With the market going the way how it has been these days, many thoughts have gone through my mind. The equity market is down, our government is stepping in the capital markets funding financial institutions as well as individuals and the list goes on and on, the hedge fund and private equity industry has posted their lowest returns in 10 years, and even the global market is taking a substantial hit with the nikkei reaching it's 26 year low.
The secondary market for life insurance recently started in the late 1990's and is growing rapidly. Life settlement is when an individual sells their life insurance policy for less than face value. A life settlement is the sale to an investor (3rd party) at an amount in excess of the contract's cash surrender value, but less than the death benefit. The good aspect about this investment is that you know the face value that you will receive from the policy, but you do not know the "when" and the "how". Since you are betting on the life expectancy of the individual who sold his/her life insurance, you do not know when he/she is going to die and you do not know how much you will make or lose in this process.
However, especially with today's volatile market and with all the negative news, many savy investors have ventured into the secondary market for life settlement funds as another source of investment. These investors realized that if they bought these polices for significantly more than the insurance company's cash surrender value and paid the premiums, the policy payout amount at the death of the insured individual should result in a profitable return. Most insurance companies do not default on paying out death benefits. Also, regardless of the market conditions, life settlement policies appreciates in value every year since the older the insurer is, the closer the investor is to receiving his payment. This seems like a viable source of investment in today's market and seems to be growing more in popularity. Life settlement investments started roughly 10 years ago and is expected to grow 10 fold to $160 billion within the next several years. It is something to think about while our 401(k) is losing double digits every quarter and our portfolio is rapidly decelerating as well- that is if the brokerage house hasn't closed our account yet.
Tuesday, October 28, 2008
Monday, October 20, 2008
Should the Governement step in?
Given the economy of how it is, the government has stepped in several times to help stimulate the economy. Earlier this year, the US Governement mailed out almost $100 billion in tax rebate checks which did absolutely nothing for our economy. If anything, the market rapidly declerated more shortly after the summer.
Over the past several weeks, the US Government has been implementing a plan to stimulate our economy. Many financial institutions have sufferred substantial losses from the market turmoil and thus Congress recently approved a $700 billion bailout plan. Of the $700 billion, $250 will be injected into the large banks such as JP Morgan Chase, Citibank, Bank of America and Goldman Sachs in the form of preferred stock. The other half of the money will go into the smaller US banks. The purpose of this is for the government to invest in the US financial institutions which according to them are claiming should not be an expense but rather an investment in the long term. In my opinion, it is the taxpayer who will be paying for this. I oppose the idea of the government stepping in and taking over the capital markets. Over time, the market will turn itself around and the idea of governmental aid will only harm the US economy in the long run. It's amazing how the government stepped in to help out the US businesses- starting with Bear Stearns, Fannie Mae, AIG, the tax rebate check, and now the $700 billion stimulus package. Our government doesn't even have the funds to cover all this. The Central banks only have around $40 billion. That's not enough to cover the FDIC in the banks. That's not even enough to buy Merrill Lynch.
The market will dip more for at least another year and possibly couple of more years until it turns itself around. The government should let the capital markets handle its own crisis.
Over the past several weeks, the US Government has been implementing a plan to stimulate our economy. Many financial institutions have sufferred substantial losses from the market turmoil and thus Congress recently approved a $700 billion bailout plan. Of the $700 billion, $250 will be injected into the large banks such as JP Morgan Chase, Citibank, Bank of America and Goldman Sachs in the form of preferred stock. The other half of the money will go into the smaller US banks. The purpose of this is for the government to invest in the US financial institutions which according to them are claiming should not be an expense but rather an investment in the long term. In my opinion, it is the taxpayer who will be paying for this. I oppose the idea of the government stepping in and taking over the capital markets. Over time, the market will turn itself around and the idea of governmental aid will only harm the US economy in the long run. It's amazing how the government stepped in to help out the US businesses- starting with Bear Stearns, Fannie Mae, AIG, the tax rebate check, and now the $700 billion stimulus package. Our government doesn't even have the funds to cover all this. The Central banks only have around $40 billion. That's not enough to cover the FDIC in the banks. That's not even enough to buy Merrill Lynch.
The market will dip more for at least another year and possibly couple of more years until it turns itself around. The government should let the capital markets handle its own crisis.
Saturday, October 4, 2008
Have we bottomed out?
I've been away on vacation for a couple of weeks, came back home and ended up sick at home for a week and a day at the ER. While I was on vacation, the following major events happened:
1. Lehman filed for Chpt. 11.
2. Merrill Lynch is sold to Bank of America
3. AIG is tanking and received an $85 billion loan from the Fed
4. Washington Mutual - making it the world's largest savings and loans failure in US history.
This is some scary stuff that is happening to our economy. What makes it worse is that I do not think we have bottomed out. 3 of the 5 largest investment houses failed in less than 6 months (Bear, Lehman and Merrill), the largest insurance company (AIG) needed financial assistance and the we had the failure of the biggest savings and loans instituation (WaMu)- all in a matter of 6 months! When events like these occur, there are ripple effects. I was talking with several of my friends who are in the real estate industry and they recently attended a conference about a month ago. They told me that there are still plenty of home out there that are not officially "foreclosed" yet; however, are at the brink of foreclosure. This means there is more to come. I think there is still more downfall left until we have officially bottomed out.
Which is the next investment house to fail? 3 of the 5 largest could not make it. Who's next for 2008 and through 2009? Goldman Sachs? Morgan Stanley?
WaMu failed. Who's next?
Did the Fed take too much on their plate by taking $30 billion of Bear Stearn's securities, Fannie Mae & Freddie Mac, and now by taking ownership and control of AIG by lending up to $85 million?
1. Lehman filed for Chpt. 11.
2. Merrill Lynch is sold to Bank of America
3. AIG is tanking and received an $85 billion loan from the Fed
4. Washington Mutual - making it the world's largest savings and loans failure in US history.
This is some scary stuff that is happening to our economy. What makes it worse is that I do not think we have bottomed out. 3 of the 5 largest investment houses failed in less than 6 months (Bear, Lehman and Merrill), the largest insurance company (AIG) needed financial assistance and the we had the failure of the biggest savings and loans instituation (WaMu)- all in a matter of 6 months! When events like these occur, there are ripple effects. I was talking with several of my friends who are in the real estate industry and they recently attended a conference about a month ago. They told me that there are still plenty of home out there that are not officially "foreclosed" yet; however, are at the brink of foreclosure. This means there is more to come. I think there is still more downfall left until we have officially bottomed out.
Which is the next investment house to fail? 3 of the 5 largest could not make it. Who's next for 2008 and through 2009? Goldman Sachs? Morgan Stanley?
WaMu failed. Who's next?
Did the Fed take too much on their plate by taking $30 billion of Bear Stearn's securities, Fannie Mae & Freddie Mac, and now by taking ownership and control of AIG by lending up to $85 million?
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