Tuesday, August 30, 2011

Really? You Cannot Be Serious?

This kind of stuff just boggles my mind. I cannot understand how people continue to fall for this garbage. Once again, another team of alleged Ponzi schemers in Florida took investors to the tune of $22,000,000. Their sales pitch centered on annual returns of 14% to 124%, according to the SEC.


It turns out that one of the alleged Ponzi schemers spent 11 out of the last 21 years in jail. These characters fabricated account statements that showed their high returns. They allegedly spent the victims money on jewelry, gifts and property. They also paid themselves millions of dollars in phony management fees.

Apparently, the Ponzi schemers are getting wise to the fact that they cannot post their investment offerings on a web site. These people allegedly told investors that these investments were based in Bermuda and audited annually by a firm based in Bermuda. They also guaranteed in writing that investor funds would be protected.

I'm sorry, but I do not feel sorry for these victims. Here are the immediate red flags that should have told any investor to stay far away and also to pick up the phone and report people like this to authorities.

  1. No background check was done on these so-called advisors. Without much effort, they could have easily discovered the criminal background of one of these advisors.
  2. The returns being touted were way out of line. Listen to me people. If someone is telling you how high their returns are, then they are more than likely crooks. If you are investing your money based on the returns of any advisor, then in my opinion, you are a making a big mistake.
  3. They claimed their strategy worked in both bull and bear markets. Pure unadulterated BS.
  4. These so-called funds were based in Bermuda. Are you kidding me?
  5. These funds were audited in Bermuda. Oh right. Bermuda is a hot bed of investment auditing activity. Here is a clue. Have you ever been to Bermuda and seen all the auditing busineses on every street corner?
  6. These funds were guaranteed in writing by the person selling them. Come on, man! People cannot be this dumb, can they?
  7. I have not seen the account statements, but I am certain that it would have been easy to see that they were fake.
  8. The offering documents were also made up apparently. This is another strong clue as to something being wrong. If it is not publicly traded, then this is an immediate red flag and a big red flag at that. If it is sold by an "offering document" then watch out!
Unfortunately, there never seems to be a shortage of people who line up to invest their money with thieves and Ponzi schemers. With all these red flags, I'm sorry, but I simply cannot feel sorry for these people who fell for this garbage. I'm sorry they lost their money, but I blame them for making the mistake to invest with these Ponzi schemers in the first place. There were just too many red flags.

Readers of my blog know better.

Wednesday, August 24, 2011

Health Insurance News That You Need to Know

There are some recent developments that everyone needs to be aware of regarding health insurance for pre-existing conditions. This PCIP (Pre-existing Conditions Insurance Plan) is available right now in 23 states, my home state Florida being one of these states. The qualifications are fairly simple.

  1. You must be a U.S. Citizen or living in the U.S. legally.
  2. You must have been uninsured for the last six months.
  3. You have a pre-existing condition that can be documented by your doctor or doctors.
The plan has three options. These plans are Individual Only Plans. No Family Plans.

  1. 80/20 with a $2,000 deductible.
  2. 80.20 with a $1,000 deductible.
  3. 80/20 with a $2,500 deductible and a Health Savings Account.
There is a web site on PCIP. It can be found at www.pciplan.com. At this web site, you can found out all about the coverages available, brochures, rates and you can even sign up for it online. There is also a $100 referral fee for Brokers (like me) who refer clients to PCIP and they accept and enroll in the plan. If you know of someone who is uninsurable and feels left out in the cold, please tell them about this option. If they happen to live in Florida, then tell them to let me put in a referral for them, so I can receive the small one time $100 referral fee.

We all know Health Insurance is expensive, but these rates seem to be fairly reasonable as compared to regular Health Insurance. I can see a huge benefit for the age 55 to 65 age group. Some of these people may have uninsurable conditions and they have been paying out of their own pocket for health care expenses. Now these uninsurables have an option.

Another category where this would be beneficial is for younger people who may have not had any Health Insurance and were in a tragic accident of some kind. Perhaps they have some long road of rehabilitation ahead of them. This would normally bankrupt a family having to pay these kind of expenses. At least now there is a option to help them.

So do the right thing and let your friends and family know that there is now this option available. It may be a good deed indeed for you to make them aware of PCIP.

Monday, August 22, 2011

Investors Beware

I am starting to get more and more emails from investment firms based in New York, New York. These emails are always touting the performance of their investments and for some reason, they always seem to based in NY, NY. No slam on you New Yorkers, but this is a fact Jack. Usually the email looks similar to this:

Dear Investor,

The "Promoting This Fund Illegally" Fund, LTD returned +.80% in July 2011. The 2011 YTD return is +3.91%.

Please find the performance sheet attached. 


Ima Idiot that does not know compliance rules
ima@idiot.com (not a real email address)

For one thing, you cannot send out an email like this to investors. This is considered advertising and all fund advertising has to be approved by compliance. I guarantee you this was not approved by this firm's compliance department.

Secondarily, Non-Public Limited Partnerships are investments that can only be sold by prospectus. There was no link to any prospectus document in the email. Only a two page fact sheet showing performance numbers. You cannot tout performance without full disclosures. It makes no difference whether the performance is good or bad. You cannot tout performance without compliance approval and lots and lots of disclosures.

Thirdly, and more important, Non-Public Limited Partnerships are on My Do Not Buy List. These investments are highly illiquid. They are kind of like "The Hotel California. You can check in, but you can't check out." They will gladly take your money, but you can forget about getting it back. Did I say they were illiquid? If not, they are illiquid.

Non-Public Limited Partnerships, in my opinion are a legally filed way of taking your money similar to a Ponzi scheme. If an investor puts money into it, then the Ponzi Scheme, or excuse me, I meant to say Non-Public Limited Partnership, then takes some of the money that they raised and return it to investors in the form of dividends. These dividends are usually very high based on market conditions. All they are doing is using money coming in to pay investors, like a Ponzi scheme. This means that they are using principal to pay investors. After the money flow stops, then guess what? They cannot pay your principal back.You would have lost it. Of course, readers of my blog do not fall for these bad investments.

Alternatively, I see a lot of Non-Public Limited Partnerships, or L.P.'s as they are sometimes called, touting the latest hot thing, like solar, wind power, or gold mining. Truth be told that solar and wind power companies are being subsidized right now until 2012. Most of these are failing miserably. Just take a look at the stock prices for some of these companies. They are in the tank. Investors who believe in the false hopes of riches are the ones who fall for these tactics. Instead of believing in this garbage, they should believe in God.

I Google'd this fund just to see what I could find and lo and behold, it does appear to be one of those funds that they are trying to suck everyone into based on trying to post glowing articles about it on different stock touting web sites. I knew this before I even began to Google it, because no ethical firm would promote their fund via email without full disclosures. There are a lot of these email promoting, web site promoting companies out there trying to steal money, or excuse me, I meant to say raise money from investors. Don't you be one of them.

The moral to the story is always the same as far as I am concerned. Never invest in a Non-Public Limited Partnership period, especially one promoted by some web site or email. These are on My Do Not Buy List for a reason. There are plenty of people out there trying to steal your money. Stay away from them.

Friday, August 12, 2011

Is a Black Swan Event Coming?

I do not normally mean to be a doom and gloomer type, but there is something that concerns me about the Standard and Poor's downgrade of the United States Government. There are a plethora of mutual funds out there that have as their investment objective something similar to the following:

Under normal circumstances, the Fund invests at least 80% of its net assets in securities issued by the U.S. government, its agencies or instrumentalities or securities that are rated AAA by Standard and Poor's, AAA by Fitch, or Aaa by Moody's, including but not limited to mortgage securities such as agency and non-agency collateralized mortgage obligations, and other obligations that are secured by mortgages or mortgage-backed securities, including repurchase agreements. Under normal circumstances, the Fund maintains an average portfolio duration between one and 4.5 years.

Now that the U.S. is no longer rated AAA by Standard and Poor's, then this means that a fund like this one with a similar Investment Objective, would have to sell all securities that are not AAA rated by Standard and Poor's. If they are forced to sell, then this means that there could be a flood of U.S. Government securities that hit the market.

There is an out for these mutual fund managers and that would be one of two things. If they have built into their prospectus already that they can continue to buy Standard and Poor's AA rated U.S. Government securities. The other out is if the current U.S. Government securities that they own just so happen to be rated AAA by Fitch or Moody's. If this were the case, then they would not have to sell these U.S. Government securities. However, if for example, they were holding U.S. Government securities that were previously rated AAA by Standard and Poor's, but Fitch and Moody's did not have a rating on those particular securities, then the mutual fund manager would be bound by their prospectus to sell.

This could be a problem for a lot of mutual funds out there. This problem would be exacerbated if Fitch or Moody's were to also downgrade the U.S. Government. If that happened, then all of these mutual funds would have a major problem. If they all had to suddenly dump U.S. Government securities, then this would cause a shock to the market and thus my worry of a Black Swan event.

For those of you who do not know, black swans were never known to exist. Swans were always thought to be white, until some black ones were found. These black swans are rare indeed, but are an example of something that was previously thought impossible, suddenly was very real. Author Nassim Taleb wrote a book about Black Swans and thus applied the terminology to the markets. I am paraphrasing here but, he basically described sudden and swift shocks to the markets as Black Swan events.

My use of the term is related to this issue of having to sell U.S. Government securities, because of the requirements of these mutual fund charters, or prospectuses. This issue is eerily quiet to me right now and I am not sure why these mutual funds are being so quiet about a very significant issue. I suspect that they are busy preparing proxy changes to their prospectuses. This requires votes by the shareholders and this takes time. In the meantime, I am not sure how they will address this issue.

Imagine if U.S. Government securities would have to be sold which would certainly cause yields to go up. If these yields suddenly shoot up, this could cause panic selling of treasuries. The problem is that because of this week's Federal Reserve statement that they will keep rates low through mid-2013, this has caused bank CD rates to go down. Money Market Funds at brokerage firms and mutual fund families may actually have to start charging people to hold cash as evident by JP Morgan Chase's recent announcement. All of these issues lead us to a nowhere to hide our money situation. People are probably less likely to put their money in stocks if all this happens. The result of all this in my humble opinion, could be a Black Swan event, or a shock to the markets.

Add in other factors like no clear plan for job growth. Possibly no permanent reduction in tax rates for a time. Continued unemployment problems. Continued housing problems. Overall, we may be looking at an extended period of malaise.

Investing on your own may not be such a good idea right now. Tread carefully.

Tuesday, August 9, 2011

CBO Paints a Bleak Picture

The Congressional Budget Office has painted a bleak picture of the two alternative views of the nation's debt crisis. They have presented a summary that is only 4 pages and incorporates a graph of their two alternative scenarios. You can find it here:


Neither scenario is very good. One seems not plausible and the other is kind of scary. I think the middle ground on the chart is more likely. This middle ground would be awful nevertheless. The point is that "Houston, we have a problem." Which reminds me of the kind of teamwork and leadership we need right now. The Apollo 13 crew was faced with an impossible task of returning to earth after an oxygen tank exploded causing limited power, loss of cabin heat, shortage of potable water and the danger of too much carbon monoxide taking over the spacecraft. They did not waste time blaming the engineers for the oxygen tank explosion. They all got together and worked to find a solution to the problems they faced.

Right now, all I see out of Washington is a blame game. The President continues along with the blame game. The Democrats are blaming the Tea Party. The Republicans are blaming the President and the Democratic controlled Senate. The House Republicans have tried to do something by passing legislation, but Harry Reid has blocked the Cut, Cap and Balance Plan.

Imagine if Jim Lowell, the Captain of Apollo 13 would have spent all of his precious time blaming the engineers, instead of working with them to try and solve the problem. He probably would be still floating out there in space somewhere if he played the blame game. Instead, the great American that he is, he worked with his crew and the engineers and everyone else in Houston to solve the problem. I had the pleasure of hearing Captain Lowell tell his story in person and it was truly amazing. His leadership was very evident.

There comes a time when the politics have to go. We need cooler heads to prevail along with some leadership. I have a saying that I have told my son often. "Always positive. Never negative." When you feel compelled to be negative. Look for the positive.

Right now, this is what we need from the President and Congress. Everything that comes out of their mouths needs to be positive. Nothing negative.

Monday, August 8, 2011

Twitter Followers

Either I am getting real popular or there are a lot of people using an automatic Twitter following service. Today alone, I have a half dozen new followers and the day is not yet over. Sorry, if I do not acknowledge the fact that you are following me on Twitter. If I acknowledged everyone, then I would not be able to get anything done.

I have to believe that although I have a few friends and enjoy a little popularity, I doubt that I am as popular as Twitter followers are making me out to be.