Making Money Alert
A Gun to the Head
09/24/2008
A Gun to the Head 2
As much as I hate to tell you this, I think at this point Congress is going to have to approve this $700 billion dollar bailout proposal lest we face a virtual crash in our financial markets.
All of this talk about the next "Great Depression," if we don’t act right now, likely will have a self-fulfilling prophecy effect if, in fact, Congress doesn’t act now to approve the plan to assume all that bad mortgage -- and possibly other -- debt.
What this effectively means is that Congress has a gun to its head -- put there by Treasury Secretary Paulson, Federal Reserve Chairman Ben Bernanke and the rest of the banking system elites who -- along with the politicos -- were essentially responsible for getting us into this mess in the first place.
There is no way that in an election year, politicians are going to risk the accusation of inaction and/or aiding and abetting a financial collapse, so they will no doubt act hastily and try to ram through bad legislation aimed at putting the reins on the beleaguered financial industry.
I’ll have more on the root causes of this issue in the weeks ahead, but it's suffice to say that when it’s all said and done, the economy and Wall Street will be changed permanently, and not, in my opinion, changed for the better.
As I’ve been saying virtually all year long, the safest place to be in these trying times has been in bonds and cash. Look at the dismal chart here of the S&P 500 index.
There’s really not too much more that I can add that your own eyes can’t let you ascertain for yourself. But what you can’t see in this chart is that readers of my Successful Investing advisory service, as well as my other advisory services, have largely sidestepped the cancer-like erosion in the value of equities. By opting to preserve capital and by acting in defense of our subscribers’ serious money, we’ve saved people from a big hit to their overall wealth.
If you’d like to find out how you can protect your wealth during this time of unprecedented financial turmoil, click here.
A Municipal Meltdown
In this topsy-turvy market, even traditional safe havens aren’t safe.
A case in point is the veritable collapse in the high-yield municipal bond sector. Usually, municipal bonds are conservative and safe places for your money. Well, that’s not so anymore.
Just look at the chart here of the Nuveen High Yield Municipal (NHMAX) bond fund. It’s not exactly the picture of safety, is it?
My intent here is not to point an accusatory finger at Nuveen, but rather to let you know that when it comes to what’s "safe" in this environment, the rules of the game are changing.
I know it’s going to be difficult, but we all are going to have to reorient our thought process as to what is safe and what isn’t from here on out.
"This too shall pass," as the saying goes, and rest assured we will get through these tough times intact. But to quote another popular adage, "the only constant is change," and indeed, we must adapt to that change -- or face financial extinction.
The Credit Crisis, the Election, the Markets, and Your Money
I can’t remember a time in my life when financial markets and a presidential election overlapped so acutely. With the market plummeting and a bailout of our banking system on the way, 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 throw at us, then I have just the seminar for you.
Join Fairway Capital President Kevin Yurkus and me on Wednesday, Oct. 8, 2008, from 2:00 p.m. to 5:00 p.m. at the Pasadena Westin hotel in Southern California for the most important financial seminar of the year.
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.
If you are a high-net-worth investor who also is concerned about the current economic environment, you must come out on Wednesday, Oct. 8, to hear how you can prepare for the inevitable winds of change blowing across our nation.
This seminar is co-sponsored by Fabian Wealth Strategies and Fairway Capital. To register for this event, simply fill in your information by clicking here or call 800.391.1118 Monday through Friday from 8 a.m. – 4 p.m. Pacific.
ETF Talk: The Income and the Risk of High-yield Bonds
Volatility in the equity markets has been causing bonds to appear particularly enticing lately. Two weeks ago, I wrote about exchange-traded funds (ETFs) that use one of the safest investments, Treasury-only bonds. This week, I am highlighting high-yield bonds that can be purchased through ETFs. I also am identifying an exchange-traded note (ETN) that focuses on high-yielding investments.
Those of you who read my ETF Talk features regularly might remember my July 22 write-up that compared and contrasted ETFs and ETNs. That article should make this one easier to follow. Remember, if you have any questions about ETFs that you’d like me to answer and that you think might interest the rest of my readers, click here and I’ll respond in an upcoming ETF Talk feature.
Keep in mind that bonds are good for providing a steady income but that they also carry a risk to principal, as well as the possibility of default. With financial companies included among those that issue corporate bonds, you need to be aware that now is not the best time to enter these investments. However, as the current turmoil begins to wane and the economy rebounds, high-yield bonds will be one of the ways to ride the recovery.
Two of the high-yield bond ETFs that I want to bring to your attention are from the iShares family. The price of each has taken a hit recently but I’m tracking both of them for you.
The first that I have my eye on is the iShares iBoxx $ Investment Grade Corp Bond (LQD) fund. The ETF typically invests at least 90% of assets in the bonds of the underlying index, and at least 95% of assets in investment grade corporate bonds. It also may invest in bonds that are not included in the underlying index. In addition, the fund is able to invest up to 5% of assets in repurchase agreements, collateralized by U.S. government obligations, and in cash and cash equivalents. This fund should be less risky than traditional junk bond funds because it is oriented toward investment-grade bonds. Beware that investment-grade bonds could slip into the junk-bond category if credit conditions worsen further.
The second iShares ETF that I am tracking is the iShares iBoxx $ Liquid High-Yield Index (HYG) fund. The ETF invests at least 90% of assets in securities that comprise the index. However, it may invest up to 20% of assets in certain futures, options and swap contracts, cash and cash equivalents, and in bonds not included in the index. The index consists of the most liquid and tradable U.S. dollar-denominated, high-yield corporate bonds that are for sale in the United States.
An ETN that I want to bring to your attention is the ELEMENTS DJ High Yield Select 10 ETN (DOD). The index tracks the stocks with the highest dividend yield in the Dow Jones Industrial Average. Since an ETN is a debt obligation of the issuer, you need to consider the creditworthiness of the entity that offers the investment. In this case, the ELEMENTS ETN tracks the senior, unsecured obligations of Deutsche Bank that are linked to the performance of the index. This ETN does not invest in high-yield bonds but it is a debt instrument that aims to benefit from high-yield holdings. As I have written in past ETF Talks, ETNs started to surface last year and they now are beginning to proliferate.
Remember, I currently am not recommending any of the investments that I am highlighting in this feature. However, the fallout from the recent crisis in the financial system appears to have been factored into the current prices. Further damage certainly is possible, so steering clear of these funds right now seems wise. But when the inevitable rebound starts to take shape and the federal government’s bailout plan becomes reality, much of the overhang holding back these funds will be gone.
Estate Planning Mistakes: Not Having Enough Liquidity
During the past four weeks, we’ve discussed the seven biggest estate planning mistakes made by investors. 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 talked about the perils of not placing your estate assets in a trust. This week I want to say a few words about not having the kind of liquidity your estate needs to pay its estate taxes.
Even if you have an estate plan in place, and even if you have your assets in a trust, your family’s security could still be at risk if there isn’t enough liquidity in your estate plan to pay Uncle Sam.
It’s my opinion that whoever wins the White House come November, estate taxes are bound to go up. That means it’s even more important than ever for you to have enough liquidity in your estate plan set aside to deal with the federal taxes your heirs are going to face.
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 over $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.
A Simple Solution for Today’s Volatile Markets
Today’s stock market beast is not the same animal it was a decade ago. In fact, the pace of change has been relentless in recent years, and even the most conscientious individual investor has had a tough time keeping up with all the financial market upheaval.
If you’re managing your own money, are you getting the results you think you should?
If your answer is no, then you need to make a change, and a good place to start is by checking out Fabian Wealth Strategies today. All you have to do is click here for your introduction to our money management services.
Randish Wisdom: Now More Than Ever!
"Government ‘help’ to business is just as disastrous as government persecution... the only way a government can be of service to national prosperity is by keeping its hands off."
--Ayn Rand
The philosopher/novelist was perhaps the quintessential champion of free markets and capitalism. I fear that if she could see what’s happening now in our financial markets, she’d be turning over in her grave. I think Mr. Paulson, Mr. Bernanke, Sen. McCain, Sen. Obama, and every member of Congress should go home and read Rand’s masterwork "Atlas Shrugged" before they decide, in effect, to nationalize our financial infrastructure.
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 that you have about my radio show, newsletters, seminars or anything else.