Making Money Alert
Staring Into the Abyss
10/01/2008
"Man looks in the abyss, there's nothing staring back at him. At that moment, man finds his character. And that is what keeps him out of the abyss."
-- From the movie classic, "Wall Street"
On Monday, Wall Street looked into the abyss -- and it did not like what it saw.
The Dow Jones Industrial Average got smacked down with a 777-point shellacking – its worst ever one-day point decline. Although we've seen stocks drop a lot more in one day percentage-wise, the sheer size of Monday's nearly 780-point decline put the proverbial fear of God into the hearts of many on Wall Street and on Main Street.
What's even scarier than the big decline in the Dow was the historic decline we witnessed in the S&P 500. The broad-based index was down a crushing 8.81% on the day! What caused all of this, of course, was the failure by the House of Representatives to deliver a "yes" vote on the proposed bailout bill. The bill went down in flames, and the reaction on Wall Street was a burning down of more than a trillion dollars in shareholder wealth.
I am going to leave my own personal thoughts on the pros and cons of the bailout bill aside, because now is not the time to have a philosophical debate on this issue. What it is time for is a little reminder of the value we bring to the table with the Fabian services.
For nearly the entirety of 2008, we've been warning you about the inherent risk in the equity markets. That risk has been present ever since we started to see the economy slow, the value of homes decline, and the financial sector stagger. All three of those factors have become increasingly worse during the past several months, and they've now morphed into a credit crisis the likes of which haven't been seen since the Great Depression.
When the equity markets are in so much flux, and when they are under threat by so many fundamental negatives, being allocated to stocks is like walking barefoot over broken glass. Sure, you may survive, but you are most certainly going to get cut -- and those cuts could be very serious indeed.
It is the threat of such serious damage to your portfolio that's kept me largely on the sidelines in my Successful Investing advisory service. The only allocation we have besides cash right now is a small portion of our total portfolio in the safest of all investments, long-term U.S. Treasury bonds.
The chart here of the iShares Lehman 20+ Year Treasury Bond (TLT) fund shows that it has traded above both its 50- and 200-day moving averages for the past year, and this trend likely will continue until this whole banking and credit market mess gets sorted out.
The bottom line here is that if you've been following the recommendations in our Successful Investing advisory service, or if you've been heeding the warnings we've been barraging you with in the Alert, you would have largely been immune to the recent meltdown in the markets.
Now I don't want to seem too pessimistic here, as I do think this market storm will eventually pass. I have confidence that the U.S. economy will come back strong, and that there will be a lot of money to be made by investing in our equity markets. But until we see clear skies return, you've got to continue battening down the hatches and managing your money for bad weather.
Wall Street might be in for one of its toughest periods ever, but to put my own twist on an old adage -- when the going gets tough, the tough go into safe mode.
If you'd like to find out how you can protect your wealth during this time of unprecedented financial turmoil, click here.
Get Ready for "Statement Shock"
Amidst all of the frenzy on Wall Street and Capitol Hill, it's easy to forget that the third quarter now is over, and in about a week or so investors will be receiving their 401(k) and other financial statements.
To this I say -- get ready for a huge dose of "statement shock."
You are likely going to be in for a rude awakening, especially if you've been following the buy-and-hold recommendations of most financial advisors. You see, it's not just the major market averages that have seen a huge decline in Q3.
If you own municipal bonds, high-yield closed-end funds, individual stocks, mutual funds, or just about any financial instrument, you'll likely be staring at some really big losses.
These big losses are likely to lead to a wave of shareholder redemptions, as investors run for the exits. Unfortunately, this means a much longer road to recovery for the equity markets.
Statement shock leads to redemptions, and redemptions mean selling pressure -- and that means lower equity prices.
My friends, it's a vicious circle, and until that circle is interrupted, a safety-first mindset is your greatest ally.
The Credit Crisis, the Election, the Markets, and Your Money 2
I can't remember a time in my life when financial markets and a presidential election overlapped so acutely. With the market plummeting and a bailout of our banking system on the way, 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 throw at us, then I have just the seminar for you.
Join Fairway Capital President Kevin Yurkus and me on Wednesday, Oct. 8, 2008, from 2:00 p.m. to 5:00 p.m. at the Pasadena Westin hotel in Southern California for the most important financial seminar of the year.
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.
If you are a high-net-worth investor who also is concerned about the current economic environment, you must come out on Wednesday, Oct. 8, to hear how you can prepare for the inevitable winds of change blowing across our nation.
This seminar is co-sponsored by Fabian Wealth Strategies and Fairway Capital. To register for this event, simply fill in your information at this link or call 800.391.1118 Monday through Friday from 8 a.m. - 4 p.m. Pacific.
ETF Talk: Looking Beyond the Latest Market Plunge
Monday's 777-point drop in the Dow Jones industrial average followed by yesterday's 485-point rebound shows that the market is offering no clear direction. With media attention focused on the fallout from the U.S. House of Representatives failing to pass a $700 billion financial system bailout plan, it would be easy to overlook a prominent provider of exchange-traded funds (ETFs) targeting the emerging markets.
Right now is not the time to be taking the plunge in emerging markets, but it is wise to look ahead for ways to invest your money when the markets make a turn upward. Invesco PowerShares Capital Management LLC, a major provider of ETFs, confirmed that it intends to roll out an emerging markets infrastructure fund this month on the NYSE.
The PowerShares Emerging Markets Infrastructure Portfolio (PXR) will offer a way to capture the growth wave of global companies that are responsible for the construction and development of emerging market infrastructure, said Bruce Bond, president and CEO of Invesco PowerShares.
PXR's performance will be based on an index that is designed to measure the overall performance of securities issued by companies tapping opportunities in emerging-markets infrastructure. The S-Network Emerging Infrastructure Builders Index features industries that include construction and engineering, construction machinery, construction materials, diversified metals and mining, heavy electrical equipment, industrial machinery and steel.
The index's top dozen holdings and their weightings, as of Sept. 22, are shown in the table below.
| Country | Group | Name | Weight (%) |
| SWITZERLAND | Heavy Electrical Equipment | ABB LTD. | 3.50 % |
| BRAZIL | Diversified Metals & Mining | CMPH.VALE DO RIO DOCE | 3.34 % |
| UNITED STATES | Construction & Farm Machinery | CATERPILLAR INCO. | 3.17 % |
| SINGAPORE | Construction & Farm Machinery | SEMBCORP MARINE LTD. | 2.59 % |
| SOUTH AFRICA | Diversified Metals & Mining | AFN.RAINBOW MRLS.LTD. | 2.45 % |
| INDONESIA | Diversified Metals & Mining | ANEKA TAMBANG TERBUKA | 2.45 % |
| CHINA | Construction & Engineering | CHINA COMMS.CON.CO.LTD. | 2.36 % |
| SOUTH AFRICA | Heavy Electrical Equipment | REUNERT LTD. | 2.36 % |
| FRANCE | Heavy Electrical Equipment | AREVA CI | 2.35 % |
| FRANCE | Construction & Engineering | ALSTOM SA | 2.19 % |
| MALAYSIA | Construction & Engineering | GAMUDA BHD. | 2.19 % |
| RUSSIAN FEDERATION | Diversified Metals & Mining | MMC NORILSK NICKEL | 2.07 % |
Invesco PowerShares, certainly is no ETF lightweight. The fund provider has more than 100 domestic and international ETFs with close to $14 billion in assets under management. The company operates in 20 countries and is listed on the New York Stock Exchange under the symbol IVZ.
Remember, do not hesitate to e-mail me any questions that you have about ETFs. To do so, click here. I'll try to answer your questions in a future ETF Talk.
Estate Planning Mistakes: Delaying Decisions
During the past five weeks, we've discussed the seven biggest estate planning mistakes made by investors. In week one, we reviewed each of the seven. But in case you missed it, here's a quick list of each of these big mistakes:
- 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
Last week, we discussed making sure your estate has sufficient liquidity to deal with Uncle Sam. This week, I want to highlight what is perhaps the biggest mistake anyone can make, the mistake of delaying decisions.
Delaying your decisions in the estate plan context often arises because of uncertainty about tax policy. I can understand this, especially now that we are at the precipice of change in Washington.
But waiting for a new, and possibly more favorable set of tax laws is always a mistake. You need to prepare for the tax situation as it is, today. If things change, they usually change for the worse. Yet, even if the estate tax situation changes for the better, you always can make the necessary adjustments to your estate plan.
Delaying any important financial decision is never good policy, so don't make this mistake with your estate plan.
If you have substantial assets, you need to have the right mix of liquid assets in place within your estate plan. Fortunately, my friend and colleague Kevin Yurkus, president of Fairway Capital, is an expert at helping high-net-worth investors manage their estate plans. 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 of more than $2 million, you MUST listen to my new audio special report. In this report, we cover the seven biggest estate planning mistakes, and we explain how easy it is to correct each one.
To listen to this FREE audio special report, click here.
A Simple Solution for Today's Volatile Markets 4
Today's stock market beast is not the same animal it was a decade ago. In fact, the pace of change has been relentless in recent years, and even the most conscientious individual investor has had a tough time keeping up with all of the financial market upheaval.
If you're managing your own money, are you getting the results you think you should?
If your answer is no, then you need to make a change, and a good place to start is by checking out Fabian Wealth Strategies today. All you have to do is click on this link for your introduction to our money management services.
As I always say, the only thing you have to gain is the life you desire.
Freedom's Just Another Word for… Rhetoric?
"Freedom has cost too much blood and agony to be relinquished at the cheap price of rhetoric."
--Thomas Sowell
While the Congressional infighting continues on the proposed bailout bill, I think we are missing the big picture here. What Congress essentially is debating is how to finagle a curtailment of much of our freedom. By giving the Treasury Secretary the ability to intervene in the economy to the extent that the proposed bailout plan allows, we would be permitting the executive branch to nationalize a huge portion of our credit markets. If that's alright with you, then I have a country you can go move to that's even more socialistic -- it's called Cuba.
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.