Making Money Alert
A Bull Within A Bear
10/15/2008
The market madness during the past week has been truly stunning.
The tumultuous volatility in equities has been unprecedented, and even the most ardent adjectival devices fail to capture the essence of what likely will be looked upon as the greatest turning point in financial market history.
Last week, we actually had a bull market within this bear market. From the lows on the Dow last Friday, when it was down more than 700 points, to the highs of the Dow on Tuesday morning, we had a 23% rally!
To be certain, the sharpest rallies historically happen within bear markets, but I can’t recall a bull market that lasted just under two trading days!
Of course, today’s massive plunge of more than 500 points (as of this writing) underscores the truly wild and unprecedented levels of fear and loathing oozing through every crack and crevice on Wall Street.
Just look at the move in the S&P 500 since late September.
It’s hard to find a precedent for this kind of plunge, save the declines of October 1987 and, of course, October 1929.
Now, because of the high selling volume in U.S. markets, some people have asked me if global markets are the place to be. To those people I say no -- at least not yet.
One glance at the chart of the EAFE Index shows that international equities also have been caught up in this hurricane-force sell-off.
But despite the selling in the EFA, I do think that smaller emerging markets may be the first to come charging out of the gate when the bulls return en masse. Most of the emerging markets of Asia have strong economic fundamentals, and most have growth drivers in place that can take their financial markets higher.
I will be looking to those areas in the coming months for a cue as to when to start thinking about making some international investments. But until I get a cue, any cue, that this market meltdown has cooled, my advice is to stay on the sidelines and exercise your patience.
The Election, the Markets, and Your Money 2
The race for the White House is nearing the finish line, and tonight we’ll get a chance to see the final tête-à-tête between Democratic Party presidential nominee Barack Obama and Republican nominee John McCain.
The latest numbers from the Reuters/C-SPAN/Zogby daily tracking telephone poll shows the race is getting closer and closer by the day. As of Tuesday, the poll’s three-day rolling average showed Obama leading McCain by a 48.2% to 44.4% margin, an advantage of 3.8 percentage points. This comes after Obama led by a margin of 6.2 percentage points the day before.
What the polls tell me is that neither of these candidates has a chokehold on victory, and that means a lot more uncertainty during the next three weeks in the markets. Wall Street hates uncertainty, and with all of the uncertainty surrounding the bailout, new banking regulations, new financing models and new lending parameters -- and now the uncertainty of who will be elected the next leader of the free world -- it’s no wonder we’re destined for more market undulation.
I can’t remember a time in my life when financial markets and a presidential election overlapped so acutely. With the equity and credit markets in chaos, and with no real solutions to the madness yet in sight, you have every reason to be extremely worried about the election, the markets and your money.
If you want to lift that burden of worry from your shoulders, and if you want to be prepared for whatever the Washington elite -- and the American electorate -- throw your way, then I have just what you need.
I recently presented a seminar along with Fairway Capital President Kevin Yurkus aptly titled, “The Election, The Markets, and Your Money.” Now you can listen to this seminar, and you can download a seminar workbook and PowerPoint presentations by clicking on the link here
The risks and opportunities heading into this voting season have made this the most important election in recent memory. That is why Kevin and I are so concerned about the future of the credit markets, taxes, the stock market, and your investments.
I encourage you to take a listen to this most-interesting seminar. I guarantee it will be worth your valuable time.
ETF Talk: Revealing Fund Flaws
Subscribers to my investment newsletters and trading services know about my passion for exchange-traded funds (ETFs). During the past several months, I have provided you with features aimed at helping investors improve their portfolios with a variety of funds that are both diversified and cost efficient. Time and time again, I have praised ETFs: my favorite investment tool.
Today, however, I am going to point out a few disadvantages of trading ETFs. Before I get started, if you have any questions about ETFs that you'd like me to answer in an upcoming ETF Talk feature, please click here.
I still believe that the positives far outweigh the negatives when it comes to ETFs. However, it is important for investors to understand both the pros and cons of any investment tool -- especially in this ever-so-volatile market.
One of the reasons I think ETFs are a smart investment is their modest cost. ETFs offer low expense ratios, and annual expenses typically are deducted from dividends. ETFs also produce fewer capital gains and are more tax efficient than mutual funds. But investors must buy ETFs through a broker. Brokerage fees often can outweigh the low-cost tax advantages of ETFs. Therefore, ETFs probably are not for short-term investors who trade shares frequently.
In the past, I have noted that I love the simplicity and variety of ETFs. One downside of ETFs being so easy to trade, however, is that there is a risk that investors will move into sectors that they believe are hot -- and then wait too long to sell. Often, individual sector funds lack the diversification to insulate you from taking a hit when that sector starts to retreat.
ETFs also can be limiting. Although the number and kinds of ETFs are growing everyday, there still are sectors or regions that have limited or no representation via ETFs.
There also is an increased volatility and market risk when trading ETFs. Many sector or single-country ETFs may be overloaded in one stock or have a large amount in its top 10 holdings. Investors also should consider the economic situation, currency risk, and political risk when investing in single-country ETFs.
Finally, ETFs still are relatively new. Investors should do their homework before investing in any ETF. Make sure your investment advisors are knowledgeable with investing in these unique funds.
After reading some of the disadvantages of trading ETFs, you might wonder why I am so enthusiastic about these funds. Despite the limitations of ETFs, I believe they are the most cost efficient and diverse investment tools now available to investors.
Remember that in volatile economic times like these, it’s important to invest with extreme caution -- that holds true for any financial instrument, including ETFs.
Estate Planning Mistakes: Failing To Properly Use Life Insurance
During the past seven weeks we’ve discussed the seven-biggest estate planning mistakes investors make. In week one, we reviewed each of the seven. But in case you missed it, here’s a quick list of each of these big mistakes:
- Not having an estate plan
- Not reviewing your plan annually
- Not placing your assets in your trust
- Not having the liquidity your estate needs to pay estate taxes
- Delaying decisions and planning due to tax policy uncertainty
- Not taking advantage of tax planning and wealth transfer strategies
- Failure to properly utilize life insurance as a planning and liquidity tool
Last week, we discussed the complications that can arise when you don’t have the proper wealth transfer strategies in place. In this final installment of our estate planning mistakes series, we’ll take a look at the failure to properly utilize life insurance in an estate plan.
Everyone knows that having adequate life insurance in place is an absolute necessity, yet most people don’t realize that life insurance can be a powerful tool in your estate planning arsenal. Because life insurance offers immediate liquidity upon the death of the insured, a proper amount of life insurance can be the transitional grease that keeps your family’s financial future from grinding to a halt.
Having the proper amount of life insurance is an essential component to most estate plans, but you’d be surprised at the number of people I encounter who either have no coverage, or who are woefully underinsured. Don’t let the lack of life insurance stunt the transfer of capital to your loved ones.
If you have substantial assets, you need to have the right mix of liquid assets in place within your estate plan. Fortunately, my friend and colleague Kevin Yurkus, president of Fairway Capital, is an expert at helping high-net-worth investors manage their estate plans. Fairway Capital is a sponsor of my weekly radio show, and one reason why is because I trust Kevin’s judgment when it comes to all things estate planning.
If you have assets of more than $2 million, you MUST listen to my new audio special report. In this report, we cover each of the seven-biggest estate planning mistakes, and we explain how easy it is to correct each one.
To listen to this FREE audio special report, click here
The Credit Crisis -- A Dickensian Analysis
“Credit is a system whereby a person who can not pay gets another person who can not pay to guarantee that he can pay.”
--Charles Dickens
The incredible prescience of the great English novelist proves to me that once again, sage exposition and acute perceptions on human behavior are most likely to be found within the pages of sublime literature. If you want to know how the world works, you might just want to bury your nose in the pages of the world’s greatest books.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars or anything else.