Kleinschmidt is President and Chief Financial Officer of Tocqueville Asset Management where he has managed its flagship Tocqueville fund since 1992. Over the past 10 years his fund has outperformed 94% of its large-blend peers and handily beaten the U.S. stock market.
He’ll tell us about some of the companies he is investing in currently and also share his fascinating perspectives on economic policy, including the state of the dollar.
Speaking of which, in what is an unusual move this year, the greenback appreciated against the currencies of most of its major trading partners today. The one exception was the yen. By one measure, the U.S. Dollar Index, a six-currency index of the dollar’s value, the greenback is down 7.3% this year. In gold terms it is doing much worse. In New York trading, gold has gained 29% this year, hitting another record yesterday at $1,153.40 an ounce. Many value investors, including Kleinschmidt are losing confidence in the dollar as a store of value. He will explain why.
If you miss the show on television this weekend, you can always see it here online. Just go to the Resources page and follow the link.
Have a very happy Thanksgiving and make the week ahead a profitable and a productive one.
THIS WEEK'S MARKET WRAP
10/30/2009
Posted by
Consuelo Mack
“Those who cannot learn from history are doomed to repeat it.”
If you could have dinner with any financial historian or commentator to gain perspective on the markets, economy, Fed, human behavior, founding fathers, or just about any other topic that strikes your fancy, who would you choose? I’ll wager a guess that if you are at all familiar with the work of this week’s guest, he would be on your short list.
I am going to be sitting down for this week’s WealthTrack with James Grant, founding editor of the biweekly Grant’s Interest Rate Observer, which he describes as an “independent, value-oriented and contrary-minded journal of the financial markets.”
Jim is erudite, articulate, funny, opinionated and very tall. Luckily we were sitting down for the interview otherwise I would have been dwarfed on all counts.
What might surprise you about Jim’s current thinking is this self admitted “glass is half full” kind of guy is actually pretty bullish about the prospects for the economy and has been for a while. This week’s 3.5% third quarter GDP report might have beaten consensus expectations, but it didn’t faze Jim. He expects nothing less and perhaps a bit more. We’ll find out how much more this weekend.
We’ll also discuss some of his other favorite topics including the Fed, past and present- where he pulls no punches- the dollar, gold, China and yes, some of his personal investing habits. We have so much to talk about that we plan to put the full interview on our website as a WealthTrack Extra for you, our newsletter subscribers.
If you can’t tune in on television, remember you can watch or listen on this site from the resources page..
Have a Happy and safe Halloween and make the week ahead a profitable and productive one.
THIS WEEK'S MARKET WRAP
10/5/2009
Posted by
Consuelo Mack
I apologize for the tardiness of this week’s missive. I just returned from California where I had the pleasure of interviewing PIMCO’s Bill Gross for a fund raiser for WISE, Women Investing In Security and Education, a California based, all-volunteer organization dedicated to educating women and girls about finance. This is the second time Bill has generously agreed to give his time to this cause. It was a sell out crowd eager to listen to his latest views about the “New Normal”, the era of sub-par growth (1-3% real GDP growth) PIMCO forecasts will be with us for years to come as the world de-leverages, protectionism rises and governments re-regulate. Among the investment themes Bill is advocating is a search for quality income. The headline is that for his personal account he is buying large cap, income producing stocks like Johnson & Johnson, Verizon, and AT&T, as well as some closed end bond funds, a category he mentioned to us this summer. It turns out that at around 5:30 every morning Bill himself is checking on PIMCO’s closed end funds. Among the ones he mentioned to us were PIMCO’s Corporate Income Fund (symbol PCN), PIMCO’s Corporate Opportunity Fund (PTY) and PIMCO’s Floating Rate Income Fund (PFL). All three trade on the NYSE.
There are some areas of the world that Bill believes will grow at above average rates and they can be found among the emerging markets, which is the theme of this week’s WealthTrack.
I don’t know if you had a chance to read this week’s articles about China surpassing Japan as the world’s second largest economy, now forecast to happen as early as next year. It turns out that China’s stock market value has already overtaken Japan’s. Just three years ago Japan’s equity market cap was 12 times that of the China’s!
Our first guest is David Lazenby, Director of the Emerging Markets team at Batterymarch Financial Management where he has resided since 1987. He also manages the Legg Mason Emerging Markets fund and co-manages the Legg Mason Pacific Equity fund.
We’ll also hear from an Asian specialist, Andrew Foster of Matthews International Capital Management. Andrew manages four funds, among them the 5-star Matthews Asian Growth and Income fund and the 5-star Matthews China fund.
And for a global perspective we’ll be joined by Rudolph-Riad Younes, a former winner of Morningstar’s International Manager of the Year award. Riad is Head of International Equities at Artio Global Management, formerly Julius Baer. He also co-manages the 5-star Artio International Equity fund.
As usual, if you can’t make the TV time you can see us online here on the Resources page.
Make the week ahead a profitable and a productive one.
THIS WEEK'S MARKET WRAP
9/4/2009
Posted by
Consuelo Mack
How much more financially vulnerable do you feel now compared to two years ago? Have your investment views changed? Have you made any substantial shifts in your portfolio or lifestyle?
Maybe you are one of the few who saw the financial tsunami of 2008 coming and actually did something significant to protect yourself. But most of us were caught flat footed and no matter how much we had intellectualized the risks associated with the financial, housing and job markets and the economy as a whole, we didn’t really prepare for that once in a lifetime perfect storm or how we would react to it.
Unless you happened to hear an interview I did right here on WealthTrack in 2007! I am the first to admit, having done the interviews, I did not internalize what our very prescient two guests were telling me!
Well, I am listening now and I decided that you should have the opportunity to hear them again as well, because what they have to say is even more relevant today to help us prepare for another financial storm and increase our ability to weather it.
So this week on WealthTrack we are revisiting “The Black Swan ” author and well known cassandra, Nassim Taleb, and The Wall Street Journal’s “Intelligent Investor” columnist Jason Zweig, who specializes in protecting us from our reptilian brains!
Having experienced the thrill of a stock doubling and the agony of one being cut in half, you know how strong emotions can be - and how much you will try to repeat one experience and avoid the other. The relatively new field that studies our reactions, both conscious and, more importantly, unconscious is called “neuroeconomics.”
Award winning journalist Jason Zweig has written a fascinating book on the subject called “Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich ”. Jason also happens to be the editor of the most recent and revised edition of Benjamin Graham’s classic, “The Intelligent Investor ” so he understands both the fundamental and emotional aspects of the art. We’ll talk to him about why our brains often drive us to do things that can be counterproductive and how to overcome them.
When I talked to Nassim Taleb, his second book, “The Black Swan: The Impact of the Highly Improbable ” was on the best seller list, but considered by many to be a somewhat repetitive follow up to his first book, “Fooled by Randomness ” which showed how chance plays a much greater role in life than is commonly understood. For the record, the Dow was trading at over 13,000 at the time of the interview. Needless to say, 4,000 points lower, the former derivatives trader, Ph.D. in financial mathematics, and professor was spot on in warning us about not just the possibility of Black Swans, but their high likelihood! What then seemed to be his “radical” investment prescription, seems to be plain prudent now.
In my Action Point, I’ll chime in and talk about creating an investment plan that fits your emotional and rational profile.
We want to make sure you can watch the show whenever you want, so starting early next week it will be available on our website. Click on Resources page above to watch.
Thank you for reading and watching. Have a great Labor Day weekend and make the week ahead a profitable and productive one.
THIS WEEK'S MARKET WRAP
8/24/2009
Posted by
Consuelo Mack
Do you ever feel as though much of what you have learned about investing is, if not worthless, at least highly suspect? As the markets seem to return to “normal” after the financial crisis, I have a nagging suspicion that for most of us our investment approach will never and should never be quite the same. The “new normal” that we talked to PIMCO’s Bill Gross about at the beginning of the summer centered on the economic and investment environment ahead. He expects considerably slower growth and much higher volatility than that of the recent pre-crisis past. But what about our overall investment strategy? How much should that change?
That is the topic of discussion with this week’s guest, who views the old rules as not necessarily worthless, but instead as “incomplete”. He will fill in the blanks for us.
This week’s “Great Investor” is one of the up and coming stars of the investment world both as a financial thought leader and investor. His name is Andrew Lo and he is considered to be one of the best minds in the world of finance. The late, great business journalist Peter Bernstein, among others, highly recommended him to me.
Lo is a highly regarded Professor of Finance at MIT’s Sloan School of Management and Director of its Laboratory for Financial Engineering. He is a longtime student of investor behavior, tapping into neuroscience and cognitive psychology to better understand how investors make financial decisions. He is Founder and Chief Scientific Officer of AlphaSimplex Group, an investment management firm now owned by Natixis Global Asset Management. ASG runs hedge funds and recently entered the mutual fund arena, bringing hedge fund expertise to the individual investor. In 2008, the firm introduced a mutual fund, the Natixis ASG Global Alternatives fund that seeks to replicate the return and risk characteristics of a diversified portfolio of hedge funds. Lo’s hedging strategies are also the basis for a new exchange traded fund. Proshares Credit Suisse 130/30 fund is the first ETF that offers a popular hedging strategy of a 130% long exposure to stocks and 30% short positions. It trades on the New York Stock Exchange under the symbol CSM, and is fully transparent with both long and short holdings disclosed on a daily basis. In addition, Lo has published numerous papers on finance and is the author of the book, "A Non-Random Walk Down Wall Street".
Don’t forget you can also see the program on WealthTrack.com starting on Monday. Just click on the Resources page above.
In the meantime, make the week ahead a profitable and productive one.
AVOID THESE MONEY MISTAKES
8/14/2009
Posted by
Linda Barlow, CFP
Here are six mistakes that could cost you a bundle, so be sure to avoid them:
1) Underinsuring your home. Update your homeowner's insurance to cover replacement cost in the event of a disaster.
2) Overpaying for your mortgage. Shop for the best rates because one percent difference can cost you $45,000 or more over the life of the mortgage.
3) Investing too conservatively during retirement. Conventional wisdom says to take money out of the stock market as you age; this causes you to miss many opportunities. Instead, invest in an asset mix that leaves enough room for growth, along with your quality bonds and CD's.
4) Launching a divorce war. Try to soften the financial impact with mediation since a full court divorce showdown can cost hundreds of thousands of dollars.
5) Paying needless fund fees. "Load" mutual funds pay up to 5.75% to your broker plus annual expenses up to 2.5%. Choose no-load mutual funds with low expense ratios.
6) Maintaining an unhealthful lifestyle. Bad health habits can cost physically as you grow older, but they can also cost financially. Higher health insurance premiums and life insurance premiums are only the start. You may also require much more medication as the years go by to control blood pressure and cholesterol.
So, these are a very few of the basic ideas that can help to make you wealthier and WISEer.
THIS WEEK'S MARKET WRAP
8/6/2009
Posted by
Consuelo Mack
We are continuing our “Great Investors” summer series this week by revisiting two legendary value investors whose long-term records are still among the best in the business. Interestingly they have taken very different approaches to the markets since last year’s financial crisis. I think you will once again appreciate the wisdom, perspective and investment ideas of both.
The first is Jean-Marie Eveillard, until recently the long-time lead portfolio manager of the First Eagle funds for which he received Morningstar’s lifetime achievement award for one of the most successful long-term records in the investment business. Jean-Marie is known for his defensive, value style of investing. He’ll tell us why he believes it remains the best strategy to follow.
The other is his close friend, Marty Whitman. Marty is the celebrated portfolio manager of the Third Avenue fund and one of the deans of value investing. He is also the author of several books. His most recent, “Distress Investing” is a primer on one of his areas of expertise. He has also written “The Aggressive Conservative Investor”, a title which describes him to a T, and “Value Investing: A Balanced Approach.” He too has an exceptional long-term track record, but he has taken a much more aggressive and bullish stance on the markets since last year.
If you are unable to watch the program, you can also catch it online. Click on the Resources page and enjoy!
THIS WEEK'S MARKET WRAP
7/10/2009
Posted by
Consuelo Mack
In the ongoing investment tug of war between fear and greed, fear seems to have the edge this week. A developing worry is that the Obama administration’s $787 billion stimulus package may not be enough. Last week’s weaker than expected June employment report started the alarm bells ringing again. It’s a concern PIMCO’s co-chief investment officer, Mohamed El-Erian wrote about this week. In his Viewpoints commentary, “The Crisis Is Morphing Again” he notes that “consensus currently underestimates how high the U.S. unemployment rate will go AND how long it will persist at unusually high levels.” You can read the full essay on www.pimco.com.
This week we learned that retailers, ex-Walmart, which has stopped reporting monthly sales figures, reported their 10th straight month of declining same store sales. With unemployment rising, it’s a trend that is not going to be reversed anytime soon. Consumers are trying to pay off debt, not take more on and they are having a hard time in the payment department. The American Bankers Association reported that delinquent loans, credit card payments that are at least 30 days late, hit a new record of 4.75% in the first quarter.
Another concern is corporate earnings. Alcoa started the earnings season off with a smaller than expected 2nd quarter loss this week. But it was still a loss! Thomson Reuters predicts that S&P 500 companies will post their 8th consecutive quarter of falling profits, estimating about a 36% decline, with every sector showing contraction from a year ago.
Investors are taking note. This week’s $73 billion auction of much maligned Treasury notes and bonds went remarkably well. Investors are not ready to shun the world’s liquid, dollar denominated reserve currency yet. Incidentally Bloomberg reports that China’s foreign-exchange currency reserves probably topped $2 trillion for the first time as of June 30th. More than $760 billion of that is in U.S. Treasuries.
Our mission at WealthTrack is to bring you investment advice from the best minds in the business. This week we are continuing our “Great Investors” summer series with another mutual fund star, maverick money manager Robert Rodriguez. He has accomplished a feat no one else has. For the last 25 years he has run not one, but two top performing mutual funds, in not one, but two asset classes - a stock fund and a bond fund. As widely followed personal finance columnist Jason Zweig put it that’s “the investing equivalent of running two marathons at the same time” - which is why Zweig calls him “the best fund manager of our time.”
Rodriguez is the CEO of Los Angeles based First Pacific Advisors where he co-manages FPA Capital, a mid-cap value fund, and FPA New Income, his bond fund which just celebrated its 25th year in positive territory. Last year Rodriguez added another rare distinction to his resume. He and his FPA New Income Fund Co-Manager Tom Atteberry were named Morningstar’s fixed income managers of the year for their outstanding long term stewardship. It’s an honor Rodriguez has won two other times as well, for both the stock and bond fund, making him only the second fund manager to be honored
three times. The first was last week’s great investor, Bill Gross.
Rodriguez was one of the first top tier money managers to rail against the dot com and credit bubbles, raising large defensive cash positions, early moves that lost him clients. He is an outspoken critic of the U.S. government’s stimulus packages, burgeoning debt levels and business intervention. And he is very critical of Wall Street and the mutual fund industry. You’ll hear all of his very cogent reasons, plus get his investment advice. This is a must hear interview.
If you can’t catch the broadcast, you can watch the show online here on the Resources page, just follow the link. We will also continue to have transcripts of all of our shows there, plus information about our guests, their recommendations and our action points.
Have a great weekend and make the week ahead a profitable and a productive one.
WOMEN DESERVE MORE FROM ADVISORS
6/23/2009
Posted by
Linda Barlow, CFP
For all the talk of advisers recognizing the importance of female investors, research proves that there is a long way to go. A study recently completed by Allianz Life Insurance Co., found that fully 70% of recently-widowed women wanted to change financial advisers. Advisors communicated much more with their male clients than with their female clients during the recent downturn.
Whether the rest of the world wants to admit it or not, women pull the purse strings. Women make the financial decisions in 60% of households and that translates into decision-making on more than $14 trillion in invetible wealth.
We already know that 80%-90% of women will be fully in charge of their financial lives at some point in their lives. Therefore, advisers should use materials that speak to women's needs. Women are more interested in legacy planning than men. That is one area that women say is often overlooked by their adviser. Women are more concerned with risk than men and think about decisions more completely before acting. As a result, they enjoy a better return on their investments than do their male counterparts.
So, demand more respect from your advisers; if you aren't getting it now, seek it out. There are plenty of advisers who would welcome you as clients.
THIS WEEK'S MARKET WRAP
6/12/2009
Posted by
Consuelo Mack
The strong are getting stronger. For months now the vast majority of WealthTrack guests have been emphasizing quality and financial strength in the investments they choose. Last night’s breaking news that money manager BlackRock is buying Barclays Global Investors for $13.5 billion in cash and stock illustrates the wisdom of that approach. The combination will create the world’s largest asset manager, with a portfolio estimated at around $3 trillion, larger than the Federal Reserve! The point is, in a market where financing is still hard to come by, a company with BlackRock’s credentials can get even a really big deal done.
So can the United States government, at a price! Faced with financing a budget deficit, which is projected to quadruple to $1.85 trillion in the year ended September 30th, the Treasury is able to sell bonds, but it’s taking much higher yields to do so. Yesterday’s $11 billion auction of 30 year Treasury bonds went well, as yields rose to their highest level in almost two years, 4.72%. The yield on the ten year note has nearly doubled from a low of 2.06% in late December to over 4% at one point today, before dropping to 3.87%. This rise in the benchmark for many mortgage loans has already taken its toll. As Thursday morning’s Wall Street Journal pointed out, rates on 30-year fixed rate-mortgages have climbed to 5.79%, up from 5% just two weeks ago.” By one estimate that
will cut “in half the number of borrowers with an incentive to refinance.”
Meanwhile stocks and oil are continuing their advance. The S&P 500 hit a seven-month high, closing at 944.89 on Thursday. Schlumberger and Chevron were two big contributors as oil prices traded near a seven-month high of $72.68 a barrel in New York, heading for their fourth week of gains. The International Energy Agency raised its global estimate for daily oil demand, expecting consumption to increase in both the U.S and China, while widely followed economist Nouriel Roubini predicted crude would touch $100 a barrel next year.
In case you didn’t realize how much economic pain Americans have been suffering recently, the Federal Reserve has put a number on it. U.S. household wealth fell by $1.3 trillion in the first quarter, sending our financial net worth back to 2004 levels. Net worth, or the value of assets such as homes and investments minus debts like mortgages and credit cards declined 2.6% in the first three months of the year. Blame falling stock and home prices for the sixth straight quarterly decline. If it is any consolation, the hit to net worth was considerably worse last year.
Between October and December it fell a staggering 8.6% - the largest drop on records dating back to 1951.
This week on WealthTrack we will hear from two veteran value investors who like so many others had their worst year ever in 2008. Things are looking up this year.
Our first guest is John Rogers, who founded Ariel Capital Management in 1983 at the tender age of 24, becoming the first African-American to start a mutual fund company. Today Ariel is the largest black-owned investment management firm in the country. The firm’s motto is “slow and steady wins the race” and appropriately the tortoise is the firm’s logo. Rogers believes in patience, timing and making the most of down markets. He’s learned some lessons in the most recent one. He’ll share them with us. He’ll also tell us why he believes there are great bargains to be had in today’s market.
We’ll also hear from seasoned and successful contrarian, Robert Kleinschmidt. As President and Chief Investment Officer of Tocqueville Asset Management, he oversees more than five billion dollars in assets for institutions, private clients and a family of mutual funds, including the flagship Tocqueville Fund which he has been running since 1992. The fund invests in out-of-favor, or beaten up, large-cap sleepers in the global stock universe. He will explain how he is re-evaluating some of his investment thinking after the events of the past year, and why he sees value in natural resource stocks and gold.
Plus, in my action point, I’ll share my thoughts on why maintaining some sort of an allocation to stocks can actually be less risky than going to completely “safe” investments.
Some public television stations are extending their summer fund raising drives, which may mean schedule changes. You can click on this link to find out if WealthTrack is showing at the usual time on your local station:
http://www.pbs.org/stationfinder/index.html
If it isn’t, or if you are away from your TV this weekend, Consuelo Mack WealthTrack is available online. Go to the media center on this website to view.
A quick final reminder, if you haven’t seen part two of my rare television interview with Yale’s endowment chief David Swensen, it is available exclusively to you, go to http://wealthtrack.com/extra/
Have a great weekend and make the week ahead a profitable and a productive one.
THIS WEEK'S MARKET WRAP
5/29/2009
Posted by
Consuelo Mack
I am becoming more, not less concerned about the housing market and its impact on consumer confidence, the economic recovery and the banking system. One of the most telling charts I received this week addresses the second wave of mortgage rate resets heading our way. It comes to us courtesy of value fund manager, Whitney Tilson of T2 Partners who sends articles of interest to his email list. Yesterday’s included an updated Credit Suisse chart. The chart shows how the second wave of mortgage resets is going to be much bigger and last longer, well into 2012, than many thought.
Tilson notes however that “low rates today mitigate the payment shock associated with resets—barring a significant rise in rates.” A valid point. However my concern is that despite the Fed’s best efforts mortgage rates are rising. They are following yields on the 10-year Treasury note which hit the highest level since November on Wednesday. And resets or not, mortgage delinquencies and foreclosures are accelerating. They reached record highs in the first quarter. And they are no longer just a subprime problem. According to the Mortgage Bankers Association, fixed-rate home loans to the most creditworthy borrowers accounted for the biggest share of new foreclosures, 29% last quarter. As the MBA’s chief economist said, referring to rising unemployment, “if people don’t have a paycheck they can’t support a mortgage.” The National Association for Business Economics is now predicting unemployment will rise to 9.8% by year-end.
We are not talking about the state of the housing market on this week’s WealthTrack however; instead we will be revisiting two legendary value investors whose long-term records are still the best in the business.
The first is Jean-Marie Eveillard, until recently the long-time lead portfolio manager of the First Eagle funds. Jean-Marie has received a lifetime achievement award from Morningstar for delivering one of the most successful long-term records in the investment business.
Our second guest is Jean-Marie’s close friend, Marty Whitman. Marty is the celebrated portfolio manager of the Third Avenue fund and one of the deans of value investing. While 2008 was not a good year for either money manager, Marty’s long-term record is also among the best. He’ll discuss why he believes the current market is a once in a generation opportunity to strike it rich.
I think you will appreciate hearing the wisdom, perspective and investment ideas of both.
This weekend is the start of the summer fund raising season on most public television stations around the country, so if you cannot see us on television you can always view Consuelo Mack WealthTrack online, both as streaming video and as a podcast. Just go to Resources on this website and click on WealthTrack.
Also, if you haven’t seen part two of my rare television interview with Yale’s endowment chief David Swensen, it is available exclusively to you. Just go to the following link: http://wealthtrack.com/extra/
Have a great weekend and make the week ahead a profitable and a productive
one.
Best regards,
Consuelo
THIS WEEK'S MARKET WRAP
5/22/2009
Posted by
Consuelo Mack
World economies and markets are still on edge. Standard & Poor’s warned today that it may downgrade the triple-A credit rating of U.K government debt at some point due to concerns about the high level of its public borrowing. As Bill Gross, the Co-Chief Investment Officer of bond giant PIMCO told Reuters in an email today, the fear is that the United States is “going the way of the U.K.-losing AAA rating, which affects all financial assets and the dollar.” The markets definitely reflected that concern. The Dow declined 1.54% to 8,292.13. The S&P 500 fell even more, down 1.68% to 888.33 and Treasuries also suffered. The yield on the 10-year note rose to 3.355%, the highest level since November of last year. The government’s announcement that it plans to bring another $101 billion in debt to market next week did not help.
We try to take the long view on WealthTrack and this week we have the perfect guest to do it with. For only the second time in our four year history, we are devoting the entire program to one person. In a WealthTrack television exclusive I sat down with David Swensen, the legendary Chief Investment Officer of Yale who not only has an incredible twenty year track record but has also transformed the way endowments and many other institutions invest. For the first time in twenty one years he is having a down one now. Yale’s endowment declined 26% in the final six months of 2008. The university’s fiscal year ends in June so we won’t know until then how it’s done this year, but Swensen is still concerned about the global financial crisis and shares some lessons learned from
last year’s turmoil. He also has some definite ideas about how to fix the financial system. He is in a position to do something about it since he was recently appointed to President Obama’s new Economic Recovery Advisory Board.
Swensen has written two outstanding investment books, one, for professionals called “Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment” was recently revised, and another for individuals, “Unconventional Success: A Fundamental Approach to Personal Investment” should be in everyone’s personal library.
Swensen has strong views about investing, what is and is not appropriate for most individual investors and he is a vocal critic of Wall Street, the regulatory authorities and the mutual fund industry, which he believes provides a raw deal for investors. He will give his “one investment” recommendation for long-term, diversified portfolios and also his recommended asset allocation strategy for equity-oriented portfolios.
Agree with him or not, he is worth hearing. He was generous enough to spend some extra time with us, so we have more than a show’s worth of discussion to share with you.
As a special thank you bonus for our newsletter & podcast subscribers we will send you a link to the additional, unedited interview with David Swensen no later than Monday.
As usual, the show itself will also be available on the web, so if you miss this week’s exclusive interview you can catch it by linking on thru the Resources page of this website.
Have a great weekend. Take a moment to remember and give thanks to our brave service men and women, both past and present on Memorial Day. And make the week ahead a profitable and a productive one.
Best regards,
Consuelo
MEN AT THE CAR WASH
5/4/2009
Posted by
Kim Selby, CFP
Every Saturday morning I go and have my car washed. This past week, just
as I sat down, I heard two men sitting near me talking. From the
conversation, I could deduce that the two men had been neighbors at one
point in time. Well, much to my surprise they were not talking about
sports or the college choices of their children, which is what I hear
most men at the car wash talk about lately. What peaked my interest was
hearing one man telling of his wife’s sense of despair about the world
economic situation – her sense that everywhere you look there is
something going awry, something falling apart. The man then said that
everywhere he goes he is tired of people getting all worked up over all
the bad news and that he doesn’t engage in those conversations. (Was
that a “diss” to his wife’s need to air her concerns, I thought?) Yet
what happened next is that he started talking about his feelings about
his job loss and his work at a temporary sales position that may or may
not lead to full time work. Then his friend started talking about his
job and what is happening to him and his family because of the economic
downturn. They talked about President Obama’s 60 Minutes interview,
their feelings about President Obama’s demeanor during that segment, and
of the rationale behind the recent government interventions. At the
conclusion of this exchange, they agreed to get together for lunch
because they work near each other and to try to help each other through
these challenging times. These two men revealed their fears and
concerns. They met each other with compassion. They acted just like WISE
women! I guess sometimes we all need to talk about those things that we
really don’t want to talk about. What is on your mind?
Send comments and questions to
kim@wise-investors.org
CHANGES
4/27/2009
Posted by
Kim Selby, CFP
Income changes, job changes,
lifestyle changes, changes in expectations – change in life as
we know it!
What do we need to do in reaction to
what is happening around us? How do we muster the emotional
energy and courage to shift our way of thinking?
First, we need to acknowledge the
need to make changes. We need to mourn the loss of our past
expectations. We need to let go of our need to have what we
thought we wanted. We need to think with a renewed sense of
urgency; we need to focus on the next intended step to bring
back a sense of stability and of hope to our financial futures.
We may need a therapist for this step!
After this emotional/philosophical
first step, what is next? We need to start a slow deliberate
look at our monthly cash flows. We need to see what changes we
already made and what further changes we need to make to our
spending. Some of you may be thinking, “Who wants to do that?”
How tedious and boring! Well, it is the quickest, most painless
way to see where you stand. All you need for this step is a pad
of paper, a pencil and a calculator!
Once you and your family members
take a close look at how you chose to spend your money in the
past, and the impact of the changes you have already made, you
can feel empowered to continue to say “No”. Saying “No” is
setting a boundary - a legitimate boundary – a boundary that is
now an economic necessity for most every family. Helping
ourselves and our families take control of personal spending is
one of the steps we can take to meet the changes we see around
us.
Across the globe the stage is being
set to shift from a mindset of indulgence in excess to a focus
on sustainability. Do you have the courage to shift your way of
thinking?
Send
comments and questions to
kim@wise-investors.org
NAVIGATING TROUBLED FINANCIAL WATERS
4/20/2009
Posted by
Linda Barlow, CFP
Finding yourself laid off from your job,
returning to the workforce or wanting to start your own business can be
daunting. In addition to all the emotions this brings up: anxiety about
success, how will you be perceived by potential employers, etc., there
is a whole raft of emotions about finances as well.
If the rumors are flying around your firm
that layoffs will be happening, take some proactive steps. Begin to
stash some cash, if you don’t already have the magic three to six
months’ of living expenses saved up. Trim expenses so that you can
allocate more to savings. While we don’t like recommending reducing your
401k contributions, maybe you need to temporarily do that. After all,
the money in the 401k would have taxes and maybe penalties should you
need to use that. Just don’t reduce your contribution below any matching
that your employer does.
Beef up that resume! Prepare several
versions so that you’re ready for positions that may vary somewhat.
Cutting back on expenses is something none
of us like to think about, but if you don’t have a nice nest egg to
carry you through until you break into that new opportunity, you may
need to do that. One of the first and most obvious things you need to do
is cut back on expenses. We all have some expenses that we aren’t able
to cut back on: the mortgage, the utilities, etc. However, all of us do
have some expenses that we are able to reduce: eating out, hobbies,
clothing, personal care services are only a few. Begin to focus on the
“must haves” and forget about the “nice to haves” for the moment. There
actually are many ways we can do that without feeling too terribly
deprived.
Do you really need a cell phone with all the
bells and whistles? A basic plan can save you $50-$100 per month. Are
gym dues necessary? Many community centers and community colleges have
wonderful gyms and the fees are minimal. How about investing in a good
pair of walking shoes since that is the best exercise anyway? Maybe, if
you aren’t working that much, you could temporarily dispense with the
housecleaner. And perhaps you could eat a few more meals at home.
Step up your networking, both inside and
outside of your chosen profession. While the financial return on this
isn’t so obvious and immediate, it is very real. If you own a home, open
a line of credit if you can while you’re still working. Many lenders
have stopped offering these, but if you can get one, leave it untapped
but standing ready in the event you need it. If you qualify, apply for
unemployment; that will last for 26 weeks in most states and will help
to tide you over.
This is no time to skimp on health insurance
and health care. Be sure that you are covered. Most companies offer
COBRA for up to 18 months. You will be paying full premium, which means
that you’ll also be paying the portion that your employer used to pay,
but it may still be less expensive than an individual policy since it is
based on the group rate. If you have COBRA, be really sure that you
don’t miss any premium payments. COBRA insurance may be much more
coverage than you need, especially if you are healthy. You may find
appropriate coverage that is less expensive at eHealthInsurance.com.
Tax breaks abound for the job seeker. First,
all travel expenses in search of a position or to market your new
enterprise are tax-deductible. This includes travel in your personal
automobile or in public transportation and don’t forget the parking
fees. If you’re searching for a position in your same field, fees that
you pay to employment and out-placement services are deductible.
Finally, view your situation as a new and
exciting process! You’ll discover many new and interesting things about
yourself and in a better place feeling much more confident and
empowered.
Send comments and questions to
linda@wise-investors.org
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