Here's one for all you readers kicking it in Japan:
Prime Minister Taro Aso of Japan contends that Japan is ready to take the lead at the G20 summit.
"industrial output was down 9.4 per cent month-on-month and data on Tuesday showed the most rapid worsening of job availability since 1974 – Mr Aso’s message is clear: Japan remains a force in the world"
In my opinion, Mr. Aso has no choice but to take this tactic to G20. Due to Japan's size and technology heavy economy, they rely very heavily on exports. Japan's economic problems will likely be among the last of the economic superpower's to clear up due to this reliance on other economies improving first. As other countries race their currency to the bottom, Japan's exports get even less attractive.
Whether or not Mr. Aso really believes that his country is in a position to lead the world's economic policy doesn't matter--for Japan's sake he hopes they listen because Japan needs the rest of the world's co-operation.
Oh, and he has an election coming up in November.
Tuesday, March 31, 2009
Saturday, March 14, 2009
Personal Finance: More on Life Insurance
There are a few remaining questions I wanted to answer with regards to life insurance. I don't want to get into the whole term versus cash value life insurance debate at this time (I'll save that for next week). There are situations where cash value insurance can be useful, but typically you are better off with term insurance.
How do I purchase life insurance?
You can purchase coverage over the internet or through a life insurance agent. Insweb is one site that I have heard of, but there are many different providers out there. It is extremely important to select a company that will pay your claims. I would go with a company that has been around for some time (20 years or more) and is rated A (preferably better) by the rating agencies. Unlike much of the debt that was rated shadily by the agencies that has caused our current fiscal crisis, the ratings agencies actually do a pretty good job with life insurance companies because these type of companies have been around forever and are easy to understand.
How do life insurance agents get paid?
Agents work on a commission that is dependent upon the annual premium you pay for the policy. Most of your first year premium is actually going directly as compensation. For instance, if you buy a 20 year term policy for $1000 annually, the agent will get somewhere between 50%-90% of that premium as a first year commission. If you keep the policy in force for more than 1 year, the agent will usually get trailing commission of around 5%-20%. The actual percentage is going to depend upon the pay structure of the company the agent is working for.
Additionally, compensation for cash value life insurance is typically higher than term insurance. For example, for a $1000 annual premium policy, an agent may be paid $700 for a term policy and $800 for a cash value policy. This is not always the case, but it is typically what I have seen.
I will get more into the differences between cash value and term insurance in my next personal finance post. If you would like any particular questions answered as well, I will try to cover them in that post.
How do I purchase life insurance?
You can purchase coverage over the internet or through a life insurance agent. Insweb is one site that I have heard of, but there are many different providers out there. It is extremely important to select a company that will pay your claims. I would go with a company that has been around for some time (20 years or more) and is rated A (preferably better) by the rating agencies. Unlike much of the debt that was rated shadily by the agencies that has caused our current fiscal crisis, the ratings agencies actually do a pretty good job with life insurance companies because these type of companies have been around forever and are easy to understand.
How do life insurance agents get paid?
Agents work on a commission that is dependent upon the annual premium you pay for the policy. Most of your first year premium is actually going directly as compensation. For instance, if you buy a 20 year term policy for $1000 annually, the agent will get somewhere between 50%-90% of that premium as a first year commission. If you keep the policy in force for more than 1 year, the agent will usually get trailing commission of around 5%-20%. The actual percentage is going to depend upon the pay structure of the company the agent is working for.
Additionally, compensation for cash value life insurance is typically higher than term insurance. For example, for a $1000 annual premium policy, an agent may be paid $700 for a term policy and $800 for a cash value policy. This is not always the case, but it is typically what I have seen.
I will get more into the differences between cash value and term insurance in my next personal finance post. If you would like any particular questions answered as well, I will try to cover them in that post.
Thursday, March 12, 2009
Personal Finance: How much life insurance do you need?
I hope to use Thursday's posts to talk about personal finance issues. Up first is the misunderstood world of life insurance. I'm assuming you already know that most people need it. I can attest personally to its importance as my dad died when I was in college, and if not for life insurance, I never would have finished college, and my mom, brother and myself would have struggled financially for sometime afterward.
Who needs life insurance?
Anyone who would inconvenience a loved one financially if they die. If you own a home, have kids, are married, or have a lot of non-student load debt, you probably need life insurance. Students and other young people don't necessarily need it, but if they can afford it, it is a good way to guarentee coverage against some future uninsurability.
How much coverage should you have?
A good rule of thumb is 7-10 your annual income, but much there are several calulators that will better estimate what you need (here and here). At a minimum, I would recommend enough to cover burial expenses, and 2-3 years of income replacement for your family. Ideally though, you want to pay all debts and provide several years of income replacement, possibly even funding retirement for your spouse, or paying for college for your kids. I am single without kids and I have enough coverage to pay off my house, pay off my debt, and give both my mom and my brother a nice inheritance should I die. Of course, how much coverage you get will be based upon how much you can afford to spend and your ability to qualify for coverage.
What type of coverage should I get?
In general, term insurance will be the most affordable for the majority of people, but there are some instances where permanent insurance is useful.
I will explain more about the types of coverage and how you go about purchasing it, in the next post on the subject.
What are your thoughts on life insurance? Post your comments below.
Who needs life insurance?
Anyone who would inconvenience a loved one financially if they die. If you own a home, have kids, are married, or have a lot of non-student load debt, you probably need life insurance. Students and other young people don't necessarily need it, but if they can afford it, it is a good way to guarentee coverage against some future uninsurability.
How much coverage should you have?
A good rule of thumb is 7-10 your annual income, but much there are several calulators that will better estimate what you need (here and here). At a minimum, I would recommend enough to cover burial expenses, and 2-3 years of income replacement for your family. Ideally though, you want to pay all debts and provide several years of income replacement, possibly even funding retirement for your spouse, or paying for college for your kids. I am single without kids and I have enough coverage to pay off my house, pay off my debt, and give both my mom and my brother a nice inheritance should I die. Of course, how much coverage you get will be based upon how much you can afford to spend and your ability to qualify for coverage.
What type of coverage should I get?
In general, term insurance will be the most affordable for the majority of people, but there are some instances where permanent insurance is useful.
I will explain more about the types of coverage and how you go about purchasing it, in the next post on the subject.
What are your thoughts on life insurance? Post your comments below.
Tuesday, March 10, 2009
Club Update 3/10
Since the last club update, most of us have experienced some significant financial changes. In light of this we have decided to suspend contributions to the club for the next four months while things sort themselves out.
This doesn't mean we'll be abandoning the blog--to the contrary we'll be trying to keep up daily posting and making it as worthwhile and interesting as ever. We'd really appreciate any comment you guys could leave, telling us what you like or don't like about the posts so we can tailor some of the content to what you're interested in!
Choosing to invoke hardship was something the club didn't take lightly, but thankfully the entire club agreed on the procedure. Also helping out was the fact that we spelled out hardship conditions and voting procedures in the General Partnership--just another example of how a well written GP can cover your club in a sticky situation.
Right now we're taking away the possibility of further capital investment, but we hope to use it as an opportunity to continue to work on bylaws, the blog, and further educate ourselves so that when we are ready, we can pull the trigger on the next big purchase.
Add to that a bit of good news, as GE went up 1.46 today, and we're feeling that we're on solid ground.
This doesn't mean we'll be abandoning the blog--to the contrary we'll be trying to keep up daily posting and making it as worthwhile and interesting as ever. We'd really appreciate any comment you guys could leave, telling us what you like or don't like about the posts so we can tailor some of the content to what you're interested in!
Choosing to invoke hardship was something the club didn't take lightly, but thankfully the entire club agreed on the procedure. Also helping out was the fact that we spelled out hardship conditions and voting procedures in the General Partnership--just another example of how a well written GP can cover your club in a sticky situation.
Right now we're taking away the possibility of further capital investment, but we hope to use it as an opportunity to continue to work on bylaws, the blog, and further educate ourselves so that when we are ready, we can pull the trigger on the next big purchase.
Add to that a bit of good news, as GE went up 1.46 today, and we're feeling that we're on solid ground.
Link'O'Rama: Tuesday Edition
- Is the shorting of stocks keeping our market down? I first got wind of this theory in a recent article in the Financial Times, and this column suggests it as well.
- The newest Jim Jubak column
- This article details what to do in anticipation of a layoff
- There is a hidden war on the rich by the rich
- Is the housing bust over?
Monday, March 9, 2009
Dried Supply
In an excellent article, Forbes.com probes the financial woes of the other half of the Detroit auto disaster--the suppliers.
To engineers living in Metro Detroit, names like TRW, Lear, Federal-Mogul are common. We all know people who work at these places and in some cases have worked or interned for them ourselves. These automotive parts suppliers are huge employers and even bigger supporters of local engineering colleges within universities such as Lawrence Tech, University of Michigan Dearborn, and Kettering.
It's good to see that the Obama administration understands the importance of keeping an eye on these suppliers--so that all of the efforts going towards keeping GM and Chrysler afloat don't have the rug pulled out from under them.
All local Detroit pride and empathy aside, Forbes illuminates an ugly group of shares that have been de-listed (Visteon), may be de-listed (American Axle), and have lost more than 98% of their stock price from their 52 week high (Arvin Meritor, Dana Holding, Hayes Lemmerz).
Johnson Controls piqued my interest with its 27% long term debt/total capital ratio (low for this group). A further look at their financials show that they actually posted a $1.63 earning per share in 2008--another rarity for this group--and they are a company with a long history of posting profits.
Can anyone see a diamond in the rough here that will survive all of the turmoil and emerge on the other side? If you can you might have a winner.
To engineers living in Metro Detroit, names like TRW, Lear, Federal-Mogul are common. We all know people who work at these places and in some cases have worked or interned for them ourselves. These automotive parts suppliers are huge employers and even bigger supporters of local engineering colleges within universities such as Lawrence Tech, University of Michigan Dearborn, and Kettering.
It's good to see that the Obama administration understands the importance of keeping an eye on these suppliers--so that all of the efforts going towards keeping GM and Chrysler afloat don't have the rug pulled out from under them.
All local Detroit pride and empathy aside, Forbes illuminates an ugly group of shares that have been de-listed (Visteon), may be de-listed (American Axle), and have lost more than 98% of their stock price from their 52 week high (Arvin Meritor, Dana Holding, Hayes Lemmerz).
Johnson Controls piqued my interest with its 27% long term debt/total capital ratio (low for this group). A further look at their financials show that they actually posted a $1.63 earning per share in 2008--another rarity for this group--and they are a company with a long history of posting profits.
Can anyone see a diamond in the rough here that will survive all of the turmoil and emerge on the other side? If you can you might have a winner.
Link'O'Rama: The Singleling
Only one Link'O'Rama link today, but it's a good one. Jim Jubak's new column asks investors to use this time to determine which stocks are truly great, and which one's were full of smoke and mirrors. Some key points:
- We are due for a short rally in the near future due to stocks being massively undersold.
- Look at the fundamentals of the stock, and not just the price.
- We can't look at the 52 week high as an indicator of where the stock should go back to in the near future. That price was probably highly inflated.
- Former CEO golden boy Jack Welch is highly responsible for GE's current woes, since he restructured the company from an industrial one into a financial one.
Sunday, March 8, 2009
Rethinking health care
With costs of health care skyrocketing nationwide, Schlitz suggested I talk about health savings accounts, also known as HSAs. This post assumes you have a minimal knowledge of health insurance. An HSA is similar to a Flexible Spending Account (FSA) offered by most employers, where pre-tax dollars go into an account to spend tax-free on medical services and items. The difference is all FSA dollars must be spent in a year, whereas HSA dollars rollover from year to year, meaning over time, quite a bit of money can accumulate in the account to be spent on health care later on in life. Additionally, the HSA can earn interest each year, and can possibly be invested in the stock market (I know, risk right now). To get this tax benefit, an HSA must be coupled with a high deductible health plan (typically a PPO or HMO).
While all that mumbo-jumbo sounds nice, how does an HSA benefit you the consumer? First off, HSAs give the biggest benefit to healthy people who rarely use health care, but the principles can apply to anyone. Say you have a traditional PPO at work, where the premium is $300 a month and you pay $100 out of pocket, meaning your company pays $200 a month. A high deductible (say $5000) PPO might cost $100 a month, leaving $200 to go into the HSA. After 1 year, you have $2400 in the HSA. If you go to the doctor once per year, you will use a minimal amount from the HSA, allowing the HSA to accumulate year after year, possibly letting you acquire a large amount of money in your older years, when health expenses are higher. If you do get very sick and need expensive procedures, you have coverage once the deductible is met.
Of course, there are downsides to HSAs. The first being that you take upon more risk in the beginning as there is no money in your HSA and the the initial deductible must be met out of pocket. HSAs are difficult to explain to people used to a traditional health plan. And it assumes that people will act rationally with funding their HSA and choose conservative investment options, which if recent history is any indictation, cannot make responsible decisions for themselves. However, once you get past those issues, the upsides are enormous.
What did you think? Do you wish your work offered an HSA? Are you against the idea? Share your thoughts below.
While all that mumbo-jumbo sounds nice, how does an HSA benefit you the consumer? First off, HSAs give the biggest benefit to healthy people who rarely use health care, but the principles can apply to anyone. Say you have a traditional PPO at work, where the premium is $300 a month and you pay $100 out of pocket, meaning your company pays $200 a month. A high deductible (say $5000) PPO might cost $100 a month, leaving $200 to go into the HSA. After 1 year, you have $2400 in the HSA. If you go to the doctor once per year, you will use a minimal amount from the HSA, allowing the HSA to accumulate year after year, possibly letting you acquire a large amount of money in your older years, when health expenses are higher. If you do get very sick and need expensive procedures, you have coverage once the deductible is met.
Of course, there are downsides to HSAs. The first being that you take upon more risk in the beginning as there is no money in your HSA and the the initial deductible must be met out of pocket. HSAs are difficult to explain to people used to a traditional health plan. And it assumes that people will act rationally with funding their HSA and choose conservative investment options, which if recent history is any indictation, cannot make responsible decisions for themselves. However, once you get past those issues, the upsides are enormous.
What did you think? Do you wish your work offered an HSA? Are you against the idea? Share your thoughts below.
Recession, depression or correction?
With all the talk of the current economic situation now being officially classified as a recession and quickly heading toward the official classification of a depression, I got to thinking that maybe it isn't a recession or a depression, rather a correction. When I explained this theory to Schlitz over lunch last week, he raised an eyebrow, but heard me out on my reasons for making that assertion.
If you've made it this far into this post, hang in there, I'll explain my line of thinking on this to you too.
First, I became a bit skeptical of calling this a recession when I noticed that the dollar has actually increased in value against competing currencies over the past few months. The 'experts' say, "well, this is a global recession and the U.S. is still an economic powerhouse." Okay, so if we're all in a global race to the bottom and the U.S. economy is actually falling slower than most of the rest of the world, wouldn't that support my idea that this is simply a correction?
Second, I started looking at the DJIA's historical graph from '70-present and noticed that the period from 1995-2007 just didn't fit with the rest of the graph. That period was a giant bubble in comparison. To put it simply, the DJIA was about 750 in 1970 and only climbed to 3,750 at the end of 1994. That's a change of 3,000 points in the span of 25yrs. Now, looking at the span of time from 1995-2007, the DJIA went from 3,750 to about 14,100 at its peak in October 2007. That's a change of over 10,000 points in 13yrs. What's that all mean? Well, from 1995-2007, the DJIA climbed at a rate that was over 6.4x as drastic as the preceding 25yrs!
So what happened from 1995-2007? The short answer is the dot com boom from '95-'01, followed by a housing boom that started with sub-prime mortgages in the early 2000s and finally spiked in 2005 and began to burst in 2006. Basically, it was a bubble that formed on top of another bubble, and when it finally burst, the market went down like few imagined was possible.
Getting back to my assertion that this is a correction rather than a recession or depression, I looked at history again and used it as the basis to form projections about where the market should really have been if the dot com boom and sub-prime mortgage that spanned from '95-'07. I chose the span of time from '86-'94 as my data group from which to project forward. Why '86-'94? Well, in 1986, the Tax Reform Act of 1986 was passed and it removed many tax shelters, especially in real estate, and put an end to the real estate boom that occurred in the early '80s. Basically, the span of time from '86-'94 fell between the early '80s real estate boom and the dot com boom of '95-'01.
Using a single arbitrary data point from each year (I chose a date in mid-January for each year), I formed a pool of data representative of the span of time from '86-'94 and projected it forward to eliminate the double bubble of '95-'01. What did I find? Well, using those projections, I found that the DJIA should probably be at 7,687 for January 2009. That's a pretty accurate projection considering the DJIA actually fell to 7,949 in January 2009. Since that point, the DJIA has found a new low of 6,594 last week. Well, doesn't that mean that my projections are off then? No, it doesn't... I'm not projecting the bottom, I'm projecting the normal level. Negative market sentiment could easily drive the DJIA even lower than 6,500. Until consumer confidence returns to normal, the market will continue to be a bear market and will be driven to levels below its norm.
While I won't get into it in this post, I've also created a theory on individual stock price projections using the same data points that also appears to be pretty accurate so far. Stay tuned for that as it may change your thinking on perceived values.
If you've made it this far into this post, hang in there, I'll explain my line of thinking on this to you too.
First, I became a bit skeptical of calling this a recession when I noticed that the dollar has actually increased in value against competing currencies over the past few months. The 'experts' say, "well, this is a global recession and the U.S. is still an economic powerhouse." Okay, so if we're all in a global race to the bottom and the U.S. economy is actually falling slower than most of the rest of the world, wouldn't that support my idea that this is simply a correction?
Second, I started looking at the DJIA's historical graph from '70-present and noticed that the period from 1995-2007 just didn't fit with the rest of the graph. That period was a giant bubble in comparison. To put it simply, the DJIA was about 750 in 1970 and only climbed to 3,750 at the end of 1994. That's a change of 3,000 points in the span of 25yrs. Now, looking at the span of time from 1995-2007, the DJIA went from 3,750 to about 14,100 at its peak in October 2007. That's a change of over 10,000 points in 13yrs. What's that all mean? Well, from 1995-2007, the DJIA climbed at a rate that was over 6.4x as drastic as the preceding 25yrs!
So what happened from 1995-2007? The short answer is the dot com boom from '95-'01, followed by a housing boom that started with sub-prime mortgages in the early 2000s and finally spiked in 2005 and began to burst in 2006. Basically, it was a bubble that formed on top of another bubble, and when it finally burst, the market went down like few imagined was possible.
Getting back to my assertion that this is a correction rather than a recession or depression, I looked at history again and used it as the basis to form projections about where the market should really have been if the dot com boom and sub-prime mortgage that spanned from '95-'07. I chose the span of time from '86-'94 as my data group from which to project forward. Why '86-'94? Well, in 1986, the Tax Reform Act of 1986 was passed and it removed many tax shelters, especially in real estate, and put an end to the real estate boom that occurred in the early '80s. Basically, the span of time from '86-'94 fell between the early '80s real estate boom and the dot com boom of '95-'01.
Using a single arbitrary data point from each year (I chose a date in mid-January for each year), I formed a pool of data representative of the span of time from '86-'94 and projected it forward to eliminate the double bubble of '95-'01. What did I find? Well, using those projections, I found that the DJIA should probably be at 7,687 for January 2009. That's a pretty accurate projection considering the DJIA actually fell to 7,949 in January 2009. Since that point, the DJIA has found a new low of 6,594 last week. Well, doesn't that mean that my projections are off then? No, it doesn't... I'm not projecting the bottom, I'm projecting the normal level. Negative market sentiment could easily drive the DJIA even lower than 6,500. Until consumer confidence returns to normal, the market will continue to be a bear market and will be driven to levels below its norm.
While I won't get into it in this post, I've also created a theory on individual stock price projections using the same data points that also appears to be pretty accurate so far. Stay tuned for that as it may change your thinking on perceived values.
Thursday, March 5, 2009
Times are tough....We want to help
Times are pretty terrible right now. The market is down to unimaginable lows, unemployment is high, and household incomes are shrinking. Here in Detroit, we see it more than anywhere, with a 'for sale' signs in so many yards to go along one of the worst housing markets in the country. I could go on and on, but you get the idea.
As a new investment club, we have and are going to continue to make tough decisions regarding the direction of the club. We plan to put more energy into this blog, to fill it with timely and useful information. We plan on focusing on areas outside of investing, such as personal finance, finding employment and so forth. We think this is important because only after one's financial house is in order, can one truly devote time to learning about investing. Please feel free to provide us with any comments you might have, or any areas you wish to learn more about.
As a new investment club, we have and are going to continue to make tough decisions regarding the direction of the club. We plan to put more energy into this blog, to fill it with timely and useful information. We plan on focusing on areas outside of investing, such as personal finance, finding employment and so forth. We think this is important because only after one's financial house is in order, can one truly devote time to learning about investing. Please feel free to provide us with any comments you might have, or any areas you wish to learn more about.
Tuesday, March 3, 2009
Club Update
We haven't been posting too much about the club lately so here's a quick update:
-We bought GE a few weeks ago when it was at $12.50 (little did we know it would lose 44% of its value in such record times). The club is still confident that this will rebound and make a profit in the long term, but the recent plunge may have delayed that time frame from being a 1 year turnaround to a 2 year turnaround. The financial track record with GE is too long and too strong to get weak in the knees now and give up, the club feels.
-We've been working slowly on bylaws regarding club accounting practices, and look to start writing bylaws on voting and stock evaluation in the next month. After that we need to write additional bylaws about meetings, attendance, adding new members, and more. After all the bylaws are written, we will consider opening the club up to new members.
-We have another salvo of investing cash and are considering where to invest next. Several options are out there, but we're still researching new stocks and opportunities as well. MTW is the leader in the clubhouse, but we're not in a rush to put money into the market right now. This isn't to say that we're afraid or are trying to time the bottom, we just don't feel urgently.
I'll try and make these posts a weekly edition on Tuesdays to give you readers an insight into the car-azy world of our investment club.
Are there any interesting stocks out there that you would like to recommend? Any interesting stories about developing your own club's bylaws?
-We bought GE a few weeks ago when it was at $12.50 (little did we know it would lose 44% of its value in such record times). The club is still confident that this will rebound and make a profit in the long term, but the recent plunge may have delayed that time frame from being a 1 year turnaround to a 2 year turnaround. The financial track record with GE is too long and too strong to get weak in the knees now and give up, the club feels.
-We've been working slowly on bylaws regarding club accounting practices, and look to start writing bylaws on voting and stock evaluation in the next month. After that we need to write additional bylaws about meetings, attendance, adding new members, and more. After all the bylaws are written, we will consider opening the club up to new members.
-We have another salvo of investing cash and are considering where to invest next. Several options are out there, but we're still researching new stocks and opportunities as well. MTW is the leader in the clubhouse, but we're not in a rush to put money into the market right now. This isn't to say that we're afraid or are trying to time the bottom, we just don't feel urgently.
I'll try and make these posts a weekly edition on Tuesdays to give you readers an insight into the car-azy world of our investment club.
Are there any interesting stocks out there that you would like to recommend? Any interesting stories about developing your own club's bylaws?
Monday, March 2, 2009
Dow Below 7000, head to the bomb shelter
Today the Dow closed below 7000 for the first time since 1997, less than half its peak in 2007.
The Street is wary, says Forbes.
MSN Money asks its users if they will ever invest in stocks again. Many say no.
Look up, the sky is falling.
Is it hard to have faith in the market right now? It sure is. There are fear mongers and Chicken Littles everywhere out there. In the media. On the message boards. Through the blogs.
This is the downside to risk, the downside to getting fat off of greedy capitalist schemes. This is the downside to too little regulation, to not enough regulation. We knew it could all go wrong and now it has.
Or has it?
If you're not a little afraid right now, you're not human. If you're not strong enough to have faith right now, you won't see the promise land.
Get together with your fellow investors, be you in an investment club or not. Assure each other. We'll make it through, come sub-7000, 6000, or 5000.
Turn off your TV.
The Street is wary, says Forbes.
MSN Money asks its users if they will ever invest in stocks again. Many say no.
Look up, the sky is falling.
Is it hard to have faith in the market right now? It sure is. There are fear mongers and Chicken Littles everywhere out there. In the media. On the message boards. Through the blogs.
This is the downside to risk, the downside to getting fat off of greedy capitalist schemes. This is the downside to too little regulation, to not enough regulation. We knew it could all go wrong and now it has.
Or has it?
If you're not a little afraid right now, you're not human. If you're not strong enough to have faith right now, you won't see the promise land.
Get together with your fellow investors, be you in an investment club or not. Assure each other. We'll make it through, come sub-7000, 6000, or 5000.
Turn off your TV.
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