Tuesday, April 21, 2009



The recession unleashed its fury on us during the first quarter of 2009 and drove the markets down to levels not seen since 1997. It does get tough to stay the course with your investments during trying times like we are experiencing. Yet it is exactly the determined and disciplined investor who will fare the best, when the markets begin their recovery.

I feel it is my responsibility at this juncture to attempt to assuage client concerns, while at the same time acknowledging the very real challenges we all face in the midst of declining real estate values and investment wealth. The reason why every asset class and almost every hedge seems to have failed is because we had a systemic failure in the financial system. To keep things in perspective, it is important to note that these types of systemic failures have happened before and will happen again, despite the government’s best efforts to curb them.

As I have said all along, the current recession is not and will not become a calamity of the proportion which was experienced during the 1930’s, even though the media and a rookie President intimated catastrophic consequences if the stimulus bill was not enacted with all its pork barrel legislation. Notice how the rhetoric has abated substantially since President Obama has gotten his way.

However, this is a very deep and substantial recession, and at the end of the first quarter its duration has been 16 months, which is as long as the downturns of 1973-74 and 1981-82. While every recession is different, its conclusion won’t be known until after the fact. When job losses begin to ebb, there is a good possibility the recession will already be over, because job losses usually continue for several months after the economy begins to recover.

So how long can we expect this misery to continue? Economists in the latest Wall Street Journal forecasting survey expect the recession to end in September, though most say it won't be until the second half of 2010 that the economy recovers enough to bring down unemployment. While this is only a prediction, it indicates this is a very deep recession, as if you didn’t already know it.

With that in mind, it would make sense there is a rather large window for investors to take advantage of this downturn. The market should continue to be volatile and could still revisit the lows set in March of 2009. An investor who has been dollar cost averaging all through this recession has seen the overall value of his assets drop considerably, but each new purchase is being made at a 30% to 40% discount. If the recession lasts until September of this year, that is almost two years of discount shares being purchased. When things finally pick up, the increased number of shares which have been purchased will help account values increase more rapidly than if no shares had been purchased during the recession.

I caution everyone not to make large timing purchases, because in times like these, it is very difficult to determine the best time to add a large sum of money to your account. This is why I stated earlier the disciplined, dollar cost averaging investor will reap the highest rewards when the markets turn upward.

The DJIA ended the first quarter down 13.3%, the NASDAQ was down 3.1% and the S&P 500 closed down 11.7%. When the market closed for Easter, the DJIA increased 6.3% since 3/31.


Now that it is generally accepted that we are not reliving the Great Depression, but are experiencing a difficult recession, the search for someone to blame has intensified. While Bernie Madoff is the poster boy for bad behavior, there is plenty of blame to go around from Wall Street to Main Street. I don’t see assigning blame as my role, since my main impetus is to understand what is actually happening and how to profit from it going forward.

Prior to the Great Depression, any time there was a financial calamity that caused the economy to contract, it was referred to as a depression. After the Great Depression, because the term depression conjured up such dire circumstances, the term recession was coined to refer to a contraction in the economy of less than 10%. The term depression is still used to define a drop in GDP of more than 10%.

According to the most recent Wall Street Journal forecasting survey, gross domestic product (GDP) was predicted to contract in the first and second quarters of this year by 5.0% and 1.8%, respectively, on a seasonally adjusted annualized rate. A return to growth, a modest 0.4%, isn't expected until the third quarter. In the fourth quarter of 2008, the most recent period for which data is available, the economy contracted 6.3%. Also, with all of the social safety net programs in place, such as unemployment insurance, FDIC insurance, food stamps and the huge government stimulus program, conditions for those who are unemployed are much less dire than during the Great Depression.

So we have talked about dollar cost averaging into your investments as a way to profit during this downturn, but it does take a certain amount of intestinal fortitude to continue to invest, when so many people are worried about the sky falling. This contrarian view is very important, because as Warren Buffett stated several months ago, the time for fear is when everyone is being greedy and the time to be greedy is when everyone else is fearful. I think you could say fear has permeated the investment landscape at this point!

Finally, you have to take into account the experience level of the journalists who are reporting 24/7 about this recession. Most of them were not even working during the 1973-74 recession, so their frame of reference is very limited. Even the 1981-82 recession is like a history lesson to many of them. Many people thought America’s best days were behind us back then. That opinion certainly turned out to be false. The point is that after recessions come recoveries. Government spending, whether for social programs such as the New Deal or military programs, like under Reagan, ignited growth. The two best five year runs for the market began in 1938 and 1982. Time to be greedy?


Some of you who have invested in the Transamerica and MetLife Annuities have expressed some difficulty finding the Guaranteed Minimum Income Benefit information on your statement. Depending when your purchase was made, the rider may have different names. On the Transamerica product, the value appears on the second or third page and is called the Family Income Protector, Minimum Income Base, or Managed Annuity Program. On the MetLife product, it is called the GMIB or GMIB Plus and is on the first page. Since the market has been so volatile, and account values are already higher than they were at the end of the quarter, I am not sending consolidated statements. Anyone who would like to receive a consolidated statement should give me a call and I’ll send it to you.


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
Email: kaighn@jerseybenefits.com

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
Email: kaighn@jerseybenefits.com

All opinions expressed in this newsletter are solely those of John Kaighn & Jersey Benefits Advisors, formerly known as Kaighn Financial Services.

Thursday, April 9, 2009

Chase and Other Big Banks Fraudulently Devalue Homes

While the banks are reaping billions of dollars in taxpayer funded relief, not only do they continue to make credit tight and foreclose on mortgage holders, but they have now begun to unilaterally adjust home values on mortgage holders who didn't over extend themselves during the housing boom. The audacity of banks, with Chase Bank being one of the largest banks perpetrating this fraud, is just unforgivable. In essence, they are marking to market the property values of homeowners who are not delinquent, not in danger of foreclosure and good paying customers. Furthermore, the values they are assigning to properties are no more based on reality than the values of the toxic assets they hold on their books.

I happen to be one of the people who didn't overreach during the housing boom, didn't use all of the credit line Chase Bank provided and paid my bills every month on time. Still, Chase decided to arbitrarily lower the value of my home on their website to $200,000, a value 40% lower than its assessed value and thereby wiping out, on paper only, most of the equity in my home. They did this even though I have no intention of selling my home and never asked for an increase in my home equity line of credit. I am sure they did this because the line has an adjustable rate of interest which currently is 2.49%. Obviously, they don't like the fact that I am getting a bit of a break on my interest payments at this time. The kicker is that their website specifically states that the values listed for homes are NOT APPRAISALS and "The tool on this page is provided by a third-party site. Please note that the third party's privacy policy and security practices may differ from Chase's standards. Chase assumes no responsibility for nor does it control, endorse or guarantee any aspect of your use of this tool." Yet, they have used this very tool to value my home.

I checked other sites, including Zillow and found the value of my property to range from a low of $279,000 to a high of 375,000. Even on the Chase site, my neighbors property was listed $61,000 higher than my property. While my neighbor has a very nice property and he was very recently approved for a refinancing which exceeds the value Chase assigned to his home, my house is bigger, has more bedrooms, more bathrooms and other features my neighbor doesn't have. My property was also freshly painted this spring and is in excellent condition. The whole point is that Chase arbitrarily deflated the value of MY PROPERTY to force me to beg them for a fixed rate loan.

When I called their customer service line, they were rude and disrespectful. After my third call, I was given the phone number of the corporate office where supposedly I would be able to talk to someone who actually was involved in the decision making process. As you can imagine, I got to talk to a very nice secretary who told me everyone was busy, but someone would return my call. Of course, nobody returned my call.

So now I have a question for you, Jamie Dimon. Is this the way you build customer loyalty? Is this how you envision using taxpayer dollars, MY DOLLARS, to help homeowners. You can rest assured I have already contacted my lawyer and have begun the appraisal process on my property, because you have hurt me financially, degraded the value of other properties in my neighborhood and fraudulently blocked my line of credit, which is the least of my concerns and the only thing you have the legal authority to do.

So fellow taxpayers, is there anyone else who has had a similar experience. Anyone else who thought they were doing the right thing by paying your bills on time, only to get SCREWED by your multinational, too big to fail bank? Please feel free to comment on this rant and perhaps we can join together to sue this and other culprits who have destroyed the value of our investment portfolios, while paying fat bonuses to the very fools who caused this credit crisis.

John H. Kaighn

Jersey Benefits Advisors

The Kaighn Report