I saw this article the other day from thestreet.com. It spoke about CGMFX returning 50% in two months. That is simply INCREDIBLE for a mutual fund.

Don’t know if any of you picked up some shares in CGMFX or CGMRX when I first blogged about Ken Heebner and his funds back in April 2007. Heebner moves faster than you can track him. At that time, he was bearish on real estate stocks, bullish on mining and infrastructure stocks, neutral and slighly bullish on brokerage financial stocks. I think I checked his holdings, and he was holding brokerage stocks at one time. But he got out quickly for sure, and both of his CGMFX and CGMRX (supposedly a real estate fund) are showing big holdings in energy/infrastructure names. Yeah, he moves FAST.

If there is a second example of failure of Efficient Market Hypothesis (EMH) besides Warren Buffet, I would say Heebner is high on the list. He has beaten indexes year after year for so many years now. Incredibly record. I have to seriously consider buying his CGMFX really. Maybe EMH is garbage. Or at least it’s a garbage theory definitely to Heebner and the fund holders personally. Some people I guess can really time the market. And timing the market with a big mutual fund portfolio is certainly much harder than a small individual portfolio.

Don’t invest just based on my advice. Caution is always advised. Disclosure: I currently don’t hold CGMFX or CGMRX, but I wish I did 10 years ago.

Life Insurance Term

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.

Misc Observations On Financial Market

Just some more data points on this crazy markets:

  • Have you heard those radio ads on TreasuryDirect for buying US bonds directly? I listen to business channel on radio when driving to work everyday. Never heard that kind of radio ad before. Maybe US bonds are really unwanted and required special advertising these days from public. And US Fed is not alone. California bonds are also in the ad too.
  • I have never seen Xmas tree decoration this early in the year. The first week of October, Macy is already filled with Xmas merchandise. Unbelievable. Halloween is barely here, and Macy is already selling for Xmas? I’m guessing there will be quite a lot of things on sale this year.
  • Have you got your Wii yet? I tried to buy Wii at several stores, and they always run out of stock right in the morning of the day on sale. I think Nintendo Wii is going to have a really good Christmas. If you stock up on Wii, you can probably make some 10% to 15% reselling them on Ebay during Christmas, I guess.
  • The precious metal markets are truly scaring me. Yeah, my portfolio is at all time high. I’m just nervously waiting for the fall to come, just like night is followed by the day. My wild guess is that HUI goes to 459, and then comes back down to 357, correcting some 20%. It appears that there are so much more money NOT in the PM, missing the biggest rally so far. Most of the best market timers that I’m aware of are missing this rally. There goes the best technical analysis down to the drain. There is a reason that I don’t want to time the market so much. I just know that I’m not that smart. If the smart market timers cannot time it, then how can I time it? My guess is that HUI will become so painfully high for people who miss the rally to suck them all in, and/or correct to a value so grudgingly high that few will take up enough shares.
  • As far as I can tell, the band of day traders from 2000 are back in fashion. These day traders are trading China stocks, plus all the high volatility & high momentum stocks. And many more are leveraging their house, and making a killing in trading. Since not everyone can be rich, eventually I am guessing that it will be resolved. Watch out. Everything is alway happy, even if it’s one minute right before the top of the market.
  • I listened to the financialsense.com radio over the weekend. Robert McHugh is stating out my biggest fear for this great country USA. He believes that bond yields will not be going up next year for the benefits of housing market because Federal Reserve will be monetizing the US debts by printing money to mop up the excess of US treasury bonds. That makes a lot of sense to me, and that’s what I would do to save the housing markets if I’m the Federal Reserve. But that’s just NOT the decaying path that I want to see for this great country. Such actions are simply making everyone to pay for the sins from house flippers. When I commented last year about the real losers when the housing market bursts, few people seem to understand what I wanted to say. I think as time goes on, possibly forward by another 6 or 7 years, it should become all very clear.
  • Crude oil is going crazy too. Looks like $4 per gallon will be here sooner than I think. Inflation will transfer the wealth from middle class to the upper class. The short-sighted Federal Reserve thinks they’re doing the country a service, but higher inflation eventually will make big changes in the political arena globally. Poorer people from inflation won’t be happy. And vote they will. I only pray that we will have smart leaders like Ron Paul, instead of Hilter-like leaders. The history has shown that the mass cannot tell a good leader from a bad one. They will demand changes, whoever that can provide to them.

In any case, it looks like phase two of the gold bull market is here or almost here, thanks to Bernanke to kick-start it by cutting 50 basis point. Sit tight. The roller-coaster is going to get wild, both up and down.