Credit Crisis: Before & After

According to a recent review in the New York Times, “Two Angry Books” have just published, to gauge the enormous toll the credit crisis is having on the U.S. economy. Quick synopsis: the American public is mad as hell and they’re not gonna fake it anymore.

Both authors have impressive backgrounds in the field of economic politics.


One worked in Richard Nixon's administration, the other is a former investment banker.

One thinks a “Volker”-esque Federal Reserve could save the financial day; the other that America is doomed.


Even so, both agree on the main reason for the credit crisis: Debt (also known as “financial crack cocaine”) was turned into a “profit machine.”

We can all see the outcome from our front doors:

The biggest names in banking have tumbled, the housing market has crumbled in its worst slump since the Great Depression, and credit values have collapsed -- all the while the Federal Reserve has slashed rates by 300 basis points in just six months, the biggest series of cuts since 1984.

As the subject of a book, it’s definitely a page-turner.

But, as the central theme of a person’s actual life (many millions and counting) -- it’s more a rage burner.


It goes without saying that the victims of the credit debacle would have preferred a paperback writer who warned of the impending implosion BEFORE it happened -- vs. one, two, or a thousand who describe the disaster long after the vehicle has already gone over the cliff.

Truth is, there was such a writer: Robert Prechter Jr. And there was such a book: Conquer The Crash, copy write date 2002.

As the mainstream “experts” paved the way for a new “paradigm” in real estate which expected prices to rise indefinitely AND high-risk borrowers to get the home of their dreams, Conquer The Crash foresaw the “road to riches” taking a drastic turn. Consider the following excerpts in light of unfolding events:

• "What screams "bubble" -- giant, historic bubble -- in real estate today is the system-wide extension of massive amounts of credit to finance property purchases."
  

• "Another remarkable trend of recent years adds to the precarious nature of mortgage debt. This widespread practice is brewing a terrible disaster…the problem with these schemes is that their success and continuation depend upon continuously rising property prices. Confidence is the only thing holding up this giant house of cards. When real estate prices begin to fall, lenders will experience a rising number of defaults on the mortgages they hold.”
  

• “There are five major conditions in place at many banks that pose a danger: low liquidity levels, dangerous exposure to leveraged derivatives, the optimistic safety ratings of banks, the inflated values of property that borrowers have put up as collateral on loans, and the substantial size of the mortgages that their clients hold compared both to those property values and to the clients’ potential inability to pay under adverse circumstances.”

At every step of the ensuing decline, our Financial Forecast Service publications have picked up where Conquer the Crash left off, and continue to do so.

As Bob Prechter points out in the March 2008 Elliott Wave Theorist: “It’s more useful to be ahead of topics that will mesmerize people later.”

Wealth Disparity: The Coming Political Storm?

In bullish times, the public is largely tolerant of Wall Street's immense salaries and bonuses.

But as you know, these are not bullish times -- and "tolerant" ain't exactly the best word to describe the public mood.

You may already have noticed some of the stories that reflect the shift.

In 1970, for example, the average for all CEO pay was about 30 times that of an average worker's; this multiple has increased steadily to about 100 times today.

And as much as the chart speaks for itself, there's more: the multiple is actually closer to 500 times if you include benefits and stock options.

If that's not enough, recent data can show the income disparity in other ways, such as how the highest one percent of income earners in the U.S. accounted for nearly 25% of total income in 2006.

In 2007, it's likely that the current trend eclipsed the 1929 high.



You'll notice that income inequality fell dramatically after 1929, but the reasons why include more than the economics of the Great Depression.

Most of us have heard or read about the bank runs and bread lines; less well understood is the hugely important role that politics played, specifically the political policies driven by the public's overwhelmingly bearish mood.

Today's so-called negative politics pales when compared with the vitriol that passed between President Franklin Roosevelt and the opponents of his New Deal.

I can give you a flavor of this by describing a bit of history regarding Gainesville, GA, the town where I live today.

It was demolished in 1936 when two large twisters joined to create one massive F4 tornado that came directly into the town square (240 dead, 1,600 injured). FDR took a strong interest in the town's plight, and in turn the rebuilding effort included substantial aid from the Federal government.

---

In March 1938 the town was ready to celebrate its rebirth: the ceremony included a personal visit and speech from Roosevelt himself.

The U.S. economy still had not recovered, and FDR was still embroiled in New Deal-related (i.e. political) controversies.


So, while his speech began with a mention of "the fine courage which has made it possible for this city to come back after it had been, in great part, destroyed by the tornado of 1936," most of his comments attacked the "economic royalists" who opposed him:

"Today, national progress and national prosperity are being held back chiefly because of selfishness on the part of a few.

If Gainesville had been faced with that type of minority selfishness your city would not stand rebuilt as it is today.

"The type of selfishness to which I refer is definitely not to be applied to the overwhelming majority of the American public. Most people, if they know both sides of a question and are appealed to, to support the public good, will gladly lay aside selfishness.


But we must admit that there are some people who honestly believe in a wholly different theory of government than the one our Constitution provides.

"You know their reasoning. They say that in the competition of life for the good things of life; 'Some are successful because they have better brains or are more efficient; the wise, the swift and the strong are able to outstrip their fellowmen.


That is nature itself, and it is just too bad if some get left behind.'



"It is that attitude which leads such people to give little thought to the one-third of our population which I have described as being ill-fed, ill-clad and ill-housed.

They say, 'I am not my brother's keeper'—and they 'pass by on the other side.'"

So if you're wondering what the "politics of anger" on a national level really sounds like, perhaps now you have a better idea.

It's not like politicians in our day who want to say likewise will have to dream it up on their own -- the precedent is on the record.

And the just-published May issue of The Elliott Wave Financial Forecast explains why "likewise" is indeed what we should expect in the near future

FED'S RATE CUTS ARE NOT HELPING

THE vast majority of experts still think the Federal Reserve will reduce interest rates next Wednesday, but this time the betting is for a modest quarter-point cut.

However, there is a growing sentiment - now 18 percent, up from zero in recent weeks - that the Fed might call a halt to its monetary stimulus. Or, at the very least, it will warn that the cessation of rate cuts is near.

If that happens, the financial market could be caught off guard.

Several prominent economists and even some Fed members have expressed concern that rate cuts are doing more harm than good.

Rate cuts are killing the value of the dollar as well as America's reputation; causing a sharp rise in inflation, including commodities like gasoline, and bringing monetary policy to the brink of impotency.

And the heat is coming especially from Europe, where their central bank has been refusing to go along with the rate cuts - although injecting plenty of money into the financial system - because it, unlike our Fed, fears inflation more than economic stagnation.

It'll still be months before we will really know whether the six rate cuts that added up to a 3 percent drop in the federal funds rate are doing much good.

And it could be even harder to figure how much May's tax rebates will help.

Are we in the nightmarish economic quagmire some of us expected when the Fed began cutting rates last August?

Or are we making too much of an economic cloud that will soon lift?

Those are just some of the questions the Fed will be dealing with next week when the problem of the inability of people and companies to borrow money will be front and center.

I think you'd agree: We're all tired of the economic drag that the so-called credit crunch is causing.

And if the economy could be controlled like our TVs, with the press of a remote control, we'd simply change the channel.

But Ben Bernanke's Fed is finding this economic downturn to be different from others. The damn thing just won't click off.

Few people would still disagree that we are in a recession right now; but there's agreement on little else.

Take the issue of another reduction in interest rates.

While the Fed has been diligently ratcheting down its funds rate - which is the amount banks charge each other to borrow money - those lower costs aren't being passed on to borrowers.

Mortgages are a good example.

While the Fed has cut rates by 3 percent - or 300 basis points, in Wall Street lingo - the average rate on a 30-year fixed-rate mortgage has fallen very modestly.

These mortgages recently averaged 5.88 percent compared with 6.17 percent last year.

That's a drop of only 0.29 of one percent, or 29 basis points.

In other words, the Fed has cut the interest rate it controls 10 times as much as banks have cut what they charge would-be homeowners.

And that's not even the biggest problem.

Here's an e-mail I got re cently from a reader who recently had to navigate the mort gage market.

"I bought a vaca tion home in July - before the market hit the fan and the Fed had to lower [rates]. I locked in a 6.5 percent 30-year fixed mortgage when fed funds were 5.25 percent," says Scott J. Redler.

"So last month [I] figured, with [the] Fed lowering rates so many times I could refinance to a great rate for the long term."

Redler called up Chase Bank but the new rate had only dropped to 6.18 percent.

"How does that stimulate the economy," Redler asked, if the banks aren't passing much of the rate reduction on to consumers.

"That's problem No. 1," said Redler, who volunteered that he has a strong 795 credit score and probably got a better deal than most people could get.

"Then I get a phone call that the place I bought in July appraised for $30,000 less than when I bought it." So, in order to get a new mortgage Redler had to come up with $30,000.

"This downturn won't be short and sweet. There will be big-time problems down the road," Redler added. "I'm not an economist - just using common sense from experience."

Banks have been the hardest hit in this economic downturn, so it's understandable that they don't want to be generous to customers when they can use the money themselves.

Earnings of financial institutions in the first quarter are down 70 percent from the same time last year.

Unless the banking industry causes another panic the Fed could be finished with its magic for a while.


By JOHN CRUDELE (New York Post)

Knowing The Market

Clearing the air on what the stock exchange is all about

PEOPLE plough their hard earned money into the stock market. If you get a good bonus, you may put a large chunk of that into the stock market.

If you strike gold with 4-D, you may also end up doing the same (investing a large sum of that in equities).

When you retire, your EPF savings may be poured into the stock market.

So, if we are doing all of the above, it should at least make sense to know why the stock market is there in the first place.

If you fail to understand why we have stock markets, then your expectations might not be met.

It's like a bad marriage. If your expectations are airy-fairy, nothing good will come from it.

There are only two main reasons why stock markets are there:

a) To tap capital – it allows companies to tap capital to fund future growth.

b) It enables the public to participate in that growth – in exchange for the capital, investors become shareholders, and will be able to be part of the company's fortunes (good or bad).

Anything else would be incidental, indirect and not guaranteed.

However, we all know that investors regard the stock market as something much more than that.

Let's look at the unrealistic expectations, myths and realities surrounding the stock market:

a) Can make you rich –

The stock market does NOT owe anyone a living. It may make you rich, it will probably make you very poor as well. It has no loyalty.

b) Prices have no memory –

Stocks do not care how much you have studied a stock, or whether you have an MBA or not.

It does not care what price you bought at and couldn't care less what price you sell at. The stock does not know that you love it.

Your undying perseverance will never be acknowledged or taken into account.

c) Zero sum game –

For you to win at stock market investing, somebody else has to lose. It's never a case of everybody winning.

If the KLCI rises from 1200 to 1500 in two weeks, and you bought at 1200 – your gains were at the expense of the “opportunity cost” of the seller who sold to you at 1200.

This is a casino, but it has no banker. All cannot win at the same time and break the bank.

d) Paper gains –

The ones who stand the best chance to make supernormal profits are the company owners.

Grow a company then list it and you get an immediate leveraged valuation of the on going earnings of your company. Hence for investors to better the odds of making money from the stock market – go start a company.

e) Knowledge –

The more you know and learn from books and other people's experiences, the better the odds of being better than the next person to make money.

Since this is a zero-sum game, you have to be better than 50% of the investing population to make money.

f) Size matters –

Fund managers can move prices by the sheer size of their orders. Thankfully, they are also not difficult to beat.

Short term, their size will move prices in favour of whether they are selling or buying, but that aberration will sort itself out eventually.

g) Forecasting models –

Stock markets are forecasting models, they try to make sense not of the present but what things will be 16-20 months down the road. Hence to get an edge on the market, would be to try and anticipate better and anticipate earlier what's down the road.

h) Behavioural science –

Since it's a zero-sum game, to be able to read investors' likely moves will also gain you an edge.

The most raw form guiding investors behaviour are fear and greed.

These two emotions will cause people to act irrationally. To be able to impute and estimate how much of the stock price is due to irrational behaviour will help us anticipate and read markets better.

i) Technicals – They are pattern readers and pattern seekers. The basis for the emergence of these patterns is that investors never learn and always behave in the same manner giving similar investing situations. Hence technicals are useful because of that.

j) Analysts – They are well paid people who usually have never run any business in their lives. Learn to sift out the better ones from the run of the mill.

Most analysts have a hidden fear – the fear that people will discover that they are really pretty average at best.

At the end of the day, the stock market will always be there. We are the ones who might not.

Posted by Salvatore_Dali

Fear Of Recession Overblown

MOST professionals, as well as the average investor, are likely to follow the release of economic data to get a grasp of the direction of global economies and markets.

To get a sense of capital flows, they will look out for data such as trade surpluses and deficits, interest rate differentials, leading indicators and so forth.

To analyse the strength of domestic consumption, data that is relevant data include housing starts, loans growth, interest rate trends, foreign direct investments, local currency outlook, employment rates and so forth.

Presently, there appears to be much concern over US recession fears – the killer of all stock market bulls.

Understandably, one of the biggest fears of professional fund managers and investors is to be caught in a massive bear market.

So, can we better predict bear markets by following economic indicators?

If we were to look at the massive bear periods in recent times, you will find that they were bubbles pricked by reality.

The dot-com boom-bust was based on over-hype; the pouring in of excessive liquidity via private equity and venture capital funds to latch onto the next dot-com star.

The debilitating 1997 Asian financial crisis was caused by years of excessive foreign liquidity into the South East Asian economies and financial markets, driving up prices artificially and resulting in significant market inefficiencies and misallocation of capital in the process.

The current market phase is not a bear market, well yet at least, to most investors.

To many, it is just a correction within a bull market, but the longer it stays in a funk, the quicker it will morph into a bear market.

I would categorise the current market as a proper bear market because it is the implosion of a genuine and massive bubble, just like the previous bear markets.

Recent data and implications

The latest jobs data and housing data confirms that the contraction is still underway despite the genuine efforts by US Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson.

The point here is this – Can we have a bear market in the US without it having to effect markets? The answer to that is very much up in the air.

As in most bubbles, these excesses are aided and funded by over-eager banks.

Back to the fear of recession; tracking and predicting recession are good, but they will not save you from bubbles imploding.

Hence it is more important to look for bubbles forming in pockets of markets and economies.

Bubbles will also take some time to come to a boil before becoming unsustainable.

To pull back on the slightest hint of any bubbles forming would be way too early and will likely turn out to be a disappointing investing strategy.

Fears of recession are healthy but they should not blinker investors into a 0% or a 100% invested decision.

In fact markets do continue to perform even during a recession as markets are forward discounting mechanisms (18-24 months forward would be a good gauge).

Fears of recession essentially stem from fears about a major collapse of consumption.

As we can see from the recent market corrections, they are a result of bubbles imploding, rather than a consumption-contraction led collapse.

The main reason for that would be that most economies now have more depth and breadth.

Pick any of the top 40 countries in terms of GDP and you will discover that their dependence on a single industry are now much less than 20 years ago.

For example, in Australia manufacturing took up 29% of GDP back in 1960. Today, it stands at around 10%. Agriculture used to be 25% of GDP but now it is less than half of that.

The lack of dominance in any one sector would surely reduce the risk of a collapse in consumption in an economy.

Even though Malaysia's trade in oil and gas, plus CPO, are high, they are not dominant. Manufacturing, business services and property also hold significant chunks of GDP.

The same argument can be made even for the US, which is why we may see a contraction in consumption but not a collapse.

A contraction is usually short term and should recover relatively quickly.

With that, scrutinising economic trends and variables with the hope of catching signs of a potential recession may not be as useful or rewarding, as it seem.

Keep a lookout for “bubbles” formation and study the variables and developments closely. Most will only look up terminologies such as SIVs (structured investment vehicles) and CDOs (collateralised debt obligation) after the bubbles have imploded.

Typically, bubbles imploding are the major cause of a sharp correction in stock markets as they are big enough to lop off a huge chunk of a certain sector.

The fact that bubbles are formed in a sector that eventually morphs itself onto stock market valuations and earnings, further points to the all-encompassing and far-reaching effects of a bubble implosion.

Nassim Nicholas Taleb's books - Fooled By Randomness and The Black Swan -(Note: Black Swan is a surprise event; the black bird was discovered in Australia when all along only white swans were known to exist). attempt to capture randomness of risk and implosions that are hard to plan for.

It is hard to capture potential systemic risks by just looking at run of the mill indicators.

One must be attuned to possible catastrophe for selected industries as some are exposed to positive Black Swans and others to negative Black Swans.

Financial markets have a very high negative Black Swan. Sound business is often compromised by two factors in financial markets - excessive leverage and inter-connectedness of companies / products/ markets.

In many ways, being aware of these two factors would go a long way to better understand potential negative Black Swans of the future.

The other variable for a major correction is a dramatic collapse in business profitability.

That is even more unlikely in most economies as they are now broader and not so concentrated in certain sectors.

So, the question arises – Why then should one be possessed by such an overzealous fear of recession?

INVESTING SCENTS
By S.DALI

Jaded

WSJ: The Monetary Authority of Singapore is investigating why Jade Technologies Ltd., a takeover target, delayed disclosing that Merrill Lynch & Co. had seized a large block of its shares, causing investors to lose millions of dollars.

The circumstances of the takeover offer for Jade were already under investigation by Singapore's white-collar crime unit and the council that oversees mergers and acquisitions.

Jade is listed on Catalist, Singapore's secondary board.

The takeover offer, if it had gone through, would have valued the company at S$218 million (US$160.8 million).

Now the aborted offer, by Jade President Anthony Soh, is threatening to undermine investor confidence in the Singapore market, among the most developed in Asia.

The controversy has become a test case for regulators, with institutional and individual investors complaining that the system has wronged them.

OCBC, Mr. Soh's adviser, had vouched for his ability to fund the deal. OCBC subsequently withdrew from its role and filed a complaint against Mr. Soh with the Commercial Affairs Department, which fights white-collar crimes, for allegedly misleading the bank.

The saga began in February, when Mr. Soh said he wanted to take over the company, which has interests in microchip engineering and mining.

The sole requirement of the offer of 22.5 Singapore cents a share was an acceptance level of 50%, meaning Mr. Soh needed to secure just a small addition to his own 46% stake to succeed.

On April 5, he withdrew the offer after getting permission from the local regulator.

He said he no longer had enough funds to continue with the bid.

The stock went into a freefall when the market opened on April 7, sinking to seven Singapore cents from 22 Singapore cents before trading was halted on April 1.

The shares have remained near seven Singapore cents over the past two weeks.

What many investors didn't know was that Mr. Soh had pledged a 30.5% stake in Jade, or 295 million shares, as collateral for a loan from Australian broker Opes Prime Group Ltd. to fund the takeover. Opes collapsed and went into receivership in the last week of March.

On April 1, before shareholders got details about the deal's financing, Opes creditor Merrill liquidated 95 million of the shares Mr. Soh had pledged. Merrill had received 256 million Jade shares from Opes on March 27.

While Merrill sold out at 22 Singapore cents a share, other investors held or even accumulated new positions under the assumption the takeover would proceed.

Angry investors, who watched helplessly as Jade lost S$145 million in market capitalization in the first minute of trade on April 7, want to know why they weren't told Merrill had seized Mr. Soh's shares. "If public notice had been made, there's absolutely no way we would have bought any stock at all," said an investor who increased his stake in Jade to almost 5% on April 1.

"Until recently we had an extremely high degree of confidence in the integrity of the Singapore system in relation to takeovers. Things just didn't go wrong," he said.

An MAS representative declined to elaborate on its investigation.

Merrill spokesman Rob Stewart, based in Hong Kong, said the bank "made the required shareholder notification as required by the regulations."

Merrill was required to notify both Jade and the Singapore Exchange of its holding in Jade by March 31, two business days after it took possession of the shares.

The Singapore Exchange doesn't announce changes in shareholdings until it is notified by a company.

It declined to comment on the Jade issue. Jade Chief Financial Officer Vera Lim said Jade received some information from Merrill in the days leading up to April 8, before it announced the change in Merrill's holding, but declined to elaborate.

"On April 8, we received all the information from Merrill Lynch," Ms. Lim said.

OCBC, which had vouched for Mr. Soh's ability to fund the deal, said it had begun to doubt "the integrity of the representations" given by Mr. Soh.

Singapore law prohibits withdrawal of a takeover offer without approval from the Securities Industry Council, which has oversight for mergers and acquisitions.

The SIC declined to explain why it allowed Mr. Soh to drop the offer or if OCBC was bound to back it.

The SIC "has commenced investigation into the circumstances that led to the withdrawal of the offer," an SIC representative said. "However, it is premature and inappropriate to give further details at this point."

A second investor said he bought shares expecting OCBC to stand by the deal. "I placed confidence in the fact that OCBC was involved in the process, and it stated clearly that financing was in place," he said.

OCBC declined to comment when asked if it was under obligation to back the financing.

Comments: The Bursa and SC should take note on the Jade saga because it could very well happen anywhere.

There are numerous companies offering "margin facilities" out of Singapore and Malaysia.

As these companies are not under the jurisdiction of the companies where it is listed, when things go wrong, the domino effect is at the expense of minority shareholders and investors who relied on available information.

To prevent such incidents, there should be new disclosure rules when the controlling shareholder or even substantial shareholders pledges their shares to a third party.

OCBC should be quizzed further on whether their grounds for withdrawing their funding was legal and in the best interest of the market's integrity.

Merrill Lynch, which seized the shares from Opes is in the clear and they absolutely have the right to sell the shares, and they played by the rules in terms of informing the exchange and company.

Maybe new rules should be put in place in the "delay allowed" when reporting sales by significant shareholders - one week may be too long. All exchanges and regulators, please take note.

SIC should be in a lot of hot water for allowing Soh to drop his offer - heads will roll.

It seems that the only people not being considered or catered for in this saga were the minority shareholders and investors - they were basically hung out to dry, left to make decisions based on available information which were "outdated", materially different from reality, and left holding the bag.

Posted by Salvatore_Dali

Taking Stock Of Risk-Reward

It looks like many are missing the bus, including myself.

The equity markets seem to have stopped falling.

While many, like me, are still waiting for the other shoe to drop, the chance of markets moving higher seems to be better.


Are we in for a change of tide?



Apparently, we cannot fight the central banks no matter how strongly we are against their policies.


This is the whole crux, buyers of shares now think that they have the world central banks on their side.


The zero weighted investor think that the central banks have created a recipe for disaster down the track.


Both can be right, unfortunately.


I would not fault those who would buy now.


As for me, I can think of better ways to do with my money.


To me, the risk still overwhelms the anticipated returns.


I cannot stop people playing 4D even though I know the odds are very shitty.



What we have:


a) Central banks pumping liquidity to save "unattractive assets"


b) Dubious financial instruments being whacked senseless, pricing in a lot of risk already, which is a positive in a rebound


c) USD policy will create havoc in UK, Euro and Australia - already similar bailout plans are afoot in UK and Australia.

As for the E.U., its a bloody time bomb, they cannot operate with such an overvalued currency


d) If its not going down, it should be going up - that's the prevailing mentality currently, which can be a dangerous premise to base investment decisions on



My biggest contention is the mix of : weak USD; oil at US$120; food prices through the roof ... isn't that enough to derail the sustainability of growth in any markets?


Mind you, I am not refering even to the subprime / credit implosion thingee - we have a new monster working itself into the "good growth markets now".


Something's gotta give.


There is only so much currency appreciation the Brazils, the Malaysias, the Thais can take to avert inflation.


There is only so much subsidy to give to control prices. Something's gotta give soon.


That is why I say to buy now would give me a disproportionate risk-reward ratio.

I rather play the horses with my money.


Posted by Salvatore_Dali

Beware Of E-Gold Investment Sites (2)

The way most scam investment websites work is that they pay you interest for a very brief period initially to attract even more people that they can fleece.

They then proceed to suddenly fold up and disappear into thin air with investor's funds.

This does not mean that there are no e-gold investment sites that are genuine.

The truth is that there are web sites that are run by genuine investment set ups..

You just need to be extremely cautious as you go about the task of finding them.

One of the danger signals to look out for is whether the e-gold investment company you would like to invest with has a physical address.

This is very important.

When you click on the "contact us" link on the site and only see an email address, then the right thing to do is to flee without looking back because you are dealing with scammers.

Flee and save your hard earned cash from being taken away from you.

It is also prudent that you put through a call to any telephone numbers that you may see displayed on the website.

How is the phone answered and who answers it?

You can also take the opportunity to ask all the questions you would like to ask.

Then you can also visit forums and search engines and ask as many questions as you can so that you are able to discover which particular e-gold investment sites you can be able to work with.

By Andre Sanchez

Beware Of E-Gold Investment Sites

There are some websites that allegedly claim to pay up to 500 per cent returns on e-gold invested for periods as little as 30 days.

Now just wait a minute, did I say 500%?

Or was that a typographical error?

It is no typographical error.

It is actually 500 per cent and that should be the first signal to you that there is something terribly wrong at any site offering such an unusually high return on investment.

Still numerous people get scammed daily all over the world investing in these so-called high returns e-gold sites.

Actually it is hardly surprising that scammers would want to target e-gold for their rackets.

Since e-gold or electronic gold was introduced and started to catch on, problems of Internet payments have been solved for many web users the world over.

In fact for the first time there is a true means of global payment that is widely accepted and easy to use and it does not matter what corner of the world you are based in.

There is no doubt now that e-gold is the biggest universally accepted means of online exchange for goods and services.

The Three Risks You Must Avoid (3)

The third risk is Flexibility Risk.

This is closely related to control and access risk.

Basically, since it's your money you should have the flexibility to do whatever you want with it.

You should be able to make changes to the way that it's invested. You should be able to move it from one place to another without having to pay a penalty.

You should be able to pull it out and use it to help a loved one or just to take that dream vacation.

But flexibility is just one more thing you lose when you buy a packaged product.

These three risks are difficult to place a dollar value on until you are affected by them.

Then they are priceless.

By Jeffery Voudrie

The Three Risks You Must Avoid (2)

The second risk that people fail to think about is access risk. Whose money is it? It's YOUR money.

If you own something, shouldn't you be able to access it any time you want? You own your home and you can use it whenever you want.

Imagine giving your home to someone else where they control what happens to it and you can only access it when THEY allow you to.

That doesn't make any sense, yet that is exactly what happens when you buy many of these packaged products.

There's no way to know what life is going to be like tomorrow. Few could have imagined the terrorist attack of 9/11.

Few expect to be in a car accident. No one thinks that they will have a heart attack today, but there's no way to know.

Let me tell you a true story that just happened. My neighbor had some friends stop by yesterday.

These snowbirds, were driving their motor home from Arizona back to the Northeast. As they were driving across the barren roads of west Texas, they didn't realize that there had been an auto accident up ahead.

The accident had happened on the other side of the Interstate, but a highway patrolman had stopped traffic in their lane and a single car had come to a complete stop.

For some reason, the patrolman's car had no flashing lights to get their attention.

You probably know what happened. The speed limit was 75 mph there and although the motor home wasn't going that fast, it takes a long time to get one stopped. He didn't see the stopped car until it was too late.

He swerved around it, barely missing it, but the truck he was towing clipped the back end of the stopped car, totaling their truck.

But it gets worse. As he swerved around the stopped car, the patrolman stepped out right in front of their path.

The impact threw him onto their windshield then dumped him onto the grassy median. The officer ended up being air-lifted to the hospital.

This retired couple is still waiting to see if charges are going to be brought against them. And they most likely will.

Their lives changed dramatically that instant, something they couldn't have foreseen. Imagine how you'd feel if that happened to you!

They could easily end up spending tens of thousands of dollars in legal fees. This is just one of many true examples that illustrate why free and complete access to your money is critical.

The Three Risks You Must Avoid

There are many financial risks that investors want to protect themselves from (inflation risk, interest rate risk, market risk, etc).

But there are three risks that most investors don't take into account and I believe not doing so can quickly get them into trouble.

I call them control risk, access risk and flexibility risk. Let me explain.

When I refer to control risk, I'm talking about your ability to exert control over your money.

Since you are the one that will have to reduce your standard of living if something happens to your nest egg, it's vital that you retain control over it.

problem with annuities, life insurance and other packaged products is that you immediately lose control over your money.

You are ceding control to someone else.

They are the ones in the position of power because they get to decide what is done with your money.

They use contracts that specifically limit your control and give it to them.

Why would you ever want to surrender control over the most important financial asset you will ever have?

It doesn't make sense!

Investment Politics - Jobs, The Economy and Social Security (3)

Annuity providers would be assigned a fair share of the huge Social Security Retirement Income Account (SSRIA) participant pool; every dollar contributed would be invested.

All providers would use the same mortality tables and base interest rate guarantees in their calculations and would be precluded from any form of advertising. Companies would be required to focus 100% of their efforts on the SSRIA.

Annuity providers would be allowed a .5% investment management fee so long as the Annuity Investment Portfolio generated no less than the 3.5% income level needed to fund a guaranteed 3% contractual cash value growth rate. 50% of any excess realized income would be added to retirement accounts in the form of dividends.

The remaining 50% would be apportioned between three separately managed accounts for: retirement benefit support contingencies (20%), universal health care and disability benefits for annuitants (50%), and post retirement death benefits (10%).

Half of the remaining 20% would become "surplus". The balance would accrue equally to the employees of the insurance company--- the mail room staff receiving the same dollar amount as the CEO.

These changes would produce: a whole new sub-industry of jobs, increase disposable income, reduce the Federal budget deficit, provide universal retirement benefit eligibility, stabilize the market for plain vanilla corporate and government debt securities, reduce corporate expenses and product price levels, and subsidize health care for senior citizens. Annuity providers would have significant incentives to minimize costs, but their investment portfolios would be closely supervised to prevent excessive risk.

Politicians at all levels just love for us to hate big business, and have no compunctions about taxing and regulating employers in every manner imaginable.

The impact is higher prices, lower job creation rates, and the need to move many operations to lower cost environments. Many small businesses simply refuse to hire additional employees. Regulatory procedures and company defense measures add billions to the costs of goods and services.

Social Security benefits are grossly inadequate yet we continue to tax all forms of retirement benefits. Politicians ignore the simple solutions to these problems and none seem to care about Social Security reform.


It's just too big an issue to be so shockingly ignored, but the last politician with any courage--- well, I can't remember who that was either


By Steve Selengut

Investment Politics - Jobs, The Economy and Social Security (2)

Employer matching contributions would be eliminated and participant contributions would be cut to a mandatory 3% of total compensation (including deferred comp, stock options, etc.).

Both changes would be phased into the system by participant age group over a five-year period, youngest first. The five age groups would be 13-year periods starting at zero to thirteen (obviously for voluntary accounts) and ending with ages fifty-two through sixty-five.

Phase one would involve qualifying providers, assignment of workers, issuance of contracts, elimination of employer matching contributions, and elimination of income taxes on social security payments. Employers would be required to appoint at least one person to coordinate the transition.

Contributions to the annuity contracts would begin upon issue; the Social Security Administration (SSA) would have five years to move credits to participants, starting with the youngest group, and would be responsible for shortfalls to retirees for five years.

Under the new system, there would be no penalties for early retirement, but tax free annuity payments would begin at age sixty-five whether or not the person continued to work.

Participants could voluntarily establish retirement accounts for non-working spouses and children, and could elect to deduct an additional 1% of salary for each account.

A new Federal Administration for Social Security (ASS) will select, qualify, and monitor provider companies and their investment portfolios to assure that only high quality, income-generating securities are used to fund benefits.

Companies showing a surplus would be able to invest up to 25% of the surplus in stocks that qualify for the Investment Grade Value Stock Index (IGVSI). Only fixed life annuities would be available, but there would be 50% of cash value, family-only, death benefits up until the time of retirement.

After age 65, the death benefit would be reduced 10% per year for four years. There would be no loans, withdrawal privileges, etc.

The ASS would be represented on provider company boards, would monitor annual audits of firm financial statements, and would supervise the selection of all non-company directors (60% of the board).

Each provider company would be encouraged to use non-market value portfolio assessment techniques, such as The Working Capital Model, to monitor income portfolios.

Retiree associations would also be represented on company boards of directors, and board member compensation would be capped at a reasonable number, plus 45% of ASS related expenses.