Oxford Club’s Alex Green explains how Wall Street’s supposedly safe structured products became an investor’s nightmare. In reality, they were just a gimmick. Alex says this just underscores why investors should be cautious of any product that comes with “guaranteed” returns.

This from InvestmentU:

Structured products are securities that are sold as an opportunity to enjoy substantial gains with full principal protection.

For example, an underwriter might offer investors the upside potential of the S&P 500 - or a substantial percentage of that upside - over a certain period of time (say, five years) while guaranteeing no less than full value of the initial investment at maturity, even if the index goes down.

(Or, instead of the S&P 500, the investment might be linked to Asian currencies, or commodities, or something else.)

How can you offer all or most of the upside of a risky investment with a principal

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“The boom years are over,” says Bill Bonner. Of course, this is what Bill has been saying all along in The Daily Reckoning. Now that's the day of financial reckoning has come to pass, however, Bill is feeling a sense of dread. That's because, as bad as things are right now, they look like they're about to get worse...

Private Placement InsurancePrivate Placement Life InsuranceBelow is a short article on private placement life insurance. I do not personally recommend any tax or investment strategies or provide financial advice of any type but this topic is highly relevant to both hedge fund investors and professionals so I thought I would include it here:

A small but growing number of wealthy investors have discovered a legal way to invest in hedge funds without paying income taxes on the gains.

It's called "private placement" life insurance. These special insurance contracts allow policyholders to invest in a wide range of products, including hedge funds. The main attraction: Because the investments are held within an insurance wrapper, gains inside the policy are shielded from income taxes -- as is the payout upon death. What's more, policyholders may be able

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[In Part II of his three-story investigation of the credit crisis, Money Morning Contributing Editor Shah Gilani shows us how American International Group, a perfectly sound company that’s survived for 89 years, was destroyed by some errant bets on a derivative security called a “credit default swap,” or CDS. It’s a story you’ll read nowhere else.] By Shah Gilani Contributing Editor There’s nothing fundamentally wrong with the core insurance business units of American International Group Inc. (AIG). Nothing at all. What imploded the venerable insurance giant was an accumulation of misplaced bets on credit default swaps. By the best estimates of the International Swaps and Derivatives Association and the Bank for International Settlements (BIS), often referred to as the central banks’ central bank, the notional value of credit default swaps is some $62 trillion, or 35 trillion British Pounds at an ...

Last night, the Fed saved AIG (AIG).

The Federal Reserve lent the soon-to-be-former-Dow-component $85 billion. In exchange, the company must sell off its assets to pay back the loan. The interest rate is LIBOR plus 8.5%, which is equivalent to the terms of many credit cards.

Many of the company's insurance units are profitable, and there is some scuttlebutt that this could end up being a profitable move for the Fed. The Fed is clearly cherry-picking which companies it saves and which it lets fail. We can only assume that there was something in American International Group's mortgage-back securities exposure that would have caused a financial tsunami if the firm were allowed to fail. If that was truly the case, then this deal is a huge positive for investors.

The problem, however, is that every time the government bails

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Recently, someone asked me whether an Education Endownment policy is worth taking up, as the returns look pretty decent. Annual premium: S$5,700 payable for 10 years Sum Assured: S$100,000 Maturity period: 20 years Maturity sum: S$100,000 (payable of S$40,000, S$30,000, S$30,000 over three consecutive years beginning from 20th year); I believe there should be some extra bonus (non-guaranteed) although it was not mentioned. Riders attached: payer waiver of premium benefit. Using the above figures, I calculated the internal rate of return (IRR) to be 3.46%. This is a decent figure, provided inflation stays around or below 3% for the next 20 years. Note that this is achievable because the premiums were squeezed into a 10-year period, therefore giving the money its time long enough to compound. As always, there is a better way to achieve the above results through BTITR (Buy Term Invest The Rest), reasons being:- 1) there is a maturity sum to work on; 2) there is a ...

We have reached a disturbing moment in financial markets, where the noise to signal ratio across all asset classes is probably at an all time high, the August effect notwithstanding. Never has it been more important to adopt a strategic mindset to investing, rather than stampeding after the latest momentum trade without a shred of conviction. I've been a skeptic on economic decoupling, and had bet the right way on the dramatic reversal in the dollar (where I strongly suspect we saw discreet US intervention last week, possibly as a quid pro quo to the Gulf States/Saudi for maintaining their dollar pegs after recent visits by Hank Paulson). I'd advised a short on oil and other commodities, where the deteriorating outlook triggered a sudden slump, but I fear that equity markets are still dangerously complacent as to the risk of the brakes slamming on global growth. We will probably ...

Back in the summer of 2005, I was really excited about the potential of a new wireless technology called WiMax and the prospects of graphics card maker ATI Technologies, which was about to launch its next generation of products to compete against rival Nvidia (NVDA).