By Stephen Sawchuk
U.S. Department of Education officials plan to require districts receiving economic-stimulus aid to report school-level salaries—a sign, observers say, that the Obama administration might seek key changes to district accounting procedures for federal Title I funds.
The reporting—the first collection of its type undertaken by the federal government—could give a clearer picture about the extent to which district spending on salaries differs between schools that receive Title I dollars for disadvantaged students and those that do not.
The results of the data collection, which is to take place this winter, are likely to give more ammunition to school finance experts and lawmakers who maintain that the Elementary and Secondary Education Act should be changed to require districts to address such disparities before receiving the federal aid.
Because a majority of districts’ costs are tied up in salaries, the data have implications for the way teachers of different levels of pay and experience are distributed across districts.
“We’ve never had a moment before when public officials have asked questions about these inequities,” said Marguerite J. Roza, a research associate professor at the University of Washington, in Seattle, who has studied the issue extensively. “Many districts swear that they don’t have them. But they haven’t looked.”
Teacher Distribution
A little-noticed provision in the American Recovery and Reinvestment Act requires each district receiving Title I funds under the stimulus law to file with its state a school-by-school listing of per-pupil expenditures by December 2009.
Aside from a brief notice in the Federal Register, the Education Department has been silent about what information it would seek from districts to fulfill the requirement. But according to forms filed by the department with the White House Office of Management and Budget over the past two months, the Education Department indicated that it plans to require districts to report information on wages, including:
Total salaries in each school;
• Salaries of instructional staff (such as paraprofessionals) only;
• Salaries of teachers only; and
• Nonpersonnel expenditures, if available.
The department would also request more detailed information from five states yet to be chosen. Those states would be asked to break down the expenditure information by state, local, and federal funding sources, including Title I, the documents indicate.
The heavy emphasis on teachers’ salaries stands in direct contrast to the way that districts currently account for them under the Title I program, which provides additional money to districts with high concentrations of poor students.
To receive the federal funding, districts must meet three financial requirements meant to prevent them from using the extra federal dollars to fill in gaps in state and local funding. Under the “comparability” provisions, districts must show that they provide equitable state and local resources to low- and high-poverty schools before receiving their Title I allocations.
But the current version of the ESEA allows districts to exclude salary differentials from the calculation. Instead, they can allocate money to schools based on the district’s average teacher pay as set out in the districtwide salary schedule.
Researchers such as Ms. Roza have found significant funding disparities between low- and high-poverty schools in the same district, largely as a result of differences in teacher salaries. She contends that the omission of salaries from the comparability language papers over factors, such as transfer rules in contracts and high turnover in low-income schools, that tend to lead to a concentration of lower-paid novice teachers in those schools.
In their documentation to the OMB, department officials wrote that the findings from the data collection could be used to help policymakers craft changes to the comparability provisions in the ESEA.
“This is the only way to truly measure whether resources around teacher salaries, curriculum, and technology are being equitably distributed to schools and classrooms,” said Charles Barone, the director of federal policy for Democrats for Education Reform, a New York City-based political action committee. “Districtwide figures obscure resource differences, which is the key reason why most districts refuse to publish school-by-school dollar figures.”
Raegen Miller, a senior policy analyst at the Center for American Progress, a Washington think tank headed by a former Clinton White House official, praised the department’s efforts in the five states that would be chosen for the more detailed reporting, saying such scrutiny could intensify the focus on putting performance at the center of school policy.
“A lot of people think that some amount of budgetary discretion should reside in the hands of principals, that there should be some more flexibility about how teachers are compensated,” he said. “That depends on knowing how much money is flowing to the schools and whether outcomes are measured.”
But the documents show that state officials approached about the collection have expressed concerns about the burden and cost, as well as its feasibility.
“We also understand that districts may not have comprehensive data on school-level expenditures that they can report for a previous school year, but we believe that, at a minimum, they should be able to identify which staff were assigned to each school and to determine the salary expenditures for each school staff member,” Sandra Abrevaya, a spokeswoman for the Education Department, said in an e-mail.
Closing ‘Loopholes’
Although the Obama administration has not made any public statements about the comparability language, several experts on the issue now work in the administration.
A former Center for American Progress analyst, Robert Gordon, and Russlynn Ali, a former vice president of the Education Trust West, an advocacy group, work, respectively, at the OMB and in the Education Department’s office for civil rights. Both pressed for changes to the Title I comparability provisions in their prior roles.
Such changes could, for instance, require districts to account for actual, rather than average, teacher salaries in determining whether state and local funds are distributed comparably to Title I schools.
Any such alterations would require congressional approval, and that could well be difficult.
When the House Education and Labor Committee, in 2007, issued a discussion draft of a bill to reauthorize the ESEA—currently the No Child Left Behind Act—that proposed accounting for actual teacher salaries, comparability became a surprise hot-button issue. ("Draft Proposal Seeks to Equalize School Resources," Sept. 19, 2007.)
Teachers’ unions opposed the proposal, fearing it would cause districts to try to override contracts and transfer teachers forcibly to equalize salaries.
The National Conference of State Legislatures and the American Association of School Administrators argued that the change would interfere with state funding formulas and district budget flexibility.
But Ms. Roza contends that closing the comparability “loophole” would not necessarily require transferring teachers. Districts couldmake up for lower teacher salaries in high-poverty schools, she says, by spending more to hire instructional coaches for those schools, creating incentives for teachers to move to them, or reducing class sizes.
Neither the American Federation of Teachers nor the National Education Association returned requests seeking comment on the new data collection.
For their part, lawmakers are not likely to take up comparability before turning their attention again to the ESEA, which is overdue for reauthorization. But they still have their sights set on the provision.
“I think you have to [make changes],” said Rep. George Miller, D-Calif., the chairman of the Education and Labor Committee, when asked about comparability following a recent hearing on ensuring equitable access to teachers.
“We assume that there is equal funding across the district so that these [Title I] dollars go to schools impacted by heavy concentrations of poor and minority students,” he continued. “But if those resources are siphoned off, that purpose of federal law is not being met.”
Education Week
Vol. 29, Issue 12, Pages 15,17
Sunday, November 22, 2009
Wednesday, October 21, 2009
JERSEY BENEFITS ADVISORS FALL 2009 NEWSLETTER
MARKET WATCH
What a difference a year makes! Heading into October 2008 we were watching in horror as the banking system teetered on the abyss. Portfolios withered in ways no Monte Carlo projection could depict. Panic was gripping the markets, and our leaders allowed politics to drive them to devastating lows.
Fast forward to October 2009, and while there are the usual remarks about this being a bad month for the markets, the recovery to date has been stellar. The Dow Jones Industrial Average gained 15% to close the quarter at 9,712.28 and posted its best quarter since 1998, as well as its best third quarter since 1939. While the actual lows for this cycle in the Dow were attained on March 9, 2009, it has roared back since then, sensing economic rebound, and recovered 48%. Although the Dow is still 31% lower than the all time high it reached in October 2007, it has posted an 11% gain year to date.
The overall market turned in strong gains, as evidenced by the 15% jump in the Standard and Poor’s 500 index for the third quarter. The S&P 500 is up 17% year to date and has recovered 56% from the March lows. It still remains 32% lower than its October 2007 high.
Interestingly and not unexpectedly, the markets have retrenched a bit early in October, and will probably provide some unpleasant experiences going forward. Markets never provide straight line growth, especially after such a tumultuous period. Look for volatility to increase as the forces of recovery battle the forces of an economic backslide. Eventually the inevitable recovery will manifest itself, and the indices will be within striking distance of their all time highs once again. In order to take advantage of this fact, investors should be committing assets to their portfolios now.
There are many factors to be considered as we head into the final quarter of this year. Interest rates, taxes, health care, foreclosures, inflation, deflation, regulation, Social Security and energy are all issues commanding our attention. How they are handled in the next few years is paramount to our well being. The markets will react accordingly.
ECONOMIC OUTLOOK
On September 30, the Bureau of Economic Analysis released its third revision of the estimate of Gross Domestic Product for the second quarter. The estimate of - 0.7% indicates the economy remained in recession at least through June 30, 2009. As I noted in previous newsletters, the two longest recessions, since the Great Depression, were the recessions of 1973-75 & 1981-82. Each of those recessions lasted 16 months. The current recession is officially 19 months and the longest since the depression. The third quarter has shown signs of economic recovery, and it is possible we may see a return to growth when the BEA releases statistics on the current period.
Many economists and Fed Chairman Bernanke echo the belief that the economy has turned positive in the third quarter, and the stock markets certainly have ratified it. There are arguments supporting this belief, as well as one’s dismissing the projections of the beginning of a new economic cycle. As I have mentioned before, the introduction of a trillion dollars of stimulus into the economy will definitely return us to growth, and will more than likely have some very positive consequences, as well as some unintended negative consequences. Our economy is changing and when this happens old industries falter as new ones develop. Creative destruction can’t be stopped.
529 QUALIFIED TUITION PLANS
Saving money for college expenses is a goal I hear many young parents express, and one of the best ways to build tax-advantaged savings for college is the 529 plan. A 529 plan is a tax advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.
Changes in the tax code were made in 2006 making permanent the provision that earnings in a 529 plan are tax free upon withdrawal when used for education expenses. This has resulted in eliminating any change in status for earnings for the 529 plan and made it the premier savings vehicle for college savers.
There are two types of 529 plans: pre-paid tuition plans and college savings plans. All fifty states and the District of Columbia sponsor at least one type of 529 plan. In addition, a group of private colleges and universities sponsor a pre-paid tuition plan. There are differences between pre-paid tuition plans and college savings plans, and each individual family needs to determine which plan may be right for their needs.
Pre-paid tuition plans generally allow college savers to purchase units or credits at participating colleges and universities for future tuition and, in some cases, room and board. Most prepaid tuition plans are sponsored by state governments and have residency requirements. Many state governments guarantee investments in pre-paid tuition plans that they sponsor.
College savings plans generally permit a college saver (also called the “account holder”) to establish an account for a student (the “beneficiary”) for the purpose of paying the beneficiary’s eligible college expenses. An account holder may typically choose among several investment options for his or her contributions, which the college savings plan invests on behalf of the account holder. Investment options often include stock mutual funds, bond mutual funds, and money market funds, as well as, age-based portfolios that automatically shift toward more conservative investments as the beneficiary gets closer to college age. Withdrawals from college savings plans can generally be used at any college or university. Investments in college savings plans that invest in mutual funds are not guaranteed by state governments and are not federally insured.
If you are a parent or grand parent and wish to learn more about this option as a means to save for college, please don’t hesitate to contact me for more information. As with any type of investment, the longer time frame you have to invest, the better chance you have to achieve your goals. There is no time like the present to get started!
TFA & ISI MERGER COMPLETED & REFERRALS ARE ALWAYS WELCOMED
The successful merger of Transamerica Financial Advisors and Intersecurities resulted in only a few technical difficulties for me. Some clients received confirmations with Intersecurities as the B/D, and some accounts were charged a fee for systematic investments, which will be reimbursed. Overall, I have to offer kudos to our back office for the meticulous completion of the merger. I look forward to providing enhanced services to you and your family through our state of the art broker/dealer. If the advisor of any of your friends or relatives has left the business, or if any of your other investment representatives have been absent during the recent market turmoil, please feel free to make a referral. Your confidence in me is greatly appreciated, as I monitor and protect your assets.
COMPANY INFORMATION:
Investment Advisory Services offered through:
Jersey Benefits Advisors
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
http://jerseybenefits.com
Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
570 Carillon Parkway
St. Petersburg, FL 33758-9053
800-245-8250
Member FINRA & SIPC
Third Party Administration and Insurance Services offered through:
Jersey Benefits Group, Inc
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com/
All opinions expressed in this newsletter are solely those of John Kaighn & Jersey Benefits Advisors, formerly known as Kaighn Financial Services.
What a difference a year makes! Heading into October 2008 we were watching in horror as the banking system teetered on the abyss. Portfolios withered in ways no Monte Carlo projection could depict. Panic was gripping the markets, and our leaders allowed politics to drive them to devastating lows.
Fast forward to October 2009, and while there are the usual remarks about this being a bad month for the markets, the recovery to date has been stellar. The Dow Jones Industrial Average gained 15% to close the quarter at 9,712.28 and posted its best quarter since 1998, as well as its best third quarter since 1939. While the actual lows for this cycle in the Dow were attained on March 9, 2009, it has roared back since then, sensing economic rebound, and recovered 48%. Although the Dow is still 31% lower than the all time high it reached in October 2007, it has posted an 11% gain year to date.
The overall market turned in strong gains, as evidenced by the 15% jump in the Standard and Poor’s 500 index for the third quarter. The S&P 500 is up 17% year to date and has recovered 56% from the March lows. It still remains 32% lower than its October 2007 high.
Interestingly and not unexpectedly, the markets have retrenched a bit early in October, and will probably provide some unpleasant experiences going forward. Markets never provide straight line growth, especially after such a tumultuous period. Look for volatility to increase as the forces of recovery battle the forces of an economic backslide. Eventually the inevitable recovery will manifest itself, and the indices will be within striking distance of their all time highs once again. In order to take advantage of this fact, investors should be committing assets to their portfolios now.
There are many factors to be considered as we head into the final quarter of this year. Interest rates, taxes, health care, foreclosures, inflation, deflation, regulation, Social Security and energy are all issues commanding our attention. How they are handled in the next few years is paramount to our well being. The markets will react accordingly.
ECONOMIC OUTLOOK
On September 30, the Bureau of Economic Analysis released its third revision of the estimate of Gross Domestic Product for the second quarter. The estimate of - 0.7% indicates the economy remained in recession at least through June 30, 2009. As I noted in previous newsletters, the two longest recessions, since the Great Depression, were the recessions of 1973-75 & 1981-82. Each of those recessions lasted 16 months. The current recession is officially 19 months and the longest since the depression. The third quarter has shown signs of economic recovery, and it is possible we may see a return to growth when the BEA releases statistics on the current period.
Many economists and Fed Chairman Bernanke echo the belief that the economy has turned positive in the third quarter, and the stock markets certainly have ratified it. There are arguments supporting this belief, as well as one’s dismissing the projections of the beginning of a new economic cycle. As I have mentioned before, the introduction of a trillion dollars of stimulus into the economy will definitely return us to growth, and will more than likely have some very positive consequences, as well as some unintended negative consequences. Our economy is changing and when this happens old industries falter as new ones develop. Creative destruction can’t be stopped.
529 QUALIFIED TUITION PLANS
Saving money for college expenses is a goal I hear many young parents express, and one of the best ways to build tax-advantaged savings for college is the 529 plan. A 529 plan is a tax advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.
Changes in the tax code were made in 2006 making permanent the provision that earnings in a 529 plan are tax free upon withdrawal when used for education expenses. This has resulted in eliminating any change in status for earnings for the 529 plan and made it the premier savings vehicle for college savers.
There are two types of 529 plans: pre-paid tuition plans and college savings plans. All fifty states and the District of Columbia sponsor at least one type of 529 plan. In addition, a group of private colleges and universities sponsor a pre-paid tuition plan. There are differences between pre-paid tuition plans and college savings plans, and each individual family needs to determine which plan may be right for their needs.
Pre-paid tuition plans generally allow college savers to purchase units or credits at participating colleges and universities for future tuition and, in some cases, room and board. Most prepaid tuition plans are sponsored by state governments and have residency requirements. Many state governments guarantee investments in pre-paid tuition plans that they sponsor.
College savings plans generally permit a college saver (also called the “account holder”) to establish an account for a student (the “beneficiary”) for the purpose of paying the beneficiary’s eligible college expenses. An account holder may typically choose among several investment options for his or her contributions, which the college savings plan invests on behalf of the account holder. Investment options often include stock mutual funds, bond mutual funds, and money market funds, as well as, age-based portfolios that automatically shift toward more conservative investments as the beneficiary gets closer to college age. Withdrawals from college savings plans can generally be used at any college or university. Investments in college savings plans that invest in mutual funds are not guaranteed by state governments and are not federally insured.
If you are a parent or grand parent and wish to learn more about this option as a means to save for college, please don’t hesitate to contact me for more information. As with any type of investment, the longer time frame you have to invest, the better chance you have to achieve your goals. There is no time like the present to get started!
TFA & ISI MERGER COMPLETED & REFERRALS ARE ALWAYS WELCOMED
The successful merger of Transamerica Financial Advisors and Intersecurities resulted in only a few technical difficulties for me. Some clients received confirmations with Intersecurities as the B/D, and some accounts were charged a fee for systematic investments, which will be reimbursed. Overall, I have to offer kudos to our back office for the meticulous completion of the merger. I look forward to providing enhanced services to you and your family through our state of the art broker/dealer. If the advisor of any of your friends or relatives has left the business, or if any of your other investment representatives have been absent during the recent market turmoil, please feel free to make a referral. Your confidence in me is greatly appreciated, as I monitor and protect your assets.
COMPANY INFORMATION:
Investment Advisory Services offered through:
Jersey Benefits Advisors
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
http://jerseybenefits.com
Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
570 Carillon Parkway
St. Petersburg, FL 33758-9053
800-245-8250
Member FINRA & SIPC
Third Party Administration and Insurance Services offered through:
Jersey Benefits Group, Inc
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com/
All opinions expressed in this newsletter are solely those of John Kaighn & Jersey Benefits Advisors, formerly known as Kaighn Financial Services.
Wednesday, October 7, 2009
Education Department Unveils Investing In Innovation Fund Criteria.
Here is a reprint from the Associated Press giving some information on how stimulus dollars are being spent. Although most of the $5 billion of stimulus money is targeted for the states, at least $650 million will be going directly to schools to try to improve the quality of education in this country.
WASHINGTON (AP) -- School districts and nonprofit partners can benefit from a $650 million competitive grant fund for school reforms pushed by President Barack Obama.
The money is part of the economic stimulus law, which gave Obama $5 billion to help overhaul schools. Most of the money is for states, but $650 million will go directly to school districts or schools in partnership with colleges, philanthropies, nonprofit companies that turn around failing schools or other nonprofit groups.
The idea is to provide seed money for fresh ideas and for smaller programs that need help to expand.
''This is an unprecedented investment in cutting-edge ideas,'' Education Secretary Arne Duncan said.
Duncan issued rules for the competition Tuesday. The Education Department plans to publish a final application early next year, accept proposals in the spring and award the money by Sept. 30, 2010.
In August, Duncan said Teach for America and programs like it could benefit from the competition. Begun in 1990, the nonprofit recruits recent college graduates to teach in schools in poor communities for at least two years. The group sent an unprecedented 4,100 recruits into the classroom this fall.
Duncan also talked about charter schools, which are taxpayer-funded schools that operate independently of local school boards. Obama wants to expand the number of charter schools, which are an estimated 4,100 of the country's nearly 100,000 public schools.
Duncan said the biggest grants from the $650 million ''Investing in Innovation'' fund will go to programs that have been proven to work. Grants for those programs could reach $50 million.
Programs that need money to expand or build a research base could get grants of up to $30 million, and promising ideas worth trying could get grants of up to $5 million, he said.
Obama announced the rules for the $5 billion state grant competition in July, and that money should be awarded early next year.
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
WASHINGTON (AP) -- School districts and nonprofit partners can benefit from a $650 million competitive grant fund for school reforms pushed by President Barack Obama.
The money is part of the economic stimulus law, which gave Obama $5 billion to help overhaul schools. Most of the money is for states, but $650 million will go directly to school districts or schools in partnership with colleges, philanthropies, nonprofit companies that turn around failing schools or other nonprofit groups.
The idea is to provide seed money for fresh ideas and for smaller programs that need help to expand.
''This is an unprecedented investment in cutting-edge ideas,'' Education Secretary Arne Duncan said.
Duncan issued rules for the competition Tuesday. The Education Department plans to publish a final application early next year, accept proposals in the spring and award the money by Sept. 30, 2010.
In August, Duncan said Teach for America and programs like it could benefit from the competition. Begun in 1990, the nonprofit recruits recent college graduates to teach in schools in poor communities for at least two years. The group sent an unprecedented 4,100 recruits into the classroom this fall.
Duncan also talked about charter schools, which are taxpayer-funded schools that operate independently of local school boards. Obama wants to expand the number of charter schools, which are an estimated 4,100 of the country's nearly 100,000 public schools.
Duncan said the biggest grants from the $650 million ''Investing in Innovation'' fund will go to programs that have been proven to work. Grants for those programs could reach $50 million.
Programs that need money to expand or build a research base could get grants of up to $30 million, and promising ideas worth trying could get grants of up to $5 million, he said.
Obama announced the rules for the $5 billion state grant competition in July, and that money should be awarded early next year.
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
Thursday, September 24, 2009
Nation's Teachers Unions Feel Squeezed by Some Former Allies
Unions continue to be battered by the Democrats, and still they stand 100% in lock step behind their candidates... go figure!! Read on.
By Rob Hotakainen
rhotakainen@mcclatchydc.com
Published: Monday, Sep. 21, 2009 - 7:05 am | Page 16A
Last Modified: Monday, Sep. 21, 2009 - 7:53 am
WASHINGTON – When Gov. Arnold Schwarzenegger proposed merit pay for teachers and lifting the cap on charter schools, the head of the California NAACP stood by his side.
And when the Los Angeles school board voted to approve a plan that could turn over a third of its schools to private operators, Latino members and Mayor Antonio Villaraigosa led the charge.
The nation's public school teachers are feeling the squeeze from all sides these days, and some of the heat is coming from unlikely sources: minorities and longtime Democratic allies.
One of them is President Barack Obama, who is irking teachers by suggesting that student test scores be used to judge the success of educators.
The pressure is particularly intense in California, where U.S. Education Secretary Arne Duncan says the state has "lost its way" with public schools.
In an attempt to improve them, the Obama administration is threatening to withhold federal stimulus money if the Golden State does not rescind a state law that prevents the state from tying test scores to teacher performance.
None of this is exactly what teachers had in mind when they knocked on doors to help elect Obama.
"It takes more than the ability to fill in bubbles to be considered an educated person," Marty Hittelman, president of the California Federation of Teachers, said in a letter to Duncan. "We thought President Obama understood that."
As the battles intensify, longtime political alliances are shifting, said Jaime Regalado, executive director of the Edmund G. "Pat" Brown Institute, a nonprofit public policy center at California State University, Los Angeles.
"They're in flux. There's no question about that," he said, adding that "teacher unions feel somewhat chagrined" with what they're hearing from Washington.
David Sanchez, president of the 340,000-member California Teachers Association, said teachers had high hopes for Obama but that so far there has been little change.
Indeed, when it comes to education policies, he said it's hard to distinguish Obama from his predecessor, President George W. Bush, who placed a premium on high-stakes student testing.
"To be perfectly honest, it's disappointing again," Sanchez said. "Our perception is it's more of the same, and that's not good, because we thought we were going to be able to change something, make some true reform in public education."
Ironically, the teacher unions find themselves opposing some of their former members.
Alice Huffman, the NAACP's president since 1999, helped lead fights against school vouchers and merit pay when she worked as an organizer for the CTA for 13 years. Her thinking has definitely changed, which is why she was standing next to a Republican governor last month.
"The only place the NAACP can be is with this governor," Huffman said. "If the teacher unions put a better proposal on the table, we would stand with them."
For Huffman, the battle is personal. She said too many inner-city minority children are stuck in failing schools and that immediate and revolutionary changes are needed.
"I have watched this for 20 years," Huffman said. "And I have nieces and nephews that have come out of the public schools that can't read, can't write, will never be employable. This is happening right here. … Something profound has to happen. We can't wait another decade and another decade while people tweak with it."
In Los Angeles, Villaraigosa turned against the local teachers union to help push a school-choice plan that was approved last month. It will allow private operators to submit plans on how they'd run 250 schools, including many that failed to meet federal benchmarks on state tests. United Teachers Los Angeles, Villaraigosa's former employer, is opposed to the plan, saying it's the first step toward privatizing the school district.
In Sacramento, state legislators will soon meet in a special session to consider Schwarzenegger's "Race to the Top" plan. Among other things, it would allow merit pay and more charter schools while permitting the state to use test scores to evaluate teacher performance.
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
By Rob Hotakainen
rhotakainen@mcclatchydc.com
Published: Monday, Sep. 21, 2009 - 7:05 am | Page 16A
Last Modified: Monday, Sep. 21, 2009 - 7:53 am
WASHINGTON – When Gov. Arnold Schwarzenegger proposed merit pay for teachers and lifting the cap on charter schools, the head of the California NAACP stood by his side.
And when the Los Angeles school board voted to approve a plan that could turn over a third of its schools to private operators, Latino members and Mayor Antonio Villaraigosa led the charge.
The nation's public school teachers are feeling the squeeze from all sides these days, and some of the heat is coming from unlikely sources: minorities and longtime Democratic allies.
One of them is President Barack Obama, who is irking teachers by suggesting that student test scores be used to judge the success of educators.
The pressure is particularly intense in California, where U.S. Education Secretary Arne Duncan says the state has "lost its way" with public schools.
In an attempt to improve them, the Obama administration is threatening to withhold federal stimulus money if the Golden State does not rescind a state law that prevents the state from tying test scores to teacher performance.
None of this is exactly what teachers had in mind when they knocked on doors to help elect Obama.
"It takes more than the ability to fill in bubbles to be considered an educated person," Marty Hittelman, president of the California Federation of Teachers, said in a letter to Duncan. "We thought President Obama understood that."
As the battles intensify, longtime political alliances are shifting, said Jaime Regalado, executive director of the Edmund G. "Pat" Brown Institute, a nonprofit public policy center at California State University, Los Angeles.
"They're in flux. There's no question about that," he said, adding that "teacher unions feel somewhat chagrined" with what they're hearing from Washington.
David Sanchez, president of the 340,000-member California Teachers Association, said teachers had high hopes for Obama but that so far there has been little change.
Indeed, when it comes to education policies, he said it's hard to distinguish Obama from his predecessor, President George W. Bush, who placed a premium on high-stakes student testing.
"To be perfectly honest, it's disappointing again," Sanchez said. "Our perception is it's more of the same, and that's not good, because we thought we were going to be able to change something, make some true reform in public education."
Ironically, the teacher unions find themselves opposing some of their former members.
Alice Huffman, the NAACP's president since 1999, helped lead fights against school vouchers and merit pay when she worked as an organizer for the CTA for 13 years. Her thinking has definitely changed, which is why she was standing next to a Republican governor last month.
"The only place the NAACP can be is with this governor," Huffman said. "If the teacher unions put a better proposal on the table, we would stand with them."
For Huffman, the battle is personal. She said too many inner-city minority children are stuck in failing schools and that immediate and revolutionary changes are needed.
"I have watched this for 20 years," Huffman said. "And I have nieces and nephews that have come out of the public schools that can't read, can't write, will never be employable. This is happening right here. … Something profound has to happen. We can't wait another decade and another decade while people tweak with it."
In Los Angeles, Villaraigosa turned against the local teachers union to help push a school-choice plan that was approved last month. It will allow private operators to submit plans on how they'd run 250 schools, including many that failed to meet federal benchmarks on state tests. United Teachers Los Angeles, Villaraigosa's former employer, is opposed to the plan, saying it's the first step toward privatizing the school district.
In Sacramento, state legislators will soon meet in a special session to consider Schwarzenegger's "Race to the Top" plan. Among other things, it would allow merit pay and more charter schools while permitting the state to use test scores to evaluate teacher performance.
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
Wednesday, September 9, 2009
Obama Speech To Students Revisited
The controversy eminating from various corners of the country in regard to Obama's speech to schoolchildren abated dramatically when the text of the speech was released and former First Lady, Laura Bush, gave her support to the initiative. Of course the fear was that the speech would be some sort of indoctrination into left wing politics, when in fact it was just a use of the presidential bully pulpit to encourage students to do their best in school. Freedom of speech allows everyone in this country, including the extremists on the left and the right to speak their minds and be heard. Below are some quotes from various news agencies regarding the speech.
A plethora of news outlets covered President Obama's speech to schoolchildren, which took place at "Wakefield High School just outside Washington" on Tuesday. Most coverage was positive in nature, with some sources emphasizing students' reactions to the speech. The New York Times (9/9, Dillon) reports, "Millions of American schoolchildren, oblivious to the uproar that preceded a back-to-school speech by President Obama, heard him exhort them to greatness on Tuesday, watching, applauding and in some classrooms cheering a nationally broadcast address that urged them to set high goals, knuckle down in their studies and persevere through failure."
Education Week (9/9, Klein) reports, "In a speech that triggered advance controversy -- and logistical headaches for school officials -- President Barack Obama...urged America's K-12 students to study hard and stay in school, saying, 'What you make of your education will decide nothing less than the future of this country.'" The President's remarks "capped days of criticism, primarily from" his "conservative opponents...who asserted that Mr. Obama might use the address" and corresponding lesson plans from the U.S. Department of Education "to persuade children to support his political agenda."
The AP (9/9, Matheson, Rohr) reports that "for all the hubbub among adults over the back-to-school speech, many youngsters" nationwide "took the president's message to heart." After listening "closely to Obama's story of studying with his mother at 4:30 a.m.," William Geist, "a San Francisco fifth-grader who likes to sleep late," said, "Now since I heard this speech, I'm like, 'Man, I've got to get up early in the morning. I've got to get ready for school. I've got to do this.'"
The Miami Herald (9/9, Sampson, McGrory) reports that "kids interviewed by The Miami Herald called the speech inspiring and seemed incredulous that the 15-minute talk had sparked such outrage nationally." Pines Middle School seventh-grader Chanelle Missick, for instance, said, "I don't see what's wrong with him coming and talking to the kids, trying to give them responsibility and direct them in the right way." Meanwhile, 12-year-old Pines student Carlton Campbell "said he was encouraged when Obama talked about his own struggles. 'He really inspires me," said Carlton, 12. 'Because I was failing last year.'"
The Salt Lake Tribune (9/9, Stewart, Tribune) reports that "Utah students who watched the televised speech in class called it 'inspiring' and 'real.' Still, "some admitted to zoning out and others dismissed it as 'a political stunt.'" Nevertheless, the Salt Lake Tribune adds, after the speech was aired, "all the uproar over Obama using classrooms to push socialism or a hidden policy agenda seemed overblown." The Washington Post (9/9, 2:29 PM, Chandler, et al.) reports that in his speech, Obama "described his own upbringing, noting that he 'got in more trouble than I should have' as a youth. He told the students, 'There is no excuse for not trying. No one has written your destiny for you, because here in America you write your own destiny.'" Jack D. Dale, superintendent of Fairfax County Public Schools, called the speech "phenomenally good," noting that it focused on "the positive aspects of kids taking ownership of their education."
Tonight we get to hear all about the health care initiative. While it is true most Americans don't want the government involved too much in the free enterprise system, it is also unfair to characterize every undertaking of the government as folly. Perhaps some cooler heads will prevail and we will see some health insurance reform, no public option and mandatory health insurance for everyone, much as we have with auto insurance. Then the government could possibly look at some public/private initiatives which would revive the pure research models, such as Bell Labs and the Xerox program at Palo Alto, which we had when we first attempted to land on the moon. Of course, that would mean that the CEO's and other top management types would have to plow some of the cash from our leading corporations into research and development, instead of their pockets. I guess one could dream a little, huh?
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
A plethora of news outlets covered President Obama's speech to schoolchildren, which took place at "Wakefield High School just outside Washington" on Tuesday. Most coverage was positive in nature, with some sources emphasizing students' reactions to the speech. The New York Times (9/9, Dillon) reports, "Millions of American schoolchildren, oblivious to the uproar that preceded a back-to-school speech by President Obama, heard him exhort them to greatness on Tuesday, watching, applauding and in some classrooms cheering a nationally broadcast address that urged them to set high goals, knuckle down in their studies and persevere through failure."
Education Week (9/9, Klein) reports, "In a speech that triggered advance controversy -- and logistical headaches for school officials -- President Barack Obama...urged America's K-12 students to study hard and stay in school, saying, 'What you make of your education will decide nothing less than the future of this country.'" The President's remarks "capped days of criticism, primarily from" his "conservative opponents...who asserted that Mr. Obama might use the address" and corresponding lesson plans from the U.S. Department of Education "to persuade children to support his political agenda."
The AP (9/9, Matheson, Rohr) reports that "for all the hubbub among adults over the back-to-school speech, many youngsters" nationwide "took the president's message to heart." After listening "closely to Obama's story of studying with his mother at 4:30 a.m.," William Geist, "a San Francisco fifth-grader who likes to sleep late," said, "Now since I heard this speech, I'm like, 'Man, I've got to get up early in the morning. I've got to get ready for school. I've got to do this.'"
The Miami Herald (9/9, Sampson, McGrory) reports that "kids interviewed by The Miami Herald called the speech inspiring and seemed incredulous that the 15-minute talk had sparked such outrage nationally." Pines Middle School seventh-grader Chanelle Missick, for instance, said, "I don't see what's wrong with him coming and talking to the kids, trying to give them responsibility and direct them in the right way." Meanwhile, 12-year-old Pines student Carlton Campbell "said he was encouraged when Obama talked about his own struggles. 'He really inspires me," said Carlton, 12. 'Because I was failing last year.'"
The Salt Lake Tribune (9/9, Stewart, Tribune) reports that "Utah students who watched the televised speech in class called it 'inspiring' and 'real.' Still, "some admitted to zoning out and others dismissed it as 'a political stunt.'" Nevertheless, the Salt Lake Tribune adds, after the speech was aired, "all the uproar over Obama using classrooms to push socialism or a hidden policy agenda seemed overblown." The Washington Post (9/9, 2:29 PM, Chandler, et al.) reports that in his speech, Obama "described his own upbringing, noting that he 'got in more trouble than I should have' as a youth. He told the students, 'There is no excuse for not trying. No one has written your destiny for you, because here in America you write your own destiny.'" Jack D. Dale, superintendent of Fairfax County Public Schools, called the speech "phenomenally good," noting that it focused on "the positive aspects of kids taking ownership of their education."
Tonight we get to hear all about the health care initiative. While it is true most Americans don't want the government involved too much in the free enterprise system, it is also unfair to characterize every undertaking of the government as folly. Perhaps some cooler heads will prevail and we will see some health insurance reform, no public option and mandatory health insurance for everyone, much as we have with auto insurance. Then the government could possibly look at some public/private initiatives which would revive the pure research models, such as Bell Labs and the Xerox program at Palo Alto, which we had when we first attempted to land on the moon. Of course, that would mean that the CEO's and other top management types would have to plow some of the cash from our leading corporations into research and development, instead of their pockets. I guess one could dream a little, huh?
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
Wednesday, July 29, 2009
Variable Annuity Vindication
Many of my clients have invested in the Transamerica and MetLife Variable Annuities over the years, so I wanted to refer you to an article in the Wall Street Journal about variable annuities and the Guaranteed Minimum Income Benefit. This rider protects the assets so your account will continue to grow in a down market. The following article by Leslie Scism sums up perfectly the reasons why the variable annuity should be a part of most investment portfolios, and vindicates many advisors who realized there was really no other comparable protection against downside risk.
Long Derided, This Investment Now Looks Wise
by Leslie Scism
One of the best investments of the past decade was one of the most derided: the variable annuity. But investors who want in on the action now are in for a shock, as the juiciest deals have disappeared from the market.
Variable annuities, a tax-advantaged investment account that holds a type of mutual fund, are sold by insurers, and most offer some form of investment guarantee for an additional fee. For years, they were attacked for being too expensive. Why pay for a guarantee to protect against a stock-market decline, the argument went, when stocks continued their inexorable march upward?
Then stocks plunged, and variable-annuity guarantees no longer looked expensive. In fact, insurers, in a move to build market share, had underpriced many of them. Suppose an investor owned a variable annuity that tanked in value last year. No matter. Under the most-generous contracts, insurers pledged to pay customers lifetime retirement income based on past market gains in their underlying funds, plus minimum annual increases in years the market is sluggish or down.
Because of such guarantees, many holders of variable annuities actually saw their accounts increase 6% or more in value last year, when the Standard & Poor’s 500-stock index dropped nearly 39%.
“When I watch friends bemoaning the market, I feel guilty saying anything, actually,” says Amy White, a 67-year-old retired accountant in Dallas. She and her late husband invested hundreds of thousands of dollars in variable annuities early this decade, and their funds rose as the market neared its 2007 peak. While they fell last year, the guaranteed amount—on which Ms. White’s retirement-income checks will be based—is still more than double the invested amount.
Click here to read the rest of the article
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
Long Derided, This Investment Now Looks Wise
by Leslie Scism
One of the best investments of the past decade was one of the most derided: the variable annuity. But investors who want in on the action now are in for a shock, as the juiciest deals have disappeared from the market.
Variable annuities, a tax-advantaged investment account that holds a type of mutual fund, are sold by insurers, and most offer some form of investment guarantee for an additional fee. For years, they were attacked for being too expensive. Why pay for a guarantee to protect against a stock-market decline, the argument went, when stocks continued their inexorable march upward?
Then stocks plunged, and variable-annuity guarantees no longer looked expensive. In fact, insurers, in a move to build market share, had underpriced many of them. Suppose an investor owned a variable annuity that tanked in value last year. No matter. Under the most-generous contracts, insurers pledged to pay customers lifetime retirement income based on past market gains in their underlying funds, plus minimum annual increases in years the market is sluggish or down.
Because of such guarantees, many holders of variable annuities actually saw their accounts increase 6% or more in value last year, when the Standard & Poor’s 500-stock index dropped nearly 39%.
“When I watch friends bemoaning the market, I feel guilty saying anything, actually,” says Amy White, a 67-year-old retired accountant in Dallas. She and her late husband invested hundreds of thousands of dollars in variable annuities early this decade, and their funds rose as the market neared its 2007 peak. While they fell last year, the guaranteed amount—on which Ms. White’s retirement-income checks will be based—is still more than double the invested amount.
Click here to read the rest of the article
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
Friday, July 17, 2009
JERSEY BENEFITS ADVISORS INVESTOR NEWSLETTER SUMMER 2009
MARKET WATCH
As we close the books on the first half of 2009, there appears to be a cup half empty, cup half full scenario going on, depending on your point of view. The markets closed mixed with the S&P 500 winding up at 919.32, a 1.8% gain for the year and up 35.9% from the low of 676.53 in March. The DJIA finished at 8,447.00, which is still -3.8% below the beginning of the year, but still 29% above the low of 6,547.05 set in March. The Nasdaq posted the best year to date gain of the major indices when it closed at 1,835.04, which is a 16.4% increase for the first half of 2009.
While these gains from the lows in March indicate a fantastic recovery for the markets, they represent only a portion of the returns necessary to restore the indices to their former highs. For example, the DJIA would have to gain 67.7% to get to it’s former all time high of 14,164.53 and the S&P 500 would have to add 70.3% to reach it’s former high of 1,565.15. Of course the NASDAQ, which went to the moon in 2000, would have to increase a whopping 175.1% in order to reach the heights it attained before the dotcom bubble burst. While these numbers are troubling, they speak volumes about percentages and compounding. The sad fact is that it takes a 100% gain to recover a 50% loss, or put another way: if you start with 100 dollars, and lose 50%, you have 50 dollars. It will take a 100% gain to return the 50 dollars to the original 100 dollars. Isn’t math just so unfair!
The point here is not to make you feel despondent, but rather to help keep things in perspective. Yes, this was a great quarter and perhaps this recession could be over or at least in its final stages, but there are a great deal of challenges ahead of us. After having witnessed the near implosion of the world’s financial system, the creative destruction of the auto industry in the US, and a tanking of the stock market to levels not seen since the mid 1990’s, looking for positive signs makes sense. If you’ve been investing through all of this turmoil, it is like you had the opportunity to go back to 1997 and put in new money. These gains are real and will continue to positively impact your portfolio going forward.
REFERRALS AND THE MERGER OF TFA & ISI
Has the advisor of any of your friends or relatives left the business, or have any of your other investment representatives been absent during the recent market turmoil?
Do you feel as if your representative only wants to talk to you when all is well with the world? I am here to talk to you about the state of the market, the performance of your investment portfolio, and your retirement plans, regardless of what the market is doing.
With the merger of Transamerica and Intersecurities, I look forward to continuing to provide you with quality investment products and individualized service.
Please feel free to refer any of your friends or relatives who may looking for a new advisor to me. Thank you!
ECONOMIC OUTLOOK
As I mentioned on the preceding page, there is some evidence, as well as historical precedent to indicate the recession may be over or in the fourth quarter, to use a sports analogy. As I noted in previous newsletters, the two longest recessions, since the Great Depression, were the recessions of 1973-75 & 1981-82. Each of those recessions lasted 16 months. March of 2009 was the 16th month of the current recession. As I’ve mentioned before, there are always numerous opinions on these matters, but it is more than likely no coincidence the markets, which are leading indicators, began recovering in March.
While I’d like to believe this is not a head fake, but rather a real recovery, I’ve read enough opinions by numerous bears to remain reticent. This doesn’t mean not being invested, but rather it means cautious, disciplined investing. With the government running GM, TARP funds in the financial sector, Korea and Iran defiantly rebuking Obama’s olive branch, Congress salivating over health care and over a trillion dollars of stimulus in the system, a lot could go wrong. Inflation is one evil that comes to mind.
Obama says he doesn’t want to run GM or the health care system. The specter of public housing conjures up horrendous images of what public health care would look like.
PRIVACY POLICY, MERGER UPDATE & INSURANCE
PRIVACY POLICY
At Jersey Benefits Advisors and Jersey Benefits Group, Inc. protecting your privacy is very important to us. We want you to understand what information we collect and how we use it. We collect and use information from you on applications and other forms as well as information about financial transactions with us and from non-affiliated third parties. This “nonpublic personal information” is obtained in connection with providing a financial product or service to you.
We do not disclose any nonpublic personal information about you without your express consent, except as permitted by law. We may disclose the nonpublic personal information we collect to persons or companies that perform services on our behalf.
We restrict access to your nonpublic personal information and only allow disclosures to persons and companies as permitted by law to assist in providing products or services to you.
We maintain physical, electronic and procedural safeguards to protect your nonpublic personal information at all times.
MORE ON THE MERGER
Transamerica Financial Advisors, Inc. is excited to share some important news with you. Pending final regulatory approval, Transamerica Financial Advisors will merge its operations with St. Petersburg, Florida based InterSecurities, Inc., an affiliated firm that has been offering financial services for almost 25 years. We anticipate the merger will take effect in September 2009. As part of the merger, the resulting entity will retain the Transamerica Financial Advisors, Inc name and continue to be a full service, independent broker-dealer and registered investment advisor. Most importantly, the relationship you have with your registered representative or investment advisory representative WILL NOT change.
INSURANCE SERVICES
Have you reviewed your insurance policies lately. Whether it comes to insurance on your life, health or investments, the need for insurance is something that should not be overlooked. Changes in status, such as a marriage or the birth of a child are times when insurance levels may need to be adjusted. Also, during times of peak earnings and peak responsibilities, a look at the protection you are providing to your family, in the event of an untimely death, is an unpleasant, but necessary task. Just as the insurance on retirement income, provided by annuities as part of an investment strategy paid off during this downturn, planning with life insurance helps your family when an unanticipated death occurs.
John H. Kaighn
Jersey Benefits Group, Inc.
As we close the books on the first half of 2009, there appears to be a cup half empty, cup half full scenario going on, depending on your point of view. The markets closed mixed with the S&P 500 winding up at 919.32, a 1.8% gain for the year and up 35.9% from the low of 676.53 in March. The DJIA finished at 8,447.00, which is still -3.8% below the beginning of the year, but still 29% above the low of 6,547.05 set in March. The Nasdaq posted the best year to date gain of the major indices when it closed at 1,835.04, which is a 16.4% increase for the first half of 2009.
While these gains from the lows in March indicate a fantastic recovery for the markets, they represent only a portion of the returns necessary to restore the indices to their former highs. For example, the DJIA would have to gain 67.7% to get to it’s former all time high of 14,164.53 and the S&P 500 would have to add 70.3% to reach it’s former high of 1,565.15. Of course the NASDAQ, which went to the moon in 2000, would have to increase a whopping 175.1% in order to reach the heights it attained before the dotcom bubble burst. While these numbers are troubling, they speak volumes about percentages and compounding. The sad fact is that it takes a 100% gain to recover a 50% loss, or put another way: if you start with 100 dollars, and lose 50%, you have 50 dollars. It will take a 100% gain to return the 50 dollars to the original 100 dollars. Isn’t math just so unfair!
The point here is not to make you feel despondent, but rather to help keep things in perspective. Yes, this was a great quarter and perhaps this recession could be over or at least in its final stages, but there are a great deal of challenges ahead of us. After having witnessed the near implosion of the world’s financial system, the creative destruction of the auto industry in the US, and a tanking of the stock market to levels not seen since the mid 1990’s, looking for positive signs makes sense. If you’ve been investing through all of this turmoil, it is like you had the opportunity to go back to 1997 and put in new money. These gains are real and will continue to positively impact your portfolio going forward.
REFERRALS AND THE MERGER OF TFA & ISI
Has the advisor of any of your friends or relatives left the business, or have any of your other investment representatives been absent during the recent market turmoil?
Do you feel as if your representative only wants to talk to you when all is well with the world? I am here to talk to you about the state of the market, the performance of your investment portfolio, and your retirement plans, regardless of what the market is doing.
With the merger of Transamerica and Intersecurities, I look forward to continuing to provide you with quality investment products and individualized service.
Please feel free to refer any of your friends or relatives who may looking for a new advisor to me. Thank you!
ECONOMIC OUTLOOK
As I mentioned on the preceding page, there is some evidence, as well as historical precedent to indicate the recession may be over or in the fourth quarter, to use a sports analogy. As I noted in previous newsletters, the two longest recessions, since the Great Depression, were the recessions of 1973-75 & 1981-82. Each of those recessions lasted 16 months. March of 2009 was the 16th month of the current recession. As I’ve mentioned before, there are always numerous opinions on these matters, but it is more than likely no coincidence the markets, which are leading indicators, began recovering in March.
While I’d like to believe this is not a head fake, but rather a real recovery, I’ve read enough opinions by numerous bears to remain reticent. This doesn’t mean not being invested, but rather it means cautious, disciplined investing. With the government running GM, TARP funds in the financial sector, Korea and Iran defiantly rebuking Obama’s olive branch, Congress salivating over health care and over a trillion dollars of stimulus in the system, a lot could go wrong. Inflation is one evil that comes to mind.
Obama says he doesn’t want to run GM or the health care system. The specter of public housing conjures up horrendous images of what public health care would look like.
PRIVACY POLICY, MERGER UPDATE & INSURANCE
PRIVACY POLICY
At Jersey Benefits Advisors and Jersey Benefits Group, Inc. protecting your privacy is very important to us. We want you to understand what information we collect and how we use it. We collect and use information from you on applications and other forms as well as information about financial transactions with us and from non-affiliated third parties. This “nonpublic personal information” is obtained in connection with providing a financial product or service to you.
We do not disclose any nonpublic personal information about you without your express consent, except as permitted by law. We may disclose the nonpublic personal information we collect to persons or companies that perform services on our behalf.
We restrict access to your nonpublic personal information and only allow disclosures to persons and companies as permitted by law to assist in providing products or services to you.
We maintain physical, electronic and procedural safeguards to protect your nonpublic personal information at all times.
MORE ON THE MERGER
Transamerica Financial Advisors, Inc. is excited to share some important news with you. Pending final regulatory approval, Transamerica Financial Advisors will merge its operations with St. Petersburg, Florida based InterSecurities, Inc., an affiliated firm that has been offering financial services for almost 25 years. We anticipate the merger will take effect in September 2009. As part of the merger, the resulting entity will retain the Transamerica Financial Advisors, Inc name and continue to be a full service, independent broker-dealer and registered investment advisor. Most importantly, the relationship you have with your registered representative or investment advisory representative WILL NOT change.
INSURANCE SERVICES
Have you reviewed your insurance policies lately. Whether it comes to insurance on your life, health or investments, the need for insurance is something that should not be overlooked. Changes in status, such as a marriage or the birth of a child are times when insurance levels may need to be adjusted. Also, during times of peak earnings and peak responsibilities, a look at the protection you are providing to your family, in the event of an untimely death, is an unpleasant, but necessary task. Just as the insurance on retirement income, provided by annuities as part of an investment strategy paid off during this downturn, planning with life insurance helps your family when an unanticipated death occurs.
John H. Kaighn
Jersey Benefits Group, Inc.
Thursday, June 25, 2009
Coverdell Education Savings Accounts
For parents who are interested in saving money for their children's education, the Coverdell Education Savings Account (ESA) is an account which was created as an incentive for that purpose. The total contributions for each beneficiary of this account can't exceed $2,000 in any year, no matter how many accounts have been established. A beneficiary is someone who is under age 18 or is a special needs beneficiary and will receive the funds for educational purposes.
Any funds which are contributed to a Coverdell ESA are not tax deductible, however, money invested in the account will grow tax free until a distribution is taken. The beneficiary on the account will not owe any taxes on those distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to post secondary, higher education expenses as well as to elementary and secondary education expenses.
Here are some things to remember about distributions from Coverdell Accounts:
Distributions are tax-free as long as they are used for qualified education expenses, such as tuition, books and fees
There is no tax on distributions if they are for an eligible educational institution. This includes any public, private or religious school that provides elementary or secondary education as determined under state law, and any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) post secondary institutions.
The Hope and lifetime learning credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits
If the distribution exceeds education expenses, a portion will be taxable to the beneficiary and will be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship
There are contribution limits for taxpayers based on the taxpayer’s Modified Adjusted Gross Income. Contributions to a Coverdell ESA may be made until the due date of the contributor’s return, without extensions.
If there is a balance in the Coverdell ESA at the time the beneficiary reaches age 30, it must be distributed within 30 days. A portion representing earnings on the account will be taxable and subject to the additional 10% tax. The beneficiary may avoid these taxes by rolling over the full balance to another Coverdell ESA for another family member.
For more information, see IRS Publication 970, Tax Benefits for Higher Education, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676)
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
Any funds which are contributed to a Coverdell ESA are not tax deductible, however, money invested in the account will grow tax free until a distribution is taken. The beneficiary on the account will not owe any taxes on those distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to post secondary, higher education expenses as well as to elementary and secondary education expenses.
Here are some things to remember about distributions from Coverdell Accounts:
Distributions are tax-free as long as they are used for qualified education expenses, such as tuition, books and fees
There is no tax on distributions if they are for an eligible educational institution. This includes any public, private or religious school that provides elementary or secondary education as determined under state law, and any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) post secondary institutions.
The Hope and lifetime learning credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits
If the distribution exceeds education expenses, a portion will be taxable to the beneficiary and will be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship
There are contribution limits for taxpayers based on the taxpayer’s Modified Adjusted Gross Income. Contributions to a Coverdell ESA may be made until the due date of the contributor’s return, without extensions.
If there is a balance in the Coverdell ESA at the time the beneficiary reaches age 30, it must be distributed within 30 days. A portion representing earnings on the account will be taxable and subject to the additional 10% tax. The beneficiary may avoid these taxes by rolling over the full balance to another Coverdell ESA for another family member.
For more information, see IRS Publication 970, Tax Benefits for Higher Education, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676)
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
Tuesday, May 19, 2009
Taxing Health Care as Income
So you thought the new administration was really for middle-class tax cuts? There is no way a government can run the financial services industry, the automobile industry and the health care industry, without raising taxes on EVERYONE. Here is an example of what's in the works:
Unions target Wyden in anti-tax push
By Reid Wilson
Posted: 05/19/09 07:01 AM [ET]
Union groups are targeting one of their close allies in Congress over a controversial proposal to tax employee healthcare benefits.
In a coordinated campaign using radio advertising, mail and other pressure mechanisms, three top unions are urging Oregonians to voice their displeasure to Sen. Ron Wyden (D-Ore.), whose proposal may be stalled in the Senate.
The radio ads, purchased by the National Education Association, the American Federation of State, County and Municipal Employees (AFSCME) and the United Food and Commercial Workers, take Wyden to task for his Healthy Americans Act, a bill that would provide universal coverage while removing the tax exemption employers get when they provide health benefits to their employees.
"Taxing health benefits? That doesn’t make sense," the ad's narrator says. "Tell Sen. Wyden that Oregon families want quality, affordable healthcare — not taxes on their healthcare benefits."
The three major unions are running the radio ad in Wyden's backyard in the Portland and Eugene markets, to the tune of $60,000, according to those familiar with the expenditure. AFSCME is undertaking a larger pressure campaign utilizing phones, mail, canvassers and a website.
Top Oregon labor leaders took to a prominent liberal website last week to question Wyden's plan, which they compared to proposals by Sen. John McCain (R-Ariz.) during the 2008 presidential election.
Wyden's bill is far different from the proposal McCain offered last year. Wyden would add a standard deduction estimated at $17,000 for a family of four, according to estimates by the Oregon Democrat's office. More expensive plans would be subject to taxes.
The proposal would make employers' share of health premiums taxable. Unions largely stand to gain from maintaining the status quo.
Last week, Senate Finance Committee Chairman Max Baucus (D-Mont.) said he would not consider Wyden's proposal. But Baucus did release a list of priorities that unions are unlikely to be pleased by. A broadside aimed at Wyden could serve as a warning to Baucus.
Wyden "has been a champion of healthcare reform, and his work to reform the system and to encourage public options for health care coverage could change the face of our health care system, expand coverage, and make health more affordable for all Americans. But only if our Senior Senator stops lobbying for a health care benefits tax," wrote Oregon AFSCME executive director Ken Allen and Oregon AFL-CIO president Tom Chamberlain on the BlueOregon blog.
President Obama opposed the proposal during the campaign, but in March Obama's budget director, Peter Orszag, said the idea should not be taken off the table.
Finding himself on the opposite side of labor is not a normal position for Wyden. Ordinarily a strong backer of labor, Wyden voted labor's way on 94 percent of the scored votes in 2007, the last year for which the AFL-CIO has scored members of Congress. In his career in Congress, Wyden has voted with labor 88 percent of the time.
Unions target Wyden in anti-tax push
By Reid Wilson
Posted: 05/19/09 07:01 AM [ET]
Union groups are targeting one of their close allies in Congress over a controversial proposal to tax employee healthcare benefits.
In a coordinated campaign using radio advertising, mail and other pressure mechanisms, three top unions are urging Oregonians to voice their displeasure to Sen. Ron Wyden (D-Ore.), whose proposal may be stalled in the Senate.
The radio ads, purchased by the National Education Association, the American Federation of State, County and Municipal Employees (AFSCME) and the United Food and Commercial Workers, take Wyden to task for his Healthy Americans Act, a bill that would provide universal coverage while removing the tax exemption employers get when they provide health benefits to their employees.
"Taxing health benefits? That doesn’t make sense," the ad's narrator says. "Tell Sen. Wyden that Oregon families want quality, affordable healthcare — not taxes on their healthcare benefits."
The three major unions are running the radio ad in Wyden's backyard in the Portland and Eugene markets, to the tune of $60,000, according to those familiar with the expenditure. AFSCME is undertaking a larger pressure campaign utilizing phones, mail, canvassers and a website.
Top Oregon labor leaders took to a prominent liberal website last week to question Wyden's plan, which they compared to proposals by Sen. John McCain (R-Ariz.) during the 2008 presidential election.
Wyden's bill is far different from the proposal McCain offered last year. Wyden would add a standard deduction estimated at $17,000 for a family of four, according to estimates by the Oregon Democrat's office. More expensive plans would be subject to taxes.
The proposal would make employers' share of health premiums taxable. Unions largely stand to gain from maintaining the status quo.
Last week, Senate Finance Committee Chairman Max Baucus (D-Mont.) said he would not consider Wyden's proposal. But Baucus did release a list of priorities that unions are unlikely to be pleased by. A broadside aimed at Wyden could serve as a warning to Baucus.
Wyden "has been a champion of healthcare reform, and his work to reform the system and to encourage public options for health care coverage could change the face of our health care system, expand coverage, and make health more affordable for all Americans. But only if our Senior Senator stops lobbying for a health care benefits tax," wrote Oregon AFSCME executive director Ken Allen and Oregon AFL-CIO president Tom Chamberlain on the BlueOregon blog.
President Obama opposed the proposal during the campaign, but in March Obama's budget director, Peter Orszag, said the idea should not be taken off the table.
Finding himself on the opposite side of labor is not a normal position for Wyden. Ordinarily a strong backer of labor, Wyden voted labor's way on 94 percent of the scored votes in 2007, the last year for which the AFL-CIO has scored members of Congress. In his career in Congress, Wyden has voted with labor 88 percent of the time.
Tuesday, April 21, 2009
JERSEY BENEFITS ADVISORS INVESTOR NEWSLETTER SPRING 2009
MARKET WATCH
The recession unleashed its fury on us during the first quarter of 2009 and drove the markets down to levels not seen since 1997. It does get tough to stay the course with your investments during trying times like we are experiencing. Yet it is exactly the determined and disciplined investor who will fare the best, when the markets begin their recovery.
I feel it is my responsibility at this juncture to attempt to assuage client concerns, while at the same time acknowledging the very real challenges we all face in the midst of declining real estate values and investment wealth. The reason why every asset class and almost every hedge seems to have failed is because we had a systemic failure in the financial system. To keep things in perspective, it is important to note that these types of systemic failures have happened before and will happen again, despite the government’s best efforts to curb them.
As I have said all along, the current recession is not and will not become a calamity of the proportion which was experienced during the 1930’s, even though the media and a rookie President intimated catastrophic consequences if the stimulus bill was not enacted with all its pork barrel legislation. Notice how the rhetoric has abated substantially since President Obama has gotten his way.
However, this is a very deep and substantial recession, and at the end of the first quarter its duration has been 16 months, which is as long as the downturns of 1973-74 and 1981-82. While every recession is different, its conclusion won’t be known until after the fact. When job losses begin to ebb, there is a good possibility the recession will already be over, because job losses usually continue for several months after the economy begins to recover.
So how long can we expect this misery to continue? Economists in the latest Wall Street Journal forecasting survey expect the recession to end in September, though most say it won't be until the second half of 2010 that the economy recovers enough to bring down unemployment. While this is only a prediction, it indicates this is a very deep recession, as if you didn’t already know it.
With that in mind, it would make sense there is a rather large window for investors to take advantage of this downturn. The market should continue to be volatile and could still revisit the lows set in March of 2009. An investor who has been dollar cost averaging all through this recession has seen the overall value of his assets drop considerably, but each new purchase is being made at a 30% to 40% discount. If the recession lasts until September of this year, that is almost two years of discount shares being purchased. When things finally pick up, the increased number of shares which have been purchased will help account values increase more rapidly than if no shares had been purchased during the recession.
I caution everyone not to make large timing purchases, because in times like these, it is very difficult to determine the best time to add a large sum of money to your account. This is why I stated earlier the disciplined, dollar cost averaging investor will reap the highest rewards when the markets turn upward.
The DJIA ended the first quarter down 13.3%, the NASDAQ was down 3.1% and the S&P 500 closed down 11.7%. When the market closed for Easter, the DJIA increased 6.3% since 3/31.
UNDERSTANDING AND PROFITING FROM HISTORY
Now that it is generally accepted that we are not reliving the Great Depression, but are experiencing a difficult recession, the search for someone to blame has intensified. While Bernie Madoff is the poster boy for bad behavior, there is plenty of blame to go around from Wall Street to Main Street. I don’t see assigning blame as my role, since my main impetus is to understand what is actually happening and how to profit from it going forward.
Prior to the Great Depression, any time there was a financial calamity that caused the economy to contract, it was referred to as a depression. After the Great Depression, because the term depression conjured up such dire circumstances, the term recession was coined to refer to a contraction in the economy of less than 10%. The term depression is still used to define a drop in GDP of more than 10%.
According to the most recent Wall Street Journal forecasting survey, gross domestic product (GDP) was predicted to contract in the first and second quarters of this year by 5.0% and 1.8%, respectively, on a seasonally adjusted annualized rate. A return to growth, a modest 0.4%, isn't expected until the third quarter. In the fourth quarter of 2008, the most recent period for which data is available, the economy contracted 6.3%. Also, with all of the social safety net programs in place, such as unemployment insurance, FDIC insurance, food stamps and the huge government stimulus program, conditions for those who are unemployed are much less dire than during the Great Depression.
So we have talked about dollar cost averaging into your investments as a way to profit during this downturn, but it does take a certain amount of intestinal fortitude to continue to invest, when so many people are worried about the sky falling. This contrarian view is very important, because as Warren Buffett stated several months ago, the time for fear is when everyone is being greedy and the time to be greedy is when everyone else is fearful. I think you could say fear has permeated the investment landscape at this point!
Finally, you have to take into account the experience level of the journalists who are reporting 24/7 about this recession. Most of them were not even working during the 1973-74 recession, so their frame of reference is very limited. Even the 1981-82 recession is like a history lesson to many of them. Many people thought America’s best days were behind us back then. That opinion certainly turned out to be false. The point is that after recessions come recoveries. Government spending, whether for social programs such as the New Deal or military programs, like under Reagan, ignited growth. The two best five year runs for the market began in 1938 and 1982. Time to be greedy?
STATEMENTS AND THE GUARANTEED MINIMUM INCOME BENEFIT
Some of you who have invested in the Transamerica and MetLife Annuities have expressed some difficulty finding the Guaranteed Minimum Income Benefit information on your statement. Depending when your purchase was made, the rider may have different names. On the Transamerica product, the value appears on the second or third page and is called the Family Income Protector, Minimum Income Base, or Managed Annuity Program. On the MetLife product, it is called the GMIB or GMIB Plus and is on the first page. Since the market has been so volatile, and account values are already higher than they were at the end of the quarter, I am not sending consolidated statements. Anyone who would like to receive a consolidated statement should give me a call and I’ll send it to you.
COMPANY INFORMATION:
Investment Advisory Services offered through:
Jersey Benefits Advisors
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
1150 S. Olive St. Suite T-25
Los Angeles, CA 90015
800-245-8250
Member FINRA & SIPC
Third Party Administration and Insurance Services offered through:
Jersey Benefits Group, Inc
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
All opinions expressed in this newsletter are solely those of John Kaighn & Jersey Benefits Advisors, formerly known as Kaighn Financial Services.
The recession unleashed its fury on us during the first quarter of 2009 and drove the markets down to levels not seen since 1997. It does get tough to stay the course with your investments during trying times like we are experiencing. Yet it is exactly the determined and disciplined investor who will fare the best, when the markets begin their recovery.
I feel it is my responsibility at this juncture to attempt to assuage client concerns, while at the same time acknowledging the very real challenges we all face in the midst of declining real estate values and investment wealth. The reason why every asset class and almost every hedge seems to have failed is because we had a systemic failure in the financial system. To keep things in perspective, it is important to note that these types of systemic failures have happened before and will happen again, despite the government’s best efforts to curb them.
As I have said all along, the current recession is not and will not become a calamity of the proportion which was experienced during the 1930’s, even though the media and a rookie President intimated catastrophic consequences if the stimulus bill was not enacted with all its pork barrel legislation. Notice how the rhetoric has abated substantially since President Obama has gotten his way.
However, this is a very deep and substantial recession, and at the end of the first quarter its duration has been 16 months, which is as long as the downturns of 1973-74 and 1981-82. While every recession is different, its conclusion won’t be known until after the fact. When job losses begin to ebb, there is a good possibility the recession will already be over, because job losses usually continue for several months after the economy begins to recover.
So how long can we expect this misery to continue? Economists in the latest Wall Street Journal forecasting survey expect the recession to end in September, though most say it won't be until the second half of 2010 that the economy recovers enough to bring down unemployment. While this is only a prediction, it indicates this is a very deep recession, as if you didn’t already know it.
With that in mind, it would make sense there is a rather large window for investors to take advantage of this downturn. The market should continue to be volatile and could still revisit the lows set in March of 2009. An investor who has been dollar cost averaging all through this recession has seen the overall value of his assets drop considerably, but each new purchase is being made at a 30% to 40% discount. If the recession lasts until September of this year, that is almost two years of discount shares being purchased. When things finally pick up, the increased number of shares which have been purchased will help account values increase more rapidly than if no shares had been purchased during the recession.
I caution everyone not to make large timing purchases, because in times like these, it is very difficult to determine the best time to add a large sum of money to your account. This is why I stated earlier the disciplined, dollar cost averaging investor will reap the highest rewards when the markets turn upward.
The DJIA ended the first quarter down 13.3%, the NASDAQ was down 3.1% and the S&P 500 closed down 11.7%. When the market closed for Easter, the DJIA increased 6.3% since 3/31.
UNDERSTANDING AND PROFITING FROM HISTORY
Now that it is generally accepted that we are not reliving the Great Depression, but are experiencing a difficult recession, the search for someone to blame has intensified. While Bernie Madoff is the poster boy for bad behavior, there is plenty of blame to go around from Wall Street to Main Street. I don’t see assigning blame as my role, since my main impetus is to understand what is actually happening and how to profit from it going forward.
Prior to the Great Depression, any time there was a financial calamity that caused the economy to contract, it was referred to as a depression. After the Great Depression, because the term depression conjured up such dire circumstances, the term recession was coined to refer to a contraction in the economy of less than 10%. The term depression is still used to define a drop in GDP of more than 10%.
According to the most recent Wall Street Journal forecasting survey, gross domestic product (GDP) was predicted to contract in the first and second quarters of this year by 5.0% and 1.8%, respectively, on a seasonally adjusted annualized rate. A return to growth, a modest 0.4%, isn't expected until the third quarter. In the fourth quarter of 2008, the most recent period for which data is available, the economy contracted 6.3%. Also, with all of the social safety net programs in place, such as unemployment insurance, FDIC insurance, food stamps and the huge government stimulus program, conditions for those who are unemployed are much less dire than during the Great Depression.
So we have talked about dollar cost averaging into your investments as a way to profit during this downturn, but it does take a certain amount of intestinal fortitude to continue to invest, when so many people are worried about the sky falling. This contrarian view is very important, because as Warren Buffett stated several months ago, the time for fear is when everyone is being greedy and the time to be greedy is when everyone else is fearful. I think you could say fear has permeated the investment landscape at this point!
Finally, you have to take into account the experience level of the journalists who are reporting 24/7 about this recession. Most of them were not even working during the 1973-74 recession, so their frame of reference is very limited. Even the 1981-82 recession is like a history lesson to many of them. Many people thought America’s best days were behind us back then. That opinion certainly turned out to be false. The point is that after recessions come recoveries. Government spending, whether for social programs such as the New Deal or military programs, like under Reagan, ignited growth. The two best five year runs for the market began in 1938 and 1982. Time to be greedy?
STATEMENTS AND THE GUARANTEED MINIMUM INCOME BENEFIT
Some of you who have invested in the Transamerica and MetLife Annuities have expressed some difficulty finding the Guaranteed Minimum Income Benefit information on your statement. Depending when your purchase was made, the rider may have different names. On the Transamerica product, the value appears on the second or third page and is called the Family Income Protector, Minimum Income Base, or Managed Annuity Program. On the MetLife product, it is called the GMIB or GMIB Plus and is on the first page. Since the market has been so volatile, and account values are already higher than they were at the end of the quarter, I am not sending consolidated statements. Anyone who would like to receive a consolidated statement should give me a call and I’ll send it to you.
COMPANY INFORMATION:
Investment Advisory Services offered through:
Jersey Benefits Advisors
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
1150 S. Olive St. Suite T-25
Los Angeles, CA 90015
800-245-8250
Member FINRA & SIPC
Third Party Administration and Insurance Services offered through:
Jersey Benefits Group, Inc
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
All opinions expressed in this newsletter are solely those of John Kaighn & Jersey Benefits Advisors, formerly known as Kaighn Financial Services.
Thursday, April 9, 2009
Chase and Other Big Banks Fraudulently Devalue Homes
While the banks are reaping billions of dollars in taxpayer funded relief, not only do they continue to make credit tight and foreclose on mortgage holders, but they have now begun to unilaterally adjust home values on mortgage holders who didn't over extend themselves during the housing boom. The audacity of banks, with Chase Bank being one of the largest banks perpetrating this fraud, is just unforgivable. In essence, they are marking to market the property values of homeowners who are not delinquent, not in danger of foreclosure and good paying customers. Furthermore, the values they are assigning to properties are no more based on reality than the values of the toxic assets they hold on their books.
I happen to be one of the people who didn't overreach during the housing boom, didn't use all of the credit line Chase Bank provided and paid my bills every month on time. Still, Chase decided to arbitrarily lower the value of my home on their website to $200,000, a value 40% lower than its assessed value and thereby wiping out, on paper only, most of the equity in my home. They did this even though I have no intention of selling my home and never asked for an increase in my home equity line of credit. I am sure they did this because the line has an adjustable rate of interest which currently is 2.49%. Obviously, they don't like the fact that I am getting a bit of a break on my interest payments at this time. The kicker is that their website specifically states that the values listed for homes are NOT APPRAISALS and "The tool on this page is provided by a third-party site. Please note that the third party's privacy policy and security practices may differ from Chase's standards. Chase assumes no responsibility for nor does it control, endorse or guarantee any aspect of your use of this tool." Yet, they have used this very tool to value my home.
I checked other sites, including Zillow and found the value of my property to range from a low of $279,000 to a high of 375,000. Even on the Chase site, my neighbors property was listed $61,000 higher than my property. While my neighbor has a very nice property and he was very recently approved for a refinancing which exceeds the value Chase assigned to his home, my house is bigger, has more bedrooms, more bathrooms and other features my neighbor doesn't have. My property was also freshly painted this spring and is in excellent condition. The whole point is that Chase arbitrarily deflated the value of MY PROPERTY to force me to beg them for a fixed rate loan.
When I called their customer service line, they were rude and disrespectful. After my third call, I was given the phone number of the corporate office where supposedly I would be able to talk to someone who actually was involved in the decision making process. As you can imagine, I got to talk to a very nice secretary who told me everyone was busy, but someone would return my call. Of course, nobody returned my call.
So now I have a question for you, Jamie Dimon. Is this the way you build customer loyalty? Is this how you envision using taxpayer dollars, MY DOLLARS, to help homeowners. You can rest assured I have already contacted my lawyer and have begun the appraisal process on my property, because you have hurt me financially, degraded the value of other properties in my neighborhood and fraudulently blocked my line of credit, which is the least of my concerns and the only thing you have the legal authority to do.
So fellow taxpayers, is there anyone else who has had a similar experience. Anyone else who thought they were doing the right thing by paying your bills on time, only to get SCREWED by your multinational, too big to fail bank? Please feel free to comment on this rant and perhaps we can join together to sue this and other culprits who have destroyed the value of our investment portfolios, while paying fat bonuses to the very fools who caused this credit crisis.
John H. Kaighn
Jersey Benefits Advisors
The Kaighn Report
I happen to be one of the people who didn't overreach during the housing boom, didn't use all of the credit line Chase Bank provided and paid my bills every month on time. Still, Chase decided to arbitrarily lower the value of my home on their website to $200,000, a value 40% lower than its assessed value and thereby wiping out, on paper only, most of the equity in my home. They did this even though I have no intention of selling my home and never asked for an increase in my home equity line of credit. I am sure they did this because the line has an adjustable rate of interest which currently is 2.49%. Obviously, they don't like the fact that I am getting a bit of a break on my interest payments at this time. The kicker is that their website specifically states that the values listed for homes are NOT APPRAISALS and "The tool on this page is provided by a third-party site. Please note that the third party's privacy policy and security practices may differ from Chase's standards. Chase assumes no responsibility for nor does it control, endorse or guarantee any aspect of your use of this tool." Yet, they have used this very tool to value my home.
I checked other sites, including Zillow and found the value of my property to range from a low of $279,000 to a high of 375,000. Even on the Chase site, my neighbors property was listed $61,000 higher than my property. While my neighbor has a very nice property and he was very recently approved for a refinancing which exceeds the value Chase assigned to his home, my house is bigger, has more bedrooms, more bathrooms and other features my neighbor doesn't have. My property was also freshly painted this spring and is in excellent condition. The whole point is that Chase arbitrarily deflated the value of MY PROPERTY to force me to beg them for a fixed rate loan.
When I called their customer service line, they were rude and disrespectful. After my third call, I was given the phone number of the corporate office where supposedly I would be able to talk to someone who actually was involved in the decision making process. As you can imagine, I got to talk to a very nice secretary who told me everyone was busy, but someone would return my call. Of course, nobody returned my call.
So now I have a question for you, Jamie Dimon. Is this the way you build customer loyalty? Is this how you envision using taxpayer dollars, MY DOLLARS, to help homeowners. You can rest assured I have already contacted my lawyer and have begun the appraisal process on my property, because you have hurt me financially, degraded the value of other properties in my neighborhood and fraudulently blocked my line of credit, which is the least of my concerns and the only thing you have the legal authority to do.
So fellow taxpayers, is there anyone else who has had a similar experience. Anyone else who thought they were doing the right thing by paying your bills on time, only to get SCREWED by your multinational, too big to fail bank? Please feel free to comment on this rant and perhaps we can join together to sue this and other culprits who have destroyed the value of our investment portfolios, while paying fat bonuses to the very fools who caused this credit crisis.
John H. Kaighn
Jersey Benefits Advisors
The Kaighn Report
Thursday, March 12, 2009
Brokerage Account Features
Many people have accounts with different mutual fund companies, and receive numerous statements, which can be a burden. One way to lessen paperwork is to consolidate assets into a brokerage account. Most major brokerage firms offer a brokerage account, which they may also call an Asset Management Account. Below are some of the features and benefits provided by a Pershing Brokerage Account, offered by Jersey Benefits Advisors, which include:
· Consolidated statement which shows all investments including money market funds, stocks, bonds, mutual funds, unit investment trusts, partnerships, brokered CD’s and annuities
· Daily sweep of idle cash into a money market account
· Available borrowing power for Margin approved accounts
· Procash checking services
· Free ACH transactions from checking to brokerage and from brokerage to checking
· Electronic funds transfer services
· Free dividend reinvestment
· Direct deposit of payroll, social security, pension checks, etc.
· Online access to account information
· Access to numerous mutual funds from different investment companies as well as variable annuities* from many insurance companies
· Systematic investment into mutual funds in order to purchase shares on a monthly, quarterly or annual basis utilizing dollar cost averaging
If you have any questions, feel free to contact me through my websites listed below.
John Kaighn is a Registered Investment Advisor with Jersey Benefits Advisors and writes articles on various business and investment information, ideas and opportunities. For more information about this and other topics you can visit Jersey Benefits Advisors and The Kaighn Report
· Consolidated statement which shows all investments including money market funds, stocks, bonds, mutual funds, unit investment trusts, partnerships, brokered CD’s and annuities
· Daily sweep of idle cash into a money market account
· Available borrowing power for Margin approved accounts
· Procash checking services
· Free ACH transactions from checking to brokerage and from brokerage to checking
· Electronic funds transfer services
· Free dividend reinvestment
· Direct deposit of payroll, social security, pension checks, etc.
· Online access to account information
· Access to numerous mutual funds from different investment companies as well as variable annuities* from many insurance companies
· Systematic investment into mutual funds in order to purchase shares on a monthly, quarterly or annual basis utilizing dollar cost averaging
If you have any questions, feel free to contact me through my websites listed below.
John Kaighn is a Registered Investment Advisor with Jersey Benefits Advisors and writes articles on various business and investment information, ideas and opportunities. For more information about this and other topics you can visit Jersey Benefits Advisors and The Kaighn Report
Thursday, February 5, 2009
Of Bad Banks & Retribution
Now that the Obama Administration is considering the idea of a "bad bank" to clean up the toxic assets on bank balance sheets, the concern turns to how the assets should be valued. As I discussed in my blog post called Resolution Trust Corporation Redux there is precedence for this type of action, which goes back to our Savings & Loan crisis during the 1980's. While the RTC seized the assets from failed Savings & Loan institutions and allowed the insolvent ones to go out of business, depositors assets were merged into solvent banks and individual depositors didn't lose their money.
Recently, I read an editorial by Robert C. Posen of MFS Investment Management. The valuation method he suggests for the toxic assets on bank balance sheets has merit and should be explored. While it is less sanguine than the RTC process of seizing assets and allowing the company to go out of business, Posen's idea attempts to deal with the fact that the toxic assets of today may still have a great deal of intrinsic value, but marking them to market, a market which has been frozen for six months may not be the best way to deal with this situation.
Posen suggests that "after the Treasury has determined a best estimate of the assets current value, they should offer the bank a cash payment equal to 80% of that value. For the remaining 20% Treasury should provide the bank with a capital certificate, which would count as common stock in determining whether the bank meets its capital requirements". This would help to insure that the Treasury doesn't overpay for the assets, which would help protect taxpayers, and should entice the banks to participate in the program, because the prices won't be too low.
Furthermore, this plan would give taxpayers and the banks an opportunity to benefit from a sale of the assets in the future. The certificate given to the bank would entitle it to 80% of any profit that might be made on the asset when it is sold by the government. If the government sells the asset at a break even price or for a loss, the bank would be entitled to nothing.
Click here to read the entire editorial How to Value Toxic Bank Assets
I've also copied a blog entry by Edmundo Braverman of WallStreetOasis.com which discusses the quest to find a scapegoat for this most recent financial debacle.
A Pound of Flesh
© 2009 Edmundo Braverman, WallStreetOasis.com
Now that the media and Congress have succeeded in deflecting all blame for the current crisis to Wall Street, they've begun their frantic search for the fall guy. You know the guy I'm talking about. The one guy who personifies all that is wrong with the world and is deserving of limitless scorn and a hefty prison sentence. Think Ken Lay of Enron, Bernie Ebbers of WorldCom, and Dennis Kozlowski of Tyco.
In the Roman circus that is the 24/7 news cycle, the crowd is getting restless and they want blood. It's not their fault they were thrown out on their asses after defaulting on an adjustable rate mortgage that represented 65% of their take-home pay. That house was supposed to go up in value, damn it! Now their blood lust must be sated. Always a willing accomplice to government skulduggery, the media is deciding whom to throw to the mob, even as we speak.
We all know Barney Frank, arguably the chief architect of the housing demise, will never see the inside of a jail cell..... To read more click here
John H. Kaighn
Jersey Benefits Advisors
The Kaighn Report
Recently, I read an editorial by Robert C. Posen of MFS Investment Management. The valuation method he suggests for the toxic assets on bank balance sheets has merit and should be explored. While it is less sanguine than the RTC process of seizing assets and allowing the company to go out of business, Posen's idea attempts to deal with the fact that the toxic assets of today may still have a great deal of intrinsic value, but marking them to market, a market which has been frozen for six months may not be the best way to deal with this situation.
Posen suggests that "after the Treasury has determined a best estimate of the assets current value, they should offer the bank a cash payment equal to 80% of that value. For the remaining 20% Treasury should provide the bank with a capital certificate, which would count as common stock in determining whether the bank meets its capital requirements". This would help to insure that the Treasury doesn't overpay for the assets, which would help protect taxpayers, and should entice the banks to participate in the program, because the prices won't be too low.
Furthermore, this plan would give taxpayers and the banks an opportunity to benefit from a sale of the assets in the future. The certificate given to the bank would entitle it to 80% of any profit that might be made on the asset when it is sold by the government. If the government sells the asset at a break even price or for a loss, the bank would be entitled to nothing.
Click here to read the entire editorial How to Value Toxic Bank Assets
I've also copied a blog entry by Edmundo Braverman of WallStreetOasis.com which discusses the quest to find a scapegoat for this most recent financial debacle.
A Pound of Flesh
© 2009 Edmundo Braverman, WallStreetOasis.com
Now that the media and Congress have succeeded in deflecting all blame for the current crisis to Wall Street, they've begun their frantic search for the fall guy. You know the guy I'm talking about. The one guy who personifies all that is wrong with the world and is deserving of limitless scorn and a hefty prison sentence. Think Ken Lay of Enron, Bernie Ebbers of WorldCom, and Dennis Kozlowski of Tyco.
In the Roman circus that is the 24/7 news cycle, the crowd is getting restless and they want blood. It's not their fault they were thrown out on their asses after defaulting on an adjustable rate mortgage that represented 65% of their take-home pay. That house was supposed to go up in value, damn it! Now their blood lust must be sated. Always a willing accomplice to government skulduggery, the media is deciding whom to throw to the mob, even as we speak.
We all know Barney Frank, arguably the chief architect of the housing demise, will never see the inside of a jail cell..... To read more click here
John H. Kaighn
Jersey Benefits Advisors
The Kaighn Report
Thursday, January 15, 2009
Jersey Benefits Advisors Winter 2009 Newsletter
MARKET WATCH
Trying to ascertain a realistic assessment of the current economic situation is tenuous, at best, as we begin 2009. Finding a balance between the people who believe we are actually experiencing financial Armageddon, and those who perpetuate that fear for political advantage, is where I find myself at this point in time. History is always a good place to look to determine if a financial panic has some precedent we can use to guide our decisions.
The US economy has been in recession since December of 2007, according to the National Bureau of Economic Research, and unemployment will continue to increase well into 2009. This recession could be the worst since the 1973-75 and 1981-82 recessions, and possibly the worst since the Great Depression. If you look in the right column , there is a historical list of various recessions and their duration. While not attempting to downplay the severity of the current economic slump, it is quite evident we have not reached the depths of the Great Depres-sion, despite sensational media reporting.
Below is a list of recessions, since 1926 and their duration.
1929-1933, 43 months in duration (Great Depression).
1981-1982, 16 months in duration.
1973-1975, 16 months in duration.
1937-1938, 13 months in duration.
1926-1927, 13 months in duration.
2007-2008, 13 months in duration.*
1970, 11 months in duration.
1948-1949, 11 months in duration.
1960-1961, 10 months in duration.
1953-1954, 10 months in duration.
Government response has been intense. Whether the stimulus planned can jumpstart the economy remains to be seen. There are many who believe government stimulus is a waste of taxpayer money, that it will go to family members, and friends of the politicians who sponsor legislation, and our children will be left with European style taxes for generations. It seems that the taxpayers in this country are psychologically wrestling with the choice between free market capitalism and the safety net of increased socialism.
As I mentioned earlier, I tend to look for balance between the multitude of opinions, so I think we will avert disaster, but the price will be more government and a period of slower growth. It is not possible for us to have low taxes and deficits of a trillion dollars for very long. For now, however, even people who believe in free markets realize the government does have a role to play when panic grips our financial system. This is especially true when government policies, such as "affordable housing initiatives" and Corporate Average Fuel Economy (CAFÉ) standards have exacerbated problems for certain industries. The cost down the road will be high, especially as taxpayers weigh the option of further nationalizing the health care system.
The markets have been humbling to many money managers this year, and as you know from the end of the year statistics, quite dismal. The Dow Jones Industrial Average ended 2008 at 8,776.39, which is a decline of 33.84% from the 2007 close of 13,264.82. The S&P 500, which reflects the broader market, was down 38.49% from its 2007 level of 1,468.36 and closed at 903.25. The NASDAQ index dropped from 2,652.28 to 1,577.03 to end 2008 with a 40.54% loss.
In the next article, I discuss ways to survive and thrive in this market. The next year or so is a buying opportunity!
INVESTING DURING THE RECESSION
I stated in Market Watch that the markets humbled many money managers in 2008, and with this downturn comes the chorus of concerns about not being able to make money in the stock market, because it is too volatile. At first glance, the argument seems plausible, because if you look at the indices, and their returns to date, they are abysmal. In fact, on November 20, 2008, the S&P 500 fell to a low of 752.44 not seen since the 754.72 close on April 15, 1997. At that point the S&P 500 was 51.92% lower than the high set in October 2007. From November 20 through the end of 2008, the S&P 500 gained back 20%.
There is no doubt the stock market has been a real roller coaster ride, and the 2008 lows will probably be tested in 2009. When you analyze the numbers, and understand how rapidly the market can recover, you begin to understand knee jerk reactions are not the best responses to this volatility. In fact, I am of the opinion the only way those of us who work for a living have a chance to build wealth is to continue to save and stay invested during this roller coaster ride.
Furthermore, while it is true there was a market low of 51.92% in the S&P 500 in November, those of us who kept their investments didn’t realize that loss, except psychologically. These gains and losses are temporary paper fluctuations that are only realized when you sell. Variable annuities can protect future income, if you are concerned and close to retirement.
With the markets off more than 30%, every share you buy in your 401k, 403b, ROTH IRA, IRA, 529 plan, brokerage account or mutual fund is being purchased at a discount. I feel this buying opportunity will continue for at least 6 months and possibly longer. When the markets recover, as they always do, all of your old shares, plus the new ones you purchase will bring your account to a higher level than it was before the recession.
Click on the graphic to make it larger if you have difficulty viewing it!
It is true nobody has a crystal ball to tell us exactly when the markets will recover, but once again history is where I usually go to help me understand what we are experiencing and how best to survive and thrive. The graphic above helps put some of the current conditions into perspective. The first graph depicts the recent job losses. While the 2,589,000 jobs lost in 2008 were the most since 1945, the percentage of jobs lost was only 1.88%. This compares favorably with the 2.34% of jobs lost in the 81-82 recession.
The second graph shows that unemployment peaks some months after a recession has ended. The recessions are noted by the shaded areas and the line depicts the unemployment rate. Since trying to time these trends is an inexact science, it is my opinion patience, discipline and calm are the keys to building wealth.
PROTECTING YOUR ASSETS IN A DOWN MARKET
Many of you have invested in the Transamerica and MetLife Annuities, so I want to remind you, once again, about the Guaranteed Minimum Income Benefit. This rider protects the assets so your account will continue to grow in a down market. Look for the line item GMIB, Income for Life or Managed Annuity Program to ascertain this value.
While the market value reflects the turmoil in the stock market, the beauty of these products is their insured value during times of market upheaval. These products help to protect your assets and are an especially good investment for retirement assets. They are great for anyone who wants some insurance on their investments, especially if you are going to be drawing income in the near future. Contact me for an appointment or more information.
John Kaighn
Jersey Benefits Group, Inc.
Investment Advisory Services offered through:
Jersey Benefits Advisors
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com
Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
1150 S. Olive St. Suite T-25
Los Angeles, CA 90015
800-245-8250
Member FINRA & SIPC
Third Party Administration and Insurance Services offered through:
Jersey Benefits Group, Inc
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com/
All opinions expressed in this newsletter are solely those of John Kaighn & Jersey Benefits Advisors, formerly known as Kaighn Financial Services.
Trying to ascertain a realistic assessment of the current economic situation is tenuous, at best, as we begin 2009. Finding a balance between the people who believe we are actually experiencing financial Armageddon, and those who perpetuate that fear for political advantage, is where I find myself at this point in time. History is always a good place to look to determine if a financial panic has some precedent we can use to guide our decisions.
The US economy has been in recession since December of 2007, according to the National Bureau of Economic Research, and unemployment will continue to increase well into 2009. This recession could be the worst since the 1973-75 and 1981-82 recessions, and possibly the worst since the Great Depression. If you look in the right column , there is a historical list of various recessions and their duration. While not attempting to downplay the severity of the current economic slump, it is quite evident we have not reached the depths of the Great Depres-sion, despite sensational media reporting.
Below is a list of recessions, since 1926 and their duration.
1929-1933, 43 months in duration (Great Depression).
1981-1982, 16 months in duration.
1973-1975, 16 months in duration.
1937-1938, 13 months in duration.
1926-1927, 13 months in duration.
2007-2008, 13 months in duration.*
1970, 11 months in duration.
1948-1949, 11 months in duration.
1960-1961, 10 months in duration.
1953-1954, 10 months in duration.
Government response has been intense. Whether the stimulus planned can jumpstart the economy remains to be seen. There are many who believe government stimulus is a waste of taxpayer money, that it will go to family members, and friends of the politicians who sponsor legislation, and our children will be left with European style taxes for generations. It seems that the taxpayers in this country are psychologically wrestling with the choice between free market capitalism and the safety net of increased socialism.
As I mentioned earlier, I tend to look for balance between the multitude of opinions, so I think we will avert disaster, but the price will be more government and a period of slower growth. It is not possible for us to have low taxes and deficits of a trillion dollars for very long. For now, however, even people who believe in free markets realize the government does have a role to play when panic grips our financial system. This is especially true when government policies, such as "affordable housing initiatives" and Corporate Average Fuel Economy (CAFÉ) standards have exacerbated problems for certain industries. The cost down the road will be high, especially as taxpayers weigh the option of further nationalizing the health care system.
The markets have been humbling to many money managers this year, and as you know from the end of the year statistics, quite dismal. The Dow Jones Industrial Average ended 2008 at 8,776.39, which is a decline of 33.84% from the 2007 close of 13,264.82. The S&P 500, which reflects the broader market, was down 38.49% from its 2007 level of 1,468.36 and closed at 903.25. The NASDAQ index dropped from 2,652.28 to 1,577.03 to end 2008 with a 40.54% loss.
In the next article, I discuss ways to survive and thrive in this market. The next year or so is a buying opportunity!
INVESTING DURING THE RECESSION
I stated in Market Watch that the markets humbled many money managers in 2008, and with this downturn comes the chorus of concerns about not being able to make money in the stock market, because it is too volatile. At first glance, the argument seems plausible, because if you look at the indices, and their returns to date, they are abysmal. In fact, on November 20, 2008, the S&P 500 fell to a low of 752.44 not seen since the 754.72 close on April 15, 1997. At that point the S&P 500 was 51.92% lower than the high set in October 2007. From November 20 through the end of 2008, the S&P 500 gained back 20%.
There is no doubt the stock market has been a real roller coaster ride, and the 2008 lows will probably be tested in 2009. When you analyze the numbers, and understand how rapidly the market can recover, you begin to understand knee jerk reactions are not the best responses to this volatility. In fact, I am of the opinion the only way those of us who work for a living have a chance to build wealth is to continue to save and stay invested during this roller coaster ride.
Furthermore, while it is true there was a market low of 51.92% in the S&P 500 in November, those of us who kept their investments didn’t realize that loss, except psychologically. These gains and losses are temporary paper fluctuations that are only realized when you sell. Variable annuities can protect future income, if you are concerned and close to retirement.
With the markets off more than 30%, every share you buy in your 401k, 403b, ROTH IRA, IRA, 529 plan, brokerage account or mutual fund is being purchased at a discount. I feel this buying opportunity will continue for at least 6 months and possibly longer. When the markets recover, as they always do, all of your old shares, plus the new ones you purchase will bring your account to a higher level than it was before the recession.
Click on the graphic to make it larger if you have difficulty viewing it!
It is true nobody has a crystal ball to tell us exactly when the markets will recover, but once again history is where I usually go to help me understand what we are experiencing and how best to survive and thrive. The graphic above helps put some of the current conditions into perspective. The first graph depicts the recent job losses. While the 2,589,000 jobs lost in 2008 were the most since 1945, the percentage of jobs lost was only 1.88%. This compares favorably with the 2.34% of jobs lost in the 81-82 recession.
The second graph shows that unemployment peaks some months after a recession has ended. The recessions are noted by the shaded areas and the line depicts the unemployment rate. Since trying to time these trends is an inexact science, it is my opinion patience, discipline and calm are the keys to building wealth.
PROTECTING YOUR ASSETS IN A DOWN MARKET
Many of you have invested in the Transamerica and MetLife Annuities, so I want to remind you, once again, about the Guaranteed Minimum Income Benefit. This rider protects the assets so your account will continue to grow in a down market. Look for the line item GMIB, Income for Life or Managed Annuity Program to ascertain this value.
While the market value reflects the turmoil in the stock market, the beauty of these products is their insured value during times of market upheaval. These products help to protect your assets and are an especially good investment for retirement assets. They are great for anyone who wants some insurance on their investments, especially if you are going to be drawing income in the near future. Contact me for an appointment or more information.
John Kaighn
Jersey Benefits Group, Inc.
Investment Advisory Services offered through:
Jersey Benefits Advisors
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com
Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
1150 S. Olive St. Suite T-25
Los Angeles, CA 90015
800-245-8250
Member FINRA & SIPC
Third Party Administration and Insurance Services offered through:
Jersey Benefits Group, Inc
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com/
All opinions expressed in this newsletter are solely those of John Kaighn & Jersey Benefits Advisors, formerly known as Kaighn Financial Services.
Friday, December 19, 2008
Happy Holidays to Detroit and More!
As the holidays rapidly approach, I would like to take a few moments to wish you a HAPPY and JOYOUS CHRISTMAS and HANUKA, as well as a HEALTHY and PROSPEROUS NEW YEAR!
The economy has been in recession since December of 2007 and will most likely continue to shed jobs into 2009. While this recession could be the worst since the 1973-75 and 1981-82 recessions, and possibly the worst since the Great Depression, the response by the government, regardless of your politics, has been totally different from the government response that caused the Great Depression. The amount of stimulus injected into the economy this year, and the plans for 2009, will usher in the next phase of the business cycle by the end of 2009 or sooner. Below is a list of recessions, since 1926 and their duration.
1929-1933, 43 months in duration (Great Depression).
1981-1982, 16 months in duration.
1973-1975, 16 months in duration.
1937-1938, 13 months in duration.
1926-1927, 13 months in duration.
2007-2008, 12 months in duration.*
1970, 11 months in duration.
1948-1949, 11 months in duration.
1960-1961, 10 months in duration.
1953-1954, 10 months in duration.
Sensational reporting by the media has fueled an overblown sell off in the stock market, which seems to be abating. It is my opinion we will continue to experience market volatility during the first half of 2009. When the market point swings become boring to the media, and unemployment peaks, the recession will be nearing an end. By then, a new bull cycle will already have emerged. Those of you who have continued to invest during this downturn will reap rewards quickly during the next expansion. Those considering putting cash to work should do so by dollar cost averaging over the next six months.
Lately, it has been The Big 3 automakers getting battered by Congress, which continues to refuse to accept its fair share of responsibility for the automakers plight, as well as that of the housing and financial services industries. The automakers will receive some government aid through TARP, even though the Treasury is reluctant to provide the funds through this mechanism. The perceived social disruption caused by the bankruptcy of the automakers during a time of recession is just too risky to leave to chance. It seems that the taxpayers in this country are psychologically wrestling with the choice between free market capitalism and the safety net of increased socialism. It is impossible to have low taxes and the government guaranteeing everything. At some point, which more than likely is with the bailout of Detroit, the government involvement in guaranteeing that certain companies will not fail must end.
The moral hazard that has been created will probably lead to more foolhearty risks being taken at some point in the future. For now, however, even people who believe in free markets realize the government does have a role to play when panic grips our financial system. This is especially true when government policies, such as CAFE standards and "affordable housing initiatives" have exacerbated problems. The cost down the road will be high, especially as taxpayers weigh the option of further nationalizing the health care system.
Many of my clients have invested in the MetLife and Transamerica Variable annuities over the last few years, and have had the reassurance that their future income for retirement is protected. The insurance companies, except for AIG, have faired well during this period, due to their capital requirements and conservative investment strategies. While the market value of an annuity can fluctuate, the guaranteed income benefit continues to increase. While variable annuities may not be right for everyone, most people can benefit from some insurance on their investments. As the market recovers, so will the market value of all your holdings.
During these difficult economic times, do you feel like you’re playing hide-and-seek with your investment representative? Are you ready to do business with a firm that focuses upon you – your personal investment goals and objectives, and your retirement dreams? If so, then I am here to assist you with any questions or concerns you might have about your investments. If you’re looking for a new advisor, or would like to discuss your investments with me to get a fresh perspective, then call or email today.
John H. Kaighn
Jersey Benefits Advisors
The Kaighn Report
The economy has been in recession since December of 2007 and will most likely continue to shed jobs into 2009. While this recession could be the worst since the 1973-75 and 1981-82 recessions, and possibly the worst since the Great Depression, the response by the government, regardless of your politics, has been totally different from the government response that caused the Great Depression. The amount of stimulus injected into the economy this year, and the plans for 2009, will usher in the next phase of the business cycle by the end of 2009 or sooner. Below is a list of recessions, since 1926 and their duration.
1929-1933, 43 months in duration (Great Depression).
1981-1982, 16 months in duration.
1973-1975, 16 months in duration.
1937-1938, 13 months in duration.
1926-1927, 13 months in duration.
2007-2008, 12 months in duration.*
1970, 11 months in duration.
1948-1949, 11 months in duration.
1960-1961, 10 months in duration.
1953-1954, 10 months in duration.
Sensational reporting by the media has fueled an overblown sell off in the stock market, which seems to be abating. It is my opinion we will continue to experience market volatility during the first half of 2009. When the market point swings become boring to the media, and unemployment peaks, the recession will be nearing an end. By then, a new bull cycle will already have emerged. Those of you who have continued to invest during this downturn will reap rewards quickly during the next expansion. Those considering putting cash to work should do so by dollar cost averaging over the next six months.
Lately, it has been The Big 3 automakers getting battered by Congress, which continues to refuse to accept its fair share of responsibility for the automakers plight, as well as that of the housing and financial services industries. The automakers will receive some government aid through TARP, even though the Treasury is reluctant to provide the funds through this mechanism. The perceived social disruption caused by the bankruptcy of the automakers during a time of recession is just too risky to leave to chance. It seems that the taxpayers in this country are psychologically wrestling with the choice between free market capitalism and the safety net of increased socialism. It is impossible to have low taxes and the government guaranteeing everything. At some point, which more than likely is with the bailout of Detroit, the government involvement in guaranteeing that certain companies will not fail must end.
The moral hazard that has been created will probably lead to more foolhearty risks being taken at some point in the future. For now, however, even people who believe in free markets realize the government does have a role to play when panic grips our financial system. This is especially true when government policies, such as CAFE standards and "affordable housing initiatives" have exacerbated problems. The cost down the road will be high, especially as taxpayers weigh the option of further nationalizing the health care system.
Many of my clients have invested in the MetLife and Transamerica Variable annuities over the last few years, and have had the reassurance that their future income for retirement is protected. The insurance companies, except for AIG, have faired well during this period, due to their capital requirements and conservative investment strategies. While the market value of an annuity can fluctuate, the guaranteed income benefit continues to increase. While variable annuities may not be right for everyone, most people can benefit from some insurance on their investments. As the market recovers, so will the market value of all your holdings.
During these difficult economic times, do you feel like you’re playing hide-and-seek with your investment representative? Are you ready to do business with a firm that focuses upon you – your personal investment goals and objectives, and your retirement dreams? If so, then I am here to assist you with any questions or concerns you might have about your investments. If you’re looking for a new advisor, or would like to discuss your investments with me to get a fresh perspective, then call or email today.
John H. Kaighn
Jersey Benefits Advisors
The Kaighn Report
Monday, December 1, 2008
NBER Makes It Official: Recession Started in December 2007
As I mentioned in the 3rd Quarter newsletter at some point in the future, the National Bureau of Economic Research would determine the economic situation we are experiencing to be a recession. Well, that time has come. Official recession watchers at the NBER said today that the U.S. economy is in recession, and it began in December 2007. Here is the text of their statement.
The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.
A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.
Read their full statement here.
Now the task at hand is for investors to ascertain the depth and length of this downturn. Since the stock market is a leading indicator of the economic cycle, once it can be determined that the economy is healing and poised for recovery, stocks will begin their next advance. While a recovery is something we are all hopeful will be occurring sooner than later, it is my opinion there will be some false starts before the next bull market begins in earnest.
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.
A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.
Read their full statement here.
Now the task at hand is for investors to ascertain the depth and length of this downturn. Since the stock market is a leading indicator of the economic cycle, once it can be determined that the economy is healing and poised for recovery, stocks will begin their next advance. While a recovery is something we are all hopeful will be occurring sooner than later, it is my opinion there will be some false starts before the next bull market begins in earnest.
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
Wednesday, November 26, 2008
The Desolate Wilderness and This Fair Land
I usually write the bulk of the material that appears on my blog, but every now and then I feature other authors who have a flair for great writing. This is a piece that is an annual ritual in a national publication that corresponds with the Thanksgiving Holiday season. It does a nice job of reminding the reader of the reasons to be thankful and to whom we owe that gratitude. I hope you enjoy it
The Desolate Wilderness
Here beginneth the chronicle of those memorable circumstances of the year 1620,as recorded by Nathaniel Morton, keeper of the records of Plymouth Colony, based on the account of William Bradford, sometime governor thereof:
So they left that goodly and pleasant city of Leyden, which had been their resting place for above eleven years, but they knew that they were pilgrims and strangers here below, and looked not much on these things, but lifted up their eyes to Heaven, their dearest country, where God hath prepared for them a city (Heb. XI, 16, and therein quieted their spirits. When they came to Delfs-Haven they found the ship and all things ready, and such of their friends as could not come with them followed after them, and sundry came from Amsterdam to see them shipt, and to take their leaves of them. One night was spent with little sleep with' the most, but with friendly entertainment and Christian discourse, and other real expressions of true Christian love.
The next day they went on board, and their friends with them, where truly doleful was the sight of that sad and mournful parting, to hear what sighs and sobs and prayers did sound amongst them; what tears did gush from every eye, and pithy speeches pierced each other's heart, that sundry of the Dutch strangers that stood on the Key as spectators could not refrain from tears. But the tide (which stays for no man) calling them away, that were thus loath to depart, their Reverend Pastor, falling down on his knees, and they all with him, with watery cheeks commended them with the most fervent prayers unto the Lord and His blessing; and then with mutual embraces and many tearsthey took their I leaves one of another, which proved to be the last leave to many of them.
Being now passed the vast ocean, and a sea of troubles before them in expectations, they had now no friends to welcome, them, no inns to entertain or refresh them, no houses, or much less towns, to repair unto tb seek for succour; and for the season it was winter, and they that know the winters of the country know them to be sharp and violent, subject to cruel and fierce storms, dangerous to travel to known places, much more to search unknown coasts. Besides, what could they see but a hideous and desolate wilderness, full of wilde beasts and wilde men? and what multitudes of them there were, they then knew not: for which way soever they turned their eyes (save upward to Heaven) they could have but little solace or content in respect of any outward object; for summer being ended, all things stand in appearance with a weatherbeaten face, and the whole country, full of woods and thickets, represented a wild and savage hew. If they looked behind them, there was a mighty ocean which they had passed, and was now as a main bar or gulph to separate them from all the civil parts of the world.
This Fair Land
Anyone whose labors take him into the far reaches of the country, as ours lately have done, is bound to mark how the years have made the land grow fruitful. This is indeed a big country, a rich country, in a way no array of figures can measure and so in a way past belief of those who have not seen it. Even those who journey through its Northeastern complex, into the Southern lands, across the central plains and to its Western slopes can only glimpse a measure of the bounty of America.
And a traveler cannot but be struck on his journey by the thought that this country, one day, can be even greater. America, though many know it not, is one of the great underdeveloped countries of the world; what it reaches for exceeds by far what it has grasped.
So the visitor returns thankful for much of what he has seen, and, in spite of everything, an optimist about what his country might be. Yet the visitor, if he is to make an honest report, must also note the air of unease that
hangs everywhere.
For the traveler, as travelers have been always, is as much questioned as questioning. And for all the abundance he sees, he finds the questions put to him ask where men may repair for succor from the troubles that beset them.
His countrymen cannot forget the savage face of war. Too often they have been asked to fight in strange and distant places, for no clear purpose they could see and for no accomplishment they can measure. Their spirits are not quieted by the thought that the good and pleasant bounty' that surrounds them can be destroyed in an instant by a single bomb. Yet they find no escape, for their survival and comfort now depend on unpredictable strangers in far off corners of the globe.
How can they turn from melancholy when at home they see young arrayed against old, black against white, neighbor against neighbor, so that they stand in peril of social discord. Or not despair when they see that the cities and countryside are in need of repair, yet find themselves threatened by scarcities of the resources that sustain their way of life. Or when, in the face of these challenges, they turn for leadership to men in high places-only to find those men as frail as any others.
So sometimes the traveler is asked whence will come their succor. What is to preserve their abundance, or even their civility? How can they pass on to their children a nation as strong and free as the one they inherited from their forefathers? How is their country to endure these cruel storms that beset it from without and from within?
Of course the stranger cannot quiet their spirits. For it is true that everywhere men turn their eyes today much of the world has a truly wild and savage hue. No man, if he be truthful, can say that the specter of war is banished. Nor can he say that when men or communities are put upon their own resources they are sure of solace; nor be sure that men of diverse kinds and diverse views can live peaceably together in a time of troubles.
But we can all remind ourselves that the richness of this country was not born in the resources of the earth, though they be plentiful, but in the men that took its measure. For that reminder is everywhere in the cities, towns, farms, roads,
factories, homes, hospitals, schools that spread everywhere over that wilderness.
We can remind ourselves that for all our social discord we yet remain the longest enduring society of free men governing themselves without benefit of kings or dictators. Being so, we are the marvel and the mystery of the world, for that enduring liberty is no less a blessing than the abundance of the earth.
And we might remind ourselves also, that if those men setting out from Delftshaven had been daunted by the troubles they saw around them, then we could not this autumn be thankful for a fair land.
These editorials have appeared annually in the Wall Street Journal since 1961.
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
Web Business Review
The Desolate Wilderness
Here beginneth the chronicle of those memorable circumstances of the year 1620,as recorded by Nathaniel Morton, keeper of the records of Plymouth Colony, based on the account of William Bradford, sometime governor thereof:
So they left that goodly and pleasant city of Leyden, which had been their resting place for above eleven years, but they knew that they were pilgrims and strangers here below, and looked not much on these things, but lifted up their eyes to Heaven, their dearest country, where God hath prepared for them a city (Heb. XI, 16, and therein quieted their spirits. When they came to Delfs-Haven they found the ship and all things ready, and such of their friends as could not come with them followed after them, and sundry came from Amsterdam to see them shipt, and to take their leaves of them. One night was spent with little sleep with' the most, but with friendly entertainment and Christian discourse, and other real expressions of true Christian love.
The next day they went on board, and their friends with them, where truly doleful was the sight of that sad and mournful parting, to hear what sighs and sobs and prayers did sound amongst them; what tears did gush from every eye, and pithy speeches pierced each other's heart, that sundry of the Dutch strangers that stood on the Key as spectators could not refrain from tears. But the tide (which stays for no man) calling them away, that were thus loath to depart, their Reverend Pastor, falling down on his knees, and they all with him, with watery cheeks commended them with the most fervent prayers unto the Lord and His blessing; and then with mutual embraces and many tearsthey took their I leaves one of another, which proved to be the last leave to many of them.
Being now passed the vast ocean, and a sea of troubles before them in expectations, they had now no friends to welcome, them, no inns to entertain or refresh them, no houses, or much less towns, to repair unto tb seek for succour; and for the season it was winter, and they that know the winters of the country know them to be sharp and violent, subject to cruel and fierce storms, dangerous to travel to known places, much more to search unknown coasts. Besides, what could they see but a hideous and desolate wilderness, full of wilde beasts and wilde men? and what multitudes of them there were, they then knew not: for which way soever they turned their eyes (save upward to Heaven) they could have but little solace or content in respect of any outward object; for summer being ended, all things stand in appearance with a weatherbeaten face, and the whole country, full of woods and thickets, represented a wild and savage hew. If they looked behind them, there was a mighty ocean which they had passed, and was now as a main bar or gulph to separate them from all the civil parts of the world.
This Fair Land
Anyone whose labors take him into the far reaches of the country, as ours lately have done, is bound to mark how the years have made the land grow fruitful. This is indeed a big country, a rich country, in a way no array of figures can measure and so in a way past belief of those who have not seen it. Even those who journey through its Northeastern complex, into the Southern lands, across the central plains and to its Western slopes can only glimpse a measure of the bounty of America.
And a traveler cannot but be struck on his journey by the thought that this country, one day, can be even greater. America, though many know it not, is one of the great underdeveloped countries of the world; what it reaches for exceeds by far what it has grasped.
So the visitor returns thankful for much of what he has seen, and, in spite of everything, an optimist about what his country might be. Yet the visitor, if he is to make an honest report, must also note the air of unease that
hangs everywhere.
For the traveler, as travelers have been always, is as much questioned as questioning. And for all the abundance he sees, he finds the questions put to him ask where men may repair for succor from the troubles that beset them.
His countrymen cannot forget the savage face of war. Too often they have been asked to fight in strange and distant places, for no clear purpose they could see and for no accomplishment they can measure. Their spirits are not quieted by the thought that the good and pleasant bounty' that surrounds them can be destroyed in an instant by a single bomb. Yet they find no escape, for their survival and comfort now depend on unpredictable strangers in far off corners of the globe.
How can they turn from melancholy when at home they see young arrayed against old, black against white, neighbor against neighbor, so that they stand in peril of social discord. Or not despair when they see that the cities and countryside are in need of repair, yet find themselves threatened by scarcities of the resources that sustain their way of life. Or when, in the face of these challenges, they turn for leadership to men in high places-only to find those men as frail as any others.
So sometimes the traveler is asked whence will come their succor. What is to preserve their abundance, or even their civility? How can they pass on to their children a nation as strong and free as the one they inherited from their forefathers? How is their country to endure these cruel storms that beset it from without and from within?
Of course the stranger cannot quiet their spirits. For it is true that everywhere men turn their eyes today much of the world has a truly wild and savage hue. No man, if he be truthful, can say that the specter of war is banished. Nor can he say that when men or communities are put upon their own resources they are sure of solace; nor be sure that men of diverse kinds and diverse views can live peaceably together in a time of troubles.
But we can all remind ourselves that the richness of this country was not born in the resources of the earth, though they be plentiful, but in the men that took its measure. For that reminder is everywhere in the cities, towns, farms, roads,
factories, homes, hospitals, schools that spread everywhere over that wilderness.
We can remind ourselves that for all our social discord we yet remain the longest enduring society of free men governing themselves without benefit of kings or dictators. Being so, we are the marvel and the mystery of the world, for that enduring liberty is no less a blessing than the abundance of the earth.
And we might remind ourselves also, that if those men setting out from Delftshaven had been daunted by the troubles they saw around them, then we could not this autumn be thankful for a fair land.
These editorials have appeared annually in the Wall Street Journal since 1961.
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
Web Business Review
Tuesday, November 4, 2008
What is a 529 plan?
Saving money for college expenses is a goal I hear many young parents express, and one of the best ways to build tax deferred savings for college is the 529 plan. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.
There are two types of 529 plans: pre-paid tuition plans and college savings plans. All fifty states and the District of Columbia sponsor at least one type of 529 plan. In addition, a group of private colleges and universities sponsor a pre-paid tuition plan.
There are differences between pre-paid tuition plans and college savings plans, and each individual family needs to determine which plan may be right for their needs. Pre-paid tuition plans generally allow college savers to purchase units or credits at participating colleges and universities for future tuition and, in some cases, room and board. Most prepaid tuition plans are sponsored by state governments and have residency requirements. Many state governments guarantee investments in pre-paid tuition plans that they sponsor.
College savings plans generally permit a college saver (also called the “account holder”) to establish an account for a student (the “beneficiary”) for the purpose of paying the beneficiary’s eligible college expenses. An account holder may typically choose among several investment options for his or her contributions, which the college savings plan invests on behalf of the account holder. Investment options often include stock mutual funds, bond mutual funds, and money market funds, as well as, age-based portfolios that automatically shift toward more conservative investments as the beneficiary gets closer to college age. Withdrawals from college savings plans can generally be used at any college or university. Investments in college savings plans that invest in mutual funds are not guaranteed by state governments and are not federally insured.
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
There are two types of 529 plans: pre-paid tuition plans and college savings plans. All fifty states and the District of Columbia sponsor at least one type of 529 plan. In addition, a group of private colleges and universities sponsor a pre-paid tuition plan.
There are differences between pre-paid tuition plans and college savings plans, and each individual family needs to determine which plan may be right for their needs. Pre-paid tuition plans generally allow college savers to purchase units or credits at participating colleges and universities for future tuition and, in some cases, room and board. Most prepaid tuition plans are sponsored by state governments and have residency requirements. Many state governments guarantee investments in pre-paid tuition plans that they sponsor.
College savings plans generally permit a college saver (also called the “account holder”) to establish an account for a student (the “beneficiary”) for the purpose of paying the beneficiary’s eligible college expenses. An account holder may typically choose among several investment options for his or her contributions, which the college savings plan invests on behalf of the account holder. Investment options often include stock mutual funds, bond mutual funds, and money market funds, as well as, age-based portfolios that automatically shift toward more conservative investments as the beneficiary gets closer to college age. Withdrawals from college savings plans can generally be used at any college or university. Investments in college savings plans that invest in mutual funds are not guaranteed by state governments and are not federally insured.
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
Saturday, October 18, 2008
Jersey Benefits Advisors Newsletter Fall 2008
DOWN BUT NOT OUT! THE FINANCIAL CAPITAL OF THE WORLD HAS BEEN HUMBLED, BUT NOT DESTROYED!
Market Watch
I ended my summer newsletter with the following assessment of where our economy was heading. It was written before talk of the Emergency Economic Stabilization Act of 2008, which became law on October 3, 2008. “With all of the stresses on the US economy, confirmation of a recession could become a reality either in the second half of this year, or early in 2009. The healing process necessary to recover from the mortgage fiasco and oil shock is underway.”
There is no doubt that anger, frustration and fear are feelings that are being experienced by many of us as we’ve witnessed the deflation of the housing bubble and the subsequent credit crisis which culminated in the emergency relief plan mentioned above. It is important to understand that many economists think this period will be labeled a recession, when the dust has settled and the National Bureau of Economic Research (NBER) assesses the situation, some time in the future. Meanwhile, we are faced with the here and now and surviving this period, while planning for the recovery.
It is important to understand how we got here in order to avoid the same mistakes in the future. The initial media reaction was to blame Wall Street for this fiasco, but as events play out, it is being understood the blame can be equally placed on the shoulders of government, as well as many of the citizens of this fair land who used the equity in their homes as a bank, and stretched for outsized gains on their investments.
At the heart of the matter sit the two Government Sponsored Enterprises (GSE's) Fannie Mae and Freddie Mac. By being a GSE these companies were treated like they had the full faith and backing of the Federal Government, even though they didn't. A little history helps to understand the dilemma.
Fannie Mae was created by the government during the Great Depression to buy mortgages, which they guaranteed with the full backing of the government. In 1968, President Johnson structured Fannie Mae as a government sponsored enterprise, without the guarantee. In the 1970's, Freddie Mac was created and the two quasi public entities began buying mortgages and packaging them into securities, which were purchased by banks, investors, governments and others around the world, because of the “implicit guarantee” that if anything went wrong, the US government would back the securities. Fannie and Freddie were also encouraged by the government to increase lending for subprime mortgages in order to advance the government’s agenda for “affordable housing”.
As we all know by now, the two GSE's did fail, and while the reasons are varied, the implicit guarantee is now an explicit guarantee. Furthermore, the actions of Fannie Mae and Freddie Mac made housing more expensive, not more affordable!
The ensuing credit crunch has had a chilling effect on the stock market, which has not been very pretty this year. At the end of the third quarter, the DJIA was 10,850.7, the S&P 500 clocked in at 1,164.74 and the NASDAQ finished at 2,082.3. All of the indices are in bear market territory and down significantly for the year.
There will be some false starts and possibly some more gut-wrenching ups and downs, especially as the election bears down on us. Fortunately, all bear markets end, just as their counterparts do. Usually, when you least expect it!
Economic Outlook
Regardless of your feelings about the government rescue plan and where the fault lies, the reality of the situation is that the government has chosen to clean up a mess it helped create. The implications for the broader economy remain to be seen, but one thing is for sure, the road to recovery will be bumpy and prolonged. While it is generally believed the current crisis is not over, general consensus is that it is beyond halftime, to use a football metaphor, and possibly in the fourth quarter. I doubt very much the recovery will be instantaneous, even with the recent government actions. Look for a period of extreme volatility as we decide on a new President.
When the news is all bad, and the media paints a dire picture of the future, it is difficult to take the steps which could help you to benefit from the current financial landscape. Those of you who are investing in retirement plans or other investment accounts on a monthly basis, are picking up shares at a discount. While your account value may be down, once the market begins to rebound, the value of your account will increase rapidly, reflecting the increased number of shares you own. If you are not regularly contributing and have some available cash, the next several months should be a good time to add to your account, but I would caution against making a large investment at once.
To help you conquer investing phobia, consider this study by Psychologist Paul Slovic of the University of Oregon. In 2001 he had investors estimate the performance of their portfolio over the next 12 months and the decade to come. Only 6.7% of investors expected a zero or negative return in 2001 and only 1.3% thought they’d have no gains over the next 10 years. He asked investors the same question on September 29, 2008 and 36% of investors saw no profits for the current year and 5% predicted their portfolios would go nowhere for the full decade. Obviously, investors view of the next decade is being shaped by events of the last few days. Looking backward at where the market has been is a surefire way to ensure you will miss opportunities going forward. According to Jason Zweig, author of the Intelligent Investor column in the Wall Street Journal, “You need only two things in order to have an edge in today’s market: cash and courage”.
While the current economic situation seems challenging, the actions by the Federal Reserve and governments around the world will prevent the doomsday scenario of global depression. History will be the judge as to the severity of today’s difficulties, but lessons learned during the Great Depression indicate no government action can be catastrophic. I’ve opted to suspend consolidated statements until the year’s end, so call me to discuss quarterly statement concerns.
Protecting Your Assets In a Down Market
For those of you invested in the Transamerica and MetLife Annuities, I want to remind you about the Guaranteed Minimum Income Benefit on your account which protects the assets so your account will continue to grow in a down market. Look for the line item GMIB, Income for Life or Managed Annuity Program to ascertain this value. While the market value reflects the turmoil in the stock market, the beauty of these products is their insured value during times of market upheaval. These products help to protect your assets and are an especially good investment for retirement assets. While nobody likes to see losses in value, it is reassuring to know these products have protection against downside risk and that insurance companies must have adequate capital in reserve.
Investment Advisory Services offered through:
Jersey Benefits Advisors
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Jersey Benefits Advisors
Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
1150 S. Olive St. Suite T-25
Los Angeles, CA 90015
800-245-8250
Member FINRA & SIPC
Third Party Administration and Insurance Services offered through:
Jersey Benefits Group, Inc
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Jersey Benefits Group, Inc.
John H. Kaighn
Jersey Benefits Advisors
The Kaighn Report
Friday, October 10, 2008
Capitulation Anyone?
The events we are witnessing during this financial meltdown will definitely be considered a historic event, as the stock markets around the world unwind in a whirlwind of panic selling. The close on October 9, 2008 has the major US indices firmly in bear market territory and the market is bordering on being absurdly oversold, which usually marks the capitulation and bottom of a bear market. It would be quite ironic if this level held as the bottom, especially since the all time highs for the DJIA and S&P 500 were set a year ago to the day. At this juncture, the DJIA is 39.4% off the October 9, 2007 high, while the S&P 500 is 41.9% below its peak. As is usually the case during market downturns, the NASDAQ is now 42.5% below its high water mark, which was set on October 31, 2007.
At the time of this writing, futures are indicating a drop at the open of the US markets, while Asian and European markets are 7% - 10% lower. A large part of the selling is due to deleveraging by hedge funds and others who overextended during the credit bubble. Margin calls cause investors to come up with more cash or sell assets. It looks like asset sales are the order of the day. I'm sure there are many smaller investors who are also selling, following the herd and fueling the panic.
Just as irrational exuberance has faded and illogical pessimism has become the mantra for the day, the trepidation investors are feeling now will elapse and calm will be restored. Real damage has been done to the portfolios of millions of investors around the world, and bailing out at this point, especially if you don't need the cash today, is foolhardy at best. Besides, if the market were to drop over 50% and the government went bankrupt, which was a rumor in the trading pits yesterday, what would the cash under your mattress be worth anyway? Of course, you could always buy gold at over $900.00 dollars an ounce, because doesn't that just ALWAYS keep going up? You know, like stocks, housing, oil, commodities and of course, tulips!
John H. Kaighn
Jersey Benefits Advisors
The Kaighn Report
At the time of this writing, futures are indicating a drop at the open of the US markets, while Asian and European markets are 7% - 10% lower. A large part of the selling is due to deleveraging by hedge funds and others who overextended during the credit bubble. Margin calls cause investors to come up with more cash or sell assets. It looks like asset sales are the order of the day. I'm sure there are many smaller investors who are also selling, following the herd and fueling the panic.
Just as irrational exuberance has faded and illogical pessimism has become the mantra for the day, the trepidation investors are feeling now will elapse and calm will be restored. Real damage has been done to the portfolios of millions of investors around the world, and bailing out at this point, especially if you don't need the cash today, is foolhardy at best. Besides, if the market were to drop over 50% and the government went bankrupt, which was a rumor in the trading pits yesterday, what would the cash under your mattress be worth anyway? Of course, you could always buy gold at over $900.00 dollars an ounce, because doesn't that just ALWAYS keep going up? You know, like stocks, housing, oil, commodities and of course, tulips!
John H. Kaighn
Jersey Benefits Advisors
The Kaighn Report
Wednesday, September 24, 2008
The Rescue on Main Street
Frustration and anger are two feelings that come bubbling forth from my gut as I watch the drama unfold in regard to the rescue plan for our financial system being deliberated before my eyes. At the heart of the matter sit the two Government Sponsored Enterprises (GSE's) Fannie Mae and Freddie Mac. The utter disregard for the facts by the mainstream television and print media, Barney Frank and Christopher Dodd completely amazes me.
The implicit guarantee of government backing for mortgage securities peddled by the two GSE's, as they operated under the guise of "providing affordable housing", gave them the ability to enjoy lower interest rates on their bonds, which in turn allowed them to prevail over private companies providing mortgage backed securities. The increased leverage, lack of competition and tacit approval of their operations by politicians receiving campaign contributions through their lobbying efforts allowed their CEO, Franklin Raines, to earn over 100 million dollars, before being ousted for accounting irregularities. Now Frank and Dodd are trying to position themselves as champions of Main Street, while the financial system grinds to a halt. For a more in depth analysis of the Fannie & Freddie debacle, see the articles in the Wall Street Journal and Investors Business Daily from Tuesday, September 23, 2008.
Ben Bernancke was elevated to Federal Reserve Chairman because he was respected for his knowledge and credentials. Hank Paulson was called upon to be Treasury Secretary because of his knowledge of the financial markets. If they are this concerned about the current crisis in our financial system, I think we better stop with the politics and soberly address the situation. This is NOT a bailout of Wall Street, but rather a rescue of our financial system. If the stock market is halved again in this decade, the pain on Main Street will be devastating. We all enjoyed the rising equity in real estate from 2002 through 2006, but the sad reality is much of it was based on smoke and mirrors. Perhaps this will usher in an era of building wealth methodically through investing, rather than the get rich quick schemes of day trading, real estate flipping and other fads which have led to bubbles and busts. One could only hope!
John H. Kaighn
Jersey Benefits Advisors
The Kaighn Report
The implicit guarantee of government backing for mortgage securities peddled by the two GSE's, as they operated under the guise of "providing affordable housing", gave them the ability to enjoy lower interest rates on their bonds, which in turn allowed them to prevail over private companies providing mortgage backed securities. The increased leverage, lack of competition and tacit approval of their operations by politicians receiving campaign contributions through their lobbying efforts allowed their CEO, Franklin Raines, to earn over 100 million dollars, before being ousted for accounting irregularities. Now Frank and Dodd are trying to position themselves as champions of Main Street, while the financial system grinds to a halt. For a more in depth analysis of the Fannie & Freddie debacle, see the articles in the Wall Street Journal and Investors Business Daily from Tuesday, September 23, 2008.
Ben Bernancke was elevated to Federal Reserve Chairman because he was respected for his knowledge and credentials. Hank Paulson was called upon to be Treasury Secretary because of his knowledge of the financial markets. If they are this concerned about the current crisis in our financial system, I think we better stop with the politics and soberly address the situation. This is NOT a bailout of Wall Street, but rather a rescue of our financial system. If the stock market is halved again in this decade, the pain on Main Street will be devastating. We all enjoyed the rising equity in real estate from 2002 through 2006, but the sad reality is much of it was based on smoke and mirrors. Perhaps this will usher in an era of building wealth methodically through investing, rather than the get rich quick schemes of day trading, real estate flipping and other fads which have led to bubbles and busts. One could only hope!
John H. Kaighn
Jersey Benefits Advisors
The Kaighn Report
Wednesday, September 17, 2008
Resolution Trust Corporation Redux?
Perhaps with the government loan guarantees for the orderly liquidation of AIG, it might be time to establish an entity similar to the Resolution Trust Corporation, which was charged with the orderly liquidation and auction of assets of failed savings & loans back in 1989. While the government could actually make money on the deal it crafted with AIG, the establishment of an entity, such as the RTC, might make any further bankruptcies of banks, investment banks or insurance companies more routine, and eliminate the sensational reporting of these various crises when entities deemed "too large to fail" begin to falter. The current financial difficulties we are now experiencing are not without precedent, and the irresponsible references to current events being similar to the Great Depression are simply unacceptable.
While I realize Mr. Obama is running for President, he should be using his position to reassure the public that the economy is indeed sound and able to deal with situations, such as the ones we've been watching play out for over a year now. The Federal Reserve made policy errors, failed to increase the money supply, and failed to coordinate the orderly liquidation of assets during the Great Depression. The unemployment rate was a staggering 25%, not 6% as it is currently, and the stock market had lost MOST of its value during the market meltdown prior to the Great Depression, not 4% as happened with the "historic" 504 point decline on Monday. In fact, the 508 point decline in 1987 represented a 22.6% market crash, so we must use perspective when discussing the current situation.
Finally, in reference to the AIG situation, it is important to relay to the public that while the insurer is one of the largest insurance companies in the world and deemed too large to fail, the policy holders are NOT in jeopardy. With the loan guarantees, AIG's insurance businesses will be auctioned off to other insurance companies, who know it is in their best interest to be sure those policies are made whole. Insurance companies are also regulated by state insurance commissions which also back the explicit guarantees in insurance policies. An economy, in conjunction with the government, that can react to these situations and have the ability to craft deals that protect account holders and policy holders, but doesn't reward CEO's and common shareholders, is one that is fundamentally sound. Grandstanding and pointing fingers doesn't solve the problem.
The Congress, if gets off its duff and adopts a credible energy policy utilizing all of our resources to break our dependence on foreign oil, could go a long way toward STIMULATING a sound but faltering economy. Leadership will be key as we go forward. This is no time for our leaders to be crying wolf to get elected. A clear and level headed response to the economic challenges we face is paramount to reforming the weaknesses in our system.
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
While I realize Mr. Obama is running for President, he should be using his position to reassure the public that the economy is indeed sound and able to deal with situations, such as the ones we've been watching play out for over a year now. The Federal Reserve made policy errors, failed to increase the money supply, and failed to coordinate the orderly liquidation of assets during the Great Depression. The unemployment rate was a staggering 25%, not 6% as it is currently, and the stock market had lost MOST of its value during the market meltdown prior to the Great Depression, not 4% as happened with the "historic" 504 point decline on Monday. In fact, the 508 point decline in 1987 represented a 22.6% market crash, so we must use perspective when discussing the current situation.
Finally, in reference to the AIG situation, it is important to relay to the public that while the insurer is one of the largest insurance companies in the world and deemed too large to fail, the policy holders are NOT in jeopardy. With the loan guarantees, AIG's insurance businesses will be auctioned off to other insurance companies, who know it is in their best interest to be sure those policies are made whole. Insurance companies are also regulated by state insurance commissions which also back the explicit guarantees in insurance policies. An economy, in conjunction with the government, that can react to these situations and have the ability to craft deals that protect account holders and policy holders, but doesn't reward CEO's and common shareholders, is one that is fundamentally sound. Grandstanding and pointing fingers doesn't solve the problem.
The Congress, if gets off its duff and adopts a credible energy policy utilizing all of our resources to break our dependence on foreign oil, could go a long way toward STIMULATING a sound but faltering economy. Leadership will be key as we go forward. This is no time for our leaders to be crying wolf to get elected. A clear and level headed response to the economic challenges we face is paramount to reforming the weaknesses in our system.
John Kaighn
Jersey Benefits Advisors
The Kaighn Report
Thursday, September 11, 2008
Fannie Mae and Freddie Mac RIP
The Government Sponsored Entities (GSE) known as Fannie Mae and Freddie Mac succummed to the credit crisis and were taken over by the US government, which brings to a close their checkered history as a failed government experiment. While the Bush administration will shoulder the criticism for propping up private companies and serving the interests of the rich, this is simply not the reality of the situation. Unfortunately, many in this administration, as well as previous administrations and Congresses voiced their concerns about the "implicit" government backing these companies enjoyed, but to no avail.
By being a GSE these companies operated as if they had the full faith and backing of the Federal Government, even though they didn't, because they were quasi public companies. A little history helps to understand the dilemma. Fannie Mae was created by the government during the Great Depression to buy mortgages, which they guaranteed with the full backing of the government. In 1968, President Johnson created the current structure of Fannie Mae, but without the guarantee. In the 1970's, Freddie Mac was created and the two quasi public entities began buying mortgages and packaging them into securities, which were purchased by banks, investors, governments and others around the world, because of the implicit guarantee that if anything went wrong, the US government would back the securities.
As we all know by now, the two GSE's did fail, and while the reasons are varied, the implicit guarantee is now an explicit guarantee. The strategy of the government should be to shrink them and eventually let them become a relic of a failed business model. The best way to back mortgage securities is by a fully capitalized private entity with enough capital to guarantee the mortgages and mortgage backed securities it has underwritten. Ultimately an expensive lesson has been learned, hopefully! You can't write mortgages for people who don't have the ability to pay them, and the bank that underwrites a mortgage must have a stake in the security that ultimately buys the mortgage. It sounds so simple!
On this 7th anniversary of the horrendous attacks on our country by Islamic terrorists, I just want to let the families of those who lost their lives know there are some people in this country who have not forgotten. May you find peace!
John Kaighn
The Kaighn Report
Jersey Benefits Advisors
By being a GSE these companies operated as if they had the full faith and backing of the Federal Government, even though they didn't, because they were quasi public companies. A little history helps to understand the dilemma. Fannie Mae was created by the government during the Great Depression to buy mortgages, which they guaranteed with the full backing of the government. In 1968, President Johnson created the current structure of Fannie Mae, but without the guarantee. In the 1970's, Freddie Mac was created and the two quasi public entities began buying mortgages and packaging them into securities, which were purchased by banks, investors, governments and others around the world, because of the implicit guarantee that if anything went wrong, the US government would back the securities.
As we all know by now, the two GSE's did fail, and while the reasons are varied, the implicit guarantee is now an explicit guarantee. The strategy of the government should be to shrink them and eventually let them become a relic of a failed business model. The best way to back mortgage securities is by a fully capitalized private entity with enough capital to guarantee the mortgages and mortgage backed securities it has underwritten. Ultimately an expensive lesson has been learned, hopefully! You can't write mortgages for people who don't have the ability to pay them, and the bank that underwrites a mortgage must have a stake in the security that ultimately buys the mortgage. It sounds so simple!
On this 7th anniversary of the horrendous attacks on our country by Islamic terrorists, I just want to let the families of those who lost their lives know there are some people in this country who have not forgotten. May you find peace!
John Kaighn
The Kaighn Report
Jersey Benefits Advisors
Friday, August 29, 2008
How Would You Feel If You Were Hillary?
While Hillary Clinton must be crying in her beer at the thought of Sarah Palin receiving her consolation prize, and having the opportunity to be the first woman to break the glass ceiling and actually become the first Vice President of the US, Obama wrestles with the links to his radical past, the most damning being the unrepentant terrorist of the Weather Underground, the infamous William Ayers. The recently concluded Democratic National Convention painted America as a country whose glass is half empty, the usual liberal, excuse me, Progressive viewpoint of our nation. The Clintons, for their part, endorsed Obama's nomination, but it was most definitely a half-hearted backing, as Hillary eyes the ticket for 2012.
Meanwhile, the economy posted a 2nd Quarter GDP of 3.3%, hardly recessionary. While the housing and financial sectors are a drag on economic growth, exports and a weaker dollar added significantly to the GDP expansion. While oil and other commodities are still high, their recent selloff has definitely had a positive effect on the inflation outlook. While the National Bureau of Economic Research (NBER) defines a recession more broadly than two consecutive quarters of negative GDP growth, by using the definition of "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales, by either definition, the economy is not in recession at this point.
The markets have been trading in a several hundred point range for most of the year since they originally tanked in January. It remains to be seen if the economy can sustain the growth of the second quarter without the benefit of government stimulus. As the summer draws to a close and the election is in our face, the remainder of the third quarter and the fourth quarter are shaping up to be as volatile, if not more volatile than the last 8 months have been. Unemployment is expected to remain at 5.7%, the commodity bubble has popped, inflation is easing, the credit crunch and housing fiasco remain a drag, and we have a Presidential election for entertainment. What's not to like?
John Kaighn
Jersey Benefits Advisors
Meanwhile, the economy posted a 2nd Quarter GDP of 3.3%, hardly recessionary. While the housing and financial sectors are a drag on economic growth, exports and a weaker dollar added significantly to the GDP expansion. While oil and other commodities are still high, their recent selloff has definitely had a positive effect on the inflation outlook. While the National Bureau of Economic Research (NBER) defines a recession more broadly than two consecutive quarters of negative GDP growth, by using the definition of "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales, by either definition, the economy is not in recession at this point.
The markets have been trading in a several hundred point range for most of the year since they originally tanked in January. It remains to be seen if the economy can sustain the growth of the second quarter without the benefit of government stimulus. As the summer draws to a close and the election is in our face, the remainder of the third quarter and the fourth quarter are shaping up to be as volatile, if not more volatile than the last 8 months have been. Unemployment is expected to remain at 5.7%, the commodity bubble has popped, inflation is easing, the credit crunch and housing fiasco remain a drag, and we have a Presidential election for entertainment. What's not to like?
John Kaighn
Jersey Benefits Advisors
Wednesday, July 9, 2008
Jersey Benefits Advisors Newsletter Summer 2008
Market Watch
The chorus of troubling economic news continued to chip away at investor confidence with June being particularly brutal, and as the 2nd quarter of 2008 ended, the Dow Jones Industrial Average teetered on the brink of “officially” being in bear market territory. Of course by the conclusion of the 4th of July holiday, all of the stock market indices had succumbed to the dreaded 20% decline threshold, and there was no doubt the bear market was upon us. One might be tempted to ask what a good strategy might be to avoid being battered by a bear market. I would have to respond by saying the best strategy is to ride it out, prudently invest in as many sectors of the economy as you can, and enjoy the next recovery when it comes.
Nobody can predict with certainty when a bear market will begin and when it will end. Missing just a few days of being fully invested, when the market recovers, can do serious damage to your portfolio. In a study by Invesco Aim from December 31, 1997 to December 31, 2007 if an investor was fully invested in a fund that mirrored the S&P 500, the average annual total return was 5.8%, even though there was a bear market from March of 2000 through October of 2002. If an investor missed the best 10days by trying to time the market, the average annual return dropped to 1.02% per year. By missing the best 20 days, the average annual total return was –2.64%. If the investor missed the best 60 days, the average annual total return fell to –12.82%. The market rarely trumpets the next 300 point gain, so stay invested and dollar cost average.
If there is any positive spin I can offer to help ride out this rough patch in the market, it is to relay some research on bear markets by Bespoke Investment Group. They conducted a study of bear markets since 1940, and they found that the average bear market for the S&P 500 produced a decline of 30.4%. The length of the average bear market during that period was 386 days, and by the time the 20% decline threshold was reached, the bear market was 74% completed. While nobody enjoys a bear market, except the bears, it is somewhat reassuring to know that by the time you can confirm the fact that the bear market is official, it is almost over. The hindsight is much like officially designating a recession.
It is important to note at this juncture, by strict definition, we have not confirmed the economy is in recession. The first quarter GDP was revised to indicate the economy was growing at 1%. Unfortunately, this is not sufficient to support job growth and the unemployment rate has crept up to 5.5%. Along with slow economic growth, inflation has begun to rear its ugly head, so the Fed held interest rates at 2% in June, and indicated their concern about increased inflation in the minutes of the FOMC meeting.
The European Central Bank, citing inflation concerns in commodities, raised rates by 1/4 point, but indicated it was only a one time deal at this juncture. Of course nobody needs to hear much about the run up in oil prices, because we are confronted by it every time we fill up. Suffice it to say speculation, supply and demand, as well as the Olympics are all playing a part. Congress is trying to do something. God help us!
Here are the year to date numbers for the indices as of 6/30/08. The DJIA closed at 11,350.01 off 14.4%. The S&P 500 closed at 1,280 down 12.8% and the NASDAQ finished the first half of the year at 2,292.98 which is down 12.9%. Let the 2nd half begin.
ECONOMIC OUTLOOK
As I previously mentioned the economy continues to limp along with meager GDP growth, but not enough to generate a sufficient number of jobs for everyone choosing to work. The effect of historically high oil prices continues to add inflationary pressure to the prices of other goods, especially in the area of food products, which rely on the use of energy to produce and transport them to market. Low interest rates make the dollar unattractive for investors who have been flocking to commodities to improve returns. This in turn has also added to the advance in oil prices.
As the credit markets continue to remain tight, consumers cut back on driving and other discretionary spending, and China as well as the other emerging markets feel the pinch of reduced demand for their products, there will be a further slowdown economically in this country as well in other parts of the world. Already the economies of the US and the European Union are exhibiting extreme signs of weakness. When the Olympics are finished this August, look for diminished economic activity in China, as a great deal of the demand for oil and other commodities has been to improve infrastructure and air quality during their day in the spotlight.
With all of the stresses on the US economy, confirmation of a recession could become a reality either in the second half of this year, or early in 2009. The healing process necessary to recover from the mortgage fiasco and oil shock is underway.
Hydrogen Electric Prototype By Honda
For anyone who may have missed a review published in late November of 2007, I wanted to mention the Honda FCX Clarity, a vehicle which will be leased in Los Angeles and other select markets next summer. What makes this car unique is the fact that it is propelled by hydrogen and electric power. Vehicles that use hydrogen with fuel cell technology instead of gasoline are the cleanest technology, because they emit only water vapor into the air we breathe. These cars simply do not pollute. They can also use hydrogen from domestic energy sources, reducing our dependence on oil. While the economic viability of this prototype vehicle is still in question, this technology could be one of the answers to truly breaking the grip foreign oil has on our economy. Perhaps we’re ready this time.
John H. Kaighn
Jersey Benefits Advisors
The chorus of troubling economic news continued to chip away at investor confidence with June being particularly brutal, and as the 2nd quarter of 2008 ended, the Dow Jones Industrial Average teetered on the brink of “officially” being in bear market territory. Of course by the conclusion of the 4th of July holiday, all of the stock market indices had succumbed to the dreaded 20% decline threshold, and there was no doubt the bear market was upon us. One might be tempted to ask what a good strategy might be to avoid being battered by a bear market. I would have to respond by saying the best strategy is to ride it out, prudently invest in as many sectors of the economy as you can, and enjoy the next recovery when it comes.
Nobody can predict with certainty when a bear market will begin and when it will end. Missing just a few days of being fully invested, when the market recovers, can do serious damage to your portfolio. In a study by Invesco Aim from December 31, 1997 to December 31, 2007 if an investor was fully invested in a fund that mirrored the S&P 500, the average annual total return was 5.8%, even though there was a bear market from March of 2000 through October of 2002. If an investor missed the best 10days by trying to time the market, the average annual return dropped to 1.02% per year. By missing the best 20 days, the average annual total return was –2.64%. If the investor missed the best 60 days, the average annual total return fell to –12.82%. The market rarely trumpets the next 300 point gain, so stay invested and dollar cost average.
If there is any positive spin I can offer to help ride out this rough patch in the market, it is to relay some research on bear markets by Bespoke Investment Group. They conducted a study of bear markets since 1940, and they found that the average bear market for the S&P 500 produced a decline of 30.4%. The length of the average bear market during that period was 386 days, and by the time the 20% decline threshold was reached, the bear market was 74% completed. While nobody enjoys a bear market, except the bears, it is somewhat reassuring to know that by the time you can confirm the fact that the bear market is official, it is almost over. The hindsight is much like officially designating a recession.
It is important to note at this juncture, by strict definition, we have not confirmed the economy is in recession. The first quarter GDP was revised to indicate the economy was growing at 1%. Unfortunately, this is not sufficient to support job growth and the unemployment rate has crept up to 5.5%. Along with slow economic growth, inflation has begun to rear its ugly head, so the Fed held interest rates at 2% in June, and indicated their concern about increased inflation in the minutes of the FOMC meeting.
The European Central Bank, citing inflation concerns in commodities, raised rates by 1/4 point, but indicated it was only a one time deal at this juncture. Of course nobody needs to hear much about the run up in oil prices, because we are confronted by it every time we fill up. Suffice it to say speculation, supply and demand, as well as the Olympics are all playing a part. Congress is trying to do something. God help us!
Here are the year to date numbers for the indices as of 6/30/08. The DJIA closed at 11,350.01 off 14.4%. The S&P 500 closed at 1,280 down 12.8% and the NASDAQ finished the first half of the year at 2,292.98 which is down 12.9%. Let the 2nd half begin.
ECONOMIC OUTLOOK
As I previously mentioned the economy continues to limp along with meager GDP growth, but not enough to generate a sufficient number of jobs for everyone choosing to work. The effect of historically high oil prices continues to add inflationary pressure to the prices of other goods, especially in the area of food products, which rely on the use of energy to produce and transport them to market. Low interest rates make the dollar unattractive for investors who have been flocking to commodities to improve returns. This in turn has also added to the advance in oil prices.
As the credit markets continue to remain tight, consumers cut back on driving and other discretionary spending, and China as well as the other emerging markets feel the pinch of reduced demand for their products, there will be a further slowdown economically in this country as well in other parts of the world. Already the economies of the US and the European Union are exhibiting extreme signs of weakness. When the Olympics are finished this August, look for diminished economic activity in China, as a great deal of the demand for oil and other commodities has been to improve infrastructure and air quality during their day in the spotlight.
With all of the stresses on the US economy, confirmation of a recession could become a reality either in the second half of this year, or early in 2009. The healing process necessary to recover from the mortgage fiasco and oil shock is underway.
Hydrogen Electric Prototype By Honda
For anyone who may have missed a review published in late November of 2007, I wanted to mention the Honda FCX Clarity, a vehicle which will be leased in Los Angeles and other select markets next summer. What makes this car unique is the fact that it is propelled by hydrogen and electric power. Vehicles that use hydrogen with fuel cell technology instead of gasoline are the cleanest technology, because they emit only water vapor into the air we breathe. These cars simply do not pollute. They can also use hydrogen from domestic energy sources, reducing our dependence on oil. While the economic viability of this prototype vehicle is still in question, this technology could be one of the answers to truly breaking the grip foreign oil has on our economy. Perhaps we’re ready this time.
John H. Kaighn
Jersey Benefits Advisors
Monday, June 23, 2008
Stock Market Comeback Faces Triple Threat
It never seems to fail, but just as we get ready for quarterly account updates, the stock market decides to test it's lows for the year. While the market has technically avoided a bear market, and the economy has thus far avoided recession, the headwinds continue to mount. With the Presidential Election looming in the fall, this looks to be a summer of rhetoric and empty promises.
There are several solutions to the current mess we face concerning crude oil and energy. The Congress MUST override all environmental litigation and allow full scale drilling in ANWR and off the coasts. Full scale development of alternative energy sources is crucial, like the steps Honda has taken with their hydrogen/electric hybrid. Coal and nuclear energy sources must be utilized immediately, regardless of initial environmental impact. These steps would dampen speculation, even though this increased domestic energy production would not enter the market immediately, because much of the run up in oil prices is being driven by the same type of speculation that drove the dotcom bubble and the housing bubble. It is purely a perception of a lack of supply. Any chance the Congress has the nerve to take these steps? When you look at history, this was exactly the "nerve" which led to the development of the Alaskan Oil Pipeline. Had we only been serious about alternative energy solutions back in the late 70's and early 80's instead of conspicuous consumption!
Meanwhile, here is a reprint of a Marketwatch article on the threats facing the market a week before the end of the second quarter.
By Kate Gibson, MarketWatchLast Update: 6:00 AM ET Jun 21, 2008
NEW YORK (MarketWatch) -- U.S. stocks on Monday will attempt to recover from some hefty losses, but any comeback will likely be contingent on three factors: the price of crude oil, any hints of inflation, and developments in the troubled financial sector.
"Obviously this market is in lockstep with three things, the most important of which is the price of a barrel of oil," said Art Hogan, chief market strategist at Jefferies & Co.
On Friday, stocks sank as crude-oil futures gained, a trend that played throughout the week, as the weaker U.S. dollar added to the allure of oil and other commodities as a currency hedge. And, more trouble in the financial sector compounded market anxiety.
The Dow Jones Industrial Average ended at 11,842.69, off 220.4 points, or 1.8%, for the session. It lost about 465, or 3.8%, on the week.
Friday's finish marked the Dow's lowest close since March 10, when it settled at 11,740.15.
"Stocks finished a week that is best forgotten, and the Dow now finds itself flirting dangerously close with the pivotal 11,750 area," said Jon Nadler, senior analyst at Kitco Bullion Dealers.
And, while investors fretted about the impact of rising energy costs on the already soft economy, the credit crisis and its ongoing impact on the troubled banking sector last week continued unabated.
"We had a plethora of brokers talking about them, from the money centers to the regionals, and none of them were positive," said Hogan.
Merrill Lynch on Friday warned of investor capitulation on the regional banking sector, with analysts envisioning further dividend cuts as likely to be on the horizon. The broker cut its median earnings estimate for regional banks for 2008 by 15%, with J.P. Morgan analysts chiming in a prediction of further efforts to replenish reserves in the sector. .
"Merrill sees investors effectively throwing in the proverbial towel when it comes to bank stocks. With capitulation come buying opportunities, normally. A normal year 2008 has not been thus far," said Nadler.
Of the Dow's 30 components, 29 posted losses, with blue-chip financials among the hardest hit. Citigroup Inc. fell 4.3%, American Express Co. fell 3.4% and American International Group Inc. declined 3%.
The S&P 500 fell 24.9 points, or 1.9%, to 1,317.93, with all 10 of the index's industry groups posting declines, led by consumer discretionary, off 3.1%.
The S&P closed with a weekly loss of 3.1%.
Midway between its March low of 1,273 and May high of 1,426, the S&P appears headed back down toward its lows of three months ago, "as investors lose confidence that an economic recovery is just around the corner," said Kenneth Tower, chief market strategist at Covered Bridge Tactical LLC.
The Nasdaq Composite Index dropped 55.97 points, or 2.3%, to close at 2,406.09, giving the technology-laden index a loss of 3.1% for the week.
Bonded
As stocks sank, bond prices climbed, with the yield on the benchmark 10-year note, which moves in reverse of its price, falling to 4.16%.
The U.S. dollar declined against most currency rivals, while the price of gold climbed. .
And, with the price of crude already on the rise, the climb was further fueled by a published report of an Israeli dry run of an attack on Iranian nuclear facilities.
Crude for July delivery climbed $2.69 to end at $134.62 a barrel on the New York Mercantile Exchange, while uncertainty ahead of a meeting of oil producers and consumers this weekend in Saudi Arabia and China's hike in fuel prices helped push prices down 0.2% for the week.
In addition to energy concerns, next week brings a slew of reports that could shed further light on whether other costs are climbing as well.
"We will also be scouring the economic data calendar for signs of inflation," said Hogan.
The economic docket looks to be a busy one, particularly in regards to the ailing housing sector. Analysts expect the S&P/Case-Shiller Home Price Index will fall to 168.8 in April from 172.2 in March, with the report slated to be released Tuesday.
The second day of the week also brings June consumer confidence, which is projected to weigh in at a 16-year low.
On Wednesday, investors will receive durable goods in May, with the data expected to show a 1.0% rebound, along with an expected small hike in May new home sales, which are projected to rise to 530,000.
Thursday brings final first-quarter GDP, which analysts expect to be revised up to 1.2% from an initial 0.9%, along with initial jobless claims and existing home sales for May.
The May personal income report is due on Friday, along with a measure of consumer sentiment.
Added to the mix is the Federal Open Market Committee, or FOMC, which on Tuesday begins a two-day meeting, with Federal Reserve Chairman Ben Bernanke and his colleagues widely expected to step up talk about the risks of inflation, while not hiking benchmark lending rates from the current 2%.
"Fed projections on economy and inflation are also likely to be revised higher, laying the groundwork for a hike or two this fall," wrote analysts at Action Economics.
With any luck, the Saudi's will decide to add a bit more crude to the market as they conclude the oil summit held this weekend. However, even with facing strong U.S. pressure and global dismay over oil prices, Saudi Arabia could only say on Sunday it will produce more crude this year if the market needs it. Unfortunately, the vague pledge fell far short of U.S. hopes for a specific increase and may do little to lower prices immediately. For now, the current "oil shock" leaves Western countries with little choice but to move toward nuclear power and change their energy consumption habits, Britain's prime minister warned at a rare meeting of oil producing and consuming nations.
John Kaighn
Jersey Benefits Advisors
There are several solutions to the current mess we face concerning crude oil and energy. The Congress MUST override all environmental litigation and allow full scale drilling in ANWR and off the coasts. Full scale development of alternative energy sources is crucial, like the steps Honda has taken with their hydrogen/electric hybrid. Coal and nuclear energy sources must be utilized immediately, regardless of initial environmental impact. These steps would dampen speculation, even though this increased domestic energy production would not enter the market immediately, because much of the run up in oil prices is being driven by the same type of speculation that drove the dotcom bubble and the housing bubble. It is purely a perception of a lack of supply. Any chance the Congress has the nerve to take these steps? When you look at history, this was exactly the "nerve" which led to the development of the Alaskan Oil Pipeline. Had we only been serious about alternative energy solutions back in the late 70's and early 80's instead of conspicuous consumption!
Meanwhile, here is a reprint of a Marketwatch article on the threats facing the market a week before the end of the second quarter.
By Kate Gibson, MarketWatchLast Update: 6:00 AM ET Jun 21, 2008
NEW YORK (MarketWatch) -- U.S. stocks on Monday will attempt to recover from some hefty losses, but any comeback will likely be contingent on three factors: the price of crude oil, any hints of inflation, and developments in the troubled financial sector.
"Obviously this market is in lockstep with three things, the most important of which is the price of a barrel of oil," said Art Hogan, chief market strategist at Jefferies & Co.
On Friday, stocks sank as crude-oil futures gained, a trend that played throughout the week, as the weaker U.S. dollar added to the allure of oil and other commodities as a currency hedge. And, more trouble in the financial sector compounded market anxiety.
The Dow Jones Industrial Average ended at 11,842.69, off 220.4 points, or 1.8%, for the session. It lost about 465, or 3.8%, on the week.
Friday's finish marked the Dow's lowest close since March 10, when it settled at 11,740.15.
"Stocks finished a week that is best forgotten, and the Dow now finds itself flirting dangerously close with the pivotal 11,750 area," said Jon Nadler, senior analyst at Kitco Bullion Dealers.
And, while investors fretted about the impact of rising energy costs on the already soft economy, the credit crisis and its ongoing impact on the troubled banking sector last week continued unabated.
"We had a plethora of brokers talking about them, from the money centers to the regionals, and none of them were positive," said Hogan.
Merrill Lynch on Friday warned of investor capitulation on the regional banking sector, with analysts envisioning further dividend cuts as likely to be on the horizon. The broker cut its median earnings estimate for regional banks for 2008 by 15%, with J.P. Morgan analysts chiming in a prediction of further efforts to replenish reserves in the sector. .
"Merrill sees investors effectively throwing in the proverbial towel when it comes to bank stocks. With capitulation come buying opportunities, normally. A normal year 2008 has not been thus far," said Nadler.
Of the Dow's 30 components, 29 posted losses, with blue-chip financials among the hardest hit. Citigroup Inc. fell 4.3%, American Express Co. fell 3.4% and American International Group Inc. declined 3%.
The S&P 500 fell 24.9 points, or 1.9%, to 1,317.93, with all 10 of the index's industry groups posting declines, led by consumer discretionary, off 3.1%.
The S&P closed with a weekly loss of 3.1%.
Midway between its March low of 1,273 and May high of 1,426, the S&P appears headed back down toward its lows of three months ago, "as investors lose confidence that an economic recovery is just around the corner," said Kenneth Tower, chief market strategist at Covered Bridge Tactical LLC.
The Nasdaq Composite Index dropped 55.97 points, or 2.3%, to close at 2,406.09, giving the technology-laden index a loss of 3.1% for the week.
Bonded
As stocks sank, bond prices climbed, with the yield on the benchmark 10-year note, which moves in reverse of its price, falling to 4.16%.
The U.S. dollar declined against most currency rivals, while the price of gold climbed. .
And, with the price of crude already on the rise, the climb was further fueled by a published report of an Israeli dry run of an attack on Iranian nuclear facilities.
Crude for July delivery climbed $2.69 to end at $134.62 a barrel on the New York Mercantile Exchange, while uncertainty ahead of a meeting of oil producers and consumers this weekend in Saudi Arabia and China's hike in fuel prices helped push prices down 0.2% for the week.
In addition to energy concerns, next week brings a slew of reports that could shed further light on whether other costs are climbing as well.
"We will also be scouring the economic data calendar for signs of inflation," said Hogan.
The economic docket looks to be a busy one, particularly in regards to the ailing housing sector. Analysts expect the S&P/Case-Shiller Home Price Index will fall to 168.8 in April from 172.2 in March, with the report slated to be released Tuesday.
The second day of the week also brings June consumer confidence, which is projected to weigh in at a 16-year low.
On Wednesday, investors will receive durable goods in May, with the data expected to show a 1.0% rebound, along with an expected small hike in May new home sales, which are projected to rise to 530,000.
Thursday brings final first-quarter GDP, which analysts expect to be revised up to 1.2% from an initial 0.9%, along with initial jobless claims and existing home sales for May.
The May personal income report is due on Friday, along with a measure of consumer sentiment.
Added to the mix is the Federal Open Market Committee, or FOMC, which on Tuesday begins a two-day meeting, with Federal Reserve Chairman Ben Bernanke and his colleagues widely expected to step up talk about the risks of inflation, while not hiking benchmark lending rates from the current 2%.
"Fed projections on economy and inflation are also likely to be revised higher, laying the groundwork for a hike or two this fall," wrote analysts at Action Economics.
With any luck, the Saudi's will decide to add a bit more crude to the market as they conclude the oil summit held this weekend. However, even with facing strong U.S. pressure and global dismay over oil prices, Saudi Arabia could only say on Sunday it will produce more crude this year if the market needs it. Unfortunately, the vague pledge fell far short of U.S. hopes for a specific increase and may do little to lower prices immediately. For now, the current "oil shock" leaves Western countries with little choice but to move toward nuclear power and change their energy consumption habits, Britain's prime minister warned at a rare meeting of oil producing and consuming nations.
John Kaighn
Jersey Benefits Advisors
Monday, June 2, 2008
Crude Oil Prices Continue To Buckle
As a follow up to my blog last week, it is interesting to see oil dropped below $126 a barrel due to fear that prices are cutting into demand and concerns about a probe into futures trading by a U.S. regulator. Light, sweet crude for July delivery was down $1.81 to $125.54 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. On Friday, the contract settled at $127.35 a barrel, up 73 cents after dipping below $125 and then rebounding. July Brent crude futures fell $1.27 to $126.51 a barrel on the ICE Futures exchange in London.
In the U.S., which has just started its summer driving season, there is a real concern about record high fuel and energy prices. This has helped to bring oil down from the $135.09 a barrel trading record hit May 22. Data from the U.S. Energy Department and Federal Highway Administration and several surveys in recent days suggest American consumers are driving less.
The decision by some countries in Asia, like Indonesia and Taiwan, to lower subsidies on oil products, also was seen as having a bearish effect on the market. Additional selling pressure came with last week's announcement from the Commodity Futures Trading Commission about an investigation into possible price manipulation in oil futures markets. The commission also announced new rules designed to increase transparency of U.S. and international energy futures markets.
"There are more concerns on the high pricing we have seen, that it will have a negative impact on demand, and the fact that the CFTC is expanding its investigation of manipulation in the oil markets," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "The seesaw we've seen in the last few days is an indication that the oil market may have peaked," Shum said. "Having said that ... the reality is that even though we have crude off the peak of $135 there are still supply-side issues going forward," he said. "The hurricane season is certainly one factor to contend with."
Tropical Storm Arthur formed Saturday afternoon, one day before the official start of the 2008 Atlantic Hurricane season, and though it caused the temporary closure of two of Mexico's oil export ports, it wasn't expected to cause any severe disruptions to oil shipments. On Sunday, the storm weakened to a tropical depression. "Tropical storm Arthur, the first of this season, gave more support to the market," said a research note by JBC Energy in Vienna, Austria.
Investors also had other supply worries on their mind. On a trip to the Mideast over the weekend, U.S. Treasury Secretary Henry Paulson said there is "no quick fix" to high oil prices because it is an issue of supply and demand. He was on the trip to deliver a message to officials of Saudi Arabia and other oil-producing nations that soaring oil prices are putting a burden on the global economy.
Global demand remains strong while "production capacity has not seen new development," Paulson said Sunday in Qatar. His trip was designed to urge Mideast producers to allow more outside investment to boost output. The day before, though, the current president of the Organization of Petroleum Exporting Countries again blamed the weak U.S. dollar, speculation and the subprime crisis for the spiraling price of oil. Algerian Energy Minister Chakib Khelil said the cartel will make no new decision on production levels until its Sept. 9 meeting in Vienna. He said oil's record prices do not reflect markets conditions, an oft-repeated OPEC position.
As you can see from the various points made here, most of the blame for high energy prices is being blamed on the weakened dollar and global demand. If global demand falters as it has in the US, the resulting supply increase could be just the stimulus to send oil prices tumbling. This would also result in a strengthened dollar against global currencies, which is probably the most important factor necessary to bring relief from high oil prices. Unfortunately, any supply disruptions will bring the oil bulls out in force.
John Kaighn
Jersey Benefits Advisors
Web Business Review
In the U.S., which has just started its summer driving season, there is a real concern about record high fuel and energy prices. This has helped to bring oil down from the $135.09 a barrel trading record hit May 22. Data from the U.S. Energy Department and Federal Highway Administration and several surveys in recent days suggest American consumers are driving less.
The decision by some countries in Asia, like Indonesia and Taiwan, to lower subsidies on oil products, also was seen as having a bearish effect on the market. Additional selling pressure came with last week's announcement from the Commodity Futures Trading Commission about an investigation into possible price manipulation in oil futures markets. The commission also announced new rules designed to increase transparency of U.S. and international energy futures markets.
"There are more concerns on the high pricing we have seen, that it will have a negative impact on demand, and the fact that the CFTC is expanding its investigation of manipulation in the oil markets," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "The seesaw we've seen in the last few days is an indication that the oil market may have peaked," Shum said. "Having said that ... the reality is that even though we have crude off the peak of $135 there are still supply-side issues going forward," he said. "The hurricane season is certainly one factor to contend with."
Tropical Storm Arthur formed Saturday afternoon, one day before the official start of the 2008 Atlantic Hurricane season, and though it caused the temporary closure of two of Mexico's oil export ports, it wasn't expected to cause any severe disruptions to oil shipments. On Sunday, the storm weakened to a tropical depression. "Tropical storm Arthur, the first of this season, gave more support to the market," said a research note by JBC Energy in Vienna, Austria.
Investors also had other supply worries on their mind. On a trip to the Mideast over the weekend, U.S. Treasury Secretary Henry Paulson said there is "no quick fix" to high oil prices because it is an issue of supply and demand. He was on the trip to deliver a message to officials of Saudi Arabia and other oil-producing nations that soaring oil prices are putting a burden on the global economy.
Global demand remains strong while "production capacity has not seen new development," Paulson said Sunday in Qatar. His trip was designed to urge Mideast producers to allow more outside investment to boost output. The day before, though, the current president of the Organization of Petroleum Exporting Countries again blamed the weak U.S. dollar, speculation and the subprime crisis for the spiraling price of oil. Algerian Energy Minister Chakib Khelil said the cartel will make no new decision on production levels until its Sept. 9 meeting in Vienna. He said oil's record prices do not reflect markets conditions, an oft-repeated OPEC position.
As you can see from the various points made here, most of the blame for high energy prices is being blamed on the weakened dollar and global demand. If global demand falters as it has in the US, the resulting supply increase could be just the stimulus to send oil prices tumbling. This would also result in a strengthened dollar against global currencies, which is probably the most important factor necessary to bring relief from high oil prices. Unfortunately, any supply disruptions will bring the oil bulls out in force.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Thursday, May 29, 2008
The Chicken Or The Egg
Oil continues to dominate the headlines, as recent price spikes followed by a $10.00 per barrel decline from its high, reignite discussion about fundamentals. Having witnessed the significant decline in automobile traffic at the Jersey Shore firsthand over the Memorial Day weekend, it is quite evident consumers are cutting back. Traffic on the corridor from Philadelphia to Atlantic City was subdued and nowhere near the usual holiday volume.
Meanwhile, the stock market seems to be trading in a range between 12,200 and 12,800 with no compelling reason to break from this range. With the verdict on recession inconclusive at best, politicians are scrambling to use any definition, even a revised 0.9% growth rate in GDP for the first quarter, as a way to save face. Most major candidates have already come out and pronounced the economy in recession, when in fact, we are not even close to delivering two full quarters of negative growth. It just amazes me how loosely the true definition of recession is contorted for political purposes. While there is no doubt that the current rate of GDP growth causes pain, the economy was NOT in recession during the first quarter of 2008.
Inflation pressures, due to the dramatic rise in the price of crude oil are now being felt throughout the economy. The Fed can't lower interest rates any further, because it makes the dollar less attractive as a currency. This in turn causes the price of oil to rise as investors seek crude oil as a hedge against the debased dollar. The drop in the value of the dollar, coupled with the rise in the price of crude, which permeates every facet of our economy, creates an expectation of higher prices, which is the very definition of inflation. The only way to break this cycle is an economic slowdown or raising interest rates. The question is which will come first, the chicken or the egg?
John Kaighn
Jersey Benefit Advisors
Web Business Review
Meanwhile, the stock market seems to be trading in a range between 12,200 and 12,800 with no compelling reason to break from this range. With the verdict on recession inconclusive at best, politicians are scrambling to use any definition, even a revised 0.9% growth rate in GDP for the first quarter, as a way to save face. Most major candidates have already come out and pronounced the economy in recession, when in fact, we are not even close to delivering two full quarters of negative growth. It just amazes me how loosely the true definition of recession is contorted for political purposes. While there is no doubt that the current rate of GDP growth causes pain, the economy was NOT in recession during the first quarter of 2008.
Inflation pressures, due to the dramatic rise in the price of crude oil are now being felt throughout the economy. The Fed can't lower interest rates any further, because it makes the dollar less attractive as a currency. This in turn causes the price of oil to rise as investors seek crude oil as a hedge against the debased dollar. The drop in the value of the dollar, coupled with the rise in the price of crude, which permeates every facet of our economy, creates an expectation of higher prices, which is the very definition of inflation. The only way to break this cycle is an economic slowdown or raising interest rates. The question is which will come first, the chicken or the egg?
John Kaighn
Jersey Benefit Advisors
Web Business Review
Saturday, May 3, 2008
The Pause That Refreshes?
On Wednesday the Fed cut rates by another quarter point to 2%, lower than they've been since 2004. Year-to-date, prime rate cuts have been bigger and faster than they have for decades. The market response was initially enthusiastic but flagged by day's end on concerns that this cut would be the last for a while. The Fed's language hinted that more cuts might not be needed, but unfortunately it sounded to much of the market like more cuts might not be possible. And that's a fair concern. Bernanke's (and our) problem is that money can't get much cheaper without causing a slew of undesirable effects, so at a certain point we can't rely on the Fed for stimulus any longer.
John Kaighn
Jersey Benefits Advisors
Web Business Review
John Kaighn
Jersey Benefits Advisors
Web Business Review
Friday, April 18, 2008
Perhaps It's A Housing and Financial Company Recession!
Today Citi announced another loss, $5.1 billion on top of last quarter's $9.8 billion, nearly all of it a result of credit and real estate. In response, Vikram Pandit is expected to cut 9,000 jobs at Citi in the next few months on top of the 4,200 already announced. Some analysts are predicting total job cuts at Citi rising as high as 25,000 in the next few quarters. On Thursday, Merrill Lynch reported a $2 billion loss and said it would cut 4,000 jobs, many from its S&T and IBD divisions. At JPMorgan the cost is estimated at over 10,000 jobs, mostly from its purchase of Bear Stearns. What's the total job toll of the credit crunch? This week's news brings it to over 40,000.
However, Wall Street topped off a strong week with a big rally Friday, after results from companies like Citigroup Inc. and Google Inc. helped ease investor anxiety about the health of corporate profits. The major stock indexes at times rose more than 2 percent. Investors have been worried that recent data indicate a slowing economy, which would cut into profit growth at some of the nation's biggest companies. But, results so far have shown that earnings, for the most part, are meeting or beating expectations, and the major indexes all posted gains of more than 4 percent for the week.
This has been the first full week of earnings reports, and all of the major companies, especially IBM, came in with results which were in line with or slightly ahead of expectations. While many analysts have been saying the economy has been in recession since the beginning of the year, there is still no definitive consensus that this is the case. The beginning and end points of recessions are determined in retrospect, so all we can do at this juncture is plan for the worst and perhaps if there is a recession it will be shallow. Meanwhile, enjoy the good week, but be ready for more volatility going forward as the various forces which drive the market struggle for the upper hand.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Guidance Website
However, Wall Street topped off a strong week with a big rally Friday, after results from companies like Citigroup Inc. and Google Inc. helped ease investor anxiety about the health of corporate profits. The major stock indexes at times rose more than 2 percent. Investors have been worried that recent data indicate a slowing economy, which would cut into profit growth at some of the nation's biggest companies. But, results so far have shown that earnings, for the most part, are meeting or beating expectations, and the major indexes all posted gains of more than 4 percent for the week.
This has been the first full week of earnings reports, and all of the major companies, especially IBM, came in with results which were in line with or slightly ahead of expectations. While many analysts have been saying the economy has been in recession since the beginning of the year, there is still no definitive consensus that this is the case. The beginning and end points of recessions are determined in retrospect, so all we can do at this juncture is plan for the worst and perhaps if there is a recession it will be shallow. Meanwhile, enjoy the good week, but be ready for more volatility going forward as the various forces which drive the market struggle for the upper hand.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Guidance Website
Thursday, April 17, 2008
Obama and Clinton Debate Media Reactions
Reprinted from The Moderate Voice
April 16th, 2008 by JOE GANDELMAN, Editor-In-Chief
So who won the Pennsylvania Democratic presidential primary between rival Senators Hillary Clinton and Barack Obama?
While the “official” media consensus has yet to come in at this writing, monitoring live streaming, live blogging and early stories on the debate suggest it wasn’t Obama’s best night (possibly his worst debate performance), Clinton continued effectively and relentlessly on the attack — and ABC and the debate moderators will come under fire from Obama supporters and perhaps others due to the first 45-minutes being questions that basically put Obama on the defensive. One question asked was reportedly raised by conservative talk show Sean Hannity.
But even so even some of his supporters now wonder why Obama didn’t seem better prepared.
For a reaction to the debate itself, READ THIS earlier post by TMVer Jazz Shaw. In a move unusual for a news event such as this, ABC embargoed the debate for delayed viewing on the West Coast. This post is a roundup of website and blog reaction to the debate.
One of the best, least emotional live blogging accounts of the debate can be found on USA Today’s blog. Here are some extensive quotes from weblogs, news sites and stories on the debate:
–Andrew Sullivan:
It was a lifeless, exhausted, drained and dreary Obama we saw tonight. I’ve seen it before when he is tired, but this was his worst performance yet on national television. He seemed crushed and unable to react. This is big-time politics and he’s up against the Clinton wood-chipper. But there is no disguising the fact that he wilted, painfully.
Clinton has exposed herself in this campaign as one of the worst shells of a cynical pol in American politics. She doesn’t just return us to the Morris-Rove era, she represents a new height for it. If she somehow wins, it will be a triumph of the old politics in an age when that is exactly what this country cannot afford. But Obama has also shown a failure to be resilient in this grueling process. In some ways, I’m glad. No normal reasonable person subjected to the series of attacks on his integrity, faith, patriotism, decency and honesty would not wilt. And we need a normal reasonable person in the White House again. But this is still the arena we have. It is what it is. ABC News is what it is. The MSM knows no other way. Obama has to survive and even thrive under this assault if he is to win. He failed tonight in a big way.
And so this was indeed a huge night for the Republicans, and the first real indicator to me that Clinton is gaining in her fundamental goal at this point: the election of John McCain against Barack Obama. How else will she rescue the Democrats from hope?
–The Politico’s Ben Smith:
So, who won, who lost, how did Obama hold up under what was basically a public enactment of Clinton’s case against him.
AND: Didn’t those quotes from the Constitution really set the tone?
ALSO: How much money will Obama raise off his supporters’ perception that this debate was unfair?
–Americablog:
Wow. What the hell was that? Seriously, I’m a bit stunned. The level of discourse has reached a new low — a very new low. To be clear, I don’t think the debate was a disaster for Obama. He did fine. I think it was a disaster for our political system.
It was the worst debate ever. [ABC moderators Charles] Gibson and [former Clinton administration spokesman George] Stephanopoulos were horrible. The questions were literally right out of right wing talk radio.
–The Swamp:
Well, what we saw tonight was Hillary Clinton making a strong, last-ditch effort to pull her flagging campaign back from brink, get it back on track to victory on April 22 and make the superdelegates realize that she really is their last best chance to retake the White House.
She drummed on Obama not just for his remarks about small towns, guns and religion, but for his vast dearth of experience compared to hers–and that includes her experience of being ravaged by Republicans and living to see another day.
Obama, for his part, strove to defuse the negative ripples his aforementioned-ad-nauseum remarks might have engendered, not to mention the controversial comments of his former pastor–all of which appear not to have tarnished him much in polls.
Most importantly, he tried to get voters to imagine him as commander-in-chief, assigning “a mission” to his commanders–he’s the decider–although consulting with them re: tactics.
….And, for Hillary Clinton to get so giddy about the Wright question was really just sad. She was the official purveyor of fringe talking points. Shockingly so. And, she seemed to enjoy it. There’s a reason people think Clinton is dishonest as we saw today in the findings of the Washington Post-ABC News poll. She’s not only in this to win, she’s in it to win dirty — and to destroy Obama. She invoked Louis Farrakhan tonight for no reason — just to say it. Give me a break. Throughout this campaign, Clinton has pursued GOP attacks against Obama. He has not gone there against her.
–Daily Kos (one of several progressive sites calling on readers to flood ABC News with protests):
I used to think Republican operative and Karl Rove mentor Lee Atwater had died in 1991, after a nasty career of Republican race baiting, culture wars, dirty tricks, and a illness-induced conversion to Catholicism and public repentance for his dirty and divisive politics. I was wrong.
Lee Atwater apparently works for ABC News in devising…questions to ask Democratic Presidential candidates.
The questioning in tonight’s debate–—mostly straight out of 1988—was an abomination. Gun control. 60’s radicalism. Inflammatory black pastors. Respecting or disrespecting the flag. Taxes. Being out of touch with the military. Affirmative Action.
I’ll bet if they had more time, ABC anchors Charles Gibson and George Stephanopolus would probably have gotten around to asking Obama and Clinton about Willie Horton….The questions asked were not the kinds of questions Democratic primary voters care about. But they are the “gotcha” kinds of questions Republicans try to spring on Democrats in general elections.
I’m not afraid of those questions. I think Obama did fine tonight. Generally Clinton has performed best in debates, but as we first saw in the Texas debate, Obama appears to perform better one-on-one. I especially liked how he refused to get lured in to Charles Gibson’s conservative frames, and I like how he dismissed many of Clinton’s attacks on him as avoiding the substantive issues and hypocritical, as when he pointed out that Bill Clinton pardoned members of the Weather Underground.
–Hot Air’s Ed Morrissey feels the debate was “Obama’s Waterloo”:
The last Democratic debate has finally concluded, and perhaps the last chances of ending the primaries early. Thanks to a surprisingly tenacious set of questions for Barack Obama and Hillary Clinton from ABC moderaters Charles Gibson and George Stephanopolous, Barack Obama got exposed over and over again as an empty suit, while Hillary cleaned his clock. However, the big winner didn’t even take the stage tonight.
…The winner of this debate? John McCain. Both Democrats came out of this diminished, but Obama got destroyed in this exchange. If superdelegates had begun to reconsider their support of Obama after Crackerquiddick, they’re speed-dialing Hillary after watching Gibson dismember Obama on national TV tonight. And kudos to ABC News for taking on both candidates fearlessly. John McCain has to feel grateful not to be included.
–Josh Marshall:
9:46 PM … No Charlie. It hasn’t been a “fascinating debate.” It’s been genuinely awful.
9:50 PM … What happened to the League of Women Voters? Can we give the debates back to them? This sort of episode really sickens me. KB’s point above is sadly accurate. It’s stuff like this that really makes me think that whole big chunks of the established press needs to be swept away.
9:56 PM … As I noted above, I missed roughly the first half hour of this debate. But from what I heard about those thirty minutes and what I saw of the subsequent ninety minutes was basically debate by gotcha line with basically no discussion of any of the big questions the election is turning on.
–National Review’s Jonah Goldberg:
I’m no leftwing blogger, but I can only imagine how furious they must be with the debate so far. Nothing on any issues. Just a lot of box-checking on how the candidates will respond to various Republican talking points come the fall. Now I think a lot of those Republican talking points are valid and legitimate. But if I were a “fighting Dem” who thinks all of these topics are despicable distractions from the “real issues,” I would find this debate to be nothing but Republican water-carrying.
–Marc Ambinder:
Keeping the score card, there’s no way Obama could fared worse. Nearly 45 minutes of relentless political scrutiny from the ABC anchors and from Hillary Clinton, followed by an issues-and-answers session in which his anger carried over and sort of neutered him. But Hillary Clinton has a Reverse-Teflon problem: her negatives are up, and when she’s perceived as the attacker, the attacks never seem to settle on Obama and always seem to boomerang back on her. So it would be unwise to declare that Hillary “won” the debate in the dynamic sense just yet. (How much money will Obama raise off this debate? $3m million? $4 million?)
…..This sets up a blowback scenario wherein his supporters will rally to his defense and lash out at the media very loudly. But Obama’s going to be the next president of the United States, maybe. The most powerful person in the world. And questions about his personal associations, his character, his personal beliefs, his statements at private fundraisers — the answers to these questions tell us a lot. Sometimes the questions are unfair (( — nothing about Colombia and Mark Penn — )), but this ain’t Pop Warner; the artificial distinction between politics, personality and policy doesn’t exist in this league, and if you’re uncomfortable with it, then change the rules or don’t run for office.
–My DD’s Todd Beaton:
Although it was somewhat redeemed in the final half hour, I feel like taking a shower after that debate. It was tabloid hour on ABC, and certainly Obama did get the bulk of the more disgusting questions. Check out this post over at ABCNews.com: over 4,000 comments, the bulk of which seem to just rip ABC.
As for the candidates’ performances, neither was particularly inspiring and neither had his or her best night, although Obama did get plenty of opportunities to plead for an end to the issues of distraction and division and to call for a new style of politics and seemed to be the conscience of the audience as he called out the moderators. I think Clinton was stronger during the last half hour but not enough to tip the balance in her direction; certainly not enough for this to be a game changer.
It would almost be a shame for this to be the last debate, to go out on such a poor note.
–Chris Bowers:
Halfway through the debate, not a single question on any policy issue had been asked, it was obvious that this debate was prime-time hit job on Obama. The questions so far have been why he doesn’t wear a flag pin, whether or not his pastor loves America, why he can’t win, and how many people were offended by his bittergate comments. Except for Clinton being asked about why she wasn’t trustworthy, and both of them being asked about their vice-presidential choices, that has been the entire debate.
…..It appears that live focus group polling of undecideds favored Obama during the first round of questions that basically was a series of hit-jobs against him, while Clinton polled better in the focus group when it shifted to issues in the second half. Hmmm… perhaps her campaign should learn something from that.
–NBC’s Chuck Todd:
This debate is going to lead a lot of Obama supporters to ratchet up the calls on Clinton to either withdraw or tone down the attacks. Clinton supporters will point to this debate as proof that he’s not yet ready for the general, that’s why she should stay in, and that’s why superdelegates should overturn the winner of pledged delegates.
Overall, with the spotlight on him very bright, Obama didn’t step up. He got rattled early on and never picked his game back up. Clinton wasn’t very warm (outside of he first few minutes), but she didn’t have the spotlight on her very bright. And as we’ve noted in “First Thoughts” quite a few times, whenever the spotlight is on one candidate, the other seems to benefit. Tonight, the spotlight was on Obama, and for a short period of time, I expect Clinton to benefit. But the question is whether she can sustain any benefit since as the negativity goes on, she pays a bigger price than Obama. Let’s see what the PA Dem voting public decides in six days. A big Clinton victory and this debate will be seen as an important turning point, a narrow victory (less than five points) and she could find herself facing more calls to get out.
Could tonight’s true winner be John McCain? We’re betting that’s the unanimous pundit scoring tonight.
–Monica Crowley:
The final two Democratic candidates appeared to sleepwalk through tonight’s debate. I mean, quite literally, they looked so weary that they appeared to be napping while the other was talking. They swayed. They leaned on the podium. Their eyelids were heavy. Their speech was slow and deliberate, each response called up on auto-pilot.They moved as if through molasses.
They both survived. There were no earth-shattering gaffes or obvious slurring or devastating mangling of an issue. But to have both candidates looking ready to keel over is an indication of the toll this drawn-out campaign has had on them. A lot of Democrats are making an issue of John McCain’s age (71), but while he’s got 10 years on Hillary and 25 on Obama, McCain looks the most spry.
–Somervell County Salon:
Just got done watching the ABC Debate that was moderated by Charlie Gibson. Where were the questions about Bush’s torture, about executive signing statements, what about that permanent base in Iraq, what about the huge cost of the war, about bailing out investment bankers, about using PPPs (whether from this country or foreign) to lease out our infrastructure, what about the airline industry FAA problem? Nope. Had to listen to right-wing Republican talking points in a DEMOCRATIC DEBATE coming from Gibson and Steph. Now, on the one hand, maybe it’s a good thing because that’s what will happen when Gramps McCain goes head to head with Obama but you know, if I wanted to watch Fox News, I’d unblock it…
P.S. Hillary Clinton has a look on her face in much of the debate that reminded me of the pissy pursed look that Bush had in the second debate against Kerry.
–The Morning Call’s Pennsylvania Ave:
After the debate, both candidates surrogates rushed to the “Spin room” to field questions from a mass of media outlets about the debate.
The take from Clinton spokesman Howard Wolfson was that enough serious questions were raised about Barack Obama in the first half of the debate to give voters second thoughts about his electibility.
“A number of questions were asked really for the first time of Barack Obama,” Wolfson said, putting Obama “back on his heels.”
Wolfson also said he didn’t think Obama’s statements about small town voters who he described as “bitter” and clinging to guns and religion, was a gaffe, but rather “What he believes.”
The Obama campaign countered that most voters were probably frustrated with the first half of the debate, which had very little talk about the issues, instead focusing on political games.
U.S. Rep. Patrick Murphy, D-Bucks, said he thinks voters were more interested in hearing the candidates talk about issues like Iraq and the economy.
–Blue Ollie:
This night’s debate had potential to be very meaningful. Instead, it was a colossal waste of time.
No, I am not saying that because the moderators (including former Clinton official George Stephanopoulos) piled on Obama; I expect that.
It was because the piling on was over the warmed over trivial stuff: stuff Rev. Wright said, a party that Obama may have attended, why he stopped wearing a flag pin, etc. Yes, Clinton caught the Bosnia “sniper fire” question.
….ABC did more to make BHO’s point that today’s politics is petty and insubstantial….But as far as ABC debate: ABC News not a news organization but rather a tabloid organization.
--Ginger Snaps:
FLAG PINS? Is that what George Snuffalufagus thinks is one of the most important topics that needs to be discussed in a Presidential Debate?!?
Seriously, folks…the first 45 minutes of this debate really should have been relegated to Saturday Night Live. We were treated to questions about flag pins, the Rev. Wright issue that Obama has sufficiently addressed ad nauseum, implying that Obama should answer for the acts his friends committed 40 years ago, and, of course, the “b” word…
…and oh by the way, we have an economic crisis, a war, gas prices are through the roof, unemployment, veterans in crisis, a broken healthcare system…
You know…the things that affect us every single day?!?
…How are we going to get the right candidate in office if the media chooses to ask trivial questions that play on the FEAR of the country, when what we really need to know is their detailed plan for how they are going to fix the situation right now?
–Editor & Publisher Editor Greg Mitchell writing on the Huffington Post:
In perhaps the most embarrassing performance by the media in a major presidential debate in years, ABC News hosts Charles Gibson and George Stephanopolous focused mainly on trivial issues as Hillary Clinton and Barack Obama faced off in Philadelphia. They, and their network, should hang their collective heads in shame.
Wars in Iraq and Afghanistan, the health care and mortgage crises, the overall state of the economy and dozens of other pressing issues had to wait for their few moments in the sun as Obama was pressed to explain his recent “bitter” gaffe and relationship with Rev. Wright (seemingly a dead issue) and not wearing a flag pin — while Clinton had to answer again for her Bosnia trip exaggerations.
Then it was back to Obama to defend his slim association with a former ’60s radical — a question that came out of rightwing talk radio and Sean Hannity on TV, but was delivered by former Bill Clinton aide Stephanopolous. This approach led to a claim that Clinton’s husband pardoned two other ’60s radicals. And so on. The travesty continued.
–National Review’s Mark Hemingway declares McCain the winner and writes:
My prediction? The debate will be received so badly there will be increased pressure to kick Hillary out of the race. But since Obama was clearly the worse of the two in the debate, Hillary will win PA as expected and the goat rodeo will continue for the forseeable future with even more acrimony between the two candidates. Which only helps McCain.
–Newsday’s Spin Cycle:
The highlight of the debate tonight will be Hillary’s repeated efforts to use an electability argument as the basis for sharp attacks on Obama over Bittergate, Wright and 1960s radicals.
It was a tactic geared as much to superdelegates as to Pennsylvania voters, and Obama was not as sharp as he could have been in response. He seemed surprised sometimes, irritated others, and misspoke at least once (about disowning Wright, which he quickly corrected). So, if you’re scoring the debate like a prizefight, she wins a couple more rounds. But no game-changing moments.
–The New Republic’s The Stump blog:
For what it’s worth, I thought it was smart for Obama to go gracious on the Hillary-Bosnia scandal and suggest that they’re both entitled to make a mistake every now and then. Obviously, the choice of questions isn’t doing Obama any favors–bittergate, Wright, William Ayers!–but he’s doing a decent (if low-energy) job not getting dragged into the fray,* and Hillary is coming very close to over-reaching by rubbing his nose in it.
–Matthew Yglesias:
I had thought the Clinton campaign couldn’t sink any lower, but thus far she’s really just been giving us the full GOP. Listening to her talk about Barack Obama is like reading a Weekly Standard blog post. The lame excuse that she’s making this and that outrageous smear because the Republicans will do it later is pathetic. Maybe they will. But she’s the one doing it now.
HERE IS A CROSS SECTION OF NEWS MEDIA REPORT REACTION:
–The New York Times:
Senator Hillary Rodham Clinton went on the attack against Senator Barack Obama on a variety of issues during a contentious debate Wednesday, warning that he would be deeply vulnerable in a general-election fight if he won the nomination.
….
–The Boston Globe framed it this way:
Senators Barack Obama and Hillary Clinton took their hard-fought battle for the Democratic nomination down to a deeply personal level in a nationally televised debate tonight, trading barbs on honesty, their appeal to working-class voters, and who would be a stronger candidate in November.
Clinton, struggling to gain momentum in the dwindling weeks of the primary campaign, accused Obama of associating with unsavory people, including his own former preacher, and questioned whether Obama — whom she called “a good man” — could beat the GOP nominee in the fall.
“They’re going to be out there in full force,” Clinton said of the Republicans. “I’ve been in this arena for a long time. I have a lot of baggage and everybody has rummaged through it for years.”
Obama, meanwhile, criticized the New York lawmaker for running a negative campaign, and said Clinton herself could not pass the electability test she was imposing on him.
“By Senator Clinton’s own vetting standards, I don’t think she would make it,” he said.
–The Globe’s blog political intelligence was far more blunt:
Barack Obama tonight staked his presidential campaign on the idea that the American people will look beyond the inevitable gaffes and errors and character attacks of a 24-hour campaign cycle to meet the challenges of a “defining moment” in American history.
Hillary Clinton staked her campaign on the idea that Americans won’t — and that her tougher, more strategic approach to countering Republican attacks is a better way for Democrats to reclaim the White House.
The first half of tonight’s debate in the august National Constitution Center in Philadelphia was a tawdry affair, as ABC news questioners called on Obama and Clinton to address a year’s worth of dirty laundry, and each combatant eagerly grabbed at the chance to befoul their rival a little more.
But while some in the audience groaned, the litany of nasty questions — about such matters as Obama’s comments on the working class and Clinton’s exaggerations about dangers she faced in Bosnia — helped to flesh out a long-simmering subtext to the Clinton-Obama battle: The Clinton campaign’s insinuation that Obama is more vulnerable to GOP-style attacks on his patriotism.
….Clinton wasn’t so high-minded. At times, she seemed to revel in her tough-gal statements, sounding like a character in a 1940s film noir.
….The tit-for-tat comment showed how off-message Obama was for most of the evening, able to conjure up little of the hopeful energy that has marked his campaign for much of the year.
…What did come through, however, was how crucial Obama’s self-described “bet on the American people” will be to the future of his campaign.
Obama has said on countless occasions that he believes the American people want “an honest conversation,” and not a campaign of charges and countercharges.
–The Washington Post’s news report on the debate includes this:
With the race for the Democratic presidential nomination mired in a form of trench warfare that has left party leaders searching for a way to bring it to a conclusion before the party’s late-summer convention, Clinton (N.Y.) and Obama (Ill.) began their first head-to-head encounter in nearly two months focused on political disputes rather than their relatively narrow policy differences. Obama, who leads in the delegates needed to claim the nomination, fielded tough questions about his relationship with his former pastor, his patriotism and his description of small-town voters as “bitter,” the latter a controversy that has engulfed his campaign for much of the past week.
Obama argued repeatedly that voters are smart enough to differentiate petty issues from important economic matters.
“So the problem that we have in our politics, which is fairly typical, is that you take one person’s statement, if it’s not properly phrased, and you just beat it to death,” Obama said. “And that’s what Senator Clinton’s been doing over the last four days. And I understand that. That’s politics. And I expect to have to go through this process. But I do think it’s important to recognize that it’s not helping that person who’s sitting at the kitchen table who is trying to figure out how to pay the bills at the end of the month.”
–The Washington Post’s The Fix blog:
The choice between the candidates crystallized tonight. It is not, fundamentally, a choice about issues or even ideology — it is a choice about approach. Obama is an idealist, using nearly every question to appeal to the better angels in people; Obama sees the world as he wants it to be and believes he can make it. Clinton, on the other hand, is an unapologetic pragmatist; she has been through the wringer that is national politics before and knows how to play the game.
*The longer the Democratic campaign goes on, the more clips Republican Sen. John McCain’s campaign can harvest for use against the eventual Democratic nominee. It’s one thing for McCain to take note of ties between Obama and a former member of the Weather Underground; it’s quite another for McCain’s campaign to roll tape of Clinton making those accusations. You can bet Steve Schmidt of McCain’s campaign was Tivoing every minute of tonight’s proceedings for use when summer turns to fall.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Guidance Website
April 16th, 2008 by JOE GANDELMAN, Editor-In-Chief
So who won the Pennsylvania Democratic presidential primary between rival Senators Hillary Clinton and Barack Obama?
While the “official” media consensus has yet to come in at this writing, monitoring live streaming, live blogging and early stories on the debate suggest it wasn’t Obama’s best night (possibly his worst debate performance), Clinton continued effectively and relentlessly on the attack — and ABC and the debate moderators will come under fire from Obama supporters and perhaps others due to the first 45-minutes being questions that basically put Obama on the defensive. One question asked was reportedly raised by conservative talk show Sean Hannity.
But even so even some of his supporters now wonder why Obama didn’t seem better prepared.
For a reaction to the debate itself, READ THIS earlier post by TMVer Jazz Shaw. In a move unusual for a news event such as this, ABC embargoed the debate for delayed viewing on the West Coast. This post is a roundup of website and blog reaction to the debate.
One of the best, least emotional live blogging accounts of the debate can be found on USA Today’s blog. Here are some extensive quotes from weblogs, news sites and stories on the debate:
–Andrew Sullivan:
It was a lifeless, exhausted, drained and dreary Obama we saw tonight. I’ve seen it before when he is tired, but this was his worst performance yet on national television. He seemed crushed and unable to react. This is big-time politics and he’s up against the Clinton wood-chipper. But there is no disguising the fact that he wilted, painfully.
Clinton has exposed herself in this campaign as one of the worst shells of a cynical pol in American politics. She doesn’t just return us to the Morris-Rove era, she represents a new height for it. If she somehow wins, it will be a triumph of the old politics in an age when that is exactly what this country cannot afford. But Obama has also shown a failure to be resilient in this grueling process. In some ways, I’m glad. No normal reasonable person subjected to the series of attacks on his integrity, faith, patriotism, decency and honesty would not wilt. And we need a normal reasonable person in the White House again. But this is still the arena we have. It is what it is. ABC News is what it is. The MSM knows no other way. Obama has to survive and even thrive under this assault if he is to win. He failed tonight in a big way.
And so this was indeed a huge night for the Republicans, and the first real indicator to me that Clinton is gaining in her fundamental goal at this point: the election of John McCain against Barack Obama. How else will she rescue the Democrats from hope?
–The Politico’s Ben Smith:
So, who won, who lost, how did Obama hold up under what was basically a public enactment of Clinton’s case against him.
AND: Didn’t those quotes from the Constitution really set the tone?
ALSO: How much money will Obama raise off his supporters’ perception that this debate was unfair?
–Americablog:
Wow. What the hell was that? Seriously, I’m a bit stunned. The level of discourse has reached a new low — a very new low. To be clear, I don’t think the debate was a disaster for Obama. He did fine. I think it was a disaster for our political system.
It was the worst debate ever. [ABC moderators Charles] Gibson and [former Clinton administration spokesman George] Stephanopoulos were horrible. The questions were literally right out of right wing talk radio.
–The Swamp:
Well, what we saw tonight was Hillary Clinton making a strong, last-ditch effort to pull her flagging campaign back from brink, get it back on track to victory on April 22 and make the superdelegates realize that she really is their last best chance to retake the White House.
She drummed on Obama not just for his remarks about small towns, guns and religion, but for his vast dearth of experience compared to hers–and that includes her experience of being ravaged by Republicans and living to see another day.
Obama, for his part, strove to defuse the negative ripples his aforementioned-ad-nauseum remarks might have engendered, not to mention the controversial comments of his former pastor–all of which appear not to have tarnished him much in polls.
Most importantly, he tried to get voters to imagine him as commander-in-chief, assigning “a mission” to his commanders–he’s the decider–although consulting with them re: tactics.
….And, for Hillary Clinton to get so giddy about the Wright question was really just sad. She was the official purveyor of fringe talking points. Shockingly so. And, she seemed to enjoy it. There’s a reason people think Clinton is dishonest as we saw today in the findings of the Washington Post-ABC News poll. She’s not only in this to win, she’s in it to win dirty — and to destroy Obama. She invoked Louis Farrakhan tonight for no reason — just to say it. Give me a break. Throughout this campaign, Clinton has pursued GOP attacks against Obama. He has not gone there against her.
–Daily Kos (one of several progressive sites calling on readers to flood ABC News with protests):
I used to think Republican operative and Karl Rove mentor Lee Atwater had died in 1991, after a nasty career of Republican race baiting, culture wars, dirty tricks, and a illness-induced conversion to Catholicism and public repentance for his dirty and divisive politics. I was wrong.
Lee Atwater apparently works for ABC News in devising…questions to ask Democratic Presidential candidates.
The questioning in tonight’s debate–—mostly straight out of 1988—was an abomination. Gun control. 60’s radicalism. Inflammatory black pastors. Respecting or disrespecting the flag. Taxes. Being out of touch with the military. Affirmative Action.
I’ll bet if they had more time, ABC anchors Charles Gibson and George Stephanopolus would probably have gotten around to asking Obama and Clinton about Willie Horton….The questions asked were not the kinds of questions Democratic primary voters care about. But they are the “gotcha” kinds of questions Republicans try to spring on Democrats in general elections.
I’m not afraid of those questions. I think Obama did fine tonight. Generally Clinton has performed best in debates, but as we first saw in the Texas debate, Obama appears to perform better one-on-one. I especially liked how he refused to get lured in to Charles Gibson’s conservative frames, and I like how he dismissed many of Clinton’s attacks on him as avoiding the substantive issues and hypocritical, as when he pointed out that Bill Clinton pardoned members of the Weather Underground.
–Hot Air’s Ed Morrissey feels the debate was “Obama’s Waterloo”:
The last Democratic debate has finally concluded, and perhaps the last chances of ending the primaries early. Thanks to a surprisingly tenacious set of questions for Barack Obama and Hillary Clinton from ABC moderaters Charles Gibson and George Stephanopolous, Barack Obama got exposed over and over again as an empty suit, while Hillary cleaned his clock. However, the big winner didn’t even take the stage tonight.
…The winner of this debate? John McCain. Both Democrats came out of this diminished, but Obama got destroyed in this exchange. If superdelegates had begun to reconsider their support of Obama after Crackerquiddick, they’re speed-dialing Hillary after watching Gibson dismember Obama on national TV tonight. And kudos to ABC News for taking on both candidates fearlessly. John McCain has to feel grateful not to be included.
–Josh Marshall:
9:46 PM … No Charlie. It hasn’t been a “fascinating debate.” It’s been genuinely awful.
9:50 PM … What happened to the League of Women Voters? Can we give the debates back to them? This sort of episode really sickens me. KB’s point above is sadly accurate. It’s stuff like this that really makes me think that whole big chunks of the established press needs to be swept away.
9:56 PM … As I noted above, I missed roughly the first half hour of this debate. But from what I heard about those thirty minutes and what I saw of the subsequent ninety minutes was basically debate by gotcha line with basically no discussion of any of the big questions the election is turning on.
–National Review’s Jonah Goldberg:
I’m no leftwing blogger, but I can only imagine how furious they must be with the debate so far. Nothing on any issues. Just a lot of box-checking on how the candidates will respond to various Republican talking points come the fall. Now I think a lot of those Republican talking points are valid and legitimate. But if I were a “fighting Dem” who thinks all of these topics are despicable distractions from the “real issues,” I would find this debate to be nothing but Republican water-carrying.
–Marc Ambinder:
Keeping the score card, there’s no way Obama could fared worse. Nearly 45 minutes of relentless political scrutiny from the ABC anchors and from Hillary Clinton, followed by an issues-and-answers session in which his anger carried over and sort of neutered him. But Hillary Clinton has a Reverse-Teflon problem: her negatives are up, and when she’s perceived as the attacker, the attacks never seem to settle on Obama and always seem to boomerang back on her. So it would be unwise to declare that Hillary “won” the debate in the dynamic sense just yet. (How much money will Obama raise off this debate? $3m million? $4 million?)
…..This sets up a blowback scenario wherein his supporters will rally to his defense and lash out at the media very loudly. But Obama’s going to be the next president of the United States, maybe. The most powerful person in the world. And questions about his personal associations, his character, his personal beliefs, his statements at private fundraisers — the answers to these questions tell us a lot. Sometimes the questions are unfair (( — nothing about Colombia and Mark Penn — )), but this ain’t Pop Warner; the artificial distinction between politics, personality and policy doesn’t exist in this league, and if you’re uncomfortable with it, then change the rules or don’t run for office.
–My DD’s Todd Beaton:
Although it was somewhat redeemed in the final half hour, I feel like taking a shower after that debate. It was tabloid hour on ABC, and certainly Obama did get the bulk of the more disgusting questions. Check out this post over at ABCNews.com: over 4,000 comments, the bulk of which seem to just rip ABC.
As for the candidates’ performances, neither was particularly inspiring and neither had his or her best night, although Obama did get plenty of opportunities to plead for an end to the issues of distraction and division and to call for a new style of politics and seemed to be the conscience of the audience as he called out the moderators. I think Clinton was stronger during the last half hour but not enough to tip the balance in her direction; certainly not enough for this to be a game changer.
It would almost be a shame for this to be the last debate, to go out on such a poor note.
–Chris Bowers:
Halfway through the debate, not a single question on any policy issue had been asked, it was obvious that this debate was prime-time hit job on Obama. The questions so far have been why he doesn’t wear a flag pin, whether or not his pastor loves America, why he can’t win, and how many people were offended by his bittergate comments. Except for Clinton being asked about why she wasn’t trustworthy, and both of them being asked about their vice-presidential choices, that has been the entire debate.
…..It appears that live focus group polling of undecideds favored Obama during the first round of questions that basically was a series of hit-jobs against him, while Clinton polled better in the focus group when it shifted to issues in the second half. Hmmm… perhaps her campaign should learn something from that.
–NBC’s Chuck Todd:
This debate is going to lead a lot of Obama supporters to ratchet up the calls on Clinton to either withdraw or tone down the attacks. Clinton supporters will point to this debate as proof that he’s not yet ready for the general, that’s why she should stay in, and that’s why superdelegates should overturn the winner of pledged delegates.
Overall, with the spotlight on him very bright, Obama didn’t step up. He got rattled early on and never picked his game back up. Clinton wasn’t very warm (outside of he first few minutes), but she didn’t have the spotlight on her very bright. And as we’ve noted in “First Thoughts” quite a few times, whenever the spotlight is on one candidate, the other seems to benefit. Tonight, the spotlight was on Obama, and for a short period of time, I expect Clinton to benefit. But the question is whether she can sustain any benefit since as the negativity goes on, she pays a bigger price than Obama. Let’s see what the PA Dem voting public decides in six days. A big Clinton victory and this debate will be seen as an important turning point, a narrow victory (less than five points) and she could find herself facing more calls to get out.
Could tonight’s true winner be John McCain? We’re betting that’s the unanimous pundit scoring tonight.
–Monica Crowley:
The final two Democratic candidates appeared to sleepwalk through tonight’s debate. I mean, quite literally, they looked so weary that they appeared to be napping while the other was talking. They swayed. They leaned on the podium. Their eyelids were heavy. Their speech was slow and deliberate, each response called up on auto-pilot.They moved as if through molasses.
They both survived. There were no earth-shattering gaffes or obvious slurring or devastating mangling of an issue. But to have both candidates looking ready to keel over is an indication of the toll this drawn-out campaign has had on them. A lot of Democrats are making an issue of John McCain’s age (71), but while he’s got 10 years on Hillary and 25 on Obama, McCain looks the most spry.
–Somervell County Salon:
Just got done watching the ABC Debate that was moderated by Charlie Gibson. Where were the questions about Bush’s torture, about executive signing statements, what about that permanent base in Iraq, what about the huge cost of the war, about bailing out investment bankers, about using PPPs (whether from this country or foreign) to lease out our infrastructure, what about the airline industry FAA problem? Nope. Had to listen to right-wing Republican talking points in a DEMOCRATIC DEBATE coming from Gibson and Steph. Now, on the one hand, maybe it’s a good thing because that’s what will happen when Gramps McCain goes head to head with Obama but you know, if I wanted to watch Fox News, I’d unblock it…
P.S. Hillary Clinton has a look on her face in much of the debate that reminded me of the pissy pursed look that Bush had in the second debate against Kerry.
–The Morning Call’s Pennsylvania Ave:
After the debate, both candidates surrogates rushed to the “Spin room” to field questions from a mass of media outlets about the debate.
The take from Clinton spokesman Howard Wolfson was that enough serious questions were raised about Barack Obama in the first half of the debate to give voters second thoughts about his electibility.
“A number of questions were asked really for the first time of Barack Obama,” Wolfson said, putting Obama “back on his heels.”
Wolfson also said he didn’t think Obama’s statements about small town voters who he described as “bitter” and clinging to guns and religion, was a gaffe, but rather “What he believes.”
The Obama campaign countered that most voters were probably frustrated with the first half of the debate, which had very little talk about the issues, instead focusing on political games.
U.S. Rep. Patrick Murphy, D-Bucks, said he thinks voters were more interested in hearing the candidates talk about issues like Iraq and the economy.
–Blue Ollie:
This night’s debate had potential to be very meaningful. Instead, it was a colossal waste of time.
No, I am not saying that because the moderators (including former Clinton official George Stephanopoulos) piled on Obama; I expect that.
It was because the piling on was over the warmed over trivial stuff: stuff Rev. Wright said, a party that Obama may have attended, why he stopped wearing a flag pin, etc. Yes, Clinton caught the Bosnia “sniper fire” question.
….ABC did more to make BHO’s point that today’s politics is petty and insubstantial….But as far as ABC debate: ABC News not a news organization but rather a tabloid organization.
--Ginger Snaps:
FLAG PINS? Is that what George Snuffalufagus thinks is one of the most important topics that needs to be discussed in a Presidential Debate?!?
Seriously, folks…the first 45 minutes of this debate really should have been relegated to Saturday Night Live. We were treated to questions about flag pins, the Rev. Wright issue that Obama has sufficiently addressed ad nauseum, implying that Obama should answer for the acts his friends committed 40 years ago, and, of course, the “b” word…
…and oh by the way, we have an economic crisis, a war, gas prices are through the roof, unemployment, veterans in crisis, a broken healthcare system…
You know…the things that affect us every single day?!?
…How are we going to get the right candidate in office if the media chooses to ask trivial questions that play on the FEAR of the country, when what we really need to know is their detailed plan for how they are going to fix the situation right now?
–Editor & Publisher Editor Greg Mitchell writing on the Huffington Post:
In perhaps the most embarrassing performance by the media in a major presidential debate in years, ABC News hosts Charles Gibson and George Stephanopolous focused mainly on trivial issues as Hillary Clinton and Barack Obama faced off in Philadelphia. They, and their network, should hang their collective heads in shame.
Wars in Iraq and Afghanistan, the health care and mortgage crises, the overall state of the economy and dozens of other pressing issues had to wait for their few moments in the sun as Obama was pressed to explain his recent “bitter” gaffe and relationship with Rev. Wright (seemingly a dead issue) and not wearing a flag pin — while Clinton had to answer again for her Bosnia trip exaggerations.
Then it was back to Obama to defend his slim association with a former ’60s radical — a question that came out of rightwing talk radio and Sean Hannity on TV, but was delivered by former Bill Clinton aide Stephanopolous. This approach led to a claim that Clinton’s husband pardoned two other ’60s radicals. And so on. The travesty continued.
–National Review’s Mark Hemingway declares McCain the winner and writes:
My prediction? The debate will be received so badly there will be increased pressure to kick Hillary out of the race. But since Obama was clearly the worse of the two in the debate, Hillary will win PA as expected and the goat rodeo will continue for the forseeable future with even more acrimony between the two candidates. Which only helps McCain.
–Newsday’s Spin Cycle:
The highlight of the debate tonight will be Hillary’s repeated efforts to use an electability argument as the basis for sharp attacks on Obama over Bittergate, Wright and 1960s radicals.
It was a tactic geared as much to superdelegates as to Pennsylvania voters, and Obama was not as sharp as he could have been in response. He seemed surprised sometimes, irritated others, and misspoke at least once (about disowning Wright, which he quickly corrected). So, if you’re scoring the debate like a prizefight, she wins a couple more rounds. But no game-changing moments.
–The New Republic’s The Stump blog:
For what it’s worth, I thought it was smart for Obama to go gracious on the Hillary-Bosnia scandal and suggest that they’re both entitled to make a mistake every now and then. Obviously, the choice of questions isn’t doing Obama any favors–bittergate, Wright, William Ayers!–but he’s doing a decent (if low-energy) job not getting dragged into the fray,* and Hillary is coming very close to over-reaching by rubbing his nose in it.
–Matthew Yglesias:
I had thought the Clinton campaign couldn’t sink any lower, but thus far she’s really just been giving us the full GOP. Listening to her talk about Barack Obama is like reading a Weekly Standard blog post. The lame excuse that she’s making this and that outrageous smear because the Republicans will do it later is pathetic. Maybe they will. But she’s the one doing it now.
HERE IS A CROSS SECTION OF NEWS MEDIA REPORT REACTION:
–The New York Times:
Senator Hillary Rodham Clinton went on the attack against Senator Barack Obama on a variety of issues during a contentious debate Wednesday, warning that he would be deeply vulnerable in a general-election fight if he won the nomination.
….
–The Boston Globe framed it this way:
Senators Barack Obama and Hillary Clinton took their hard-fought battle for the Democratic nomination down to a deeply personal level in a nationally televised debate tonight, trading barbs on honesty, their appeal to working-class voters, and who would be a stronger candidate in November.
Clinton, struggling to gain momentum in the dwindling weeks of the primary campaign, accused Obama of associating with unsavory people, including his own former preacher, and questioned whether Obama — whom she called “a good man” — could beat the GOP nominee in the fall.
“They’re going to be out there in full force,” Clinton said of the Republicans. “I’ve been in this arena for a long time. I have a lot of baggage and everybody has rummaged through it for years.”
Obama, meanwhile, criticized the New York lawmaker for running a negative campaign, and said Clinton herself could not pass the electability test she was imposing on him.
“By Senator Clinton’s own vetting standards, I don’t think she would make it,” he said.
–The Globe’s blog political intelligence was far more blunt:
Barack Obama tonight staked his presidential campaign on the idea that the American people will look beyond the inevitable gaffes and errors and character attacks of a 24-hour campaign cycle to meet the challenges of a “defining moment” in American history.
Hillary Clinton staked her campaign on the idea that Americans won’t — and that her tougher, more strategic approach to countering Republican attacks is a better way for Democrats to reclaim the White House.
The first half of tonight’s debate in the august National Constitution Center in Philadelphia was a tawdry affair, as ABC news questioners called on Obama and Clinton to address a year’s worth of dirty laundry, and each combatant eagerly grabbed at the chance to befoul their rival a little more.
But while some in the audience groaned, the litany of nasty questions — about such matters as Obama’s comments on the working class and Clinton’s exaggerations about dangers she faced in Bosnia — helped to flesh out a long-simmering subtext to the Clinton-Obama battle: The Clinton campaign’s insinuation that Obama is more vulnerable to GOP-style attacks on his patriotism.
….Clinton wasn’t so high-minded. At times, she seemed to revel in her tough-gal statements, sounding like a character in a 1940s film noir.
….The tit-for-tat comment showed how off-message Obama was for most of the evening, able to conjure up little of the hopeful energy that has marked his campaign for much of the year.
…What did come through, however, was how crucial Obama’s self-described “bet on the American people” will be to the future of his campaign.
Obama has said on countless occasions that he believes the American people want “an honest conversation,” and not a campaign of charges and countercharges.
–The Washington Post’s news report on the debate includes this:
With the race for the Democratic presidential nomination mired in a form of trench warfare that has left party leaders searching for a way to bring it to a conclusion before the party’s late-summer convention, Clinton (N.Y.) and Obama (Ill.) began their first head-to-head encounter in nearly two months focused on political disputes rather than their relatively narrow policy differences. Obama, who leads in the delegates needed to claim the nomination, fielded tough questions about his relationship with his former pastor, his patriotism and his description of small-town voters as “bitter,” the latter a controversy that has engulfed his campaign for much of the past week.
Obama argued repeatedly that voters are smart enough to differentiate petty issues from important economic matters.
“So the problem that we have in our politics, which is fairly typical, is that you take one person’s statement, if it’s not properly phrased, and you just beat it to death,” Obama said. “And that’s what Senator Clinton’s been doing over the last four days. And I understand that. That’s politics. And I expect to have to go through this process. But I do think it’s important to recognize that it’s not helping that person who’s sitting at the kitchen table who is trying to figure out how to pay the bills at the end of the month.”
–The Washington Post’s The Fix blog:
The choice between the candidates crystallized tonight. It is not, fundamentally, a choice about issues or even ideology — it is a choice about approach. Obama is an idealist, using nearly every question to appeal to the better angels in people; Obama sees the world as he wants it to be and believes he can make it. Clinton, on the other hand, is an unapologetic pragmatist; she has been through the wringer that is national politics before and knows how to play the game.
*The longer the Democratic campaign goes on, the more clips Republican Sen. John McCain’s campaign can harvest for use against the eventual Democratic nominee. It’s one thing for McCain to take note of ties between Obama and a former member of the Weather Underground; it’s quite another for McCain’s campaign to roll tape of Clinton making those accusations. You can bet Steve Schmidt of McCain’s campaign was Tivoing every minute of tonight’s proceedings for use when summer turns to fall.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Guidance Website
Sunday, April 6, 2008
Jersey Benefits Advisors Newsletter Spring 2008
Market Watch
After months of downbeat news and the housing, credit and stock markets being pummeled almost daily, the first quarter of 2008 ended with a positive whimper and the second quarter began with a surge. Whether or not the positive signs continue will depend on the statistical information forthcoming in regard to the economic cycle. In the mean time, we’ve closed the books on the first quarter, and while the news seemed quite dire for much of the time, the DJIA and S&P 500 haven’t reached bear market levels.
The Dow Jones Industrial Average ended the first quarter at 12,262.89 down 7.6%, while the S&P 500 finished at 1,322.70 shedding 9.9%. The NASDAQ actually hit bear market territory (20% decline) during the quarter, but closed at 2279.10 which was 14% lower than where it started the year. Considering all of the headwinds the markets faced during the winter, the damage has been minimal thus far.
Of course, it is far from apparent if the carnage in the various markets is over, since we don’t even have a definitive answer on whether or not the economy is in recession. The latest GDP numbers indicated extremely slow growth, just .6% for the fourth quarter of 2007. The first estimate of GDP growth for the first quarter will be provided at the end of April.
While many economists felt the economy would avoid recession this year, when polled at the beginning of the year, the debate has shifted to how long and how deep the downturn will be. Officially, a recession is the contraction of GDP for two consecutive quarters. The length of the recession represents the trough or bottom of the economic cycle from which a new economic cycle begins.
The wild card right now is the stimulus the Federal Reserve has injected into the credit markets, which have been paralyzed due to the fiasco created by the housing debacle and subprime mortgage mess. The results of some of the Fed’s actions are already being felt, as banks and investment firms have utilized the Federal Reserve as the bank of last resort. While this is a function of the Federal Reserve for banks, opening the discount window to investment firms is something that hasn’t been done since the 1930’s.
Chairman Bernanke has taken some drastic steps with monetary policy to shore up the financial system, and his study of the blunders made during the Great Depression have been quite evident. Fiscal stimulus, like the rebates headed our way this quarter, will also be felt later this year. Whether the stimulus will be enough to keep the economy out of recession remains to be seen.
Of course the politicians are having a field day recommending bailouts of mortgage holders, job programs, protectionism, taxes on “big oil” and more regulation. Most of the programs being championed will not have the slightest chance of implementation, but they make great sound bites to constituencies during an election year. A huge “shot over the bough” was fired by Treasury Secretary Henry Paulson with his proposal to streamline US financial regulation. It should encourage debate for months!
Finally, it is sufficient to say that if you are like me and believe the sun will shine again tomorrow, this particular phase of the economic cycle represents a buying opportunity. All markets are the same, and when there is a 10% - 15% sale, it is time to buy.
What Happened to Bear Stearns’ Client Accounts?
With the demise of such a large investment firm as Bear Stearns so prominently discussed in the news, many investors have asked what happens to the client accounts held at the firm. Client accounts are insured by the Securities Investor Protection Corporation (SIPC) for $500,000 per account but only $100,000 can be cash, the remainder must be in securities.
In the case of Bear Stearns, the company will more than likely become part of a division of JP Morgan Chase and Bear Stearns’ client accounts remain unaffected. SIPC involvement was not necessary. Bankruptcies of securities firms usually result in client accounts being transferred to another firm. Client accounts of brokers, such as Transamerica, are held by a third party (Pershing) which segregates client assets.
Ways To Protect Assets During Market Turmoil
A bright spot during this particularly gloomy period in the markets has been the performance of the variable annuities developed after the dotcom bubble. Insurance companies responded to the market turmoil from 2000 - 2002 by developing living benefits, which could be used to protect assets from significant downside risk. While many acronyms have been used to describe the various riders companies have developed, the main theme is to allow participation in market gains through separate accounts, and also guarantee a minimum amount of asset appreciation each year, which is usually 5% or 6%.
Each year the principal (amount invested) basically has two calculated values. The market value is the amount invested plus whatever gains are made in the separate accounts during the year. The withdrawal value or guaranteed value is the amount invested plus the rider’s guaranteed appreciation, which is the 5% or 6% discussed above. If the market declines, the client knows the amount which can be withdrawn for retirement will still increase by the 5% or 6%. If the market increases 10% or 15%, then the client can withdraw even more during retirement. Newer versions of these variable annuity riders allow a step up of the market value on an annual and even monthly basis, reducing downside risk even more effectively.
While there are fees charged by the insurance companies for annuities and their living benefits riders, they are quite reasonable when compared to the downside risk protection they provide. If market risk to principal is a concern, as it is to many investors approaching retirement, the peace of mind provided by a variable annuity may be worth the additional expense. Mutual funds are a less expensive way to participate in the various markets, but they provide no downside protection.
Variable annuity fees don’t even begin to compare to the whopping fees charged by hedge funds, which are supposed to be inversely correlated to the stock market. Unfortunately, this inverse correlation has not held up during this market cycle as hedge funds have been imploding under the weight of subprime mortgage debt. In fact, the demise of Bear Stearns was due to the default of two of their hedge funds, which went belly-up during the summer.
An analysis of my clients’ accounts who have invested in a variable annuity since 2002 showed the market value higher than the guaranteed value for the most part. The few clients whose market value was less than the guaranteed value, made recent large investments in 2007. Everyone has a higher account value than the amount invested and are breathing a bit easier these days.
If you feel a variable annuity is worth discussing for your investments, be sure to contact me.
COMPANY INFORMATION:
Investment Advisory Services offered through:
Jersey Benefits Advisors
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com
Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
1150 S. Olive St. Suite T-25
Los Angeles, CA 90015
800-245-8250
Member FINRA & SIPC
Third Party Administration and Insurance Services offered through:
Jersey Benefits Group, Inc
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com/
John Kaighn
Jersey Benefits Advisors
Web Business Review
Plug In Profit
John Kaighn's Guidance Website
After months of downbeat news and the housing, credit and stock markets being pummeled almost daily, the first quarter of 2008 ended with a positive whimper and the second quarter began with a surge. Whether or not the positive signs continue will depend on the statistical information forthcoming in regard to the economic cycle. In the mean time, we’ve closed the books on the first quarter, and while the news seemed quite dire for much of the time, the DJIA and S&P 500 haven’t reached bear market levels.
The Dow Jones Industrial Average ended the first quarter at 12,262.89 down 7.6%, while the S&P 500 finished at 1,322.70 shedding 9.9%. The NASDAQ actually hit bear market territory (20% decline) during the quarter, but closed at 2279.10 which was 14% lower than where it started the year. Considering all of the headwinds the markets faced during the winter, the damage has been minimal thus far.
Of course, it is far from apparent if the carnage in the various markets is over, since we don’t even have a definitive answer on whether or not the economy is in recession. The latest GDP numbers indicated extremely slow growth, just .6% for the fourth quarter of 2007. The first estimate of GDP growth for the first quarter will be provided at the end of April.
While many economists felt the economy would avoid recession this year, when polled at the beginning of the year, the debate has shifted to how long and how deep the downturn will be. Officially, a recession is the contraction of GDP for two consecutive quarters. The length of the recession represents the trough or bottom of the economic cycle from which a new economic cycle begins.
The wild card right now is the stimulus the Federal Reserve has injected into the credit markets, which have been paralyzed due to the fiasco created by the housing debacle and subprime mortgage mess. The results of some of the Fed’s actions are already being felt, as banks and investment firms have utilized the Federal Reserve as the bank of last resort. While this is a function of the Federal Reserve for banks, opening the discount window to investment firms is something that hasn’t been done since the 1930’s.
Chairman Bernanke has taken some drastic steps with monetary policy to shore up the financial system, and his study of the blunders made during the Great Depression have been quite evident. Fiscal stimulus, like the rebates headed our way this quarter, will also be felt later this year. Whether the stimulus will be enough to keep the economy out of recession remains to be seen.
Of course the politicians are having a field day recommending bailouts of mortgage holders, job programs, protectionism, taxes on “big oil” and more regulation. Most of the programs being championed will not have the slightest chance of implementation, but they make great sound bites to constituencies during an election year. A huge “shot over the bough” was fired by Treasury Secretary Henry Paulson with his proposal to streamline US financial regulation. It should encourage debate for months!
Finally, it is sufficient to say that if you are like me and believe the sun will shine again tomorrow, this particular phase of the economic cycle represents a buying opportunity. All markets are the same, and when there is a 10% - 15% sale, it is time to buy.
What Happened to Bear Stearns’ Client Accounts?
With the demise of such a large investment firm as Bear Stearns so prominently discussed in the news, many investors have asked what happens to the client accounts held at the firm. Client accounts are insured by the Securities Investor Protection Corporation (SIPC) for $500,000 per account but only $100,000 can be cash, the remainder must be in securities.
In the case of Bear Stearns, the company will more than likely become part of a division of JP Morgan Chase and Bear Stearns’ client accounts remain unaffected. SIPC involvement was not necessary. Bankruptcies of securities firms usually result in client accounts being transferred to another firm. Client accounts of brokers, such as Transamerica, are held by a third party (Pershing) which segregates client assets.
Ways To Protect Assets During Market Turmoil
A bright spot during this particularly gloomy period in the markets has been the performance of the variable annuities developed after the dotcom bubble. Insurance companies responded to the market turmoil from 2000 - 2002 by developing living benefits, which could be used to protect assets from significant downside risk. While many acronyms have been used to describe the various riders companies have developed, the main theme is to allow participation in market gains through separate accounts, and also guarantee a minimum amount of asset appreciation each year, which is usually 5% or 6%.
Each year the principal (amount invested) basically has two calculated values. The market value is the amount invested plus whatever gains are made in the separate accounts during the year. The withdrawal value or guaranteed value is the amount invested plus the rider’s guaranteed appreciation, which is the 5% or 6% discussed above. If the market declines, the client knows the amount which can be withdrawn for retirement will still increase by the 5% or 6%. If the market increases 10% or 15%, then the client can withdraw even more during retirement. Newer versions of these variable annuity riders allow a step up of the market value on an annual and even monthly basis, reducing downside risk even more effectively.
While there are fees charged by the insurance companies for annuities and their living benefits riders, they are quite reasonable when compared to the downside risk protection they provide. If market risk to principal is a concern, as it is to many investors approaching retirement, the peace of mind provided by a variable annuity may be worth the additional expense. Mutual funds are a less expensive way to participate in the various markets, but they provide no downside protection.
Variable annuity fees don’t even begin to compare to the whopping fees charged by hedge funds, which are supposed to be inversely correlated to the stock market. Unfortunately, this inverse correlation has not held up during this market cycle as hedge funds have been imploding under the weight of subprime mortgage debt. In fact, the demise of Bear Stearns was due to the default of two of their hedge funds, which went belly-up during the summer.
An analysis of my clients’ accounts who have invested in a variable annuity since 2002 showed the market value higher than the guaranteed value for the most part. The few clients whose market value was less than the guaranteed value, made recent large investments in 2007. Everyone has a higher account value than the amount invested and are breathing a bit easier these days.
If you feel a variable annuity is worth discussing for your investments, be sure to contact me.
COMPANY INFORMATION:
Investment Advisory Services offered through:
Jersey Benefits Advisors
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com
Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
1150 S. Olive St. Suite T-25
Los Angeles, CA 90015
800-245-8250
Member FINRA & SIPC
Third Party Administration and Insurance Services offered through:
Jersey Benefits Group, Inc
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com/
John Kaighn
Jersey Benefits Advisors
Web Business Review
Plug In Profit
John Kaighn's Guidance Website
Saturday, March 29, 2008
What Happens to Bear Stearns' Client Accounts?
With the demise of Bear Stearns, many investors are rightfully asking what happens to client accounts held at the firm. Client accounts are segregated from the assets of the firm and insured by the Securities Investor Protection Corporation (SIPC) for $500,000 in securities per account. Only $100,000 in cash is insured. If the firm were to file for bankruptcy, the client accounts would be transferred to another broker/dealer. However, in the case of Bear Stearns, the firm's client accounts will more than likely remain with Bear as a division of JP Morgan Chase.
The SIPC doesn't insure against losses in the value of securities, but rather against loss due to malfeasance. As is usually the case with securities firms that run into difficulty, SIPC insurance is rarely utilized. Instead, the securities held by clients are generally transferred to another broker/dealer that agrees to purchase the client accounts. Since client accounts are a valuable asset, there is usually no problem finding another broker/dealer ready to step in to service those accounts. This usually doesn't take long, as evidenced by the case of MJK Clearing, a Minneapolis brokerage firm that failed in 2001. Within a week, most clients were able to access their accounts after the assets were transferred to another firm.
In the case of our firm, Transamerica, client accounts are held by a third party clearing firm. The name of that firm is Pershing. The accounts are segregated from the assets of Transamerica and held in the client's name. Should there ever be any problem with the solvency of Transamerica, as in the case of MJK Clearing, client assets would continue to be held at Pershing until another broker/dealer stepped in to service those accounts. Protection of the client is of utmost importance to all of us in the securities industry, because client confidence is paramount to our success and survival.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Plug In Profit
John Kaighn's Guidance Website
The SIPC doesn't insure against losses in the value of securities, but rather against loss due to malfeasance. As is usually the case with securities firms that run into difficulty, SIPC insurance is rarely utilized. Instead, the securities held by clients are generally transferred to another broker/dealer that agrees to purchase the client accounts. Since client accounts are a valuable asset, there is usually no problem finding another broker/dealer ready to step in to service those accounts. This usually doesn't take long, as evidenced by the case of MJK Clearing, a Minneapolis brokerage firm that failed in 2001. Within a week, most clients were able to access their accounts after the assets were transferred to another firm.
In the case of our firm, Transamerica, client accounts are held by a third party clearing firm. The name of that firm is Pershing. The accounts are segregated from the assets of Transamerica and held in the client's name. Should there ever be any problem with the solvency of Transamerica, as in the case of MJK Clearing, client assets would continue to be held at Pershing until another broker/dealer stepped in to service those accounts. Protection of the client is of utmost importance to all of us in the securities industry, because client confidence is paramount to our success and survival.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Plug In Profit
John Kaighn's Guidance Website
Wednesday, March 19, 2008
Stock Market Swings To Continue
Look for continued wild swings in the market for the foreseeable future as the current economic situation works itself out. At this juncture the Federal Reserve has committed to shoring up the financial system and mitigating the effects of a deceleration in economic growth. The current consensus of economists is that the US is in recession, or very close to it. While the definitive answer to the recession question will be confirmed after the fact, the Fed has seen enough downside risk to the economy to cut the Federal Funds rate to 2.25%, but has also stated that inflation is a concern.
Fed chairman Ben Bernanke, who studied The Great Depression in detail, feels one of the foremost causes of the prolonged downturn in the 1930's was the central bank's reluctance to lower interest rates. Unfortunately, when the Fed takes this type of action, the dollar becomes weaker and inflation becomes a very real risk. While last month's inflation news was muted, there are fears the renewed speculation in commodities, especially oil, will ignite another round of inflationary pressures. It is too soon to know if the Fed moves and the stimulus plan implemented by the Legislative and Executive branches of the government will stave off recession. There are concerns that the increased stimulus may actually overheat the economy in the second half of the year.
While the markets have been in a bit of a panic mode recently, Bernanke and company have taken the right steps to handle the crisis. If inflation begins to accelerate and global demand for commodities doesn't subside, look for the Fed to stop lowering rates and begin to raise them in the second half of the year. My guess is the Euro and other currencies, which have strengthened against the dollar, will weaken considerably as the global slowdown begins to take hold. Just as the stock markets of the world have not decoupled from the US stock market, the global economies and consequently their currencies have also not decoupled from the dollar.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Plug In Profit
John Kaighn's Guidance Website
Fed chairman Ben Bernanke, who studied The Great Depression in detail, feels one of the foremost causes of the prolonged downturn in the 1930's was the central bank's reluctance to lower interest rates. Unfortunately, when the Fed takes this type of action, the dollar becomes weaker and inflation becomes a very real risk. While last month's inflation news was muted, there are fears the renewed speculation in commodities, especially oil, will ignite another round of inflationary pressures. It is too soon to know if the Fed moves and the stimulus plan implemented by the Legislative and Executive branches of the government will stave off recession. There are concerns that the increased stimulus may actually overheat the economy in the second half of the year.
While the markets have been in a bit of a panic mode recently, Bernanke and company have taken the right steps to handle the crisis. If inflation begins to accelerate and global demand for commodities doesn't subside, look for the Fed to stop lowering rates and begin to raise them in the second half of the year. My guess is the Euro and other currencies, which have strengthened against the dollar, will weaken considerably as the global slowdown begins to take hold. Just as the stock markets of the world have not decoupled from the US stock market, the global economies and consequently their currencies have also not decoupled from the dollar.
John Kaighn
Jersey Benefits Advisors
Web Business Review
Plug In Profit
John Kaighn's Guidance Website
Friday, March 7, 2008
How the Federal Reserve Battles Recession
Historically, capitalistic societies have gone through boom and bust cycles on a regular basis. The economic good times are enjoyable for everyone involved, but sometimes the exuberance can lead to downturns which are often painful. The Federal Reserve was created to help moderate the effects of an economic contraction and was given some powerful tools to affect the money supply and keep the economy out of recession.
The establishment of a Central Bank went through many convolutions prior to becoming a non partisan guardian of monetary policy. During the American Revolution, the Continental Congress printed the new nation's first paper money, known as "continentals”. Later, at the urging of Treasury Secretary Alexander Hamilton, Congress established the First Bank of the United States, headquartered in Philadelphia, in 1791. By 1811, with a backlash toward the large banking establishment brewing, the bank's 20-year charter expired and Congress refused to renew it by one vote.
By 1816, Congress agreed to charter the Second Bank of the United
States, but Andrew Jackson, a central bank foe, was elected president in 1828 and he was successful in allowing the charter to expire. State-chartered banks and unchartered "free banks" took hold and began issuing their own notes, redeemable in gold. The New York Clearinghouse Association was established in 1853 to provide a way for the city's banks to exchange checks and settle accounts.
During the Civil War the National Banking Act of 1863 was passed, providing for nationally chartered banks, whose circulating notes had to be backed by U.S. government securities. Although the National Banking Act of 1863 established some measure of currency stability for the growing nation, bank runs and financial panics continued to plague the economy. In 1893 a banking panic triggered the worst depression the United States had ever seen, and the economy stabilized only after the intervention of financial mogul J.P. Morgan.
In 1907 a bout of speculation on Wall Street ended in failure, triggering a
particularly severe banking panic. The Aldrich-Vreeland Act of 1908, passed as an immediate response to the panic of 1907, provided for emergency currency issues during crises. It also established the National Monetary Commission to search for a long-term solution to the nation's banking and financial problems. By December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law, it stood as a classic example of compromise -- a decentralized central bank that balanced the competing interests of private banks and populist sentiment.
Originally, the mandate of the Federal Reserve was not envisioned as an entity which would utilize an active monetary policy to stabilize the economy. The idea of using an economic stabilization policy only dates from the work of John Maynard Keynes in 1936. Instead, the founders viewed the Fed as a means of preventing the supplies of money and credit from drying up during economic contractions, as often happened prior to World War I.
The central bank’s function has changed since the days of the Great Depression, and the Fed now primarily manages the growth of bank reserves and money supply to help stabilize growth during expansions. In order to control the money supply, the Fed uses three main tools to change bank reserves. These tools are a change in reserve requirements, a change in the either the discount rate or the federal funds rate, and the use of Open-market operations.
Changing the reserve ratio is a seldom used, but quite powerful tool at the Fed’s disposal. The reserve ratio is the percentage of reserves a bank is required to hold against deposits. A decrease in the ratio will allow the bank to lend more, which will increase the supply of money. An increase in the ratio will have the opposite effect.
One of the principal ways in which the Fed provides insurance against financial panics is to act as the "lender of last resort", one of the tools used recently as the subprime mortgage debacle led to a credit crunch in the summer of 2007. When business prospects made commercial banks hesitant to extend credit, the Fed stepped in by lending money to the banks, thereby inducing banks to lend more money to their customers. The Federal Reserve does this by lending at the discount window and changing the discount rate.
The federal funds rate is the interest rate that banks charge each other. The federal funds rate target is decided at Federal Open Market Committee (FOMC) meetings. Depending on their agenda and the economic conditions of the U.S., the FOMC members will either increase, decrease, or leave the rate unchanged. It is possible to infer the market expectations of the FOMC decisions at future meetings from the Chicago Board of Trade (CBOT) Fed Funds futures contracts, and these probabilities are widely reported in the financial media.
The Federal Reserve’s open-market operations consist of the buying and selling of government securities by the Fed. If the Fed buys back issued securities (such as Treasury Bills) from large banks and securities dealers, it increases the money supply in the hands of the public. The Fed can decrease the supply of money when it sells a security. The monetary expansion following an open-market operation involves adjustments by banks and the public. When the Fed buys securities from a member bank, the bank’s reserves increase, thereby encouraging it to lend . When the bank makes an additional loan, the person receiving the loan gets a bank deposit. These actions cause the money supply to increase by more than the amount of the open-market operation. This multiple expansion of the money supply is called the money multiplier.
Today, the Fed uses its tools to control the supply of money to help stabilize the economy. When the economy is slumping, the Fed increases the supply of money to spur growth. Conversely, when inflation is threatening, the Fed reduces the risk by shrinking the supply. While the Fed's mission of "lender of last resort" is still important, the Fed's role in managing the economy has expanded since its origin. As we near the end of the first quarter of 2008, the Fed has been lowering interest rates because the threat to growth has taken precedence over the Fed’s concern about inflation. Therefore, at this juncture, the Fed is working to keep the economy out of recession and attempting a "soft landing".
John Kaighn
John Kaighn's Web Business Review
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Jersey Benefits Advisors
John Kaighn's Guidance Website
The establishment of a Central Bank went through many convolutions prior to becoming a non partisan guardian of monetary policy. During the American Revolution, the Continental Congress printed the new nation's first paper money, known as "continentals”. Later, at the urging of Treasury Secretary Alexander Hamilton, Congress established the First Bank of the United States, headquartered in Philadelphia, in 1791. By 1811, with a backlash toward the large banking establishment brewing, the bank's 20-year charter expired and Congress refused to renew it by one vote.
By 1816, Congress agreed to charter the Second Bank of the United
States, but Andrew Jackson, a central bank foe, was elected president in 1828 and he was successful in allowing the charter to expire. State-chartered banks and unchartered "free banks" took hold and began issuing their own notes, redeemable in gold. The New York Clearinghouse Association was established in 1853 to provide a way for the city's banks to exchange checks and settle accounts.
During the Civil War the National Banking Act of 1863 was passed, providing for nationally chartered banks, whose circulating notes had to be backed by U.S. government securities. Although the National Banking Act of 1863 established some measure of currency stability for the growing nation, bank runs and financial panics continued to plague the economy. In 1893 a banking panic triggered the worst depression the United States had ever seen, and the economy stabilized only after the intervention of financial mogul J.P. Morgan.
In 1907 a bout of speculation on Wall Street ended in failure, triggering a
particularly severe banking panic. The Aldrich-Vreeland Act of 1908, passed as an immediate response to the panic of 1907, provided for emergency currency issues during crises. It also established the National Monetary Commission to search for a long-term solution to the nation's banking and financial problems. By December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law, it stood as a classic example of compromise -- a decentralized central bank that balanced the competing interests of private banks and populist sentiment.
Originally, the mandate of the Federal Reserve was not envisioned as an entity which would utilize an active monetary policy to stabilize the economy. The idea of using an economic stabilization policy only dates from the work of John Maynard Keynes in 1936. Instead, the founders viewed the Fed as a means of preventing the supplies of money and credit from drying up during economic contractions, as often happened prior to World War I.
The central bank’s function has changed since the days of the Great Depression, and the Fed now primarily manages the growth of bank reserves and money supply to help stabilize growth during expansions. In order to control the money supply, the Fed uses three main tools to change bank reserves. These tools are a change in reserve requirements, a change in the either the discount rate or the federal funds rate, and the use of Open-market operations.
Changing the reserve ratio is a seldom used, but quite powerful tool at the Fed’s disposal. The reserve ratio is the percentage of reserves a bank is required to hold against deposits. A decrease in the ratio will allow the bank to lend more, which will increase the supply of money. An increase in the ratio will have the opposite effect.
One of the principal ways in which the Fed provides insurance against financial panics is to act as the "lender of last resort", one of the tools used recently as the subprime mortgage debacle led to a credit crunch in the summer of 2007. When business prospects made commercial banks hesitant to extend credit, the Fed stepped in by lending money to the banks, thereby inducing banks to lend more money to their customers. The Federal Reserve does this by lending at the discount window and changing the discount rate.
The federal funds rate is the interest rate that banks charge each other. The federal funds rate target is decided at Federal Open Market Committee (FOMC) meetings. Depending on their agenda and the economic conditions of the U.S., the FOMC members will either increase, decrease, or leave the rate unchanged. It is possible to infer the market expectations of the FOMC decisions at future meetings from the Chicago Board of Trade (CBOT) Fed Funds futures contracts, and these probabilities are widely reported in the financial media.
The Federal Reserve’s open-market operations consist of the buying and selling of government securities by the Fed. If the Fed buys back issued securities (such as Treasury Bills) from large banks and securities dealers, it increases the money supply in the hands of the public. The Fed can decrease the supply of money when it sells a security. The monetary expansion following an open-market operation involves adjustments by banks and the public. When the Fed buys securities from a member bank, the bank’s reserves increase, thereby encouraging it to lend . When the bank makes an additional loan, the person receiving the loan gets a bank deposit. These actions cause the money supply to increase by more than the amount of the open-market operation. This multiple expansion of the money supply is called the money multiplier.
Today, the Fed uses its tools to control the supply of money to help stabilize the economy. When the economy is slumping, the Fed increases the supply of money to spur growth. Conversely, when inflation is threatening, the Fed reduces the risk by shrinking the supply. While the Fed's mission of "lender of last resort" is still important, the Fed's role in managing the economy has expanded since its origin. As we near the end of the first quarter of 2008, the Fed has been lowering interest rates because the threat to growth has taken precedence over the Fed’s concern about inflation. Therefore, at this juncture, the Fed is working to keep the economy out of recession and attempting a "soft landing".
John Kaighn
John Kaighn's Web Business Review
Plug In Profit
Jersey Benefits Advisors
John Kaighn's Guidance Website
Saturday, March 1, 2008
Commodity Express
In his testimony before Congress on economic conditions, Fed Chairman Ben Bernanke stated, "It is important to recognize that downside risks to growth remain." This was taken as a signal that the Fed will once again be lowering interest rates at the March FOMC meeting. This sent the dollar to new lows against the Euro and commodities prices soaring as gold futures approached $1,000 an ounce and oil futures rallied to $102.59 a barrel. Are we seeing the froth of another bubble, this time in commodities, as the speculators (who never quite seem to learn their lesson) seek to find yet another way to get rich quick?
Recently, economists and investors completely debunked the notion that the major economies of the world may have decoupled from the US economy. Yet the very idea that commodity prices will continue their dizzying upward spiral despite a slowdown in the US economy would almost indicate some denial going on here. Since a slowdown in the US would bring about lesser demand for foreign and domestic goods, which in turn will slow production in foreign countries, which will mean less money to purchase goods (which are made from commodities), it seems in the very near future the direction of oil and other commodities may be down.
Inventories of gasoline and heating oil have been higher than anticipated and winter is almost over. As gasoline hovers at $3.00 a gallon and threatens to go to $4.00 a gallon, can a slowdown in consumption be far behind. At this point, OPEC has not cut production, and why would they? At $100 a barrel their greed overwhelms their business sense, much as the builders, mortgage brokers and banks during the run up to the housing correction. It's no wonder consumer confidence fell in February to the lowest level in 17 years. All of this, and we are not even sure we are in a recession yet. Let's just hope the most recent homeowner bailouts being contemplated by Congress never get out of committee, or we could take a slowdown and create a disaster.
John Kaighn
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Jersey Benefits Advisors
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Recently, economists and investors completely debunked the notion that the major economies of the world may have decoupled from the US economy. Yet the very idea that commodity prices will continue their dizzying upward spiral despite a slowdown in the US economy would almost indicate some denial going on here. Since a slowdown in the US would bring about lesser demand for foreign and domestic goods, which in turn will slow production in foreign countries, which will mean less money to purchase goods (which are made from commodities), it seems in the very near future the direction of oil and other commodities may be down.
Inventories of gasoline and heating oil have been higher than anticipated and winter is almost over. As gasoline hovers at $3.00 a gallon and threatens to go to $4.00 a gallon, can a slowdown in consumption be far behind. At this point, OPEC has not cut production, and why would they? At $100 a barrel their greed overwhelms their business sense, much as the builders, mortgage brokers and banks during the run up to the housing correction. It's no wonder consumer confidence fell in February to the lowest level in 17 years. All of this, and we are not even sure we are in a recession yet. Let's just hope the most recent homeowner bailouts being contemplated by Congress never get out of committee, or we could take a slowdown and create a disaster.
John Kaighn
John Kaighn's Web Business Review
Plug In Profit
Jersey Benefits Advisors
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Friday, February 15, 2008
Forecasting the Price of Oil and its Impact on the Economy
The following aricle is a reprint from a recent newsletter by Advisor Perspectives, a company that provides data showing the investment trends of high and ultra high net worth investors, whose money is managed by fee-only independent Registered Investment Advisors.
Higher oil prices make dramatic news.
In 2007, we saw a 50% jump from $70 to $100 per barrel from mid-August to the end of the year. Only during three other times – the Iranian Revolution (1979), Iraq’s invasion of Iran (1980), and Iraq’s invasion of Kuwait (1990) – was there a price increase of this magnitude.
Oil prices affect consumers on a daily basis, at the gas pump and in their home heating bills. No other goods or services have such an impact. Yet, for all its visibility, there are widespread misconceptions about what determines the price of oil and how it affects the economy.
In this article, we look at what drives the price of oil, the prospects for 2008 and the implications of these forecasts. In particular, we examine the 2007 price jump in order to see whether it is likely to be permanent.
Our analysis draws upon the research of Philip Verleger, an expert on energy prices and the author of numerous articles on the oil markets. (We interviewed Verleger on Jan. 30, 2008.)
Light and Sweet or Heavy and Sour?
When we hear that oil is at $80 per barrel, we assume that is the price in the U.S. market. This is not the case. The quoted price for oil is based on WTI, or West Texas Intermediate. This is a “light sweet” crude oil, low in sulfur content and easy to refine. But oil comes in more than one flavor, and WTI represents at most a third of US oil consumption. The majority of the oil refined in the U.S. is “heavy and sour,” driven in part by Canadian and Saudi supply. This oil is considerably cheaper – about $15 per barrel cheaper – than WTI, but costs more to refine.
Using WTI as a benchmark for oil prices is like using the price of an expensive French wine to gauge the price of the overall wine market.
Historically, WTI and sour crude prices have been closely correlated, so the quoted price of oil was an accurate indicator of the market. However, this relationship has started to break down, primarily because of new environmental regulations which limit the amount of sulfur in diesel fuel. These regulations have placed a premium on sweet crude that has caused price movements to diverge.
Oil in 2006 and a Year Later
Oil prices followed nearly identical paths until mid-August, when we saw the beginning of the dramatic increase that lasted until the end of the year. Verleger’s examines the oil markets in 2006-07 with the goal of isolating the underlying supply and demand factors causing the increase last year.
Debunking the Popular Myths
The most popular explanation for the 2007 price increase is growing demand from China, which now consumes 8.5% of the world supply (versus 24% for the U.S.). For an example of how this line of reasoning is presented by one prominent economist, see Dealing with the Dragon. Verleger’s data shows this is not a reasonable explanation. The Chinese market has been correctly forecasted for the last several years. There was no abnormal spike in demand from China (or from India or other markets) during the latter half of last year. As Verleger notes, “it is hard to attribute the sudden price boost to oil buyers waking up to the fact that the global economy was expanding and oil use was rising.”
Supply was not being adversely affected by political disputes or international conflict. If anything, the international dynamics were calmer in 2007 than they were in 2006, as evidenced by the declining casualty rate in Iraq. This was not the source of the price increases.
A shortage of sweet crude in the world markets in 2007 caused the Saudis to increase production of sour crude. This led to a price decline in sour crude prices relative to sweet crude, well-documented in publicly available data. The Saudis were not responsible for the spike.
Speculation did not cause a price spike. Verleger’s data shows investments in commodities, as an asset class, increased from $100 billion to $170 billion in 2007, but most of this increase occurred before the beginning of the August price rise. In addition, the open interest in oil futures contracts was decreasing while prices were increasing, showing that speculators (or whoever was investing in the futures markets at that time) had a diminishing influence on oil prices. Verleger argues the “data seem to exonerate speculators.”
In addition to the oil futures traded on the commodities exchanges, oil experts also look to price movements in “trust” securities (such as the BP Prudhoe Bay Royalty Trust) to calibrate expectations of future prices. If these trusts indicate that oil prices are heading for a sharp increase, oil producers will cut back supply and/or raise current prices until equilibrium is reached. Data show these trusts have a better record of predicting price movements than projections offered by government agencies. Yet future prices implied by these trusts were stable in 2006-07 timeframe, so they cannot explain the 2007 price increase.
Explaining the 2007 Spike
Verleger’s key contention is, beginning in mid-August, the Department of Energy began building up the strategic petroleum reserves, in particular using 1/3 sweet crude and 2/3 sour crude. In fact, approximately 0.3% of the world’s supply of sweet crude went to the SPR. Verleger estimates this action drove oil prices up as much as $10 per barrel, due to the elasticity of oil prices relative to demand, especially in the sweet markets.
On a percentage basis, the increase beginning in mid-August of 2007 may not appear that dramatic. But with sweet crude in high demand and tight supply, the effect on prices was extreme.
Unconfirmed reports suggested that China may also have been accumulating sweet crude into its own SPR during this period, and may be continuing to do so now. If this is true – and oil analysts are trying to confirm these facts – it would explain some of the 2007 price increase. But its effect would be dwarfed by the impact of oil flowing into the American SPR.
Oil companies were reducing their inventories over the last half of 2007 by 50 million barrels of crude stock, representing a little over two days of U.S. oil consumption. The turmoil in the financial markets increased the cost of borrowing for oil companies, making it unattractive for them to finance inventories. Econometric data suggest this inventory reduction contributed a few dollars per barrel to the overall price increases.
“Delta” hedging contributes to price increases. This is a tactic employed by large fuel consumers, particularly airlines, to hedge against price increases by purchasing call options, allowing oil to be bought at a fixed price. Bankers selling these call options hedge their exposure in the futures market, and the net effect is to magnify price increases in an escalating oil environment, such as the latter half of 2007.
Verleger’s bottom line is the US SPR usage contributed $10 of the increase from $70 to $100 per barrel, with inventory reductions responsible for $3 per barrel. Delta hedging was responsible for the remaining $17 per barrel.
Outlook for 2008 and the Impact on the Economy
A common concern is that the 2007 oil spike will lead to a repeat of the 1980s, when the US economic growth was stunted under the burden of expensive oil. This scenario is highly unlikely.
The world economy is less oil dependent. Research from Lehman Brothers shows 0.63 of a barrel is needed to produce $1,000 of GDP, as compared to 0.89 of a barrel in the 1980s. The inflation-adjusted price of oil would need to exceed $100/bbl over a sustained period to replicate the environment of the ‘80s. Additionally, the dollar was stronger then; the fall of the dollar has contributed to the current rise in the price of oil. To the extent the dollar strengthens against world currencies, the price of oil will decline.
The gating factor in today’s economy is not oil prices. It is credit and liquidity, driven by the housing market.
We asked Verleger if an easing of the credit crisis would translate to lower oil prices. “If banks solve their liquidity problem, then it will depend in large part on what oil exporters do,” said Verleger. “It is not a competitive market. If OPEC is aggressive and cuts production, or focuses on inventories, it will push prices higher.”
On the question of the risk of prolonged higher prices, Verleger says it “really depends on how aggressive the members of the cartel are.” More non-OPEC production in today’s market could force OPEC to be more aggressive.
“In 2008, if current flows to the SPR continue, and China continues to do what many believe it has been doing, it will result in a tight sweet crude market, with prices in the high $80s or mid $90s,” Verleger said.
For many in the oil industry, the ultimate question is how oil prices will behave if the economy and overall demand slows down, as many are predicting. Verleger lives in a data-driven world, and has closely studied the path of oil prices during the last five recessions. There is no pattern: in November of 1973 oil prices went up, in January of 1980 they went down, from 1981-2 they went down, in 1990 they went up, and in 2001-2 they went down.
Verleger said “it boils down to how the oil exporting countries behave.” In an economic crisis, he expects them to keep production tight and inventories low, which foretells higher prices. OPEC has seen crude go from $10 to $80 per barrel without a drop in demand in the US. He knows the analysts at OPEC watch the data as closely as he does, and believes they understand that dropping the price of crude from $80 to $10 would not stimulate our economy. “They would rather keep the money in their pockets,” said Verleger.
For his part, Verleger has recommended that the DOE change the composition of flows to the SPR, to increase the portion of sour crude and reduce the portion of sweet crude. This would relieve the primary upward pressure on prices, but so far the response has been negative.
Verleger believes refinery problems would be necessary for prices to go significantly higher than current levels. Alternatively, he cites concern for the oil exporting countries vis-Ã -vis the dollar, causing them to hold back on production. “A further decline in the dollar could cause OPEC countries to cut production,” Verleger noted, adding that “a problem in Nigeria could also cause this.”
Our final question for Verleger was how high oil prices would need to rise before they significantly impaired the economy.
“If the central bank controls inflation, then oil prices don’t have much impact,” he said on the day the Fed lowered interest rates by 50 basis points.
“Bernanke has offered a good explanation for his interest rate cuts,” Verleger said.
But Verleger is not convinced that the liquidity problem is solved, which he believes is the key to economic growth.
John Kaighn
Jersey Benefits Advisors
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Higher oil prices make dramatic news.
In 2007, we saw a 50% jump from $70 to $100 per barrel from mid-August to the end of the year. Only during three other times – the Iranian Revolution (1979), Iraq’s invasion of Iran (1980), and Iraq’s invasion of Kuwait (1990) – was there a price increase of this magnitude.
Oil prices affect consumers on a daily basis, at the gas pump and in their home heating bills. No other goods or services have such an impact. Yet, for all its visibility, there are widespread misconceptions about what determines the price of oil and how it affects the economy.
In this article, we look at what drives the price of oil, the prospects for 2008 and the implications of these forecasts. In particular, we examine the 2007 price jump in order to see whether it is likely to be permanent.
Our analysis draws upon the research of Philip Verleger, an expert on energy prices and the author of numerous articles on the oil markets. (We interviewed Verleger on Jan. 30, 2008.)
Light and Sweet or Heavy and Sour?
When we hear that oil is at $80 per barrel, we assume that is the price in the U.S. market. This is not the case. The quoted price for oil is based on WTI, or West Texas Intermediate. This is a “light sweet” crude oil, low in sulfur content and easy to refine. But oil comes in more than one flavor, and WTI represents at most a third of US oil consumption. The majority of the oil refined in the U.S. is “heavy and sour,” driven in part by Canadian and Saudi supply. This oil is considerably cheaper – about $15 per barrel cheaper – than WTI, but costs more to refine.
Using WTI as a benchmark for oil prices is like using the price of an expensive French wine to gauge the price of the overall wine market.
Historically, WTI and sour crude prices have been closely correlated, so the quoted price of oil was an accurate indicator of the market. However, this relationship has started to break down, primarily because of new environmental regulations which limit the amount of sulfur in diesel fuel. These regulations have placed a premium on sweet crude that has caused price movements to diverge.
Oil in 2006 and a Year Later
Oil prices followed nearly identical paths until mid-August, when we saw the beginning of the dramatic increase that lasted until the end of the year. Verleger’s examines the oil markets in 2006-07 with the goal of isolating the underlying supply and demand factors causing the increase last year.
Debunking the Popular Myths
The most popular explanation for the 2007 price increase is growing demand from China, which now consumes 8.5% of the world supply (versus 24% for the U.S.). For an example of how this line of reasoning is presented by one prominent economist, see Dealing with the Dragon. Verleger’s data shows this is not a reasonable explanation. The Chinese market has been correctly forecasted for the last several years. There was no abnormal spike in demand from China (or from India or other markets) during the latter half of last year. As Verleger notes, “it is hard to attribute the sudden price boost to oil buyers waking up to the fact that the global economy was expanding and oil use was rising.”
Supply was not being adversely affected by political disputes or international conflict. If anything, the international dynamics were calmer in 2007 than they were in 2006, as evidenced by the declining casualty rate in Iraq. This was not the source of the price increases.
A shortage of sweet crude in the world markets in 2007 caused the Saudis to increase production of sour crude. This led to a price decline in sour crude prices relative to sweet crude, well-documented in publicly available data. The Saudis were not responsible for the spike.
Speculation did not cause a price spike. Verleger’s data shows investments in commodities, as an asset class, increased from $100 billion to $170 billion in 2007, but most of this increase occurred before the beginning of the August price rise. In addition, the open interest in oil futures contracts was decreasing while prices were increasing, showing that speculators (or whoever was investing in the futures markets at that time) had a diminishing influence on oil prices. Verleger argues the “data seem to exonerate speculators.”
In addition to the oil futures traded on the commodities exchanges, oil experts also look to price movements in “trust” securities (such as the BP Prudhoe Bay Royalty Trust) to calibrate expectations of future prices. If these trusts indicate that oil prices are heading for a sharp increase, oil producers will cut back supply and/or raise current prices until equilibrium is reached. Data show these trusts have a better record of predicting price movements than projections offered by government agencies. Yet future prices implied by these trusts were stable in 2006-07 timeframe, so they cannot explain the 2007 price increase.
Explaining the 2007 Spike
Verleger’s key contention is, beginning in mid-August, the Department of Energy began building up the strategic petroleum reserves, in particular using 1/3 sweet crude and 2/3 sour crude. In fact, approximately 0.3% of the world’s supply of sweet crude went to the SPR. Verleger estimates this action drove oil prices up as much as $10 per barrel, due to the elasticity of oil prices relative to demand, especially in the sweet markets.
On a percentage basis, the increase beginning in mid-August of 2007 may not appear that dramatic. But with sweet crude in high demand and tight supply, the effect on prices was extreme.
Unconfirmed reports suggested that China may also have been accumulating sweet crude into its own SPR during this period, and may be continuing to do so now. If this is true – and oil analysts are trying to confirm these facts – it would explain some of the 2007 price increase. But its effect would be dwarfed by the impact of oil flowing into the American SPR.
Oil companies were reducing their inventories over the last half of 2007 by 50 million barrels of crude stock, representing a little over two days of U.S. oil consumption. The turmoil in the financial markets increased the cost of borrowing for oil companies, making it unattractive for them to finance inventories. Econometric data suggest this inventory reduction contributed a few dollars per barrel to the overall price increases.
“Delta” hedging contributes to price increases. This is a tactic employed by large fuel consumers, particularly airlines, to hedge against price increases by purchasing call options, allowing oil to be bought at a fixed price. Bankers selling these call options hedge their exposure in the futures market, and the net effect is to magnify price increases in an escalating oil environment, such as the latter half of 2007.
Verleger’s bottom line is the US SPR usage contributed $10 of the increase from $70 to $100 per barrel, with inventory reductions responsible for $3 per barrel. Delta hedging was responsible for the remaining $17 per barrel.
Outlook for 2008 and the Impact on the Economy
A common concern is that the 2007 oil spike will lead to a repeat of the 1980s, when the US economic growth was stunted under the burden of expensive oil. This scenario is highly unlikely.
The world economy is less oil dependent. Research from Lehman Brothers shows 0.63 of a barrel is needed to produce $1,000 of GDP, as compared to 0.89 of a barrel in the 1980s. The inflation-adjusted price of oil would need to exceed $100/bbl over a sustained period to replicate the environment of the ‘80s. Additionally, the dollar was stronger then; the fall of the dollar has contributed to the current rise in the price of oil. To the extent the dollar strengthens against world currencies, the price of oil will decline.
The gating factor in today’s economy is not oil prices. It is credit and liquidity, driven by the housing market.
We asked Verleger if an easing of the credit crisis would translate to lower oil prices. “If banks solve their liquidity problem, then it will depend in large part on what oil exporters do,” said Verleger. “It is not a competitive market. If OPEC is aggressive and cuts production, or focuses on inventories, it will push prices higher.”
On the question of the risk of prolonged higher prices, Verleger says it “really depends on how aggressive the members of the cartel are.” More non-OPEC production in today’s market could force OPEC to be more aggressive.
“In 2008, if current flows to the SPR continue, and China continues to do what many believe it has been doing, it will result in a tight sweet crude market, with prices in the high $80s or mid $90s,” Verleger said.
For many in the oil industry, the ultimate question is how oil prices will behave if the economy and overall demand slows down, as many are predicting. Verleger lives in a data-driven world, and has closely studied the path of oil prices during the last five recessions. There is no pattern: in November of 1973 oil prices went up, in January of 1980 they went down, from 1981-2 they went down, in 1990 they went up, and in 2001-2 they went down.
Verleger said “it boils down to how the oil exporting countries behave.” In an economic crisis, he expects them to keep production tight and inventories low, which foretells higher prices. OPEC has seen crude go from $10 to $80 per barrel without a drop in demand in the US. He knows the analysts at OPEC watch the data as closely as he does, and believes they understand that dropping the price of crude from $80 to $10 would not stimulate our economy. “They would rather keep the money in their pockets,” said Verleger.
For his part, Verleger has recommended that the DOE change the composition of flows to the SPR, to increase the portion of sour crude and reduce the portion of sweet crude. This would relieve the primary upward pressure on prices, but so far the response has been negative.
Verleger believes refinery problems would be necessary for prices to go significantly higher than current levels. Alternatively, he cites concern for the oil exporting countries vis-Ã -vis the dollar, causing them to hold back on production. “A further decline in the dollar could cause OPEC countries to cut production,” Verleger noted, adding that “a problem in Nigeria could also cause this.”
Our final question for Verleger was how high oil prices would need to rise before they significantly impaired the economy.
“If the central bank controls inflation, then oil prices don’t have much impact,” he said on the day the Fed lowered interest rates by 50 basis points.
“Bernanke has offered a good explanation for his interest rate cuts,” Verleger said.
But Verleger is not convinced that the liquidity problem is solved, which he believes is the key to economic growth.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
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John Kaighn's Guidance Website
Sunday, February 3, 2008
Correction or Bear Market; Recession or Slowdown?
One of the worst January performances for the stock market is behind us and many investors are wondering just where we stand as we begin February. Are we just experiencing another correction, or are we in the throes of a full fledged bear market? While dipping close to bear levels for an hour on the Tuesday following the Martin Luther King holiday, the market has rebounded well off of those levels recently, despite much weaker than expected employment numbers. With the media and presidential candidates tossing the word recession around like a hot potato, Congress and the President brandishing a $150 billion stimulus plan and the Federal Reserve Chief slashing interest rates like a Samurai, is it any wonder main street investors are wondering what will happen next?
In a speech last week, Hillary Clinton sounded the alarm about the "second Bush recession". The media gave her a complete pass on the statement, because if my memory serves me correctly, The National Bureau of Economic Research confirmed the last recession began in the first quarter of 2001, so it is quite difficult to blame that recession on the current occupant of the White House. Furthermore, there is no confirmation of a recession at this juncture, and many economists believe the current fiscal stimulus being contemplated may well overstimulate an economy that could recover on its own from the current slowdown. So, what is the real deal?
The economy's anemic .6% growth rate for the fourth quarter does indicate a recession is a distinct possibility. A jobs number showing the economy shed 15,000 jobs also is cause for concern. With the credit crunch and housing debacle still raging, it is prudent for policymakers to manage the risk of recession proactively. However, the economic team at JP Morgan Chase recently stated that the current spate of economic stimulus being contemplated is like "risk management on steroids". Ed Yardeni, who heads his own research firm, said it succinctly in a letter to his clients when he noted, "I don't recall so much policy stimulus and so many bailout plans thrown at the economy so fast before there was compelling evidence of a recession". None of the plans being developed will have any impact on the economy in the current quarter or the second. All of the pump priming effects will be felt in the second half of the year.
If all of the doom and gloom predictions of recession turn out to be overblown, and the economy limps along with slow growth through the first half of the year, things just might improve on their own. When all of the monetary and fiscal stimulus kicks in during the second half of the year, the economy could heat up more than anticipated. The Fed could find themselves in the situation of having to raise interest rates to battle reignited inflation.
As I stated in an earlier blog, closing values of 1,252.12 in the S&P 500 and 11,331.62 in the DJIA would indicate a 20% decline for those two indices from their highs in October 2007. Until those levels are reached, we are officially only in a correction. Recessions and bear markets usually occur when most people are unaware of the possibility of their occurance. Perhaps a contrarian position might be the most prudent view to take at the present time.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
In a speech last week, Hillary Clinton sounded the alarm about the "second Bush recession". The media gave her a complete pass on the statement, because if my memory serves me correctly, The National Bureau of Economic Research confirmed the last recession began in the first quarter of 2001, so it is quite difficult to blame that recession on the current occupant of the White House. Furthermore, there is no confirmation of a recession at this juncture, and many economists believe the current fiscal stimulus being contemplated may well overstimulate an economy that could recover on its own from the current slowdown. So, what is the real deal?
The economy's anemic .6% growth rate for the fourth quarter does indicate a recession is a distinct possibility. A jobs number showing the economy shed 15,000 jobs also is cause for concern. With the credit crunch and housing debacle still raging, it is prudent for policymakers to manage the risk of recession proactively. However, the economic team at JP Morgan Chase recently stated that the current spate of economic stimulus being contemplated is like "risk management on steroids". Ed Yardeni, who heads his own research firm, said it succinctly in a letter to his clients when he noted, "I don't recall so much policy stimulus and so many bailout plans thrown at the economy so fast before there was compelling evidence of a recession". None of the plans being developed will have any impact on the economy in the current quarter or the second. All of the pump priming effects will be felt in the second half of the year.
If all of the doom and gloom predictions of recession turn out to be overblown, and the economy limps along with slow growth through the first half of the year, things just might improve on their own. When all of the monetary and fiscal stimulus kicks in during the second half of the year, the economy could heat up more than anticipated. The Fed could find themselves in the situation of having to raise interest rates to battle reignited inflation.
As I stated in an earlier blog, closing values of 1,252.12 in the S&P 500 and 11,331.62 in the DJIA would indicate a 20% decline for those two indices from their highs in October 2007. Until those levels are reached, we are officially only in a correction. Recessions and bear markets usually occur when most people are unaware of the possibility of their occurance. Perhaps a contrarian position might be the most prudent view to take at the present time.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
Tuesday, January 22, 2008
Fed Cuts Interest Rate 75 Basis Points
The Federal Reserve, after reviewing the significant global stock market declines on Monday and again on Tuesday, which were at least partially caused by increased fears of a US recession, lowered the federal funds rate by 75 basis points, or three-quarters of a percentage point this morning and indicated further rate cuts were likely. This surprise reduction in the federal funds rate from 4.25% down to 3.5% percent is the most significant one-day rate move by the central bank since it cut the discount rate by a full percentage point in December 1991, a period when the country was struggling to get out of a recession.
In addition to cutting the federal funds rate, the Fed said it was reducing the discount rate, the interest it charges to make direct loans to banks, by a similar three-quarters of a percentage point, pushing this rate down to 4%. Commercial banks responded to the Fed's action on the funds rate by announcing similar cuts of three-quarters of a percent on its prime lending rate, the benchmark for millions of business and consumer loans. The action will mean the prime lending rate will drop from 7.25% down to 6.50%.
The Fed's interest rate moves came after significant declines in Asian and European markets on Monday, while the US markets were closed in observance of the Martin Luther King Holiday, and again overnight and into this morning as global markets continued their sell off. By midday, the U.K.'s FTSE 100 was down 0.3 percent at 5,560.90, Germany's DAX was down 1.7 percent at 6,671.82, while France's CAC 40 dropped 1.3 percent to 4,681.07.
Japan's Nikkei 225 index tumbled 5.7 percent, its largest percentage drop in nearly 10 years, to 12,573.05, a day after falling 3.9 percent. Australia's benchmark index sank 7.1 percent, its steepest one-day slide in nearly 20 years. Hong Kong's Hang Seng index, which slumped 5.5 percent Monday, finished down 8.7 percent on Tuesday. In China, the Shanghai Composite index lost 7.2 percent to 4,559.75, its lowest close since August. Indian Finance Minister P. Chidambaram urged investors to remain calm after trading in Mumbai was halted for an hour when the stock market there fell 10 percent within minutes of opening. The Sensex rebounded some to close down 5 percent after plunging 7.4 percent Monday.
Early market reaction to the Fed's rate reduction was not positive, as the DJIA opened off 450 points. However, as the morning wore on, the losses subsided to a more palatable 150 points off of Friday's close. Whether this will be a complete capitulation and subsequent end of the bull market remains to be seen. Closing values of 1,252.12 in the S&P 500 and 11,331.62 in the DJIA would indicate a 20% decline for those two indices from their highs in October 2007. Even if a recession is avoided, I think global markets are making a huge statement regarding the theory of decoupling, that is, the belief global markets and economies could continue to thrive during a downturn in the US.
The positive news for the day is the European markets seemed to like the Federal Reserve's interest rate decision, because even though they were down at midday, they managed to end on the plus side, for the most part. European policymakers offered no hint on Tuesday they would rush to join the United States with a stimulus plan to inoculate their economies from the ravages of a global stock market rout. The economy is sound and fear and panic should not drive decision making, European Central Bank officials said after the U.S. Federal Reserve's surprise move to slash interest rates.
Jean-Claude Juncker, the senior finance minister for the euro zone economies, said he was keeping a close eye on developments but right now saw no danger of U.S. driven turmoil spilling over to cause a global recession. "When financial markets act irrationally, and are driven by herd behaviour, when stock markets demonstrate short-termism, there is no reason for finance ministers to do the same," Juncker told reporters on arriving for Tuesday's talks. Someone should show the above quote to the alarmist politicians in Congress and the White House before they overstimulate the economy, increase food stamp subsidies and who knows what else. Washington's overreaction and the election year grandstanding could further damage the economy or inflate a bubble in another sector by easing credit too much. Sometimes, less is better, especially when it comes to political demagoguery and bogus spending programs appealing to special interest groups.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
In addition to cutting the federal funds rate, the Fed said it was reducing the discount rate, the interest it charges to make direct loans to banks, by a similar three-quarters of a percentage point, pushing this rate down to 4%. Commercial banks responded to the Fed's action on the funds rate by announcing similar cuts of three-quarters of a percent on its prime lending rate, the benchmark for millions of business and consumer loans. The action will mean the prime lending rate will drop from 7.25% down to 6.50%.
The Fed's interest rate moves came after significant declines in Asian and European markets on Monday, while the US markets were closed in observance of the Martin Luther King Holiday, and again overnight and into this morning as global markets continued their sell off. By midday, the U.K.'s FTSE 100 was down 0.3 percent at 5,560.90, Germany's DAX was down 1.7 percent at 6,671.82, while France's CAC 40 dropped 1.3 percent to 4,681.07.
Japan's Nikkei 225 index tumbled 5.7 percent, its largest percentage drop in nearly 10 years, to 12,573.05, a day after falling 3.9 percent. Australia's benchmark index sank 7.1 percent, its steepest one-day slide in nearly 20 years. Hong Kong's Hang Seng index, which slumped 5.5 percent Monday, finished down 8.7 percent on Tuesday. In China, the Shanghai Composite index lost 7.2 percent to 4,559.75, its lowest close since August. Indian Finance Minister P. Chidambaram urged investors to remain calm after trading in Mumbai was halted for an hour when the stock market there fell 10 percent within minutes of opening. The Sensex rebounded some to close down 5 percent after plunging 7.4 percent Monday.
Early market reaction to the Fed's rate reduction was not positive, as the DJIA opened off 450 points. However, as the morning wore on, the losses subsided to a more palatable 150 points off of Friday's close. Whether this will be a complete capitulation and subsequent end of the bull market remains to be seen. Closing values of 1,252.12 in the S&P 500 and 11,331.62 in the DJIA would indicate a 20% decline for those two indices from their highs in October 2007. Even if a recession is avoided, I think global markets are making a huge statement regarding the theory of decoupling, that is, the belief global markets and economies could continue to thrive during a downturn in the US.
The positive news for the day is the European markets seemed to like the Federal Reserve's interest rate decision, because even though they were down at midday, they managed to end on the plus side, for the most part. European policymakers offered no hint on Tuesday they would rush to join the United States with a stimulus plan to inoculate their economies from the ravages of a global stock market rout. The economy is sound and fear and panic should not drive decision making, European Central Bank officials said after the U.S. Federal Reserve's surprise move to slash interest rates.
Jean-Claude Juncker, the senior finance minister for the euro zone economies, said he was keeping a close eye on developments but right now saw no danger of U.S. driven turmoil spilling over to cause a global recession. "When financial markets act irrationally, and are driven by herd behaviour, when stock markets demonstrate short-termism, there is no reason for finance ministers to do the same," Juncker told reporters on arriving for Tuesday's talks. Someone should show the above quote to the alarmist politicians in Congress and the White House before they overstimulate the economy, increase food stamp subsidies and who knows what else. Washington's overreaction and the election year grandstanding could further damage the economy or inflate a bubble in another sector by easing credit too much. Sometimes, less is better, especially when it comes to political demagoguery and bogus spending programs appealing to special interest groups.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
Saturday, January 12, 2008
Baby It's Cold Outside
It didn't take much time for the market to hit official correction territory from its October 2007 high. After a dismal drop at the end of 2007 and two weeks of trading in the new year, the S&P 500 and the Dow Jones Industrial Average have managed to retreat to that 10% milestone. The January trading barometer, which states that the first 5 days of trading in January set the tone for the month is indicating a chilly month ahead. While the indicator, popularized in 1972 by Yale Hirsch of the Stock Trader's Almanac is quite accurate (91%) when the first five days are positive, the accuracy is only 45% when the first five days are negative. I guess it is really way to early to try to figure out what the year ahead may be bringing, although most of those participants in the Barron's Roundtable seem to think the market won't even begin to come back to life until the second half of the year.
The small nuggets of upbeat earnings news were pretty much drowned out by a continued litany of economic and financial problems. The Dow Jones Industrial Average fell 246 points, or 1.9%, to 12,606 on Friday, losing 1.5% for the week. Since the start of 2008, the Dow has now lost 658.52 points, or 5%. The S&P 500 index was off 1.4% Friday and fell 0.7% for the week. The Nasdaq Composite dropped 2% Friday for a weekly loss of 2.6%.
Fear of bankruptcy at Countrywide Financial led to a 238-point plunge in the Dow on Tuesday, followed by another big drop Friday, even as Bank of America said it would buy the troubled mortgage lender for $4 billion. A year ago, Countrywide's market value was $24 billion. Seems like Bank of America may have gotten a pretty good deal on this transaction, which will be an all stock deal.
Meanwhile, results at major financial firms are expected to continue to reflect the impact of bad bets in subprime mortgages. Citigroup is expected to report earnings on Tuesday, along with US Bancorp and State Street Corp. J.P. Morgan Chase reports on Wednesday, along with Wells Fargo Co. and Northern Trust. Washington Mutual, Merrill Lynch, Bank of New York, and PNC Financial report on Thursday.
Intel's earnings on Tuesday along with IBM's results on Thursday could also further test recent market hopes that the technology sector might continue to benefit from global growth even as the U.S. slows down. Yet, those hopes have waned in the market, with the tech-heavy Nasdaq Composite posting some of the worst losses of major indexes, losing 8% since the start of the year. Investors will also monitor the results and forecasts of industrials giant General Electric Co., which reports Friday, for clues on global growth.
Some key data will also be closely monitored next week, with investors on high alert for signs that the economy might slide into recession. Tuesday will bring reports on December producer prices, retail sales and a key business survey in the New York region. Wednesday will see the release of the December consumer price index, industrial production data, a housing market index, along with the Federal Reserve's Beige Book of economic conditions.
On Thursday, December housing starts, weekly jobless claims and the Philadelphia Fed survey will be released. Friday will bring a key consumer sentiment survey along with leading economic indicators. With oil sitting near $100 a barrel, gold topping $900 an ounce on Friday, and food prices surging, investors remain worried that inflation pressures might prevent the Fed from cutting interest rates as much as hoped. However, "the U.S. economy seems to be facing ever-greater risks of entering a recession, in the light of the latest statistics on unemployment, activity in the manufacturing sector and household confidence," said Philippe D'Arvisenet, an economist at BNP Paribas, in a note. "Under these conditions, the Fed should give priority to avoiding a recession, pushing its concerns about inflationary risks onto the backburner," he said.
I'm sure all eyes will be on the Fed at the end of the month when the Federal Open Market Committee meets. Investors are anticipating a 1/2 point cut in the Federal Funds Rate at that meeting. Unfortunately, it really doesn't seem like monetary policy will be enough to breathe life into the stock market in the short term. There are a lot of excesses which have to be wrung out of the system, and it could mean some short term pain.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
The small nuggets of upbeat earnings news were pretty much drowned out by a continued litany of economic and financial problems. The Dow Jones Industrial Average fell 246 points, or 1.9%, to 12,606 on Friday, losing 1.5% for the week. Since the start of 2008, the Dow has now lost 658.52 points, or 5%. The S&P 500 index was off 1.4% Friday and fell 0.7% for the week. The Nasdaq Composite dropped 2% Friday for a weekly loss of 2.6%.
Fear of bankruptcy at Countrywide Financial led to a 238-point plunge in the Dow on Tuesday, followed by another big drop Friday, even as Bank of America said it would buy the troubled mortgage lender for $4 billion. A year ago, Countrywide's market value was $24 billion. Seems like Bank of America may have gotten a pretty good deal on this transaction, which will be an all stock deal.
Meanwhile, results at major financial firms are expected to continue to reflect the impact of bad bets in subprime mortgages. Citigroup is expected to report earnings on Tuesday, along with US Bancorp and State Street Corp. J.P. Morgan Chase reports on Wednesday, along with Wells Fargo Co. and Northern Trust. Washington Mutual, Merrill Lynch, Bank of New York, and PNC Financial report on Thursday.
Intel's earnings on Tuesday along with IBM's results on Thursday could also further test recent market hopes that the technology sector might continue to benefit from global growth even as the U.S. slows down. Yet, those hopes have waned in the market, with the tech-heavy Nasdaq Composite posting some of the worst losses of major indexes, losing 8% since the start of the year. Investors will also monitor the results and forecasts of industrials giant General Electric Co., which reports Friday, for clues on global growth.
Some key data will also be closely monitored next week, with investors on high alert for signs that the economy might slide into recession. Tuesday will bring reports on December producer prices, retail sales and a key business survey in the New York region. Wednesday will see the release of the December consumer price index, industrial production data, a housing market index, along with the Federal Reserve's Beige Book of economic conditions.
On Thursday, December housing starts, weekly jobless claims and the Philadelphia Fed survey will be released. Friday will bring a key consumer sentiment survey along with leading economic indicators. With oil sitting near $100 a barrel, gold topping $900 an ounce on Friday, and food prices surging, investors remain worried that inflation pressures might prevent the Fed from cutting interest rates as much as hoped. However, "the U.S. economy seems to be facing ever-greater risks of entering a recession, in the light of the latest statistics on unemployment, activity in the manufacturing sector and household confidence," said Philippe D'Arvisenet, an economist at BNP Paribas, in a note. "Under these conditions, the Fed should give priority to avoiding a recession, pushing its concerns about inflationary risks onto the backburner," he said.
I'm sure all eyes will be on the Fed at the end of the month when the Federal Open Market Committee meets. Investors are anticipating a 1/2 point cut in the Federal Funds Rate at that meeting. Unfortunately, it really doesn't seem like monetary policy will be enough to breathe life into the stock market in the short term. There are a lot of excesses which have to be wrung out of the system, and it could mean some short term pain.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
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