I was talking with a mortgage banker today about possibly refinancing out of my own mortgage loan if rates go down. After we ran through that, he told me a story about a friend of his who thought he had his estate planning all worked out. Turns out there was a snag, and one worth mentioning.

First, you know I'm big on having a will.  A will is the first step towards creating a plan for the benefit of your heirs. A will can accomplish some important goals:

•     Naming your personal representative – someone to guide your estate through the probate process when you pass
•     Naming a guardian to watch over your minor children
•     Distributing your personal property according to your wishes

With a will, you make these important decisions. Without a will, the state makes these decisions for you.

But you need to plan it right. My mortgage friend told me the following story to prove that point:

Unhappy with his past investment performance - and skeptical of his adviser's intentions -- "John Doe" moved his accounts to a new adviser.

That's all well and good, But did John Doe take the time to also check his will?

In my friend's story, John Doe didn't do that. That led to the realization that, although the guy's investment accounts were reinvested to his satisfaction, the prior (ineffective) adviser would still take over management when John Doe  passed away.

That would have left his heirs with an untrusted adviser who he thinks made unethical, commission-driven investment choices," my friend said. "The lesson to be learned is to review and update your will regularly."

A wise point, and a good one.

 

With Apple in the headlines from its iPhone pricing debacle, I’ve kept a close eye on the company’s stock price.

One rule of thumb on Wall Street is that if your company find itself in the news for negative reasons, take control of the issue and engineer some new headlines, preferably the kind that will minimize any damage to the company’s stock price.

That’s what Apple tried to do when it’s new iPhone price-cutting strategy blew up in its face. Price-cutting is a real departure for Apple. The company is famous for eschewing big sales and dramatic cuts in product prices. It sells quality – and if that quality includes price tags that induce stocker shock, so be it.

So a lot of eyebrows were raised on Wall Street when Apple went against the grain and cut its price or its new iPhone from $599 to $399. Even at $399, the iPhone is vastly more expensive than any other cell phone out on the market, so a good argument can be made that Apple isn’t really leaving all that much money on the table. The lower price should attract a lot more buyers than it would at $599. American consumers, after all, are famous for letting the early adopters pay the full freight, shake out any product bugs, then waltz in a few months later and buy in at a lower price tag.

But Apple didn’t count on how those early adopter would react when it slashed prices only two months into the iPhone’s release. Apple adopters had counted on the fact that the company would not cut prices for the iPhone. As I said, it has a long history of not doing so with its computer products.

Even Steve Jobs wasn’t giving off any vibes that Apple would lower the iPhone price. In a classic exchange with a reporter from USA Today, Jobs had the following to say:

“Soon after Apple (AAPL) announced an unexpected $200 drop in the price of the iPhone on Sept. 5, Chief Executive Steve Jobs betrayed little sympathy for the chumps who had bought the device at the higher price. "Well, that's what happens in technology," he said.”

A rugby scrum ensued after the about face, with Jobs taking the brunt of it. Customers, media mavens, bloggers and Wall Street analysts all 
piled on Apple and its CEO.

"A drop of $200 after just 66 days means that the iPhone decreased roughly $3.03 a day in retail value between launch and yesterday's announcement," said Terrence Russell on Wired's blog, Epicenter. "It's no secret that electronics drop in price over time, but such a deep and hasty discount makes trying to quantify the realistic retail value of the hardware confusing."

"To us, this move suggests the phone is not selling as well as Apple had hoped," wrote Dan Frommer on Silicon Valley Insider. Meanwhile Apple 2.0's Philip Elmer-Dewitt predicted that the company may be "clearing out inventory to make way for a 3G iPhone ASAP," referring to future product that might utilize a higher-capacity phone network.

Customers were particularly ticked off. In comment threads on The Unofficial Apple Weblog, posts from disgruntled iPhone owners numbered in the hundreds. "A $200 penalty for buying into their vision and trusting them?" asks a commenter going by the name Billy K. "Never again."

Now yesterday comes news from Apple that it will appease early iPhone adopters by offering them a $100 gift voucher, good at any Apple store or on Apple.com. Will that appease customers? Probably. Most Apple customers are loyal to a fault.

Will it stem the sharp decline in Apple stock from the past week? That’s not so clear. Apple stock fell from $145 per share to $130 in about 48 hours after the pricing announcement. It’s creeping up somewhat through early Friday trading but the damage has been done.

After all, what is more deliciously ironic than using your $599 iPhone to email your broker to sell your Apple stock?

 

There's an old joke about a bar owner who bragged, "I opened this place 15 years ago with $78 in my pocket and boy, have we made progress! Today, I'm $298,000 in debt!

No doubt about it, debt can kill a small business, and seriously hurt your chances of reaching a finance company for a small business loan or other financing.

So here is an important thing to remember: Managing your debt load is just a piece of your overall debt puzzle. And recognizing red flags that indicate you are in trouble is another.

The bigger picture - how debt can impact your small business, the steps you can take to control debt, credit and borrowing issues, and who to go to for help if you need lending help - those are the underpinnings of the debt management structure.

It's also important to understand what debt management is not.

It's not, for example, another name for bankruptcy, although that's a common misnomer. Debt management doesn't mean you are in bankruptcy, or even on the way there. Bankruptcy is usually reserved for those who can't pay their debts and need legal protection. Debt management is reserved for those who can pay their debts, but need a little help in doing so.

Put it this way:

Bankruptcy is permanent and debt management is temporary.

Bankruptcy is for small business owners who don't even have enough cash on hand to pay for food and shelter. Debt management is for people who can't afford to pay all of their debt obligations.

Bankruptcy is for small businesses that have no money to pay creditors. Debt management is for people who have simply fallen behind on their payments to creditors.

Bankruptcy is for small business owners who can only afford to pay cents on the dollar on their debts. Debt management is for people who plan on paying 100% of their debts (with a potential break on interest, depending on the good graces of their creditors).

Bankruptcy is for small business owners who will soon lose some, most or all of their assets. Debt management is for people who don't lose assets.

Bankruptcy is for small business owners who may never get credit again. Debt management is for people who will get credit again.

In short, debt management is a viable alternative to bankruptcy for those entrepreneurs who can afford to meet their debt obligations. But note that, if a bleak debt situation goes largely ignored, the path from debt management to bankruptcy can be a short one.

 

As the revenues roll in from your burgeoning small business, it's tempting to use some of that cash to pay down your debts. But should you do that instead of investing the money for the future?

It's a fair question. In fact, Old King Solomon would have a difficult time deciding what to do.

But there is a guiding light out there in the economy that can help you decide -- interest rates. Why should it all come down to interest rates? In our dilemma here, it's a good idea to invest money if you can earn a higher interest rate than you are paying on your loans and debts. For example, if the interest rate on your small business loan is six percent and you invest in a mutual fund that promises a higher return, then your money is working harder and smarter for you as an investment.

That said, there's no guarantee that your mutual fund will even earn four percent next year. Heck, it could lose four percent.

So that's why I favor paying off your debt first. The interest rate fees you kill by paying off the loan alone make that strategy a savvy move. And being debt free is a small business owner's dream.

But I also come down on the side of practicality. If you insist on going the investor route, put the maximum you can in your self-employed retirement plan (SEP). In a word, SEP's are like a "Solo" 401(k) that cater specifically to small business owners and sole proprietors who want to save for retirement on a tax-advantaged basis. Since your retirement plan distributions are tax-deferred and come out of your own pocket as a gross, and not net, amount of your earnings, you'll hardly notice the money is missing.

It's simpy a matter of paying yourself first.

Come to think of it, paying yourself first is a good debt strategy of its own.

 

Could the sub prime debacle bleed into the overall economy - and take your small business along with it?

Probably not -- but a little education can go a long way in preparing for any negative impact that the collapsing real estate market may have on your business.

First some fresh facts. The Wall Street Journal reports that the Securities and Exchange Commission's enforcement division is investigating whether any securities regulations were broken in connection with recent problems in the sub prime mortgage industry.

Wall Street analysts point to New Century Financial Corp., an Irvine, Calif.-based home lender that recently cut off funding to bank lenders, as the first and primary stop by federal regulators looking into the sub prime mess. The Journal reports that the SEC is probing the events leading up to its announcement that it would restate financial results for the first three quarters of last year.

Congress is also getting into the act. Senate Banking Committee Chairman Christopher Dodd, D.-Conn., has invited the chief executives of New Century and four other sub prime lending companies to testify before his committee this week.

Why all the hoopla? For starters, the growing number of delinquencies and foreclosures means a skidding stop to the once-roaring real estate market. According to a recent report from First American CoreLogic Americans borrowed $2.2 trillion from 2004 through 2006 in the form of adjustable loans, which start with low monthly payments that reset to higher rates. As those loans reset, 1.11 million people will lose their homes.

Analysts say that as home prices appreciated quickly, home buyers swarmed to lenders offering option-heavy adjustable-rate loans that made it simpler for borrowers to buy more expensive homes. But a declining real estate market means that buyers who took out the loans as the housing explosion was coming to an end made little or no money off their investments. According to the CoreLogic report, it's those borrowers who are most likely to wind up in default because they won't be able refinance or sell their homes at profit to cope with higher monthly payments.

"This isn't just sub prime," Christopher Thornberg, an economist with the consulting firm Beacon Economics in Los Angeles, told The Associated Press. "This problem is starting to occur in most of the adjustable- rate mortgages. Even for prime borrowers, we're seeing a big spike in delinquencies among adjustable-rate mortgages."

Small business owners who own adjustable-rate mortgages have limited options. You can try and refinance to a lower fixed rate, but check first for any language in your mortgage contract that says you can or cannot refinance over a specific period of time. For example, some  option-arm deals prevent you from refinancing for one, two, or even three years. If you see your mortgage rate skyrocketing, that’s your best option. If you can manage to swing the payments for a year, even as they rise, chances are the real estate market bust will peter out and prices will go back up again.

No matter what, the sub prime debacle is bad news for millions of homeowners, and by extension, the businesses they buy from. Common sense tells us that if cash-strapped Americans have less money to spend, it's the small business guy who gets hit first -- and hardest.

 

Granted, few people are thrilled about the performance of their stock portfolios so far in 2007, not counting the handful of investors who adopted a defensive crouch and are sitting out the current market malaise in hopes for better times later in 2007.

Going back to February 26, after the Big Dip when the stock market tanked some 500 points, before rebounding slightly, the Standard & Poor’s Index has been down about one percent. The Biotech stock indexes have followed suit, falling slightly more to 1.12%, according to the Morgan Stanley Biotech Index.

My favorite biotech ETF, BBH Holdrs has struggled so far in 2007, down 15 points or so since the late February stock market debacle. Some Wall Street gurus jokingly refer to BBH as the Amgen-Genentech fund, and perhaps with good reason. Genentech, Amgen and Gilead Sciences comprise most of the fund, along with Genzyme, Medimmune, and others. So what? That’s like having Manny Ramirez and Chipper Jones anchoring your company’s beer league softball team.

Besides, BBH was hardly alone in suffering a setback in February and March, as the AMEX biotech index and iShares Nasdaq Biotech Index fell in lockstep with BBH and the rest of the equities market. Patent protection is one sour issue impacting life sciences companies – more than 70 drugs will lose their patent protection in the next few years, including Pfizer's cholesterol reducer Lipitor and BristolMyersSquibb's blood thinner Plavix. Business Week estimates that pharmaceutical companies could lose up to $100 in lost sales by 2011.

Still, my feeling is that you can’t get too excited about short-term ups and downs - - a theme I keep returning to in these pages week after week. That’s especially true of biotech, which doesn’t play by the same rules that most industries do when it comes to stock performance. In the biotech world, success is defined by clinical successes and failures – not by shock waves resulting from outside-the-industry market downturns like we saw in February. Companies that comprise the BBH – like Amgen and Genentech -- are insulated from such external pressures, primarily as a result of their well-stocked pipelines and deep reservoirs of cash and R&D talent.

Speaking of big pockets, I'm also seeing an uptick in biotech investing from the venture capital community - - a good sign that biotech does indeed march out of lockstep with the rest of the stock market. In addition, the biotech industry overall should benefit from ongoing pressure from Congress to lower drug prices. True, such pressures could slow the progress of some of the Big Pharma boys, but that will only level the playing field for the rest of the sector.

Besides, stalwarts like Amgen and Genentech should thrive just the same; both stocked with strong pipelines and high demand for its products. Sales at both companies have been strong and should only grow stronger.

That should bode well for BBH, even in a murky biotech environment. I’ve said it once and I’ll say it again: BBH is chock full of companies whose products wind up in pharmacy prescription bins and stacked up on shelves along store aisles. That fact isn’t going to change anytime soon and that’s good news for BBH investors.

Consequently, my view of BBH is that it’s a good long-term play. Companies like Genentech, which is heavily involved in the human genome project, and Gilead Sciences, which is working on new pharma drugs for HIV/AIDs and other diseases, could revolutionize health care.

With Genentech and Amgen swinging big bats at the heart of the order, I believe that the BBH fund continues to be a great way to play the biotech sector -- and should be for the foreseeable future.