Before getting into different insurance products, first of all, we all know that life insurance companies are not non-profit organization. That mere fact simply means that on the average (almost like gambling), you are likely to lose from buying the life insurance than gaining from it (at least financially). However, there are rules, assumptions, and circumstances in every “game”. And if you study in more details, it is possible to at least tilt the winning odds toward your side.

A few years ago, maybe about 8 years ago, I remember that it was a good time to buy into life insurance. But that was in the past. What do I mean by “good time”? At that time, financial communities have a very unrealistic view on forward-going inflation rate which seemed to be low all the time, while the expected gain on financial investment (bonds & equities) seemed to be high. Furthermore, life insurance companies were in the more competition phase. Most of the things were in favor to insurance buyers. But things have changed, and some have made the turning point, especially inflation rate (& its expectation). Nowadays, it’s harder to find a policy that lock you into a lower fixed premium for a more extended period of time than before. If you have friends who bought insurance policy earlier, you could ask them what they are paying. I don’t think you can get the same deal anymore.

That brings the question of the pricing structure of life insurance. What are you paying for exactly? Life insurance if it’s term-only, is essentially a bet against yourself. It’s like buying put option against your stock holdings. It’s an insurance, that can potentially smooth out your finances when things go terribly wrong. If you lock into a policy with a fixed higher premium for a given number of years, the higher premium simply reflects how insurance company factors in the expectation of returns and inflation rate for that period. If you buy the whole life insurance or any other insurance with cash value, it is like buying a term life insurance plus a pension plan investment. Pension plan can also grow tax-free. Insurance however has the added advantage of totally tax-free for the pay-out.

I assume that once two products are combined into one, it becomes much easier for the salesman or the company to muddle with all the numbers and keep more for himself, and keep less for you. I’m sure you’ve heard the pitch from insurance agent such as “the policy will pay for itself after some years”. This is true, but it’s paying for itself because you paid for it. If you like forced saving, you can definitely consider such plans. But consider pension or annuity investment too.

However, all of above products have a characteristics of nice stable return, but FIXED. In other words, they are like bond-like investment for the people who don’t know much about how to invest in stock markets. For the long time readers on this blog, they should know very well that I would only recommend bond-like investment for people who simply have extra money to lose. Inflation going forward should be heightened. Any fixed payout is likely not going to serve your need. Therefore, I would suggest that unless there are other compelling reasons, it may be better to just buy a term life insurance and invest the extra dollars in the stock market for the long term.

There are still many different issues around life insurance. And others may disagree strongly with my outlook on inflation. However, I have tried to give you one opinion from my investing angle into life insurances. The correct answer is highly dependent on individual circumstances. And there are always some people who should have bought certain life insurance, and some who shouldn’t have. Unfortunately, it’s always after-thought. You should try to decide for yourself what you and your family need.

Just as a review on my own investing, I checked the gain & loss on my current open positions. I used a loss of 13%, or $500 as a threshold, and came up with the following list of losses:
-24%
-17.29%
-62.18%
-35.77%
-31.34%
-$807
-$551.75
-28.51%
-$852.49

Many of the above losses results from my venture into mining juniors, and some are just bad timing.

And then I used a gain of 17% as a threshold, and I came up with the following list of gains (not annualized):
17.25%
17.63%
17.95%
18.81%
19.08%
19.19%
19.93%
20.72%
21.90%
22.62%
23.25%
24.00%
26.21%
27.41%
33.55%
33.91%
34.45%
37.91%
38.40%
38.91%
39.40%
40.37%
44.42%
44.57%
46.91%
48.63%
48.76%
50.13%
50.57%
51.21%
55.61%
62.57%
62.91%
68.54%
71.28%
74.44%
87.13%
88.79%
91.60%
95.25%
108.18%
109.24%
114.58%
120.60%
125.07%
133.35%
134.96%
136.51%
147.63%
156.52%
160.05%
229.54%
234.86%

Both lists are not annualized, and not adjusted by paid dividends. However, most of my gains come from the fact that I tend to hold them for an extended period, and a little bit due to a good buying entry point. Of course, investing in precious metals and energy stocks have helped a lot. Most of my stocks, maybe 70+% of them are from the HUI, XAU, OIH, XLE components or related mutual funds. You can simply google them up, and pull up the charts. Most of them had outstanding performance for the past 3 years. However, past performance is no future guarantee. Invest at your own risk.

Not sure if stock markets will reverse at this moment. If it does, the performance numbers may go down quite fast.

Yes, I know the markets are at new highs, and maybe I’m the last person who still hold the view that markets can still correct significantly (maybe by 10% to 15%).

Here are some recent articles that I gathered in no specific order. I suggest that you should read all of them. The markets are like a puzzle (and a moving/changing one). You must put all the pieces together, and attempt to decipher the whole view. I will not go into the details of these articles, but only make a brief comment on them.

1. Upcoming 4th quarter earnings & guidance from Todd Harrison. I consider Todd as one of the astute traders in the current credit crunch (based on his past articles). The 4th quarter guidance may become a point of realization where reality meets hype. Needless to say, I advise extreme caution.
2. Frank Barbera is indicating a potential top in crude oil, while Bob Hoye has gone out stating that the intermediate top in crude oil is/should be in already. Frank Barbera was a little more positive on crude. He believes a more sideways actions from crude due to falling of $US. In any case, what this entails for the the overall market is NOT good. Energy sector has been a leading sector in this bull market. But you can already see it faltering, especially the in the OIH chart (click on the chart, if you can’t see it clearly) which was definitely the leader in gain, but is NOT confirming the new highs in the markets. Furthermore, MACD is giving a sell signal.



3. Despite the above negatives, I am carefully bullsih on precious metals because $US doesn’t seem to be turning around yet. I subscribe to Clive Maund’s observations that PM markets may continue to stride forward due to fall in $US.
4. From the venerable trader Bill Cara’s recent posts, it appears that he is in agreement with my view on the global markets (1998 or 1970). Once in a while, it feels good that someone really well-respected has independently reached similar projections as you do.

So what is the KEY to all these markets, and what would be the TRIGGER of the coming actions? I believe that the TRIGGER can be the 4th quarter earning, a currency unpegging event by China or Petro-country, or another credit crunch event. But the real KEY to global markets lies in the exchange rate of US dollar. If you go back to the recent market panic on August 16th, you will see that market falls are associated with a dramatic rise in $US (to 82.13) and usually a rise in US bonds too. It is counter-intuitive, but it is very true. If the $US falls, US (and global) stock markets tend to rise, and vice versa. Such relationship is not always true, but during those periods that when it is true, the correlation is quite strong. My explanation is that during those times, US markets are definitely not making new high in foreign currency, which is a clear indication that the bull market is associated with US dollar devaluation/asset inflation. And when it goes to reverse gear, for some right or wrong reason, both $US and $US bonds serve as a false safe haven for global financial markets, and all markets (especially emerging markets) get hammered and/or repatriated back to US.

Have you noticed that something weird is happening in the currency markets this week (or last)? $US dollar index stopped falling and turned back up from about 77.6 level. BUT both commodity currencies: Canadian and Australian currencies are either at new highs or close to new highs. If you dig into the details of the turnaround, you will see that while Euro did retreat a little which helped, Japanese Yen did more of the heavy lifting. Apparently, there is some global cooperation going around to help lifting US dollar. However, this turn-around of $US dollar index is FALSE, and therefore, global markets are still making new highs.

If and when US dollar make another strong dead cat bounce, then WATCH OUT. Based on the timing of treasury bond markets however, it seems that this event will probably happen later rather than earlier. The 10 year bond yield is at 4.65%, and it’s truly in the optimal range for Goldilock economy. I think we are at the final stretch of a top, where bond yields are low so that it’s not breaking the backbone of the stock markets, and yet the expectation and sentiments of the stock markets are not turning yet from bullish to bearish. Maybe stock markets can stretch this run all the way into next year before a bigger correction.

In any case, when the lows come, I repeat again here, that the lows in ALL markets should be BOUGHT. I seriously believe that the coming US dollar devaluation is going to generate US domestic inflation and export so much asset inflation around the world that it will be a “Weimar Republic-style hyperinflationary equity blow-off”. Because this blow-off is global in nature, I think the monetary force will be spreaded thinner, and therefore it won’t feel like hyperinflationary (yeah, I tell you that people in China & Petro-countries ARE taking in all of our inflation). However, the best fireworks should be in foreign and precious metal markets, even though US stock markets will probably do pretty okay also in comparison to cash and bonds. The poor bears and deflationists will be crushed by Bernanke, even though they have been always right about the state of economy.

Make sure you get the sequence right. It’s going to be mild inflation, higher inflation, and almost like hyper-inflation, and then deflation/depression. Don’t miss out on the inflationary rocket going to the moon. And of course, since your capital gain is really simply going to compensate/compromise all the inflation, saving on your capital gain tax such as using retirement accounts or Roth IRA probably won’t be a bad idea. And for the last time for your benefits, let me repeat that please forget about using bonds for your retirement for the next 20 to 30 years.

At last, if Peak Oil is really correct and here, then make sure you switch onto the energy bandwagon when the deflation/depression make its early start.

Government has been pushing lenders to work out terms with the homeowners by modifying the loan terms. However, only 1% or less of the loans were modified. It is not happening for several reasons:

1. Work load on modifying the loan term is additional on a shrinking workforce in mortgage industry.
2. Most of the loans have been sold to different investors, and to modify one loan, you must get all the investors to agree to a loss on the mortgage bond (while homeowners get the gain).
3. Who is going to want to take the loss?

Congress has also passed a law to help out these “poor” homeowners (not sure if all the renters want to cry out FOUL). The forgiven debt by lenders to the homeowners from the “short sale” of the home, normally counts as a taxable ordinary income, will no longer be counted as income, and therefore, tax will not need to be paid.

However, I don’t think Wallstreet and Congress understand the magnitude of the credit crunch. In one sentence, the biggest credit and housing bubble in the human history has BURSTED. It just can’t be reversed anymore. In the capitalism (which tends to generate BIG up and BIG down), the mortgage bond market went crazily up, and now it is simply imploding. Many of the loan products can no longer exist, or at least exist in the same prevalence as before, simply because such loans cannot be sold to investors anymore, who are sitting on a huge loss, and are the main losers in this credit/housing implosion. Definitely homeowners are not the biggest losers. Mortgage bond investors are.

The following quote from FDIC head shows the ignorance of our government officials:

…most likely affect loans that have a low starter rate for two or three years and reset to much higher rates. Many of those loans are adjusting now and have helped push a record number of homeowners into the foreclosure process.

“Keep it at the starter rate,” Ms. Bair said at the Clayton Annual Investor Conference. “Convert it into a fixed rate. Make it permanent. And get on with it.”

Ms. Bair and other federal regulators likely couldn’t force servicers to make these changes, but her message might be interpreted as a warning to loan servicers about potential legislation, said Howard Glaser, an industry consultant based in Washington.

[Boldface, my emphasis]

Now, tell me, if the loan is kept at the starter rate, who is going to keep that loan on their book, since obviously such loans cannot be sold anymore most likely. Ms. Bair, do you want to volunteer and put up your own money to invest in these speculating homeowners?

At the end of the day, it is still about money. Only those loans that make sense to be modified with a minimal loss will be modified. And if the government make laws to force loan term conversion, expect more capital flight out of this increasingly capital-unfriendly country. If I were the investors, I will sell everything when the government force me to eat a substantial losses on my mortgage bond investment and hand it over to the homeowners.

But given the precedence in the oil industry where government repeatedly threaten big oil companies for additional taxes, I suppose that such scenario is definitely a possibility.

With the latest Job September report last week, BLS is revealing its biggest lie yet for all to see, or I shall say anyone with eyes. But of course, people on Wallstreet are either blind, or turning a blind eye. Or maybe, this is a collective bluff on the part of government and Wallstreet, to cheat the mass investors into rallying the stock market?

Here is the direct link to the Burea of the Labor Statistics. In the first paragraph:

Employment rose in September, and the unemployment rate was essentially
unchanged at 4.7 percent, the Bureau of Labor Statistics of the U.S. Department
of Labor reported today. Nonfarm payroll employment rose by 110,000 following
increases of 93,000 in July and 89,000 in August (as revised). In September,
health care, food services, and professional and technical services continued
to add jobs, while employment trended down in manufacturing and construction.
Average hourly earnings rose by 7 cents, or 0.4 percent.

Remember that just last month BLS reported that

And that gave away all the excuses for Fed Reserve to cut interest rate. But since $US dollar was free falling. I guess BLS September report becomes the latest booster to $US. The “supposed” error in the August number was close to 100% of the value.

Well, but in the last paragraph of the BLS September Job report, here lies the March revision, downward by 297,000 jobs. It doesn’t take a stupid to figure out that something is quite off. Maybe the birth & death statistics model used by BLS has been skewed heavily towards birth of new jobs, rather than death of old jobs? Here is the last paragraph:

Preliminary Estimates of Benchmark Revisions to the Establishment Survey

In accordance with usual practice, the Bureau of Labor Statistics is announcing its preliminary estimates of the upcoming annual bench-mark revision to the establishment survey employment series. The final benchmark revision will be issued on February 1, 2008, with the publication of the January 2008 Employment Situation news release.|

Each year, the Current Employment Statistics (CES) survey employment estimates are benchmarked to comprehensive counts of employment for the month of March derived from state unemployment insurance tax records that nearly all employers are required to file. For national CES employment series, the annual benchmark revisions over the last 10 years have averaged plus or minus two-tenths of one percent at the total nonfarm level. The preliminary estimate of the benchmark revision for March 2007 is -297,000 (-0.2 percent) for total nonfarm employment.
….

All of the above fishy numbers plus the timing of the reports only tell me that BLS apparently is closely cooperating with other branches of government to financially engineer the markets.

Actually, this is the second one gone for retirement. If I were to take a wild guess, the previous boss probably retired with 0.5 billion. The second boss today probably retired with 0.1 billion. Both of them are definitely incredibly very rich.

I can tell you that it is one of the most strangest thing to co-work with some 50 multi-millionaires everyday, most of them have at least 10 million dollars. This happens when you join a group of people who had a successful IPO, but you are not one of them. Except for the money part, everything else seems to be normal, except that sometimes you need to pick up the slack for these semi-retiring co-workers when they feel like slacking off.

Certainly, if I’m in their shoes, I would probably retire long time ago. I will probably pursue other interests such as music or humanitarian activities, or simply fund my own start-up, instead of working for other people.

But without a doubt, despite the apparent good luck that all of my bosses and co-workers have, they are all extremely smart and hard-working (at least in the past). Success simply doesn’t happen by chance. There are almost always some necessary conditions that need to be fulfilled before the success will happen (maybe except lottery).

Anyway, my group threw a good party for our retiring boss. Nothing very extravagant (probably $20 per head). And I can attest to you that most of these multi-millionaires are just like you and me, shopping at Walmart or Costco. By the way, we have been using CRT monitors instead of LCD screens up until last year. And today I just worked with another 50 million guy who still has a CRT on his desk. It’s a little unbelievable, but it’s true. Maybe part of their success lies in their extreme frugality, I wonder.

Thinking ahead of the next step in the coming reflation, what would I do to clean up the mess left by Greenspan?

One word, spending (which is the default Keynesian economic solution).

What kind of spending depends on the agenda of voters. However, I think the following industry will probably benefit:

1. Infrastructure: anything that rebuilds the energy, transportation infrastructure, and/or constructions of some sort should benefit. Water and alternative energy are the ones that I can think of, but there can be many other area.
2. Healthcare: with aging boomers, spending in pharmaceutical and healthcare industry probably would increase more than other service industries.
3. Military: with the continuing diversion of strained foreign relationship in Middle East, the military expenses may be ongoing.

By more spending, government could compensate the shortfall of employment in the private industries. Many dollars will go wasted and beefed up unscrupulous government contract bidders/government officials, but they will be just the “necessary evils” that incur as part of the process.

So everything can be made whole? How can any free money/job be created without any consequences? Well, the answer would be that US dollar will continue its descent, and dilute any US dollar holders. I expect that Federal Reserve will continue to support profligate spending in Washington by monetization. By buying up long term treasury bonds, and keeping long term interest rate low, Federal Reserve can keep a higher P/E ratio for stock market, and laying support for crumbling housing market. The only thing that will get destroyed in this gradual process is the value of US dollar. Let’s say the supply of US dollar doubles overnight. Congress can use the new additional trillions of US dollars to boost up the economy, at the expense of diluting the US dollar value by 50%. The obvious losers will be the US dollar and bond holders (China & Japan of course). The lost wealth will then be transferred via government spending to various beneficiaries. The tiny nest egg built by middle class people will be made smaller due to inflation, while the rich and the powerful simply gets even richer in the wealth redistribution process.

Since US government will not dilute US dollar by 50% overnight, it is up to you and me to guard our precious capital against inflation (and tax if possible) before the process is complete.

I don’t know whether it’s alarming to you, but US debt ceiling is going to increase from 8.965 trillion to 9.815 trillion. As far as I can recall, since 2000, such increase in the debt ceiling has become more frequent, and the amount of increase is getting bigger too. Trillion of US dollars goes by really fast in the USA. For any financing shortfall that foreigners and foreign central banks don’t take up, they will end up as pure monetization in the US financial system, and manifest itself as direct inflation. And inflation is the “best policy” for government, since you get to steal another 30% to 50% back via “capital gain”, plus that you can cover yourself up by fudging statistics and the best liar teams at Federal Reserve and BLS, and cut the unofficial inflation rate in half easily. Great, huh? The only thing that US needs to make sure is that it can prolong the confidence game (in US dollar) for as long as possible so that the dilution can last without running into the end-game of hyper-inflation.

For the month of September from 9/1/07 to 10/1/07,

1. Net worth is up by 10.66%.
2. Value of my company holdings is up by 19.28%.
3. Everything else excluding my home and cash is up by 16.40%
4. If including cash in #3, it’s up by 11.43%.

This month obviously everything seemed to be working extremely well, almost too good to be too scary. Precious metals & markets have gone up a lot. It almost appears that the past troubles are all gone.

I’ve recently finished refinancing. My cash position has increased without a change in my net worth. I’ve also spent about $26K for a new mini-van. All of these items have changed and will continue to change my cash positions going forward. Eventually both my net worth and cash will truly reflect the correct impacts of these items. Of course, if I cannot find any good opportunity to put some of these cash into good use, I will pay back my debts. Too bad that I couldn’t get some of these cash before $US embarked the seemingly endless fall.

Although it certainly appears that PM is rocketing to the moon without any pullback, such thing rarely happens in a straight line, especially for an index. Who knows? Maybe it will. Either way, I’m going to sit really tight and see how markets unfold going forward.

My God! I can’t believe that I got so close to losing my money at NetBank.
Close to the end of September, I closed escrow on my cash-out refinancing, and had some fund wired to NetBank. On September 27th, I realized that I have about $107,500 because of the cash-out refinancing. Since I remembered that NetBank was financially shaky, and was very close to being acquired by EverBank, and I decided to transfer $7600 out to stay just $100 below $100,000 regular FDIC insurance limit. At that time, one voice within me said, “what’s the big deal? I can earn more interest in this account. NetBank will soon be acquired.” But my more conservative voice said, “Oh no, why take the risk? Why do you want to take a risk even if it’s a minor detail.” Fortunately, I still decided to transfer $7600 out. The next day September 28th, NetBank was closed by FDIC, and all deposits were transferred to ING. On September 29th, I was paid with an interest of about $150, which put me over $100K limit again.

I didn’t lose any money, but I was $100 away from FDIC limit, and just 1 day away from losing $7500. I can’t believe I was so close. By the way, if your account was a joint account, it would be insured up to $200,000 if it was owned by two people.

I have never made any efforts in terminating my relationship with NetBank because I’ve got about 10 different ACHs set up that automatically pays all of my credit cards and utility bills, plus my salary payment. I was kind of hooked to NetBank pretty much.

I was so glad that I stayed alert about the financial status of my bank. And I hope no readers here lost money because of NetBank. The good thing is that the whole closing-down went very smoothly in my opinion. I can still access my accounts, and make transfers between accounts. I transferred $2000 out of the same account to stay below $100,000 again after NetBank was transferred to ING. And I made an ACH from an external institution which will draw out most of the money. I believe this transaction should go thru without problems.

If ING can maintain all the ACHs that I’ve setup, I probably will stay with ING. I don’t have much time to mess around with my bills and banks. During my little spare time, I’m too busy watching over the stock markets right now. I will deal with all these later.