JERSEY BENEFITS ADVISORS INVESTOR NEWSLETTER SUMMER 2009

MARKET WATCH

As we close the books on the first half of 2009, there appears to be a cup half empty, cup half full scenario going on, depending on your point of view. The markets closed mixed with the S&P 500 winding up at 919.32, a 1.8% gain for the year and up 35.9% from the low of 676.53 in March. The DJIA finished at 8,447.00, which is still -3.8% below the beginning of the year, but still 29% above the low of 6,547.05 set in March. The Nasdaq posted the best year to date gain of the major indices when it closed at 1,835.04, which is a 16.4% increase for the first half of 2009.

While these gains from the lows in March indicate a fantastic recovery for the markets, they represent only a portion of the returns necessary to restore the indices to their former highs. For example, the DJIA would have to gain 67.7% to get to it’s former all time high of 14,164.53 and the S&P 500 would have to add 70.3% to reach it’s former high of 1,565.15. Of course the NASDAQ, which went to the moon in 2000, would have to increase a whopping 175.1% in order to reach the heights it attained before the dotcom bubble burst. While these numbers are troubling, they speak volumes about percentages and compounding. The sad fact is that it takes a 100% gain to recover a 50% loss, or put another way: if you start with 100 dollars, and lose 50%, you have 50 dollars. It will take a 100% gain to return the 50 dollars to the original 100 dollars. Isn’t math just so unfair!

The point here is not to make you feel despondent, but rather to help keep things in perspective. Yes, this was a great quarter and perhaps this recession could be over or at least in its final stages, but there are a great deal of challenges ahead of us. After having witnessed the near implosion of the world’s financial system, the creative destruction of the auto industry in the US, and a tanking of the stock market to levels not seen since the mid 1990’s, looking for positive signs makes sense. If you’ve been investing through all of this turmoil, it is like you had the opportunity to go back to 1997 and put in new money. These gains are real and will continue to positively impact your portfolio going forward.

REFERRALS AND THE MERGER OF TFA & ISI

Has the advisor of any of your friends or relatives left the business, or have any of your other investment representatives been absent during the recent market turmoil?

Do you feel as if your representative only wants to talk to you when all is well with the world? I am here to talk to you about the state of the market, the performance of your investment portfolio, and your retirement plans, regardless of what the market is doing.

With the merger of Transamerica and Intersecurities, I look forward to continuing to provide you with quality investment products and individualized service.

Please feel free to refer any of your friends or relatives who may looking for a new advisor to me. Thank you!

ECONOMIC OUTLOOK

As I mentioned on the preceding page, there is some evidence, as well as historical precedent to indicate the recession may be over or in the fourth quarter, to use a sports analogy. As I noted in previous newsletters, the two longest recessions, since the Great Depression, were the recessions of 1973-75 & 1981-82. Each of those recessions lasted 16 months. March of 2009 was the 16th month of the current recession. As I’ve mentioned before, there are always numerous opinions on these matters, but it is more than likely no coincidence the markets, which are leading indicators, began recovering in March.

While I’d like to believe this is not a head fake, but rather a real recovery, I’ve read enough opinions by numerous bears to remain reticent. This doesn’t mean not being invested, but rather it means cautious, disciplined investing. With the government running GM, TARP funds in the financial sector, Korea and Iran defiantly rebuking Obama’s olive branch, Congress salivating over health care and over a trillion dollars of stimulus in the system, a lot could go wrong. Inflation is one evil that comes to mind.

Obama says he doesn’t want to run GM or the health care system. The specter of public housing conjures up horrendous images of what public health care would look like.

PRIVACY POLICY, MERGER UPDATE & INSURANCE

PRIVACY POLICY

At Jersey Benefits Advisors and Jersey Benefits Group, Inc. protecting your privacy is very important to us. We want you to understand what information we collect and how we use it. We collect and use information from you on applications and other forms as well as information about financial transactions with us and from non-affiliated third parties. This “nonpublic personal information” is obtained in connection with providing a financial product or service to you.

We do not disclose any nonpublic personal information about you without your express consent, except as permitted by law. We may disclose the nonpublic personal information we collect to persons or companies that perform services on our behalf.
We restrict access to your nonpublic personal information and only allow disclosures to persons and companies as permitted by law to assist in providing products or services to you.

We maintain physical, electronic and procedural safeguards to protect your nonpublic personal information at all times.

MORE ON THE MERGER

Transamerica Financial Advisors, Inc. is excited to share some important news with you. Pending final regulatory approval, Transamerica Financial Advisors will merge its operations with St. Petersburg, Florida based InterSecurities, Inc., an affiliated firm that has been offering financial services for almost 25 years. We anticipate the merger will take effect in September 2009. As part of the merger, the resulting entity will retain the Transamerica Financial Advisors, Inc name and continue to be a full service, independent broker-dealer and registered investment advisor. Most importantly, the relationship you have with your registered representative or investment advisory representative WILL NOT change.

INSURANCE SERVICES

Have you reviewed your insurance policies lately. Whether it comes to insurance on your life, health or investments, the need for insurance is something that should not be overlooked. Changes in status, such as a marriage or the birth of a child are times when insurance levels may need to be adjusted. Also, during times of peak earnings and peak responsibilities, a look at the protection you are providing to your family, in the event of an untimely death, is an unpleasant, but necessary task. Just as the insurance on retirement income, provided by annuities as part of an investment strategy paid off during this downturn, planning with life insurance helps your family when an unanticipated death occurs.

John H. Kaighn

Jersey Benefits Group, Inc.

Coverdell Education Savings Accounts

For parents who are interested in saving money for their children's education, the Coverdell Education Savings Account (ESA) is an account which was created as an incentive for that purpose. The total contributions for each beneficiary of this account can't exceed $2,000 in any year, no matter how many accounts have been established. A beneficiary is someone who is under age 18 or is a special needs beneficiary and will receive the funds for educational purposes.

Any funds which are contributed to a Coverdell ESA are not tax deductible, however, money invested in the account will grow tax free until a distribution is taken. The beneficiary on the account will not owe any taxes on those distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to post secondary, higher education expenses as well as to elementary and secondary education expenses.

Here are some things to remember about distributions from Coverdell Accounts:

Distributions are tax-free as long as they are used for qualified education expenses, such as tuition, books and fees

There is no tax on distributions if they are for an eligible educational institution. This includes any public, private or religious school that provides elementary or secondary education as determined under state law, and any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) post secondary institutions.

The Hope and lifetime learning credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits

If the distribution exceeds education expenses, a portion will be taxable to the beneficiary and will be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship

There are contribution limits for taxpayers based on the taxpayer’s Modified Adjusted Gross Income. Contributions to a Coverdell ESA may be made until the due date of the contributor’s return, without extensions.

If there is a balance in the Coverdell ESA at the time the beneficiary reaches age 30, it must be distributed within 30 days. A portion representing earnings on the account will be taxable and subject to the additional 10% tax. The beneficiary may avoid these taxes by rolling over the full balance to another Coverdell ESA for another family member.

For more information, see IRS Publication 970, Tax Benefits for Higher Education, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676)

John Kaighn

Jersey Benefits Advisors

The Kaighn Report

Taxing Health Care as Income

So you thought the new administration was really for middle-class tax cuts? There is no way a government can run the financial services industry, the automobile industry and the health care industry, without raising taxes on EVERYONE. Here is an example of what's in the works:

Unions target Wyden in anti-tax push
By Reid Wilson
Posted: 05/19/09 07:01 AM [ET]

Union groups are targeting one of their close allies in Congress over a controversial proposal to tax employee healthcare benefits.

In a coordinated campaign using radio advertising, mail and other pressure mechanisms, three top unions are urging Oregonians to voice their displeasure to Sen. Ron Wyden (D-Ore.), whose proposal may be stalled in the Senate.
The radio ads, purchased by the National Education Association, the American Federation of State, County and Municipal Employees (AFSCME) and the United Food and Commercial Workers, take Wyden to task for his Healthy Americans Act, a bill that would provide universal coverage while removing the tax exemption employers get when they provide health benefits to their employees.

"Taxing health benefits? That doesn’t make sense," the ad's narrator says. "Tell Sen. Wyden that Oregon families want quality, affordable healthcare — not taxes on their healthcare benefits."

The three major unions are running the radio ad in Wyden's backyard in the Portland and Eugene markets, to the tune of $60,000, according to those familiar with the expenditure. AFSCME is undertaking a larger pressure campaign utilizing phones, mail, canvassers and a website.

Top Oregon labor leaders took to a prominent liberal website last week to question Wyden's plan, which they compared to proposals by Sen. John McCain (R-Ariz.) during the 2008 presidential election.

Wyden's bill is far different from the proposal McCain offered last year. Wyden would add a standard deduction estimated at $17,000 for a family of four, according to estimates by the Oregon Democrat's office. More expensive plans would be subject to taxes.

The proposal would make employers' share of health premiums taxable. Unions largely stand to gain from maintaining the status quo.
Last week, Senate Finance Committee Chairman Max Baucus (D-Mont.) said he would not consider Wyden's proposal. But Baucus did release a list of priorities that unions are unlikely to be pleased by. A broadside aimed at Wyden could serve as a warning to Baucus.

Wyden "has been a champion of healthcare reform, and his work to reform the system and to encourage public options for health care coverage could change the face of our health care system, expand coverage, and make health more affordable for all Americans. But only if our Senior Senator stops lobbying for a health care benefits tax," wrote Oregon AFSCME executive director Ken Allen and Oregon AFL-CIO president Tom Chamberlain on the BlueOregon blog.

President Obama opposed the proposal during the campaign, but in March Obama's budget director, Peter Orszag, said the idea should not be taken off the table.

Finding himself on the opposite side of labor is not a normal position for Wyden. Ordinarily a strong backer of labor, Wyden voted labor's way on 94 percent of the scored votes in 2007, the last year for which the AFL-CIO has scored members of Congress. In his career in Congress, Wyden has voted with labor 88 percent of the time.

JERSEY BENEFITS ADVISORS INVESTOR NEWSLETTER SPRING 2009

MARKET WATCH

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.

UNDERSTANDING AND PROFITING FROM HISTORY

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?

STATEMENTS AND THE GUARANTEED MINIMUM INCOME BENEFIT

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.

COMPANY INFORMATION:

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
800-245-8250
Member FINRA & SIPC

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.

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

Brokerage Account Features

Many people have accounts with different mutual fund companies, and receive numerous statements, which can be a burden. One way to lessen paperwork is to consolidate assets into a brokerage account. Most major brokerage firms offer a brokerage account, which they may also call an Asset Management Account. Below are some of the features and benefits provided by a Pershing Brokerage Account, offered by Jersey Benefits Advisors, which include:

· Consolidated statement which shows all investments including money market funds, stocks, bonds, mutual funds, unit investment trusts, partnerships, brokered CD’s and annuities

· Daily sweep of idle cash into a money market account

· Available borrowing power for Margin approved accounts

· Procash checking services

· Free ACH transactions from checking to brokerage and from brokerage to checking

· Electronic funds transfer services

· Free dividend reinvestment

· Direct deposit of payroll, social security, pension checks, etc.

· Online access to account information

· Access to numerous mutual funds from different investment companies as well as variable annuities* from many insurance companies

· Systematic investment into mutual funds in order to purchase shares on a monthly, quarterly or annual basis utilizing dollar cost averaging

If you have any questions, feel free to contact me through my websites listed below.

John Kaighn is a Registered Investment Advisor with Jersey Benefits Advisors and writes articles on various business and investment information, ideas and opportunities. For more information about this and other topics you can visit Jersey Benefits Advisors and The Kaighn Report

Of Bad Banks & Retribution

Now that the Obama Administration is considering the idea of a "bad bank" to clean up the toxic assets on bank balance sheets, the concern turns to how the assets should be valued. As I discussed in my blog post called Resolution Trust Corporation Redux there is precedence for this type of action, which goes back to our Savings & Loan crisis during the 1980's. While the RTC seized the assets from failed Savings & Loan institutions and allowed the insolvent ones to go out of business, depositors assets were merged into solvent banks and individual depositors didn't lose their money.

Recently, I read an editorial by Robert C. Posen of MFS Investment Management. The valuation method he suggests for the toxic assets on bank balance sheets has merit and should be explored. While it is less sanguine than the RTC process of seizing assets and allowing the company to go out of business, Posen's idea attempts to deal with the fact that the toxic assets of today may still have a great deal of intrinsic value, but marking them to market, a market which has been frozen for six months may not be the best way to deal with this situation.

Posen suggests that "after the Treasury has determined a best estimate of the assets current value, they should offer the bank a cash payment equal to 80% of that value. For the remaining 20% Treasury should provide the bank with a capital certificate, which would count as common stock in determining whether the bank meets its capital requirements". This would help to insure that the Treasury doesn't overpay for the assets, which would help protect taxpayers, and should entice the banks to participate in the program, because the prices won't be too low.

Furthermore, this plan would give taxpayers and the banks an opportunity to benefit from a sale of the assets in the future. The certificate given to the bank would entitle it to 80% of any profit that might be made on the asset when it is sold by the government. If the government sells the asset at a break even price or for a loss, the bank would be entitled to nothing.

Click here to read the entire editorial How to Value Toxic Bank Assets

I've also copied a blog entry by Edmundo Braverman of WallStreetOasis.com which discusses the quest to find a scapegoat for this most recent financial debacle.

A Pound of Flesh

© 2009 Edmundo Braverman, WallStreetOasis.com

Now that the media and Congress have succeeded in deflecting all blame for the current crisis to Wall Street, they've begun their frantic search for the fall guy. You know the guy I'm talking about. The one guy who personifies all that is wrong with the world and is deserving of limitless scorn and a hefty prison sentence. Think Ken Lay of Enron, Bernie Ebbers of WorldCom, and Dennis Kozlowski of Tyco.

In the Roman circus that is the 24/7 news cycle, the crowd is getting restless and they want blood. It's not their fault they were thrown out on their asses after defaulting on an adjustable rate mortgage that represented 65% of their take-home pay. That house was supposed to go up in value, damn it! Now their blood lust must be sated. Always a willing accomplice to government skulduggery, the media is deciding whom to throw to the mob, even as we speak.

We all know Barney Frank, arguably the chief architect of the housing demise, will never see the inside of a jail cell..... To read more click here
John H. Kaighn

Jersey Benefits Advisors

The Kaighn Report

Jersey Benefits Advisors Winter 2009 Newsletter

MARKET WATCH

Trying to ascertain a realistic assessment of the current economic situation is tenuous, at best, as we begin 2009. Finding a balance between the people who believe we are actually experiencing financial Armageddon, and those who perpetuate that fear for political advantage, is where I find myself at this point in time. History is always a good place to look to determine if a financial panic has some precedent we can use to guide our decisions.

The US economy has been in recession since December of 2007, according to the National Bureau of Economic Research, and unemployment will continue to increase well into 2009. This recession could be the worst since the 1973-75 and 1981-82 recessions, and possibly the worst since the Great Depression. If you look in the right column , there is a historical list of various recessions and their duration. While not attempting to downplay the severity of the current economic slump, it is quite evident we have not reached the depths of the Great Depres-sion, despite sensational media reporting.

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, 13 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.

Government response has been intense. Whether the stimulus planned can jumpstart the economy remains to be seen. There are many who believe government stimulus is a waste of taxpayer money, that it will go to family members, and friends of the politicians who sponsor legislation, and our children will be left with European style taxes for generations. 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.

As I mentioned earlier, I tend to look for balance between the multitude of opinions, so I think we will avert disaster, but the price will be more government and a period of slower growth. It is not possible for us to have low taxes and deficits of a trillion dollars for very long. 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 "affordable housing initiatives" and Corporate Average Fuel Economy (CAFÉ) standards have exacerbated problems for certain industries. The cost down the road will be high, especially as taxpayers weigh the option of further nationalizing the health care system.

The markets have been humbling to many money managers this year, and as you know from the end of the year statistics, quite dismal. The Dow Jones Industrial Average ended 2008 at 8,776.39, which is a decline of 33.84% from the 2007 close of 13,264.82. The S&P 500, which reflects the broader market, was down 38.49% from its 2007 level of 1,468.36 and closed at 903.25. The NASDAQ index dropped from 2,652.28 to 1,577.03 to end 2008 with a 40.54% loss.

In the next article, I discuss ways to survive and thrive in this market. The next year or so is a buying opportunity!

INVESTING DURING THE RECESSION

I stated in Market Watch that the markets humbled many money managers in 2008, and with this downturn comes the chorus of concerns about not being able to make money in the stock market, because it is too volatile. At first glance, the argument seems plausible, because if you look at the indices, and their returns to date, they are abysmal. In fact, on November 20, 2008, the S&P 500 fell to a low of 752.44 not seen since the 754.72 close on April 15, 1997. At that point the S&P 500 was 51.92% lower than the high set in October 2007. From November 20 through the end of 2008, the S&P 500 gained back 20%.

There is no doubt the stock market has been a real roller coaster ride, and the 2008 lows will probably be tested in 2009. When you analyze the numbers, and understand how rapidly the market can recover, you begin to understand knee jerk reactions are not the best responses to this volatility. In fact, I am of the opinion the only way those of us who work for a living have a chance to build wealth is to continue to save and stay invested during this roller coaster ride.

Furthermore, while it is true there was a market low of 51.92% in the S&P 500 in November, those of us who kept their investments didn’t realize that loss, except psychologically. These gains and losses are temporary paper fluctuations that are only realized when you sell. Variable annuities can protect future income, if you are concerned and close to retirement.

With the markets off more than 30%, every share you buy in your 401k, 403b, ROTH IRA, IRA, 529 plan, brokerage account or mutual fund is being purchased at a discount. I feel this buying opportunity will continue for at least 6 months and possibly longer. When the markets recover, as they always do, all of your old shares, plus the new ones you purchase will bring your account to a higher level than it was before the recession.

Click on the graphic to make it larger if you have difficulty viewing it!



It is true nobody has a crystal ball to tell us exactly when the markets will recover, but once again history is where I usually go to help me understand what we are experiencing and how best to survive and thrive. The graphic above helps put some of the current conditions into perspective. The first graph depicts the recent job losses. While the 2,589,000 jobs lost in 2008 were the most since 1945, the percentage of jobs lost was only 1.88%. This compares favorably with the 2.34% of jobs lost in the 81-82 recession.

The second graph shows that unemployment peaks some months after a recession has ended. The recessions are noted by the shaded areas and the line depicts the unemployment rate. Since trying to time these trends is an inexact science, it is my opinion patience, discipline and calm are the keys to building wealth.

PROTECTING YOUR ASSETS IN A DOWN MARKET

Many of you have invested in the Transamerica and MetLife Annuities, so I want to remind you, once again, about the Guaranteed Minimum Income Benefit. This rider 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. They are great for anyone who wants some insurance on their investments, especially if you are going to be drawing income in the near future. Contact me for an appointment or more information.

John Kaighn

Jersey Benefits Group, Inc.

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
Http://www.jerseybenefits.com

Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
1150 S. Olive St. Suite T-25
Los Angeles, CA 90015
800-245-8250
Member FINRA & SIPC

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
Http://www.jerseybenefits.com/

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

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

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

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

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

Jersey Benefits Advisors Newsletter Fall 2008

DOWN BUT NOT OUT! THE FINANCIAL CAPITAL OF THE WORLD HAS BEEN HUMBLED, BUT NOT DESTROYED!

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
Email: kaighn@jerseybenefits.com
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
800-245-8250
Member FINRA & SIPC

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
Jersey Benefits Group, Inc.

John H. Kaighn

Jersey Benefits Advisors

The Kaighn Report

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

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

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

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

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

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.

ECONOMIC OUTLOOK

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

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.

Bonded
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

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

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