Our Current Thoughts on the Market:
At a recent event, I quipped that the events in the financial markets during the week of September 15th reminded me of the movie “Journey to the Center of the Earth,” with financial services companies gravitating to the federal government for guarantees and bailouts. I should have said that those events felt more like hurricane Ike.
Like a hurricane, the housing crisis is circling around the entire financial services industry. The federal government’s levies have been breached, and it has ordered an evacuation of the investment banking industry to the safety of commercial banks (good riddance to the investment banking model). There is only scattered electricity (exports) keeping the lights on (the economy), and curfews (bans on short selling) have been established to prevent looting. Last Thursday (9/18) and Friday (9/19), the sunny eye of the hurricane passed over the market with all the short sellers covering their positions. We now have to face the backlash of the hurricane eye wall. We suspect this will be a category 3, with a category 5 being an economic depression. We consider the stock market decline, when the internet bubble collapsed, also a category 3. The events starting 9/15/08 may have an equivalent impact to the economy as the 9/11/2001 tragedy.
Like all hurricanes, this too will pass! Unfortunately, we have to deal with FEMA (Congress) to coordinate the clean up and repair. We anticipate a lot of rain (increased unemployment) and flooding (a recession). What remains uncertain is the length and breadth of the recession. We won’t know that until FEMA (Congress) passes legislation, to fund the purchase of the bad loans from the banks (similar to the Savings and Loan crisis in the late 80s and early 90s). We do know that having insurance at this time is a good feeling and the only insurance available for investors is portfolio diversification and an overweight to money market funds. Having portfolio managers with deep experience, good research skills, the ability to constantly assess risk, and who are trained not to panic, also helps.
U.S. financial assets are cheap by historic standards. Some investors are starting to buy assets at extremely discounted values (i.e. Warren Buffet buying 10% of Goldman Sachs). We have significant cash in your money market funds which the U.S. Treasury now says are insured (see insert regarding FDIC insurance for your other bank accounts). We are ready to invest to achieve your long-term financial planning goals when we have a conviction (using the hurricane analogy) that sun will shine for more than a day and that the flood waters will start to recede.
D3 Business Update for Clients:
As always, give us a call if you have any questions or concerns. We’re including our client satisfaction survey, which lists potential dates for the D3 client appreciation dinner. Please fill this out and return it. As always, THANK YOU for your confidence in us!
Donald D. Duncan MBA CPA/PFS CFA™ CFP® Nancy Lencioni & Becky Connery
Peter Marchese MBA CFA™ Adam Glassberg
Michael Meyers MBA CFP®
In the wake of turbulence in the financial markets, many people are reviewing the legal protections available for assets held by banks. Here are some of the protections available.
Bank deposit accounts Generally, deposit accounts at banks insured by the Federal Deposit Insurance Corporation (FDIC) are insured up to $100,000 per depositor per bank. FDIC insurance covers checking, NOW, and savings accounts; money market deposit accounts; and time deposits, such as certificates of deposit (CDs). It does not cover money market mutual funds, stocks, bonds, mutual funds, life insurance policies, annuities, or other securities, even if they were bought through an FDIC-insured bank.
You cannot increase your protection simply by opening more than one account in your name at the same bank (for example, splitting the money between a checking and a savings account, or opening accounts at different branches of the same bank). However, deposits that represent different categories of ownership may be independently insured. For example, a joint account qualifies for up to $100,000 of coverage for each person named as a joint owner of the account. That coverage is in addition to the $100,000 maximum coverage for individual accounts for each person. For example, a married couple with three accounts at one bank–they each have $100,000 in an individual account, and they also have $200,000 in a joint account–would qualify for FDIC coverage of the entire $400,000.
The limit on the amount protected in one or more retirement accounts is $250,000; this is separate from the $100,000 coverage of individual accounts. (Remember, however, that FDIC insurance applies only to deposit accounts, not to any securities held in an IRA or other retirement account.)
Your bank may have additional protection. For example, in some states, a state-chartered savings bank must carry additional insurance to cover potential losses beyond the FDIC limits. Some banks also may participate in the Certificate of Deposit Account Registry Service (CDARS), which enables a bank to spread large CD deposits among multiple banks while keeping the amount at each individual bank, including itself, within FDIC insurance limits.
An online calculator available at the FDIC’s web site (www.fdic.gov/edie/) can help you estimate the total FDIC coverage on your deposit accounts.