Planning For Your Life

Wow! We keep asking ourselves, “Can it get any worse?”, and it appears that the answer to that is YES.

As I write this today at 10:00 am the Dow Jones is down over 200 points again and there doesn’t seem to be anything the government or business can do about it. The one consolation is that we will have a three day weekend for the markets with a banking holiday on Monday. It seems that progress can be made over days when the markets can’t react immediately.

I know that we will get through this as we have gotten through every other challenge our economy has faced over its history but when you are in it, it can really hurt. I know that we have all lost money and that it will take time to recover what is gone but there are a few things you can do right now to protect yourself.

First, you should already be in cash in your 401k plans. The market may fall still further and there will continue to be a lot of volatility until this credit crisis gets resolved. If you are concerned that you will miss some good days ahead know that you will also be missing some of the bad ones as well.

Next, you should look at some of the new investment vehicles out there that offer what are called “living benefits”. These plans, offered by insurance companies, guarantee a future income stream with a minimum return of 6 or 7% on your investment that you cannot outlive, even if your account value drops to zero. There are a number of good companies that offer these products and I would be happy to discuss them with you if you like.

If you are participating in plans where you are contributing on a monthly basis, do not stop. Even if you have moved the bulk of your 401k to cash your future investments should be invested in the market since you are buying shares at better and better prices. This will help when the market recovers as these shares that you bought on sale will recover faster.

Don’t pull your money out of the bank. No one has lost a dime yet and with the insured amounts lifted to $250,000 (there is even a proposal on the table to make this unlimited) your money is safe. The worst thing we could do to insure a depression would be for us to make it even harder for banks to make loans because there is less capital on deposit.

Talk to a professional about your money. I hear too many people say they don’t want to do anything for fear of doing the wrong thing. Doing nothing, however, may be the wrong thing. There are ways to protect your investments and provide future growth, so open those statements and then find out what you can do.

I know this is a scary time, but be assured that we will get through this and life will get better.

Let me know if I can help you.

Marc

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Last Sunday it happened. The Treasury Department took over Fannie Mae and Freddie Mac, the two largest mortgage holders in the world. The combined mortgage holdings of these two giants is just north of $5.4 Trillion. That is a lot of money no matter what country you live in.

The good news is that the takeover will help to stabilize the markets that have been shaky for months, wondering if these two companies would survive the mortgage meltdown that is occurring here and around the world. The bad news is that it may make it more difficult to get a loan for a home or a business in the months ahead because the plan requires both entities to sharply reduce their mortgage holdings in the future.

The moves by Treasury and Congress a few months ago was designed to allow these companies to increase their lending in both dollars and the size of loans in order to provide some liquidity to the distressed mortgage markets. With the takeover and reduction in portfolios, money will now be exiting the markets instead.

There is also danger in the banking sector as most banks still have not disclosed the extent of the losses from bad mortgage loans on their books. I did notice in the paper this morning that mortgage rates dropped yesterday on the news of the takeover and may go still lower in the future but that is hollow news if the banks and lenders are still unwilling to make loans on any terms.

You see, banks can leverage every dollar deposited by ten times. If they have $1 million in assets they can lend out $10 million. For every dollar that a bank or lender writes off the books he must reduce his leverage or increase his deposits. Right now banks are in a squeeze and you and I are caught in the middle of it.

How did we get into this mess? The blame lies in two areas, from my perspective. First, Wall Street allowed the formation and sale of all of these loans as if they were all AAA credit worthy. Second, Congress took money, lots of it, from Fannie Mae and Freddie Mac to look the other way and make excuses for their risky actions and they are still making excuses today. It is probably high time that we start holding someone responsible for this mess since we, the taxpayers, will end up paying for all of it.

So what can you do? Stay liquid, keep your credit on solid ground and educate yourself about what your public representatives are actually doing.

We will come through this because we always do. We are the United States of America and we will survive and prosper but the time for taking undue risks is over and we should stand together in making the future more stable for future generations.

To your Prosperity

Marc

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I read an article in Forbes today and wanted to share it with you. It reinforced for me the need to be vigilent about what you find on your page and in your communication with others. Here is the text of the story and the link to the article.

Facebook Blows It

I for one am changing my Facebook password.

I hope you are having a profitable day

Marc

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We are in a recession! There, somebody said it.

Everyone who wants the world to continue to move forward without a glitch has been denying this for months but anyone who has shopped for groceries or filled up their car with gas lately knows that things are costing more. That in itself is not enough to signal a recession but for most of us there have not been any proportionate income increases to go along with these increased cost and for us this spells trouble.

Will things get worse before they get better? No one knows for sure, but when I read things like the article I found in Barron’s last week I tend to think that they just might get worse before they get better. The title is enough to shake you in your boots, “Yes, That’s $2 Trillion of Debt Related Losses”. It is an interview with Nouriel Roubini, an economist who has been predicting for two years most of the problems we are now experiencing. Here is some of what he said in the interview.

Unfortunately for the rest of us, you have a pretty good track record. How much more misery lies ahead?

“We are in the second inning of a severe, protracted recession, which started in the first quarter of this year and is going to last at least 18 months, through the middle of next year. A systemic banking crisis will go on for awhile, with hundreds of banks going belly up.”

So far, we have seen no recession in the technical sense: two consecutive quarters of negative growth in real GDP. Why not?

“Maybe the recession started in January; if you look at the data on gross domestic product on a monthly basis between February and April, GDP was falling. Saying this is not a recession is just a joke.”

How long will it take for the collapse in the banking sector to play out?

“It is happening in real time. Many smaller banks are going bust already. More than 200 subprime-mortgage lenders have gone bust in the past year alone. And many community banks will go bankrupt. Community banks usually finance everything: the homes, the stores, the downtown, the commercial real estate, the shopping center. If you are in a town or a municipality where there is a housing bust, the bank is gone. Of three dozen or so medium-sized regional banks, a good third are in distress. That includes the Wachovias and Washington Mutuals of the world. Half of this group might go bankrupt. Even some of the majors could end up technically insolvent, though they might be deemed too big to fail.”

My purpose is not to make you feel worse than you already do but to get you thinking about what you can do to stay ahead of all this. First, you should have some money in the bank (one that won’t fail, I hope). Having cash during a downturn can help you weather your own personal downturn and take advantage of opportunities that are sure to be there at the bottom.

Next, you should find new ways to conserve the resources you have. I have a garden and I freeze, can and dehydrate tomatoes, peppers, beans, squash and cucumbers to see me through the winter. You can find ways to drive less or drive using less gas. Start buying store brands instead of name brand products (most of the store brands are made by the national brands anyway).

Lastly, you can find new sources of income. How much stuff do you have in that storage room or in the attic? Have a garage sale of put it on Craig’s List or EBay. Start a side business doing something you already know and like to do. Can you play an instrument? Give lessons. Are you a computer geek? Sell your skills to help people who need it. Are you a great cook? Find someone who wants to eat what you make. There are lots of ways to stay ahead if you just put your mind to it.

A recession doesn’t have to hurt a lot if you just stay ahead of it by being prepared and by taking action. Now is not the time to pull the covers over your head. Get up and start moving and you will be one of the survivors.

Let me know if I can help you in any way.

Marc

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