Jan 04 2014

A Brighter 2014?

“Man is not the creature of circumstances, circumstances are the creatures of men.  We are free agents, and man is more powerful than matter.” – Benjamin Disraeli


So Happy New Year and hopefully the weather this January for most of the U.S. and other parts of the globe is not an indication of what we should expect in the broader economy.  Wow – it has been brutal!  I honestly don’t expect much of a correlation but it is a bit difficult to predict if 2014 will be better or worse than 2013.


Fortunately there were some good things that happened in 2013 despite the political nightmare that is Washington D.C.  Many of us enjoyed watching our stock portfolios increase in value (condolences to those overinvested in municipal bonds) but it is difficult to believe this rising tide can continue for another year.  My gut is telling me that a correction is coming – but when exactly?  I remain generally optimistic that 2014 can be a better year for many – assuming the political infighting does not spin out of control during the upcoming budget negotiations – BUT…caution should be a key concept in 2014 when making financial decisions.


For those planning to invest or rebalance this year, don’t overlook the following possible perils:

1.  Negative impact from withdrawal of monetary stimulus by the Fed.

2.  Resurgence of sovereign debt problems in Europe.

3.  Significant correction after 4.5 years of gains in the U.S. equity markets.

4.  Further Chinese stock market decline or slowdown in economy.

5.  Oil supply shocks due to Middle East unrest or terrorist disruption.


While most agree there is reason for optimism in 2014 and sitting on piles of cash is not a good investment strategy, the prudent humans will continue to diversify exposure.  All the best to you in 2014!

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Dec 04 2010

Hubris, Ignorance, Goldman and the Fed – with some good advice in the end

“None of them would have survived without government help.”  – Timothy Geithner, Treasury Secretary


Last week the Federal Reserve released detailed information on the steps they took to stabilize the financial markets during the uber tense period from early 2008 through 2010.  Most of us were quite surprised to learn of the magnitude and frequency of intervention.  Although some will never completely agree, it was quite clear to me that we were truly on the edge of the abyss and without the Fed’s intervention there would have been a complete wipeout.


To add to the intrigue, my favorite system manipulator, Goldman Sachs – which once suggested it had plenty of cash to weather the storm – borrowed 84 times during the crisis window and more than $20 billion on at least one occasion.  I could add a few comments on this but I will take the high road at this time.  One thing you can say about Goldman, they know how to create their own destiny.


Shortly after this broke, the U.S. jobs report came out with dismal November job growth – so poor compared to other more encouraging indicators that many are questioning whether the report is accurate.  Regardless of what job growth actually is, while most of the key economies around the world have stabilized, there are still many potholes in the road to Shangri-La.  All you have to do is consider, Greece, Spain, Portugal and Ireland.


Since this blog is supposed to be about prudent personal finance and the global economy, my suggestion as we hopefully enjoy the 2010 holiday season, is to keep your job if you have one, find a job if you don’t and in both cases avoid excessive debt and save every dollar (or pound, yen, rupee, euro, etc.) you can.  There are and always will be investments worth pursuing but be very cautious unless you have adequate liquid to cover any possible losses.  Cheers and All the Best during this special time of the year!

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Jul 25 2009

All that Glitters is Goldman Sachs

“If America is circling the drain, Goldman Sachs has found a way to be that drain – an extremely unfortunate loophole in the system of Western democratic capitalism, which never forsaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.”  – Matt Taibbi


While many companies and individuals have been devastated and are only beginning to recognize encouraging economic signs, Goldman Sachs reported record 2nd-quarter earnings of $3.44 billion, or $4.93 a share, blowing away the analysts’ consensus forecast of $3.54 a share.  If you work for Goldman, you are probably feeling pretty good right now – at least about your compensation.  It is just possible that Goldman will come to regret achieving this remarkable profitability when the rest of the world is suffering.  It is as though they have suddenly reached the pinnacle and in the process they have drawn the wrath of the masses.  Many are suggesting that Goldman Sachs is playing with a stacked deck, and from what I have read I tend to agree.  But…I also recognize that most companies and individuals would gladly game the system (the way Goldman apparently does) if it meant they would enjoy the same remarkable success.


Let’s be honest – it’s easy to sit on the sidelines or from an unfavorable position and take potshots at Goldman.  We should really ask ourselves if we would actually slack up on our potential if we were in the same position.  I think the answer is no…we would not.  We would ride the wave until we could ride it no longer!  I only wonder if Gordon Gecko (Stanley Weiser’s brilliant character in Wall Street) was correct when he said, “…greed, for lack of a better word, is good…and greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA.”  The rest of the world is wondering too – and only time will tell…

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Apr 07 2009

Our Two Favorite Investment Geniuses

“I will die and go to hell if it’s a Ponzi scheme – it’s no Ponzi scheme…if it is a Ponzi scheme, why are they finding billions and billions of dollars all over the place?” – R. Allen Stanford


Well, I didn’t do very well last month with only one post, so I will try to do better in April.  I thought it was about time we revisited the status of Messrs. Madoff and Stanford.  As most of you probably noticed, there has been a good deal of continuing coverage on Mr. Madoff, but Mr. Stanford hasn’t received much national coverage since the initial story broke.  I say lucky Mr. Stanford – right?  Unfortunately for him and his business associates, just because the media has other fish to fry doesn’t mean the SEC does – but more on that in a minute.


It shouldn’t be such a surprise to Mr. Bernard Madoff or his family and business associates that when you deceive a whole slew of powerful people and institutions and oh, by the way, burn through $50 billion of other peoples’ money – you might just be sued by some of the victims.  This of course is exactly what is happening and let me just add that those doing the suing are going after every penny or any asset with tangible value.  Madoff started transferring assets and sending money to family members almost immediately, but he has clearly been found out – so the lawsuits will ensure that what remains will probably mostly end up with the lawyers – but better than Madoff or anyone he wants to have it.  Bernard’s brother Peter recently received some bad news when he learned that he had to return the vintage Aston Martin that was purchased for him last year – if this was only his biggest problem.


As for Mr. Stanford, he vehemently denies any wrongdoing and maintains that the SEC decided to make his company the scapegoat after completely missing the Madoff scam for two decades or longer.  Apparently, while there are some shady things that went on at Stanford Financial, they hadn’t yet spent the entire $8 billion that they brought in with high-yield CDs and there is some indication that significant assets are still held by the firm.  This hasn’t discouraged the SEC and according to spokesman John Nester, “We stand by our allegations.”  And there you have it.  I bet James M. Davis and Laura Pendergest-Holt are hoping all the money can be accounted for – or they will be joining R. Allen in the pokey for a long time!



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Feb 28 2009

The Wizard Speaketh

“The stupefying losses in mortgage-related securities came in large part because of flawed, history-based models used by salesmen, rating agencies and investors.  These parties looked at loss experience over periods when home prices rose only moderately and speculation in houses was negligible.  They then made this experience a yardstick for evaluating future losses.  They blissfully ignored the fact that house prices had recently skyrocketed, loan practices had deteriorated and many buyers had opted for houses they couldn’t afford…Investors should be skeptical of history-based models.  Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive.  Too often, though, investors forget to examine the assumptions behind the symbols.  Our advice: beware of geeks bearing formulas.” – Warren Buffett, February 2009


I for one have the utmost respect and admiration for Mr. Buffett and although even “The Wizard of Omaha” isn’t always right, he certainly hits the nail on the head more often than not.  So while I have about given up on offering insight at the moment (at least until we hit bottom), I won’t hesitate to direct you to the annual Berkshire Hathaway shareholders letter that just hit the web.  I strongly suggest you read Mr. Buffett’s commentary and carefully consider what he has to say.  You never know, your future prosperity might just depend upon it.  To the Shareholders of Berkshire Hathaway, Inc.:

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Feb 22 2009

Stanford on the Rocks

“As a company founded in the midst of the Great Depression – an environment of despair and negativity – we have a long-proven understanding of how even the most severe down cycles can bring opportunities that yield significant benefits in the long run.  This well-grounded approach when making investment decisions and giving investment advice will benefit our clients in these tumultuous times as never before.” – R. Allen Stanford, 2008


Long before the Madoff scandal could fade into history (and we still haven’t a clue how he pulled it all off for so long), it would appear there is yet another “brilliant” financier that lived like a king by scamming others.  Fortunately I didn’t give my money to either of these jokers – at least that I know about, but I probably could have been sucked in like so many others given the right set of circumstances.  I feel as though my posts of late read like a bad Hollywood movie blog but they capture real life events and hopefully they will help us all be better investors with a nose for a scam.


For those of you that don’t know anything about R. Allen Stanford, I suggest you take a look by following the link.  He is truly an interesting cat.  My first exposure to Mr. Stanford was back in 2004.  My wife and I found ourselves on the lovely Caribbean island of Antigua for vacation.  While walking around St. Johns, the largest town/city, I quickly noticed that Stanford Financial and the Bank of Antigua seemed to be quite prominent.  Just by happenstance, I picked up the local paper and there was an article that mentioned Mr. Stanford.  I recall it suggested that he had been accused of questionable practices involving investment and improper influence of local politicians.  I was rather intrigued and so when I returned to the States, I researched Mr. Stanford a bit and it became apparent that he was quite the player indeed.  In addition to his investment firm and the banks he operated, I was somewhat interested with his plans for development in the Caribbean so when we were planning a trip to Antigua again in 2006 I attempted to set up a meeting with Mr. Stanford.  At one point I thought I would get the chance to meet with him, but he ultimately blew me off and now I am quite confident this was actually a very good thing.


Upon our return to Antigua, it was quite obvious that Mr. Stanford had continued to expand his presence on the island.  He had built a new cricket field next to the airport and it seemed that Stanford was displayed everywhere.  It all seemed just a bit overdone – but very few would have known what was actually going on.  I thought at the time that possibly he was involved in some money laundering for wealthy South Americans – but on the surface he seemed to be doing some good things for Antigua so I forgot about it all once the vacation was over.


Fast forward to February 2009 and out of the blue it is reported on the news that R. Allen Stanford and two of his top executives are being sought in connection with some kind of Ponzi scheme involving high-yield CDs and the Bank of Antigua.  While I was floored at first, it didn’t take long for me to decide that I really wasn’t all that surprised.  As we all realize sooner or later, making money takes a lot of effort and Mr. Stanford made it look far too easy.  One of the best articles that gives more detail on the whole ordeal is Allen Stanford: The Antigua Triangle published February 22 in Times Online.


So it would appear that once again, some smuck and his possibly not-so-clueless employees have duped thousands of people out of huge sums of money.  Many thought they were protecting themselves from the tumultuous equity markets only to apparently lose everything so that Mr. Stanford could live the high life jetting around the globe, sponsoring cricket tournaments and yacht races, not to mention building opulent palaces and office buildings.  I just heard that of the roughly $8 billion that was supposedly deposited in his banks, the authorities are now only able to account for $250 million.  All I can say is that while it is doubtful I will ever experience the grand lifestyle that Mr. Stanford has enjoyed for so long – I wouldn’t trade places with him for all the money that evaporated in the banks of Antigua…

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Jan 18 2009

The Curious Case of Bernard Madoff

Published by under Investing

“In any country where talent and virtue produce no advancement, money will be the national god.  Its inhabitants will either have to possess money or make others believe that they do.  Wealth will be the highest value, poverty the greatest vice.  Those who have money will display it in every imaginable way.  If their ostentation does not exceed their fortune, all will be well.  But if their ostentation does exceed their fortune they will ruin themselves.  In such a country, the greatest fortunes will vanish in the twinkling of an eye.” – Denis Diderot, 1774


I realize the whole Madoff scandal is old news by now, but even considering the startling stream of financial news of disappearing investment banks, gargantuan bailouts and record layoffs, I can’t quite get past what Madoff did and how he was able to get away with it for so long.


For me, the more I learn about Madoff’s reported tactics, the more terrified I am.  Not because I could lose money directly, but because someone who was respected and trusted by some of the most prominent people and organizations in the world would could pull off such a shocking crime.  He duped them all and now they must pick up the pieces.  So how many other Madoffs are out there taking advantage of people and institutions right now?  Hopefully not many more but I wouldn’t bet on it.


There are at least five questions I hope to learn the answers to as I continue to follow the unfolding story.  First, why would such an accomplished and respected man engage in such despicable tactics to begin with?  At least on the surface it would appear that Madoff started out on the right track.  He formed his own trading firm in 1960 and after struggling to compete with the big NYSE firms, he helped develop an electronic system to disseminate quotes and set his firm apart from competitors.  Eventually the technology he helped develop led to the formation of the NASDAQ electronic stock exchange.  Madoff went on to serve as the NASDAQ chairman of the board of directors.  Impressive if you ask me.


Second, did he really believe he would get away with it all when he started?  If he did, he clearly wasn’t terribly bright after all or he was delusional.  Third, how many other people were knowingly involved in this mass deception?  There is no way anyone can convince me that one man fooled and deceived hundreds and maybe thousands of people out of billions of dollars for over twenty years without help from others.  I expect quite a list of accomplices by the time this goes to trial.  Fourth, how in the world did the SEC fail to recognize what was actually going on?  It is common knowledge that outside analysts have been throwing flags for years – and yet nothing was uncovered (apparently).  And finally, was bribery and/or coercion involved in keeping the deception under wraps so the scheme could continue much longer than it would have otherwise?  It is certainly possible and maybe even likely considering what we now know.


If you can shed some light on this bizarre mystery then I certainly look forward to your comments and one more thing…think twice or maybe ten times before you invest your money anywhere these days.

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Nov 29 2008

All’s Well That Ends Well

“There is no royal road to anything.  One thing at a time, all things in succession.  That which grows fast withers as rapidly; that which grows slowly endures.”  – J.G. Holland


A friend and fellow CeFiMS alum recently made me aware of a Viewpoint published on BBC News by Sir Evelyn de Rothchild.  The perspective of Sir Evelyn is one that has formed from living an amazing life in a world that only the most accomplished and privileged ever experience first hand.  He has also been in the game long enough to qualify his observations and recommendations at this critical juncture.  I strongly suggest you read his Calls for Action and make special note of what he says about oversight, modern executives and the reality of our predicament.


It’s amazing to consider that thanks to the Internet we have easy and rapid access to information on just about everything – but so much of it is exaggerated or filtered rubbish.   In fact, it is nearly impossible to know what to believe much of the time.  I suspect that beginning with the earliest European corporations of the 17th Century, exagerations and inaccuracies have been used to raise capital and keep investors in the dark.  There have been countless laws enacted over the decades in every country to thwart the unscrupulous.  Recently, after the MCI-WorldCom and Enron scandals, the U.S. enacted the Sarbanes-Oxley Act of 2002 to address accounting accuracy and transparency among other things.  Unfortunately it apparently didn’t adequately address valuations, leverage, credit derivatives, and age-old greed at any cost.  So needless to say, we still have a great deal of work to do.  If you are not a Wall Street insider and would like a flavor of what was actually going on before the crash, read The Autumn of the I-Banker from New York Magazine.  You will be shocked and stupefied!


Finally, I received a letter from Charles Widger, Chairman & CEO of Brinker Capital.  I don’t know if Mr. Widger knows what he is talking about (I hope he does because his firm has some of my hard-earned money), but he believes now is a good time to consider your options.  According to Mr. Widger, “Historically, the stock market bottoms about one year into a recession caused by financial panics and well ahead of economic recovery.  Assuming recessionary slow growth began in the fourth quarter of 2007, the U.S. stock market should begin recovering in the first half of 2009.”  Let us all hope and pray that past observations are relevant in this case.  Happy Thanksgiving!    

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Nov 24 2008

Never too late to make it right

“In their heyday, fund managers would go to ideas dinners at the best restaurants in New York and London and persuade one another to make the same investments.  Those excluded from the dinners would peer at the SEC filings of the smarter among them and copy their trades, eliminating the advantages the more intelligent investors had in the first place.” – Jesse Eisinger


Halleluiah!!!  The U.S. presidential election is over and whether or not you like the outcome at least maybe now we can get on with other pressing matters.  Let us hope and pray that our new president will be up to the task because there isn’t much that doesn’t need to be repaired!  When I first decided to start my own blog, my intention was to focus on financial and economic information that readers committed to prudent personal finance would find useful.  Unfortunately, recent developments have forced me to recognize that much of what we were taught or innately believed about the global financial markets and the economy in general was incomplete – at best.  In fact, even Alan Greenspan acknowledged under questioning that he was mistaken in believing that banks, operating in their own self-interest, would do what was necessary to protect their shareholders and institutions (see Greenspan Denies Blame for US Crisis, Admits Flaw).  So for the time being I will mostly limit my recommendations on how to invest.  It is certainly a good time to spend less than you bring in and build a significant cash position.  There are most definitely great investment opportunities out there, but it is still a better idea to have an adequate cushion and then to pay down any debt before you invest in such an unstable and uncertain environment.


Now for my soapbox.  We have all been a little too enamored with the financal wizards that make shiploads of money without producing anything of tangible value for many decades now.  I suppose this is largely because we believed the system was working for the most part and we were benefitting from it as our investments increased in value.  Now it is apparent that many of these same wizards actually contributed to the current crisis and now suddenly we don’t like them so much.


If we look at this situation from a sanguine perspective it could just be the the wake-up call we all needed.  Too many people around the globe have been caught up in taking whatever they could get regardless of the financial smoke and mirrors involved in getting it.  If you want to gamble, go to Las Vegas, but for those of us that wish to earn a decent living by providing a valuable product or service and then invest in other companies or enterprises that do the same in order to profit long term from the value being generated, we should be able to do this too.


I will gladly invest my money in worthwhile investments but the people I deal with and all that touch my hard-earned money for that matter need to understand the the meaning of fiduciary relationship.  They simply need to pick up a copy of Black’s Law Dictionary which defines a fiduciary relationship as, “one founded on trust or confidence reposed by one person in the integrity and fidelity of another.”  A fiduciary should feel the ultimate sense of responsibility for a client’s money – well above his or her own personal gain.  One final thought: W. Edwards Deming said, “Profit in business comes from repeat customers, customers that boast about your project or service, and that bring friends with them.”  We all need to consider this very carefully!

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Sep 28 2008

Safe with Upside

Published by under Investing,US Economy

“Men at some time are masters of their fates: The fault, dear Brutus, is not in our stars, but in ourselves, that we are underlings.” – William Shakespeare from Julias Caesar


Suddenly I am asking myself if I have been abducted by a cruel supernatural prankster and placed in Bizarro World! Unbelievable…the run-up to the U.S. presidential election and the national political landscape looks more like a really bad reality TV show. Legendary Wall Street firms have either collapsed in the last two weeks or are on life support praying for an extensive government bailout. Americans that have been cast out of their homes due to foreclosure are moving into tent cities in various parts of the U.S. Iranian President Mahmoud Ahmadinejad anounces, “American Empire in the world is reaching the end of its road” in a speech to the United Nations General Assembly. I could go on but I don’t want to push anyone over the edge. In case you haven’t noticed, these are crazy times (really – I’m not kidding here). I for one long for the good ole days when everything felt so secure and the future seemed so promising. It wasn’t long ago that my biggest problem was finding enough time in my schedule to take an exotic vacation with my family!


I suppose what really chaps my butt more than anything is the fact that this whole mess could have been largely avoided – if only the brilliant minds on Wall Street and the government (probably not as bright) would have applied basic common sense. Hank Paulson summed it up well when he said, “I share the outrage that people have. It’s embarrassing to look at this. I think it’s embarrassing to the United States of America. There is a lot of blame to go around.” Personally I’m embarrassed, disgusted, angry and a little scared – how about you?


Enough already. It’s time to offer some useful information. After changing companies a few years ago, I had the option of keeping my money invested in my previous employer’s 401(k) plan or transferring it to another plan or IRA. Being the risk averse person that I tend to be – especially considering the economy and the wild swings in the stock market over the last two years – I was looking for something with a good chance for growth and limited downside risk. The other major consideration was the amount of time before I plan to retire. I am looking at 20 to 25 years, and although I am willing to suffer some losses here and there, I don’t want to finish with less than I started with and I want a reasonable chance for my investments to perform as well as the S&P. With my investment advisor’s assistance, I feel like I found exactly what I was hoping to find. I am referring to the MassMutual Transitions Select Variable Annuity with the guaranteed minimum accumulation benefit. I selected the MML Growth Allocation which means that if the market performs reasonably well, I stand to see growth of three to five times my original investment over a 20-year-period, but at the very least, I am guaranteed twice my initial investment after 20 years. MassMutual offers various other or additional riders, but you get the idea.


I have previous exposure to MassMutual and have often asked others about their experiences. To date I am pleased to report that I have never personally uncovered anything to be concerned about. I am not suggesting you should do anything without careful analysis and consideration, but you might want to look into this option. As we seem to learn over and over, there are few sure things in life, but this annuity can provide the best of both worlds – no real downside and the opportunity for significant growth. Let me know if you have other suggestions. I would also like to hear about your experiences with MassMutual (good or bad).

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