The Millennium Wave

By John Mauldin, November, 2008

John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to: http://www.frontlinethoughts.com/learnmore 

Over the next ten to twelve years, we will see three recessions that will slowly move the average price-to-earnings ratio of stocks to historic lows. Rising oil and energy prices will be a main culprit of both the slowdown in the economy and an increase in inflation. Ever-increasing monetary inflation will, in fact, trigger a huge increase in all commodity prices, as well as a decline in bonds. Asset inflation will show up in the housing markets as home values continue to skyrocket. The dollar will continue to weaken against major foreign currencies. The current war will become increasingly unpopular, and the next administration will be forced to withdraw troops, under the guise of declaring victory. The American voting public will be split as never before, with major patterns in voting habits making a generational change. The newspapers will continue to write about how an Asian country will dominate the world economically in less than a few decades.

Following this period of malaise, there will be an amazing cycle of new technical innovation that will spark yet another major bull market. The new technologies will change the world in ways that simply cannot now be imagined and will lead to whole new industries, putting amazing new power and abilities into the hands of individuals and governments.

The preceding scenario would, in fact, all come to pass. Except that the year that was written was 1970, (more…)

 
Thanks H Dickens for this flickr photo. 

I have recently written about how the current volatile market has created many windows of opportunity for buyers and sellers in the real estate markets. Yet, I had not realized how the current market volatility had also created an opportunity for inner family wealth transfer. I just read an article in the Wall Street Journal, titled With Shares Tanking Think About Gifting, which illustrates this situation. When investments are down and the value is less, then there may be an opportunity to transfer these assets to family with the strategy of building wealth once the market recovers. Many wealth advisors are also speculating that congress will reform the gift and estate tax system. When you put all of this together the current volatile market may be an opportunity to pass an estate onto the next generation at a reduced cost.

This year I have had several clients take action to pass property and other assets to their children. There is great opportunity in change if you have a competent team to help you assess the different possibilities and then advise you on the prudent actions to fulfill on your ambitions. 
 

None are safe.  Today it’s the car company, tomorrow the hospital and very soon the States and Cities will begin to renege on their pension promises.
November 10, 2008
Some G.M. Retirees Are in a Health Care Squeeze

By NICK BUNKLEY
DETROIT — General Motors is living on borrowed time, spending more than $2 billion in cash a month and lobbying for a government bailout to keep it out of bankruptcy.

And for about 100,000 of its white-collar retirees, time is about to run out on G.M.’s gold-plated medical benefits.

To conserve its dwindling cash reserves, G.M. is eliminating lifetime health care coverage for its legions of retirees at the end of this year, leaving people like Ken Hewitt to fend for themselves in deciding how to cover their doctor’s bills and prescription drug costs. (more…)

November 8, 2008
YOUR MONEY - New York Times
Is It Time to Have a Money Talk, Child to Parent?

By RON LIEBER
The federal bailouts of the last few months raise a variety of thorny questions, including who benefits at whose expense. But the question that hits home the hardest is the one that isn’t getting enough discussion around kitchen tables:

Will we have to bail out our own family members?

It’s started coming up in asides I hear from middle-aged friends who are concerned about their parents ending up in the poorhouse. And I see it in e-mail from people in their 60s and 70s, who can’t believe their offspring got mixed up in funny mortgages and wallets full of credit cards.

But often, the grown children don’t know precisely how the devastation in the markets has affected their parents’ portfolio, and the older parents don’t know what their children’s monthly debt payments are.

None of this is fun to think about. And if you dare to open your mouth about it, relatives may take offense. Silence, however, is good for no one. You don’t want to be blindsided months or years from now by a family member in desperate straits, nor do you want to worry yourself sick when there’s no reason to.

So this week, please consider starting an intergenerational conversation about money, perhaps in writing, which might reduce the risk of a knee-jerk response that leads to an argument. I’ve suggested an approach below, for an e-mail message or letter to a parent and a possible reply, though you could easily tweak it if you’re initiating the chat with your child. (more…)

There is no doubt that we are in turbulent financial times. Yet in volatile markets are opportunities. Katie and I are committed to producing a competitive advantage for our clients to achieve their financial and lifestyle goals. We do this by designing effective strategies for our clients, taking into account their specific situation, wherewithal and ambition. With our team of financial, investment, mortgage, insurance and tax advisors, we are able to help our clients take advantage of the unique opportunities made possible by the current real estate market.

We believe the main stream media has overemphasized the threats and tragic stories of owning real estate. This is not a big surprise since the media’s job is to sell news and entertainment. Therefore sensationalism works. But in this approach the media disregards any financial benefit associated with real estate and masks the new opportunities that are now possible for buyers and sellers. For this reason, we thought it would be helpful to share with you some of our recent transactions that demonstrate our ability to create and implement strategic plans that opened major opportunities for our clients.

• Last month one of our clients was able to purchase a million dollar home in San Francisco with a 15% down payment. (If you are wondering, being able to buy at that price range with 15% down in this market is just short of a miracle.) Our client was able to finance the purchase with a 1st mortgage for approximately 75% of the purchase price at an interest rate of 5.5%. For the balance, we were able to get him a home equity line of credit (HELOC) at prime minus 1%! This is a concrete example of the superior help provided by our financial & mortgage provider who was able to accomplish this in a market where the common media is saying mortgage rates are close to 7% and HELOC’s do not exist.

• Other clients of ours recently acquired their dream home a $500,000 home on 5 acres with an apricot orchard. This same home would have sold for close to $800,000 in 2005. We put together a strategy where they could sell their current home or rent it and keep it as an investment. After exploring selling their current residence they decided to rent it instead. This has increased their investment capacity while they have acquired a replacement property at an opportune time when values of real property are artificially low due to the liquidity crisis.

• This month we formulated an uncommon strategy for one of our clients who was looking to move into a larger home to better care for his family. We found that the San Francisco market he currently lived in was not nearly as affected as the market he wanted to move to in Concord. We sold his 1936, 1,450 square foot home in San Francisco for $566 per square foot and helped him buy a brand new 3,856 square foot home in Concord for $272 per square foot. The 2 properties are only about 30 miles from one another, but have a difference in cost of $294 per square foot. This strategy helped our client transition to a new home with a significant profit. Volatility means there is more risk in the marketplace. It also means there is more opportunity. In order to take advantage of these opportunities, we have found that it is necessary to have a powerful team of financial, investment, tax and real estate advisors. We and our network of professionals have demonstrated our ability to help our clients to take advantage of the current market.

We thank all of our clients that have transacted with us in the past and we look forward to helping many of you in the future. Please contact us if you need assistance or if you know of anyone else who may need our services. It would be our pleasure to assist them with the same care as we have provided you.