Friday, December 28, 2007

Never Do Business With Capital One

I don't normally do this, but.....I've had it with Capital One. Yes - that company with the catchy commercials (What's In Your Wallet?). I am writing to tell you that you should NOT have Capital One in your wallet or financing your car. The customer service is outrageously bad and unacceptable. I've had the worst problems with them and want everybody to know that they are not a company worthy of your commitment. If you have a credit card with them - cancel it. If you have an auto loan - refinance it. Stay as far away from Capital One as you possibly can.

Scott Dauenhauer, CFP, MSFP, AIF
949-916-6238
www.meridianwealth.com

Friday, December 21, 2007

Guttentag: Bringing Down The House

Jack Guttentag on how bad this mortgage mess really is and whether or not it rises to the level of the great depression.....he also explains how we did some things right and how it could have been worse.

Scott Dauenhauer
949-916-6238
www.meridianwealth.com

Ben Stein: Feeling The Crunch

Ben Stein takes us through what went wrong with the mortgage mess and what the outlook for it is. A short well written, easy to read article that I think you'll find interesting - I especially loved the following excerpt:

"If I were to choose a cartoon to represent the financial events of 2007, it would be the familiar one of Lucy promising Charlie Brown that this time, definitely this time, despite all the lies in the past, she would hold the football firmly in place while he practiced placekicking. Then, of course, she snatches it away and he goes flying onto his backside.

In the case of 2007 and investors, Lucy is, as always, Wall Street. The football is collateralized mortgage obligations, and the placekicking dupe is you and me. But the smart observer is the guy or gal or who knows this crisis won't go on forever, and the time to buy stocks, mutual funds, and ETFs is when everyone is worried -- not when they're chirrupy and happy."

Click the link to keep reading!

Scott Dauenhauer, CFP, MSFP, AIF

Monday, December 17, 2007

The Grinch: Fannie Mae & Freddie Mac

NAHB: Fannie Mae Piling On Fees

As if things weren't already tough enough in the housing market the mortgage purchasing giants Fannie Mae and Freddie Mac are imposing new fees on mortgages they guarantee. This is the absolute worst time they could do this.

Let's think about this for a moment - at a time when housing prices are declining and lending standards are tightening - which means less borrowers to buy houses - we decide to impose yet another obstacle to the home buying process - higher fees (which will translate into higher rates).

Whoever the geniuses are at the quasi-government agencies that came up with this idea should be fired - this will only make things worse for their existing stockpile of loans as the collateral backing them will fall further in value.

Fannie and Fredie are the new Grinches That Stole Christmas.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Fed's Mixed Signals Spur Crisis of Confidence (Ahead of the Curve) | SmartMoney.com

Fed's Mixed Signals Spur Crisis of Confidence (Ahead of the Curve) | SmartMoney.com

Donald Luskin once again puts the current happenings of the market in perspective in a fairly easy to read manner. Don is a bit unhappy with Fed Chairman Ben Bernanke's mixed signals and wants the Fed to express confidence (actually look confident!). He is still bullish, though the Federal Reserve isn't helping.

Scott Dauenhauer, CFP, MSFP, AIF
949-916-6238
www.meridianwealth.com

Siegel: Outlook for 2008

Jeremy Siegel makes his annual predictions and see stocks with an 8% gain.....my prediction is that stocks will be up, down, or about the same as they started!

Perhaps you think my prediction is weak or comical - it is neither. Predicting the markets, while fun and time consuming is a waste of time as no one can do it correctly on a consistent basis.

I have a fundamental belief that stocks will go up over time and that it is much better to be in them than out of them, other than that - I stay away from predictions.

Having said that, take a gander at Siegel's outlook - it is interesting.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Friday, December 14, 2007

Guttentag: Will Blemished Borrowers Be Blindsided by Congress?

Interesting and thought provoking article by our good friend Jack Guttentag - bottomline, Congress wants to make the housing bust a depression, we shouldn't let them.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Wednesday, December 05, 2007

The Greenback Isn't a Goner

The Greenback Isn't a Goner

Good column by James Cooper over at BusinessWeek about why the recent decline of the dollar doesn't signal a collapse of the dollar. He also gives it some perspective, for example, did you know the following:

Though the greenback has fallen 24% from its high in 2002 - it was quite high in 2002. The dollar climbed 72% from 1992 - 2002.

The dollar is still 42% abover the 1985 peak when it earned the name "superdollar".

I'm not saying that a falling dollar is good....or bad. Just giving some perspective.

Read Cooper's column.

Scott Dauenhauer, CFP, MSFP, AIF
949-916-6238
Scott@meridianwealth.com

Friday, November 30, 2007

11 Reasons to Buy Now

11 Reasons to Buy Now (Citigroup) | SmartMoney.com: "State of Florida's pension plan"

I think Don Luskin is my newest favorite pundit, he's got a great article about why stocks are a good buy and the media is wrong.

For those of you who have been reading my blog you'll know that I've been saying that there is no reason for panic. I've said that recession fears are overblown and are being mentioned purely to make news.

I don't predict markets or recessions - but it seems like a strange time to have a recession given that we have low unemployement, low inflation, low interest rates, the faster GDP growth in 4 years and record treasury receipts.....perhaps I'm wrong, but it doesn't matter. We are not investing for next year or two years from now, we are investing for the long term and paying attention to the short term when making long term decisions can be dangerous.

Great article by Don, please read it.

Scott Dauenhauer, CFP,MSFP, AIF
949-916-6238
www.meridianwealth.com

Monday, November 26, 2007

2007: The Year of Fluctuation



It has been a year of wild fluctuation in the stock market. Today the market closed at 12,743.44 or 10% off its high of 14,164 set on October 9th - an astonishing drop of 1,421 points in just under 50 days. Of course, this isn't something that is abnormal, on average the market corrects by 10% once every two years. Of course this year has been one of big ups and big downs, at one point the market was up 1,766 points for the year, or about 14%.

For the record, as you can see from the picture to the right its been a wild year. We have had three short time frames with drops of over 700 points, including two of over 1,000. However, if you had looked at the paper only twice this year, once on January 5th and then tomorrow you would think to yourself that the markets are doing ok, not spectacular, but at least they aren't down.

I know that these market fluctuations can make you feel sick to your stomach, but my advice is not to fret. This is normal and to be expected and the price we pay for longer term higher returns. In fact, this is where you make your money.

What? This is where we make our money, are you crazy?

My sanity aside, I am serious. The most important factor in your long term return is not when you got into the market, but how you acted (or reacted) when the market took its lumps. If you panic and sell you'll be just like everyone else and you'll earn a mediocre return.

In a recent article by Jason Zweig he tells us about how poor timing can hurt us, "In 1982 the total value of the U.S. stock market, as measured by the Wilshire 5000 index, was $1.2 trillion. The index has since returned an average annual rate of 13.3% - enough to turn that $1.2 trillion into $28.2 trillion. Yet the value of Wilshire stocks, as of Sept. 30, was $18.7 trillion, meaning investors earned far less than 13.3% a year. Did $9.5 trillion disappear? And how can investors earn less than their investments?"

Jason goes on to explain that investors earn less than their investments because they jump around to much. They buy whats hot and panic out when things get bad - two big no-no's. Jason's advice - invest in the market at a low cost and refrain from trading (except for rebalancing). In other words, don't panic when the market does what it will inevitably do - go down.

My clients have diversified portfolio's, but I know they are still feeling the effects of the current market fluctuation. I know it is hard, but trust me - you are making your money right now by waiting out the short term fluctuations and staying invested for what will eventually come - the upward movement of the world's greatest companies.

If you have any questions, concerns or comments please feel free to call or shoot me an e-mail - I'm always available to talk.

Warm regards,

Scott Dauenhauer, CFP, MSFP, AIF

Humor Break: The Most Effective SpeedBump Ever Built

A little humor for your day. We'll see if these speed bumps catch on!

Scott Dauenhauer, CFP, MSFP, AIF

Seventeen reasons America actually needs a recession

Seventeen reasons America actually needs a recession - MarketWatch

Interesting if not a strange article by Paul Farrell. I'm not one of those people calling for a recession or predicting a recession - mainly because I've learned that attempting to predict the future is like trying to catch rain (or herd cats for that matter). What I do like about Paul's article is that he states that recessions shouldn't be something to be afraid of - they are a NATURAL part of the business/economic cycle, they are in fact healthy.

This is not to say that I like recessions, they are not fun and good people (along with some bad) get hurt. But they are necessary and natural.

I think that the recession word is being thrown around mainly because of the presidential election and because the financial media loves to have something scary to talk about. What is more fun to talk about: historic low inflation, historic low interest rates, historic low employment numbers, record corporate profits, record inflows to the treasury OR the "plunging" dollar, out of whack trade balance, "$100 Oil", "$150 Oil", "$200 oil", Home prices plunging, and the mother of all scary financial talk....RECESSION.

The financial media will always pick the latter.

By the way, what is the word Recession made up of - the term "Recess" which means to take a break.....what's wrong with taking a break every now and then? But let's not force a recession on us just so we have something to talk about.

Scott Dauenhauer, CFP, MSFP, AIF
President
Meridian Wealth Management

Monday, November 19, 2007

The Long Johns

The Market's craziness completely explained in easy to understand language!

Actually, this humorous piece has more truth to it than you might think - parody at its best.

Stocks Today Are a Great Bargain (Ahead of the Curve) | SmartMoney.com

Stocks Today Are a Great Bargain (Ahead of the Curve) | SmartMoney.com

Interesting article by Don Luskin - he thinks stocks are risky....and a good buy. Is he right? No idea, but I tend to agree with him. I don't make short term predictions about the market, but I do believe it will do fine long term and better than bonds.

If you're afraid of the market perhaps you shouldn't be in it, but before panicking and selling out, read this article.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Friday, November 09, 2007

Which way to invest once you retire? - USATODAY.com

Which way to invest once you retire? - USATODAY.com

A pretty good article about why you still need stocks in retirement.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

The Real Reason to Worry About the Dollar (Ahead of the Curve) | SmartMoney.com

The Real Reason to Worry About the Dollar (Ahead of the Curve) | SmartMoney.com

Tired of hearing about the record low dollar? Wondering why its falling? Are you panicking that United States is on the verge of collapse?

If you've watched the media lately you may have heard or seen these above themes - remember that if they didn't scare you they wouldn't have any news. If you want an interesting and well written response as to what is going on with the US currency (the good and the bad in perspective) then click on the above link and read Don Luskin's latest article, it is excellent.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Thursday, November 08, 2007

Predatory Servicing: The Problems and Remedies



It helps to have a friend in the mortgage business and that is what Jack Guttentag is. Jack is opening up the secretive business of lending as no one before him has.

This article focuses on something I think a lot of us have encountered - bad service from our mortgage provider.

Scott Dauenhauer, CFP, MSFP, AIF
949-916-6238
www.meridianwealth.com

Monday, November 05, 2007

Ben Stein: No Nightmare on Wall Street



Great article by Ben Stein about the recent sell off in the markets, he thinks its a buying opportunity and gives many reasons why. Though he also says it may take several years before you bear fruit.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Guttentag: Wholesale Mortgage Prices..Part II



The Mortgage Professor continues to break open the inner secrets of the mortgage business by explaining "wholesale pricing" and intends to put up a site by Christmas that will allow you to compare what your mortgage broker is telling you to what the marketplace actually is priced at.

I bet the mortgage industry hates this guy!

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Buttonwood | To infinity and beyond | Economist.com

Buttonwood | To infinity and beyond | Economist.com

Been told that markets always go up? On average they do, though sometimes they can go down and stay down for a long time. This is called risk and investing in stocks carries the risk that stocks will go down and stay down for a long time. This is why diversification is so important.

Interesting article, don't get me wrong, I'm not being alarmist here. I think stocks are a great place to hold money long term, but you need to understand the risks involved first.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Friday, October 26, 2007

Humor Break: Classic Tim Conway

video

The fires in SoCal haven't been easy on people, I've found that a little humor goes a long way. Here is a classic Tim Conway sketch from the Carol Burnett show.

Scott Dauenhauer

Wednesday, October 17, 2007

Anatomy of a Meltdown

Harold Evensky, a pioneer of the wealth management industry and one of my mentors (even though I've never met him - just read everything he's written and listened to him at conferences) has written a great piece on the what the subprime crisis really is.

In this paper Evensky details the inner workings of how the subprime mess started and what caused it. It's quite interesting and not to difficult to read.

If you've got a few minutes and are curious.....

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Will Your Social Security Benefits Be Taxed -- Again? (Tax Matters: Personal Finance) | SmartMoney.com

Will Your Social Security Benefits Be Taxed -- Again? (Tax Matters: Personal Finance) | SmartMoney.com

Most people don't know that their Social Security benefits will be subject to taxation, up to 85% of your benefit could be taxed as ordinary income. This is a good primer on the "double taxation" that is Social Security and how you can find out if it affects you.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Straight From The Source: Eduardo Repetto - Features

Straight From The Source: Eduardo Repetto - Features


Those of you who are my clients know that I am a proponent of index investing, though not in the traditional way. I utilize Dimensional Fund Advisors mutual funds. The link here is to an interview with Eduardo Repetto of DFA, I think you'll find it interesting (or incredibly boring), either way you'll learn something!

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Recession-Proof Your Investment Strategy



A great article by Ben Stein that tells you to stay focused on the long-term and to buy broad US and Foreign indexes along the way. Recession's will inevitably happen, this only creates buying opportunities.

A good article for those of you who are focused on 2008, not 2018.

Scott Dauenhauer, CFP, MSFP, AIF
949-916-6238
www.meridianwealth.com

Tuesday, September 25, 2007

Fed Chief Cuts Rate, but at Expense of Inflation



Luskin is a writer for Smart Money Magazine and an economist at a consulting firm. I've been following his writing and have even posted a few articles. He made some very good arguements about why the Federal Reserve should NOT have lowered interest rates last week. I agreed with him. The Fed obviously did not and this is his response. I'd point you to the graph that I posted that is also available with the story link. This graph shows total US Household Assets versus Liabilities and then shows how much of our liabilities are in sub-prime (and then how much is in trouble....very little).

Perhaps the graph can shed a little perspective on how overblown this SubPrime "crisis" really is.

There is no doubt that Real Estate will be in trouble for some time to come, but that is the nature of markets, they cycle.

Scott Dauenhauer, CFP, MSFP, AIF

Monday, September 17, 2007

Friday, September 14, 2007

TD Ameritrade SPAM Investigation

To Meridian Clients,

You will be receiving a letter in the mail soon and may hear on the news shortly (or already heard) that TDAmeritrade has discovered unauthorized code in their system that may have allowed for a hacker to obtain TDAmeritrade client e-mail addresses. Those addresses may have been subsequently used for SPAM purposes.

I wanted to address this issue head on and state for the record that I am very disappointed in TD Ameritrade. This is unacceptable and a breach of my and your trust. I have made it a practice NOT to submit e-mail address data to TDAmeritrade so it is unlikely any of you are affected. However, a few of my clients have elected electronic statements and thus have turned over their e-mail address to TDAmeritrade.

I've posted the letter from TDA here as well as a video message link to Joe Moglia, the CEO, here.

While I am very disappointed in this breach, I don't believe TDAmeritrade is the only company that this could happen to. I am however looking at my options for your accounts and will begin the process to determine whether or not I can still trust TDAmeritrade with my clients assets.

I think you will be impressed with how they responded to this crisis and I want to assure you that your assets where never at risk and never will be by hackers. TDAmeritrade has an Asset Protection Guarantee that protects your assets in case of these types of problems.

I apologize for this inconvenience and am available for any questions you might have.

Warm regards,

Scott Dauenhauer, CFP, MSFP, AIF
949-916-6238

Wednesday, September 05, 2007

Tech Bubble Part II

BusinessWeek wrote a short article about the ongoing feud between discredited wall street analysts Henry Blodget and Mary Meeker. Evidently Blodget pointed out an error by Meeker that threw her calculations off by $4.3 billion.......chump change! Of course after Meeker corrected her error, she then changed her assumptions in order to make her analysis look better. If this isn't proof of Wall Street not being honest and not putting your best interest first.....I don't know what is.

Scott Dauenhauer, CFP, MSFP, AIF

Article below.


WALL STREET
Blodget And Meeker Redux

In an echo of the tech bubble, once-iconic Internet analysts Henry Blodget and Mary Meeker are battling it out again over stock valuations. But this little rivalry involves estimates of how much Google (GOOG ) can make by overlaying ads on videos viewed at its popular YouTube site. In an Aug. 22 post to his Silicon Alley Insider blog, ex-Merrill Lynch (MER ) analyst Blodget, who is barred from Wall Street for hyping stocks that he privately dissed, argued that the ads could bring in as little as $12 million or as much as $360 million in gross annual revenues.

Then Meeker, the Morgan Stanley (MS ) analyst dubbed the "Queen of the Net" before her name became synonymous with the excesses of the bubble, quickly released estimates that the ads could bring in $4.8 billion over the coming year.

Blodget called out his former rival by noting that Meeker had made a critical math error: In estimating how much YouTube could make for every 1,000 video ads shown, Meeker's team neglected to divide by 1,000. By her math, Blodget mused, the YouTube revenue would amount to only $4.8 million.

Meeker, whose firm co-underwrote two of Google's stock offerings, promptly corrected her error. But first she revised upward some of her original assumptions to still argue that YouTube could bring in $504 million to $1.26 billion. Meeker was on vacation and unavailable to comment. Blodget declined comment, but on his blog he joked that Meeker's move was another example of the Wall Street practice of "backing into the numbers."

By Heather Green

Friday, August 31, 2007

Four Tips for Riding a Seesaw Market - Laura Rowley



This is the first article I've posted by Laura Rowley, its a good one. No in depth analysis of credit markets and no predictions, just good, down home advice on how to act and react if you hold a diversified portfolio of stocks and the markets start to wobble. Excellent article.

Scott Dauenhauer, CFP, MSFP, AIF

Siegal On Bernanke - Why Bernanke's Critics Have It All Wrong



Excellent recap of what happened in the financial markets in August and how our Federal Reserve Chief, Ben Bernanke reacted. Many have criticized Bernanke, Siegel believes this criticism is misplaced and I agree.

Scott Dauenhauer, CFP, MSFP, AIF

Bogle's advice to investors: Pay less heed to stock market - MarketWatch

Bogle's advice to investors: Pay less heed to stock market - MarketWatch

John Bogle dispenses wisdom that most people never hear. The link gives you a short article, then provides a link to an interview that you can listen to between CBS MarketWatch's Chuck Jaffe and John Bogle.

I encourage you to listen.

Scott Dauenhauer, CFP, MSFP, AIF

FundAdvice.com - Surviving a market correction

FundAdvice.com - Surviving a market correction

A great article by Don McDonald, who works with Paul Merrimans company, Merriman Berkman Next, Inc. Its exactly what I would have said had I wrote it!!

Investing is about behaviour, enjoy this great article.

Written by Don McDonald
Wednesday, 29 August 2007
When it comes to investing, you can count on two things. In the short run, the value of securities will fall, while over the long haul they tend to rise. Understanding these basic truths should make investing a simple process. Except for Wall Street, it might be. More on that later. If you invest in the stock market, there will come a time when you unexpectedly lose money. There is no way to know in advance when stock prices will fall as they did this August. Anybody who could reliably predict the market’s short-term ups and downs would be wealthy beyond belief. Such a person certainly would have no reason to give such information to investors like you and me. (Remember this next time you’re watching CNBC’s gurus confidently predict the market and prescribe what investors should do immediately.)

On the other hand, I am confident that if you remain invested long enough, you will eventually make money in the stock market. But in the meantime, this means you must take risks if you want to make your money grow. Investments that entail little or no risk are doomed to provide little or no gain. Government-guaranteed savings accounts pay less than the rate of inflation. The guarantee applies to the number of dollars, but not to these dollars’ purchasing power.

Wall Street brokers would like us to believe that only they have the rock-solid advice we need in order to get ahead. They spend a fortune on advertising to convince us that they know which stocks to buy and when to buy them. Now and then they even claim to know when and what to sell, but that advice usually comes only after a stock has fallen precipitously.

Brokers favor products with high commissions and fees, sometimes ensuring a loss of principal on the first day an investment is made. Rarely do brokers take the time to try to build a diversified portfolio designed to meet an investor’s long-term needs and address the topic of risk. Do you ever recall a broker asking you how much money you were willing to lose?

In my years at a brokerage firm that is now part of Morgan Stanley, I cannot recall a single instance where Wall Street set its own interests aside to do what was best for a client. I don’t recall any training session or class devoted to teaching us how to help clients build portfolios to weather bear markets.

One of the best ways to weather bear markets, of course, is to stay put. But that’s not necessarily what brokers want their clients to do. Portfolio turnover is profitable for brokerages, which make money on commissions when we buy and again when we sell. I remember well the rallying cry during the weekly cold-calling sessions I attended: “Churn ‘em, burn ‘em!”

Wall Street likes to boast that it has found ways to reduce risk while increasing returns. The returns to brokerage houses usually materialize. But for investors, it’s often a different story.

Once upon a time, a home buyer needed real income to get a mortgage – and needed a down payment to buy a house. Then Wall Street got involved. Brokerage firms created complex securities of mortgage pools, supposedly to benefit everybody. Suddenly the standards were relaxed, and just about anybody could get a home loan. The effect of these efforts is the root of today’s credit crisis.

This isn’t the first time Wall Street has created a series of complex mortgage-backed products that blew up in investors’ faces. In 1994, the collateralized mortgage obligation (CMO) market collapsed, costing businesses and governments billions of dollars.

Eventually the current panic and the stock market’s reaction to it will wane. The economy will grow again. Stock prices will start to rise again, as excess fear gets washed out of the market. This is what happened after the bear market of 1974-1975, again after the crash of 1987 and again after the bear market of 2000-2002.

The investors who will do the best job of weathering this and future storms are those who have built diversified portfolios knowing they are bound to lose money along the way and who can stick with it. If you cannot tolerate any losses, you must expect to get low returns.

I think the best way to stay within your comfort level is to put the right percentage of fixed-income investments into your portfolio so that it is not likely to sustain calamitous losses. Fortunately, this isn’t terribly hard to do if you can be honest with yourself about the losses you can tolerate. Paul Merriman’s article “Fine-tuning your asset allocation” tells you how to do that. However, don’t count on doing this with the help of a brokerage firm. This is not what they do.

Once you have set up your portfolio properly, my advice is to ignore as best you can the short-term moves in the market and the news about them. Resist the temptation to abandon your careful strategy and buy into something new that you hear about on the radio, see on the TV or read about in the press.

The investors who consistently make money are those who remain consistently invested. Keep the big picture in your mind: The economy of the world has steadily grown over time and is likely to continue to do so. Smart investors diversify globally in low-cost equity funds and keep volatility at a comfortable level with the right amount of high-quality fixed-income funds.

If you do that and manage your emotions properly, your chances of long-term success are very high.

Are Subprime Loans Bad For Homeowners and Homeownership?



Wharton Professor Jack Guttentag tackles a study stating that Subprime loans have a net negative impact on homeownership. Jack feels otherwise and is probably right. Interesting article that has implications for future subprime lending.

I guess my only disagreement (and perhaps its because I am not fully understanding his statement) is that subprime lending represents a socially useful purpose. I don't like this "socially useful purpose" because it gets in the way of good lending practices and opens the door to the government to prop up the failures of certain lenders out of "social concerns". I don't believe the government should you my tax dollars to bail out somebody who made poor decisions - whether it be a family or an institution. This impedes the free market and leads to more risky loans by institutions who believe they can offer better loan terms and not bear the risk.....the government and hence you and I the taxpayer will bear them. This is good business, but bad for the economy.

Scott Dauenhauer, CFP, MSFP, AIF

Monday, August 27, 2007

Stock Pullback Is Buying Opportunity, Not Meltdown

Stock Pullback Is Buying Opportunity, Not Meltdown (Goldman Sachs, Bank of America, Countrywide Financial) | SmartMoney.com

A few weeks ago I posted an article by Don Luskin, this is a good follow up. Things aren't as bad as the press would have you believe, however, it doesn't really matter anyway. The long term investor has to realize that stocks are going to fluctuate wildly, this is normal. We are down about 6%, not much compared to history. If you want to hold stocks, but the last few months have you hiding under your bed......perhaps you should rethink whether or not you should be holding stocks.

Scott Dauenhauer CFP, MSFP, AIF

Friday, August 24, 2007

Thursday, August 16, 2007

Equity Indexed Annuity Backlash

I don't like to post articles that are subscriber only, but this an important article to read. Especially the last sentence.



Backlash Hits
Annuities Tied
To Stock Market
Wave of Lawsuits Take Aim
At Sales Practices, Suitability
Of Equity-Indexed Products
By KELLY GREENE
August 8, 2007; Page D1

Equity-indexed annuities are among the hottest products sold through seminars, infomercials and free-dinner events that target older adults with investment pitches. Now, insurers that sell them are facing growing legal claims from investors and state regulators who allege that the companies or their agents are using deceptive marketing or targeting consumers who are too old to benefit from the products.
FAIR WARNING

Equity-indexed annuities can be complex. Here's what to consider:
• Make sure you understand how gains will be calculated.
• Check for hidden penalties for early withdrawals.
• These annuities may not be suitable for older adults because funds may be locked up for several years.

In the biggest such case, the Eighth U.S. Circuit Court of Appeals in St. Louis last month upheld the class-action status of a lawsuit that covers more than 400,000 investors who bought equity-indexed annuities from Allianz Life Insurance Co. of North America, a unit of Munich-based Allianz SE and the top seller of this type of annuity in the U.S. More than a dozen federal lawsuits against a number of insurers also are seeking class-action status in courts across the country. Meanwhile, attorneys general and regulators in Illinois, Minnesota and California are pursuing claims against insurers selling the products.

"Equity-indexed annuities have emerged as the vehicle of choice for unscrupulous insurance agents," says Roxanne Rehm, assistant general counsel for the Florida Department of Financial Services. Older investors, she contends, "don't realize they're long-term investments, and once they realize they can't access the funds, it's usually too late."

An equity-indexed annuity, as the name indicates, is one whose performance is tied to the stock market. A person invests a lump sum, or makes a series of payments during a "deferral period" that is often five to six years, and is guaranteed a minimum return based on changes in an equity index (like the Standard & Poor's 500-stock index). If stock prices rise, returns can increase; if stocks fall, investors at worst realize no gains. When the deferral period ends, investors can take either a lump-sum payment or "annuitize" the account, meaning they would get a series of payments over a set period, or for life.

The promise of potential gains and little downside risk has fueled sales of equity-indexed annuities, which climbed to $25.3 billion in 2006 from $6.5 billion just five years earlier, according to Advantage Compendium Ltd., a consulting firm that tracks annuity data.

But critics say equity-indexed annuities do, in fact, carry risks, especially for older investors who may need access to their money before the investment's term ends. Some of these annuities are structured to provide only a small portion of market-index gains; carry high surrender, or early withdrawal charges (12.5% for some of the more popular products) that can last for much or all of a contract's term; and often involve relatively rich sales commissions that regulators say can make it tough for consumers to get unbiased advice.

Like some other types of annuities, equity-indexed annuities can be useful for investors seeking guaranteed income. But equity-indexed products also offer some potential for gains tied to the stock market. It's important for investors to understand such terms as how the interest will be calculated and if there are hidden penalties. There is controversy whether equity-indexed annuities are appropriate for older people because their money is typically locked up for several years.

Some advisers suggest investors compare returns on equity-indexed annuities with other products such as certificates of deposit, which can yield around 5% these days, and variable annuities with guaranteed minimum income benefits, which offer a similar downside safety net.

The big class-action case against Allianz centers on the marketing of so-called immediate bonuses that are paid to people when they buy an annuity, typically an amount between 5% and 10%. Plaintiffs say investors actually have to wait years for the money, if they can get their hands on it at all; Allianz responds that the bonuses are immediate because their value is credited to investors' accounts the day they buy the annuity, meaning they can start earning interest based on a bonus's value right away.

In September, Michael Altschul, a 60-year-old sales representative in Laguna Niguel, Calif., paid $250,000 for an equity-indexed annuity from Allianz after hearing it described in a radio infomercial. "The protection of principal was a huge draw for me," he says, as was the $25,000 bonus. Mr. Altschul says the agent who sold him the policy told him he could withdraw 10% of his initial investment each year for 10 years, and then withdraw the balance.

But in June, he noticed an online article about the Allianz product he bought, posted by a financial planner, and realized he can withdraw 10% a year only for the first five years, although this would cut into his gains. After that, unless he annuitizes the balance for 10 years, he would lose the promised bonus and much of the interest his money could earn, and could be subject to hefty surrender charges. "That was news to me," he says.

An Allianz spokesman says that privacy laws prevent the insurer from discussing Mr. Altschul's individual situation, but the materials the insurer provided "at the point of sale clearly explain the product," and the insurer encourages customers with concerns to "contact us so that we can conduct a thorough review."

A lawsuit filed by Illinois Attorney General Lisa Madigan last year in Sangamon County Circuit Court alleges that "deceptive" mailers sent to older people offering help with estate planning and Medicare were used to schedule appointments with agents selling annuities for American Investors Life Insurance Co., now part of Aviva PLC. Mary Menges, a 70-year-old retired nurse in Collinsville, Ill., says she responded to a postcard offering help in "understanding your money situation" two years ago and was persuaded to move her individual retirement account, $170,000 in mutual funds, into an equity-indexed annuity.
[Sure Thing?]

"I didn't know this was an insurance company at all," she says. After her son learned about the move and explained the restrictions on withdrawals to her, the mother and son wrote a letter to the company and also reported her experience to the attorney general's office. She got her money back, she says.

Michael Vaughan, a Kansas City, Mo., attorney representing American Investors, says the company has "seen no evidence that this is a broad-based issue." He declined to comment further.

The California Department of Insurance has taken a close look at Allianz's marketing to older people, specifically examining sales to 126 people who were at least 84 years old, and who replaced existing annuities with equity-indexed or immediate annuities. Elderly customers incurred new surrender charges in more than 100 such cases from Jan. 1, 2004, through July 31, 2005, the department says in a regulatory filing.

Allianz says age is only one of a number of factors involved in determining whether an annuity is appropriate for a customer, and that its "business conduct was proper."

Insurers selling equity-indexed annuities are starting to face challenges from securities regulators as well. Debate has raged for at least two years among securities regulators, insurance departments and industry trade groups over who should have oversight. So far, the Securities and Exchange Commission hasn't weighed in, but it could deem the products securities if it chose to do so.

In December, Massachusetts's top securities regulator, Secretary of the Commonwealth William F. Galvin, fined Investors Capital Corp., a unit of Investors Capital Holdings Ltd., $500,000 for allowing its representatives to use "unregistered investment advisory services to sell equity-indexed annuities to unsuspecting elderly customers." Steven Preskenis, Investors Capital Corp.'s chief operating officer and general counsel, said in a statement the company was pleased to resolve the issue and take part in restitution, and it looked forward to working with state officials to improve "oversight, understanding and education of these financial products."

And Joseph Borg, director of the Alabama Securities Commission, has found a new approach: "If the agents are advising people to sell mutual funds or get out of 401(k)s, they are acting as investment advisers. And in my state, being an unregistered investment adviser is a felony." In "dozens" of equity-indexed annuity sales the state has investigated in the past few years, he says, insurers have "paid the money back, plus 6% interest."

Write to Kelly Greene at kelly.greene@wsj.com1
URL for this article:
http://online.wsj.com/article/SB118652689794090981.html

Hyperlinks in this Article:
(1) mailto:kelly.greene@wsj.com

Wednesday, August 15, 2007

Get Ready for Lower Money Market Rates

An interesting thing has happened in the past few weeks. Short term interest rates have dropped, in some cases significantly. The one month treasury bill yielded 5.05% at the beginning of the month, as of today's close (8/15/07) it yielded 4.18 (dropping .44% today). The three, six, one year, and two year have also come down, though not quite as much. The effect of this drop will be felt in about a month. Money Market rates will, if rates don't change start dropping from above 5% to below, in some cases significantly below.

We just might be seeing a change in where the sweet spot on the yield curve is, I'll keep you posted.

Scott Dauenhauer CFP, MSFP, AIF

Is The Mortgage Market Headed For A Meltdown?



Wharton Prof and Yahoo!Finance Columnist Jack Guttentag corrects the record on the recent panic you've heard about in the press (yes, the same panic that is affecting the stock market) about mortgages.

Jack argues that the Mortgage Market is not "melting down", in fact he argues just the opposite. The mortgage market is still lending, it has just "repriced" its risk and adjusted its parameters for lending.

While this will cause a lot of pain for those who are looking to buy (and for those selling....les buyers), it is more than healthy as the mortgage industry was making loans that were pricing risk incorrectly.

Let me give you an example, In February a person with a good credit score could have gotten a loan (conforming) at a rate of 6.25%, the ten year treasury was at about 4.7%. Today, that same loan, with the 10 year treasury trading around the same point could cost as much as 7%, though most likely around 6.675%. Nothing has changed, but the risk has been repriced - meaning the lender requires a higher interest rate to do the loan.

The days of ultra cheap easy to get mortgage loans appear to be over (at least until the next cycle) and this is spilling over to other credit markets which spills into the stock market.

Long term you will forget this even happened, but in the short term there will be some pain.

Those who live with the pain will endure.

Scott Dauenhauer CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Should Stated-Income Loans Be Barred?



Jack Guttentag is becoming one of my favorite new columnists. He is a professor at Wharton who specializes in the Mortgage industry. His latest columns provide some very good information during a time when a lot of misinformation is being spewed by the media.

In this column Jack talks about Stated Income Mortgage Loans, which are loans in which the applicant's income is not verified by the lender. While on the surface this may seem crazy, in reality there is nothing wrong with it if done correctly. Contrary to popular opinion, it is not stated income loans that are causing the problems in the mortgage market.

If you are interested in learning about the recent problems in lending and how the industry works, Jack's articles are great. This article in particular will give you an easy to read, concise view of the debate about Stated Income Loans. Scott Dauenhauer, CFP, MSFP, AIF www.meridianwealth.com 949-916-6238

Friday, August 10, 2007

Should You Be Worried?

It's been a volatile year to say the least. This is the third time this year I've felt that I should make a post addressing the recent gyrations of the market, something I rarely do.

I think I've instilled into my clients the notion that in the short term stocks are risky and that they will fluctuate, sometimes a lot, sometimes a lot in a short period.

No matter how much or how many times I communicate this message, it occasionally will get lost during an extended bull market. This year, if anything will hopefully reinforce my communications that stocks can be risky in the short term.

Most of you are probably hearing panicked reports in the media about the sky falling in the Sub-Prime mortgage market. Most probably don't even know what "sub-prime" means (that is o.k.).

Most people are familiar with the "Prime Rate", it is the rate that banks give their most credit-worthy customers (at least in theory). "Sub-Prime" represents those borrowers who are not the most credit-worthy, in fact they have bad credit. It used to be that people with poor or bad credit could not get a loan. However, as the real estate market marched ever higher the ability to borrow from banks became easier - the thinking by the banks being that even if the borrower couldn't make the payments there would still be equity in their home and a foreclosure wouldn't likely happen. In addition, banks would sell their loans that they made to "sub-prime" borrowers (they sell most loans). These loans would end up in portfolio's of hedge funds, insurance companies, and in some cases, everyday Joe's in the form of Mortgage Backed Securities (we won't get into these right now).

Basically, borrowers with bad credit could get credit again and it wasn't difficult. This created more home buyers which led to more homes being purchased and ever higher home prices. The problems began when short term interest rates started heading higher and the adjustable mortgages that Sub-Prime borrowers had been sold, began to adjust too payments they couldn't afford. This combined with the fact that because short term rates were higher, there were less borrowers and less buyers. Also, real estate prices can only go so high, at some point (sometimes a ridiculous point) people won't pay an additional dollar for a home (try a $600,000 townhome in Orange County that is less than 1,000 square feet and over $10,000 a year in property taxes....).

Home prices stagnated, borrowers who had just taken loans had no equity and as their payments begin to adjust they can't make the payments. Suddenly foreclosures start to spike, panic sets in and borrowers stop lending to bad borrowers, which creates an even worse affect - more foreclosures and more panic.

All of this was easily predictable (in fact predicted by me several times).

So that is how we got into this mess, but is the mess really that big?

No.

Sub-Prime doesn't represent a major portion of our economy, the problem is how Wall Street has reacted to it. They have shut off the credit to even good borrowers out of fear (sometimes justified, but mostly not) that the good borrowers will go bad.

This has hurt the markets in the past few months and it may continue to hurt the markets, I don't know.

What I do know is that the Dow Jones Industrial Average started the year at 12,500 and is in the 13,000 range right now. In other words, despite all the problems, we are still higher than we were at the beginning of the year. Of course, that could change in a single day, but the reality is that the global economy is still strong and stocks aren't overvalued (like they were in 2000).

Stocks will fluctuate, that is what they do, if they didn't we wouldn't get higher returns.

My advice is to not panic, simply go on with your daily life and don't waste time worrying about the day to day gyrations of the stock market. It will work itself out in the long run and those who don't panic will emerge the winners.

Scott Dauenhauer CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

When It Comes to Rebalancing, a Little Means a Lot

When It Comes to Rebalancing, a Little Means a Lot - New York Times

A great article on the value of rebalancing a portfolio. Most people fail to rebalance their portfolios and end up taking on more risk than they intended too. Studies have shown that rebalancing a portfolio sacrifices little in return, but cuts fluctuation by a lot.

A good advisor will monitor your portfolio and keep it rebalanced.

I encourage you to read this article, it is short and well written, a real joy.

Scott Dauenhauer CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Monday, August 06, 2007

Time To Swap Piggybanks?

Time To Swap Piggybanks?

If you have your kids money in a UTMA or UGMA you need to read this article. It outlines some new tax laws that do not favor these accounts.

Scott Dauenhauer CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

How Speculators Exploit Market Fears



Once again, Ben Stein puts the recent market meltdown into perspective. If last month has bothered you, I'd suggest reading this column.

Scott Dauenhauer CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Reassessing REITs: Are real estate investment trusts finally poised for a tumble-or are the bears crying wolf?

Reassessing REITs: Are real estate investment trusts finally poised for a tumble-or are the bears crying wolf?

I've been a bear on REITS for quite some time and I've been wrong. It's been tough, but I am finally beginning to look correct. If anything, it goes to show that I have no ability to predict the future. While I think I'm right on REITS, I see to have been way to early.

REITS are having a bad year and it may continue. This article gives you a good background on where REITS have been and where they may be headed.

I like REITS in a portfolio long term, but have cut back quite a bit. If REITS fall enough, I will begin buying again.

Scott Dauenhauer CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Thursday, August 02, 2007

Siegal: How To Play The Market Sell Off



As always, Wharton Professor, Jeremy Siegal gives us a great perspective on the recent sell off. Mr. Siegal gives us a background of last weeks selloff as well as his thoughts on the stock markets future, a must read.

Scott Dauenhauer CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Taking a Mortgage Into Retirement



Another great article by Jack Guttentag via Yahoo!Finance. An individual asks the questions - should I use my assets to pay down my mortgage or keep them invested as I retire. Jack answers...........

Click the link to view the article.

Scott Dauenhauer CFP, MSFP, AIF
949-916-6238
www.meridianwealth.com

Tuesday, July 31, 2007

The New Health Savings Account Rules

The New Health Savings Account Rules (Tax Matters: Personal Finance) | SmartMoney.com

Great story on the basics of Health Savings Accounts. It includes the latest tax updates.

Scott Dauenhauer CFP, MSFP, AIF
www.meridianwealth.com

Time To Swap Piggybanks?

Time To Swap Piggybanks?

Very interesting article for those of you who have money in Custodial Accounts (UTMA/UGMA's). New tax laws are making them obsolete in many cases.

If you have a custodial account you must read this article.

Scott Dauenhauer CFP, MSFP, AIF

www.meridianwealth.com

Recent Fluctuation - It's Normal

In February of this year the stock market, as measured by the Dow Jones Industrial Average went down over 400 points in one day. It was scary for people. A similar event happened last week when the Dow was down over 500 points for the week, after hitting an all time high and surpassing 14,000 for the first time.

You need to know that despite the panicked press, this is completely normal and in fact healthy. You should also know that it will happen again, we just don't know when - this is the nature of stock markets, if it wasn't they wouldn't be worth our time investing in. It is this fluctuation that creates risk that allows us patient investors the opportunity to earn superior returns over bonds.

I tell all my clients that the one thing I can guarantee is that at some point in time in the future we will lose money and it will hurt.

However, if we can overcome the short term fear and stay invested in a diversified portfolio that includes stocks, bonds, and real estate - we have the opportunity to earn a much better return than their panicky neighbors and hopefully beat the indexes we use as benchmarks.

The recent fluctuation is normal and to be expected, even welcomed.

You should know a few things about investing in the stock market, as follows:

On July 8, 1932 the Dow hit a low of 40. Last week the Dow hit 14,000, before pulling back. Nick Murray commented "The intervening period was the worst in human history: Depression, WWII, Cold War(and 9/11, Iraq War, added). There are always reasons Not to buy stocks, but time has shown us that even during the worst of times, stocks survive. You need to understand that ups are permanent, the downs are temporary.

I don't know if we are in a bear market or a bull market and to be honest it doesn't matter. In fact, I don't even believe in bear markets, they don't exist (famous last words, right). On average we suffer a major stock market set back every five years, sometimes as much as 30%. Between 2000 - 2002, the market from its top to bottom was down nearly 50%, but we survived and now the market is higher than it was nearly seven years ago.

My main point is that if you are in stocks and diversified, you will still have times of pain and loss, but if you do not panic, and if you stay diversified, you should be able to ride out these short term drops.

In other words, don't worry about what the market does day to day, keep a look at the big long term picture.

Also remember, if you are young, the market falling presents an amazing opportunity to buy more at lower prices, always a smart thing.

For those of you who are ready to turn to a market timing service, don't fall for them, timing is not possible - it is in fact hubris. Warren Buffet once remarked that he couldn't time the market, didn't know anyone who could time the market, and didn't know anyone who knew anyone who could time the market......if the greatest investor of all time can't do it - what makes you think the guy down the street can?

The future is impossible to predict, don't ever forget that.

Finally, relax, this is normal.

Scott Dauenhauer CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Monday, July 30, 2007

Market Correction Makes Stocks More Attractive (Ahead of the Curve) | SmartMoney.com

Market Correction Makes Stocks More Attractive (Ahead of the Curve) | SmartMoney.com

A great article by Donald Luskin on why buying stocks makes sense in the long run and how you shouldn't be afraid of short term dips like last week.

Scott Dauenhauer CFP, MSFP, AIF

www.meridianwealth.com
949-916-6238

Thursday, July 26, 2007

Boomers' Retirement Won't Sink Stock Market

Boomers' Retirement Won't Sink Stock Market (SmartMoney Magazine) | SmartMoney.com

Roger Lowenstein makes another good arguement about the fallacy that Baby Boomer retirement will lead to a stock market crash, or a never ending downturn.

I encourage those of you who have bought into this ridiculous theory (as proposed by Harry Dent) to read this article.

Scott Dauenhauer CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Monday, July 23, 2007

NEA Valuebuilder Lawsuit

This is a link to the copy of the lawsuit against the NEA Valuebuilder product.

Scott Dauenhauer CFP, MSFP, AIF

Sunday, July 22, 2007

Trading costs have predictive power

Trading costs have predictive power - InvestmentNews

It's the case of the dog that wasn't barking......mutual fund costs that are not fully disclosed but have a major impact on your long term return - Trading Costs.

This article is about a study showing that trading costs run higher than the expense ratio of most mutual funds and that the higher the trading costs the lower the return (on average).

Again, costs matter and knowing where the costs are is a major factor in determining your long term return.

The main problem with Trading costs is that they are hard to figure out given that they are not disclosed in a simple manner.

Scott Dauenhauer, CFP, MSFP, AIF
949-916-6238
www.meridianwealth.com

Thursday, July 19, 2007

Morningstar.com - How Much Does Your Fund Really Cost?

Morningstar.com - How Much Does Your Fund Really Cost?

Good article on how fees should really be disclosed. I wholeheartedly support Morningstar's proposal and have been advocating it for years.

Scott


Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

How Should Borrowers Deal with Mortgage Brokers?



Jack Guttentag tells you how to deal with a mortgage broker and I guarantee you that you've never heard this before from anyone.

Jack started an association of mortgage brokers who disclose their fees upfront.....imagine that!

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

A Veiw of the Economy from Abroad



Ben Stein is bullish on the Global Economy and the US in general.

This article tackles the "threats" that we keep hearing about (Subprime, rising rates, Leveraged Buyouts) and whether they have the ability to take down the market.

This is an interesting, short article that I think you really need to read.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Profit From Higher Long-Term Rates




Jeremy Siegal's latest column talks about the rising interest rate environment and its affects on the global economy and markets.

What follows are a few excerpts:

"Since the middle of March, the world’s bond markets have witnessed a sharp increase in long-term interest rates.

The ten-year U.S. treasury bond has risen from 4.50% to 5.15% and reached as high as 5.30% on June 12. Rates in Europe have increased even more than the U.S., as the ten-year German bond has risen from 3.90% to 4.70% and the U.K. bond from 4.75% to 5.55%."

"I believe the real estate slowdown will not significantly damage the rest of our economy. The upward revision in growth has already brought about adjustments in the capital markets. These adjustments will actually help the Fed control the inflationary pressures and make it less likely, in my judgment, that it will raise rates in the future."



Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Friday, June 22, 2007

www.ask-lynn.com

Ask Lynn

Lynn O'Shaughnessy is moving online after her syndicated column with the Union Tribune was cancelled. You can still read her in BusinessWeek, Kiplingers and a few other magazines, but this is where you'll want to go to get the latest stuff Lynn has been writing.

I encourage you to bookmark her site and visit it as often (or more often) as you do mine!!

Scott Dauenhauer,CFP, MSFP, AIF
www.meridianwealth.com

Thursday, June 21, 2007

Suit alleges misuse of sweep programs - InvestmentNews

Suit alleges misuse of sweep programs - InvestmentNews

A lawsuit against the major brokerage firms has been filed allegeding that they illegally forced clients into lower paying deposit accounts so that the firms could reap billions in extra profits. This is something I've been reporting on for some time, even the so-called "good guys" like Schwab and TDAmeritrade (my custodian) have attempted to implement a similar scheme and it reaks.

Keep an eye out for a letter stating that your money market account is about to go through changes. I've seen yields drop by 80% in some cases.

Scott Dauenhauer, CFP, MSFP, AIF
949-916-6238
www.meridianwealth.com

Wednesday, June 20, 2007

One of Lynn's Last Columns - Really Good

From magazine hype to financial advisers to retirement goals

Another great article, summarizing some of the most important points Lynn has made over the years. My favorite's are:

"Too many people who portray themselves as financial experts aren't. The threshold to get into this business is too low to cull out the knuckleheads, but you can eliminate many candidates by rejecting any adviser who isn't a true fiduciary. Working with a fiduciary – someone who is required to put your interests first – is so important that I'd urge you to avoid any financial adviser who won't acknowledge a fiduciary duty to you in writing."

"I've had plenty of conversations with financial journalists who acknowledge that they invest their own money in low-cost index mutual funds, as do I."


Read the whole article at the link above.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com

Time Flies When You're Unprepared




Another great article by Ben Stein on how to Stay Rich.....

When I first moved to Los Angeles 31 years ago, I had a number of rich friends. They were good to me. They took me to dinners at elegant bistros, threw parties for me in their Beverly Hills homes, and gave me lavish gifts for my birthday. They were fine people.

Today, some of them are still rich. They still have lavish homes in Beverly Hills, they usually also have homes in Malibu or out in the desert or both, and they travel the world and have servants.

Many of them, however, are broke or nearly broke. They're not happy. They worry constantly. They live smaller, more cramped lives


Click above link to read the rest of the article

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com

U.S. home prices fall for first time since 1991



By Rex Nutting, MarketWatch
Last Update: 12:51 PM ET May 29, 2007

WASHINGTON (MarketWatch) -- U.S. home prices dropped 1.4% in the first quarter compared with a year earlier, the first year-over-year decline in national home prices since 1991, according to the S&P/Case-Shiller index released Tuesday.
A year ago, home prices were rising at an 11.5% pace. Prices have been falling for the past three quarters.

The Case-Shiller indexes cover three geographical areas. The national index is released quarterly, while the 10-city and 20-city indexes are released each month.
The 10-city Case-Shiller price index fell 1.9% year-on-year through March, while the 20-city index dropped 1.4%. The 10-city index has fallen nine months in a row, while the 20-city index has fallen for eight straight months.

All three Case-Shiller indexes show continued deterioration in home prices. Prices were falling or rising slower in most U.S. cities.

The national decline "is reaffirmation of the pullback in the U.S. residential real estate market," said Robert Shiller, chief economist for MacroMarkets LLC, and co-inventor of the index.

"This fall is consistent with the ongoing trend that has developed over the past year," wrote Goldman Sachs economists, who said they believe the Case-Shiller index is the best gauge of home values. "We remain comfortable with our forecast of house prices falling by 5% over 2007."

Falling home prices have squeezed many borrowers who have been able to extract equity from their homes or refinance their loan to avoid a sudden increase in mortgage payments as their adjustable-rate loan reset.

As a result of falling prices, foreclosures are rising nationally, especially in regions with a weak economy, such as the Midwest, and in the bubble regions of Southern California, Florida, Nevada and Arizona.

Thirteen of 20 cities in the Case-Shiller index have seen falling prices in the past year, led by Detroit (down 8.4%) and San Diego (down 6%). Home prices rose 10% in Seattle, 7.4% in Charlotte, N.C., and 7% in Portland, Ore.
Prices in Phoenix and Las Vegas, Nev., have fallen the furthest from their peak. After growing at a 49.3% pace in September 2005, home prices in Phoenix are now down 3% year-on-year. In Las Vegas, price gains went from 53.2% in September 2004 to negative 1.6% in March 2007.

Among other major cities tracked by the index, home prices are down 4.9% in Boston, down 4.8% in Washington, down 3% in Tampa, Fla., down 2.4% in Cleveland, and down 2.3% in San Francisco. Prices fell 2% in Denver, 1.9% in Minneapolis, 1.4% in Los Angeles and 1.1% in New York.

In addition to the price gains in Seattle, Charlotte and Portland, prices rose 2% in Atlanta, 1.6% in Dallas, 1.3% in Chicago and 1% in Miami.

The Case-Shiller index is considered a superior gauge of home prices compared to the median sales-price data released by the Commerce Department or National Association of Realtors, because it tracks multiple sales on the same property and is therefore not influenced by a different mix of homes sold in a period.

Unlike the price index produced by the Office of Federal Housing Enterprise Oversight, the Case-Shiller index does not include refinancings. And, also unlike the OFHEO index, it includes homes with mortgages larger than the conforming limit of $417,000.

The OFHEO index for the first quarter will be released on Thursday. Through the fourth quarter, home price gains had slowed to 5.9% year-on-year from 13.3% a year earlier. The OFHEO purchase-only index (which excludes refinancings) had risen 4.1% year-over-year.

Lehman Bros. economists said their forecast for a 0.5% gain in the first-quarter OFHEO price index remains on track. That would put the year-over-year gain at 4%.

Rex Nutting is Washington bureau chief of MarketWatch.


Real Estate is cyclical - it will go up and down, not always up (like I've heard over and over again during this last bull market). In the long term real estate will rise, but by how much we don't know....and we don't know when or where.

The good news is that we might finally be getting to a market where buying real estate as a long term investment might be a good idea again.

Scott Dauenhauer, CFP, MSFP, AIF

www.meridianwealth.com

Protecting your value as foreclosures rise

From MarketWatch Article:

Gary Kent has more foreclosed properties to sell than ever before during his 23 years in the real estate business.

The San Diego-based realty agent currently represents about 100 homes for sale, 85 of which are foreclosures. A year ago, Kent represented about 20 homes for sale with only a couple of foreclosures among them."I feel sorry for the people who lost their homes, but I'm probably going to have to best year I've ever had," Kent said.

While all those foreclosed homes mean opportunity for Kent, they spell trouble for homeowners in the neighborhoods in which they are located. In addition to the potential for dragging down the values of surrounding homes as lenders try to unload, vacant foreclosures also present an inviting target for vandals and squatters.

"When there are a lot of foreclosures in a neighborhood that will put downward pressure on other homes. The banks will try to get foreclosures off their balance sheet as fast as they can, and they will be aggressive at pricing them," said Celia Chen, director of housing economics at Moody's Economy.com.


Click on the above link to read the rest of the article....the real estate market has changed considerably and probably will get worse before it gets better (it will get better though.....just don't know when).

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com

The Consequences of Asia Rising: Jeremy Siegal

Is Asia something to be feared? Does the rise of the East mean the decline of the West? Jeremy Siegal, Wharton Professor answers these questions for us. The short answer is no, the rise of Asia will not cause our demise, quite the opposite.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com

Subprime Meltdown Primer

Five years ago nobody knew what "subprime" meant - now it is a buzzword for overeager lenders who got caught lending to less than creditworthy consumers during a falling housing market (but I thought real estate could never go down???).

If you still don't really know what the whole mess surrounding "subprime lending" really means and how it might affect you then I encourage you to spend a little time with the Mortgage Professor, Jack Guttentag. I've provided links to his series on the subprime mess, as follows:

Subprime Crisis Part I, The Causes of Default

Subprime Crisis Part II, The Lender Role

Subprime Crisis Part III, State of the Market

Subprime Crisis Part IV, What Should the Government Do?


Subprime Crisis Part V, Can the Market Be Replaced?


We can thank Yahoo:Finance for providing Jack to us free of charge.

By the way, this stuff was all predicted well in advance, but nothing happened because Real Estate was still going up, now that it is steady or falling and short term rates are higher (not to mention tougher credit standards), this all starts falling apart. Easy to predict, difficult to predict when.

Scott Dauenhauer, CFP, MSFP, AIF

Wednesday, June 06, 2007

When does it pay to take Social Security benefits early?

When does it pay to take Social Security benefits early? | csmonitor.com

Another article on when to take Social Security benefits. If you're close to retirement you should be reading this kind of stuff and talking to your advisor about it.

Scott Dauenhauer, CFP, MSFP, AIF
949-916-6238
www.meridianwealth.com

10 reasons brokers don’t like index funds

FundAdvice.com - Paul Merriman: 10 reasons brokers don’t like index funds

Paul Merriman at Fundadvice.com gives a great top ten list on why brokers hate index funds! If you're buying funds from a broker, you should really think twice.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Obituary/Reflection

With all the sadness and trauma going on in the world at the moment, it is worth reflecting on the death of a very important person, which almost went unnoticed.

Larry LaPrise, the man who wrote "The Hokey Pokey", died peacefully at the age of 93. The most traumatic part for his family was getting him into the coffin. They put his left leg in. And then the trouble started.

Shut up. You know it's funny. Now send it on to someone else and make them smile.


Scott Dauenhauer, CFP, MSFP, AIF
949-916-6238
www.meridianwealth.com

Monday, May 21, 2007

Top Financial Writer Needs Help....Save Lynn O'Shaughnessy

I've been reading Lynn O'Shaughnessy's work now for several years and feel that she is the top financial columnist in the country (I still love Kathy Kristof and Jane Bryant Quinn). Unfortunately, the San Diego Union Tribune feels that Lynn is expendable. We all know how local newspapers are having financial troubles and that they are having to make big changes to stay in business, but it seems that throwing out your best financial columnist won't save you money - it will lose you money.

I subscribe to the Tribune mainly because of Lynn, I could get delivered to me three other newspapers - I chose the Tribune because Lynn has consistently delivered Personal Finance columns that are edgy, right, and help the people of San Diego (not to mention the rest of the country that reads her).

I don't want Lynn's column to be cut, it is too valuable and has saved countless people thousands of dollars over the years. Simply put, she will make you money if you read her column or prevent you from making stupid mistakes (which don't always seem so stupid). It is now time to give back to Lynn and thank her for her service to us all these years, WE NEED TO SAVE LYNN.

What I need for you to do is send an e-mail to the following e-mail addresses and let them know that you want Lynn to stay and if she doesn't you will seriously consider dropping your subscription (I will be drop mine if the column is cut). The addresses are:

karin.winner@uniontrib.com and readers.rep@uniontrib.com

Please forward this to anyone you might know who lives in San Diego (for that matter, anyone).

Lynn is a talented writer and she'll get another gig, but we need to show our support and pray that she keeps this gig, as we are the one's who benefit.


Scott Dauenhauer, CFP, MSFP, AIF
949-916-6238
www.meridianwealth.com

Sunday, May 20, 2007

Prepare for Changes in 403(b) Plans - WSJ.com

Prepare for Changes in 403(b) Plans - WSJ.com

Andrea Coombes interviewed me last week for this article and I'm quoted throughout the article! This is an article about how the upcoming 403(b) regulations will affect participants who are currently in these plans.

It's a relatively short article and a good primer for what to expect. I would expect many more of these articles to pop up over the next six months.

A big thank you to Andrea Coombes for quoting me!!

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Wednesday, May 16, 2007

Rich Dad, Poor Dad Guru Joins Hall of Idiots



Robert Kiyosaki, the famed author of Rich Dad, Poor Dad has recently penned an article for Yahoo!Finance is has officially placed him in the same league of Jim Cramer - Idiot.

I don't bestow that title lightly, however Kiyosaki has earned it with his latest column titled "Playing the Mutual Fund Lottery".

Just to give you a little background, I've read several of Kiyosaki's books and for the most part enjoyed them, they are basically self-help manuals on how to get rich. Unfortunately there is actually very little information about how to do the things Kiyosaki says you need to do to become rich. His books basically are a waste of time in my opinion. Having said that, I do know people who have taken his concepts and made a lot of money - they have decided to take the risks that most people simply will not take and they have been richly rewarded.

I have no problem with people wanting to make more money and trying to better their personal situations, that is the heart of the American Entreprenurial system. However, I do have a problem with Kiyosaki chastising the vast majority of Americans who simply won't quit their jobs and speculate.

If you are of the "get rich slow" mindset, basically living below your means, savings a portion of everything you earn and investing that savings, you are not part of the "Poor" camp, according to Kiyosaki. This is ridiculous.

In his latest column Kiyosaki goes after mutual funds and compares them to buying lottery tickets. This is perhaps the most absurd comparison I've ever heard, it makes no sense.

His arguement is that management fees skim your earnings and that markets can go down, thats it. While management fees can be excessive, there are many ways to invest on a low cost basis, and markets will go up and down, the key is to be diversified and behave correctly. Even if you put all your savings into a one-star (morningstar rating system) mutual fund all your life, you would have way more money at retirement than if you spend it all on lottery tickets. Lottery tickets are guaranteed losers, for a diversified mutual fund to lose all your money we would have to have every single public company go bankrupt - so possible? If it is possible, I guarantee you that in that event anything that Kiyosaki recommends would also be worthless.

It really bothers me when people who have been given a platform abuse it my telling outright lies in order to get people to buy whatever it is they are selling (try a $6,000 seminar). Kiyosaki has gone to far this time and has ended up on my "idiot" list - which at this point also includes Jim Cramer.

Congratulations Robert, you've done something that few have been able to do.

Scott Dauenhauer, CFP, MSFP, AIF
949-916-6238
www.meridianwealth.com

A Contrarian on Retirement Says Wait (Registration Req)

A Contrarian on Retirement Says Wait - New York Times

This article is about a University Prof who has created a software package and who has the view that you should wait to take Social Security. I like Mr. Kotlifoff (the featured professor), if only because he has a different view and is willing to put it out there - but I do not always agree with him.

I featured his belief that people are saving TOO LITTLE in an earlier blogpost and I think he is 110% wrong. I also don't fully agree with his Social Security advice of waiting to take your benefits. I believe it is an individual decision and the right decision is different for everyone.

It is an interesting article, even if I disagree with much of it.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Saturday, May 12, 2007

The Bullish Case for Stocks



This is an interesting article by Wharton Professor Jeremy Siegel on why he thinks stocks are still a good buy. I'm sure I could find another professor that would say the exact opposite, but I still value Jeremy's opinion.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com

Friday, May 04, 2007

Aging Populations Can Prosper, or Not: Making the Right Investment Choices - Knowledge@Wharton

Aging Populations Can Prosper, or Not: Making the Right Investment Choices - Knowledge@Wharton

This is a great article about the future of our Baby Boomers assets - Who Will Buy Them?

The answer might surprise you, this is a great read.

Scott Dauenhauer, CFP, MSFP, AIF
949-916-6238

www.meridianwealth.com

Tuesday, May 01, 2007

Target Date Evolution

I didn't invent the "Target Date Mutual Fund" concept, but I do believe I've come up with a unique idea that will make the Target Date concept even more mainstream. The concept, drum roll please.......Risk-Based Target Date Funds (or portfolios).

For those of you who are not familiar with "Target Date" funds, they are basically mutual funds that invest your money in a diverisified portfolio of stocks and bonds based on your retirement date. The closer to retirement you are, the more conservative the fund becomes. These funds automatically adjust as you age, you don't have to do anything.

The problem with most of these funds is that the asset allocations cannot be controlled by the investor - it is one size fits all. If you don't have the same philosophy about risk as your target date provider does, you are up the creek. This is where my concept comes in.

Basically, instead of a fund company creating one target date fund for those who retire in 2040, they create multiple versions of the 2040 Target Date Fund that scale in terms of risk. For example, a company would have the Conservative 2040 fund, the Moderate 2040 fund, and the Aggressive 2040 fund.

Yes, it does add another layer of decision making, but not much, most people can place themselves within the conservative, moderate, aggressive monikers.

This approach allows people with different risk profiles to still invest in an auto-pilot type fund.

Currently there is not a single company or mutual fund provider doing this, however I know of one high profile firm that will be rolling this concept out soon. In ten years I expect it to be the norm......and you'd have heard it here first!

Scott Dauenhauer, CFP, MSFP, AIF
949-916-6238
www.meridianwealth.com

Monday, April 23, 2007

Retirement Saving Versus Mortgage Paydowns

In their push to reduce their debt, many homeowners are missing a low-risk opportunity to increase their wealth. The reason? They're making extra payments on their mortgage - or taking out mortgages shorter than 30 years - rather than funneling that extra cash into tax-deferred retirement accounts. In The Tradeoff Between Mortgage Prepayments and Tax-Deferred Retirement Savings (NBER Working Paper No. 12502), authors Gene Amromin, Jennifer Huang, and Clemens Sialm find that the costs of using this approach can be significant.

Of course, to benefit from such a strategy - what the authors call a "tax arbitrage" - homeowners have to have a mortgage, the option to put more money into a tax-deferred retirement account, and a "get-out-of-debt" mentality. Indeed, many financial advisers suggest that homeowners who are in that position speed up their debt payments, either by paying down their 30-year mortgage early or by taking out shorter-term mortgages. But by examining a large subset of these homeowners, the authors find that nearly 4 in 10 (38 percent) of them would save money by ignoring the advice. Instead, they should redirect those extra mortgage payments into a tax-deferred retirement account (TDA) invested in fixed income securities.

"Depending on the choice of the investment asset in the TDA, the mean gain from such a reallocation ranges between 11 and 17 cents per dollar of misallocated savings," the authors write. "In the aggregate, correcting this inefficient behavior could save U.S. households as much as 1.5 billion dollars per year."

Why more households don't take advantage of the tax arbitrage remains something of a mystery. True, Americans often make costly financial mistakes. The paper cites other studies showing households putting money into taxable accounts when they'd be better off using tax-free instruments. But the breadth of the mismatch in this case can't be explained entirely by a set of rational decisions, the authors write. Instead, many homeowners may be so averse to debt that they prefer to pay down their mortgages early rather than to maximize their overall wealth.

This is the first time those options have been compared, the authors write. "To the best of our knowledge, this is the first paper to … [consider] retirement contributions and mortgage payments as two alternative forms of household savings decisions."

To come up with their sample of homeowners, the authors analyze three years of household balance sheet data -- 1995, 1998, and 2001 - from the nationally representative Survey of Consumer Finances. Of the average 102.7 million households in each survey, they find that slightly less than half were eligible for an employer-sponsored TDA. Of those, slightly less than half had a fixed-rate mortgage. (The authors don't evaluate variable-rate loans, which would have complicated the analysis.) Of this group of 22.8 million households, about 10.5 million prepay their mortgages and either contribute to a TDA or, at least, have the ability to. It's from this group that the tax-arbitrage winners emerge.

Perhaps it's not surprising that those who can realize a tax-arbitrage profit (TAP) tend to have more wealth and to make more money than the average homeowner, since the strategy most benefits those in higher tax brackets. Here's how the TAP works.

Homeowners may pay a higher interest rate on their mortgage than they can get on a low-risk investment, but the real cost of borrowing is often lower because mortgage interest is tax-deductible. The higher the tax deduction on mortgage interest, the greater the possibility that an alternative investment may earn a better return. The authors look at two alternatives: Treasury bonds (considered super-safe because they're backed by the federal government) and mortgage-backed securities (which earn a higher return but still are considered low-risk).

Using the more conservative investment, Treasury bonds, some 2.5 million households could gain some $10 to $11 for every $100 they moved from mortgage prepayment to a TDA. Using more aggressive mortgage-backed securities, some 4 million households would realize a gain of some $17 per $100 switched into mortgage-backed securities. That amounts to an average TAP of $394 a year for mortgage-holders who hadn't contributed to a TDA before (and thus were eligible to make a substantial switch). Those who already contribute some money to a TDA would average a slightly smaller gain of $375 a year.

These numbers probably underestimate the gains, the authors say, in part because they do not observe the matches households can obtain from their employers when they contribute to a retirement account and because they assume conservative limits on how much people could contribute to a TDA. The authors also assume that households spend their windfall immediately rather than invest it in the TDA, which would boost returns.

Of course, there can be risks with this savings strategy. Interest rates on mortgage-backed securities can fall, squeezing the margin of profit. People may be forced to move at a time when interest rates are higher than their current mortgage. But the authors conclude that these risks are low. If interest rates fall, homeowners can always refinance the mortgage and lower their cost of borrowing. If interest rates rise and they also face relocation, they often can delay the move, minimizing the financial impact. Other risks - such as mortgage default or a liquidity crunch - are not likely to arise with a strategy that simply reallocates dollars that homeowners already have, they add.

So the money is there to be saved - some $1.5 billion - if homeowners can screen out the financial advice they often receive, overcome their aversion to debt, and tap the TAP that awaits many of them.

-- Laurent Belsie


Scott Dauenhauer, CFP, MSFP, AIF

www.meridianwealth.com

Wednesday, April 18, 2007

Stockbrokers' legal role in giving advice is up in the air

Stockbrokers' legal role in giving advice is up in the air | The San Diego Union-Tribune

A recent court ruling was a major win for the "little" guy. No longer will stockbrokers be able to masquerade as Fiduciaries.

There is a major difference between a person who works for a brokerage firm (Merrill Lynch, Smith Barney, Morgan Stanley to name a few) and a person who is a Registered Investment Advisor (RIA) and independent. The major difference is that the Independent RIA is required by law to put their client's best interest first, employees at brokerage firms are not.

Let me ask you a question - would you want to do business with some who won't put your best interest first and be a Fiduciary?

The term "Fiduciary" is the "F" word in the brokerage world, its like Kryptonite to Superman.

Make sure your advisor is a Fiduciary.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
CFP - Certified Financial Planner
MSFP - Masters of Science in Financial Planning
AIF - Accredited Investment Fiduciary

Monday, March 26, 2007

Fool Me Once Shame on Me....Fool Me Twice, Must Be A Hedge Fund!

Trader who sank Amaranth to start new hedge fund | Reuters.ca

This is perhaps the most audacious thing I've read lately. The idiots who ran the now defunct hedge fund Amaranth Advisors into the ground are now starting..........their own hedge fund. These are the geniuses that turned a $5 billion gain into a $2 billion dollar loss in just under a week - and they think they deserve another shot at managing your money.

Not only do they think you are so stupid as to give them your money, they want to charge the standard Hedge fund fee of 2% of assets plus a 20% performance fee. Logic has gone out the window if this fund attracts money. But hey, in the funds prospectus there is a provision that allows shareholders to meet the idiots who run the fund!!!!! I'm in.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com
949-916-6238

Wednesday, March 21, 2007

AXA Equitable Propaganda Site

:: Variable Annuities Knowledge Center ::

I hate to even link to this site, but I think it is a good example of the way insurance companies mislead people into their variable annuity products. This site claims to "provide you with unbiased, fact-based information about variable annuities that will assist you in determining whether a variable annuity is right for your personal situation and future financial needs."

Sounds like a good thing, a non-profit education center to help consumers make wise choices...In reality the site is just a propaganda tool for AXA/Equitable, a life insurance company and Broker/Dealer. What follows is at the bottom of the "About Us" page:

"The Variable Knowledge Center is funded by Smarter Consumer Inc., a Delaware not-for-profit corporation committed to educating and informing the public about variable annuities. AXA Equitable Life Insurance Company (AXA Equitable) and its affiliated broker/dealer, AXA Distributors, LLC, are the founding supporters of Smarter Consumer Inc. It is anticipated that additional organizations will join in supporting Smarter Consumer Inc. and its educational mission described in the site. "

AXA knows that if they set up a website to provide information and stated it was unbiased that they'd be laughed at, but if they set up a dummy not for profit with a different name and then use that non-profit to "educate" they can potentially steer people to Variable Annuities, their main offering. This is yet another example of the insurance industry not being honest and attempting to use mislead the consumer (and they have the gall to use the term "Smarter Consumer".

Don't fall for this little stunt.

Scott Dauenhauer, CFP, MSFP, AIF
www.meridianwealth.com