On Wall Street, there’s no such thing as easy money or risk less investments. If something sounds too good to be true, it probably is.

Case in point, take the dramatic fall of one of Wall Street’s alleged top brokers Bernard Madoff who, as we have recently learned, bilked billions from countless ultra net worth (and supposedly highly sophisticated) investors through an intricate, multi billion dollar Ponzi scheme–one of the biggest cases of securities fraud in modern history!

(From the Wall Street Journal on December 12, 2008)

“Mr. Madoff’s asset-management business appealed to investors for its remarkably steady returns for investing in the stock market. His investors consistently enjoyed small monthly gains, usually between zero and 2%. Mr. Madoff told investors his strategy was to trade in and out of large-cap stocks and buy options on those shares to help smooth the ups and downs. When he failed to see opportunities in the market, he would shift to U.S. Treasuries, according to fund marketing documents and people familiar with his strategy.”

“Mr. Madoff’s Fairfield Sentry Ltd., a hedge fund run by Madoff Investment Services to invest in shares in the S&P 100, claimed to be up 5.6% through the end of November, a period when the Standard & Poor’s 500-stock index was down 37.65%. In October, Fairfield Sentry was said to be down 0.06%, a month when the S&P 500 lost 16.8%. Since its inception in December 1990, the fund averaged a 10.5% annual return, according to fund documents.”

“Bernie Madoff’s returns aren’t real and if they are real, then they would almost certainly have been generated by front-running customer order flow from the broker-dealer arm of Madoff Investment Securities LLC,” Mr. Markopolos wrote to the SEC in November 2005.The SEC declined to comment on the matter.”

As a financial advisor, please heed my suggestion–never do business with a financial professional who does not separate the custody function from the advice function. More importantly, if you do not know what the advisor is buying on your behalf, find out. This lack of transparency, or “black box model” of investing is one my biggest reservations about investing in hedge funds. I suspect that many investors are going to start asking many more questions of their managers and might be much less tolerant of black box managers in the future.

The WSJ article continued to say:

“Mr. Madoff’s investors described their shock and panic on Thursday. Susan Leavitt of Tampa Bay, Fla., said she had several million dollars of inherited money invested in the firm and added $500,000 earlier this year. A stay-at-home mother with two children, the 46-year-old Ms. Leavitt says she is considering going back to work. “That was my nest egg for the children, and my future. I’ll never see much back, I’m sure,” she said. Ms. Leavitt said she recently discussed her investment with a friend who told her he was suspicious about the firm’s ability to generate such profits amid the economic crisis. “I thought, ‘He’s probably just jealous,’ ” said Ms. Leavitt. “We’ve been with [Mr. Madoff] for 15 years, and it’s grown every year at 10%.”

I’ll close this entry just as I started it:

If it sounds too good to be true, it probably is!

Cathy Pareto, MBA, CFP®, AIF® is the Founder and President of Cathy Pareto & Associates, Inc. For over twelve years, Cathy has been helping financial consumers and professionals understand the world of investments and finance with a sound, but down to earth money management approach. For over a decade Cathy was a Senior Financial Advisor for another Miami based investment advisory firm, where she managed over $200 million in assets for high net worth clients and retirement plans. She has extensive experience in retirement issues, asset allocation, investment selection, investment management, education planning, estate planning coordination, and asset protection strategies. Additionally, she was an Adjunct Professor and Faculty Coordinator for the CFP® Program at Florida International University’s College of Business.

Sometimes it’s hard to stay positive during tumultuous financial times. So, I thought I’d highlight at least a few good things that have resulted from the economic downturn to keep things in perspective:

* Lower gas prices

In a time where already cash strapped consumers are witnessing the evaporation of their retirement accounts and house values, a little relief at the pump will be a welcome change. Gas prices have tumbled from their July highs of $4.11 a gallon down to just under $3 in many U.S. cities, due in large part to shrinking global demand. A happy by-product of this is the negative financial impact it will have on psycho oil-rich dictators like Chavez (Venezuela) and Ahmadinejad (Iran) who are now scrambling to restructure national budget obligations. Sorry boys….looks like the energy orgy is over and it’s time to sober up. I guess this might put a damper on their record of “checkbook diplomacy”, in their efforts to sway leftist or anti-West support in cash poor, vulnerable nations.

*Global warming will slow down

Okay, so I don’t have any scientific evidence to support this claim. But, I figure, if there’s less global demand for oil (and that includes oil guzzling China), then there’s less driving/flying/manufacturing, which means less carbon emissions, which means some slight relief for the ozone layer. Well….at least we can hope, right?

Cathy Pareto, MBA, CFP®, AIF® is the Founder and President of Cathy Pareto & Associates, Inc. For over twelve years, Cathy has been helping financial consumers and professionals understand the world of investments and finance with a sound, but down to earth money management approach. For over a decade Cathy was a Senior Financial Advisor for another Miami based investment advisory firm, where she managed over $200 million in assets for high net worth clients and retirement plans. She has extensive experience in retirement issues, asset allocation, investment selection, investment management, education planning, estate planning coordination, and asset protection strategies. Additionally, she was an Adjunct Professor and Faculty Coordinator for the CFP® Program at Florida International University’s College of Business.

* Responsible bank lending

The days of easy credit are officially over. And while this is bad for some consumers, it’s the responsible thing for banks to do (not only for their balance sheets but for the economy as a whole). If there’s anything that we’ve learned from the sub-prime debacle, is that responsible lending is a critical component for a sound economy. Banks are reverting to their old ways…that is, prudent lending practices that were prevalent before the housing frenzy spiraled out of control. Borrowers will actually have to be credit worthy (gasp!) and will be forced to save for down payments in order to buy a home (gasp, gasp).

*Americans will FINALLY recognize the value in SAVING

It’s no secret, Americans are among the worst savers on the planet and that will come back to bite many of them in the tush right now (and of course in the future). A joint survey conducted by Princeton Survey Research Associates International for the National Foundation for Credit Counseling and MSN Money, found that Americans are largely unprepared for economic hard times–many don’t even have an emergency fund! I suspect that after we all survive this bitter dose of economic reality, many folks will learn their lessons and give serious consideration to saving for unforseen circumstances (like now) and also for their future. Sometimes it’s the negative experiences that teach us the best lessons and serve as a source of discipline and inspiration in later years

Another week another big bailout plan hangs in the balance. This is starting to feel like a really bad, melodramatic soap opera already.

This week it’s the Big 3 auto makers from Detroit who have extended their hands, trying to make a grab into big brother’s pocket: Ford, GM and Chrysler. Deciding whether or not to bail out the biggest three auto makers in the U.S. has been a daunting challenge for lawmakers in the lame duck Congress, where the rescue plan is stuck in the Senate after days of deliberations. Even the lame duck President does not want to make any commitments.

(From Yahoo Finance)
“Senate Majority Leader Harry Reid, D-Nev., canceled plans Wednesday for a vote on a bill to carve $25 billion in new auto industry loans out of the $700 billion Wall Street rescue fund. The Bush administration and congressional Republicans have rejected Democrats’ plan to dip into that pot of money. Warning of economic disaster, a bipartisan group of senators from auto industry states are trying to reach a deal on an alternative package. If an agreement can be reached, Reid said, the Senate still could vote on it as part of a measure to extend jobless benefits.”

All three CEO’s from the respective companies painted a grim picture of their financial position, despite having flown in to the two day hearings on their private corporate jets and expensive suits. Their claim, “Detroit’s automakers, hurt by a sharp drop in sales and a nearly frozen credit market, burned through nearly $18 billion in cash reserves during the last quarter, and GM and Chrysler both said they could collapse in weeks.”

The proposed legislation, now on life support, calls for the U.S. government to extend a 10 year, $25 billion loan to the companies. But, it is unclear where the government would lie in the pecking order of creditors the companies already have (ie. in case of default).

Frankly, the capitalist in me thinks they deserve to fail, as heartless as that sounds. Any MBA student from a reasonably reputable college understands the importance of maintaining a nimble corporate strategy and competitive advantage. Where have these smart guys been the last ten years as the Japanese automakers little by little encroached on their market? They lagged in innovation, technology and pricing. The albatross around their neck, the union known as the UAW (united auto workers), has systematically made their costs of production, labor, etc. unreasonably high in an increasingly competitive global marketplace. Something had to give. Either you make better cars, invest in fuel efficiency or cut your prices….otherwise, you are toast! Fast forward to today, when Americans have cut back on spending, banks have stopped lending as vigorously and consumer demand just dropped off a cliff. America cannot keep subsidizing companies whose leaders are blatantly incompetent, stupid or just plain greedy (or some combination thereof).

Now, I’m very sorry about the prospects of 1 to 3 million innocent people losing their jobs and potentially experiencing pension defaults. The impact could spell considerable discomfort in the short term to the economy and the financial markets. But, a bailout of these companies is not justified. Who’s next….the airlines, the farmers, the mid sized manufacturer in the industrial parks of Hialeah Florida, the corner flower shop? Give me a break!! As far as I’m concerned….farewell big 3…pigs get slaughtered and now it’s your turn to go. Good luck in Bankruptcy court.

Sometimes it’s hard to stay positive during tumultuous financial times. So, I thought I’d highlight at least a few good things that have resulted from the economic downturn to keep things in perspective:

* Lower gas prices

In a time where already cash strapped consumers are witnessing the evaporation of their retirement accounts and house values, a little relief at the pump will be a welcome change. Gas prices have tumbled from their July highs of $4.11 a gallon down to just under $3 in many U.S. cities, due in large part to shrinking global demand. A happy by-product of this is the negative financial impact it will have on psycho oil-rich dictators like Chavez (Venezuela) and Ahmadinejad (Iran) who are now scrambling to restructure national budget obligations. Sorry boys….looks like the energy orgy is over and it’s time to sober up. I guess this might put a damper on their record of “checkbook diplomacy”, in their efforts to sway leftist or anti-West support in cash poor, vulnerable nations.

*Global warming will slow down

Okay, so I don’t have any scientific evidence to support this claim. But, I figure, if there’s less global demand for oil (and that includes oil guzzling China), then there’s less driving/flying/manufacturing, which means less carbon emissions, which means some slight relief for the ozone layer. Well….at least we can hope, right?

* Responsible bank lending

The days of easy credit are officially over. And while this is bad for some consumers, it’s the responsible thing for banks to do (not only for their balance sheets but for the economy as a whole). If there’s anything that we’ve learned from the sub-prime debacle, is that responsible lending is a critical component for a sound economy. Banks are reverting to their old ways…that is, prudent lending practices that were prevalent before the housing frenzy spiraled out of control. Borrowers will actually have to be credit worthy (gasp!) and will be forced to save for down payments in order to buy a home (gasp, gasp).

*Americans will FINALLY recognize the value in SAVING

It’s no secret, Americans are among the worst savers on the planet and that will come back to bite many of them in the tush right now (and of course in the future). A joint survey conducted by Princeton Survey Research Associates International for the National Foundation for Credit Counseling and MSN Money, found that Americans are largely unprepared for economic hard times–many don’t even have an emergency fund! I suspect that after we all survive this bitter dose of economic reality, many folks will learn their lessons and give serious consideration to saving for unforseen circumstances (like now) and also for their future. Sometimes it’s the negative experiences that teach us the best lessons and serve as a source of discipline and inspiration in later years.

Cathy Pareto, MBA, CFP®, AIF® is the Founder and President of Cathy Pareto & Associates, Inc. For over twelve years, Cathy has been helping financial consumers and professionals understand the world of investments and finance with a sound, but down to earth money management approach. For over a decade Cathy was a Senior Financial Advisor for another Miami based investment advisory firm, where she managed over $200 million in assets for high net worth clients and retirement plans. She has extensive experience in retirement issues, asset allocation, investment selection, investment management, education planning, estate planning coordination, and asset protection strategies. Additionally, she was an Adjunct Professor and Faculty Coordinator for the CFP® Program at Florida International University’s College of Business.

Part of the hysteria that we are experiencing can, in part, be blamed on the overused comparison to the Great Depression. My goodness, pundits and financial media are using the “D” word like it’s going out of style. We are NOT in a Depression people!

Here are some great blurbs from today’s Wall Street Journal to give us some perspective:

(Source: Wall Street Journal, Jason Zweig “What History Tells us About the Market“)

“In fact, the market is probably wrong again in its obsession over whether this decline will turn into a cataclysmic collapse. Eugene White, an economics professor at Rutgers University who is an expert on the crash of 1929 and its aftermath, thinks that the only real similarity between today’s climate and the Great Depression is that, once again, “the market is moving on fear, not facts.” As bumbling as its response so far may seem, the government’s actions in 2008 are “way different” from the hands-off mentality of the Hoover administration and the rigid detachment of the Federal Reserve in 1929 through 1932. “Policymakers are making much wiser decisions,” says Prof. White, “and we are moving in the right direction….”

” A few weeks ago, investors were gasping; now, en masse, they seem to have gone numb….This collective stupor may very likely be the last stage before many investors finally let go — the phase of market psychology that veteran traders call “capitulation.” Stupor prevents rash action, keeping many long-term investors from bailing out near the bottom. When, however, it breaks and many investors finally do let go, the market will finally be ready to rise again. No one can spot capitulation before it sets in. But it may not be far off now. Investors who have, as Graham put it, either the enterprise or the money to invest now, somewhere near the bottom, are likely to prevail over those who wait for the bottom and miss it.”

I confess…the markets suck right now. But for goodness sake, let’s stop this Depression mindset and get on with life.

Cathy Pareto, MBA, CFP®, AIF® is the Founder and President of Cathy Pareto & Associates, Inc. For over twelve years, Cathy has been helping financial consumers and professionals understand the world of investments and finance with a sound, but down to earth money management approach. For over a decade Cathy was a Senior Financial Advisor for another Miami based investment advisory firm, where she managed over $200 million in assets for high net worth clients and retirement plans. She has extensive experience in retirement issues, asset allocation, investment selection, investment management, education planning, estate planning coordination, and asset protection strategies. Additionally, she was an Adjunct Professor and Faculty Coordinator for the CFP® Program at Florida International University’s College of Business.

Money—it’s such a simple, yet potent word that can invoke many different emotions, thoughts, fears and dreams in so many people. We all seem to want it, but most of us for different reasons. For some it’s the means to a better life or survival, for others it’s about power, control, vanity….or simply having things.

I’ve never given much thought to the meaning behind it all—the meaning of money, until I stumbled upon “The Ultimate Gift”. This inspiring movie, based on the book with the same name (by Jim Stovall), reminded me of how easily money can corrupt our perspectives about what’s important, and what is real.

Why do we work as hard as we do? What does all this money do for us? What is it all for?

Ironically, my entire professional life is centered on money, taking care of it for others, making sure that it’s saved, it grows, that it lasts, and that it protects the people that have entrusted me with it, people that have worked so hard for it and others who maybe didn’t. I live and breathe money every day—in my client planning, their investments, savings, budgeting…..money…..it’s everywhere…. in its tangible form. But, what exactly does money mean?

What exactly does money mean to you?

Money is blind, and money blinds. It is a ticket to freedom, for others a sentence in darkness. Some obsess about it, a few loathe it, and yet others cannot ever seem to attract it. I’ve seen money corrupt the most decent of people, rip families apart and poison minds and hearts. But, I’ve also seen money enable dreams, save lives and nourish the existence of those who need it most. Money is meant to be shared, not hoarded, help not hurt.

Every day, we should remind ourselves of our purpose in life, revisit our dreams and face our deepest fears. Life is a journey, it’s our shared existence and every experience, good or bad, painful or happy teaches us something. Every moment is really, an ultimate gift….and money, no matter how much or how little we may have, is merely the means to end–nothing more.

Cathy Pareto, MBA, CFP®, AIF® is the Founder and President of Cathy Pareto & Associates, Inc. For over twelve years, Cathy has been helping financial consumers and professionals understand the world of investments and finance with a sound, but down to earth money management approach. For over a decade Cathy was a Senior Financial Advisor for another Miami based investment advisory firm, where she managed over $200 million in assets for high net worth clients and retirement plans. She has extensive experience in retirement issues, asset allocation, investment selection, investment management, education planning, estate planning coordination, and asset protection strategies. Additionally, she was an Adjunct Professor and Faculty Coordinator for the CFP® Program at Florida International University’s College of Business.