(This is a summary of our exclusive live teleseminar with Doug Fabian on May 8th, 2012. If you’d like to hear the audio recording of the teleseminar, please click here.)
The Global “Big Picture”
If you listen to our podcast and read our blog regularly, you know the market forces that concern us: market volatility, uncertainty in Europe, public debts and deficits, slowing global growth.
Here’s a glimpse at those concerns and the big picture, region by region:
Europe: Belgium, Germany and the Netherlands are the only countries in the EU which are currently trading above their 200-day moving average. Eleven countries in the European Union are in recession, while Greece and Spain are in a depression. We are also seeing other countries start to contract – which means less tax revenue, less growth, more unemployment and more unrest in Europe. Remember that this news is important because the EU represents 24% of the trading of the world.
China: also trading below its 200-day moving average. Slowing economic growth and some news of political change there as well. China is not in serious trouble, but is contracting slightly with global trends.
Japan: also trading below 200-day moving average. Japan had a serious setback last year with the earthquake and tsunami, and they aren’t out of the woods yet. They just shut down all 54 of their nuclear power plants for safety reasons, which is causing an energy shortage, and Japan already has massive public debt to deal with as well. Japan is the third largest economy in the world, (right behind the US and China).
Emerging markets: Also trading below 200-day moving average. Their success is tied to established markets and they are export driven, meaning that contractions in the markets effect them heavily. You may have noticed that oil prices have been falling, and the emerging markets are very focused on commodities – so this global slowdown really impacts the emerging markets.
In all, global growth looks suspect and vulnerable to any shocks. Panic in the markets, bank problems or another crisis in Europe seems like the most likely place we can expect a shock to come from. However, in Europe’s case, it might also be a solution to this global growth problem as well.
If the Germans decide to borrow more money and step up to back the other countries in the European Union, this would be a positive for EU and the rest of the world. In that case, we would expect markets to come back and volatility to ease considerably. However, right now Germany seems set on austerity, and while we are watching closely for any changes, we also have to be knowledgeable and realistic about the current global situation.
In the United States, we are spending $1.40 for every $1 we bring in. This is creating a 9% budget deficit, which is unnaturally high and a bit disconcerting. However, the world doesn’t seem to care about the U.S. debt and deficit and we have been able to finance the debt so far, so its been a safe haven for the rest of the world.
Also in the U.S., the federal stimulus plan is currently in place, keeping the economy growing at about 2.2%. Despite the United States’ safe haven status and relative security, we believe that Investors have been lulled into complacency, which we think will be very dangerous. Risk is still at play in the financial markets, and the slowing global growth will influence the US markets fairly soon.
Because of these factors, we think it’s essential to have a game plan and an exit strategy for your investments. We believe that there’s a 70% chance that we’ve already seen the high in the US stock markets this year. The only caveat is that if Germany decides to fund the EU’s debt crisis, the markets could kick back into gear – which is why Europe and the debt crisis there is so important to watch.
Fiscal cliff: January 2013
There are four laws that are going into effect in January 2013. We are calling this a “fiscal cliff” and we think they will have serious implications for your investments. These can only be changed by an act of Congress and the President’s signature – so they need to be taken seriously – as of right now, this isn’t just political theater.
Bush/Obama tax cuts will expire in January 2013
Employees are not paying social security (payroll tax) which equates to approximately $45/pay period. This will kick back in to play in January 2013
Obamacare taxes on investors January 2013
Automatic spending cuts to discretionary and defense spending in January 2013
Between the November election and January 2013, there’s a very small window to change these laws, and these new taxes, and the political gridlock that may be unable to change them, means that a US recession is a very real possibility.
As we watch the markets – with all of these uncertainties in the US and abroad – remember that we want to invest during a “sale”. We want to get a good deal, and we think that capitalizing on sell-off, panics and sectors that no one else is buying is the way to do so.
Favorite Growth Strategies
Emerging Markets: Observe on the chart that during the 2008 decline, the emerging markets went down significantly. Emerging markets are very susceptible to panics and crisis. The main message to remember is that we need to buy them when everyone else is panicking and they have dropped out of favor. Emerging markets are developing countries – they don’t have entitlement programs, they are embracing technology and they are very likely to grow without all of the weight that developed countries face.
Check our exclusive ETF list for more details on emerging market opportunities.
Energy: Energy is a great long-term theme and it has yet to flourish in the markets this year. Big oil stocks are down, but we believe that natural gas is the big story for the future. New developments in how we discover and access natural gas have brought the price down, and this is presenting an excellent opportunity for investors.
Natural gas in Europe is $15/BTU, in Japan $17/BTU. Here in the U.S., natural gas is $2/BTU. This is actually creating a manufacturing boom in the U.S. and is a great opportunity for job growth and economic stimulation.
Natural gas infrastructure is not well-established in the United States. This will take some development and will also be a great opportunity for investors. Five years from now, we think it will be fairly easy to convert cars to natural gas and this will drive the price higher as more people start to use it. We are now benefiting from low natural gas prices and the infrastructure does not exist yet – so this is going to be a great investment opportunity. IEZ, XOP and FRAK are the three best ETFs for natural gas investment in our opinion. Right now, price trends on natural gas are down – we don’t have these in our portfolios today, but we are watching them for our opportunity.
As we look at energy opportunities, owning traditional oil might be a good move too, if it “goes on sale”. China is still developing and will continue to need oil, so if the economy stabilizes, then oil will probably be a good investment.
Precious metals: Gold is setting up for a nice move to the upside. Why? Because of inflation and deflation.
Deflation: Reduction of the general level of prices in an economy. Deflation is what the banks are worried about, why we borrow money, why we bail out banks, etc. Jobs are lost during deflation and politicians don’t want that.
Inflation: A general increase in prices and fall in the purchasing value of money. Money has less value during inflationary times.
If any kind of crisis occurs, the Federal Reserve will step in and try to stabilize the economy, which means more debt and deficit, and more inflation. The reason gold has risen in value is because people know this, and they are concerned about the value of money and the effects inflation and deflation will have on their investments.
Also, because the United States economy is still struggling in some ways (2.2% growth isn’t exactly stellar, and jobs numbers are still lagging) this is a concern for many people. If we continue to see debt and deficits around the world, gold will continue to be a strong bid.
The other part of the precious metals equation is the emerging markets. In many areas of the world, gold is one of the few stable investments, so there is some competition to bid the price up.
The big story in the precious metals opportunity is in gold stocks. Gold mining ETFs are down, and pairing investments in precious metals as well as gold mining could be a smart move for growth investors. Again, this is not a “buy now” signal, but we are watching these for investment opportunities when gold prices stabilize.
All three of these growth strategies will be great opportunities – perhaps even in the very short term. Our philosophy is to buy when they present great value, when they are depressed in price. We will be talking about these a lot on our podcast and blogs, and you can always call for more information.
Action Items and Questions to Ask Yourself and Your Advisor
Prepare yourself for the next stock market decline. Be prepared for more European crisis, the fiscal cliff in the U.S. in 2013, and educate yourself on how to preserve your capital and survive this market volatility.
How are you going to take advantage of the buying opportunities in the three key areas we mentioned earlier? Are you monitoring these changes closely or do you have someone watching this for you?
What does your portfolio look like, and does it line up with your goals and objectives?
As always, here at Fabian Wealth Strategies we are available to discuss your portfolio and help you make these decisions in the best way possible. Call us at 800-391-1118 for your free portfolio review.
Note: The information expressed in this seminar is for educational purposes only and should not be construed as a recommendation to buy, sell, or hold any investment security. Doug Fabian is a registered investment advisor representative. The opinions expressed in the seminar are not considered personal investment advice. Consider the risks, fees, and expenses before making any change to your investment portfolio.
If you’re like most people, you probably own a variety of insurance products. Life insurance is the most widely held financial services product in the country, but did you know that there are also over 20 million annuities in existence? If you own a life insurance policy or an annuity, you need to be aware that there are features and benefits to these contracts that you can use to enhance your financial situation. But beware; there also are fees and expenses associated with these products that could threaten future benefits for you and your family. Let me explain.
When it comes to life insurance, most of us own it as a way to protect our family. If we were to die unexpectedly, our spouse and or dependents would have enough money to replace lost income, pay down debt or pay for college expenses. These are the typical reasons why we buy life insurance. Most people own term life insurance, which covers you over a specified time period (usually when our dependents rely on us most). In this situation, you want to make sure you have the right amount of coverage, and that you are paying a reasonable cost for what you need.
Action Item No. 1:If you have a term life insurance policy, you need to review that policy’s coverage to make sure it serves your family’s needs. You also need to see if what you’re paying for that coverage is reasonable.
In addition to term life insurance, there’s also a type of life insurance that allows you to merge a savings account with a policy to help achieve your financial goals. For example, you can create a personal pension plan with a permanent life insurance policy. This type of policy allows you to save for retirement while also generating a future income stream from your savings. This strategy works well for high income earners who aren’t able to save enough of their income via a 401(k) or other retirement savings plans. These life insurance policies allow you to invest for retirement and family protection WITHOUT downside risk, and they come with full tax deferral and tax free withdrawal, IF they are properly structured.
Action Item No. 2:If you’re concerned that your current retirement savings vehicles may not be enough, or if you have concerns over the amount and cost of your current life insurance coverage, take steps to find out what kinds of life insurance may fit one or both of these needs.
If you have an annuity, you should be looking at your contract in terms of investment performance and costs. Annuities are valuable tools for retirement savings and income generation, but there are complicated options and contract language that are vital to understand. Annuities also carry many internal fees and expenses, and insurance companies traditionally do a poor job of explaining those costs. When it comes to investment options, you need to make sure your annuity is in sync with your overall retirement plan.
Action Item No. 3:If you own an annuity, you need to conduct a review of the investment options, fees and expenses associated with your policy, and you need to compare those with the latest product offerings from the industry.
At Fabian Wealth Strategies, we offer our clients a full service wealth management experience. We know that life insurance and annuities play a key role in our clients’ financial plans, and that’s why we have experienced team members here to help our clients make the most of these financial products. Because there are so many varied aspects to life insurance and annuities, you simply must have an experienced professional on your side to make sense of it all.
Today, I am offering you a FREE insurance and annuity consultation. If you would like to have one of our experienced professionals research and analyze your life insurance policy or annuity contract, then simply call our offices at (800) 391-1118, and we’ll set you up for your FREE life insurance and annuity review.
Make the call today, and find out how you can better protect yourself and your family.
All the best,
Doug Fabian
President, Fabian Wealth Strategies
3070 Bristol St, Suite 610
Costa Mesa, CA 92626
(800) 391-1118
NOTE: Fabian Wealth Strategies, Inc. is a registered investment advisor with the U.S. Securities and Exchange Commission. Doug Fabian is a registered investment advisor representative. The information expressed in this email is for educational purposes only and should not be construed as a recommendation to buy, sell, or hold any specific insurance product. Fabian Wealth Strategies, Inc. is licensed by the California Department of Insurance (License #0G87212).
If the latest swing in the market has you feeling a little anxious, we can assure you, you’re not alone. Many investors we’ve spoken with feel an acute sense of fear and anxiety regarding the recent run higher in this market. Will it last, or will we see a big correction that wipes out all of the progress we’ve made in recent weeks?
As we enter the second quarter of what has been an unusual 2012, we believe now is a great time to get in touch with your personal financial plans, and to see how you can take the steps necessary to relieve your fiscal anxiety.
At Fabian Wealth Strategies, a fee-only wealth management firm, we help clients achieve their goals by providing a clear pathway success. At Fabian Wealth Strategies, we help you take the steps necessary to get your money on the right path toward success, and it all starts with a complete review of your goals and objectives. Our individually designed client roadmap helps you see where you are, where you’re going, and what steps are needed to get you there.
There’s no better time than the beginning of a new quarter to prepare for success, and there’s no better time to get started with Fabian Wealth Strategies than right now.
For more information, give us a call at (800) 391-1118.
So why are we talking about the next three years, when so much is changing this year?
The answer is realistic, if not optimistic. We believe that our national habit of deficit spending will have to be dealt with in 2013 and beyond. If we don’t see sufficient austerity from the federal level, we think that interest rates will go up.
It’s important to note that debt-related troubles are coming from more than just Washington D.C.. Deficit spending gets a lot of attention at the federal level, but many people don’t notice or know how much trouble local counties, cities and states are in as well. There are many places in the U.S. which are simply running out of money, which means austerity that is on its way.
Austerity doesn’t just mean lower income, it also means higher taxes. We are seeing the effects of high unemployment and austerity in Europe, and those problems (and with them, civil unrest) might be coming to the U.S. in the next couple of years.
You need to be aware and prepared for these challenges. It’s going to be very tough for any politicians to make good decisions on our behalf, and it’s critical that investors understand the risks in the market and what might soon be coming.
So, how do we achieve financial goals over the next three years? Our three-step plan is:
Capital preservation should be your highest priority
Monitoring and analyzing your portfolio positions in light of these risks
Know your exit strategy
Despite rising markets, risk is extraordinarily high, and investors need to avoid getting lulled into complacency by a seemingly safe market.
(If you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on these topics, and please share this information with others who might benefit from our perspective.)
Today, an article generating a lot of buzz is the very public resignation letter printed in The New York Times written by a Goldman Sachs employee named Greg Smith. In his letter, Smith cites as the chief reason for his departure the changing culture at Goldman where, as Smith puts it, “the interests of the client continue to be sidelined in the way the firm operates and thinks about making money.”
Basically, Smith is accusing Goldman of not acting in the best interest of its clients, but rather acting in the best interest of Goldman’s profits.
Now, I am all for a company making profits. Without profits, there would be no reason for a company to exist. However, when it comes to managing money for a client, the client’s interests always must be put first. The profit motive for the managing company always must take a backseat to the client’s interest.
I actually think it’s funny that it took a rather classless public resignation letter published in the The New York Times to make people realize that the big wirehouse firms don’t always put clients’ best interests at heart. This situation is something most of us in the business have realized for some time. It also is one of the reasons why I started Fabian Wealth Strategies.
At Fabian Wealth Strategies, we are a fee-only asset manager that holds a fiduciary responsibility to put our clients’ interests first. Do we charge for our services? Of course, we are a business. But our business is not in trying to generate trading profits from clients at their expense, the way Mr. Smith has accused Goldman Sachs of doing. In fact, our fee-only management model puts us on the same side as our clients. So, if your wealth grows, we also prosper.
It is this fiduciary responsibility and symbiotic relationship between us that makes Fabian Wealth Strategies different from the major brokerage firms. So, if you’d like to find out how you can put our firm to work for you, then I invite you to contact us today.
There’s no denying that the stock market is flashing bullish signs, but what about the bond market? Shouldn’t bond prices fall and bond yields rise in a bullish equity environment?
Historically, when stock prices surge bond prices fall and bond yields rise. This time around, however, stock prices are rising along with bond prices. Put another way, stock prices are surging while bond yields are falling.
In the chart below we see the price action in the S&P 500 vs. 10-year Treasury bond yields.
As you can see, since Nov. 2011, stocks have been in an uptrend while bond yields have fallen. The divergence here tells us a couple of important things. First, it shows us that money is flowing into both stocks and bonds in search of something more than the yield offered by cash. Thank Mr. Benanke and crew for the fact that cash is paying virtually nothing, as his near-zero interest rate policy is partly responsible for pushing investors into riskier assets in the quest for a decent return on their money.
The second thing it tells us is that while stocks are screaming bull, bonds are screaming bear. That’s because when things get dicey, money usually flows away from equities and into the relative safety of Treasury bonds, and that bond buying pushes yields lower.
Something has to give here, as stock investors and bond investors aren’t likely to continue betting on a divergent path for much longer. Which way will things go? Well, I think you know which camp I’ve got my tent pitched.
We’ve all heard this old adage, and to be certain, it is the key to income investing success. And while the truth of this statement can’t be argued, it’s definitely a lot easier to say than to actually do.
At Fabian Wealth Strategies, we take the concept of making your money work for you very seriously. But what does it actually mean to have your money working for you, and how can we help you achieve that noble goal?
As a fee-only investment advisor specializing in helping clients preserve their capital while also generating the income they need to live the life they desire, we take both of these objectives extremely seriously. However, conventional Wall Street wisdom usually pits the twin objectives of capital preservation and high income generation at odds.
According to the official party line, you can either A) preserve capital by sticking your money in “safe” investments that offer a pitifully low yield, or B) put your money at risk in dividend stocks and other high-yield equities and be willing to wait out the inevitable market declines that are inherent in these kinds of securities.
Well, we think this conventional wisdom is flawed, and we know there’s a better way to manage your income assets. You see, instead of the either-or choice of safety vs. yield, we’ve developed a strategy designed to maximize income while at the same time managing the various risks inherent whenever you put money to work in the market.
We call it our “Ultimate Income Strategy,” and when you’re finished reading this report, you should have a good sense of how the strategy works, and more importantly, how it allows your money to work for you.
If you’ve been trying to generate high income but have failed to keep your money safe from volatile market swings, then this report is aimed straight at you.
In The Ultimate Income Strategy, you’ll discover why the right mix of income-generating assets—along with the expertise to navigate in and around changing market conditions—are two key components of a truly successful income program.
By downloading this FREE special report, you’ll find out the secrets of how we manage an income portfolio to deliver the capital preservation and high yield every income investor is after.
If you can believe it, 10% of 2012 has already passed us by… what will you do with the 90% you have left?
As we’ve been discussing on the podcast, Europe is going to be an important part of the next investment year. Risk is still very high and Europe’s crisis has not resolved, so we are still cautious with any investment capital. Be patient, because we believe that opportunities are soon to come.
In domestic news, the Federal Reserve recently announced that they plan to keep interest rates low until 2014. Now, why would the Fed keep interest rates at 0% if the outlook in the U.S. is so good? We think it’s because there is still great risk in the markets – another reason why we advocate careful investing and defensive postures.
To zoom in even closer to home, we recently read an article on how well Californians are fiscally. 30% have no savings, 43% have no liquid assets – no 90-day savings. These statistics made us think about our personal finance series, which we are tackling weekly on the podcast and the blog.
We believe that the most successful people are on top of the issues of the day. Being well-informed and staying well-organized will help you to succeed, so for the next few weeks we will be outlining six exercises for you to stay informed and ready to make good decisions. Those six exercises are:
Making a calculation of your net worth
Taking inventory of financial assets
Understanding your cash flow projections
Examining your expenses
Making sure you have an updated estate plan and living trust
Taking stock of all insurance policies – health, life, long term care, annuities, etc.
This week, we are making sure that we have an updated estate plan and living trust. About 80% of Fabian Wealth Strategies’ clients have an estate plan, will or living trust of some kind, but many haven’t looked at them in years. A living trust is what we encourage all of our clients to invest in. Without a living trust, all of your assets are frozen and subject to court order if something should happen to you. Here in California, if you have a million-dollar (gross value) estate, the minimum cost of your probate would be $47,000. Revocable living trusts can be changed at any time, but it keeps a judge from determining what happens to your assets if you are unable to do so.
But you have to make sure that all assets, all stocks, bonds, properties, etc are included in your living trust, or else those assets will end up going to probate. Remember that you can stipulate who is to be the guardian for your minor children, medical power of attorney, gifts to organizations or individuals and much more in this document. You need to pay attention to these details in order to protect those you love, and this is a very important personal finance exercise. We have a trust attorney that we recommend for our clients, so if you’re interested in having his contact information, please send us an email here.
All of these exercises are relatively easy, and you need to start the new year off right by looking at this. Again, if you need guidance on what needs to be held or bought, how this inventory works and our advice for your assets, don’t hesitate to get in touch with us at 888-300-3684.
Once you know what you have to can set clear, reachable goals. Tune in next week for more on Doug Fabian’s Monday Market Update, and the next exercise to preparing yourself for a successful investment future. (Also, if you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on these topics, and please share this information with others who might benefit from our perspective.)
For the past four weeks, we’ve outlined the personal finance exercises I want you to undertake for 2012. This week, we have Part V of our series, which is all about living trusts, wills and guardianships.
When it comes to preparing for the inevitable in life, many of us fail to act responsibly. I know it can be hard to think of ourselves as not being around any longer, but that’s no excuse to neglect this extremely important part of your financial life.
If you have any kind of significant net worth, you need a living trust. When you have a living trust, your desire for what happens to your money, your property, your insurance policies, etc., after you’re gone is in your hands. By setting up a living trust, you control the disposition of your assets by appointing a trustee to carry out your wishes.
If you don’t have a living trust, then everything you held dear in your life could literally be at the mercy of the courts. That means someone who doesn’t know you, has never met you, and has no personal interest in you or your family, will decide where your assets go after you’re no longer here. I don’t know about you, but I can’t think of anything more infuriating than having the courts determine where the products of my life’s toil will go. Yet without a living trust—and/or without a will—this may be precisely what happens.
Guardianships also are extremely important to those with children. Who’s going to take care of your progeny if you are no longer there to do so? Where will your assets go, and who will look after those assets for your children? Without a guardianship, the courts are in charge. Don’t let that happen.
A little proper planning is all it takes to make sure you are in control of your assets after you’re no longer here to do so. If you already have a living trust, will or guardianship, make sure you periodically review the trust to make account for all of the changing circumstances in your life. A divorce, a significant change in your financial situation, or the death of a spouse, are all prime reasons for you to alter your financial plans, so make sure you have those plans in place and up to date for 2012.
Next week, we’ll conclude our personal finance series for the new year with a discussion on insurance and annuities.
If you’d like to hear more about these personal finance exercises, and my take on all of the latest market action, then I invite you to sign up here for my weekly audio podcast.
