The markets still in turmoil . . .

Do we have a deal or don't we?!?!?! It appeared the financial bailout deal ($700 billion) was hammered out in extended sessions over the weekend, and it was now going before Congress for a vote. Unfortunately we are in a big election year (November 4th), and I believe we are seeing the political wranglings at this time. Whenever it looks like something is going to happen (markets rise a bit), we then have someone wanted to stall or change some detail of the plan.

Look, none of this is any good - we shouldn't be in this mess in the first place, but we are! We you spill a glass of milk in the kitchen, you don't spend time moaning about the glass slipped, your hand was wet, how to protect the kitchen floor from future spills, getting guarantees that the milk if it falls, we go sideways rather than landing on the floor! ------ NO, you clean up the milk first!

We are in a world of financial hurt both in the U.S. and the foreign markets (as they seem to watch us for what we are doing and then react the same). We need to do something! There will be more regulation coming out of this just like the 1930s, after the Great Depression and in the 1980s for the Saving & Loan crisis. We seem to put ourselves in this position every now and again (greed gets the best of us; or at least some of us who work in this industry) and some get hurt, but we always survive.

The markets need some stability, markets to not like uncertainty and financial institutions need to do something with the money (sitting on it makes no revenue), but those customers are either unsure of the future or if wanted to borrow are finding things really tight and they don't have access. We could end up in a depression if this doesn't get resolved soon. If no one is buying, then nothing is made, no one is working, etc. --- it is a vicious cycle.

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Annuities

Personally, I don't like them, but I know there are planners and others in the financial world who like them. I would never put a client in them if they asked me (s0me do it and then ask what I think???). Overall the concept is a good idea, but I am a firm believer people have no clue what they are buying.

They are signing a contract. A contract in which they have few rights and the insurance company has most of them. One of the reasons a person considers an annuity is that is sounds good, easy, and on the surface makes sense. They are looking for something "safe" and "guaranteed", with little to do after setting it up. Annuities are insurance contracts. There are two types "fixed" with a steady rate of return established at the front end, which accumulates or pays out periodically (depending on how it is set up). A "variable" annuity will have a rate of return that fluctuates, possible of making more than the "fixed" but also possibility of making less. Consumers looking for that "guarantee" will opt for the fixed annuity - bad choice! If I had to force someone into an annuity it would always be variable. Why? Simple, again these are insurance products. With a fixed annuity the annuity contract moneys are co-mingled with the Insurance company funds - in a sense they are in the same boat together. Okay, if the boat doesn't sink ----- every hear of AIG!!!!

Now, a variable annuity does not co-mingle the funds from the annuity with the insurance company, so in my opinion, can be a little safer.

Another reason that I do not care for them is the high fees (as much as 8.5% of your invested amount. Yes, the brokers will tell you "it is a declining fee", which means that if you invest and keep your money in for 5-7 years or so you may not have to pay anything on the way out, as each year the 8.5% you lose gets lower. My issue is if I invest $10,000, I want $10,000 working for me, not $9,150 like it would be with an annuity (after the sales charge).

Anyway, enough ranting for today . . . . . . someone just sit down and decide something!!!

Treasury to the rescue!

Well a couple of good days in the markets, both domestic and foreign.  Oil inches slightly higher, just under $100 a barrel.  Gold, silver and other precious metals are on the rise as people chase something tangible.  This based on some potential losses in money market mutual funds.  Long thought to be safe havens, most individual investors and many institutions own money market mutual funds.  These funds have a NAV (net asset value) of $1.00 per share, normally, and this NAV doesn't go up or down, as the majority of the interest paid to the fund from the securities held is distributed to the shareholders as a dividend.

Just like any other mutual fund however, you are at the mercy of the securities held by the fund.  If one holds government paper (t-bills, t-notes, etc.) there is not really an issue, but if one holds short-term commercial paper in other companies (particularly financials; and financials with weak balance sheets) and those companies have financial difficulties or file bankruptcy, then the mutual fund holding those securities will suffer a loss.  Today the U.S. Treasury Department said it will support money market mutual funds whose NAV has fallen below the $1.00 mark.  This announced by Treasury Secretary Henry Paulson (check you recently printed cash, he is the guy whose signature is on the bottom right front side of your currency!  He also announced an ASSET RELIEF PLAN, by taking bad mortgage loans off the books and getting some funds in the hands of those banks that will still be around after all this mess shakes out. "I am convinced that this bold approach will cost American families far less than the alternative--a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion," said Paulson on Friday (September 19, 2008). (from Rueters)

Whew! Is it over . . . . . . .

I feel like the snowman narrator in the Rudolph the Red Nosed Reindeer television special - "tell me when it is over".

The financial markets worldwide are in flux and no markets like indecision, turmoil, uncertainty, and/or confusion.  And we all know how stock and bond markets deal with bad news!  On September 15th, we hear about Lehman Brothers bankruptcy filing (chapter 11); Merrill Lynch is bought by Bank of America and AIG (largest insurance carrier) is seeking to borrow $4o billion!  Also Washington Mutual (WaMu) is being courted by J.P. Morgan!   The Dow Jones Industrials has a large sell off (over 500 points), S&P and NASDAQ follow suit.  Overseas markets suffer similar losses.

Fed Chairman Bernanke today (September 16th), decides to keep the federal funds rate at 2%.  Economic growth appears to have slowed (inflation less of a worry at this time, or is it there are too many other things to worry about!?!?!?) and the labor and housing markets continue to be weak.  A bright spot, unless you are a U.S. oil company hoping to continue to gouge (I mean profit) from increased oil prices, is watching the barrel dip below $91 a barrel.  So, less than $91 a barrel, hurricane over, . . .  . when are we going to see some relief at the pump!?!?!?!  I paid $4.15 a gallon yesterday!

In a market like this the only thing I can say is focus on preserving your capital and don't take any long-term position that would be tough to liquidate!  There will be "fire sales" which are great opportunities for those with the means to get in at a low level and ride the quality companies back up.  Remember your asset allocation strategies, time horizon, risk tolerance and you make decisions.  Never pay attention to someone who gives you a "hot tip" or rumors from a cocktail party.  They rarely pay off.  Part of winning in the investment game is being in first when the price is low and getting out at some point on the way up (as the exact top is too hard to predict).

So keep your head low and your wits about you - this market is very bumpy!

Market news

Well, oil is still hovering around $103 a barrel, which is significantly lower that where is was this summer.  You would think my pump price would not still be $3.96/gallon (up $0.25 in one day!).  Well, the speculation is with Ike heading toward Texas, there could be some supply interruptions from that area.  OPEC announced it will have a "modest cut" in production, but experts still think the crude prices will be lower in coming months.  Apparently just not in my neighborhood - we will see!

RIM (maker of the Blackberry) has a new product - flip phone version (Pearl 8220).  Apple has come out with two new products (or should we say to updates to existing products), with its new iTouch and new 4th generation iPod nano.  A little more storage capacity, some colors choices, and enhanced capabilities are what are in store for anyone entering the fray for the first time, or to get that "other" device.  RIM is going to move away from the flat, touch screen type of product, where Apple intends to focus its development in that area.  I think I can see Apple's product focus, the Shuffle for small, portable tunes - the Nano for more storage, photo, video possibilities in a portable, small package, the iTouch for those that want all the bells and whistles but already have a cell phone, the iPhone - does a bunch of stuff (though some may say it is limited in storage), the the classic iPod which will only be available in 120 GB models is the multimedia storage portable device.  Which company makes the better long term investment?  I don't know.  I do think the record of Apple speaks for itself, though it is hard to make up that type of growth year in an year out with new products, software, extras (iTunes, App Store, etc.).  I think the big worry there is what happens when Steve Jobs decides to step down.  Is there a secession plan???

The U.S. Markets rebound a little today, though European and Asian markets continue to fall.  Recession woes seem to have turned to inflation worries.  If this is the case you want to be in short bonds (as rates would be projected to rise) and away from "trendy" type stocks unless they have a great story and look at "staples" (defensive stocks) until the election on November 4th.  That is one conservative strategy (though there are some sitting on the sidelines in cash - waiting for the right time!  Coca-Cola has made a $2.5 billion offer for the China Huiyuan Juice Group.  This Chinese company was said to have a 44 percent market share, so Coke is getting a great foot into this market in a big way!

Politics and the markets

Well, we now know who will be facing off in November.  Obama/Biden vs. McCain/Palin.

Regardless of what happens, there will be a "First" on November 4th.  Either the U.S. will elect the first minority as the President of there will be the first elected female Vice President in history.  There has been a lot of rhetoric already and more to come.  For me, I am looking forward to the debates.  We usually get about 3 for the Presidential candidates, though there can be more; and at least one from the Vice Presidential candidates.  What I always find interesting in this buildup is how many "friends" and "supporters" everyone has now!  Once the election is over, the losing side kind of packs up and goes home!  We don't usually hear from those two on the short end, for about 4 years if then (think Walter Mondale, Geraldine Ferraro, Robert Dole, John Kerry, etc.).

From a financial perspective how will the markets fare?  It is too early to tell, and I don't know if typical "republican or democrat rules" will prevail this time, and the markets, the economy and the world is a lot different now.  Will this "first" in the election cause things to progress differently than in the past. 

In the meantime you need to look for value.  You will find this by locating the best "player" in an industry that you think will be around and determining whether this individual stock was "beaten down too far".   If you "dollar-cost average" or "value-cost average" this can be a good time to add to a position.  If you invest in mutual funds, the same holds true for you.  In all cases you needed to monitor your diversification (which sometimes can be difficult with mutual funds - just make sure they are not all in the same business --- all large cap growth, etc.), your time horizon and be comfortable with your risk tolerance.  It is never too early to look for "sales" (deals on value plays) or starting to save and/or invest for your retirement!