Today, insurance companies are trying to buy their way out of promises on variable annuities. The guarantees have become too costly. Variable annuities with guaranteed lifetime income were aggressively marketed by insurers for years. A lot of salesmen became millionaires on the fees they collected, and insurers were able to mint their own money. In many cases, the fees exceeded 3.5% of assets per year, and most had surrender fees for early withdrawal, which could lop off 7% of your assets on the way out the door. But now insurers are offering to buy back these variable annuities with … [Read more...]
Home for the Holidays
The Federal Reserve seems to feel inflation is under control. But those of us living in the real world know it’s far from under control. Have you tried buying an airline ticket lately? Even the airlines that are “bankrupt” or close to it are charging a fortune. Enjoying the holidays together isn’t cheap, especially if you like to eat. If you like being comfortable inside your home as opposed to shivering uncontrollably or sweating profusely, then you know utility costs aren’t getting cheaper either. Consider how much you’ve spent in the past 10 years alone, never mind your lifetime. The … [Read more...]
Do Your Friends and Family Have a Better 401(k) Plan?
I was talking to a prospective client last week who wants help managing his 401(k). He is one of several doctors in a large practice in the Midwest, where he’s finally been promoted to a senior position that dictates how the practice runs its 401(k) plan. He persuaded the group to change the 401(k) to offer a self-direct option. It’s the only way to go. With a self-direct option, partners are able to use any firm they like to manage their money. They can work with one that invests in dividend-paying stocks, gold, foreign currencies, you name it. He said that in the past, this was not … [Read more...]
Time to Buy Gold?
It’s the question most frequently asked by customers over the last week: Is now a good time to buy gold? My answer is that I like gold. Who doesn’t? But I don’t buy it hoping it goes up. I buy it and hope it goes down, because most of the stuff I own in my portfolio goes up when gold goes down, as should be the case in yours. But if you have invested in gold over the last 10 years, you’ve beaten the pants off the Dow Jones Industrial Average total return. Look at the chart below for a comparison. The chart shows you what $100 invested in the Dow or gold on December 31, 1999, would be worth … [Read more...]
Annuity Blimp Losing Air
When you get your insurance bill, you may not think insurers struggle to make money, but indeed some do. MetLife Inc. reported a third-quarter loss of about $1 billion compared to a gain of almost $3.5 billion last year. Of the loss, $1.6 billion was a goodwill impairment from its U.S. retail annuity business, where variable annuity sales dropped by 46%, or $4.6 billion. MetLife is the biggest U.S. life insurer by assets. You might remember it from the Snoopy blimps. But don’t get caught by the marketing blitz. Variable annuities have a tough road ahead. It may not be long before annuity … [Read more...]
Market Finally Catching up with the Bad News
In June the Dow Jones Transports and the Dow Jones Industrials indices began to diverge. Dow Theory says that the transports lead the industrials, and that divergences in the index are usually reconciled by the industrials catching up with the transports. This has proven the case once again. In early October the Dow Jones Industrial Index peaked out, and has begun falling rapidly. The result has been a spike in the Dow Jones Transports vs. Dow Jones Industrials index in the chart below. … [Read more...]
Banging the Beehive, Spoofing, and the Boston Zapper
This is not a market to play around in. Seasoned traders are getting burned. High-frequency traders are eating their lunch. The high-frequency guys are juicing the market with strategies like “banging the beehive,” “spoofing,” and the “Boston zapper.” The volatility is neck-snapping . “It was always going to be volatile, but at least if you had the right idea, you’d get paid for it. Now, you can put yourself on the line, but you’re flying blind,” said a seasoned trader recently about natural gas futures. Stop orders are an area susceptible to flash crashes and high-frequency trading. If … [Read more...]
The Great Gold Bull Market
In the last five years the price of an ounce of gold has increased 131%. Easy monetary policies and the downgrade of many sovereign debt ratings, including that of the U.S., have contributed to the high demand for the safe-haven precious metal. Since May 16, in the lead up to September’s Federal Reserve announcement of QE infinity, the market pushed the price of gold up by 12.6%. The price of the yellow metal is consolidating and could break out at any moment. Gold should be a component of all investment portfolios today as a hedge against profligate fiscal and monetary policy. … [Read more...]
GNMA Stands Apart
When you hear the names Fannie Mae and Freddie Mac or the term mortgage-backed securities, you don’t get a warm and fuzzy feeling, do you? Peace of mind and comfort don’t roll off of the tongue either. But some mortgage-backed securities do make sense. So what separates fish from fowl? Four letters: GNMA. “GNMA is the only mortgage-backed security that enjoys the full faith and credit of the United States Government,” reads the website. As you can see on the chart below, the spread between yields on 30-year GNMA mortgages and 30-year Fannie Mae mortgages averages about 8 basis points, or … [Read more...]
A Sure Bet for You
I remember how when I was growing up, my mother always told me she could buy five candy bars for a quarter when she was a kid. I just thought they must have been really cheap back then. Have you ever tried explaining inflation? Anyway, I hope you’ve saved enough money in your piggy bank because you’re going to need it. These days, we’re all living longer. And even though Federal Reserve Chairman Ben Bernanke has said he can control inflation, it’s easy to see on my chart of inflation expectations that the market doesn’t believe the chairman. Let’s say you retire at 65 and inflation is … [Read more...]
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