Investment Scams, Gas Prices and Student Loan Debt

Mar 2012

Every time I read about another financial advisor who rips off their clients, it just kills me. Just the other day Joseph Fabian, a financial advisor from Gobles, Michigan was sentenced to 92 months in prison for defrauding 30 clients out of $4.8 million. Then just today, Alan Stanford was convicted of fraud for an investment scheme that milked investors out of about $7 billion. His investment scheme involved bogus certificates of deposit at an Antigua bank. He was convicted of 13 counts, with each of the counts carrying as much as a 20-year prison sentence. It seems that a week doesn’t go by when I don’t read about one financial advisor or another ripping off their clients.

The common thread that runs through so many of these investment scams is flimflam artists promising higher than normal rates of return. Even though many of these crooks are eventually caught, the money they stole usually isn’t returned to the investors. The bottom line is that investors have a responsibility to make sure they’re doing their homework before they invest Another thing that investors fall for is exotic types of investments, thinking that the more complex and exotic the investment, the better the chance of making money. I believe the exact opposite. The more exotic and complicated the investment, the greater the possibility that you will be ripped off. One of the reasons I like using mutual funds is the fact that they’re easy to understand and they’re not as complex. For most investors, I believe, keeping it simple is the way to go.

Gas prices continue to be a thorn in all of our sides. Just last week in Michigan gas prices jumped 25 cents a gallon. Gas in Michigan is now averaging close to $4.00 a gallon. Michigan now has the eighth most expensive gas in the country. The national average is about $3.77 a gallon. Unfortunately, I don’t see it getting better anytime soon. I think gas prices will continue to rise, and I wouldn’t be surprised if we’re paying $4.50 a gallon by the Memorial Day weekend.

There is no doubt that as gas prices rise, there will be a negative effect on the economy. It’s not just that you and I pay more for gas, it’s the domino effect that rising gas prices have. Before you know it, we’ll see food prices and other costs go up as businesses that are forced to pay higher energy prices pass that cost on to you or me. In addition, potential problems in the Middle East (particularly with Iran) could cause gas prices to rise even further. If Israel decides that it has no alternative but to take action against the Iranian nuclear facilities, it could cause oil prices to rise even more. Although some of this has already been factored into the market, it is something that, as investors, we have to be aware of.

I saw a report by the Federal Reserve Bank of New York stating that 27 percent of the 30 million student loans have past due balances of 30 days or more. You don’t read much about student loan debt, but it is becoming a problem. Even though it’s a problem that could affect all of us, it’s more of a problem for those who owe the money. After all, it’s not unusual today for employers to use credit scores to determine who they should hire. Students who are in default on their loans may find it more difficult to obtain employment. In addition, if there are large defaults on student loans (and there’s about $870 billion outstanding loans) it could have a domino effect that will hurt us all.

Despite all of this the markets have been pretty resilient. That doesn’t mean everyone should rush into the market because, in addition to rising oil prices, the European debt crisis is far from over. However, our economy is certainly in better shape than it was a few years ago.

It is March which means March Madness is here. Enjoy the NCAA tournament, because it’s the best few weeks in sports in my opinion!
Go Green Go White!


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