Manarin On Money » Manarin Investment Counsel

Governments Are Hitting a Wall

Manarin Investment Counsel — Tue, 27 Jul 2010 21:03:46 +0000

“The problems are now spreading to state and local government in America. So far, at least, the backlash against US federal government spending is political, not financial. The US government can still borrow at 3%, or less, for ten years. But Americans are looking around the world, and at their own state budgets, and seeing the eventual problems to come,” continue reading here.

Via Roland Manarin

Some Links for Your Financial Well-Being

Manarin Investment Counsel — Mon, 19 Jul 2010 16:00:29 +0000

Retirement Plans: Former Employees Can Be Current Problems What happens when employees leave your company but don’t take their 401k assets with them? While there isn’t a one-size-fits-all solution, it is helpful to know what your responsibility is and how this all impacts your company retirement plan.

47% of early boomers could run shy of cash The threat of retirement under house arrest is a fear for many retirees and this article from CNN Money shows how for some just how real this threat is. All the more reason to make sound financial decisions throughout our working years.

Even sophisticated investors have just been chasing returns Many people think of sophisticated investors as those who represent the so-called “Smart Money.” As it turns out, we are all subject to our emotions as the research from academic studies concludes the richest individuals also fall victim to chasing investment returns.

10 First Time Homebuyer Mistakes With mortgage rates at the lowest levels in five decades, now could be a good time for purchase your first home. Before you make that decision, consider these key lessons showing you how to help make your first home buying experience a smart financial experience.

Via Don Davidson

A 401k Fiduciary Advisor You Can Trust

Manarin Investment Counsel — Thu, 08 Jul 2010 15:07:12 +0000

This is a guest post by Manarin 401k advisor Don Davidson.

As the topic of fiduciary responsibility and fee transparency heats up in the 401k space, I thought it would be worth noting to address the characteristics of working with someone free of conflict vs someone with a bit more of a sales-oriented agenda.

So here they are. My telltale signs that you are working with a true 401k fiduciary:

1. They work for you the client and not just their employer. In my opinion, your 401k advisor should treat you as their most prized possession and not just another account where they earn a few extra commission dollars.

2. They deliver investment management and advice using a fiduciary standard of care and not just on suitability. If your 401k advisor is part of a Registered Investment Advisor (RIA) then chances are good this is the case with your plan. Keep in mind that most financial salespeople working for a broker/dealer or insurance company by law cannot serve as a fiduciary to your 401k plan.

3. They are legally required to put your best interests first, avoid all conflicts of interest and offer full transparency of all plan costs and fees.

4. They are able to serve as an ERISA 3(21) and/or 3(38) investment fiduciary and are willing to accept that responsibility in writing. This relieves the plan sponsor and the individuals overseeing the plan from having to take responsibility for investment selection and monitoring.

5. They do not accept commissions from the investment products in your plan but rather are compensated by an annual fee or fee for service.

You with me so far?

It’s pretty interesting (and slightly troubling) to me that while this all seems obvious, so few plan sponsors manage their 401k in such a way.

A short while ago I reached out to Chris Carosa who runs FiduciaryNews.com on Twitter and asked what business owners need to do better in order to address these issues head on. His reply back to me is below:

So where does one start? Here’s a simple action step you can take now:

- Create a spreadsheet that shows all costs involved with your plan including fees to the investment advisor and plan administrator. Be sure to also include the expense ratios of the investment options in your plan and how they compare to industry averages. Simply knowing what you are paying for your plan will go a long way towards improvement.

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Be sure to check out this list of helpful online resources for 401k sponsors offered by the Dept. of Labor.

Demise of a Monetary System

Manarin Investment Counsel — Mon, 28 Jun 2010 14:51:39 +0000

Professor Antal Fekete, a gold standard advocate and critic of the existing monetary system, recently delivered a keynote address titled “Architecture for a New World Financial System” at the European Bankers Symposium in Tirol, Austria. Below is an excerpt:

The tragedy is that the captains of the world economy refuse to realize that runaway debt is the logical consequence of their having exiled gold from the international monetary system in 1971. They try to cure the bad effects of too much debt, or the presence of toxic debt in the system by introducing more of it. They have no idea how total debt could be decisively reduced and toxic debt safely eliminated.

They are playing a very dangerous game with the welfare of the people. When credit collapse finally comes, production disappears, employment shrinks, law and order break down. We are running into an unprecedented crisis with our eyes blindfolded. Wishful thinking will not coax out “green shoots.”

The economic disaster staring us in the face will force the recognition that we have to change course. The present leadership will have to admit that its theories and practices have utterly failed. They will have give up their position in disgrace, and the new leadership will have to see reality as it is. They must see that gold has a place in the body politic as well as in the body economic. They must return the world to the gold standard which is the only monetary arrangement that provides for an orderly retirement of debt, and is capable of doing justice between consumption and saving. The world needs a new financial system with stable exchange rates, stable interest rates, and stable bond prices.

Read the full adaptation of Professor Fekete’s keynote here.

(Via Dana Webb)

A Double Dip Recession Debate

Manarin Investment Counsel — Mon, 21 Jun 2010 14:46:14 +0000

Economists Art Laffer and Brian Wesbury debate the chances we will see a double dip recession in our near future.

Via Dave Blair

Trade is Good, Free Trade is Best

Manarin Investment Counsel — Wed, 16 Jun 2010 20:20:41 +0000

This is a guest post by Manarin Investment Counsel investment advisor and Creighton University economics professor Tim Bastian.

Of all the bad policy moves during the 1930’s, probably the most damaging were the trade protectionist acts designed to “protect American producers and workers”. The Great Depression started out as a really deep recession, but isolationist policy makers started an ever-escalating series of trade restrictions and as other countries retaliated with moves of their own, world trade collapsed. Just in case you’ve never heard why it is so good, even necessary for prosperity, or if politicians of today are coaxing you into thinking new import restrictions are needed, or that America needs to be more self-sufficient, I wanted to share some basics about the greatest human economic invention in the history of the world: trade.

Trade is simple, yet the benefits are enormous. As you probably know I’m on the faculty at Creighton University where I teach undergraduate economics classes. I particularly enjoy teaching trade theory in my microeconomics classes because students from many different academic majors and backgrounds come together in the same room. It’s one of the few courses where I’m just as likely to have pre-med students as I am to have philosophy, finance, theology, or even physics majors.

Inevitably, when I start to discuss international trade more than a few students immediately fall into the “America first” protectionist camp. Others lean toward the idea of “Fair Trade”, or paying more than market price to producers in developing countries to presumably help them attain a higher standard of living. While telling both sides they’re dead wrong doesn’t make me the most popular guy in the room, it is a rush to watch them drop their biases toward free trade as I explain its benefits.

As you know, trade involves two parties; one party who makes something and another party who wants what the other made. As long as the party who made it values it less than the party who wants it, an exchange is made. The beauty of such an exchange is that both parties end up better off. Over thousands of years, mankind has realized that if we all produce what they’re best at, and then trade that good or service for things that we really want, our prosperity will be maximized. For example, I could change the oil in my car, but I don’t. I’m better at other things, and my time is better spent doing them. I use the money I earn to hire someone who’s really efficient at changing oil. That frees me up to do what I’m best at, presumably to maximize my income.

Let’s take this to the national level. I keep hearing political pundits talk about limiting international trade to “protect American jobs and industries”, and that trade is, somehow making us poorer. To demonstrate why this is such a silly statement let me posit the following: If trade is not good between nations, then it could not be good between states. If trade were not good between states, then it would not be good between communities, and if trade were not good between communities, it must not be good between individuals. Now, imagine what it would be like to live here in Omaha: we’d all live in mud huts since we have very few trees here in Nebraska; we’d most likely have a lot of hungry people, since we’d all grow our own food; we’d almost certainly not get to know one another very well, because we’d all have to build our own form of transportation; and a lot of us would freeze to death next winter because the only thing that would keep us warm would be to burn our corn!

Trade is good, it is very good. More trade is better than less trade, more trading partners are better than fewer trading partners. The key is for producers to make what they are best at making. Too often inefficient industries lobby government for special protections, usually in the name of “protecting American jobs”. This behavior hurts our economy in two ways:

1.) consumers pay more for the products produced by the protected industry, and 2.) resources used in the protected industry are not allowed to naturally flow toward the more efficient industries, lowering profits there (not to mention available jobs in that industry).

Step back for a moment and consider this: World trade allows consumers to purchase goods at the very lowest prices possible, giving them more while spending less. For producers, world trade opens up new markets with more willing buyers and allows producers to sell more of their products at the highest price possible. In other words, you get to consume more at lower prices while being able to sell more at higher prices. Could it get any better?

Bond Investing Risks

Manarin Investment Counsel — Fri, 04 Jun 2010 15:25:56 +0000

Chris Davis, head of the Davis Funds, believes that the investment move that has made consumers most comfortable since the market crisis of 2008 is about to become the investment folly of the 2010s.

Davis said last Wednesday that bonds are an emerging bubble, destined for a fall over the next decade, just as investors have been throwing virtually all of their available cash into bonds so that they could sidestep the pain in the stock market. Speaking at the CFA Institute annual meeting in Boston, Davis said he thinks “the only real bubble in the world is bonds… When you look out over a 10-year period, people are going to get killed.”

- Boston Herald

There are additional risks that investors should be aware of when thinking about adding bonds to an investment portfolio.

Interest Rate Risk

Bonds and interest rates have an inverse-relationship – bonds tend to rise in value when interest rates fall and fall in value when interest rates rise. Suppose an investor purchases a 20-year $1,000 bond with a yield of 8% and interest payable annually at year-end. One year later, interest rates rise to 10%. Anybody in the market for a bond can now buy one with a yield of 10%. If the investor tried to sell the bond with an 8% yield for $1,000, nobody would buy it – the same amount of money could purchase a bond yielding 10%. In order to find a buyer, the investor would need to discount the bond price to compensate the buyer for the lower coupon payments.

Inflation Risk

This is also known as purchasing power risk. Inflation is a rise in the general level of prices for goods and services. If bond investing does not keep up with inflation, an investor’s money will purchase less in the future than it did in the past. At their best, bonds have experienced very modest inflation-adjusted returns. Long-term government bonds returned 2.3% on an inflation-adjusted basis from 1926-2009, and long-term corporate bonds produced an inflation-adjusted return of 2.8%. Stocks, on the other hand, returned 6.6% inflation-adjusted.

Credit Risk

This is the risk of a company that is selling bonds not being able to make timely payments of principal and interest. The value of a bond might also decrease because of financial difficulties or the declining credit worthiness of the issuer. With bond investing it is important to keep in mind that corporate bonds aren’t guaranteed by the full faith and credit of the U.S. government but are solely dependent on the company’s ability to repay the money that it has borrowed.

Liquidity Risk

Some investments might not be widely held by the public and can be difficult to sell (are not very liquid) if prices drop dramatically creating additional risks for bond investing. Government bonds are usually very liquid investments; corporate bonds, however, might be difficult to sell quickly in certain situations.

Call/Reinvestment Risk

As interest rates fall, bonds with call provisions might be called (redeemed) by the issuer prior to maturity. While a premium is usually paid to the bond owner when the bond is called, this could leave bond investing with the problem of reinvesting the principal at a lower interest rate.

Manarin Investment Counsel’s Links of the Week

Manarin Investment Counsel — Wed, 02 Jun 2010 16:50:41 +0000

What you are about to read are a collection of links the Manarin team has collected from around the web:

Creighton University’s Ernie Goss on the Mid-America Business Conditions Index Economic professor Ernie Goss offers up some good economic news for those of us living in the Midwest.

How Much is That Guarantee in the Window A very interesting article that addresses annuities and why they are rarely the best investments to grow and preserve your retirement savings.

Dow 40,000: Strategies for Profiting from the Greatest Bull Market in History That’s the name of this book published in 1999 and a reminder to investors not to get overly excited or depressed about the ups and downs of the stock market.

Six Reasons Why the Capital Gains Tax Should be Abolished Cato’s Dan Mitchell explains why the optimal capital gains rate is zero.

Richard Lamm’s “I Have A Plan To Destroy America”

Manarin Investment Counsel — Fri, 21 May 2010 20:37:10 +0000

I have a secret plan to destroy America. If you believe, as many do, that America is too smug, too white bread, too self-satisfied, too rich, let’s destroy America. It’s is not that hard to do. History shows that nations are more fragile than their citizens think. No nation in history has survived the ravages of time. Arnold Toynbee observed that all great civilizations rise and they all fall, and that “an autopsy of history would show that all great nations commit suicide.”

That’s the introduction of this speech given by former Colorado Governor Richard Lamm that raises some poignant thoughts on multiculturalism in the United States.

Brutal Day on Wall Street

Manarin Investment Counsel — Fri, 07 May 2010 18:55:38 +0000

May 6th was a brutal day on Wall Street. It was brutal because the plunge on the Dow we witnessed appears to have been caused by a trading glitch that set off a wave of additional trades accelerating the decline.

Another factor in addition to the actions of financial engineers and traders that caused both individual and professional investors to sell was emotions. What can I say? Years of evidence show that those who have the courage to maintain a calm approach to chaotic events can come through any upheaval in fine shape.

We’ve been talking about a potential market correction several weeks now on the radio show but the bottom line is that a firm commitment to common sense and discipline is vital in today’s financial environment. Those blindsided by emotions will go broke.

This is monumentally important to investors.

If you can, take advantage of the bargains while keeping your psychological seat belt fastened. These are interesting times we’re living in but that doesn’t mean it should be tough for everyone. For the highly aware, it’s a golden opportunity.

- Roland