Making Money Alert
It Ain't Over 'Till It's Over
08/27/2008
If you are amongst the growing number of Wall Street pundits who think the worst is over for the credit crisis, I say think again. Today, we got word from federal regulators that they have boosted to $8.9 billion the estimated cost of IndyMac Bank's failure.
They also told the public to prepare for more banking collapses, saying that the number of troubled U.S. banks shot up 30% in just three months. The Federal Deposit Insurance Corp. (FDIC) said that as of June 30, there were 117 institutions on its "problem list," up from 90 on March 31 and the highest level in five years.
The agency said that earnings of commercial banks and savings and loans plunged 87% to $5 billion in the second quarter, as many financial institutions continue struggling with bad mortgage and other loans.
"We don't think this credit cycle's bottomed out yet," FDIC Chairwoman Sheila C. Bair said at a news conference.
I couldn't agree more.
Already this year, nine banks with total assets of $40 billion have failed, according to the FDIC. And while that number is big, I think it is likely to get even worse. Of course, the banking and financial sector woes continue on Wall Street, as investors keep divesting themselves of financial stocks. One look at the Financial Select Sector SPDR (XLF) will give you an idea of how troubled stocks in the sector have been during the past 52 weeks.
Stocks that make up the S&P 500 Index have been almost equally troubled during the past year, as seen by the chart below of the SPDR S&P 500 (SPY).
I think that until the excesses in the financial and banking sectors are rung out, the major market averages are going to face a big uphill battle on their road to recovery. Or, as Yogi Berra might say, "It ain't over 'till it's over."
The way I see it, the only real way to play this market is to move quickly to tap specific exchange-traded funds (ETFs) designed to capitalize on the market's swings. In today's video commentary, I discuss two ETFs that can do just that, so please check it out when you get a moment.
If you want to find out what specific moves I am making to take advantage of the market right now, then I invite you to investigate my ETF Trader advisory service by clicking here.
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As the Democratic National Convention heats up, I thought it was a perfect time to bring in one of my favorite writers and political/economic commentators, Jim Woods. Jim recently told me an interesting anecdote about Sen. Joe Biden, Sen. Barack Obama's pick for vice president. I think you'll find Jim's recollections both insightful and humorous.
We All Scream for Ice Cream: A Joe Biden Tale
By Jim Woods
You can tell a lot about a man by the way he eats.
Some men like to sit down to a meal, take their time and savor each and every morsel of food and drink. People like this tend to be thoughtful, meticulous, confident and in many cases, hedonistic. How do I know this? Well, I've been known to spend more time than most getting through a multi-course, wine-paired meal.
Still, other men like to dig right into their prize, attacking the meal with fervor and a literal hunger for life that reveals their carpe-diem approach to the world. This type of person tends to be decisive, purposeful, driven and a born leader. My favorite example of this type of eater is my good friend, investment guru extraordinaire Doug Fabian.
But what do you say about a man who eats his meal in reverse order?
That thought has plagued me ever since I sat next to Sen. Joe Biden on a flight from Washington, D.C. to my hometown of Los Angeles, Calif. Sen. Biden was on his way to L.A. for an appearance on HBO's Real Time with Bill Maher, while I was returning home from my annual pilgrimage to the nation's capitol for a meeting with friends, publishers and some of my favorite think tanks.
After exchanging pleasantries with the senior Senator from Delaware, Biden wasted no time in digging right into his criticisms of the war in Iraq, and what he perceived to be the folly of the Bush administration. I expected nothing less from the Senator, as he's known for his outspoken critiques and his shoot-from-the-hip commentary.
What I didn't expect was a lesson in how to eat a meal backwards.
Now, since I had the benefit of first-class seating accommodations during this flight, the flight attendants were very attentive when it came to serving what was a surprisingly tasty meal. The first course was a salad with Italian dressing, which was followed by a main course of a plump, well-seasoned chicken breast and a side of rice. The best part of the meal for me was the dessert, which was a generous scoop of gourmet chocolate ice cream.
I ate my meal with my usual casualness, and in the aforementioned order. Sen. Biden, however, took a different path. Biden accepted the salad, but he put it aside and saved it for later. When the main course came, he politely rejected it. But when the ice cream came, Biden's fervent personality really came out. He emphatically asked for a serving, although he had not yet eaten any food.
Biden ate his ice cream while we discussed Kevin Phillips' book "American Theocracy," the then-latest critique of the Bush administration's religious overtones. After eating the ice cream, Biden pulled out a hefty ham sandwich from his briefcase and consumed it in a deliberate and determined fashion. Once the sandwich disappeared, the Senator turned to the only remaining bit of food left on his tray table, the salad.
As I watched this reverse-order meal consumption, a thought occurred to me: Is this why the federal government is so screwed up? Is Sen. Biden's backwards approach to a meal indicative of what's wrong with Washington? Does this backwards eating pattern explain why the government does everything less efficiently and less effectively than the private sector?
Given my theories on discerning knowledge of a person based on how they eat, what was I to make of Sen. Biden's meal habits? The only logical conclusion is that Biden looks at the world -- shall we say -- differently from the rest of us. And while there is nothing wrong with a little different perspective on things, I don't think I want someone a heartbeat away from the presidency who eats his ice cream first.
The next thing you know is that person will advocate raising taxes to stimulate the economy, negotiating with our ideological enemies as a means of portraying strength, and railing against judges who think interpreting the constitution is the only proper function of the courts.
Wait a second… that's what Biden wants? I knew there was a reason why he ate the ice cream first.
Jim Woods is a freelance financial journalist specializing in the economy and the markets. He welcomes your comments, and can be contacted at Woodsish@verizon.net
The Seven Mistakes of Estate Planning
In this election year, we are going to hear a lot about tax cuts and tax hikes. But I believe there is a much bigger story being missed by the financial media. This bigger story is the likelihood that estate taxes are going to go up no matter who wins the White House. Sen. Obama wants higher taxes on the wealthy -- including those with estates in excess of $2 million. Sen. McCain likely will not be able to fight back a Democratic majority in Congress intent on levying bigger estate taxes.
I think that regardless of who wins in November, now is the time to get your estate plan in order. In the following audio special report, I cover what I call the seven deadly sins of estate planning.
For details on this issue, I turned to Kevin Yurkus, president of Fairway Capital, and one of the smartest guys I know on the subject. 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 this special report. In it, we cover such deadly estate planning sins as:
- 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
If you have estate planning concerns, or if you are guilty of even one of these seven deadly sins, then you owe it to yourself to listen right now.
ETF Talk: Strategies for A Difficult Market
Some pundits are saying that we are in a recession; others call it a mere economic slowdown. In my opinion, what difference does this technical distinction make to you? The one thing everyone agrees on, bull or bear, is that we're living in uncertain times. As a result, it is of the utmost importance for us to take a cautious approach. That's why in this week's ETF Talk I'm going to show you the ETF tools you can use to profit in a difficult market.
Before going any further, I want to stress the importance of managing risk, having the discipline to sell, and tapping new opportunities. After reading this ETF Talk, if you have any additional ETF-related questions, please contact me by clicking here.
I want to start with a warning. I think there's a market storm headed our way, and that means we all have to get ready to batten down our financial hatches. A key reason for my concern is that financials once again are on the decline. We now have entered a traditionally weak period for stocks that typically spans between August and November. We also have the looming uncertainty of the upcoming presidential election. Sure, my prognostication for more pain ahead could be wrong. And if we see an uptrend take hold I will revise my opinion. Nevertheless, my advice to stay cautious remains firm.
Two ETFs that I have been speaking about recently on the radio and on television are the iShares Lehman 20+ Year Treasury Bond fund (TLT) and the ProShares Short S&P 500 (SH). Both of these funds typically move inverse to the stock market. They can be used as a hedge against long positions or to profit from a decline in stock prices.
The iShares Lehman 20+ Year Treasury Bond fund (TLT) seeks results that correspond to the price and yield performance of the long-term sector of the United States Treasury market as defined by the Lehman Brothers 20+ Year U.S. Treasury index. TLT invests at least 90% of its assets in the bonds of the underlying index and at least 95% of its assets in the U.S. government.
At the close of the quarter on June 30, 2008, the fund had a one-year average annualized return of 13.37%. Also on that date, TLT had compiled an average annualized return of 6.75% since its inception during July 2002.
The ProShares Short S&P 500 (SH) seeks daily investment results, before fees and expenses, that correspond to the inverse of the daily performance of the S&P 500 index. SH invests 80% of its assets in financial instruments that have economic characteristics inverse to those of the index.
As of the quarter ending June 30, 2008, SH had a one-year market price return of 18.15%. Since its inception in June of 2006, the fund had a market price return of 2.11%, also as of June 30, 2008.
Of course, there are no guarantees in life, just as there are none when investing in bonds and short funds. However, such investments can be used strategically to profit from markets on the slide. If you want to avoid simply riding the stock market down by hanging onto long positions, both of these funds are ones that you may want to consider.
San Francisco Money Show Musings -- See them for Yourself 2
Several weeks ago, I made my annual pilgrimage to one of the world's greatest cities -- gorgeous San Francisco, Calif., for the Money Show. If you didn't get a chance to make it into town, don't worry. Now you can catch several of my presentations right from your own computer. Simply click here to view my all of my Money Show musings for yourself.
Here's just some of what you'll see when you watch these special Money Show video broadcasts.
ETF Strategies in a Difficult Market
Whether you agree with the pundits who say we are in a recession or others call it a mere economic slowdown, everyone can agree that we are living in uncertain times. For that reason, you need to invest cautiously. "ETF Strategies in a Difficult Market" will teach you the importance of managing risk, to have a sell discipline, and how to benefit from new opportunities.
Structuring a Portfolio for Income and Safety
How do you generate high income without risking your principal? Are you tired of putting your money in poorly paying CDs or money market accounts? I reveal my favorite income-producing tools in this presentation to boost the yield in your portfolio without taking on excessive risk. Learn how to use exchange-traded funds, unit investment trusts, and closed-end funds to properly manage your income assets.
Seven Secrets of Success for ETF Investors
In this presentation, I reveal the seven secrets for successfully managing your portfolio using my favorite investment vehicles, exchange-traded funds. ETFs are simple to understand, easy to use, inexpensive and offer tremendous diversification. Learn how to manage any size portfolio using these proven methods to maximize returns.
To view my video presentations today, click here.
Guaranteed Monthly Income For Life? You Betcha! 4
On Saturday, July 12, I held the latest installment of my retirement income conference call. Big thanks to all of you who called in with your great questions, and big apologies to those who couldn't listen live because the event had reached capacity.
Now, if you are one of those who couldn't get through, or if you weren't available to attend the call that day, don't fret. You can hear a FREE replay of the call right now, by clicking here.
In this call, I discuss the many tools and vehicles you can use to produce a monthly income stream, and I show you how some products can offer you a 5% to 6% GUARANTEED return without losing control of your investments. These products are outstanding for taking a portion of your IRA or 401(k) and creating an income stream of $1,000, $2,000 or even $3,000 per month.
If you have an existing annuity and want to generate guaranteed income WITHOUT annuitizing your assets, then please listen to the replay of this informative discussion.
Remember, your assets will need to last you 20-30 years. You will need to create an income plan that will last as long as you do. We can help.
Heroes of Our Time
Soar for us
The power in all of us
So far beyond the blackened sky tonight
Glorious
Forevermore in us
We are victorious
And so will I…
--Dragonforce, "Heroes of Our Time"
There's nothing like a little progressive rock to provide some heroic words to live by. The lyrics here are proof positive that profundity and inspiration can be found virtually anywhere -- if you look at the world with the right set of eyes.