Making Money Alert
A Market On Tilt
10/22/2008
Last week, we witnessed a bit of a comeback in stocks, as the Dow, S&P 500 and NASDAQ Composite all managed to log their first winning week in many months.
Yet in a testament to the tremendous volatility and fear inherent in this market, stocks fell sharply late in Tuesday's session, and again at the midway point of Wednesday's trading.
The chart below of the S&P 500 clearly shows that despite a few bullish days last week, this market still is very much on tilt.
For those of you who don't know the lingo, "on tilt" in poker parlance is a term used to describe what happens when a player lets emotions cloud his or her poker judgment. And while Wall Street may have great reasons for going on tilt lately, there is no denying that emotion and fear have played a big role in this current market sell-off.
All year long, I have warned you to steer clear of this volatile, emotional and on-tilt market, and if you have heeded my warnings you're likely sitting with a lot of cash. I know that it's tempting right now to think that this may be a market bottom, and that now is the time to buy, but I caution against that line of thinking.
This market still could go a lot lower, and although I do think we are coming closer to the point where the market has bottomed, I can't say that we are there yet.
So, when will you know when to get back into stocks? Simple, it's by having a proven plan that tells you when the waters are safe again. That plan is the backbone of my Successful Investing advisory service, and it's the same plan that got us out of the market right before the 1987 market crash -- and the 2008 market crash.
It's Not Capitalism's Fault
These days, it's tough to tune in to the financial news TV networks or read the Wall Street Journal without an impending sense of doom. Sadly, I've had to watch the virtual destruction of our credit, equity, housing and capital markets unfold right before my very eyes.
It's an overwhelmingly sorrow-laden experience for me, as I've witnessed our once-mighty capitalist experiment descend into a nightmare of government bailouts, regulations on short selling, federal purchases of commercial paper, and the overwhelming sense that all of this mess has somehow been caused by the free market.
Now, I do not want to get too philosophic here, but I think that given the circumstances, justice and prudence demand that I come to the defense of freedom. You see, it really disturbs me that capitalism and the idea that government should not be involved in the economy is at the root cause of this whole financial quagmire.
Rather than pointing their fingers at capitalism, the Washington elite and the media intelligentsia need to start pointing the finger at themselves. To be certain, Wall Street avarice, unscrupulous business practices and some downright stupid decisions were made by investment banks, big mortgage lenders and financial insurers such as American International Group (AIG). But these bad decisions largely were punished by the free market in the form of sinking equity values and corporate bankruptcies.
Who has not been punished in this fiasco, and who in fact is more powerful than ever, is the federal government. Led by both Democrats and Republicans, the pork-laden $700 billion bailout bill finally made it through Congress and was signed into law by President Bush on Oct. 3. This bill gives unprecedented power to the same political elites that got us into this mess in the first place.
Starting years back with Congressional support for Fannie Mae and Freddie Mac, these agencies carried out the government-spearheaded mandate to lend money to those borrowers who were either unqualified to receive home loans or who were poor credit risks.
Then came Mr. Greenspan's Federal Reserve reign, in which he cut interest rates to basically nothing. The chairman's slashing of rates, along with the mandate imposed on Fannie and Freddie to lend to undesirable borrowers, combined to create an explosive cocktail that fueled the housing bubble -- which inevitably led to the subprime mortgage explosion, the abhorrent leverage these loans were packaged and sold for, and the eventual collapse of the credit market house of cards.
The not-so-invisible hand of government intervention in the housing and capital markets is the real culprit here, and I am sick and tired of uneducated freedom haters blaming the free market and capitalism for what was clearly a government-created situation.
Enough said.
The Election, the Markets, and Your Money 3
In less than two weeks America will elect a new president, and as we draw closer to Nov. 4, Sen. Barack Obama has opened a substantial lead in most of the polls. I still think the race will be very, very close, and that means we could be in for a long election night.
A close election also means that we are liable to see a lot more volatility, as well as a lot more selling, before the final decision is rendered on who will move into the Oval Office. You see, it's a well-known fact that what Wall Street hates most is 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 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: Is Gold Going to Glitter Soon?
With the Fed loosening the money spigot through interest rate cuts and other monetary tools, inflation is becoming more of a concern for investors. When that happens, gold often becomes a safe haven investment.
If you are thinking about investing in gold, I advise caution for now. Gold is showing no clear sign of an upward trajectory. With the economy appearing to slow, inflation is not the only threat on the financial radar screen. Sure, you can keep potential gold investments in mind for when the time is right. But I personally don't think that window of opportunity has opened yet.
For those looking to find gold-oriented funds to buy, I have uncovered four for you to keep on your personal "watch list." Two of the funds, SPDR Gold Shares (GLD) and iShares COMEX Gold Trust (IAU), are exchange-traded funds (ETFs) that go long on gold. Another is Market Vectors Gold Miners (GDX). The PowerShares DB Gold Double Short (DZZ) is an exchange-traded note (ETN) that is a double bet against gold.
Should you rule out any exposure to gold right now? Well, that call is up to you. I like to see 200-day moving averages go in favor of an investment before I recommend it, and gold does not meet that standard just yet. Indeed, the price of gold has fallen sharply recently. The price of gold had slipped to $743.27 an ounce, down $23.93 an ounce, by 11:40 a.m. EDT today. In addition, the price of gold has fallen 20% since topping out earlier this month at $918 on Oct. 9.
What happened? Well, the gold sector can become overbought at times -- especially when investors look to protect themselves from inflation. Many traders jump into and out of gold investments within just hours or days. Such trading creates volatility that is disconnected to fundamentals. A rising dollar also can hurt gold prices and that factored into the commodity's decline in value this month.
I understand that many investment commentators consider gold to be a hedge against the current market volatility. Well, the price of gold has not held up. This situation may change, but it hasn't yet. For that reason, it seems premature to make a big bet on gold.
When Life Insurance Becomes Wealth Insurance
How you can use your policy to help generate cash in a tough market.
By Kevin Yurkus, President, Fairway Capital
It's a mad, mad, mad, mad world on Wall Street these days, and unless you've been buried under a veritable avalanche of rock for the last several months, you're undoubtedly painfully aware of just how much damage has been wrought in the equity markets.
To put that damage into perspective, let's look at a few vital statistics. For the 12-month period from October 10, 2007, to October 10, 2008, the S&P 500 index plunged 43%. Foreign markets, as measured by the EAFE Index, sank 48%. Investment interest rates on the 10-year Treasury note dropped from 4.65% to 3.86%. Real estate/housing prices were down 9% nationwide and 11% in Arizona. Oil prices surged 25%, while the shares of blue chip stalwarts such as Ford and General Motors plummeted 76%, and 87%, respectively.
Widespread consolidation and outright bankruptcies amongst big financial firms like Countrywide, AIG, Bear Stearns, Merrill Lynch, and Lehman Brothers have effectively remapped the entire banking landscape. And of course, we have yet to begin assessing the aftereffects of the federal government's $700 billion bailout package.
Understandably, many investors now are wondering what to do and how they can stay ahead amidst this market descent.
So, what's a savvy investor to do?
One strategy you can employ to help weather this market storm is to "maximize" your life insurance policy.
It's estimated that approximately 73 million Americans currently have life insurance policies, yet I doubt many people know just how powerful a weapon your policy can be in the battle for maximum wealth appreciation.
Let me outline a couple of examples of how you can use life insurance to help protect and grow your wealth.
If you're like me, I suspect that you have a low-cost term life insurance policy sitting in your desk drawer. In most cases, those term policies expire without paying a benefit. When the term is up, we simply allow our policies to cancel. After all, what other option do we have?
Fortunately, that term policy doesn't have to be a dead asset. In fact, did you know that you have the option of selling an expiring term policy for cash? That's right; there are firms out there that will buy your term policy from you.
You see, in recent years there's been a burgeoning secondary market for term life policies, where Wall Street institutions such as Deutsche Bank, Credit Suisse, Berkshire Hathaway and others actually pay policy holders cash to purchase their life insurance policies. These institutions offer cash settlements in exchange for your in-force life insurance policy.
For example, I recently had a situation where a 59-year-old man had a $3.5 million convertible term policy he took out to protect his family from a devastating loss of income they'd suffer if something happened to him. The existing term policy was set to expire in less than a year.
He sold that policy to Wall Street banks for $400,000.
The math on how the value of a policy is determined varies from case to case, but what is important for you to know is that because of this new secondary market for life insurance, you may also be able to turn an expiring asset into real money.
Want another example? I recently worked with a 73-year-old male who had a net worth of $3 million. He had a universal life policy, but due to some smart estate planning he no longer needed the asset protection that policy was designed to supplement -- and of course, he preferred not to have to continue paying those insurance premiums.
This gentleman sold his policy for $469,015.
You see, because of the tremendous growth of the secondary insurance market in recent years, insurance policies no longer have to be looked at as expiring and/or essentially worthless agreements.
Many savvy investors now realize the true value of their life insurance policies, and in many cases that value is literally locked up in their home safe. Because of the secondary market for insurance -- and with the right assistance from an experienced advisor -- you too can turn your policy into virtual gold.
The fact is that these days, life insurance is an asset class. And given the current decline in traditional asset classes such as stocks and bonds, now could be the best time ever to "maximize" your insurance policy by turning it into cash.
About the Author:
Kevin Yurkus is the president of Fairway Capital, a leading life insurance and financial services firm based in Newport Beach, Calif., serving clients nationally and internationally. Fairway Capital specializes in innovative solutions tailored to high net worth senior citizens, ranging from estate planning to life settlements. Contact Kevin at 800.338.1035 or see the firm's Web site.
The Ghost of Tom Joad?
Shelter line stretchin' round the corner
Welcome to the new world order
Families sleepin' in their cars in the southwest
No home, no job, no peace, no rest
The highway is alive tonight
But nobody's kiddin' nobody about where it goes
I'm sittin' down here in the campfire light
Searchin' for the ghost of Tom Joad--Bruce Springsteen, "The Ghost of Tom Joad"
The financial crisis of 2008 has prompted many to claim that we are in the worst financial mess since the Great Depression. Both presidential candidates have evoked the ghost of the horrible 1930s' economic climate, and many financial pundits -- including myself -- have referenced this crisis in relation to those dark days. But before we get carried away with this comparison, it might help to first understand what kind of real pain was out there during the Great Depression, versus the pseudo economic pain that, by comparison, we are dealing with today. To get a real sense of the kind of pain our nation experienced in those Dust Bowl years, one need only read John Steinbeck's classic novel, The Grapes of Wrath. I dare say that none of us would trade places with the main character, Tom Joad, Steinbeck's quintessentially downtrodden protagonist. Anybody who reads this work will quickly realize how truly blessed he or she is right now -- despite the current economic rough patch.