Making Money Alert
MARKET RETEST: PASS OR FAIL?
02/06/2008
It seems like just last week we had freed ourselves from the bear’s stranglehold. Well, actually, it was just last week that we witnessed one of the best rallies in years.
We had an aggressive Fed slashing and burning both the federal funds rate and the discount rate faster than anytime in history, and we saw coordinated efforts by bankers around the globe to try and keep the world’s financial engine humming on all cylinders.
But alas, the exuberance we saw last week was wiped out in one day with a huge Super Tuesday market drubbing. On that day, Wall Street handed the Bear Party a decisive victory over the Bull Party, with a landslide 370-point decline on the Dow, a mammoth 44-point drop for the S&P 500 and a massive 73-point NASDAQ whipping.
My friend, the bear isn’t in hibernation yet, and those who tempt him are sure to suffer the consequences.
The way I see it, the market is now in the process of retesting its recent lows, and this test is going to be pass or fail.
On the domestic front, the key support level on the SPDRs (SPY) is $131. On the international front, the key support level for the iShares MSCI EAFE Index (EFA) is $69.25 (see the charts above).
If these support levels are violated, the market will fail its retest. If, however, we manage to bounce off these levels and hold above them, we’ll have passed the market retest and maybe, just maybe, we can start seeing a silver lining in the current batch of bearish clouds.
Regardless of what happens with this retest, if you have yet to make any changes to your asset allocation, my only question is why not?
I have been warning you for months now about the risks inherent in this market, and we have been discussing the need to get defensive with your hard-earned investment capital.
Now it is really time to stop being paralyzed with inaction and start getting with the program -- before you too get a failing grade!
Personal Finance Advice for Uncertain Times 2
Some pundits are saying we are in a recession; others call it a mere economic slowdown. The answer, in my opinion, is: 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 utmost importance for us to take a cautious approach.
But caution means more than just being aware of danger. It also means acting in defense of your own money.
The following are my top 10 money tips designed to help you manage your personal financial situation in these most uncertain times.
Pay down and pay off your credit cards and revolving debt. If you can eliminate credit card debt this year, you can do yourself a huge, long-term service.
Know the terms and conditions of your home mortgage and home equity line of credit. As I mentioned in last week’s Alert, we could be getting a big opportunity to refinance mortgages as a part of the government’s economic stimulus package. The latest on the plan is that the Senate may allow the conventional loan cap to float to $729,000, and that means we could see interest rates in the 5.5% range for jumbo loans. For more on this issue, contact my mortgage expert, Josh Lewis, at 800.944.JOSH, or by e-mail at josh@joshlewis.net.
Check your credit score. If you don’t have stellar credit, you won’t be able to tap these upcoming mortgage refinance deals.
Consider cutting back on your 401(k) and IRA contributions to pay down credit card debt. Hey, putting money into the market right now isn’t getting you much, so take this opportunity to pay down that high-interest credit card debt.
Have a cash cushion of three-to-six months living expenses in the bank. You know it’s a true recession when people start losing their jobs, so it’s just prudent to prepare yourself for anything.
If you don’t have any significant credit card debt, then start saving as aggressively as possible in your 401(k), 403(b) and Roth IRA. When the bull comes stampeding back, you’ll be in a great position to profit.
Cash is king in a bear market, so if you have not raised cash in your portfolio, WHAT ARE YOU WAITING FOR!
Fees matter. Get yourself out of those expensive annuities, life insurance and mutual funds and join us in the low-fee playground of exchange-traded funds (ETFs).
If you want to buy bonds right now as a defensive move, make sure you buy only U.S. Treasury bonds. Stay away from any corporate debt instruments.
Make strategic short-term investments in sectors with high upside potential. Be careful here, as adopting a trading mentality requires the utmost caution -- caution that includes the pursuit of fast 5-10% gains and the ability to set tight stop losses. For more on how we seek short-term gains while keeping a strict sell discipline, I invite you to check out my ETF Trader advisory service by clicking here.
Pucker Up: The Taste of Lemons Just Got A Lot More Sour
The results are in, and I am sorry to say that things didn’t get any sweeter during the fourth quarter for funds that made it on to my Lemon List.
The latest version of the Lemon List, available now at www.MutualFundLemonList.com, consists of 2,212 mutual funds and more than $1 trillion in assets during fourth quarter 2007. This quarter’s Lemon List is the largest ever, with the total asset size of mutual funds making the list increasing 9% from the previous quarter.
To put the most-recent quarter’s data into context, consider that in Q3 2007 the list represented $960 billion in underperforming assets. In Q4 2007, the total asset size of all Lemon funds jumped markedly to $1.04 trillion.
The big story here for those who continue insisting that mutual fund managers are giving them a lot of value is the huge leap in the amount of assets that made it on to the Lemon List. This 9% jump in total Lemon assets is proof once again that the mutual fund industry really is failing to protect the individual investor.
My big fear now, given the current market decline, is that investors are in for a whole lot more lemons. The simple fact is that bad fund managers and bear markets constitute a lethal cocktail -- a cocktail you’ll want to avoid drinking at all costs.
For those of you who aren’t familiar with exactly what a lemon fund is, let me explain. For a mutual fund to make it onto to the Lemon List, it must under perform its benchmark average for the past one year, three years and five years.
By comparing funds to their benchmark category average, we can identify a specific fund’s performance with that of its peer group. This apples-to-apples (or in this case, lemons-to-lemons) comparison makes the Lemon List a unique tool you can use to see if any of your mutual funds -- or funds in your 401(k)-type plan -- measure up.
One way I think investors can help turn their lemons into lemonade is to make the switch from mutual funds to low-cost, objectively managed ETFs. The fact is you’d be much better served by transferring your lemon funds into low-expense ETFs, especially now that we are in grasp of the bear’s claws.
Of course, that is assuming you are not completely out of equities right now, which you definitely should be. Still, I know there are many of you still clinging to mutual funds and even individual stocks in the hope that they’ll come back into the black.
Hey, hope might be the slogan of a presidential candidate, but it sure doesn’t translate into a coherent investment philosophy.
If you’ve got underperforming lemon funds in your portfolio, get out while you can.
The bear is here, and he takes no prisoners.
To view the entire Lemon List, click here.
By The Time I Get To Phoenix 2
By the time I get to Phoenix she'll be rising
She'll find the note I left hangin' on her door
She'll laugh when she reads the part that says I'm leavin'
'Cause I've left that girl so many times before—Jimmy Webb, "By The Time I Get To Phoenix"
The great balladeer Jimmy Webb, who wrote most of his big hits in the 1960s and 1970s, always strikes a chord with me whenever I plan a trip to Phoenix, Ariz., which is where I’ll be on Wednesday, Feb. 27, to present my seminar: Managing Your Financial Assets in 2008.
Of course, I could call this event something like "Financial Survival 2008," but my optimistic nature wouldn’t permit that kind of breach into pessimism.
This event will be held at the Ritz-Carlton, Phoenix, on Wednesday, Feb. 27, from 6:30 p.m. to 8:00 p.m.
This event is not simply about portfolio management or about what funds to purchase right now. Rather, this event is all about properly managing all of your financial assets in what has started out to be a crazy year for the equity and housing markets.
In this seminar, I will teach you how to navigate the tumultuous economic environment in the face of a real estate bear market, a slowing economy and a falling U.S. dollar. We’ll cover strategies and tactics on how to optimize your small businesses, your retirement accounts, annuity accounts, taxable portfolios, life insurance and much more.
My opinion is that we all need to be circling the wagons and protecting our assets from what has proven to be some very serious market damage in this young 2008.
The best part of this workshop is that it is absolutely FREE. The only downside is that this seminar will fill up VERY fast. If you want to attend, you must act now.
The Managing Your Financial Assets in 2008 seminar is sponsored by my asset management company, Fabian Wealth Strategies, and by Fairway Capital. Kevin Yurkus, president of Fairway Capital, will make a special presentation on the most common mistakes millionaires make -- and how to avoid those mistakes.
Kevin is an expert on estate planning and asset protection. He’ll be presenting strategies that will help you profit from what could be the beginning of the biggest bear market of our lifetime.
The Managing Your Financial Assets in 2008 seminar is designed for investors who have a million dollars or more of net worth, and for those who:
- Own highly appreciated real estate
- Own a small business
- Have stock portfolios in excess of $500,000
- Have retirement accounts in excess of $500,000
- Are working with brokers, planners or advisors who aren’t protecting their assets
- Are preparing for retirement
- Do not yet have an estate plan, or who haven’t updated their estate plan
- Own life insurance policies in excess of a million dollars
Both Kevin and I will be on hand to answer your questions and spend the necessary time to make sure that you understand how to grow and protect your assets in 2008 and beyond.
Once again, this event will be held at the Ritz-Carlton, Phoenix, on Wednesday, Feb. 27, from 6:30 p.m. to 8:00 p.m.
Reserve your seat now! Seating is limited and this event will sell out.
To sign up for this event, click here, or call us at 800.391.1118.
The Annuity Coaching Conference Call Replay
Are you confused and frustrated with your annuity assets?
Do you understand all your options when it comes to generating income?
Do you really understand how your annuity works?
During the past few months, I’ve had many one-on-one conversations with Alert readers about their annuities. I have come away from those discussions with some rather disturbing insights.
First, most investors know very little about their annuity investments; and second, they know even less about how their annuity can help generate retirement income.
Given the large-scale confusion out there surrounding annuities, I decided to take my coaching sessions public.
In January, I held two annuity coaching conference calls. These calls were designed specifically for annuity owners and/or those thinking about purchasing an annuity.
I am happy to report that these annuity coaching conference calls were a big success, and now thanks to the power of the Internet, listening to a replay of these calls is as simple as a few clicks of your mouse.
To listen to the replay of my annuity coaching conference calls, simply click here.
Blogs Away: A Fabian Aural 7
Want to hear my latest rant on the state of the financial markets? Well, now listening, and even watching, is as easy as a mouse click.
To listen to the audio blog, simply click here.
Patriots Beware
"Patriotism is a kind of religion; it is the egg from which wars are hatched."
—Guy de Maupassant
The results from the Super Tuesday primary elections are in the books, and as I watched the coverage last night on TV I was struck by the overwhelming outpouring of patriotic fervor for each of the candidates. Now I am not saying this is a bad thing, but what I urge you to cultivate is a little healthy skepticism about too much nationalistic exuberance. I recommend that you heed the words of the great French writer, and always be on guard against the egg that hatches war.