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OF BONDS AND BEARS

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02/13/2008

 

If you've been an Alert reader for more than just a couple of weeks, you know that I've been saying we are in a bear market. In fact, ever since the proverbial line in the sand at about 1410 on the S&P 500 was breached, we've seen several attempts to get back above that territory -- yet all such attempts have failed.

Now just as you might expect, the Federal Reserve is trying to revive the economy by the only means at its disposal -- a slash-and-burn policy on interest rates. So far, the stock market hasn't responded well to the Fed's actions. Certainly, the many wannabe bulls out there haven't got what they've been looking for, as the chart of the S&P 500 here clearly shows.

In my opinion this is because we are firmly entrenched in a bear market.

Right now, we are grappling with a nationwide housing bubble; a credit bust that went way beyond subprime mortgages, and a tapped-out consumer who has overspent and under saved for years. This bear market is causing some observers to believe that we might see a systemic breakdown that could have lasting effects for years to come.

Now I am not quite ready to make that kind of ultra-bearish forecast yet, but I do think that an honest man must face facts realistically.

I don't mean to sound too negative, but its time to tell the truth about what is happening in this slowdown -- even if the results aren't pretty.

So, if I am right and things in the equity markets continue to be bearish, what is an investor to do? Where do you invest your money for safety and for a decent rate of return?

One area I am strongly recommending right now to readers of my Successful Investing advisory service is bonds. Not just any bonds, but long-term U.S. Treasury bonds.

These bonds do quite well in times of economic turmoil, as money shifts from risky investments to more stable investments. With long-term Treasuries, you get money-fund interest rates AND the potential for some really nice capital appreciation.

Just look at how well the iShares Lehman 20+ Year Treasury Bond fund (TLT) has performed during the past 12 months.

Here we see a nice move higher that looks more like a growth stock than a bond fund. It's this kind of solid mover that you want to own when stocks are in decline.

The really attractive part of owning bonds right now is that the Fed still is hell bent on lowering interest rates, and by lowering rates so low it could spur deflation rather than the feared prospect of inflation. In either case, long-term Treasury bonds will remain a solid bet -- probably for a long time to come.

Want to find out how to easily integrate long-term Treasury bonds into your portfolio?

Just click here.

It's Time to Be A Trader

One major upside to all of the volatility in the financial markets is that short-term trading opportunities abound. Now when I say trading opportunities, I am speaking of taking advantage of the short-term trends driving individual market sectors.

The way I see it, it's time to be a trader, and there is simply no better vehicles than exchange-traded funds (ETFs) when it comes to trading.

Of course, trading ETFs for short-term gains isn't always the easiest thing to do. So to help you aggressive trader types in your quest for profits, I've jotted down a few rules that can help make your trading more profitable.

  1. Trade only a portion of your nest egg. I'd say you should limit your trading capital to 20-30% of your total investable assets. You also should make sure this trading money is divided up into four or five different positions.

  2. Trade both on the long, and the short side of the aisle. This volatile market allows you to make money when stocks go up, AND when stocks go down. There are over 30 bear market ETFs today, and if you aren't acquainted with them by now you should be.

  3. Short the rallies. When stocks look like they are getting ready for a big move to the upside -- like we witnessed a couple of weeks ago -- that was your opportunity to get your trading money positioned on the short side.

  4. Seek short-term gains of 5-10%. Don't get greedy. Try hitting singles and doubles rather than swinging for the home run.

  5. Set stop-losses. Remember that if you are wrong it's okay, just as long as you only take small losses. It's those big losses that really hurt, so avoid them completely.

The final tip I'd like to offer you is to seek help. This short-term trading thing can be tough on your own, and that's why I started my ETF Trader advisory service.

With a subscription to ETF Trader, you get buy and sell recommendations sent to you on a frequent basis. These recommendations tell you precisely which ETFs to buy and sell, and how much of your portfolio should be devoted to each position.

If you'd like to find out more about my ETF Trader service, click here.

Can You Benefit From The Increased Conforming Loan Limits?

 It's time now for a guest editorial from my friend and mortgage expert, Josh Lewis. This week Josh tells us how you can make the most of the brand new law raising the limits on conforming loans.

By Josh Lewis, Certified Mortgage Planner

By the time you read this report, President Bush will have signed HR 5140 into law. While most news coverage has focused on rebate checks for consumers and tax incentives for businesses, the biggest impact for the economy likely will come from the ongoing savings that will be realized by homeowners taking advantage of a key aspect of the legislation -- namely, the provision that increases the conforming loan limits up to 125% of the area median.

For homeowners and potential buyers in California, New York, Connecticut and other high-priced regions, this is big news. Under the old guidelines, every state in the union except for Hawaii and Alaska were capped at the same conforming loan limit ($417,000 for 2008). If you needed a loan greater than $417,000, your loan fell into the non-conforming or jumbo category. Prior to the credit crisis, this wasn't such a big deal because it only meant paying about .25% more on your mortgage rate. Since the meltdown in the credit markets last summer, the interest rate premium on jumbo loans has spiked to almost 1%.

To put this into perspective, let's look at a hypothetical homebuyer in Los Angeles, Calif., as an example. If these folks buy a home at the median price of $588,400 and put 20% down, they still will need a mortgage of more than $470,000, forcing them into the jumbo category. Instead of a rate around 5.75%, they'll be staring at a rate of at least 6.75%, adding over $300 to their monthly payment.

Thanks to HR 5140, this family can obtain a conforming loan eligible for sale to Fannie Mae or Freddie Mac. But to take advantage of the new limits, there are a couple of factors to bear in mind:

  1. The increase is temporary. The larger loans only can be purchased by Fannie and Freddie through December 31, 2008.

  2. The actual limit is now dependent on the median home price in your area. The maximum loan size under the new limits is $729,500 but that only applies to areas with median prices above $583,600. If the median home price in your area is below $333,600, there will be no change in your conforming loan limit. To see a complete list of the metropolitan statistical areas that will see loan limit increases click here.

  3. You DO NOT have to have stellar credit to benefit from the increased loan limits. The loan size that is eligible for FHA financing has been increased to match conforming levels.

Now that you know how to find out if your area will benefit from the increased loan limits, let's consider some factors that may help you determine if that new limit can benefit you.

  1. The most obvious beneficiaries of the increased limits will be folks buying in high-priced areas. They can expect to save $300-$600 every month in lower mortgage payments.

  2. Home sellers in high cost areas also will benefit. Sales plummeted in these areas after jumbo rates spiked. If your buyer saves on his or her mortgage, it's more likely that the buyer will be inclined to step up and get a home under contract.

  3. The majority of folks I've talked to who are excited about the increased limits are people who took out hybrid adjustable rate mortgages three-to-five years ago. Their loans are due to adjust soon. Rates have skyrocketed on the jumbo loans that they need. This is a great window of opportunity to lock in a longer, fixed-rate mortgage.

  4. Folks with some credit issues who were only eligible for subprime loans now have a new option. FHA loans are much less restrictive regarding credit history. In fact, there is no minimum credit score requirement with FHA loans and many collections and judgments do not need to be paid off to qualify. You do need to be able to verify your income but terms are nearly as good as a conforming loan -- even if your qualifications aren't squeaky clean.

  5. The group I may be most excited about helping are those with significant assets tied up in real estate who need to rebalance their portfolios. Doug and I talk to many homeowners every month who have considerable home equity, yet little-to-no retirement savings. With these new loan limits, many of these folks can look at an equity repositioning refinance to fix the terms of their loan and rebalance their assets.

The passage of this bill into law is great news all the way around. While it likely won't heal the housing market, it will enable quality borrowers and homeowners to improve their position. If you want to discuss your situation and how you might benefit from the new loan limits, call me at 888.944.JOSH, ext. 1. You also can e-mail me by clicking here.

I specialize in helping homeowners achieve their financial goals by integrating their real estate and financing into their total financial plan. Contact me today to learn about my 5 Step process for achieving financial independence.

By The Time I Get To Phoenix 3

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, Arizona -- 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:

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.

Blogs Away: A Fabian Aural 8

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.

Know Thyself: Hip-Hop Style

Here we go again
Everybody sayin' what's not for him
But everything I'm not
Made me everything I am

—Kanye West, "Everything I Am"

I know you probably don't see me as a hip-hop music fan, and to be honest with you, I am not. But when a friend of mine told me that the above lyrics by Grammy Award winning rapper Kanye West reminded him of me, well, needless to say I was quite flattered. You see, when it comes to life, knowing yourself is often a matter of knowing what you are not. I am never going to be the best numbers cruncher, nor will I be the best stock picker out there. What I am, however, is a man with a plan. A plan that's been helping investors beat the market for over three decades. I'd also like to think I'm man who can translate this whole investing thing into an easily understood enterprise. Hey, you can't be everything in life, so remember that everything you're not makes you everything you are.

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.

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