A LESSON FROM HURRICANE SANDY

Posted on February 28, 2013 by Jill D. Hollander

One of the unpleasant surprises in the devastation of Hurricane Sandy was the role of homeowner’s insurance.

Do you have enough?

Your home is one of your largest assets. Does it have enough coverage? Don’t be underinsured. Remember we’re not talking about the fair market value of your home, but the cost to rebuild it. Construction costs routinely change. Periodically review your policy to see if the coverage reflects today’s rebuilding costs.

Coverage in natural disasters

It is important to find out what your policy covers—and just as important, what it does not. For example, standard homeowner policies rarely cover earthquake, flood or mold damage. If you live in a low-lying area and take out flood insurance, note that it usually covers $250,000 for boilers, washers, dryers, and other utilities but no other contents of your house or garage: for those you will need to look into different coverage. Frequently, damage caused by wind is a separate deductible charged as a percentage of the house’s value. It can be as much as 10%!

Reputation and financial strength of your insurance company

Cheap isn’t always the best. Look for a company with a good rating for financial strength (A.M. Best and Fitch rates them). What is its reputation for claims? Will the insurance company argue over every dollar you claim?

Example

Jill annually grumbles about the high premiums for her homeowner’s insurance—but not anymore.

Jill and Bonnie had no idea that their dishwasher was leaking, causing water and soap to go through the kitchen floor to the basement. While ripping out the floor, the contractor found asbestos. The entire flooring for 4 rooms had to be replaced. Not surprisingly, it was a nightmare to live with no kitchen, furniture compressed to a few rooms plus the garage, everything boxed, cabinets ripped out, etc.  for more than 2 months.

However, the insurance company paid without any arguments not only to the companies involved in the repairs, but for our out-of-pocket expenses. AND, surprisingly it didn’t increase our premiums.

While Jill doesn’t wish this experience on anyone, the insurance company became a partner, not an adversary.

Keeping your documents

Whether it is auto insurance or homeowner’s, you need your policy available in case of a disaster. If the disaster involves your house or the car in the garage, access to a copy is critical. Clients of Financial Connections could upload a copy to their Client Web Portal (see related article).

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PREDICTING THE FUTURE—WHY BOTHER?

Posted on February 21, 2013 by Jill D. Hollander

People frequently ask what we think the market will do over a given year. As we’ve always said, our crystal ball is no better than anyone else’s.

 Here’s a look at predictions for 2012 made by various institutions with large quantities of information and the staff to analyze them. With hindsight, we see their errors.

  •  Morgan Stanley—predicted S&P 500 would fall 7.2%. It was up 13%.
  • Goldman Sachs—predicted S&P 500 would drop 25% and the Euro would collapse: it strengthened 9.4% from a July low. [ADD EURO’S JULY FIGURE?]
  • Credit Suisse, Wells Fargo, and Merrill Lynch—predicted flat returns forU.S.equities. The Wilshire 5000 (measures small, medium and large companies) was up 16%.
  • Citigroup— forecasted February 2012 a 50% chance of Greece’s leaving the Eurozone in 18 months; in May the forecast increased to a 75% chance and the prediction went up to 90% in July that Greece would be out of the Eurozone by January 1, 2013.

CXO Advisory Group tracks more than 60 “market gurus” and calculates that an accurate forecast occurs 48% of the time over the long term. This is less accurate than a coin flip (correct 50% of the time).

 We strive to maintain an even keel between positive and negative expectations when designing portfolios.

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Blessing Or Curse?

Posted on December 7, 2012 by Jill D. Hollander

Imagine a time when the U.S. doesn’t depend on oil from the OPEC nations; a time when the policies of the U.S. aren’t tied to importing oil.

This would be a blessing

The magic word is SHALE. Its potential yield of natural gas in the United States equals the oil available in two Saudi Arabias! The potential yield from shale is not news, but improved geological studies and new technology have made extracting natural gas from shale economically feasible. Natural gas is the cleanest of the fossil fuels.

In 2005 we imported 60% of our oil but have brought the amount down to 42%. If or when U.S. companies decide to spend serious resources to harvest gas, we could export it to other countries while decreasing our dependence on oil.

Ed Morse, an energy expert at Citigroup said, “In the geopolitics of energy, there are always winners and losers. The U.S. is going to win big, and someone else is going to lose big.”

The October 5 Wall Street Journal, “Natural Gas Glut Pushes Exports” highlights a consortium of energy companies planning to build a pipeline for natural gas. It reports on how the United States is in the process of turning from an importer of oil to a potential exporter of natural gas. Natural gas production was up 28% in 2011 from 2005.

And/or a curse

The method used to extract gas is called fracking. The process receives mixed reviews. There have been numerous leaks, shoddy work (i.e., cracked cement leaking the chemicals), etc. In an interview on 60 Minutes (Shaleionaires), the Sierra Club spokesperson said the problem was a lack of regulation and accountability.

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