Is Your Money Sitting
In a Cash Account Making Almost Nothing? - Part II - June
24, 2009
Last week I wrote about the huge hoards of cash
sitting in various interest bearing accounts making practically
nothing.
I recently read an article discussing the fact that the average
money market account is returning in the area of fifteen one-hundredths
of a percent or 15 basis points. This is essentially paying
roughly one-sixth of one percent.
Since my writing last week, I found an article in the LA Times
talking about the amount of cash on the sidelines. The amount
is absolutely huge. The thesis is that a fair amount of it
is going to end up getting invested somewhere.
The two sources cited in the article are iMoneyNet Inc.,
and the Federal Reserve. It states the there is the following
cash on the sidelines:
Savings Deposits
$4.5 trillion
Money Markets Funds
$3.7 trillion
Small CDs
$1.3 trillion
These amounts total $9.5 trillion. They state it's twice
the amount available in stock mutual funds.
We should see some of this money flowing back into the financial
markets at some point in the future. Assuming there isn't
some other unknown problem which occurs.
In my mind, the question long term investors need ask themselves
is; when might this happen? Smart investors want to be there
first.
If you'd like to talk about this or anything else, give me
a call or drop me an email.
Apprvd.BBDP
Is Your Money Sitting
In a Cash Account Making Almost Nothing? -
June 17, 2009
Do you have money sitting in accounts making
nothing? Many people have put trillions of dollars in accounts
which are making virtually nothing. There are many reasons
they done so the past few months. The main reason for many
was a sense of comfort during the financial storm we have
been weathering since September 15, 2008.
With the recent improvements we're beginning to see in the
economy, it's my opinion that we have weathered the worst
of the financial storm and that things should continue to
improve in the months ahead. (Keep in mind that unemployment
isn't likely to improve until long after the economy has turned
around.) If that's the case, and history shows that the
financial markets turn ahead of the economy, we may be
in a period where people will begin to look to redeploy their
money away from risk free savings vehicles into investments
carrying more risk. These investments would include stocks
and bonds.
Why would people turn away from the safety and comfort of
their savings accounts, Treasury bills, and money market funds?
The answer lies in the fact that you can't make any real rates
of return in accounts which can barely keep up with inflation.
As people begin to feel more comfortable with the financial
markets and the economy, they are likely to begin to take
more risk.
The real question everyone has to ask themselves is whether
they can tolerate risk, which includes more bear markets in
the future, in order to make a better rate of return? Each
of you will have to determine if you want more risk in your
portfolio and how much money you're willing to place in these
investments.
Keep in mind that leaving long term money in savings accounts,
Treasury bills, and money market funds runs a different type
of risk. This risk involves not being able to keep up with
inflation. We are certainly going to see more inflation in
the future. That's inherent to the capitalist system and is
much better than deflation. I think we can count on inflation
in the long term. I think we need to protect ourselves from
it. In saying as much, I do not think it can be done by putting
your long term investment dollars in short term savings vehicles.
The two don't fit long term by their very nature.
Some economists are worried that we'll see higher than normal
inflation as we come out of the financial crisis and economic
troubles. If that's the case, your savings vehicles won't
keep up with it. You'll need investments which have pricing
power that can help raise their profits. In my mind, this
means common stocks. Companies can price their way through
inflation. As they raise prices to keep up with inflation,
their profits should rise. Higher profits should be reflected
in higher stock valuations.
Bonds can be more problematic during inflationary times.
As inflation increases, the interest rates being paid by your
bonds may not compete with the current markets. In others
words, they may not offer competitive returns and therefore
lose value. Bonds tend to be better during deflationary times
or periods where interest rates are dropping.
I think we are in a period where people should begin to look
at their cash positions. They should consider investing
before markets move even further forward. Clearly I don't
know what will happen in the short term. But what I see is
a period where we continue to get better news on the economy
and in the credit markets. I see the recession beginning to
lose some steam and the credit markets improving. Both of
these things are good news for us all. We've certainly been
through enough the past few months. Continued good news is
more than welcome. It should bring us better times ahead as
well.
If you wait too long to get back into your investments, you
risk losing a part of the recovery. You risk buying higher
than you might want to. As Warren Buffet wrote in October
2008, in a New York Times Op Ed, "if we wait until the
Robins sing, spring has sprung." In other words, if you
wait until you until you feel comfortable enough to invest;
you may have lost a large part of the return the recovery
rally may offer.
Investing is about anticipating the future and being there
to capture it. If you'd like to talk about your portfolio
or any ideas, do not hesitate to write me.
Apprvd.BBDP
What do Dividend Reductions
Mean for Mutual Fund Investors? -
June 10, 2009
Dividends have played an important role for
investors over the years. They provide income and are an important
part of an investor's overall return on investment. The following,
from the American
Funds website, gives us an up to date perspective on investing
today with dividend paying stocks.
Okay, so it's a cliché. But too often, people, work,
work, work to afford a home and don't take the time to enjoy
life, family, and friends (or even their home). If you buy
a home that's within your financial means and you are resourceful
and thrifty with your spending in the years that you live
in it, your home should not dictate your finances and your
need to work. You should own the home. It shouldn't own you.
No people (that we're aware of) have ever said on their deathbed
that they wished that they had spent more time toiling away
at work (and therefore less time with family, with friends,
and for themselves) so that they could spend more money on
their homes.
Taking the time to smell the roses doesn't just apply to
real estate; it applies to all forms of wealth accumulation.
Make sure you enjoy the finer things in life; after all, you
can't take it with you.
This week's tip is an excerpt from "Home Buying for
Dummies" by Eric Tyson and Ray Brown, reprinted by kind
permission of Ray Brown. In addition to being a frequent guest
and contributor to our show, Ray has authored many books and
is a syndicated real estate columnist for the San Francisco
Examiner, and has hosted the weekly radio program, "Ray
Brown on Real Estate," on KNBR in San Francisco for many
years.
Apprvd.BBDP
Three Simple Tips for
Your Home This Summer - May 27, 2009
This week's tip is one of the first to divert from the financial
crisis we've been mired in the past 8-½ months; it's
simple, uncomplicated stuff that may help you with your home.
1. Fire season is literally just around the corner. Take
the time to protect your home from fires, whether it be clearing
dead brush from your property or making sure all your outlets
are properly grounded. There are tons of good fire-related
websites you can search for on how to do this; the measures
to protect your home from fire can vary from area to area,
depending upon the terrain.
2. Review all of your insurance with your insurance agent
to make sure you are current; you should do this regularly,
particularly in any up or down real estate markets.
3. If you want to do any remodeling, now seems to be the
time to do it, as there are plenty of construction workers
out there looking for ways to make a living. I would imagine
2009 could be the best year to get something done on your
home.
This week's tip is short and sweet but, if you follow it,
you could save yourself a lot of money.
Apprvd.BBDP
The Two Phases of Market
Recovery - May 20, 2009
As I've watched investments over the years, I've come to
understand that there are two phases of market recovery. Each
is distinct and each is a part of the healing process.
It's not uncommon for investments to become overbought or
oversold. An overbought market is one which has exceeded its
real value. (Most recently this applied to the real estate
markets. In 2000, it applied to technology stocks.) An oversold
market is one where people sell stocks to a point where they
can be well below their real values. We may be seeing this
is real estate now. And, I certainly think we saw it in the
financial markets in early March.
Both of these conditions are generally a result of excessive
fear and/or greed. By nature, human beings are very emotional;
particularly with their money. As we've discussed many times
in the past, emotions make a lousy market timer.
How does this tie into market recoveries?
The first phase of recovery is to come off the bottom or
off these oversold conditions. At some point in time, investors
realize that the investment opportunities are just too great
to leave alone. They begin to buy at these very low prices.
This is what I call a bounce off the bottom. In this phase,
investments tend to rise to a more fairly valued level. This
bounce has been historically pretty strong; particularly after
a deep sell like we saw between September 2008 and early March
2009. I believe we may be in the process of finding more fair
values in this bounce off the bottom. It's tough to know,
until we can look back, how much we bounce and when this phase
ends.
The second phase returns the financial markets to normality.
In this phase financial market results are tied to economic
growth. We should see that as the economy recovers from the
recession. Keep in mind that historically the financial markets
get out in front of the economy as a forward looking indicator.
While I don't have crystal ball; I do think we may be in
phase one of financial market recovery. As I've said the past
few weeks, it may be a good time to put some money to work.
Other than that, I encourage everyone to continue to be patient
and not make any quick impulsive decisions that you may regret
at a later date.
Investing is a long term proposition. If you keep that perspective,
I believe you have the greatest chance of success.
Apprvd.BBDP
Two Steps Forward, One
Step Back - May 13, 2009
No one said a recovery was going to come easily, or even
in a straight line. We had news today that retail sales in
April were not so great; that's not a total surprise to me,
or to many who know that a recovery from such a tough economy
takes time. Retail sales numbers are backward looking, meaning
that we're looking at prior months' activity that is,
prior months when we knewthings weren't
going so great. Investing and economic forecasting is about
looking forward, not backward.
As a result of this news, the financial markets dropped some,
today; however, they have done nothing but go up for over
two-months without any real adjustments, so we were due for
a pullback. That's a normal part of the process; they don't
go up in a straight line, neither do they decline in a straight
line.
As I've said before, we'll likely see the economic news go
from "not good at all" to "not as bad."
At some point, we will start seeing less bad news and more
good news; eventually, the bad news fades away and we're left
with good news and better times. There will be no bell at
the end of the recession; then again, there will be no bell
at the market bottom, either.
As we continue to see more signs of improvement in the economy,
I urge you to consider beginning to put your cash to work,
as the financial markets are far from their peaks of October
2007. Buying on pullbacks isn't a bad way to go.
Factoid for today:
The three-month LIBOR (London Inter-Bank Offered Rate,
or the rate that banks charge each other for money), which
is normally around 50-basis points (or 0.5%) and got
as high as 480-basis points (or 4.8%) at the peak of
the credit crisis last fall, is now under 90 basis
points (or 0.9%). The LIBOR has been dropping
at a good clip over the past few weeks, which is a good sign
for the credit markets; it's almost back to normal, when compared
to last fall.
Apprvd.BBDP
Unemployment, Bernanke
and the Markets - May 6, 2009
The green shoots or mustard seeds of improvement seem to
be taking root, as we continue to see more signs that the
economy is finding ways to right itself.
It was reported today that the number of people filing unemployment
claims was lower than the recent estimates from a Bloomberg
survey of economists, which had estimates of 645, 000 people
losing their jobs in March, whereas the actual number of unemployment
claims was 491,000. If employment is a lagging indicator in
the economy, we surely can't be unhappy seeing a reduction
in job losses. Even if today's jobs report isn't enough of
a sign that the recession is ending, it is a single sign that
things are moving in a better direction; it is also good news
for many investors and economists, as they look for indications
that the rate of slowing in the economy may be easing some.
In the long term, we'll want to see that figure continue to
go down before we can feel more confident of more people either
getting back to work or keeping their jobs.
In testimony given in front of a Congressional Joint Economic
Committee yesterday, Federal Reserve Chairman Ben Bernanke
said that the economy could pull out of recession and begin
growing again later this year. It was his most optimistic
assessment of the economy since the financial crisis and recession
took hold last year.
As of today's writing, the financial markets have raised a
great deal off of their March 9th lows:
Dow Jones 30 Industrials
+24%
S&P 500
+38%
NASDAQ Composite
+39%
While we don't know if the March 9, 2009 lows will end up
being the bottom of this Bear market, we can see how powerful
recovery rallies can be when they get going from oversold
conditions. Eventually, we'll know that we have passed the
bottom of the market; if you've been on the sidelines waiting
to be sure of this, you'll miss the rally. Have we been experiencing
this now? I don't know and won't know until I can look back
to see it (hind-sight is indeed 20/20).
I believe we are heading in the right direction and that
we'll continue to see improvement in the economy and banking
system over time. These improvements are likely to come in
small doses for a while; however, we should see real momentum
over time.
What does this mean for you?
1. If you are looking to buy a home, I think this period
we are in now is one of the best windows we'll see in years.
2. The rates on home loans are at record lows. If you haven't
looked into buying a home or doing a home refinance on your
home, I think this is the time to look into it. I'm not sure
how long we'll see these low rates but I am sure that we'll
see mortgage rates rise, as the economy improves.
3. If you purchased a home during the housing bubble, you'll
want to see if you can have your property taxes reduced. (See
my Tip of the Week for January 28, 2009, in the archives.)
4. If you haven't added any money to your investments while
the markets have been down, you may want to consider getting
your money to work. This is especially true of any dips we
see over time. Buy low and sell higher; this is a great way
to make money long-term.
5. If you're sitting on cash making almost nothing, you may
want to start thinking about what you will do with it long-term,
as short-term rates haven't ever made for successful investments.
Keeping your perspective while all others lose theirs is
how you will succeed in life.
Apprvd.BBDP
Fed Says the Recession
May be Easing - Time to Invest? - April 29, 2009
Over the past few weeks, I've written about the rays of light
we are seeing in the economy. There are some indications that
things may begin to slowly get better. In yet another sunbeam
of hope, the Federal Reserve Bank has been saying that the
recession may be easing. While the first-quarter GDP (Gross
Domestic Product) was not good, it was slightly better than
the fourth-quarter of 2009.
Inventory levels are dropping, which is an indication of
more positive news. This means that inventories will have
to be replenished; in time, this replenishment should lead
to more economic activity and, as a result, we should see
better numbers for the economy and businesses.
The Federal Reserve Bank did not take any additional action
today to boost the economy; they also did not change interest
rates or add any additional programs. This could mean that
they didn't feel a need to do so and that they are saving
any additional ammunition, if needed, for down the road. I
view the lack of actions today by the Fed as a good sign.
Should you invest at this point? No one knows for sure where
the bottom of the market is or where the economy will be,
but what I do know is pretty simple: if you buy low and sell
higher, you'll make money. If we keep seeing improvements
in the economy, we should see the markets continue to improve,
as well. As I've written before, the markets historically
move ahead of the economy. We're nowhere near the top of the
markets, for sure. And we're well off the recent bottoms,
too.
If you have time to let your money work for you, add money
when the markets are down. If you don't want to add money
in lump sums, add in smaller increments until you are fully
invested. Buying down generally makes us money in the long
term.
Apprvd.BBDP
Financial Market Expert
Provides Current Insight - April 22, 2009
Over the years, I have been incredibly fortunate to interview
some of the smartest financial minds in the world on my SmartMoneyTalks.com
radio show.
One frequent guest, returning for this week's show, is Michael
Murphy, publisher and editor of the New
World Investor
web site, in which Michael focuses primarily on current
financial market conditions, technology and bio-technology
investments.
From now through the end of this month (April), Michael is
offering a free guest subscription to the New World
Investor through his website. For the remainder of
April, visit newworldinvestor.com
and enter the following information:
Username: david (lowercase)
Password: cryden (lowercase)
You will have free access to the website without charge for
roughly 8 days. You'll find his market commentary of particular
interest.
I hope you find his newsletter as informative. Michael has
been in the investment world for over twenty five years and
he is truly considered to be an expert in his field. As an
aside, earlier in his career, Michael was an analyst for the
American Funds Group.
Apprvd.BBDP
Reflections on Tax Day
2009 - April 15, 2009
As I reflect on the past year and the end of tax season,
it's interesting to take stock of things. It's time to shift
our thinking from tax year 2008 to 2009. It's also time to
shift our investment thinking from the past seven months to
the future.
A Few Simple Thoughts on Taxes
Too many people don't take time to do tax planning year round.
In doing so, they can't be proactive in trying to make the
most out of the tax laws. There are many things the tax laws
avail us to save on taxes. Now is the time to start planning
your 2009 tax year.
Will your income change?
Will your life change in a way that affects your tax return?
A move for work?
A move to being self employed?
A move from self employed to employee?
An increase or decrease in income?
A refinancing of your home?
If you aren't proactive with your taxes and take the time
to work with them, you are generally the one who loses. It's
not the government that loses when you end up paying more
taxes - it's you!
On Investing
Today is the seven month marker for the fall of Lehman Brothers
and the beginning of the heart of the financial crisis. In
the past few weeks, we've had a more positive stock market.
In fact, we've had five up weeks in a row in the stocks markets.
I think this is based on a few things:
1. The markets by many measures were simply way oversold.
There was going to be a bounce.
2. We're beginning to see signs that the economy may be in
the bottoming process. Economists are now debating if the
economy will get healthier in the next quarter or two. After
that, the debate is when will recovery begin and how strong
will it be.
3. The credit markets are continuing their long road to recovery
4. The real estate markets are seeing continued signs of bottoming
in places and the refi markets are booming on low interest
rates.
5. Some banks are showing profits and beating estimates.
These are but a few of the small things that continue to
tell the story that the economy, while still not good, is
showing more signs of life. Keep your eye on these seeds of
improvement I've been speaking about. This is how the recovery
should begin to take shape.
Finally, remember that investing is about the future and
not the past. If we continue to see show improvement, then
why not believe better times are ahead? If better times are
ahead, then why not get invested before those times are here?
If you wait for the flowers to bloom, spring has already sprung.
Apprvd.BBDP
Time to Fund Your 2008
Retirement Plans - April 8, 2009
The tax deadline for 2008 is fast approaching. The last date
to file an individual return without an extension is Wednesday,
April 15, 2008; this is also the deadline to fund your
Traditional or Roth IRA for Tax Year 2008 contributions.
As a reminder, individuals who were Age 49 or under at the
year-end of 2008 can contribute a maximum of $5,000; individuals
who were Age 50 or over at the year-end of 2008 can contribute
an extra $1,000 as a "catch-up" provision for a
total contribution limit of $6,000.
The contribution amounts are the same for the 2009 tax year.
With the recent market conditions, what better way to close
the 2008 tax year than to maximize your qualified contributions?
While we cannot guarantee performance and don't try to time
the market, we look at this period as an opportunity to invest
below any recent market highs. This may be an opportune time
to maximize your IRA contributions for both 2008 and 2009.
(Remember the old maxim: "Buy low, sell high".)
If you have any questions about making your IRA contribution,
make sure to call today and beat the deadline.
Please keep in mind that not everyone is eligible to deduct
their IRA contributions. If you have any doubts about this,
you may want to consult with me or your tax advisor.
Apprvd.BBDP
Recessions: Keeping
Your Perspective - April 2, 2009
One of my favorite words in life is "perspective".
Keeping a balanced and educated perspective helps you from
making decisions that may not be in your best interest in
the long-term. Investing is all about these concepts; if you
keep the right perspective, you're likely not to run with
the herd and make bad decisions.
Presented by the American Funds Group, today's Weekly Tip
presents a simple perspective on recessions in the United
States, dating back to 1931; it also provides you with some
perspective on how the financial markets have done, once recessions
are behind us.
The following link will take you to today's presentation:
More Good News and a
Three Week Rally? - March 25, 2009
Last week I wrote about rays of hope. Well, knock on wood;
we continue to see more little seeds of hope in this week's
news.
The Treasury Department finally came out with the details
of their plan to get the toxic assets out of the banks. As
opposed to the market's reaction in early February, we saw
a huge rally on Wall Street. Clearly, the financial market's
initial reaction to the plan was much better.
Yesterday we continued to see some improvement in real estate
with home sales numbers. First time home buyers are entering
the markets again. This is generally seen as a healthy sign
and the beginning of better times.
Today we saw a surprising rise in durable goods (larger items)
sales. The rise of 3.4% was the first increase in seven months
and the biggest since December 2007. This is another encouraging
sign for the economy.
This is another encouraging sign that perhaps the economy
is beginning to moderate a little bit after a brutal fourth
quarter. This means that we may be seeing a slowdown in the
deterioration in the economy. I would call this a hope step
in the right direction.
Some commodity prices are rising again. Oil is one of them.
It's back over $50 per barrel. This is generally seen as an
indication of economic growth down the road.
It's tough to know if the rally we've seen the past two plus
weeks is the real turn towards a new Bull market. However,
it appears to me to be based on positive economic news and
not just people covering their short sales. So this too, seems
a move in the right direction even if it may not be the real
turn to a new Bull market. Of course, we won't know when the
real turn occurs until well after it's happened.
What I look for in an improving economy and markets is positive
news about indicators which show upticks. Generally, these
types of situations don't just end one day. The good news
tends to become more prevalent and the amount and types of
bad news tends to fade. One day we wake up and realize the
bad times are over. I think we're in the beginning of this
process. Let's hope I am right.
Apprvd.BBDP
A Little Ray of Hope
Shining Through? - March 18, 2009
What I look for in a tough economy is the beginning of the
healing process. I look for little rays of light, or rays
of hope, that tell me things may be beginning to look a little
better.
I am beginning to see a few things that are positive. In
saying as much, I think it's important to note that we'll
continue to see bad news in the near future.
Here are a few things that look hopeful to me:
1. Real estate markets in various parts of the country are
showing signs of life. This includes parts of California.
I've heard anecdotal evidence that Santa Maria and Lompoc
are healthier than a year ago.
2. Banks are beginning to show some signs of life. This area
still has lots of work to do. But, there has been good news
for some banks who say they will be profitable this year.
3. Mortgage rates matched their record lows last week. This
is great to refinancing and home purchases. Don't forget to
check out refi possibilities if it applies.
4. People's view of the economy, while not great, improved
in a recent poll by 10%.
5. The financial markets are now well off their bottoms. They
may retest them still. However, the decline that no one thought
would stop has stopped with a big bounce in a very short period
of time. This is why you don't want to be sitting in cash
waiting for a normalization of markets. By the time you figure
out things have turned, you missed the turn. (See last week's
tip for more on this concept.)
6. There is the beginning of talk of reregulating the financial
system again.
7. The uptick rule for short selling may very well come back.
This may help with the degree of short selling we see in the
future and with a reduction in extreme market volatility.
8. The Fed continues to be aggressive. Today alone, they announced
the purchase of $300 billion in long term treasury bonds.
This should drive down rates and raise values of government
bonds. In the months ahead, we should see the benefits of
their "reflating" the economy through monetary policy.
9. Retail sales came in better than expected in February.
10. There were 20% more starts in new housing than expected.
Keep your eyes on the road ahead and the long term when trying
to evaluate the economy; not just the splashy headlines designed
to make you overly happy or overly worried.
Remember, we're long term investors; not short term traders.
Apprvd.BBDP
One Client's Testimony:
Selling at a Low, Then and Now - March 11, 2009
I met with a client yesterday who spoke of her mistakes
bailing out the markets and her investments ten years ago.
Her story was one I wanted to share with you because it's
not one people will admit to often. And, I think it's very
relevant to today's markets.
Please take your time in reading it and reflecting upon
her experiences. Perhaps it will help you as we make our way
through this tough period. Her name is withheld due to confidentiality
issues. _____________________________________________________________________________
David,
I just wanted to thank you for meeting with me today and
putting me at ease. I would like to share with you my personal
story that I spoke of earlier today.
Back in the late 1990's we were in the middle of a bear market.
I listened to my friends and family who encouraged me to take
my money out of the stock market and put it into CD's, Treasury
Bonds and Cash. I listened to them and not my financial planner.
I was not with you at that time. Because I took my money out,
I lost the opportunity to buy at record lows, lost money and
was unable to time the right moment to return to buying stocks.
Despite the highs that I experienced for the next 10 years
I never was able to make up that "lost" money.
Now we seem to be in greater financial chaos and many of
my friends and family are advocating again taking my money
out of the market. I will not make that mistake again. I definitely
learned from that experience. I will continue to invest knowing
that the market will go up again. I also have increased my
contributions in my 403(b) plan. My employer generously contributes
to my plan as well. If I stopped my contributions, I would
lose again.
I do hope you share my story with some of your clients.
Thank you for your understanding and support in these chaotic
financial times.
Susan V
Apprvd.BBDP
Revisiting "What
Could 2009 Look Like?" - March 4, 2009
At the start of 2009 I wrote a Weekly Tip called, "What
Could 2009 Look Like?" In January, I spoke about what
you might expect as the year progresses. Take a look for yourself,
to see how the year is playing out and what I wrote. One thing
you'll note is that there haven't been any huge surprises.
I think we're in the belly of the beast now. I don't think
a matter of if we recover; I think it's a matter of when.
Tip from January 7, 2009
I think we could see the following in 2009. (Clearly, I do
not know what will happen, nor do I have a way to guarantee
that my thinking will come to fruition.)
1. In the beginning of the year, the economy will look terrible
as the numbers come out for the fourth quarter of 2008.
2. These terrible numbers likely could continue through the
first quarter; I think it's possible that they could continue
through the second quarter of 2009.
3. We may see a rise in the financial markets, with the arrival
of Barack Obama and a new optimism among Americans and people
around the world awaiting the change in administration.
4. The huge stimulus package the Federal government is expected
to enact within a month or so begins to take effect as the
year progresses; this engenders more confidence in consumers
and businesses, alike.
5. The financial stimulus already put in place by the Federal
Reserve Bank and Treasury Department continues to work its
way into the economy, slowly having a positive impact.
6. The Federal Reserve Bank continues its creative approaches
to stimulate the economy and credit markets.
7. The economy could begin to settle down sometime during
the third or fourth quarter of 2009.
8. Unemployment continues to look bad all year; remember,
unemployment is a lagging indicator that can still rise as
the economy and financial markets improve. (I wrote a weekly
tip about this on November 12, 2008; it's on my website's
archives.)
9. The stock markets begin to rise again, based on future
economic improvement, sometime in the second or third quarter
of 2009. (They tend to be a forward-looking indicator of the
direction of the economy.) It's not uncommon to see the financial
markets begin to rebound four- to eight-months ahead of the
economy itself.
10. The credit markets continue to slowly normalize throughout
2009.
11. The residential real estate markets find a bottom sometime
mid-year; some areas of the real estate markets are already
showing signs of improvement, as we begin the year.
12. Huge numbers of healthy homeowners refinance their home
at rates below 5%. (Be ready to act.)
13. Economists begin to talk about the threats of inflation,
sometime near the end of 2009.
14. The financial markets end the year higher than they were
on December 31, 2008, with US markets leading the way out.
15. Money in money-market funds, Treasury notes and bills,
and bank deposits begin to find their way back into riskier
investments, as the year progresses. The reason for this is
that investors realize they can't meet long-term needs with
a zero-interest rate.
The hardships our markets have seen are significant and it
will take time to correct. I urge you to keep your long-term
perspective and look for more progress as the year goes on.
As I mentioned in January, this is a good year to stay in
touch and to be prepared to act on things like buying low
and refinancing your home. It's also a good year to truly
evaluate all aspects of your life financially, as there could
be lifetime opportunities presented that you may want to try
to take advantage of. Please call or write if you have any
questions or would like to meet.
Apprvd.BBDP
Insight into Current
Market Conditions - February 25, 2009
For today's Weekly Tip, I am sending you a link to a series
of interviews with Jim Rothenberg, the Chairman
of Capital Research and Management Company (American Funds'
research company). Jim offers insight into the current market
conditions and where he sees our economy and financial markets
in the future.
I strongly suggest you take a few minutes to watch these
videos. Jim heads one of the strongest international research
programs of any financial company in the world.
Chaos Theory, the Economy,
and Your Money - February 18, 2009
In mathematics, chaos theory describes the behavior of
certain dynamical systems - that is, systems whose states
evolve with time - that may exhibit dynamics that are highly
sensitive to initial conditions (popularly referred to as
the butterfly effect). As a result of this sensitivity, which
manifests itself as an exponential growth of perturbations
in the initial conditions, the behavior of chaotic systems
appears to be random. This happens even though these systems
are deterministic, meaning that their future dynamics are
fully defined by their initial conditions, with no random
elements involved. This behavior is known as deterministic
chaos, or simply chaos. Chaotic behavior is also observed
in natural systems, such as the weather.
Why in the world would I send a pretty esoteric definition
of Chaos Theory to you in my financial Tip of the Week? The
reason isn't as chaotic as you might think.
The world we've been living in the past five months seems
pretty chaotic. There seems to be no rhyme or reason to the
things happening in the economy or the financial market reactions
we've been seeing in this very difficult period.
While I am no expert in the area of Chaos Theory, I believe
one of the premises is that it implies that within the randomness
of chaos there is some type of order. As that randomness becomes
clearer we begin to see patterns. With the arrival of patterns,
we'll begin to see answers and resolutions.
How does this relate to today's economic and financial situation?
The financial crisis and recession have seemed and continue
to be pretty chaotic both in feeling and in reality.
As time has gone on, we've begun to see patterns to the problems;
in other words, we've found patterns within the credit crisis
and stock markets. There is also a better sense of what is
happening within the recession.
As a result of the identification of the patterns or problems
within the economy and financial markets, solutions are being
identified. Eventually, the policies (or solutions), both
fiscal and monetary, will take hold and the crisis should
end. Life goes back to normal.
I believe we are in the middle of this whole process. We've
found patterns within the chaos and are working solutions.
Being patient is the key to success here. Keep in mind it's
still only been five months since things really changed. If
you're a long term investor, patience should lead you back
to the success.
Apprvd.BBDP
It Takes Time - February
11, 2009
There has been a massive amount of money and stimulus thrown
into the financial system and economy.
Here are some of the actions taken by the Federal government
to help resolve the financial crisis:
Lower Interest Rates
The Fed's Shadow Banking System
Buying of Mortgages - more to come
Buying of Consumer Debts
Recapitalizing the Banks
Federal Fiscal Stimulus - Likely to be signed into law
this weekend.
We are talking about trillions of dollars. This all takes
time to fully get into the economy. They say it takes as much
as 13 months for each of those actions to have an effect.
The bulk of these actions, and others, weren't actually taken
until after September 15, 2008. That's the day Lehman Brothers
went out of business. We're almost five months into the heart
of the financial crisis. I believe in the coming months, we'll
begin to see some of the benefits of all the huge and aggressive
actions taken.
It will take time. But time is indeed passing. Be patient
and try to take advantage of these tough times by investing
low for results in the years ahead.
Apprvd.BBDP
Things We May Want to
Talk About - February 4, 2009
The past year or so has been difficult on everyone.
If we haven't reviewed your accounts in awhile,
let's meet.
Apprvd.BBDP
Can You Get Lower Real
Estate Taxes? - January 28, 2009
If you've purchased your home, or even done a major remodel
in the past few years, you may be eligible for a reduction
in your property taxes.
Many people may find that their home has a lower value than
what is shown on their annual property tax assessments. If
that's the case, you may want to submit an application with
your county assessor's office, asking for a reduction in your
property taxes.
Each county assessor's office has a form that they will provide
to you, which begins the process of potentially reducing your
property taxes. The form will ask you to provide information
and a compelling argument as to why your taxes should be lowered.
The easiest way to make your case is to ask a real estate
professional to provide you with comps (comparable sales)
showing where other properties like yours have sold for less
money than what's shown on your current assessed value. They'll
also ask you to provide a supporting statement to go along
with the comps.
Each county assessor's office has a process and a schedule
that you'll need to follow. If you're successful, the reduction
would apply to your next property tax year, which begins with
your December payment; at least, that's the beginning of the
next real estate tax year, here in San Luis Obispo.)
Generally, you'll find that the process isn't too difficult
and the results may be very helpful in this difficult environment.
Once the real estate markets have begun to heal, you'll find
that your taxes should begin to increase again; you should
ask your county assessor's office how that process would work,
as well.
Apprvd.BBDP
Want to Skip Your 2009
Required Minimum Distribution (RMD)? -
January 21, 2009
One of the last acts that President George W. Bush signed
into law was the Worker, Retiree and Employer Recovery Act
of 2008, which was signed into law on December 29, 2008.
One of the great things the Worker, Retiree and Employer
Recovery Act of 2008 offers is the ability for anyone who
is over the age of 70-½ to skip their required minimum
distribution (RMD) for this year (2009). This is a one-year
suspension only and is in response to the drop in the financial
markets that we've seen over the past few months.
The hope is that the suspension of these distributions for
one year will allow people's portfolio(s) to recover before
they are required to liquidate some of their assets. If you
choose to waive your 2009 RMD, you will not be penalized in
doing so. In any other year, the penalty for under withdrawing
from your retirement account, if you are over 70-½
years old, is one-half (50%) of the amount you under withdrew.
If you are over 70-½ years old and want to continue
to take your RMD or choose to distribute money from your retirement
account, you are still free to do so without penalty; of course,
you will have to pay ordinary income taxes, as you would in
any other year.
There are a few exceptions to this provision, so be sure
to discuss them with me or your tax preparer.
The Worker, Retiree and Employer Recovery Act of 2008 is
a rare exception to an existing law, where the government
is trying to help people manage this tough economic environment.
If you decide to skip your 2009 RMD, please give me or my
team a call so we can help you facilitate this.
Apprvd.BBDP
The Financial Market
Today & Tomorrow - Two Thoughts -
January 14, 2009
Part I
In last week's tip, I wrote about what I thought we might
see in 2009.
The first thing I wrote about was that we'd continue to see
bad news coming from the economy; therefore, it came as no
surprise to me that we saw bad news about retail sales for
the end of 2008. I don't think anyone would have told you
that the holiday season we just concluded was a good one.
Retail sales were bad, so the market responded to the news
with a negative day; that comes with the territory of bad
news in the beginning of a new year.
I really don't expect the economic news to be very good for
a while; the stock market expects the same. At this point,
a surprise would likely be to the positive side of the news;
therefore, I 'm not sure we'll see bad economic news always
being accompanied by a tough day on Wall Street or other markets
around the world. In fact, when the markets turn, don't be
surprised if there is bad news in the air, yet the stock market
is beginning to rise.
The past fifteen-months have not been fun by any means; they
will end, though. In my mind, it's not a matter of "if,"
it's a matter of "when". Life will go on. People
will buy products and pay for services. When the market turns,
you want to be invested because it's not uncommon for the
market turn to be strong. History shows that a fair part of
a financial market recovery can occur in a relatively short
period of time. (We don't know if that will happen this time,
but it has occurred in many market recoveries during the past.)
As I've always said, when the market is tough, if you can
invest, buy low; if you can't invest, let your dividends reinvest
in lower price shares. I do not believe that selling low or
timing the market is easy to do. Stay the course. When you
can, buy low.
Part II
I'm attaching a link to the interview I did last week with
Michael Johnston, Executive Vice President and Senior Partner
of the American Funds Group. Michael has been an annual guest
on my radio show for fifteen years and has been in the securities
business for over 40 years. I highly value his thoughts about
the economy and financial markets. I suggest you take the
time to listen to our 2008 annual year-end review and 2009
prospects. He provides a terrific perspective on the current
situation we're all going through.
When I look back at 2008, I'll think of it as the year that
the credit markets froze, resulting in violent volatility
in the stock markets worldwide and a very difficult economy.
I think we could see the following in 2009. (Clearly, I do
not know what will happen, nor do I have a way to guarantee
that my thinking will come to fruition.)
1. In the beginning of the year, the economy will look terrible
as the numbers come out for the fourth quarter of 2008.
2. These terrible numbers likely could continue through the
first quarter; I think it's possible that they could continue
through the second quarter of 2009.
3. We may see a rise in the financial markets, with the arrival
of Barack Obama and a new optimism among Americans and people
around the world awaiting the change in administration.
4. The huge stimulus package the Federal government is expected
to enact within a month or so begins to take effect as the
year progresses; this engenders more confidence in consumers
and businesses, alike.
5. The financial stimulus already put in place by the Federal
Reserve Bank and Treasury Department continues to work its
way into the economy, slowly having a positive impact.
6. The Federal Reserve Bank continues its creative approaches
to stimulate the economy and credit markets.
7. The economy could begin to settle down sometime during
the third or fourth quarter of 2009.
8. Unemployment continues to look bad all year; remember,
unemployment is a lagging indicator that can still rise as
the economy and financial markets improve. (I wrote a weekly
tip about this on November 12, 2008; it's on my website's
archives.)
9. The stock markets begin to rise again, based on future
economic improvement, sometime in the second or third quarter
of 2009. (They tend to be a forward-looking indicator of the
direction of the economy.) It's not uncommon to see the financial
markets begin to rebound four- to eight-months ahead of the
economy itself.
10. The credit markets continue to slowly normalize throughout
2009.
11. The residential real estate markets find a bottom sometime
mid-year; some areas of the real estate markets are already
showing signs of improvement, as we begin the year.
12. Huge numbers of healthy homeowners refinance their home
at rates below 5%. (Be ready to act.)
13. Economists begin to talk about the threats of inflation,
sometime near the end of 2009.
14. The financial markets end the year higher than they were
on December 31, 2008, with US markets leading the way out.
15. Money in money-market funds, Treasury notes and bills,
and bank deposits begin to find their way back into riskier
investments, as the year progresses. The reason for this is
that investors realize they can't meet long-term needs with
a zero-interest rate.
2009 should be a very interesting year. This is a good year
to stay in touch and to be prepared to act on things like
buying low and refinancing your home. It's also a good year
to truly evaluate all aspects of your life financially, as
there could be lifetime opportunities presented that you may
want to try to take advantage of.
While we won't know if my thoughts, written today, will come
true as the year progresses, I do think these are some of
the primary issues to watch.
Here's to a progressively more successful and optimistic
2009! Please call or write if you have any questions or would
like to meet.