Making Money Alert
Holiday Cheer or Holiday Jeer?
12/24/2008
Stocks have been immersed in flux in the weeks leading up to the Christmas holiday. We saw some positive movement in the market last week, but this week we've given back most of last week's gains.
So, will it be holiday cheer or holiday jeer in the week between Christmas and New Year's Day?
Of course, nobody knows for certain, but what we do know is that this market is trying to find its holiday footing, and so far that footing has been unstable at best.
Take a look at the chart here of the S&P 500 Index.
As you can see, we are now just slightly below the 50-day moving average (blue line). We broke above this mark briefly last week, but the move to the upside failed to take hold.
I think 850 is the key technical marker here. If we stay above 850, we may be able to start rallying again. If, however, we break through this short-term support level, we may find going back up to be a very difficult slog.
Whatever happens, one thing we know for certain is that we are not out of the precarious woods just yet. And even if Santa brings us a bull for Christmas, that bull will face a whole lot of obstacles as it marches into 2009.
If you'd like to find out how to profit from stocks whether the market is full of cheer or jeer, then my ETF Trader advisory service is for you. To find out more, click here.
Financial Success in 2009
The New Year is just barely more than a week away, and soon we'll all be resolving to not make the same mistakes that we made in 2008. I suspect that many Alert readers can plead guilty to the charge of making bad mistakes this year, as conditions in the market were so treacherous that even the most nimble market dancers likely took a tumble or two.
If you haven't started making your financial New Year's resolutions for 2009, let me give you a little head start. Here's just a sneak peak at what I want smart investors to resolve to do next year:
- I will prepare my family for a tough economic environment in 2009.
- I will have a positive increase in my liquid net worth in 2009.
- I will save in excess of 10% of my gross income in my retirement accounts.
- I will save and safely secure at least three months of living expenses.
- I will stop losing money on bad investments or bad investment advice.
During the past several weeks, I've talked to my radio show listeners about ways to prepare for what I think will be another tough, yet potentially very profitable year.
How can I say "tough, yet potentially very profitable" in the same sentence? That's simple. You see, when you know how to navigate choppy market seas, you are able to profit no matter what the market hands you.
But in order to accomplish this admittedly difficult task, you need to adopt a new mindset. You need to adopt new investing techniques, and you need to get rid of bad investments and bad investment advisors.
In 2009, you should reassess your goals and investment objectives. Many investors found themselves painfully misallocated when it came to what type of investments they actually owned, versus what kind of investments they should have owned based on their goals and objectives.
Also in 2009, you should have a growth strategy in place that takes advantage of bear-market rallies. You also should know all about the various tools at your disposal, such as broad market exchange-traded funds (ETFs), bear market funds, sector ETFs and of course, the most underrated and underappreciated asset class -- cash.
Another goal for 2009 should be for you to know how to generate income from your assets, and you should learn about the various instruments out there that allow you to safely generate the monthly income you're seeking.
And finally, in 2009 you should always manage your portfolio with an eye toward minimizing your tax liability. Hey, we all have to pay taxes, and with the new presidential administration in Washington and a favorable Congress at its disposal, you can be certain we are going to be paying higher and higher taxes in the years to come. Getting prepared for this eventuality in 2009 is just the smart thing to do.
To listen to the latest installment of my radio show series on success in 2009, click here.
New Radio Show Time Slot Begins This Saturday
First of all, let me take this opportunity to thank all of you who listen to my radio show every week. I truly love being on the radio, and your support helps keep me there. With that said, I want to announce a new time slot for my Saturday show in Phoenix, Ariz.
Beginning this Saturday, Dec. 27, Doug Fabian's Wealth Strategies radio show will air at 11 a.m. Mountain Time on KFNN, 1510 AM in Phoenix, and 10 a.m. Pacific Time on KRLA 870 AM in Southern California.
If you're not in one of these markets but still want to listen to the show live, you can do so online. Just click here for details on how you can listen live.
I am looking forward to another great year on the air, and I invite all of my Alert readers to join me.
ETF Talk: OPEC Fails to Stem Falling Prices
The Dec. 17 decision by OPEC to slash its daily oil production output by 2.2 million barrels a day failed to stop the downward slide in prices. The move does show that OPEC nations are banding together in an attempt to stem further oil price drops. OPEC still has significant clout, but market forces are pushing oil prices down further due to reduced global demand.
Indeed, the price of oil fell below $38 a barrel on Dec. 23, amid thin pre-Christmas trading. That price is more than $100 below the $147 a barrel mark that oil topped out at less than six months ago in July. It also marked an oil price plunge of more than 70%.
Oil prices have slipped to such an extent that it remains an open question how much further they will fall. Forecasters are predicting that oil prices could fall to $30 a barrel or less in the coming months as worldwide economic conditions weaken.
For investors, there is no rush to buy oil exchange-traded funds (ETFs) right now. IHS Global Insight Chief Economist Nariman Behravesh recently predicted that oil prices could tumble all the way to $30.
"With the economic outlook deteriorating by the day, futures markets for commodities have not priced in the full extent of the "demand destruction' taking place," Behravesh said in a research note.
I am skeptical that the cut in oil supply that takes effect on Jan. 1 will halt the falling price of oil. Shortly after the agreement was announced, oil prices fell $3.54 to $40.06 a barrel on news that weekly data showed oil inventories in the United States -- the world's biggest oil consumer -- growing due to reduced demand. Keep in mind that the latest production cut is the third that OPEC has announced this year.
The 11 OPEC members that are bound by the latest output limits will cut their supply to 24.845 million barrels a day -- down nearly 15% from September's output. OPEC's rationale for cutting its supply of oil is supported by its Dec. 16 monthly market report that predicted demand for its crude oil will fall by 700,000 barrels a day this year and will drop by at least that amount in 2009 as economic conditions sag.
One media report quoted an unnamed senior OPEC official saying "reasonable" member nations in the group would accept short-term prices of around $50 to avoid worsening the current economic downturn.
The market clearly is going the other way.
The good news for investors looking to profit from the inevitable rebound in oil prices is that exchange-traded funds (ETFs) are available to help you do so when the time is ripe.
Two funds that you may want to become familiar with are United States Oil Fund ETF (USO) and iPath S&P GSCI Crude Oil Total Return (OIL). USO is an ETF, while OIL actually is an exchange-traded note (ETN).
A visual description of the sliding price of oil is presented in the above chart of United States Oil Fund ETF (USO). Oil prices have undergone a pretty steady decline since Sept., and I don't expect that trend to change anytime soon.
Don't forget that if you have any questions about ETFs that you'd like me to answer in an upcoming ETF Talk feature, please click here.
Cashing in on a Life Well Lived
How an early life settlement can put money directly into your pocket.
By Kevin Yurkus, President, Fairway Capital
The data is in, and it's not pretty.
On December 1, 2008, we got news that the U.S. economy had officially slipped into recession. Unfortunately, that recession began a full year earlier. According to the National Bureau of Economic Research, the economic expansion that began in November 2001 reached its climax in December 2007.
To this I say: tell me something I don't know.
The fact is that over the past year, anyone reading a newspaper, watching the news or just plain awake knows the kind of dire straits the economy and the financial markets have been mired in for the entirety of 2008.
The problems in the economy and the concomitant decline in the equity markets -- with many of the major market indices down over 40% on the year -- has many investors scratching their heads in search of some kind of positive cash flow. And while there isn't too much you can do about the troubled asset class that is equities, there is one asset class you probably already own that could put a nice chuck of cash directly in your pocket.
No, I'm not talking about the old gold jewelry you have lying around that you no longer wear. I am talking about something I suspect you already have -- a term life insurance policy.
According to industry estimates, approximately 73 million Americans currently have life insurance policies. I doubt, however, that many people realize just how powerful a weapon your policy can be in the battle for maximum wealth appreciation. Fortunately, there is a strategy you can use to help get you through the current market malaise, and it involves what I call "maximizing" your term life insurance policy.
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 melting 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.
Thanks to 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, you can take an expiring asset and transform it into cold, hard cash.
My firm, Fairway Capital, helps investors sell their life insurance policies in the open market. Now, some of you have likely heard of these so-called "life settlements," but you may think that they are only aimed at a certain elderly demographic.
While it is true that traditional life settlements are aimed an older policy holders, we now have what is called an "early life settlement," which is aimed at younger term life insurance holders who wish to convert their policies into cash.
And what kind of money can an early life settlement put in your pocket?
Well, the answer varies, but the range for payment on an early life settlement is between 1% and 3% of the face value of the policy. Let's look at a few real-world examples to see how these early life settlements work.
I recently worked with a 58-year-old gentleman who had a 30-year term policy that was about to expire. The face value of the policy was $750,000, which he purchased largely to cover the cost of his mortgage.
He had three options to deal with this expiring policy. First, he could let it expire. Not a very satisfying option, I agree, but the most common. Second, he could convert the policy into universal life insurance policy. The only problem with this option is he'd have to pay premiums that are about eight times greater than what he had been paying. The third option was to sell his policy via an early life settlement, which he did, and in doing so he put $7,500 straight into his pocket.
In another case, I worked with a 63-year-old man with a $3 million term policy designed to cover his business, as he was the key man in his organization. This gentleman had retired recently, sold his business, and therefore no longer possessed the need for the $3 million death benefit.
Initially, he was just planning on letting the policy expire. But with an early life settlement, he was able to sell the policy for $60,000.
Finally, I had a 68-year-old client with a $1 million policy designed to protect his family and replace any loss of income in the event of his death. The policy was set to expire in about two years. But due to the current economic environment, this gentleman was in need of an immediate cash infusion. My company was able to show him the power of life insurance as an asset by facilitating the sale of his term policy for $30,000.
You don't have to be a particularly savvy investor to realize that sometimes it just makes sense to transform your life insurance policy into a tangible financial asset.
The fact is that these days, thanks to early life settlements and the growing secondary market for life insurance policies, your policy doesn't have to be a wasting asset. And let's face it, given the current decline in traditional asset investment instruments like stocks and mutual funds, now could be the best time ever to turn your term insurance policy 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 at www.fairwaycapital.net.
Blue Label Wisdom
"Our blend cannot be beat."
-- Alexander Walker, 1888
The supreme confidence brimming from this statement, proudly written on every bottle of Johnnie Walker Blue Label Scotch, is the kind of confidence one needs when confronting the world. You see, before you can do good things for others you must first be the kind of person who can get things done. So the next time you need a little motivation in life, break out the Blue Label and swallow a swig of confidence.
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. Click here to Ask Doug.