Back in Action

It has been awhile since there has been a post, sorry. Things have been complex in the annuity and financial services industry as a whole. Not only that, but how many times need you read Annuity posts. Therefore, we are changing our format and moving to a more general blog about the markets, financial services and annuities.

We also wanted to comment on some comments about why we dislike index annuities. Many have said that you cannot hate a product based on higher commissions alone. You are correct. Our point about higher commissions is just on aspect of why we dislike these products. The simple fact is that if the company can afford to pay the agent 8%+ in commissions and then pay a “bonus” to contract holders, a potential outlay of between 16 to 20% of capital by the insurer upfront, it is unreasonable to assume that the product is in the best interest of the consumer. Debate that fact all you want, but that tyope of capital outlay comes with strings, period.

This is why we support Rule 151A which requires index annuities to be regulated by the SEC. Sure the SEC has messed up, but that is with hedge funds and not annuity products, where they have done a decent job of regulating the products. Unfortunately, some greedy congressmen are fighting the new rule citing states rights, etc. However, I am sure they are merely receiving campaign contributions to fight the rule rather than actually trying to understand what and why the SEC wants this power.

Blast away, but the fact is that it is the best possibility for insurers to be honest and the product to actually benefit all parties involved instead of the traditional method of only being really good for the agent and the company. Everyone needs to make a living, but stop screwing the little guy and we will be OK. Here is a hint, take care of your clients and they will take care of you.

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CNBC and Annuities

I know it has been awhile since we have posted, sorry. The market has been a mess, but as you may have read, we knew that for awhile. We called the temporary bottom and were right, but we did not post that it was going to go lower. However, this latest rally is a bear market rally, so don’t get sucked into long-term buying.

Anyhow, we were watching CNBC on Friday when we got all excited when the Power Lunch crew started talking about annuities. FINALLY, some real air time on these products, so we thought. They brought on 2 “experts” one guy against them and the other for annuities, but they were both dolts.

The guy who was against them had no idea what he was talking about. He kept saying 10% commission, spreads, yields and caps, but, for the love of God, they were talking about variable annuities not equity indexed annuities. We agree on indexed annuities they stink and now they will be regulated like Variable annuities, which is cool. Regardless, the guy who was for annuities never corrected this guy!

So there was a yelling match with the anti-annuity guy winning because he yelled the loudest. Oh, how I wish one of us were there, it would have been a blood bath. To make things worse is this guy was an ex-insurance guy who is now, probably, an RIA which is a joke. People, insurance agents sell insurance and usually know nothing about equities, but they do know how to charge a fee and bad mouth insurance companies.

The point is if the pro-annuity guy mentioned some of the selling points like the guaranteed income base during this really low point in the market it would have been a slam dunk. Especially since this market is going to be tough at best or, at the worst, trade back into the 6,000 range. He did none of that which is a shame because variable annuities are a really good buy right now.

Consider this, it took 25 years after the crash of 1929 for the market to reach a new high. This crash was much worse and will probably take equally as long or longer to hit 14,000. The NASDAQ is a great recent example, it has not even come close to reaching its all time high of 1999 – 2000 and that was 10 years ago now. So, investors lost 50%, at least, of their investments and may never make it back again in the near term at least, right?

Wrong, at least if you use a variable annuity product. Most living benefits have a guaranteed income base that says if you do not take out any money we guarantee the base benefit will double in 10 years. Not bad, especially if the market never recovers, but the anti-annuity crowd will strongly disagree with this. They will say that the internal rate of return is only 2% or some other nonsense like that because it is only an income base that is guaranteed to double, not the account value.

That is true, but it is unlikely that the S&P 500 will double in ten years so would you rather have an income base that is worth twice as much in 10 years or would you rather “save” a few bucks by indexing your money and only have 80% of what you already lost? See, these investments are going to give you income, which is the objective of ALL investments you make today. So, yeah I would take a double on my income base over 80% of what I lost any day, not to mention with the step-ups you will probably way outperform the market since you lock in the gains never the losses – which the anti-annuity crowd never mentions.

The point is that variable annuities make sense and to say that a guaranteed income base is a waste of money is self serving. These guys simply want to charge a fee and guarantee nothing versus an insurance company charging a fee that guarantees income for as long as you live. It is about the facts and most people who bash annuities do not have the facts and the folks at CNBC don’t have a clue, especially that On The Money lady who has zero investment experience, but tells us how to invest? OK, that makes sense.

Oh, and Suze, I told you so, but just watch she will roll out with a new book about recovering your investments or some other rudimentary garbage. Although I must confess, she knows how to market stupidity in a grandiose way.

People, get the facts. I know insurance companies are not the greatest things in the world and I am the first to admit the short comings of any product, but man listen to both sides of the story from someone without an agenda.

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Market Capitulation

The market hit its post 10/10/08 lows and closed on them. The Asian markets are getting creamed in overnight trading and a Canadian hedge fund has to liquidate and close 2 funds. This is the perfect storm for short-term trading.

Based on what we see, by the end of the week, but more than likely tomorrow, we will see a close below 8,000. This takes out the temporary bottom we called on 10/10/08 and there is no bottom until 7,500. However, after the new closing lows that we will see by tomorrow or the next day there should be a spectacular rally.

The rally will fizzle and the markets will then form a longer term sideways trading range, probably between 8,000 and 9,500 or 10,000. The good news is the consistent down days could be over in the next few days. There are so many good buys out there right now it is clear that the market is oversold.

Good luck and see you tomorrow as we discuss the talking heads and variable annuities.

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The Internet and Annuities

We have seen this before, websites popping up over night saying that they are unbiased and the best place to compare annuities. Well, each site that comes along is a broker driven site which directs you to invest in what they feel is the best product.

What is the problem with that? Many, they could steer you into either the highest paying product, for them, or into a product they think is the best product for you, which is still the best product for them to sell you. This has happened again over the weekend, there were a few before this one actually.

While there is one online site that we have some respect for the rest, we do not. The rundown of the last sites that came out were AnnuityHQ and annuity Professor. Each of these sites copied an existing website and one tried to copy our system, only the ratings none of the actual data.

Well the new site claims to grade the contracts based on the COMDEX rating, surrender charges, sub-account quality – very subjective to personal feelings, expenses and a rider “evaluation”. Here is the problem, we looked at their “Top” picks, which are identical to what AnnuityHQ’s top picks because it is the same people, and there is no reason whatsoever that they should be claiming these products as “the best” in the industry.

It is laughable that sales people rate variable annuity contracts and try and tell you what the best contract is. They are SELLING YOU the annuity, it is that simple. This site did not even touch on real world scenarios, maximum costs or current financial risks, which are very different for mere S&P, Fitch or Moody’s ratings.

You have to be careful with who you are dealing with when buying a product. Especially from a firm that is both selling you a product and rating a product. This site gets the triple stinky award for their effort. Plus, they are dangerously close to a real trademark and copyright suit by not only us, but by another website.

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They Just Don’t Get It…

Nope, they have not and they will not understand the benefits of variable annuities. This market which has devastated retirement savings has had nothing that has gone up. Even gold has now declined in value, bonds are a no go, especially corporate bonds and stocks have been horrible.

However, a variable annuity with a living benefit has done something that no other investment has done, guaranteed retirement income without annuitization. All the financial writers in the world tell you to buy index funds and to stay away from those bad variable annuities. If you listened to them you would be sucking wind in the S&P 500 with 24% or more exposure to financial stocks – pre-market meltdown – and another 20% or so in technology which as also suffered badly.

Even with reality hitting them right in the face they still deny variable annuities their rightful place as a good investment alternative. They, the financial guru’s, just don’t get it. They do not understand that the Democrats will more than likely take the Whitehouse and Congress which will ultimately raise taxes, specifically the capital gains tax.

A complete Republican controlled government did not do well, spending went through the roof along with other questionable behavior, what makes them think that Democrats will do any better when they have a much stronger history of raising taxes. Actually Obama is the only political candidate that we have ever known to be, possibly, elected on the premise that he is actually going to raise taxes.

Your political affiliation does not matter, all you need to know is what we have been saying about the 15% capital gains tax is correct, it’s going higher. Regardless of who would have been elected taxes would need to be increased given the massive debt the US has, we just never had such stark honesty from a politician who is advocating higher taxes.

So, income taxes will go up for those “wealthy” Americans, we will see what the term wealthy means after the election, and capital gains taxes will go up. This means that all distributions from mutual funds will be taxed higher and it blows the argument right out of the water for the Suze’s, Liz Pullman’s and Scott Burn’s of the world.

Oh, did we mention your retirement income is also guaranteed?

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