Making Money Alert

Forgot?

Sections

Articles

Follow The Bouncing Market Ball

Print This

10/29/2008

The Federal Reserve just cut its target for the federal funds rate, the interest banks charge on overnight loans, by 50 basis points. The fed funds rate now sits at 1%, its lowest level since 2004.

Today's cut was the second half-point reduction in the fed funds rate this month. If you recall, the Fed slashed the rate by that amount in a coordinated move with foreign central banks on Oct. 8.

In the accompanying statement explaining its action, the Fed said the "intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit."

The central bank also said that the spread of economic weakness had lowered the risks that inflation would get out of control.

Stocks reacted rather mildly to the news, as the move was largely anticipated on Wall Street. I think that after Tuesday's near 900-point, 10%-plus-move higher in the Dow, buyers and sellers are taking a much needed breather.

As you can see from the chart above of the S&P 500, despite the big up day on Tuesday, we still are way below both the 50-day (blue line) and the 200-day (red line) moving averages.

In my opinion, no move by the Fed, no move by the Treasury Department, and no election of a new president is going to prompt stocks to rally all the way back above those moving averages -- at least not anytime soon.

I think we are in for a lot more volatility, a lot more buying and selling, and a lot more market angst before the crash of 2008 can be put in the books. That means you are going to have to follow this bouncing market ball for a while longer.

Fortunately, you can take advantage of that angst by buying and selling exchange-traded funds (ETFs) that benefit from a volatile market.

If you want to profit while stocks fluctuate wildly, and if you have a strong tolerance for volatility, then my ETF Trader advisor service just might be right for you.

To find out more about the ETF Trader service, click here.

Make Better Use of Your Tuesday

As a special election treat, I thought I'd let one of my favorite writers and polemicists, Jim Woods, weigh in on what Tuesday's vote means to him. I think that you'll find his rather unconventional stance both entertaining and provocative.

By Jim Woods

The sense of national purpose that's been ascribed to this Tuesday's presidential election is palpable. Both conservative and liberal pundits have branded this year's vote the most important in recent history, and I suspect that you can't wait to visit to your local polling station to both make your voice heard and to participate in our great democracy.

Now, at the risk of stirring up your ire -- and at the risk being branded a heretic -- I am about to tell you why your vote doesn't matter.

Why doesn't your vote matter? Well, because a vote for either Sen. McCain or Sen. Obama is, in essence, a vote for the same thing. I say "in essence" here, because essentials are what really matter. You see, when it comes to the essential philosophic beliefs of both men, the word indistinguishable comes to mind. Let me explain.

Both McCain and Obama have accepted the idea that the purpose of government is to micromanage the economic affairs of its citizens, and to make laws that regulate businessmen and that redistribute wealth. Both men think its America's moral obligation to foist freedom and democracy to foreigners using our soldiers' blood, and both are willing to let America's self-interest on security issues be determined by the amorphous notions of the so-called "world community."

Don't believe me? I can prove it. In McCain's case, he's repeatedly promised to take on drug companies and battle big oil, and he supports making Wall Street and the banking industry subservient to the Treasury Department. Obama has vowed to effectively socialize health care, and to force us all to pour our tax dollars into government-sponsored alternative energy schemes. He also wants to punish the most productive members of society via tax increases on the so-called "rich." His tax proposals amount to turning the most successful among us into a servant class for those who haven't achieved the same kind of income-producing ability.

As for foreign policy, McCain has promised to respect the collective will of our democratic allies. Obama promises to uphold the idea that it's America's duty to promote the spread of dignity and opportunity throughout the globe. He also says that he will negotiate with religious fanatics who would like to bring about the destruction of America.

Sadly, neither McCain nor Obama seem to realize that they are violating the very essence of America with the essence of their beliefs.

The proper purpose of government, as outlined by the Founding Fathers, is to protect individual rights, and to protect each citizen's right to life, liberty, property, and to allow them the freedom to pursue their own happiness. The way government achieves this is by protecting the citizen from physical force -- either in domestic social arrangements or from foreign entities.

An even more crucial aspect of the proper purpose of government is the protection of citizens from government. Because government is an agent of force, it must be prohibited from misusing and abusing that force. The Founding Fathers wrote the Constitution largely to impose limits on the government's power to impinge on individual rights.

This restrained version of government is the essence of America, and it's what has made this country great. Unfortunately, you don't hear this America reflected in the views of either Sen. McCain or Sen. Obama.

So, vote if you want to, but don't delude yourself into thinking your vote is going to make an essential difference when it comes to the direction this country takes.

As for me, I am going to make better use of my Tuesday by engaging in more intellectual activism. I will keep on writing and trying to convince anyone who'll listen that what we need in this country is not a political rearranging of the deck chairs, but a return to the philosophic principles outlined in this nation's founding documents.

I also may engage in other selfish pursuits, such as spending quality time with friends and family, working on my physical fitness or figuring out how to protect my investments from this current market storm.

Whatever I do, it will involve the pursuit of life, liberty and my own happiness -- and not the self-delusional trek to my local polling place.

I recommend you make better use of your Tuesday and do the same.

Jim Woods is a freelance financial journalist specializing in the economy, the markets and politics. He welcomes your comments, and can be contacted here.

What You Won't Hear Tonight From Obama

Tonight , television viewers will be barraged with a multi-million dollar ad buy from Sen. Barack Obama. The Democratic Party's presidential candidate has purchased 30 minutes of primetime TV space, and his final closing argument to the American people is scheduled to air tonight at 8 p.m. EDT on most major television networks.

I have no doubt that you are going to hear a lot about "change" and "making history" during this half hour, but here are a few things you won't hear about tonight.

First, you won't hear about Sen. Obama's promises to devote another $1.3 trillion during the next 10 years to several new or expanded tax credits.

You won't hear that his proposed income-based health-insurance subsidies, tax credits for the smallest businesses, and expanded Medicaid eligibility are going to cost taxpayers another $1.6 trillion.

You won't hear that between the tax rebates and the health insurance subsidies you, the taxpayer, will be stuck with a $2.95 trillion bill by 2012, according to the Brookings Institution's Tax Policy Center.

You also won't hear about how Sen. Obama plans to pay for the 176 other programs he's promised to spend more money on throughout this campaign. According to the National Taxpayers Union Foundation (NTUF), excluding his health plan, Obama would raise spending by $611.5 billion during the next five years; the 10-year total (excluding his health plan) would exceed $1.4 trillion.

Altogether, the NTUF estimates that Mr. Obama has promised at least $4.3 trillion of increased spending and reduced tax revenue from 2009 to 2018 -- roughly an extra $430 billion a year by 2012-2013.

Oh, and how is he going to pay for all of this?

His plan to raise tax rates on the salaries, dividends and capital gains of those making more than $250,000, and phasing out their exemptions and deductions, can raise only a small fraction of the amount. In fact, Mr. Obama's proposed tax hikes would be unlikely to raise much more than $30 billion a year by 2012.

I guess mathematics wasn't part of the curriculum at Harvard Law School.

Aside from the fact that Obama's numbers don't add up, he has failed to offer up any clue as to how he proposes to pay for his government-centric health-insurance plan, or how he plans to pay for the doubling of foreign aid, or any of the other programs he's promised to expand.

No, you won't hear much tonight about making the numbers work. Rather, you'll be flooded with a lot of mellifluous platitudes about "change" and a "national unity" for America.

Pass me the Advil.

The Election, the Markets, and Your Money 4

In less than a week 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 with the uncertainty of how a new president will govern -- 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 site, 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: Clearing Up the Mystery of Mispriced Funds

As much as I like exchange-traded funds (ETFs), I frown when they become mispriced. This happens when the market price of an index ETF is different from its underlying net asset value (NAV). If an investor in such an index ETF needs to sell quickly, the mispricing may cause a bit of a financial hit.

In reality, the price of an index ETF "resembles," but is independent of a fund's NAV. For example, when there suddenly are more fund sellers than buyers, the market price of an index ETF may be lower than its NAV. With the recent market drops giving nervous investors a host of reasons to sell, the risk of such mispricing is heightened. I want you to be aware of this mispricing risk if you are thinking about buying index ETFs. If your plan is to buy and to sell quickly as a short-term trader, you face an increased risk of mispricing.

On the other hand, it also is possible for the market price of an index ETF to exceed its NAV when demand for fund shares temporarily exceeds the supply. This situation is not a problem for ETF sellers, as long as the buyers are willing to pay a premium to acquire the shares.

You also should be aware that "tracking errors" can occur. That situation can happen when an ETF pays out quarterly dividends that are received from the underlying stocks that it holds. However, the stocks held by the ETF may pay dividends to the fund throughout the quarter. As a result, an ETF may hold the cash received from the dividend payments, even though the underlying benchmark index does not hold any cash. This situation particularly applies to index ETFs known as HOLDRs that are organized as trusts. The HOLDRs cannot reinvest dividends, and must hold any dividend payments as cash.

Even though I am a big fan of ETFs, I want to be sure that you to know about the mispricing and tracking error issues that I just highlighted. Every investment has its strengths and weaknesses, so it is in your best interest to know the facts before investing your hard-earned money in anything.

In closing, I want to encourage you to ask me any questions that you may have about ETFs. If you have ETF-related questions, please click here.

Finally, you should not avoid investing in index ETFs just because of mispricing and tracking errors. However, I want you to be fully informed about these imperfections. Remember that I'm here to help guide you and it gives me great satisfaction to illuminate the path for investors who seek to invest in ETFs successfully.

Thinking of Letting Your Term Life Policy Expire? Why Not Turn it Into cash? 2

By Kevin Yurkus, President, Fairway Capital

Chances are you have owned a term life insurance policy for years. You probably purchased the policy to provide for a beneficiary after your death. However, for many term life insurance policyholders, the purpose and value of the policy begins to change with each passing year. The policy may be about to expire, and converting that policy into another insurance product would likely be too expensive.

If you're in this situation, a life settlement could be the solution for you.

A life settlement is a financial transaction in which a life insurance policy owner sells an unwanted or unneeded policy to in institutional investor for a lump-sum dollar amount. The institution becomes the new owner and beneficiary of the policy, and is responsible for all subsequent premium payments.

A life settlement gives you cash to use however you like -- right now. You can pursue a professional dream, travel the world, help a grandchild with college tuition, or whatever else you see fit to do with your money.

While life settlements have become an integrated part of estate planning for people over 65, recently "early life settlements" now have become available for people who are between 56 and 70 years of age.

The sale of an existing term life insurance policy transforms what is often seen as a liability or a necessary evil into a resource that can and should be managed as part of an overall financial plan.

It's estimated that approximately 73 million Americans currently have life insurance policies, yet many people don't realize how powerful an asset their policy can be in the battle for maximum wealth appreciation.

Instead of letting your term life policy expire without paying you a benefit, you can use an early life settlement to your advantage. Here are just a few of the reasons why you should consider leveraging this new opportunity:

Many savvy investors now see the true value of their term life insurance policies. Given the current decline in traditional assets such as stocks and bonds, now could be the best time ever to realize the power and flexibility that has been locked away in your term life policy.

If you have an expiring term life insurance policy and want to learn how you can convert it into cash, call Fairway Capital today at 800.338.1035. Our team of experts will evaluate your current policy at no cost to determine if you are eligible for an early life settlement.


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 at www.fairwaycapital.net.

The Jeffersonian Perspective

"A wise and frugal government...shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government."

--Thomas Jefferson, First Inaugural Address, March 4, 1801

If you feel sad after reading Jefferson's brilliant prose on the limits of government, then I totally understand. It pains me to think that here we are, over 200 years later, and both major political parties have abandoned the idea of "wise and frugal government." It makes you want to heed some good advice and make better use of your Tuesday.

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.

         
Test message.