Free Online Education

Interested in taking some college-level courses but not concerned about earning college credits? Sure you could sneak into Econ 101 and hope the professor doesn't do a role call. But there's a much easier way. Let me introduce you to the OpenCourseWare Consortium.

According to their site, The OpenCourseWare Consortium:

... is a collaboration of more than 200 higher education institutions and associated organizations from around the world creating a broad and deep body of open educational content using a shared model. The mission of the OpenCourseWare Consortium is to advance education and empower people worldwide through opencourseware.

The site goes on to say, "An OpenCourseWare is a free and open digital publication of high quality educational materials, organized as courses." So essentially, it's free online learning supported by major colleges and universities.

As Internet delivery has become a more accepted source of higher education, it's not surprising that attendance has been gradually increasing. The recent recession has caused more people to consider this option as well. According to this piece from the WSJ, some classes have seen as much as a 30% increase.

I've had one experience with online learning and it was quite good. In 2004, I took a basic accounting class from an accredited institution. I felt the content was good, as was the attention I received from the teacher. I'm not sure how the paid class I took compares with OCW, but since it's free, your time is all you have to lose if you're inclined to try it.

Update: To compound the savings of this idea, be sure to try the various discount text book options online. Bookswim has a text book rental program that looks intriguing (though we haven't used it).

Posted by Matthew at 3:07 PM | TrackBack
Category(s): College, Family Finances

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Bernanke - Take II

Earlier this week, President Obama made it official and reappointed Ben Bernanke for a second term as Federal Reserve Chairman. This wasn't a big surprise and was viewed by many as the safe choice. It would have been tough to switch to a new leader while we're still very much in the midst of volatile economic times.

That's not to say, however, that everyone loves the decision. Bernanke is getting mostly positive reviews from economists for his performance during the financial crisis. But he's also drawing his fair share of criticism. Here's a sampling.

Robert Samuelson thinks that while Bernanke made some significant mistakes, he got it mostly right:

Here is where Bernanke distinguished himself. A student of the Great Depression, and especially of the disastrous effects of bank failures, he went well beyond the standard response of lowering interest rates (the overnight Fed funds rate dropped effectively to zero by December). The Fed created a dizzying array of "liquidity facilities" that substituted more than $1 trillion of Fed credit for retreating private credit. The Fed supported markets for mortgages, money market funds, commercial paper, auto loans and student loans. The strategy was, as [In Fed We Trust author David] Wessel says, to do "whatever it takes" to avoid a complete loss of credit and confidence — a loss causing continuous drops in spending and asset prices (for stocks, bonds, homes) and culminating in depression.

Although there were other actors, the Fed's interventions were decisive in halting the panic. It is an open question whether any other Fed chairman — someone without Bernanke's detailed knowledge of the Depression — would have been so bold in supporting credit markets. Moreover, Bernanke's approach inspired similar moves abroad. After the 1997-98 Asian financial crisis, Time magazine ran a cover story called "The Committee to Save the World" featuring Summers, then-Fed Chairman Alan Greenspan and then-Treasury Secretary Robert Rubin. An updated version might have Bernanke on the cover under the headline: "The Man Who Saved the World."

The Wall Street Journal isn't quite as generous. In their estimation, Bernanke deserves credit for what was done after the crisis blew up. But he also deserves criticism for being largely responsible for creating the problem in the first place:

This commodity spike weakened the economy further in 2008 and contributed to the failures that struck after Labor Day. As economists Anna Schwartz and John Taylor have noted, Mr. Bernanke misdiagnosed as a liquidity crisis what was principally a bank solvency problem. This is one reason his easing did little to stem the panic throughout 2007 and 2008. A steadier monetary hand might well have avoided the autumn panic. But the Bernanke Fed was taken as much by surprise as Lehman Brothers.

All of this history is relevant because the Fed is now back where it was in 2003, albeit with a weaker recovery and more political complications. The test of Mr. Bernanke's second four years will be whether he has the wisdom and political courage to roll back his epic monetary easing before it creates the next set of problems or a new inflation. Everyone loves a central banker when he's flooding the economy with money, at least while the mania lasts. But Mr. Bernanke will sooner or later have to say no to the political class. This is something he has never done, and already there are signs in China and the edges of the dollar bloc of new asset bubbles.

But those criticisms pale when compared to the harsh words John Hussman has for Bernanke in his latest commentary:

Ben Bernanke (like Tim Geithner and his predecessor Hank Paulson), shows no hesitation in diverting the real resources of the American public to defend and compensate the bondholders of mismanaged financial companies who made reckless loans and who should have (and equally important, could have) been expected to write down principal or swap debt for equity as an alternative to receivership. This is not decisiveness. It is timidity and poor stewardship. Worse, the underlying problems are not healed — only band-aided temporarily by a flood of public money.

Unfortunately, the resources used in the recent bailout were not just free money tossed out of a helicopter. Only a partial-equilibrium economist thinks that way. No, this was an allocation of trillions of dollars of real resources that could be spent improving access of poor families to health care, finding cures for life-changing diseases, providing better education, and reversing the crowding-out of productive private investment. A public servant willing to act this carelessly with the resources entrusted to him, and so strongly in defense of fellow bankers, frankly does not deserve the job. Most likely, we will face the same credit issues a few quarters from now, given that the lull in the adjustable-rate reset schedule is near its end. We continue to expect a fresh acceleration of credit losses as we enter 2010. It would be best if we faced these challenges with more thoughtful leadership.

It's good to realize that judging the performance of Fed Chairmen is difficult to do accurately in the moment. Volcker was hated when he was breaking the back of inflation in the early 80s, as it involved brutally painful interest rate hikes. But today he is widely lauded as one of the best Fed chiefs we've ever had. On the opposite end of the spectrum, Greenspan was widely hailed as "The Maestro" — a supposed genius who left the job with great popularity. Yet just a few short years later, many hold him responsible as one of the prime culprits of the financial crisis.

Time will tell how Bernanke is remembered. How he deals in his second term with the inflation threat created during his first term will likely go a long way toward writing the rest of the story.

Posted by Mark at 4:06 PM | TrackBack
Category(s): Economy, Inflation Watch

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When investing turns into gambling

USA Today ran a story last week about recent trading in old GM stock. General Motors, of course, declared bankruptcy while saddled with huge amounts of outstanding debt, making it virtually certain that their old stock will wind up being completely worthless. So why do millions of shares continue to change hands each day?

There are two reasons that I can see.

One is ignorance: some unfortunate people apparently think what they are trading is new GM stock. Sadly, these people are misinformed. If anyone reading this is among this crowd, please understand that there is no new GM stock available yet. If you own or are trading GM stock, it's the old stuff, and it's going to be completely worthless at some point in the not-too-distant future.

The second reason so many shares of GM continue to change hands is simple greed. Knowing that an asset is eventually going to zero, yet jumping in and out of it in an effort to ride sharp price movements, is no longer investing. It's gambling.

Investing is when you put your money to work in some productive enterprise with the hope of earning a return. Gambling is when you put money at risk in a game of chance with the hope of winning a quick profit. Note, these are my off-the-top-of-my-head definitions, nothing official. But they sum up the difference pretty well, I think.

Granted, there are times when the lines between investing - speculating - gambling can seem to get a little gray, leading some Christian investors to question if there's really a clear difference between them. Despite the fact that some investing involves luck, and some gambling involves skill, I'd still argue there is still a sharp distinction between the two activities. On one side is the GM stock investor of a decade, or even a year, ago. On the other is the GM stock trader of last week. Same stock. Big difference in intent and outlook.

Posted by Mark at 4:07 PM | TrackBack
Category(s): Investing Principles

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September issue of SMI just released

The September 2009 issue of the SMI newsletter has just been posted to the website.

Readers following our Fund Upgrading strategy were advised of four fund changes to make this month. Upgrading is now up over 50% from the March 9 lows.

This month, Austin concludes his two-part feature on potential future dollar weakness by laying out a road map for investing in gold. SMI web members can check out all the details in this month's cover article.

Other topics include investing in leveraged ETFs, EE Bonds, how to choose the right Medicare plan coverage, and much more.

Not a web member yet? Today's a great day to join and instantly gain access to all of the new September content and mutual fund changes!

Posted by Mark at 2:51 PM | TrackBack
Category(s): SMI General Announcements

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The next bailout

Fortune's senior editor at large, Allan Sloan, says the next government bailout will be for a familiar program: Social Security. And if you thought AIG was bad, you haven't seen anything yet.

Many people have painted grim portraits of this program's future. Few have ever made the case that it could go cash-flow negative as early as this year. Sloan explains how that could very well be the case.

Sloan does an excellent job personalizing the way Social Security works — and doesn't work — through the use of his own example. It's a solid job of taking subjects most people really don't understand (like the Social Security "lockbox") and making them simple enough to grasp.

But more than just banging the drum of alarm, Sloan also offers several reasonable changes that would go a long way towards putting the program on a more secure footing. It's worth a read, if for no other reason than to prepare yourself to really understand this crucial issue that President Obama has promised is next on the reform agenda after the health care battle ends.

Update: Related item of interest — a new Rasmussen poll finds that "49% of U.S. voters say working Americans should be allowed to opt out of Social Security and provide for their own retirement planning."

Posted by Mark at 4:16 PM | TrackBack
Category(s): Retirement

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Do you feel protected yet?

Today, the first provisions of the new Credit CARD Act — designed to protect consumers from the dirty tricks of credit card issuers — kick in. Unfortunately, as is so often the case with federal legislation, the law of unintended consequences appears to have kicked in already.

As Chuck Jaffe points out, this law that was supposed to make things better for consumers is, in many cases making things worse. How? In a nutshell, by making it harder for credit card companies to tighten the screws on specific card holders in response to bad credit behavior, the new act has pushed the companies to simply start treating everyone as if they are a bad credit risk.

Used to have a low fixed-rate card? Now that the card companies can't promptly jack up the rate if your credit profile starts looking squirrelly, they're simply converting most everybody's fixed-rate cards into variable rate cards (which don't face the same provision). Didn't like the old "universal default" clause issuers used to raise rates on one card when another card's payment was late or missed? Then you'll love the new informal "universal cutoff" policy the companies have replaced it with by amending their agreements in advance of the new CARD act.

"Everybody is pretty squeamish about risk right now, and card issuers are mitigating that risk by closing unused credit lines, cutting credit lines, changing terms on customers whose credit record has changed, and by raising interest rates while they still can," said Greg McBride, senior financial analyst for BankRate.com. "In many, many cases, they are doing this to consumers who have not set a foot wrong, people who have paid their balances every month, who don't have big balances, or who maybe haven't used their card in a while."

He added: "Once upon a time — not so long ago — these were the best customers a credit-card issuer could have, the ones they were giving big incentives to get; now, they are following a 'Ready! Fire! Aim!' approach and hurting people who were not the problem and who likely would never be the problem."

Many of these changes have happened over the past few months as card issuers prepared for the new regulations. But many companies continue to make changes to their card terms, so now is definitely a time to actually read any changes about your cards that might be included with your statement or mailed to you separately. What you don't know can certainly hurt you in this department.

For instance, the Wall Street Journal reports today that Citigroup is initiating new annual fees on some of its cards. If you've got good credit and aren't getting some "extra" benefits that you value highly, there's no reason to put up with an annual fee being slapped on your account. You have two months to opt out, paying off your current balance under your original terms before closing the account. Use the time to line up a replacement card and send a clear message that you're not going to pay unnecessary fees. You can be sure the other card companies are watching closely to see how this brazen maneuver is received.

Of course, the best approach is to quit using credit cards altogether. You won't have to worry about these changes in terms, and you'll almost certainly find you spend less. (Many studies have shown that consumers spend more — typically 15-30% more — when paying with plastic rather than cash.) But if you're not willing to quit the credit card habit altogether, at least be sure you keep a close eye on your terms and statements over the next several months.

Update: Mary Hunt analyzes a different aspect of the new CARD Act — its implications for young adults (students) and their parents. If you have a child in college, or will soon, you need to read this.

Posted by Mark at 10:42 AM | TrackBack
Category(s): Family Finances

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Backlash against AARP; seniors quitting, moving membership

The New York Times reports on "a mini-mutiny at AARP" — the older-Americans advocacy group that has angered many of its members by supporting an overhaul of the U.S. health care system.

Between 50,000 and 60,000 AARP members [out of 40 million] have left the organization since July 1, a spokesman for the group said.

Many of the defectors have destroyed their AARP cards and are switching to a relatively new group called American Seniors Association, which bills itself as the conservative alternative to AARP....

In explaining A.S.A.'s opposition to a health care overhaul, Stuart Barton, the group's president, wrote on Monday that "a government-run plan would limit patient-doctor choice," that "an employer mandate would kill jobs and lower wages," and that a new plan would require higher taxes and Medicare cuts that hurts baby boomers and seniors.

The A.S.A. is appealing directly to disaffected AARP members, urging them to cut or tear up their AARP cards and join A.S.A. at a discount....

Jim Dau, a spokesman for AARP, said in an interview that while AARP took such rebellions seriously, it had endured them before. In 2003, it lost 70,000 to 80,000 members over its support for a Medicare prescription drug program. In 2005, the organization lost 8,000 to 10,000 members for opposing efforts to privatize Social Security....

In SMI's September 2007 issue, we highlighted six organizations for seniors that are alternatives to AARP.

Posted by Joseph at 9:30 AM | TrackBack
Category(s): Health Care, Retirement

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Swaptree.com... ebay without money and hassle

So you're ready for book two of a three-book trilogy but don't want to put book one on the shelf just to gather dust. You could always sell it on ebay and get a little money for it, right? But then you have to list it, wait for the auction to end, wait for the payment to hit your account, mail the book, transfer the payment out of PayPal, give buyer feedback, solicit seller feedback, and one long week later you're done. It's a lot of work for a little money.

While something can be better than nothing, what if you could simply mail book one to someone in exchange for book two from someone else? That's the idea behind Swaptree.com. This free service allows you to list the books, CDs, DVDs, and video games you're ready to get rid of by simply entering the UPC and the condition of the item. Then for each item you list, your personal library of items you can get will grow. To start a trade, simply select "Get Now" and the process begins.

You can also start a list of items you want by searching for each item manually or importing your list from another list or website, including your Amazon Wishlist. Once you've got an item on your "I want" list, Swaptree starts looking around for what it will take to get it.

Once a trade deal is found or initiated, you are emailed the recipient's address. So the only thing you'll pay for is the postage to mail the item. There's no listing fee, PayPal transaction fee, membership fee, nothing. And the site's clean, intuitive interface keeps the whole process relatively painless (a far cry from how involved ebay can be).

Swaptree won't replace ebay. But it is a convenient alternative likely to keep some money in your pocket and some dust off your shelf.

Posted by Matthew at 4:22 PM | TrackBack
Category(s): Family Finances

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Could your house soon be "underwater"?

"How high's the water, mama?" Johnny Cash sang in "Five Feet High and Rising."

A report from real-estate tracking firm, Zillow.com offers an answer: it's getting higher. Zillow's second-quarter numbers, reported by Bloomberg, show that almost one-fourth of U.S. mortgage holders were "underwater" — i.e., the balance on their mortgage exceeded the value of the house.

Just last week, a study from Deutsche Bank projected that close to half of the nation's 52 million mortgage borrowers could be "underwater" by early 2011. (That conclusion is disputed here.)

Could the rising water put you under? That largely depends on how large a down payment you made, what kind of loan you chose, and how long you've been in your house.

But even if you were wise in all those things, you still might get hit because of what SmartMoney.com calls "the broad and persistent decline in home values."

SmartMoney offers "four warning signs" that the water around you might be rising:

Foreclosures in your neighborhood.... As homes go into foreclosure, they create a domino effect, lowering home values throughout a neighborhood in a cascade beyond homeowners' control.

Homes lingering on the market.... Compare the time it took for homes to sell in your neighborhood three years ago vs. today; if it's taking weeks or months longer to sell, the prices homes can fetch are dropping, [says Mark Zandi, chief economist at Moody's Economy.com].

Increasing unemployment. In most cases, the cities where homes have lost the most value during the past year also possess the highest unemployment rates.

Homes in disrepair. Dented siding, peeling paint and broken porches could be signs that neighbors are having trouble making ends meet and can no longer pay to take care of their home, Zandi says. Or they may have gotten an appraisal and discovered their homes have dropped in value and are no longer worth the cost of repairs.

Fortunately, as SmartMoney notes, being underwater has relatively little effect on homeowners who don't need to sell right now (or qualify for a loan). The article quotes Zillow spokeswoman Amy Bohutinsky: "Individuals who are staying put for at least the next five to seven years will likely recoup the lost value of their home."

Our August Level 1 article offers guidelines for those who are already underwater and are no longer able keep up with their mortgage payments.

Posted by Joseph at 9:23 AM | TrackBack
Category(s): Economy

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A surprising skeptic on "cap and trade" — the concept's originator

In early July we pointed out some of the economic ramifications of the proposed "cap and trade" legislation. Recently, concerrns about the effectiveness of "cap and trade" have arisen from an unlikely source — the economists who came up with the idea originally. From today's WSJ:

In the 1960s, a University of Wisconsin graduate student named Thomas Crocker came up with a novel solution for environmental problems: cap emissions of pollutants and then let firms trade permits that allow them to pollute within those limits.

Now legislation using cap-and-trade to limit greenhouse gases is working its way through Congress and could become the law of the land. But Mr. Crocker and other pioneers of the concept are doubtful about its chances of success. They aren't abandoning efforts to curb emissions. But they are tiptoeing away from an idea they devised decades ago, doubting it can work on the grand scale now envisioned. [More...]

Posted by Austin at 11:08 AM | TrackBack
Category(s): Economy, Taxes

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5 tips for dealing with a home-equity-line freeze or reduction

In the April issue of SMI, we reported that even homeowners "with good payment records and strong equity levels in their homes" have had their home equity credit lines frozen, reduced, or closed during the economic downturn. "The fine print gives banks that option," we noted.

Last week, the Federal Reserve Board issued an updated five-point guide on what to do if your bank exercises its option to alter your credit-line agreement.

Read the Fed's five tips here — or download them in a PDF file.

Posted by Joseph at 2:27 PM | TrackBack
Category(s): Family Finances

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Federal deficit: a 10-fold increase in just 2 years — and growing

In advance of tomorrow's release of the latest federal deficit numbers, USA Today reports on what we're likely to see.

Previous estimates from White House and Congressional number crunchers have projected the deficit for 2009 in $1.7-$1.8 trillion range. (To put those estimates in perspective, the final deficit in 2007, just two years ago, was $161 billion — about 10 percent the size of current projections.)

But wait. The USA Today story suggests the numbers to be released tomorrow will show a deficit likely to grow even larger than previous estimates.

"This is going to be a very depressing outlook," predicts former CBO director Douglas Holtz-Eakin....

While revenue continues to decline, government spending is rising as a result of the $787 billion economic stimulus plan passed six months ago. Stimulus spending will increase in the next few months, says Treasury chief economist Alan Krueger.

(You could say that Congress is spending like drunken sailors, but that might not be fair to inebriated seamen.)

More from USA Today:

The recession, now in its postwar-record 21st month, has dealt a worse blow to the budget than the administration expected:

• The economy is set to shrink by 2.6% this year, more than twice what the White House predicted in February and May....
• Unemployment, projected at 8.1% this year by the White House, was 9.4% in July. Spending for jobless benefits, Medicaid and Medicare has soared as people have lost work and health insurance. Jobless benefits are costing more than twice what was spent last year....

Sen. Judd Gregg, R-N.H., top Republican on the Senate Budget Committee, says having a deficit at "previously unthinkable levels...shows an incredible lack of fiscal responsibility."

The story also notes that the "current $11.7 trillion debt already equals about $38,500 for every U.S. resident."

We're pretty optimistic folks at SMI, but it is difficult to imagine that this "incredible lack of fiscal responsibility" is in the best long-term interest of the country.

Is there anything you and I can do, since we're more than a year away from the next election? Yes, at least two things: 1) Pray, 2) respectfully give your members of Congress an earful. Both are appropriate aspects of responsible stewardship.

Posted by Joseph at 10:55 AM | TrackBack
Category(s): Economy

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Fraud "not uncommon" in 401(k) hardship withdrawals

One result of the rocky economy has been a sharp rise in requests for "hardship distributions" from 401(k) retirement plans.

Employers aren't required by law to allow for hardship distributions, but many do — or at least they have until now.

That might change. The publication Workforce Management reports that hardship-withdrawal fraud (committed by employees who want to avoid penalties for early withdrawals) is "not uncommon."

Last week, home-shopping retailer QVC suspended more than 200 employees at its North Carolina distribution plant, pending an investigation of hardship-withdrawal fraud.

From Workforce Management:

In an August 4 letter to suspended employees, Nick Brecker, vice president total rewards at QVC, said that his team...along with the company’s 401(k) administrator, Fidelity Investments, [had reviewed hardship applications] and determined that some applications "may not contain complete or valid supporting documentation..."

A posting on the web site of a North Carolina TV station alleges that multiple employees used the same fake documents (related to such things as forecloses and medical issues) to support their claims, raising a red flag for QVC and Fidelity.

QVC says suspended employees found to be innocent will be reimbursed for workdays missed. Employees deemed to have committed fraud could be fired and face legal action.

Earlier this year, SMI reported on a legal option for getting money out of 401(k) while avoiding an early withdrawal penalty.

Posted by Joseph at 2:23 PM | TrackBack
Category(s): Retirement

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Enlightening interview with Dave Ramsey

Christian radio's great conversationalist Chris Fabry (of Moody Radio's Chris Fabry Live) interviewed popular radio talk show host (and Fox Business TV host) Dave Ramsey last week.

Dave is a follower of Christ who was introduced to Christian financial teaching through the ministry of the late Larry Burkett. Today, Dave is one of the most influential financial teachers (Christian or non) in the U.S.

(Larry Burkett was also a catalyst in the launch of Sound Mind Investing.)

You can listen to the Fabry/Ramsey conversation here — look for the "Listen now" link in the right column. The interview begins about 12 minutes into the program.

Posted by Joseph at 3:23 PM | TrackBack
Category(s): Family Finances

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Generosity toward the poor

A post yesterday by Christian financial planner Jason Topp at the Redeeming Riches blog asks the always difficult question: "Should you give money to a homeless person?"

All of us can think of reasons why giving money to the homeless might not be a good idea. It might be frittered away on alcohol or drugs, for example. Still, I recall what my longtime boss Larry Burkett used to say: "As Christians, if we are going to err, we should err on the side of compassion."

Indeed, compassion (literally "suffering with") will likely require more than just giving money. It will require something of us relationally, not just financially.

I haven't checked them all out, but according to Christian poverty fighter Amy L. Sherman, Scripture has more than 400 verses that call us to imitate God's compassion for the poor and vulnerable. He "suffered with" when He "became flesh and made his dwelling among us" (John 1:14).

Far too often, our genuine desire to be generous manifests itself in transactional benevolence when what truly is needed is transformational ministry. Amy Sherman puts it bluntly:

[C]ommodified, short-term, relief-oriented "benevolence" is far too easy for givers and far too inadequate for receivers. It allows givers to remain distant from real need. They get to feel good about giving, without getting their hands dirty or their Daytimers interrupted. Recipients are viewed only in terms of their needs, and never in terms of their assets. And the charity supplied provides just a Band-Aid, no genuine long-term strategy.

Our typical benevolence allows us to help the poor, but not to know them. It enables them to manage their poverty a little better, but not to escape it.

Ouch.

There are no quick-and-easy answers here. But the difficulty of the questions shouldn't keep us from wrestling with them.

I was glad to learn today, via a book review in WORLD magazine, that Moody Publishers has just released a book on this topic. The authors, Steve Corbett and Brian Fikkert, jointly head the Chalmers Center for Economic Development at Georgia's Covenant College.

The book's title is, When Helping Hurts: How to Alleviate Poverty Without Hurting the Poor — and Yourself. Here's an excerpt:

[North American Christians] are the richest people ever to walk the face of the earth. Period. Yet, most of us live as though there is nothing terribly wrong in the world. We attend our kids' soccer games, pursue our careers, and take beach vacations while 40 percent of the world's inhabitants struggle just to eat every day. And in our own backyards, the homeless, those residing in ghettos, and a wave of immigrants live in a world outside the economic and social mainstream of North America.

We do not necessarily need to feel guilty about our wealth. But we do need to get up every morning with a deep sense that something is terribly wrong with the world and yearn and strive to do something about it.

That yearning and striving needs to be (and can be) channeled into productive ministry that actually moves toward alleviating poverty, say Corbett and Fikkert.

I encourage you to read When Helping Hurts — and ask the Lord how to put its principles into practice in your own church and community. I will.

Also, if you live in the Richmond, Virginia area, you may want to go hear Amy Sherman. She will be speaking later this month (along with Ken Myers of the Mars Hill Audio Journal) at the Richmond Center for Christian Study.

Should you give money to a homeless person? Maybe. Maybe not. Just don't ignore him.

Posted by Joseph at 3:28 PM | TrackBack
Category(s): Giving and Stewardship

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The new kid on the block in the municipal-bond market

Tucked in among the 400-plus pages of the "stimulus" act passed earlier this year (see Part V, Sec. 1531) is the authorization for Build America Bonds, a new kind of taxable municipal bond subsidized by the federal government. (Right now, the authorization is for 2009 and 2010 only.)

Billions of dollars worth these bonds have already been issued and, due to the subsidy, most are paying higher interest than traditional municipal bonds. Although that interest may be free from state and local taxation, the bondholder must pay federal tax (that's not the case with traditional munis).

The higher interest may be attractive, but a primer on Build America Bonds issued by the Securities Industry and Financial Markets Association suggests that BABs aren't really appropriate for most individual investors.

Individual investors who might be considering these bonds should understand that Build America Bonds are new and complex instruments, are not conventional municipal bonds and are not as liquid as municipal bonds. These bonds might be considered for part of an individual investor's buy and hold strategy if they hold bonds for maturities of 20 years and longer....

Individual investors should consult their financial or investment advisors for more information to determine whether these investments are appropriate for their particular circumstances.

Is there a mutual fund that invests strictly in Build America Bonds? No, not so far.

BABs have had a strong showing since their introduction just a few months ago, with more than $17 billion worth already sold, according to Bloomberg. Texas, California, and New Jersey had issued more than $1 billion each, as of June 30.

Taking a larger view of the municipal-bond landscape, George Mason University professor John E. Petersen thinks BABs have the potential to ultimately kill the traditional tax-exempt bond market. He explains why in a recent article in Governing magazine.

Posted by Joseph at 4:57 PM | TrackBack
Category(s): Current Market Events

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Sector Rotation update

There is no change to our Sector Rotation recommendation this month.

Our current recommendation has done very well for us in the three months we've owned it, gaining 20.1%. That's considerably better than the 13.4% gain of the Wilshire 5000 ("the market") since we bought the fund on May 1.

To learn about the Sector Rotation strategy and its incredible track record, become an SMI web member today!

Posted by Mark at 1:46 PM | TrackBack
Category(s): SMI Advanced Strategies

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