Friday, December 19, 2008

Happy Holidays to Detroit and More!

As the holidays rapidly approach, I would like to take a few moments to wish you a HAPPY and JOYOUS CHRISTMAS and HANUKA, as well as a HEALTHY and PROSPEROUS NEW YEAR!

The economy has been in recession since December of 2007 and will most likely continue to shed jobs into 2009. While this recession could be the worst since the 1973-75 and 1981-82 recessions, and possibly the worst since the Great Depression, the response by the government, regardless of your politics, has been totally different from the government response that caused the Great Depression. The amount of stimulus injected into the economy this year, and the plans for 2009, will usher in the next phase of the business cycle by the end of 2009 or sooner. Below is a list of recessions, since 1926 and their duration.

1929-1933, 43 months in duration (Great Depression).
1981-1982, 16 months in duration.
1973-1975, 16 months in duration.
1937-1938, 13 months in duration.
1926-1927, 13 months in duration.
2007-2008, 12 months in duration.*
1970, 11 months in duration.
1948-1949, 11 months in duration.
1960-1961, 10 months in duration.
1953-1954, 10 months in duration.

Sensational reporting by the media has fueled an overblown sell off in the stock market, which seems to be abating. It is my opinion we will continue to experience market volatility during the first half of 2009. When the market point swings become boring to the media, and unemployment peaks, the recession will be nearing an end. By then, a new bull cycle will already have emerged. Those of you who have continued to invest during this downturn will reap rewards quickly during the next expansion. Those considering putting cash to work should do so by dollar cost averaging over the next six months.

Lately, it has been The Big 3 automakers getting battered by Congress, which continues to refuse to accept its fair share of responsibility for the automakers plight, as well as that of the housing and financial services industries. The automakers will receive some government aid through TARP, even though the Treasury is reluctant to provide the funds through this mechanism. The perceived social disruption caused by the bankruptcy of the automakers during a time of recession is just too risky to leave to chance. It seems that the taxpayers in this country are psychologically wrestling with the choice between free market capitalism and the safety net of increased socialism. It is impossible to have low taxes and the government guaranteeing everything. At some point, which more than likely is with the bailout of Detroit, the government involvement in guaranteeing that certain companies will not fail must end.

The moral hazard that has been created will probably lead to more foolhearty risks being taken at some point in the future. For now, however, even people who believe in free markets realize the government does have a role to play when panic grips our financial system. This is especially true when government policies, such as CAFE standards and "affordable housing initiatives" have exacerbated problems. The cost down the road will be high, especially as taxpayers weigh the option of further nationalizing the health care system.

Many of my clients have invested in the MetLife and Transamerica Variable annuities over the last few years, and have had the reassurance that their future income for retirement is protected. The insurance companies, except for AIG, have faired well during this period, due to their capital requirements and conservative investment strategies. While the market value of an annuity can fluctuate, the guaranteed income benefit continues to increase. While variable annuities may not be right for everyone, most people can benefit from some insurance on their investments. As the market recovers, so will the market value of all your holdings.

During these difficult economic times, do you feel like you’re playing hide-and-seek with your investment representative? Are you ready to do business with a firm that focuses upon you – your personal investment goals and objectives, and your retirement dreams? If so, then I am here to assist you with any questions or concerns you might have about your investments. If you’re looking for a new advisor, or would like to discuss your investments with me to get a fresh perspective, then call or email today.

John H. Kaighn

Jersey Benefits Advisors

The Kaighn Report

Monday, December 1, 2008

NBER Makes It Official: Recession Started in December 2007

As I mentioned in the 3rd Quarter newsletter at some point in the future, the National Bureau of Economic Research would determine the economic situation we are experiencing to be a recession. Well, that time has come. Official recession watchers at the NBER said today that the U.S. economy is in recession, and it began in December 2007. Here is the text of their statement.

The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.

Read their full statement here.

Now the task at hand is for investors to ascertain the depth and length of this downturn. Since the stock market is a leading indicator of the economic cycle, once it can be determined that the economy is healing and poised for recovery, stocks will begin their next advance. While a recovery is something we are all hopeful will be occurring sooner than later, it is my opinion there will be some false starts before the next bull market begins in earnest.

John Kaighn

Jersey Benefits Advisors

The Kaighn Report

Wednesday, November 26, 2008

The Desolate Wilderness and This Fair Land

I usually write the bulk of the material that appears on my blog, but every now and then I feature other authors who have a flair for great writing. This is a piece that is an annual ritual in a national publication that corresponds with the Thanksgiving Holiday season. It does a nice job of reminding the reader of the reasons to be thankful and to whom we owe that gratitude. I hope you enjoy it

The Desolate Wilderness

Here beginneth the chronicle of those memorable circumstances of the year 1620,as recorded by Nathaniel Morton, keeper of the records of Plymouth Colony, based on the account of William Bradford, sometime governor thereof:

So they left that goodly and pleasant city of Leyden, which had been their resting place for above eleven years, but they knew that they were pilgrims and strangers here below, and looked not much on these things, but lifted up their eyes to Heaven, their dearest country, where God hath prepared for them a city (Heb. XI, 16, and therein quieted their spirits. When they came to Delfs-Haven they found the ship and all things ready, and such of their friends as could not come with them followed after them, and sundry came from Amsterdam to see them shipt, and to take their leaves of them. One night was spent with little sleep with' the most, but with friendly entertainment and Christian discourse, and other real expressions of true Christian love.

The next day they went on board, and their friends with them, where truly doleful was the sight of that sad and mournful parting, to hear what sighs and sobs and prayers did sound amongst them; what tears did gush from every eye, and pithy speeches pierced each other's heart, that sundry of the Dutch strangers that stood on the Key as spectators could not refrain from tears. But the tide (which stays for no man) calling them away, that were thus loath to depart, their Reverend Pastor, falling down on his knees, and they all with him, with watery cheeks commended them with the most fervent prayers unto the Lord and His blessing; and then with mutual embraces and many tearsthey took their I leaves one of another, which proved to be the last leave to many of them.

Being now passed the vast ocean, and a sea of troubles before them in expectations, they had now no friends to welcome, them, no inns to entertain or refresh them, no houses, or much less towns, to repair unto tb seek for succour; and for the season it was winter, and they that know the winters of the country know them to be sharp and violent, subject to cruel and fierce storms, dangerous to travel to known places, much more to search unknown coasts. Besides, what could they see but a hideous and desolate wilderness, full of wilde beasts and wilde men? and what multitudes of them there were, they then knew not: for which way soever they turned their eyes (save upward to Heaven) they could have but little solace or content in respect of any outward object; for summer being ended, all things stand in appearance with a weatherbeaten face, and the whole country, full of woods and thickets, represented a wild and savage hew. If they looked behind them, there was a mighty ocean which they had passed, and was now as a main bar or gulph to separate them from all the civil parts of the world.

This Fair Land

Anyone whose labors take him into the far reaches of the country, as ours lately have done, is bound to mark how the years have made the land grow fruitful. This is indeed a big country, a rich country, in a way no array of figures can measure and so in a way past belief of those who have not seen it. Even those who journey through its Northeastern complex, into the Southern lands, across the central plains and to its Western slopes can only glimpse a measure of the bounty of America.

And a traveler cannot but be struck on his journey by the thought that this country, one day, can be even greater. America, though many know it not, is one of the great underdeveloped countries of the world; what it reaches for exceeds by far what it has grasped.

So the visitor returns thankful for much of what he has seen, and, in spite of everything, an optimist about what his country might be. Yet the visitor, if he is to make an honest report, must also note the air of unease that
hangs everywhere.

For the traveler, as travelers have been always, is as much questioned as questioning. And for all the abundance he sees, he finds the questions put to him ask where men may repair for succor from the troubles that beset them.

His countrymen cannot forget the savage face of war. Too often they have been asked to fight in strange and distant places, for no clear purpose they could see and for no accomplishment they can measure. Their spirits are not quieted by the thought that the good and pleasant bounty' that surrounds them can be destroyed in an instant by a single bomb. Yet they find no escape, for their survival and comfort now depend on unpredictable strangers in far off corners of the globe.

How can they turn from melancholy when at home they see young arrayed against old, black against white, neighbor against neighbor, so that they stand in peril of social discord. Or not despair when they see that the cities and countryside are in need of repair, yet find themselves threatened by scarcities of the resources that sustain their way of life. Or when, in the face of these challenges, they turn for leadership to men in high places-only to find those men as frail as any others.

So sometimes the traveler is asked whence will come their succor. What is to preserve their abundance, or even their civility? How can they pass on to their children a nation as strong and free as the one they inherited from their forefathers? How is their country to endure these cruel storms that beset it from without and from within?

Of course the stranger cannot quiet their spirits. For it is true that everywhere men turn their eyes today much of the world has a truly wild and savage hue. No man, if he be truthful, can say that the specter of war is banished. Nor can he say that when men or communities are put upon their own resources they are sure of solace; nor be sure that men of diverse kinds and diverse views can live peaceably together in a time of troubles.

But we can all remind ourselves that the richness of this country was not born in the resources of the earth, though they be plentiful, but in the men that took its measure. For that reminder is everywhere in the cities, towns, farms, roads,
factories, homes, hospitals, schools that spread everywhere over that wilderness.

We can remind ourselves that for all our social discord we yet remain the longest enduring society of free men governing themselves without benefit of kings or dictators. Being so, we are the marvel and the mystery of the world, for that enduring liberty is no less a blessing than the abundance of the earth.

And we might remind ourselves also, that if those men setting out from Delftshaven had been daunted by the troubles they saw around them, then we could not this autumn be thankful for a fair land.

These editorials have appeared annually in the Wall Street Journal since 1961.

John Kaighn

Jersey Benefits Advisors

The Kaighn Report

Web Business Review

Tuesday, November 4, 2008

What is a 529 plan?

Saving money for college expenses is a goal I hear many young parents express, and one of the best ways to build tax deferred savings for college is the 529 plan. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.

There are two types of 529 plans: pre-paid tuition plans and college savings plans. All fifty states and the District of Columbia sponsor at least one type of 529 plan. In addition, a group of private colleges and universities sponsor a pre-paid tuition plan.

There are differences between pre-paid tuition plans and college savings plans, and each individual family needs to determine which plan may be right for their needs. Pre-paid tuition plans generally allow college savers to purchase units or credits at participating colleges and universities for future tuition and, in some cases, room and board. Most prepaid tuition plans are sponsored by state governments and have residency requirements. Many state governments guarantee investments in pre-paid tuition plans that they sponsor.

College savings plans generally permit a college saver (also called the “account holder”) to establish an account for a student (the “beneficiary”) for the purpose of paying the beneficiary’s eligible college expenses. An account holder may typically choose among several investment options for his or her contributions, which the college savings plan invests on behalf of the account holder. Investment options often include stock mutual funds, bond mutual funds, and money market funds, as well as, age-based portfolios that automatically shift toward more conservative investments as the beneficiary gets closer to college age. Withdrawals from college savings plans can generally be used at any college or university. Investments in college savings plans that invest in mutual funds are not guaranteed by state governments and are not federally insured.

John Kaighn

Jersey Benefits Advisors

The Kaighn Report

Saturday, October 18, 2008

Jersey Benefits Advisors Newsletter Fall 2008


Market Watch

I ended my summer newsletter with the following assessment of where our economy was heading. It was written before talk of the Emergency Economic Stabilization Act of 2008, which became law on October 3, 2008. “With all of the stresses on the US economy, confirmation of a recession could become a reality either in the second half of this year, or early in 2009. The healing process necessary to recover from the mortgage fiasco and oil shock is underway.”

There is no doubt that anger, frustration and fear are feelings that are being experienced by many of us as we’ve witnessed the deflation of the housing bubble and the subsequent credit crisis which culminated in the emergency relief plan mentioned above. It is important to understand that many economists think this period will be labeled a recession, when the dust has settled and the National Bureau of Economic Research (NBER) assesses the situation, some time in the future. Meanwhile, we are faced with the here and now and surviving this period, while planning for the recovery.

It is important to understand how we got here in order to avoid the same mistakes in the future. The initial media reaction was to blame Wall Street for this fiasco, but as events play out, it is being understood the blame can be equally placed on the shoulders of government, as well as many of the citizens of this fair land who used the equity in their homes as a bank, and stretched for outsized gains on their investments.

At the heart of the matter sit the two Government Sponsored Enterprises (GSE's) Fannie Mae and Freddie Mac. By being a GSE these companies were treated like they had the full faith and backing of the Federal Government, even though they didn't. A little history helps to understand the dilemma.

Fannie Mae was created by the government during the Great Depression to buy mortgages, which they guaranteed with the full backing of the government. In 1968, President Johnson structured Fannie Mae as a government sponsored enterprise, without the guarantee. In the 1970's, Freddie Mac was created and the two quasi public entities began buying mortgages and packaging them into securities, which were purchased by banks, investors, governments and others around the world, because of the “implicit guarantee” that if anything went wrong, the US government would back the securities. Fannie and Freddie were also encouraged by the government to increase lending for subprime mortgages in order to advance the government’s agenda for “affordable housing”.

As we all know by now, the two GSE's did fail, and while the reasons are varied, the implicit guarantee is now an explicit guarantee. Furthermore, the actions of Fannie Mae and Freddie Mac made housing more expensive, not more affordable!

The ensuing credit crunch has had a chilling effect on the stock market, which has not been very pretty this year. At the end of the third quarter, the DJIA was 10,850.7, the S&P 500 clocked in at 1,164.74 and the NASDAQ finished at 2,082.3. All of the indices are in bear market territory and down significantly for the year.

There will be some false starts and possibly some more gut-wrenching ups and downs, especially as the election bears down on us. Fortunately, all bear markets end, just as their counterparts do. Usually, when you least expect it!

Economic Outlook

Regardless of your feelings about the government rescue plan and where the fault lies, the reality of the situation is that the government has chosen to clean up a mess it helped create. The implications for the broader economy remain to be seen, but one thing is for sure, the road to recovery will be bumpy and prolonged. While it is generally believed the current crisis is not over, general consensus is that it is beyond halftime, to use a football metaphor, and possibly in the fourth quarter. I doubt very much the recovery will be instantaneous, even with the recent government actions. Look for a period of extreme volatility as we decide on a new President.

When the news is all bad, and the media paints a dire picture of the future, it is difficult to take the steps which could help you to benefit from the current financial landscape. Those of you who are investing in retirement plans or other investment accounts on a monthly basis, are picking up shares at a discount. While your account value may be down, once the market begins to rebound, the value of your account will increase rapidly, reflecting the increased number of shares you own. If you are not regularly contributing and have some available cash, the next several months should be a good time to add to your account, but I would caution against making a large investment at once.

To help you conquer investing phobia, consider this study by Psychologist Paul Slovic of the University of Oregon. In 2001 he had investors estimate the performance of their portfolio over the next 12 months and the decade to come. Only 6.7% of investors expected a zero or negative return in 2001 and only 1.3% thought they’d have no gains over the next 10 years. He asked investors the same question on September 29, 2008 and 36% of investors saw no profits for the current year and 5% predicted their portfolios would go nowhere for the full decade. Obviously, investors view of the next decade is being shaped by events of the last few days. Looking backward at where the market has been is a surefire way to ensure you will miss opportunities going forward. According to Jason Zweig, author of the Intelligent Investor column in the Wall Street Journal, “You need only two things in order to have an edge in today’s market: cash and courage”.

While the current economic situation seems challenging, the actions by the Federal Reserve and governments around the world will prevent the doomsday scenario of global depression. History will be the judge as to the severity of today’s difficulties, but lessons learned during the Great Depression indicate no government action can be catastrophic. I’ve opted to suspend consolidated statements until the year’s end, so call me to discuss quarterly statement concerns.

Protecting Your Assets In a Down Market

For those of you invested in the Transamerica and MetLife Annuities, I want to remind you about the Guaranteed Minimum Income Benefit on your account which protects the assets so your account will continue to grow in a down market. Look for the line item GMIB, Income for Life or Managed Annuity Program to ascertain this value. While the market value reflects the turmoil in the stock market, the beauty of these products is their insured value during times of market upheaval. These products help to protect your assets and are an especially good investment for retirement assets. While nobody likes to see losses in value, it is reassuring to know these products have protection against downside risk and that insurance companies must have adequate capital in reserve.

Investment Advisory Services offered through:
Jersey Benefits Advisors
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Jersey Benefits Advisors

Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
1150 S. Olive St. Suite T-25
Los Angeles, CA 90015

Third Party Administration and Insurance Services offered through:
Jersey Benefits Group, Inc
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Jersey Benefits Group, Inc.

John H. Kaighn

Jersey Benefits Advisors

The Kaighn Report

Friday, October 10, 2008

Capitulation Anyone?

The events we are witnessing during this financial meltdown will definitely be considered a historic event, as the stock markets around the world unwind in a whirlwind of panic selling. The close on October 9, 2008 has the major US indices firmly in bear market territory and the market is bordering on being absurdly oversold, which usually marks the capitulation and bottom of a bear market. It would be quite ironic if this level held as the bottom, especially since the all time highs for the DJIA and S&P 500 were set a year ago to the day. At this juncture, the DJIA is 39.4% off the October 9, 2007 high, while the S&P 500 is 41.9% below its peak. As is usually the case during market downturns, the NASDAQ is now 42.5% below its high water mark, which was set on October 31, 2007.

At the time of this writing, futures are indicating a drop at the open of the US markets, while Asian and European markets are 7% - 10% lower. A large part of the selling is due to deleveraging by hedge funds and others who overextended during the credit bubble. Margin calls cause investors to come up with more cash or sell assets. It looks like asset sales are the order of the day. I'm sure there are many smaller investors who are also selling, following the herd and fueling the panic.

Just as irrational exuberance has faded and illogical pessimism has become the mantra for the day, the trepidation investors are feeling now will elapse and calm will be restored. Real damage has been done to the portfolios of millions of investors around the world, and bailing out at this point, especially if you don't need the cash today, is foolhardy at best. Besides, if the market were to drop over 50% and the government went bankrupt, which was a rumor in the trading pits yesterday, what would the cash under your mattress be worth anyway? Of course, you could always buy gold at over $900.00 dollars an ounce, because doesn't that just ALWAYS keep going up? You know, like stocks, housing, oil, commodities and of course, tulips!

John H. Kaighn

Jersey Benefits Advisors

The Kaighn Report

Wednesday, September 24, 2008

The Rescue on Main Street

Frustration and anger are two feelings that come bubbling forth from my gut as I watch the drama unfold in regard to the rescue plan for our financial system being deliberated before my eyes. At the heart of the matter sit the two Government Sponsored Enterprises (GSE's) Fannie Mae and Freddie Mac. The utter disregard for the facts by the mainstream television and print media, Barney Frank and Christopher Dodd completely amazes me.

The implicit guarantee of government backing for mortgage securities peddled by the two GSE's, as they operated under the guise of "providing affordable housing", gave them the ability to enjoy lower interest rates on their bonds, which in turn allowed them to prevail over private companies providing mortgage backed securities. The increased leverage, lack of competition and tacit approval of their operations by politicians receiving campaign contributions through their lobbying efforts allowed their CEO, Franklin Raines, to earn over 100 million dollars, before being ousted for accounting irregularities. Now Frank and Dodd are trying to position themselves as champions of Main Street, while the financial system grinds to a halt. For a more in depth analysis of the Fannie & Freddie debacle, see the articles in the Wall Street Journal and Investors Business Daily from Tuesday, September 23, 2008.

Ben Bernancke was elevated to Federal Reserve Chairman because he was respected for his knowledge and credentials. Hank Paulson was called upon to be Treasury Secretary because of his knowledge of the financial markets. If they are this concerned about the current crisis in our financial system, I think we better stop with the politics and soberly address the situation. This is NOT a bailout of Wall Street, but rather a rescue of our financial system. If the stock market is halved again in this decade, the pain on Main Street will be devastating. We all enjoyed the rising equity in real estate from 2002 through 2006, but the sad reality is much of it was based on smoke and mirrors. Perhaps this will usher in an era of building wealth methodically through investing, rather than the get rich quick schemes of day trading, real estate flipping and other fads which have led to bubbles and busts. One could only hope!

John H. Kaighn

Jersey Benefits Advisors

The Kaighn Report

Wednesday, September 17, 2008

Resolution Trust Corporation Redux?

Perhaps with the government loan guarantees for the orderly liquidation of AIG, it might be time to establish an entity similar to the Resolution Trust Corporation, which was charged with the orderly liquidation and auction of assets of failed savings & loans back in 1989. While the government could actually make money on the deal it crafted with AIG, the establishment of an entity, such as the RTC, might make any further bankruptcies of banks, investment banks or insurance companies more routine, and eliminate the sensational reporting of these various crises when entities deemed "too large to fail" begin to falter. The current financial difficulties we are now experiencing are not without precedent, and the irresponsible references to current events being similar to the Great Depression are simply unacceptable.

While I realize Mr. Obama is running for President, he should be using his position to reassure the public that the economy is indeed sound and able to deal with situations, such as the ones we've been watching play out for over a year now. The Federal Reserve made policy errors, failed to increase the money supply, and failed to coordinate the orderly liquidation of assets during the Great Depression. The unemployment rate was a staggering 25%, not 6% as it is currently, and the stock market had lost MOST of its value during the market meltdown prior to the Great Depression, not 4% as happened with the "historic" 504 point decline on Monday. In fact, the 508 point decline in 1987 represented a 22.6% market crash, so we must use perspective when discussing the current situation.

Finally, in reference to the AIG situation, it is important to relay to the public that while the insurer is one of the largest insurance companies in the world and deemed too large to fail, the policy holders are NOT in jeopardy. With the loan guarantees, AIG's insurance businesses will be auctioned off to other insurance companies, who know it is in their best interest to be sure those policies are made whole. Insurance companies are also regulated by state insurance commissions which also back the explicit guarantees in insurance policies. An economy, in conjunction with the government, that can react to these situations and have the ability to craft deals that protect account holders and policy holders, but doesn't reward CEO's and common shareholders, is one that is fundamentally sound. Grandstanding and pointing fingers doesn't solve the problem.

The Congress, if gets off its duff and adopts a credible energy policy utilizing all of our resources to break our dependence on foreign oil, could go a long way toward STIMULATING a sound but faltering economy. Leadership will be key as we go forward. This is no time for our leaders to be crying wolf to get elected. A clear and level headed response to the economic challenges we face is paramount to reforming the weaknesses in our system.

John Kaighn

Jersey Benefits Advisors

The Kaighn Report

Thursday, September 11, 2008

Fannie Mae and Freddie Mac RIP

The Government Sponsored Entities (GSE) known as Fannie Mae and Freddie Mac succummed to the credit crisis and were taken over by the US government, which brings to a close their checkered history as a failed government experiment. While the Bush administration will shoulder the criticism for propping up private companies and serving the interests of the rich, this is simply not the reality of the situation. Unfortunately, many in this administration, as well as previous administrations and Congresses voiced their concerns about the "implicit" government backing these companies enjoyed, but to no avail.

By being a GSE these companies operated as if they had the full faith and backing of the Federal Government, even though they didn't, because they were quasi public companies. A little history helps to understand the dilemma. Fannie Mae was created by the government during the Great Depression to buy mortgages, which they guaranteed with the full backing of the government. In 1968, President Johnson created the current structure of Fannie Mae, but without the guarantee. In the 1970's, Freddie Mac was created and the two quasi public entities began buying mortgages and packaging them into securities, which were purchased by banks, investors, governments and others around the world, because of the implicit guarantee that if anything went wrong, the US government would back the securities.

As we all know by now, the two GSE's did fail, and while the reasons are varied, the implicit guarantee is now an explicit guarantee. The strategy of the government should be to shrink them and eventually let them become a relic of a failed business model. The best way to back mortgage securities is by a fully capitalized private entity with enough capital to guarantee the mortgages and mortgage backed securities it has underwritten. Ultimately an expensive lesson has been learned, hopefully! You can't write mortgages for people who don't have the ability to pay them, and the bank that underwrites a mortgage must have a stake in the security that ultimately buys the mortgage. It sounds so simple!

On this 7th anniversary of the horrendous attacks on our country by Islamic terrorists, I just want to let the families of those who lost their lives know there are some people in this country who have not forgotten. May you find peace!

John Kaighn

The Kaighn Report

Jersey Benefits Advisors

Friday, August 29, 2008

How Would You Feel If You Were Hillary?

While Hillary Clinton must be crying in her beer at the thought of Sarah Palin receiving her consolation prize, and having the opportunity to be the first woman to break the glass ceiling and actually become the first Vice President of the US, Obama wrestles with the links to his radical past, the most damning being the unrepentant terrorist of the Weather Underground, the infamous William Ayers. The recently concluded Democratic National Convention painted America as a country whose glass is half empty, the usual liberal, excuse me, Progressive viewpoint of our nation. The Clintons, for their part, endorsed Obama's nomination, but it was most definitely a half-hearted backing, as Hillary eyes the ticket for 2012.

Meanwhile, the economy posted a 2nd Quarter GDP of 3.3%, hardly recessionary. While the housing and financial sectors are a drag on economic growth, exports and a weaker dollar added significantly to the GDP expansion. While oil and other commodities are still high, their recent selloff has definitely had a positive effect on the inflation outlook. While the National Bureau of Economic Research (NBER) defines a recession more broadly than two consecutive quarters of negative GDP growth, by using the definition of "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales, by either definition, the economy is not in recession at this point.

The markets have been trading in a several hundred point range for most of the year since they originally tanked in January. It remains to be seen if the economy can sustain the growth of the second quarter without the benefit of government stimulus. As the summer draws to a close and the election is in our face, the remainder of the third quarter and the fourth quarter are shaping up to be as volatile, if not more volatile than the last 8 months have been. Unemployment is expected to remain at 5.7%, the commodity bubble has popped, inflation is easing, the credit crunch and housing fiasco remain a drag, and we have a Presidential election for entertainment. What's not to like?

John Kaighn

Jersey Benefits Advisors

Wednesday, July 9, 2008

Jersey Benefits Advisors Newsletter Summer 2008

Market Watch

The chorus of troubling economic news continued to chip away at investor confidence with June being particularly brutal, and as the 2nd quarter of 2008 ended, the Dow Jones Industrial Average teetered on the brink of “officially” being in bear market territory. Of course by the conclusion of the 4th of July holiday, all of the stock market indices had succumbed to the dreaded 20% decline threshold, and there was no doubt the bear market was upon us. One might be tempted to ask what a good strategy might be to avoid being battered by a bear market. I would have to respond by saying the best strategy is to ride it out, prudently invest in as many sectors of the economy as you can, and enjoy the next recovery when it comes.

Nobody can predict with certainty when a bear market will begin and when it will end. Missing just a few days of being fully invested, when the market recovers, can do serious damage to your portfolio. In a study by Invesco Aim from December 31, 1997 to December 31, 2007 if an investor was fully invested in a fund that mirrored the S&P 500, the average annual total return was 5.8%, even though there was a bear market from March of 2000 through October of 2002. If an investor missed the best 10days by trying to time the market, the average annual return dropped to 1.02% per year. By missing the best 20 days, the average annual total return was –2.64%. If the investor missed the best 60 days, the average annual total return fell to –12.82%. The market rarely trumpets the next 300 point gain, so stay invested and dollar cost average.

If there is any positive spin I can offer to help ride out this rough patch in the market, it is to relay some research on bear markets by Bespoke Investment Group. They conducted a study of bear markets since 1940, and they found that the average bear market for the S&P 500 produced a decline of 30.4%. The length of the average bear market during that period was 386 days, and by the time the 20% decline threshold was reached, the bear market was 74% completed. While nobody enjoys a bear market, except the bears, it is somewhat reassuring to know that by the time you can confirm the fact that the bear market is official, it is almost over. The hindsight is much like officially designating a recession.
It is important to note at this juncture, by strict definition, we have not confirmed the economy is in recession. The first quarter GDP was revised to indicate the economy was growing at 1%. Unfortunately, this is not sufficient to support job growth and the unemployment rate has crept up to 5.5%. Along with slow economic growth, inflation has begun to rear its ugly head, so the Fed held interest rates at 2% in June, and indicated their concern about increased inflation in the minutes of the FOMC meeting.

The European Central Bank, citing inflation concerns in commodities, raised rates by 1/4 point, but indicated it was only a one time deal at this juncture. Of course nobody needs to hear much about the run up in oil prices, because we are confronted by it every time we fill up. Suffice it to say speculation, supply and demand, as well as the Olympics are all playing a part. Congress is trying to do something. God help us!

Here are the year to date numbers for the indices as of 6/30/08. The DJIA closed at 11,350.01 off 14.4%. The S&P 500 closed at 1,280 down 12.8% and the NASDAQ finished the first half of the year at 2,292.98 which is down 12.9%. Let the 2nd half begin.


As I previously mentioned the economy continues to limp along with meager GDP growth, but not enough to generate a sufficient number of jobs for everyone choosing to work. The effect of historically high oil prices continues to add inflationary pressure to the prices of other goods, especially in the area of food products, which rely on the use of energy to produce and transport them to market. Low interest rates make the dollar unattractive for investors who have been flocking to commodities to improve returns. This in turn has also added to the advance in oil prices.

As the credit markets continue to remain tight, consumers cut back on driving and other discretionary spending, and China as well as the other emerging markets feel the pinch of reduced demand for their products, there will be a further slowdown economically in this country as well in other parts of the world. Already the economies of the US and the European Union are exhibiting extreme signs of weakness. When the Olympics are finished this August, look for diminished economic activity in China, as a great deal of the demand for oil and other commodities has been to improve infrastructure and air quality during their day in the spotlight.
With all of the stresses on the US economy, confirmation of a recession could become a reality either in the second half of this year, or early in 2009. The healing process necessary to recover from the mortgage fiasco and oil shock is underway.

Hydrogen Electric Prototype By Honda

For anyone who may have missed a review published in late November of 2007, I wanted to mention the Honda FCX Clarity, a vehicle which will be leased in Los Angeles and other select markets next summer. What makes this car unique is the fact that it is propelled by hydrogen and electric power. Vehicles that use hydrogen with fuel cell technology instead of gasoline are the cleanest technology, because they emit only water vapor into the air we breathe. These cars simply do not pollute. They can also use hydrogen from domestic energy sources, reducing our dependence on oil. While the economic viability of this prototype vehicle is still in question, this technology could be one of the answers to truly breaking the grip foreign oil has on our economy. Perhaps we’re ready this time.

John H. Kaighn

Jersey Benefits Advisors

Monday, June 23, 2008

Stock Market Comeback Faces Triple Threat

It never seems to fail, but just as we get ready for quarterly account updates, the stock market decides to test it's lows for the year. While the market has technically avoided a bear market, and the economy has thus far avoided recession, the headwinds continue to mount. With the Presidential Election looming in the fall, this looks to be a summer of rhetoric and empty promises.

There are several solutions to the current mess we face concerning crude oil and energy. The Congress MUST override all environmental litigation and allow full scale drilling in ANWR and off the coasts. Full scale development of alternative energy sources is crucial, like the steps Honda has taken with their hydrogen/electric hybrid. Coal and nuclear energy sources must be utilized immediately, regardless of initial environmental impact. These steps would dampen speculation, even though this increased domestic energy production would not enter the market immediately, because much of the run up in oil prices is being driven by the same type of speculation that drove the dotcom bubble and the housing bubble. It is purely a perception of a lack of supply. Any chance the Congress has the nerve to take these steps? When you look at history, this was exactly the "nerve" which led to the development of the Alaskan Oil Pipeline. Had we only been serious about alternative energy solutions back in the late 70's and early 80's instead of conspicuous consumption!

Meanwhile, here is a reprint of a Marketwatch article on the threats facing the market a week before the end of the second quarter.

By Kate Gibson, MarketWatchLast Update: 6:00 AM ET Jun 21, 2008

NEW YORK (MarketWatch) -- U.S. stocks on Monday will attempt to recover from some hefty losses, but any comeback will likely be contingent on three factors: the price of crude oil, any hints of inflation, and developments in the troubled financial sector.

"Obviously this market is in lockstep with three things, the most important of which is the price of a barrel of oil," said Art Hogan, chief market strategist at Jefferies & Co.

On Friday, stocks sank as crude-oil futures gained, a trend that played throughout the week, as the weaker U.S. dollar added to the allure of oil and other commodities as a currency hedge. And, more trouble in the financial sector compounded market anxiety.

The Dow Jones Industrial Average ended at 11,842.69, off 220.4 points, or 1.8%, for the session. It lost about 465, or 3.8%, on the week.

Friday's finish marked the Dow's lowest close since March 10, when it settled at 11,740.15.

"Stocks finished a week that is best forgotten, and the Dow now finds itself flirting dangerously close with the pivotal 11,750 area," said Jon Nadler, senior analyst at Kitco Bullion Dealers.

And, while investors fretted about the impact of rising energy costs on the already soft economy, the credit crisis and its ongoing impact on the troubled banking sector last week continued unabated.

"We had a plethora of brokers talking about them, from the money centers to the regionals, and none of them were positive," said Hogan.

Merrill Lynch on Friday warned of investor capitulation on the regional banking sector, with analysts envisioning further dividend cuts as likely to be on the horizon. The broker cut its median earnings estimate for regional banks for 2008 by 15%, with J.P. Morgan analysts chiming in a prediction of further efforts to replenish reserves in the sector. .

"Merrill sees investors effectively throwing in the proverbial towel when it comes to bank stocks. With capitulation come buying opportunities, normally. A normal year 2008 has not been thus far," said Nadler.

Of the Dow's 30 components, 29 posted losses, with blue-chip financials among the hardest hit. Citigroup Inc. fell 4.3%, American Express Co. fell 3.4% and American International Group Inc. declined 3%.

The S&P 500 fell 24.9 points, or 1.9%, to 1,317.93, with all 10 of the index's industry groups posting declines, led by consumer discretionary, off 3.1%.

The S&P closed with a weekly loss of 3.1%.

Midway between its March low of 1,273 and May high of 1,426, the S&P appears headed back down toward its lows of three months ago, "as investors lose confidence that an economic recovery is just around the corner," said Kenneth Tower, chief market strategist at Covered Bridge Tactical LLC.

The Nasdaq Composite Index dropped 55.97 points, or 2.3%, to close at 2,406.09, giving the technology-laden index a loss of 3.1% for the week.

As stocks sank, bond prices climbed, with the yield on the benchmark 10-year note, which moves in reverse of its price, falling to 4.16%.

The U.S. dollar declined against most currency rivals, while the price of gold climbed. .

And, with the price of crude already on the rise, the climb was further fueled by a published report of an Israeli dry run of an attack on Iranian nuclear facilities.

Crude for July delivery climbed $2.69 to end at $134.62 a barrel on the New York Mercantile Exchange, while uncertainty ahead of a meeting of oil producers and consumers this weekend in Saudi Arabia and China's hike in fuel prices helped push prices down 0.2% for the week.

In addition to energy concerns, next week brings a slew of reports that could shed further light on whether other costs are climbing as well.

"We will also be scouring the economic data calendar for signs of inflation," said Hogan.

The economic docket looks to be a busy one, particularly in regards to the ailing housing sector. Analysts expect the S&P/Case-Shiller Home Price Index will fall to 168.8 in April from 172.2 in March, with the report slated to be released Tuesday.

The second day of the week also brings June consumer confidence, which is projected to weigh in at a 16-year low.

On Wednesday, investors will receive durable goods in May, with the data expected to show a 1.0% rebound, along with an expected small hike in May new home sales, which are projected to rise to 530,000.

Thursday brings final first-quarter GDP, which analysts expect to be revised up to 1.2% from an initial 0.9%, along with initial jobless claims and existing home sales for May.

The May personal income report is due on Friday, along with a measure of consumer sentiment.

Added to the mix is the Federal Open Market Committee, or FOMC, which on Tuesday begins a two-day meeting, with Federal Reserve Chairman Ben Bernanke and his colleagues widely expected to step up talk about the risks of inflation, while not hiking benchmark lending rates from the current 2%.

"Fed projections on economy and inflation are also likely to be revised higher, laying the groundwork for a hike or two this fall," wrote analysts at Action Economics.

With any luck, the Saudi's will decide to add a bit more crude to the market as they conclude the oil summit held this weekend. However, even with facing strong U.S. pressure and global dismay over oil prices, Saudi Arabia could only say on Sunday it will produce more crude this year if the market needs it. Unfortunately, the vague pledge fell far short of U.S. hopes for a specific increase and may do little to lower prices immediately. For now, the current "oil shock" leaves Western countries with little choice but to move toward nuclear power and change their energy consumption habits, Britain's prime minister warned at a rare meeting of oil producing and consuming nations.

John Kaighn

Jersey Benefits Advisors

Monday, June 2, 2008

Crude Oil Prices Continue To Buckle

As a follow up to my blog last week, it is interesting to see oil dropped below $126 a barrel due to fear that prices are cutting into demand and concerns about a probe into futures trading by a U.S. regulator. Light, sweet crude for July delivery was down $1.81 to $125.54 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. On Friday, the contract settled at $127.35 a barrel, up 73 cents after dipping below $125 and then rebounding. July Brent crude futures fell $1.27 to $126.51 a barrel on the ICE Futures exchange in London.

In the U.S., which has just started its summer driving season, there is a real concern about record high fuel and energy prices. This has helped to bring oil down from the $135.09 a barrel trading record hit May 22. Data from the U.S. Energy Department and Federal Highway Administration and several surveys in recent days suggest American consumers are driving less.

The decision by some countries in Asia, like Indonesia and Taiwan, to lower subsidies on oil products, also was seen as having a bearish effect on the market. Additional selling pressure came with last week's announcement from the Commodity Futures Trading Commission about an investigation into possible price manipulation in oil futures markets. The commission also announced new rules designed to increase transparency of U.S. and international energy futures markets.

"There are more concerns on the high pricing we have seen, that it will have a negative impact on demand, and the fact that the CFTC is expanding its investigation of manipulation in the oil markets," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "The seesaw we've seen in the last few days is an indication that the oil market may have peaked," Shum said. "Having said that ... the reality is that even though we have crude off the peak of $135 there are still supply-side issues going forward," he said. "The hurricane season is certainly one factor to contend with."

Tropical Storm Arthur formed Saturday afternoon, one day before the official start of the 2008 Atlantic Hurricane season, and though it caused the temporary closure of two of Mexico's oil export ports, it wasn't expected to cause any severe disruptions to oil shipments. On Sunday, the storm weakened to a tropical depression. "Tropical storm Arthur, the first of this season, gave more support to the market," said a research note by JBC Energy in Vienna, Austria.

Investors also had other supply worries on their mind. On a trip to the Mideast over the weekend, U.S. Treasury Secretary Henry Paulson said there is "no quick fix" to high oil prices because it is an issue of supply and demand. He was on the trip to deliver a message to officials of Saudi Arabia and other oil-producing nations that soaring oil prices are putting a burden on the global economy.

Global demand remains strong while "production capacity has not seen new development," Paulson said Sunday in Qatar. His trip was designed to urge Mideast producers to allow more outside investment to boost output. The day before, though, the current president of the Organization of Petroleum Exporting Countries again blamed the weak U.S. dollar, speculation and the subprime crisis for the spiraling price of oil. Algerian Energy Minister Chakib Khelil said the cartel will make no new decision on production levels until its Sept. 9 meeting in Vienna. He said oil's record prices do not reflect markets conditions, an oft-repeated OPEC position.

As you can see from the various points made here, most of the blame for high energy prices is being blamed on the weakened dollar and global demand. If global demand falters as it has in the US, the resulting supply increase could be just the stimulus to send oil prices tumbling. This would also result in a strengthened dollar against global currencies, which is probably the most important factor necessary to bring relief from high oil prices. Unfortunately, any supply disruptions will bring the oil bulls out in force.

John Kaighn

Jersey Benefits Advisors

Web Business Review

Thursday, May 29, 2008

The Chicken Or The Egg

Oil continues to dominate the headlines, as recent price spikes followed by a $10.00 per barrel decline from its high, reignite discussion about fundamentals. Having witnessed the significant decline in automobile traffic at the Jersey Shore firsthand over the Memorial Day weekend, it is quite evident consumers are cutting back. Traffic on the corridor from Philadelphia to Atlantic City was subdued and nowhere near the usual holiday volume.

Meanwhile, the stock market seems to be trading in a range between 12,200 and 12,800 with no compelling reason to break from this range. With the verdict on recession inconclusive at best, politicians are scrambling to use any definition, even a revised 0.9% growth rate in GDP for the first quarter, as a way to save face. Most major candidates have already come out and pronounced the economy in recession, when in fact, we are not even close to delivering two full quarters of negative growth. It just amazes me how loosely the true definition of recession is contorted for political purposes. While there is no doubt that the current rate of GDP growth causes pain, the economy was NOT in recession during the first quarter of 2008.

Inflation pressures, due to the dramatic rise in the price of crude oil are now being felt throughout the economy. The Fed can't lower interest rates any further, because it makes the dollar less attractive as a currency. This in turn causes the price of oil to rise as investors seek crude oil as a hedge against the debased dollar. The drop in the value of the dollar, coupled with the rise in the price of crude, which permeates every facet of our economy, creates an expectation of higher prices, which is the very definition of inflation. The only way to break this cycle is an economic slowdown or raising interest rates. The question is which will come first, the chicken or the egg?

John Kaighn

Jersey Benefit Advisors

Web Business Review

Saturday, May 3, 2008

The Pause That Refreshes?

On Wednesday the Fed cut rates by another quarter point to 2%, lower than they've been since 2004. Year-to-date, prime rate cuts have been bigger and faster than they have for decades. The market response was initially enthusiastic but flagged by day's end on concerns that this cut would be the last for a while. The Fed's language hinted that more cuts might not be needed, but unfortunately it sounded to much of the market like more cuts might not be possible. And that's a fair concern. Bernanke's (and our) problem is that money can't get much cheaper without causing a slew of undesirable effects, so at a certain point we can't rely on the Fed for stimulus any longer.

John Kaighn

Jersey Benefits Advisors

Web Business Review

Friday, April 18, 2008

Perhaps It's A Housing and Financial Company Recession!

Today Citi announced another loss, $5.1 billion on top of last quarter's $9.8 billion, nearly all of it a result of credit and real estate. In response, Vikram Pandit is expected to cut 9,000 jobs at Citi in the next few months on top of the 4,200 already announced. Some analysts are predicting total job cuts at Citi rising as high as 25,000 in the next few quarters. On Thursday, Merrill Lynch reported a $2 billion loss and said it would cut 4,000 jobs, many from its S&T and IBD divisions. At JPMorgan the cost is estimated at over 10,000 jobs, mostly from its purchase of Bear Stearns. What's the total job toll of the credit crunch? This week's news brings it to over 40,000.

However, Wall Street topped off a strong week with a big rally Friday, after results from companies like Citigroup Inc. and Google Inc. helped ease investor anxiety about the health of corporate profits. The major stock indexes at times rose more than 2 percent. Investors have been worried that recent data indicate a slowing economy, which would cut into profit growth at some of the nation's biggest companies. But, results so far have shown that earnings, for the most part, are meeting or beating expectations, and the major indexes all posted gains of more than 4 percent for the week.

This has been the first full week of earnings reports, and all of the major companies, especially IBM, came in with results which were in line with or slightly ahead of expectations. While many analysts have been saying the economy has been in recession since the beginning of the year, there is still no definitive consensus that this is the case. The beginning and end points of recessions are determined in retrospect, so all we can do at this juncture is plan for the worst and perhaps if there is a recession it will be shallow. Meanwhile, enjoy the good week, but be ready for more volatility going forward as the various forces which drive the market struggle for the upper hand.

John Kaighn

Jersey Benefits Advisors

Web Business Review

Guidance Website

Thursday, April 17, 2008

Obama and Clinton Debate Media Reactions

Reprinted from The Moderate Voice

April 16th, 2008 by JOE GANDELMAN, Editor-In-Chief

So who won the Pennsylvania Democratic presidential primary between rival Senators Hillary Clinton and Barack Obama?

While the “official” media consensus has yet to come in at this writing, monitoring live streaming, live blogging and early stories on the debate suggest it wasn’t Obama’s best night (possibly his worst debate performance), Clinton continued effectively and relentlessly on the attack — and ABC and the debate moderators will come under fire from Obama supporters and perhaps others due to the first 45-minutes being questions that basically put Obama on the defensive. One question asked was reportedly raised by conservative talk show Sean Hannity.

But even so even some of his supporters now wonder why Obama didn’t seem better prepared.

For a reaction to the debate itself, READ THIS earlier post by TMVer Jazz Shaw. In a move unusual for a news event such as this, ABC embargoed the debate for delayed viewing on the West Coast. This post is a roundup of website and blog reaction to the debate.

One of the best, least emotional live blogging accounts of the debate can be found on USA Today’s blog. Here are some extensive quotes from weblogs, news sites and stories on the debate:

–Andrew Sullivan:

It was a lifeless, exhausted, drained and dreary Obama we saw tonight. I’ve seen it before when he is tired, but this was his worst performance yet on national television. He seemed crushed and unable to react. This is big-time politics and he’s up against the Clinton wood-chipper. But there is no disguising the fact that he wilted, painfully.

Clinton has exposed herself in this campaign as one of the worst shells of a cynical pol in American politics. She doesn’t just return us to the Morris-Rove era, she represents a new height for it. If she somehow wins, it will be a triumph of the old politics in an age when that is exactly what this country cannot afford. But Obama has also shown a failure to be resilient in this grueling process. In some ways, I’m glad. No normal reasonable person subjected to the series of attacks on his integrity, faith, patriotism, decency and honesty would not wilt. And we need a normal reasonable person in the White House again. But this is still the arena we have. It is what it is. ABC News is what it is. The MSM knows no other way. Obama has to survive and even thrive under this assault if he is to win. He failed tonight in a big way.

And so this was indeed a huge night for the Republicans, and the first real indicator to me that Clinton is gaining in her fundamental goal at this point: the election of John McCain against Barack Obama. How else will she rescue the Democrats from hope?

–The Politico’s Ben Smith:

So, who won, who lost, how did Obama hold up under what was basically a public enactment of Clinton’s case against him.

AND: Didn’t those quotes from the Constitution really set the tone?

ALSO: How much money will Obama raise off his supporters’ perception that this debate was unfair?


Wow. What the hell was that? Seriously, I’m a bit stunned. The level of discourse has reached a new low — a very new low. To be clear, I don’t think the debate was a disaster for Obama. He did fine. I think it was a disaster for our political system.

It was the worst debate ever. [ABC moderators Charles] Gibson and [former Clinton administration spokesman George] Stephanopoulos were horrible. The questions were literally right out of right wing talk radio.

–The Swamp:

Well, what we saw tonight was Hillary Clinton making a strong, last-ditch effort to pull her flagging campaign back from brink, get it back on track to victory on April 22 and make the superdelegates realize that she really is their last best chance to retake the White House.

She drummed on Obama not just for his remarks about small towns, guns and religion, but for his vast dearth of experience compared to hers–and that includes her experience of being ravaged by Republicans and living to see another day.

Obama, for his part, strove to defuse the negative ripples his aforementioned-ad-nauseum remarks might have engendered, not to mention the controversial comments of his former pastor–all of which appear not to have tarnished him much in polls.

Most importantly, he tried to get voters to imagine him as commander-in-chief, assigning “a mission” to his commanders–he’s the decider–although consulting with them re: tactics.

….And, for Hillary Clinton to get so giddy about the Wright question was really just sad. She was the official purveyor of fringe talking points. Shockingly so. And, she seemed to enjoy it. There’s a reason people think Clinton is dishonest as we saw today in the findings of the Washington Post-ABC News poll. She’s not only in this to win, she’s in it to win dirty — and to destroy Obama. She invoked Louis Farrakhan tonight for no reason — just to say it. Give me a break. Throughout this campaign, Clinton has pursued GOP attacks against Obama. He has not gone there against her.

–Daily Kos (one of several progressive sites calling on readers to flood ABC News with protests):

I used to think Republican operative and Karl Rove mentor Lee Atwater had died in 1991, after a nasty career of Republican race baiting, culture wars, dirty tricks, and a illness-induced conversion to Catholicism and public repentance for his dirty and divisive politics. I was wrong.

Lee Atwater apparently works for ABC News in devising…questions to ask Democratic Presidential candidates.

The questioning in tonight’s debate–—mostly straight out of 1988—was an abomination. Gun control. 60’s radicalism. Inflammatory black pastors. Respecting or disrespecting the flag. Taxes. Being out of touch with the military. Affirmative Action.

I’ll bet if they had more time, ABC anchors Charles Gibson and George Stephanopolus would probably have gotten around to asking Obama and Clinton about Willie Horton….The questions asked were not the kinds of questions Democratic primary voters care about. But they are the “gotcha” kinds of questions Republicans try to spring on Democrats in general elections.

I’m not afraid of those questions. I think Obama did fine tonight. Generally Clinton has performed best in debates, but as we first saw in the Texas debate, Obama appears to perform better one-on-one. I especially liked how he refused to get lured in to Charles Gibson’s conservative frames, and I like how he dismissed many of Clinton’s attacks on him as avoiding the substantive issues and hypocritical, as when he pointed out that Bill Clinton pardoned members of the Weather Underground.

–Hot Air’s Ed Morrissey feels the debate was “Obama’s Waterloo”:

The last Democratic debate has finally concluded, and perhaps the last chances of ending the primaries early. Thanks to a surprisingly tenacious set of questions for Barack Obama and Hillary Clinton from ABC moderaters Charles Gibson and George Stephanopolous, Barack Obama got exposed over and over again as an empty suit, while Hillary cleaned his clock. However, the big winner didn’t even take the stage tonight.

…The winner of this debate? John McCain. Both Democrats came out of this diminished, but Obama got destroyed in this exchange. If superdelegates had begun to reconsider their support of Obama after Crackerquiddick, they’re speed-dialing Hillary after watching Gibson dismember Obama on national TV tonight. And kudos to ABC News for taking on both candidates fearlessly. John McCain has to feel grateful not to be included.

–Josh Marshall:

9:46 PM … No Charlie. It hasn’t been a “fascinating debate.” It’s been genuinely awful.

9:50 PM … What happened to the League of Women Voters? Can we give the debates back to them? This sort of episode really sickens me. KB’s point above is sadly accurate. It’s stuff like this that really makes me think that whole big chunks of the established press needs to be swept away.

9:56 PM … As I noted above, I missed roughly the first half hour of this debate. But from what I heard about those thirty minutes and what I saw of the subsequent ninety minutes was basically debate by gotcha line with basically no discussion of any of the big questions the election is turning on.

–National Review’s Jonah Goldberg:

I’m no leftwing blogger, but I can only imagine how furious they must be with the debate so far. Nothing on any issues. Just a lot of box-checking on how the candidates will respond to various Republican talking points come the fall. Now I think a lot of those Republican talking points are valid and legitimate. But if I were a “fighting Dem” who thinks all of these topics are despicable distractions from the “real issues,” I would find this debate to be nothing but Republican water-carrying.

–Marc Ambinder:

Keeping the score card, there’s no way Obama could fared worse. Nearly 45 minutes of relentless political scrutiny from the ABC anchors and from Hillary Clinton, followed by an issues-and-answers session in which his anger carried over and sort of neutered him. But Hillary Clinton has a Reverse-Teflon problem: her negatives are up, and when she’s perceived as the attacker, the attacks never seem to settle on Obama and always seem to boomerang back on her. So it would be unwise to declare that Hillary “won” the debate in the dynamic sense just yet. (How much money will Obama raise off this debate? $3m million? $4 million?)

…..This sets up a blowback scenario wherein his supporters will rally to his defense and lash out at the media very loudly. But Obama’s going to be the next president of the United States, maybe. The most powerful person in the world. And questions about his personal associations, his character, his personal beliefs, his statements at private fundraisers — the answers to these questions tell us a lot. Sometimes the questions are unfair (( — nothing about Colombia and Mark Penn — )), but this ain’t Pop Warner; the artificial distinction between politics, personality and policy doesn’t exist in this league, and if you’re uncomfortable with it, then change the rules or don’t run for office.

–My DD’s Todd Beaton:

Although it was somewhat redeemed in the final half hour, I feel like taking a shower after that debate. It was tabloid hour on ABC, and certainly Obama did get the bulk of the more disgusting questions. Check out this post over at over 4,000 comments, the bulk of which seem to just rip ABC.

As for the candidates’ performances, neither was particularly inspiring and neither had his or her best night, although Obama did get plenty of opportunities to plead for an end to the issues of distraction and division and to call for a new style of politics and seemed to be the conscience of the audience as he called out the moderators. I think Clinton was stronger during the last half hour but not enough to tip the balance in her direction; certainly not enough for this to be a game changer.

It would almost be a shame for this to be the last debate, to go out on such a poor note.

–Chris Bowers:

Halfway through the debate, not a single question on any policy issue had been asked, it was obvious that this debate was prime-time hit job on Obama. The questions so far have been why he doesn’t wear a flag pin, whether or not his pastor loves America, why he can’t win, and how many people were offended by his bittergate comments. Except for Clinton being asked about why she wasn’t trustworthy, and both of them being asked about their vice-presidential choices, that has been the entire debate.

…..It appears that live focus group polling of undecideds favored Obama during the first round of questions that basically was a series of hit-jobs against him, while Clinton polled better in the focus group when it shifted to issues in the second half. Hmmm… perhaps her campaign should learn something from that.

–NBC’s Chuck Todd:

This debate is going to lead a lot of Obama supporters to ratchet up the calls on Clinton to either withdraw or tone down the attacks. Clinton supporters will point to this debate as proof that he’s not yet ready for the general, that’s why she should stay in, and that’s why superdelegates should overturn the winner of pledged delegates.

Overall, with the spotlight on him very bright, Obama didn’t step up. He got rattled early on and never picked his game back up. Clinton wasn’t very warm (outside of he first few minutes), but she didn’t have the spotlight on her very bright. And as we’ve noted in “First Thoughts” quite a few times, whenever the spotlight is on one candidate, the other seems to benefit. Tonight, the spotlight was on Obama, and for a short period of time, I expect Clinton to benefit. But the question is whether she can sustain any benefit since as the negativity goes on, she pays a bigger price than Obama. Let’s see what the PA Dem voting public decides in six days. A big Clinton victory and this debate will be seen as an important turning point, a narrow victory (less than five points) and she could find herself facing more calls to get out.

Could tonight’s true winner be John McCain? We’re betting that’s the unanimous pundit scoring tonight.

–Monica Crowley:

The final two Democratic candidates appeared to sleepwalk through tonight’s debate. I mean, quite literally, they looked so weary that they appeared to be napping while the other was talking. They swayed. They leaned on the podium. Their eyelids were heavy. Their speech was slow and deliberate, each response called up on auto-pilot.They moved as if through molasses.

They both survived. There were no earth-shattering gaffes or obvious slurring or devastating mangling of an issue. But to have both candidates looking ready to keel over is an indication of the toll this drawn-out campaign has had on them. A lot of Democrats are making an issue of John McCain’s age (71), but while he’s got 10 years on Hillary and 25 on Obama, McCain looks the most spry.

–Somervell County Salon:

Just got done watching the ABC Debate that was moderated by Charlie Gibson. Where were the questions about Bush’s torture, about executive signing statements, what about that permanent base in Iraq, what about the huge cost of the war, about bailing out investment bankers, about using PPPs (whether from this country or foreign) to lease out our infrastructure, what about the airline industry FAA problem? Nope. Had to listen to right-wing Republican talking points in a DEMOCRATIC DEBATE coming from Gibson and Steph. Now, on the one hand, maybe it’s a good thing because that’s what will happen when Gramps McCain goes head to head with Obama but you know, if I wanted to watch Fox News, I’d unblock it…

P.S. Hillary Clinton has a look on her face in much of the debate that reminded me of the pissy pursed look that Bush had in the second debate against Kerry.

–The Morning Call’s Pennsylvania Ave:

After the debate, both candidates surrogates rushed to the “Spin room” to field questions from a mass of media outlets about the debate.

The take from Clinton spokesman Howard Wolfson was that enough serious questions were raised about Barack Obama in the first half of the debate to give voters second thoughts about his electibility.

“A number of questions were asked really for the first time of Barack Obama,” Wolfson said, putting Obama “back on his heels.”

Wolfson also said he didn’t think Obama’s statements about small town voters who he described as “bitter” and clinging to guns and religion, was a gaffe, but rather “What he believes.”

The Obama campaign countered that most voters were probably frustrated with the first half of the debate, which had very little talk about the issues, instead focusing on political games.

U.S. Rep. Patrick Murphy, D-Bucks, said he thinks voters were more interested in hearing the candidates talk about issues like Iraq and the economy.

–Blue Ollie:

This night’s debate had potential to be very meaningful. Instead, it was a colossal waste of time.

No, I am not saying that because the moderators (including former Clinton official George Stephanopoulos) piled on Obama; I expect that.

It was because the piling on was over the warmed over trivial stuff: stuff Rev. Wright said, a party that Obama may have attended, why he stopped wearing a flag pin, etc. Yes, Clinton caught the Bosnia “sniper fire” question.

….ABC did more to make BHO’s point that today’s politics is petty and insubstantial….But as far as ABC debate: ABC News not a news organization but rather a tabloid organization.

--Ginger Snaps:

FLAG PINS? Is that what George Snuffalufagus thinks is one of the most important topics that needs to be discussed in a Presidential Debate?!?

Seriously, folks…the first 45 minutes of this debate really should have been relegated to Saturday Night Live. We were treated to questions about flag pins, the Rev. Wright issue that Obama has sufficiently addressed ad nauseum, implying that Obama should answer for the acts his friends committed 40 years ago, and, of course, the “b” word…

…and oh by the way, we have an economic crisis, a war, gas prices are through the roof, unemployment, veterans in crisis, a broken healthcare system…

You know…the things that affect us every single day?!?

…How are we going to get the right candidate in office if the media chooses to ask trivial questions that play on the FEAR of the country, when what we really need to know is their detailed plan for how they are going to fix the situation right now?

–Editor & Publisher Editor Greg Mitchell writing on the Huffington Post:

In perhaps the most embarrassing performance by the media in a major presidential debate in years, ABC News hosts Charles Gibson and George Stephanopolous focused mainly on trivial issues as Hillary Clinton and Barack Obama faced off in Philadelphia. They, and their network, should hang their collective heads in shame.

Wars in Iraq and Afghanistan, the health care and mortgage crises, the overall state of the economy and dozens of other pressing issues had to wait for their few moments in the sun as Obama was pressed to explain his recent “bitter” gaffe and relationship with Rev. Wright (seemingly a dead issue) and not wearing a flag pin — while Clinton had to answer again for her Bosnia trip exaggerations.

Then it was back to Obama to defend his slim association with a former ’60s radical — a question that came out of rightwing talk radio and Sean Hannity on TV, but was delivered by former Bill Clinton aide Stephanopolous. This approach led to a claim that Clinton’s husband pardoned two other ’60s radicals. And so on. The travesty continued.

–National Review’s Mark Hemingway declares McCain the winner and writes:

My prediction? The debate will be received so badly there will be increased pressure to kick Hillary out of the race. But since Obama was clearly the worse of the two in the debate, Hillary will win PA as expected and the goat rodeo will continue for the forseeable future with even more acrimony between the two candidates. Which only helps McCain.

–Newsday’s Spin Cycle:

The highlight of the debate tonight will be Hillary’s repeated efforts to use an electability argument as the basis for sharp attacks on Obama over Bittergate, Wright and 1960s radicals.

It was a tactic geared as much to superdelegates as to Pennsylvania voters, and Obama was not as sharp as he could have been in response. He seemed surprised sometimes, irritated others, and misspoke at least once (about disowning Wright, which he quickly corrected). So, if you’re scoring the debate like a prizefight, she wins a couple more rounds. But no game-changing moments.

–The New Republic’s The Stump blog:

For what it’s worth, I thought it was smart for Obama to go gracious on the Hillary-Bosnia scandal and suggest that they’re both entitled to make a mistake every now and then. Obviously, the choice of questions isn’t doing Obama any favors–bittergate, Wright, William Ayers!–but he’s doing a decent (if low-energy) job not getting dragged into the fray,* and Hillary is coming very close to over-reaching by rubbing his nose in it.

–Matthew Yglesias:

I had thought the Clinton campaign couldn’t sink any lower, but thus far she’s really just been giving us the full GOP. Listening to her talk about Barack Obama is like reading a Weekly Standard blog post. The lame excuse that she’s making this and that outrageous smear because the Republicans will do it later is pathetic. Maybe they will. But she’s the one doing it now.

–The New York Times:

Senator Hillary Rodham Clinton went on the attack against Senator Barack Obama on a variety of issues during a contentious debate Wednesday, warning that he would be deeply vulnerable in a general-election fight if he won the nomination.

–The Boston Globe framed it this way:

Senators Barack Obama and Hillary Clinton took their hard-fought battle for the Democratic nomination down to a deeply personal level in a nationally televised debate tonight, trading barbs on honesty, their appeal to working-class voters, and who would be a stronger candidate in November.

Clinton, struggling to gain momentum in the dwindling weeks of the primary campaign, accused Obama of associating with unsavory people, including his own former preacher, and questioned whether Obama — whom she called “a good man” — could beat the GOP nominee in the fall.

“They’re going to be out there in full force,” Clinton said of the Republicans. “I’ve been in this arena for a long time. I have a lot of baggage and everybody has rummaged through it for years.”

Obama, meanwhile, criticized the New York lawmaker for running a negative campaign, and said Clinton herself could not pass the electability test she was imposing on him.

“By Senator Clinton’s own vetting standards, I don’t think she would make it,” he said.

–The Globe’s blog political intelligence was far more blunt:

Barack Obama tonight staked his presidential campaign on the idea that the American people will look beyond the inevitable gaffes and errors and character attacks of a 24-hour campaign cycle to meet the challenges of a “defining moment” in American history.

Hillary Clinton staked her campaign on the idea that Americans won’t — and that her tougher, more strategic approach to countering Republican attacks is a better way for Democrats to reclaim the White House.

The first half of tonight’s debate in the august National Constitution Center in Philadelphia was a tawdry affair, as ABC news questioners called on Obama and Clinton to address a year’s worth of dirty laundry, and each combatant eagerly grabbed at the chance to befoul their rival a little more.

But while some in the audience groaned, the litany of nasty questions — about such matters as Obama’s comments on the working class and Clinton’s exaggerations about dangers she faced in Bosnia — helped to flesh out a long-simmering subtext to the Clinton-Obama battle: The Clinton campaign’s insinuation that Obama is more vulnerable to GOP-style attacks on his patriotism.

….Clinton wasn’t so high-minded. At times, she seemed to revel in her tough-gal statements, sounding like a character in a 1940s film noir.

….The tit-for-tat comment showed how off-message Obama was for most of the evening, able to conjure up little of the hopeful energy that has marked his campaign for much of the year.

…What did come through, however, was how crucial Obama’s self-described “bet on the American people” will be to the future of his campaign.

Obama has said on countless occasions that he believes the American people want “an honest conversation,” and not a campaign of charges and countercharges.

–The Washington Post’s news report on the debate includes this:

With the race for the Democratic presidential nomination mired in a form of trench warfare that has left party leaders searching for a way to bring it to a conclusion before the party’s late-summer convention, Clinton (N.Y.) and Obama (Ill.) began their first head-to-head encounter in nearly two months focused on political disputes rather than their relatively narrow policy differences. Obama, who leads in the delegates needed to claim the nomination, fielded tough questions about his relationship with his former pastor, his patriotism and his description of small-town voters as “bitter,” the latter a controversy that has engulfed his campaign for much of the past week.

Obama argued repeatedly that voters are smart enough to differentiate petty issues from important economic matters.

“So the problem that we have in our politics, which is fairly typical, is that you take one person’s statement, if it’s not properly phrased, and you just beat it to death,” Obama said. “And that’s what Senator Clinton’s been doing over the last four days. And I understand that. That’s politics. And I expect to have to go through this process. But I do think it’s important to recognize that it’s not helping that person who’s sitting at the kitchen table who is trying to figure out how to pay the bills at the end of the month.”

–The Washington Post’s The Fix blog:

The choice between the candidates crystallized tonight. It is not, fundamentally, a choice about issues or even ideology — it is a choice about approach. Obama is an idealist, using nearly every question to appeal to the better angels in people; Obama sees the world as he wants it to be and believes he can make it. Clinton, on the other hand, is an unapologetic pragmatist; she has been through the wringer that is national politics before and knows how to play the game.

*The longer the Democratic campaign goes on, the more clips Republican Sen. John McCain’s campaign can harvest for use against the eventual Democratic nominee. It’s one thing for McCain to take note of ties between Obama and a former member of the Weather Underground; it’s quite another for McCain’s campaign to roll tape of Clinton making those accusations. You can bet Steve Schmidt of McCain’s campaign was Tivoing every minute of tonight’s proceedings for use when summer turns to fall.

John Kaighn

Jersey Benefits Advisors

Web Business Review

Guidance Website

Sunday, April 6, 2008

Jersey Benefits Advisors Newsletter Spring 2008

Market Watch

After months of downbeat news and the housing, credit and stock markets being pummeled almost daily, the first quarter of 2008 ended with a positive whimper and the second quarter began with a surge. Whether or not the positive signs continue will depend on the statistical information forthcoming in regard to the economic cycle. In the mean time, we’ve closed the books on the first quarter, and while the news seemed quite dire for much of the time, the DJIA and S&P 500 haven’t reached bear market levels.

The Dow Jones Industrial Average ended the first quarter at 12,262.89 down 7.6%, while the S&P 500 finished at 1,322.70 shedding 9.9%. The NASDAQ actually hit bear market territory (20% decline) during the quarter, but closed at 2279.10 which was 14% lower than where it started the year. Considering all of the headwinds the markets faced during the winter, the damage has been minimal thus far.

Of course, it is far from apparent if the carnage in the various markets is over, since we don’t even have a definitive answer on whether or not the economy is in recession. The latest GDP numbers indicated extremely slow growth, just .6% for the fourth quarter of 2007. The first estimate of GDP growth for the first quarter will be provided at the end of April.

While many economists felt the economy would avoid recession this year, when polled at the beginning of the year, the debate has shifted to how long and how deep the downturn will be. Officially, a recession is the contraction of GDP for two consecutive quarters. The length of the recession represents the trough or bottom of the economic cycle from which a new economic cycle begins.

The wild card right now is the stimulus the Federal Reserve has injected into the credit markets, which have been paralyzed due to the fiasco created by the housing debacle and subprime mortgage mess. The results of some of the Fed’s actions are already being felt, as banks and investment firms have utilized the Federal Reserve as the bank of last resort. While this is a function of the Federal Reserve for banks, opening the discount window to investment firms is something that hasn’t been done since the 1930’s.

Chairman Bernanke has taken some drastic steps with monetary policy to shore up the financial system, and his study of the blunders made during the Great Depression have been quite evident. Fiscal stimulus, like the rebates headed our way this quarter, will also be felt later this year. Whether the stimulus will be enough to keep the economy out of recession remains to be seen.

Of course the politicians are having a field day recommending bailouts of mortgage holders, job programs, protectionism, taxes on “big oil” and more regulation. Most of the programs being championed will not have the slightest chance of implementation, but they make great sound bites to constituencies during an election year. A huge “shot over the bough” was fired by Treasury Secretary Henry Paulson with his proposal to streamline US financial regulation. It should encourage debate for months!

Finally, it is sufficient to say that if you are like me and believe the sun will shine again tomorrow, this particular phase of the economic cycle represents a buying opportunity. All markets are the same, and when there is a 10% - 15% sale, it is time to buy.

What Happened to Bear Stearns’ Client Accounts?

With the demise of such a large investment firm as Bear Stearns so prominently discussed in the news, many investors have asked what happens to the client accounts held at the firm. Client accounts are insured by the Securities Investor Protection Corporation (SIPC) for $500,000 per account but only $100,000 can be cash, the remainder must be in securities.

In the case of Bear Stearns, the company will more than likely become part of a division of JP Morgan Chase and Bear Stearns’ client accounts remain unaffected. SIPC involvement was not necessary. Bankruptcies of securities firms usually result in client accounts being transferred to another firm. Client accounts of brokers, such as Transamerica, are held by a third party (Pershing) which segregates client assets.

Ways To Protect Assets During Market Turmoil

A bright spot during this particularly gloomy period in the markets has been the performance of the variable annuities developed after the dotcom bubble. Insurance companies responded to the market turmoil from 2000 - 2002 by developing living benefits, which could be used to protect assets from significant downside risk. While many acronyms have been used to describe the various riders companies have developed, the main theme is to allow participation in market gains through separate accounts, and also guarantee a minimum amount of asset appreciation each year, which is usually 5% or 6%.

Each year the principal (amount invested) basically has two calculated values. The market value is the amount invested plus whatever gains are made in the separate accounts during the year. The withdrawal value or guaranteed value is the amount invested plus the rider’s guaranteed appreciation, which is the 5% or 6% discussed above. If the market declines, the client knows the amount which can be withdrawn for retirement will still increase by the 5% or 6%. If the market increases 10% or 15%, then the client can withdraw even more during retirement. Newer versions of these variable annuity riders allow a step up of the market value on an annual and even monthly basis, reducing downside risk even more effectively.

While there are fees charged by the insurance companies for annuities and their living benefits riders, they are quite reasonable when compared to the downside risk protection they provide. If market risk to principal is a concern, as it is to many investors approaching retirement, the peace of mind provided by a variable annuity may be worth the additional expense. Mutual funds are a less expensive way to participate in the various markets, but they provide no downside protection.

Variable annuity fees don’t even begin to compare to the whopping fees charged by hedge funds, which are supposed to be inversely correlated to the stock market. Unfortunately, this inverse correlation has not held up during this market cycle as hedge funds have been imploding under the weight of subprime mortgage debt. In fact, the demise of Bear Stearns was due to the default of two of their hedge funds, which went belly-up during the summer.

An analysis of my clients’ accounts who have invested in a variable annuity since 2002 showed the market value higher than the guaranteed value for the most part. The few clients whose market value was less than the guaranteed value, made recent large investments in 2007. Everyone has a higher account value than the amount invested and are breathing a bit easier these days.

If you feel a variable annuity is worth discussing for your investments, be sure to contact me.


Investment Advisory Services offered through:
Jersey Benefits Advisors
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257

Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
1150 S. Olive St. Suite T-25
Los Angeles, CA 90015

Third Party Administration and Insurance Services offered through:
Jersey Benefits Group, Inc
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257

John Kaighn

Jersey Benefits Advisors

Web Business Review

Plug In Profit

John Kaighn's Guidance Website

Saturday, March 29, 2008

What Happens to Bear Stearns' Client Accounts?

With the demise of Bear Stearns, many investors are rightfully asking what happens to client accounts held at the firm. Client accounts are segregated from the assets of the firm and insured by the Securities Investor Protection Corporation (SIPC) for $500,000 in securities per account. Only $100,000 in cash is insured. If the firm were to file for bankruptcy, the client accounts would be transferred to another broker/dealer. However, in the case of Bear Stearns, the firm's client accounts will more than likely remain with Bear as a division of JP Morgan Chase.

The SIPC doesn't insure against losses in the value of securities, but rather against loss due to malfeasance. As is usually the case with securities firms that run into difficulty, SIPC insurance is rarely utilized. Instead, the securities held by clients are generally transferred to another broker/dealer that agrees to purchase the client accounts. Since client accounts are a valuable asset, there is usually no problem finding another broker/dealer ready to step in to service those accounts. This usually doesn't take long, as evidenced by the case of MJK Clearing, a Minneapolis brokerage firm that failed in 2001. Within a week, most clients were able to access their accounts after the assets were transferred to another firm.

In the case of our firm, Transamerica, client accounts are held by a third party clearing firm. The name of that firm is Pershing. The accounts are segregated from the assets of Transamerica and held in the client's name. Should there ever be any problem with the solvency of Transamerica, as in the case of MJK Clearing, client assets would continue to be held at Pershing until another broker/dealer stepped in to service those accounts. Protection of the client is of utmost importance to all of us in the securities industry, because client confidence is paramount to our success and survival.

John Kaighn

Jersey Benefits Advisors

Web Business Review

Plug In Profit

John Kaighn's Guidance Website