Wednesday, May 25, 2005 Common Sense: House Poor Common Sense: House Poor

A good article by James Stewart of SmartMoney magazine on Real Estate. He doesn't think we are in a bubble, but he also says that he wouldn't be buying right now.


The American College and NAIFA Create New Financial Services Specialist Designation � Guidance you trust, tools you can use.

Is this a Joke?

This designation is worthless and yet another example of the lengths organizations will go in order to "appear" credable. No doubt in my mind that people who have been employees for less than a month will be putting "FSS" on their business cards and acting as if it really means something.

The FSS stands for Financial Services Specialist - it should stand for Full of Sh*t Specialist - pardon my french.

It just keeps getting more and more ridiculous.


Tuesday, May 24, 2005

The Globe and Mail: Mania over real estate spurs fears of a crash

The Globe and Mail: Mania over real estate spurs fears of a crash

An interesting story about what some believe to be a Real Estate bubble in the US.

My thoughts on this subject are not new. I believe there are several local housing bubbles, but not a national bubble (mirroring Alan Greenspans view - or perhaps he is mirroring mine!). The problem is that we don't know if there is a bubble until after it has popped. Just like with the Nasdaq in 2000 everybody thought prices could continue to rise even though they were completly disconnected from reality.

Don't get me wrong, I am not saying there will be a drop in real estate prices in the bubble areas (Orange County, San Diego, & other places mentioned in the article), I have no idea what will happen with prices. I thought homes were overpriced last year and they increased by 20%, thus confirming that I have no predictive ability (as if you needed confirmation).

Everyday I get a call from someone wanting to start investing in real estate and I tell them that I think its a great idea. Of course I preface this by explaining the difference between investing and speculating. If you are purchasing a home solely because you believe the price will be higher in a few months (the greater fool theory of real estate) and you can sell it to someone else for a profit, you are not investing - you are speculating. There is nothing inherently wrong with speculation; our society could not succeed without speculation, however do not call it investing. An investment is something that you can reasonably expect to get a return on over a reasonable time frame. To me there are two basic ways to make money in real estate:

1) Buy a property at a reasonable price, preferably a depressed price and fix it up (adding value to it) - then either sell it or rent it out.

2.) Buy a piece of property for rental purposes, but in doing so make sure that you have cash flow that is at least break even. Not break even on an interest only loan, but break-even on a fully amortized loan (including taxes, insurance, etc).

I believe rental real estate can be a wonderful way to build a net worth, but only if done wisely. I always say that there is no other investment like real estate. What other investment is purchased for you (the bank) and paid off by someone else (the renter)? There is no other investment like this.

Imagine a 35 year old purchasing a few pieces of property and getting enough rent to cover expenses - if they have a 30 year mortgage it will be paid off by retirement and they will have an income stream that they won't outlive and one that will rise with inflation (rising rents), this is smart investing.

The problem today is that this type of real estate investing is getting more difficult as more and more people are doing it and bidding prices up to levels that don't make sense. In addition, many of these people have no reserves (which is a must in real estate) and no idea how to fix a toilet (another must if you want to be a landlord). Real Estate can lead to riches, but like anything it must be done over time and you must be patient and smart with your purchases. Buying real estate because it is going up is not a good reason to buy.

I can help you evaluate a potential deal if you are in the market, but be aware that I am quite conservative - i will apply the Graham and Dodd principles when evaluating a deal, it has to make sense and provide a reasonable level of safety.

Are we in a bubble? I don't know. Does it matter? Not really, if you are living in your home for the long term you have nothing to worry about, but be careful with your ideas of buying property.

Scott Dauenhauer, CFP

Saturday, May 21, 2005

Lunch With A Convicted Felon & Former International Fugitive....Enlightening!

Last week I had lunch with a convicted felon and former fugitive. The funny thing is that I didn't even know it at the time. It's not like they have to wear a sign or anything. So why am I telling you this?

The lunch was actually at a Financial Planning Association quarterly educational meeting - yes, I know some of you are already thinking it makes sense....lunch with a bunch of Orange County brokers and advisors - chances are pretty high one of them has got to be a felon! Of course I am joking, most of my colleagues are fine advisors and of the highest ethic, excluding the wirehouse brokers.....

Ironically the individual I had lunch with was not shy about his past. Though he didn't tell me his story at lunch, he did tell he was to be the speaker for the afternoon session, the ethics session. Yes, a convicted felon and former fugitive from the law was to be the speaker to the FPA and his topic - ETHICS. Again, some of you are thinking to yourselves "how appropriate!" In all seriousness, I knew the speaker had a bad past, I was told he was a "fallen" CFP and that his story was being communicated to us so that we wouldn't fall into the same trap.

Lunch with Patrick was good, he seemed like a great guy, then I heard his story.

Here's a guy who crossed the line while a broker for the Oklahoma treasury and in the most basic sense stole millions of dollars (with help from others). He justified the stealing in his mind, even drawing up elaborate flip charts to convince his loved ones that what he was doing was legal. Of course, what he was doing was not legal and it caught up to him. One day he recieved a call from Ted Koppel (actually a message on his machine), he and his buddies were being investigated. After fealing the heat and refusing to face up to his moral and ethical failures Patrick packed up his family and ran from the FBI - to Costa Rica. To make a long story short Patrick was on the run for three years, in the process destroying his family and squandering all the money he stole - and then, he turned himself over to the authorities in Costa Rica. He finally faced up to the facts that it was his own moral and ethical failures that led him down this road, it was nobody elses fault, only his.

Not all is perfect for Patrick now, his wifed divorced him (imagine that!) and he owes the government nearly $4 million that cannot be dismissed in a bankruptcy. But not all is bad for this one time International Fugitive. He discovered a knack for public speaking and now tells his story all over the country. He told me he has over 160 events this year. You probably didn't get the whole gist of his talk with us from this brief interlude, but the moral of his story was simple - crossing that ethical threshold isn't easy to do, but once you do it, it gets easier and easier. I encourage you to listen to Patrick's story in person one day if you get the chance, it is quite amazing, and entertaining. He truly is a man transformed, in fact he is the ethics chair at several prominent universities. The last irony is that after his talk to the FPA he recieved a standing ovation. Why is that ironic? Well, I've never seen a standing ovation for any speaker at an FPA event, the first time was for an convicted felon and former international fugitive....perhaps I am just jealous, after all I have spoken for the FPA and I didn't get a standing O! Come to think of it, I am not jealous at all, if it takes what Patrick went through to get a standing ovation I'd rather just learn from his mistakes, and go without one.

If you are looking for an incredible speaker, with an amazing story of life change, check out Patrick's website at speaking of ethics.

I like to think I was ethical before Patrick (don't worry I was), but I hope that I am even better afterward. Only in America could lunch with a convicted felon be so honorable.


Thursday, May 19, 2005

It Takes Planning to Choose the Right Financial Planner

It Takes Planning to Choose the Right Financial Planner

An article appearing in the Washington Post today gives credence to a wonderful new tool people can use to identify a financial planner that is qualified and willing to work in your best interest. is a great new service that rates advisors and provides a match to individuals looking for a qualified advisor. The creator of Paladin, Jack Waymire also wrote a book on how to find a financial advisor who is credable.

I am proud to say that I am one of the advisors listed on the Paladin Registry and I have a rating of five out of five stars.


Monday, May 16, 2005

Who's Preying on Your Grandparents? - New York Times

Who's Preying on Your Grandparents? - New York Times

A great article on the annuity industry and how they are taking advantage of our senior citizens. I have severl clients who have been sold junk products from companies like American Equity Investment by slick salespeople who have no regard for doing what is right. The only interest is in generating a commision.

I don't believe annuities are all bad, but the vast majority are and you should be very weary before purchasing one. A client of mine was sold the exact same annuity mentioned in this article and is now stuck for 17 years in it - of course I won't stand for that, I'll get her out even if it means suing the company.


Wednesday, May 11, 2005

The End Of Pensions -

The End Of Pensions -

Is Forbes right? Only time will tell.


Union Pension Takeover Taxes Gov't Agency -

Union Pension Takeover Taxes Gov't Agency -

Article on the PBGC


United Air Wins Right to Default on Its Employee Pension Plans - New York Times

United Air Wins Right to Default on Its Employee Pension Plans - New York Times

Are the dominoes beginning to fall on Corporate Defined Benefit Plans? It sure seems that way as United Airlines successfully defaulted on its pension plan in bankruptcy court yesterday. Many of you are probably thinking to yourself "so what, this has no effect on me." You would be wrong in that thinking. Contrary to what you may have heard the retirees of United will not lose their pension, but many of the retirees will recieve a much lower payout. The reason for this is that pensions in America are backed by a governement entity called the PBGC or Pension Benefit Guaranty Corporation. The PBGC takes over "underfunded" or defaulted pensions and continues to make the payments so that retirees still have an income. So whats the problem?

The PBGC is itself heavily underfunded by over $23 billion dollars and this is before taking into account the fact that pension programs in the US are underfunded by over $450 billion, some of which will filter down to become PBGC funding problems. The PBGC is backed by none other than you, the taxpayer. The PBGC will need a bailout at some point similar to what happen to the Savings and Loans - you, the taxpayer will foot the bill.

On the bright side it is likely that legislation will be passed in order to allow companies to spread out their pension liabilities over more years, which should help corporations keep their pension plans and not simply dump them off on the PBGC. Of course extending liabilities without new strucutural solutions would simply be another piece of bad legislation. In addition, any bailout of the PBGC will not likely affect our budget deficits too much, after all what's another $50 - 100 billion when you owe as much as we do (do you detect a hit of sarcasm).

The brightest spot however is that we have a strong economy and strong prospects for the future (despite what you hear on television every day). A growing economy leads to a growing stock market which leads to a reduction in underfunded pensions (ironically though it was the growing stock market that led to the underfunded pension problems.....long story, don't ask).

I am optimistic about the future of the United States economy. I fully expect that we will have bumps along the way, but am confident the bumps are only temporary. Sure, there are a lot of things that could "derail" the economy, high oil prices, high budget deficits, high trade deficits, but the fact of the matter is that there is always something that could "derail" the economy. Take a look at our history and you can find dozens of things that would make you pessismitic about America, but the pessimists are always proven wrong in the long term. Don't get me wrong we do have strucutural problems that need to be fixed soon - Social Security and Medicare/Medicaid being the most urgent. I don't care what party you hail from there is no doubt that if we don't act soon our long term prospects will be much dimmer.

Ironically as the defined benefit pension plans begin to fall in the corporate sector there are signs that they are beginning to fall in the public sector as well. The Governator in California has proposed getting rid of the pension plans and replacing them with 401(k) type plans (called defined contribution plans). The thought being that the risk should be on the employee not on the taxpayer. Of course, the trend toward 401(k)'s in the public sector is not exactly a slam dunk, West Virginia just nixed the 401(k) plan it has had for their teachers since 1991 and are replacing it with.......a defined benefit pension. My personal opinion is that defined benefit pension plans will rule in the public sector for quite awhile, but their time is coming; I give them another ten years before the pensions begin to give way to 401(k) type plans.

On a completely separate note, my vote for American Idol this year Keri Underwood. Yes, she is a beautiful blond, but she has the vocals and I love country music.....

I would love to hear your feedback....

Till next time....