Another Opinion About Investing in Gold

The investment manager of the First Eagle Gold Fund, Rachel Benepe, has an interesting take on gold, and the best way to buy it.  Her answer is not to buy gold bullion; rather, it is to buy a mutual fund with a diversified portfolio that includes gold bullion as well as the stocks of many companies that mine for gold.  The interview of Ms. Benepe can be found at the following link:

http://finance.fortune.cnn.com/2011/08/16/golds-climb-is-perfectly-rational/

Wells Fargo: Gold is a "Bubble Poised to Burst"

Check out this short article which discusses Wells Fargo analysts' belief that gold is in a bubble that is poised to burst.  It also lists who is buying and who is selling gold.

http://www.fa-mag.com/fa-news/8225-gold-a-bubble-poised-to-burst-wells-fargo-says.html

Effect of S&P's Downgrade on US Treasury Debt on the Stock Market

How will the stock market open on Monday, August 8, after Standard and Poor's downgraded US Treasury debt from AAA to AA+?  It could go either way -- up or down -- depending on whether or not investors were already expecting the downgrade. 

Surely, S&P had been telegraphing for weeks its intentions, depending on how the debate on Capitol Hill related to the debt ceiling turned out.  S&P stated previously that unless there was a credible plan put on the table to reduce spending by $4 trillion dollars that the company would downgrade US Treasuries.  When the final agreement came in with a proposed reduction in spending (from the "baseline" level) at about $2.1 trillion over a 10 year period, it should have come as no surprise that S&P would downgrade the US government's debt.

However, investors may not have paid enough attention to the specifics of S&P's warnings. In this case, we could expect a negative tone to the stock market on Monday.  It all depends on how professional investors and retail investors react to the news.

It is very likely that the news leaked out to Wall Street's professional investors just before we saw the 512 point drop of the Dow Jones Industrial Average on Thursday.  After all, S&P contacted the Treasury Department before the downgrade, and it would have been pretty easy for the news to have filtered out to Wall Street traders before the downgrade was publicly announced on Friday evening.  If the news had already leaked, and had been incorporated into the stock market's valuation, then Monday may not be a down day for the stock market.

But don't discount the power of retail investors (those who do not manage money professionally, but instead manage their own money, work for a living and have not been keeping up with the possible implications of the debt ceiling deal) to make a statement of their own.  If they were caught unawares, it is quite possible that this contingent will make its feelings known on Monday.  If this is the case, we can expect a drop in the stock market averages, perhaps a big one.

Right now, I am preparing my shopping list for when the time will be right to invest the cash in my client accounts that is now sitting on the sidelines.

Brokers May Abandon IRA Business

Yes, you read that right!  Brokers' concern:  they may be forced to assume a fiduciary duty to their clients under new US Department of Labor rules.  The government believes that brokers who have a conflict of interest should disclose that fact to their clients.  Brokers feel differently.  Complete details are found at the following link:

http://www.fa-mag.com/fa-news/8047-firms-may-drop-millions-of-ira-savers-on-rule-change-sifma-says-.html

Update to Salesmen and Pressure

My last post dealt with a situation where one of my clients and her husband were being pressured by a salesman to sign on to a contract for work on their heating and air conditioning system as well as replacement of their water heater.  The salesman tried to tell them that major renovations had to be done -- rewiring, replumbing and such -- with a cost of both jobs approaching $17,000.  I told my clients to tell the salesman that they had spoken to their financial advisor (me), and as a result of that conversation, would like to sleep on it and get back to the salesman in a couple of days.

The next day, they phoned another plumber and another HVAC provider, and the estimate for the total cost of both repairs came in at $5800.  In fact, the couple went with those service providers and the total bill for both repairs came in just as estimated.

It just goes to show you that you should never be pressured into accepting the first estimate.  Gathering up 2-3 estimates on a repair job should be a normal part of your financial decision-making.

Salesmen and Pressure

A few moments ago, I received a phone call from a distraught client about an issue that was in part financial and in part about the need for some home repair (yes, it is Saturday evening).  The client's air conditioning unit had failed, and the HVAC technician, in the process of evaluating that problem, somehow introduced a plumber into the discussions.  The cost of the repairs quickly escalated beyond what the client expected.  The client and her husband were being pressured into making decisions immediately to follow through with the repairs, and pressured into taking the "same as cash, 12 month payment plan" option.

The client had also had some health issues over the last month, and that added to her stress.  She called me wondering what to do about this salesman who was pressuring her into making a decision tonight.

I told my client that she needed to tell the salesman that she "needs to sleep on this" and that she would "phone them next week concerning her decision."  I told her that if she wanted me to speak to the salesperson directly that I would be glad to do so on her behalf.  I also told her that I could put her in touch with a general contractor who might be able to provide another estimate.

Takeaways:  Do not let salesmen pressure you into making a snap decision. Gather up other quotes before hiring someone to do the work.  One part of financial management is making sure that you are receiving quality service at the lowest price possible.  This is one scenario in which requesting multiple quotes will help you receive quality service at the lowest price possible.

Another point is that your financial advisor may or may not be available during evenings and weekends.  If you desire such availability, make sure that you have discussed this in advance with your advisor before you make a decision to hire them.

A Checklist for Surviving Spouses

This article from Morningstar gives a great checklist for surviving spouses -- men or women whose spouse has passed away.  It is also a good article for executors who are responsible for managing the estate of any person, including non-spouses.

http://news.morningstar.com/articlenet/article.aspx?id=383820&part=1