Kenneth Savage-Financial Planning

Feb 20 2012

THE LANDMARK MORTGAGE SETTLEMENT

What kind of relief will it offer?

Presented by Kenneth Savage

Big news, but will it make a big difference? On February 9, the Justice Department announced it had struck a settlement approaching $26 billion with the major U.S. mortgage servicers. This is the biggest multistate settlement of any kind since the Big Tobacco payout of 1998, with five big banks (Bank of America, JPMorgan Chase, Citigroup, Ally Financial and Wells Fargo) agreeing to make amends for robo-signing and other consumer abuses. Other lenders may join them in the deal.^1,2

While this is all well and good, Housing and Urban Development Secretary Shaun Donovan conceded to the press on February 9 that the accord “doesn’t solve everything.” Indeed, with trillions of household wealth lost in the foreclosure crisis, even a settlement of this magnitude can seem relatively puny.³

Just 9% of homeowners will have mortgages modified. About $10 billion of the settlement will be used to rework home loans, but if your mortgage is owned by Fannie Mae or Freddie Mac, you’re out of luck; those loans aren’t included in the deal. Therefore, only about 1 million homeowners will get loan modifications out of the 11 million with underwater mortgages nationwide. These 1 million borrowers could see principal reductions of up to $20,000.^1,2,3

What about cash payouts? About 750,000 borrowers who lost homes to foreclosure are in line for some monetary compensation: about $2,000 in cash each. To qualify, you must have lost your home sometime between January 1, 2008 and December 31, 2011. These payments will be sent out by state governments.²

Here’s a breakdown of how the settlement funds will be distributed:

$10 billion for principal reductions on underwater mortgages

$7 billion for “other forms of relief” (unspecified; could include short sales, neighborhood blight reduction efforts and principal forbearance)
$4.25 billion to 49 states (all except Oklahoma, which reached its own settlement with the five big mortgage servicers)
$3 billion toward refis of underwater mortgages
$1 billion to the Federal Housing Administration
$750 million in cash to the U.S. government²

On top of that $26 billion, Bank of America will pay out another $1 billion to settle a separate federal investigation into mortgage fraud at Countrywide Financial, which it bought in 2008.²

The settlement amount could approach $45 billion if other major mortgage servicers sign on to the agreement. That could presently happen.¹

When do you find out if relief is coming your way? It will likely take you from 6-9 months to determine if you are eligible for any benefits from the settlement. The federal government says you will get a claims form if you are eligible to get some money as a result of all this. If you have any doubts that the claims form will reach you at your current address, you are directed to contact your state attorney general’s office.²

To learn more, you can visit NationalMortgageSettlement.com, a new website providing yet more details.¹

Kenneth Savage is a Financial Advisor with NorthStar Financial & Retirement Planning and a Registered Representative with Taylor Capital Management and may be reached at: (910) 599-2182, ken.savage@live.com or www.northstar65.com

If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box

If you would like to receive a research report on a specific security, mutual fund, or exchange traded fund (ETF) send the request to ken.savage@live.com and just type in the call letters (Symbol) in the subject box

Citations.

1 – abcnews.go.com/Business/feds-announce-25b-foreclosure-deal/story?id=15545458#.TzWEzOSX1c4 [2/9/12]

2 – www.thefiscaltimes.com/Articles/2012/02/10/What-the-$26-Billion-Bank-Deal-Means-to-You.aspx#page1 [2/10/12]

3 – www.kansascity.com/2012/02/10/3421011/finally-real-mortgage-relief-for.html [2/10/12]

Feb 13 2012

THE FACEBOOK IPO

The frenzy is building. Should you care?

Presented by Kenneth Savage

Anticipation is high. Facebook filed an S-1 form with the Securities and Exchange Commission on February 1, taking its first big step toward going public. It aims to raise $5 billion through its upcoming IPO. Some of the details from the S-1 form:

Facebook’s revenue climbed from $777 million in 2009 to $3.71 billion in 2011.

Its annual profits went from $229 million (2009) to $1 billion (2011).
Its profits grew by 65% last year alone.
Its top source of revenue is advertising. (12% of Facebook’s 2011 revenues came from Zynga, a social network gaming company.)

The Google IPO raised $1.9 billion, and this IPO could potentially dwarf that.¹

Will this IPO live up to all the hype? It might; it might not. Let’s examine some other key tech IPOs and see how those shares have done since.

Google. The IPO set the share price at $85. Here in early February 2012, the share price is now around $580. A home run by any definition.

LinkedIn. On the day of the IPO, the share price climbed from $45 to a peak of $122.70 and settled at $94.25. At the start of February, LinkedIn was trading for about $72.
Pandora. Shares were offered at $16 in June 2011; eight months later, they were trading at $13.
Zillow. Shares were offered at $20 in July 2011 and ended at $35.77 on the day of the IPO; in early February, Zillow traded at around $30.^2,3

All in all, these numbers look pretty good, right? Sure they do, to institutional investors. Keep in mind that the little guy gets there second. It is the institutional investor – not the small investor – who gets first dibs on the stock and who frequently realizes the terrific upside. The individual investors get to get in after the shares take off; sometimes they pay a price.

Lessons from the dot-com (and dot-bomb) years. The 1990s may seem like ancient history, yet there are examples from the past worth noting when it comes to IPOs.

University of Florida finance professor Jay Ritter has maintained a huge database on IPOs for decades. He did a study of 1,006 IPOs from 1988-1993 (these were all IPOs that raised $20 million or more) and found that the median IPO underperformed the Russell 3000 by 30% in the first three years after going public, and that 46% of the IPOs produced negative returns.

In 1999, 555 firms went public and the median share price gain for these issues on the day of the IPO was 30%. But what if you bought after the first day? If you did, the median gain after three months averaged 0%. Additionally, almost 75% of all U.S. Internet-related IPOs from mid-1995 to 1999 traded underneath their offering price at the moment of publication.²

Should Mom & Pop dive in? As MarketWatch columnist Mark Hulbert pointed out, Facebook’s IPO will be three times as expensive as Google’s and about 40 times as expensive as the average large IPO since 1975. As Hulbert found in the wake of a chat with Professor Ritter, Facebook’s price-to-sales ratio (PSR) looks to be about 26, with 2011 revenues of $3.71 billion and a reported IPO valuation of circa $100 billion. Google’s PSR was 8.7 at the time of its IPO. ^1,3

Looking back, Ritter found 76 companies since 1975 with trailing 12-month sales from the date of their IPOs of $3 billion or more (in 2011 dollars), firms with more or less reliable revenue streams. Their average PSR: 1.0. AT&T Wireless was the highest of them at 8.9, and that was a 2000 IPO.³

So in other words, Facebook would need staggeringly high revenues (or a consistently remarkable profit margin) for its shares to behave as well as Google shares did in those first few years out of the gate.

Could the tech sector see a “Facebook effect”? Yes, remember the “wealth effect” of the Google IPO? Some of the “best and the brightest” in the tech sector became overnight millionaires and went off and founded their own profitable firms. That sort of thing could happen again; there are tens of thousands of start-ups now generating revenues off of Facebook’s platform, so you have a whole ecosystem of smaller firms that are anticipating the IPO as much as institutional investors.⁴

Caution might be in order for those awaiting Facebook’s IPO. Individual investors have swung for the fences many times in situations like this, only to strike out.

If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box

Citations.

1 –www.cbsnews.com/8301-500395_162-57369966/facebook-files-to-go-public-plans-to-raise-$5b/ [2/1/12]

2 – cbsnews.com/8301-505123_162-57369940/why-facebooks-ipo-shouldnt-excite-you/ [2/2/12]

3 – www.marketwatch.com/story/facebooks-ipo-will-be-way-overvalued-2012-02-01 [2/1/12]

4 – www.mercurynews.com/business/ci_19881493 [2/2/12]

February 5 2012

GDP IMPROVES, YET DISAPPOINTS

The economy grew 2.8% in Q4, but that doesn’t tell the whole story.

Presented by Kenneth Savage

Our economy is reasonably healthy… or is it? By the initial estimate of the Bureau of Economic Analysis, America’s fourth-quarter GDP was +2.8%, not bad, but not what economists anticipated.¹

How could the best GDP in six quarters be interpreted as a slight disappointment? At $56 billion, inventory rebuilding was actually the biggest factor in Q4 growth, not final sales. Expanding inventories imply slowing sales (read: reduced demand) and production cutbacks for companies. If that implication plays out, it could put a drag on 2012’s Q1 GDP.¹

Business spending rose by 1.7% in the quarter; the Q3 2011 gain was 15.7%. Federal spending fell notably, with a 12.5% dip in defense spending; economists don’t see this as any kind of long-term trend.¹

Actually, 2.8% growth is in line with the last few recoveries. Since the 1990s, the economy has recovered from recessions less rapidly than it once did. This may be because America relied more on its manufacturing sector during the 1960s and 1970s, an economic engine that could rev quickly when things began to look up.

Looking at the last several downturns, here is the average GDP in the five quarters following a quarter in which a recession ended (according to the judgment of the National Bureau of Economic Research):

After Q1 1961: +6.9%
After Q4 1970: +5.1%
After Q1 1975: +5.5%
After Q3 1980: +2.6%
After Q2 1982: +7.8%
After Q1 1991: +3.0%
After Q4 2001: +1.9%
After Q2 2009: +2.9%

The unemployment rate has also taken more time to fall in more recent recessions. After the 2000-1 downturn ended, it took 48 months for employment to return to pre-recession levels. As for the previous post-WWII downturns, it only took an average of 20 months for the jobless rate to make a full recovery.^2,3,4

Perhaps this is a “new normal”. The economy is rebounding as might be expected from the recession, given recent examples. While many Americans have high expectations, a swift recovery may not be forthcoming.

However, one especially encouraging note indicates the recovery may be standing on stronger legs than we think: Q4 saw a 0.8% increase in real disposable income after a 1.9% drop in Q3 and a 0.5% retreat in Q2.¹

If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box

Citations.

1 – www.cnbc.com/id/46163831/ [1/27/12]

2 – money.msn.com/market-news/post.aspx?post=6e802a2f-f50a-4ae4-948b-7bc9555ff5f6&_nwpt=1 [1/27/12]

3 – http://montoyaregistry.com/Financial-Market.aspx?financial-market=Six-steps-to-get-out-of-debt&category=29 [1/27/12]

4 – www.knowwpcarey.com/article.cfm?aid=64 [12/15/10]

January 27 2012

WOMEN & MONEY – MOVING FROM THE MOMENT TO THE FUTURE

Shifting the focus from the short term to the long term.

Presented by Kenneth Savage

How many short-term financial decisions do you make each week? You probably make more than a few.

They may feel routine. They may demand your attention, day in and day out. Yet in managing these day-to-day issues, you may be drawn away from making the long-term money decisions that could prove vital to your financial well-being.

How many long-term financial decisions have you made for yourself? How steadily have you saved and planned for retirement? Have you looked into ideas that may help to lower your taxes or preserve more of the money you have accumulated?

In a 2010 Prudential survey of 1,250 American women, 86% of those polled felt that they lacked knowledge when it came to choosing investment or insurance products, yet 95% of the respondents identified themselves as the financial decision-makers in their households.¹

This seems to suggest that many women feel adept at making money decisions for today, but less confident about making financial decisions for tomorrow.

If this describes your point of view, it might be a good starting point from which to gain more confidence and control over your financial picture.

Where do you stand financially? Start by taking an inventory of your investments and savings accounts: their balances, their purposes. Then, take an inventory of income sources: yours, and those of your spouse or family if applicable. Consider also your probable or possible income sources after you retire: Social Security and others.

This is a way to start seeing where you are financially in terms of your progress toward a financially stable retirement and your retirement income. It may also illuminate potential new directions for you:

The need to save or invest more (especially since parenting or caregiving may interrupt your career and affect your earnings)
The need for greater income (negotiate for a raise!) or additional income sources down the road
Risks to income and savings (and the need to plan greater degrees of insulation from them)

Devoting even just an hour of attention to these matters may give you a clear look at your financial potential for tomorrow. Proceed from this step to the next: follow with another hour devoted to a chat with an experienced financial professional.

If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box

Citations.

1 – www.prudential.com/media/managed/wm/WM-women-step-up-to-the-financial-challenge.html [1/18/12]

January 23 2012

ARE PEOPLE REALLY RETIRING LATER?

A noted economist disputes that generalization.

Presented by Kenneth Savage

True or false? You may have heard this claim before (or something like it): “Many Americans are being forced to retire later because their savings and investments took a hit in the Great Recession.”

Recently, a big-name economist disputed that belief. In a commentary for Bloomberg, former White House budget director Peter Orszag wrote that some of the statistics don’t seem to back up this conventional wisdom, but perhaps it all depends on which statistics you cite.

A fact that can’t be ignored. In mid-January, a widely reprinted Washington Post article mentioned that since the start of the recession, the population of U.S. workers older than 55 has increased by 12% to 3.1million.¹

Examining this Labor Department finding, the Post feature referenced longevity and the loss of traditional pension plans as contributing factors. It presented stories of older workers who didn’t think they could easily retire, and quoted respected commentators such as Alicia Munell, director of the Center for Retirement Research at Boston College, who remarked that “some of these people are just clinging by their fingernails to jobs.”¹

But is there more to the story? It turns out that Americans were trending toward staying in the workforce longer even before the recession. In 1994, Orszag notes, 43% of Americans aged 60-64 were working; in 2006, it was 51%. Nearly half of 62-year-olds went and claimed Social Security benefits in 1994, but 12 years later, less than 40% of 62-year-olds followed suit.²

Orszag mentions another factor that may have kept older employees working during the recession: declining home equity. Put that alongside diminished IRA and 401(k) balances, and there was every reason to stay on the job these last few years.

However, just because older Americans wanted to keep working didn’t mean that they could.

In the 2011 edition of its respected Retirement Confidence Survey, the Employee Benefit Research Institute found that 45% of retirees ended their careers earlier than they wanted to, in many cases due to layoffs and health issues.³

The Post article noted that the jobless rate for workers older than 55 was just 3.2% in December 2007 when the downturn began. In December 2011, it was up to 6.2%.¹

The percentage of employed Americans aged 60-64, which had steadily risen during the 1990s and early 2000s, has remained at roughly 51% for the past five years.²

That brings us to Orszag’s central point: “The bottom line is that people’s retirement decisions aren’t always entirely voluntary.”²

How about your retirement decision? Do you think you will retire when you want to retire? Are you prepared for retirement financially? A new year is a good time for a new look at the state of your finances and your retirement readiness. With astute planning, you might be able to retire sooner than you think.

If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box

Citations.

1 – www.usatoday.com/USCP/PNI/NEWS/2012-01-17-PNI0117biz-older-workersART_ST_U.htm [1/11/12]

2 – mobile.bloomberg.com/news/2012-01-18/look-at-jobs-before-leap-on-older-retirement-commentary-by-peter-orszag [1/18/12]

3 – www.ebri.org/pdf/briefspdf/EBRI_03-2011_No355_RCS-2011.pdf [3/15/11]

January 10 2011

Getting Off On The Right Foot In 2012

A look at some financial changes & the opportunities they may present.

Presented by Kenneth Savage

Every year brings some financial change, so here are some relevant changes relating to investment, tax and estate planning for 2012.

Retirement plans. 401(k), 403(b) and 457 plan annual contribution limits rise slightly to $17,000, and you can contribute an additional $5,500 to these accounts if you are 50 or older this year. IRA contribution levels are unchanged from 2011: the ceiling is $5,000, $6,000 if you will be 50 or older in 2012.¹

As you strive to contribute as much as you comfortably can to these accounts this year, you will probably notice some changes with the retirement plan at your workplace. In 2012, retirement plan sponsors (i.e., employers) will have to note all of the fees and expenses linked to the funds in the plan to plan participants. So if you have a 401(k) or 403(b), you may notice some differences in the disclosures on your statements and you will probably notice more information coming your way about fees. There is also a push in Washington, D.C. to have financial companies provide lifetime income illustrations on retirement plan account statements, projections of your expected monthly benefit at retirement age.²

Income taxes. Wealthy Americans are set to face greater income tax burdens in 2013, so 2012 may be the last year to take advantage of certain factors. For example, the top tax bracket in 2013 is slated to be at 39.6% instead of the current 35%. This year, capital gains and dividends will be taxed at 15% or less for everyone, 0% for those in the 10% and 15% tax brackets. In 2013, the qualified capital gains tax rate is scheduled to rise to 20% and qualified dividends will be taxed as ordinary income. So taking a little more income in 2012 could be smart.³

In 2013, the wealthiest Americans are supposed to be hit with new Medicare taxes: a new 3.8% levy on unearned income (such as capital gains, income from real estate, dividends and interest) and a new 0.9% tax or earned income. So next year, the truly wealthy could effectively face in the neighborhood of 45% federal taxes.³

Additionally, the IRS is planning to limit itemized deductions for upper-income taxpayers in 2013. A phase-out will also apply for the personal exemption deduction.³

Estate & gift taxes. At the end of 2012, some very nice estate tax breaks could sunset. Barring action by Congress, 2013 could see a 20% leap in the federal estate tax rate from 35% to 55%. The individual estate tax exclusion (currently $5.12 million) is scheduled to be reduced to $1 million.³

As we have unified gift and estate tax rates, those numbers and percentages also apply to gift taxes. That is, from 2012 to 2013 top federal gift tax rate is set to go from 35% to 55% and the lifetime gift tax exemption amount is scheduled to fall $4,120,000 per individual to $1 million. The annual gift tax exemption is $13,000 per recipient in 2012; there is an exemption limit for qualifying educational and medical payments. If you want to gift relatives or friends, you may want to avoid procrastinating for another very good reason: when you make such a gift early in a year, the recipient will gain both the principal and any appreciation tied to the gifted asset in that year.^3,4

Speaking of gifts, we said goodbye to charitable IRA gifts in 2011. The IRA charitable rollover, a boon to non-profits and a handy tax deduction option for taxpayers older than age 70½, was not extended into 2012, not even temporarily as a sweetener to the payroll tax extension bill. There is hope it will be back. Two bills have been introduced in Congress with that goal, one sponsored by Sen. Olympia Snowe (R-ME) and Sen. Charles Schumer (D-NY) and another by Rep. Wally Herger (R-CA) and Rep. Earl Blumenauer (D-OR). The proposed legislation would let IRA owners start making charitable IRA gifts at age 59½ and remove the $100,000 limit on the rollovers.⁵

The limits on the generation-skipping transfer tax could change, too: assuming the Bush-era tax cuts do sunset, the GSTT rate would jump from 35% this year to 55% in 2013, with the GSTT exemption falling from $5,120,000 per person this year to roughly $1.3 million per person next year.³

So given all these changes, it might be wise to meet with the financial professional you know and trust early in 2012 as you strive to start the year off on the right foot. You have until April 17 to file your federal return, but you can plan now.

Kenneth Savage is a Financial Advisor with NorthStar Financial & Retirement Planning and a Registered Representative with Taylor Capital Management and may be reached at: (910) 599-2182, ken.savage@live.com or www.northstar65.com

If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box

If you would like to receive a research report on a specific security, mutual fund, or exchange traded fund (ETF) send the request to ken.savage@live.com and just type in the call letters (Symbol) in the subject box

Citations.

1 – www.irs.gov/retirement/article/0,,id=96461,00.html [10/20/11]

2 – www.marketwatch.com/story/retirement-plan-changes-coming-in-2012-2011-12-29 [12/29/11]

3 – www.sbnonline.com/2012/01/how-to-approach-tax-and-estate-planning-opportunities-for-2012/?full=1 [1/3/12]

4 – advisorone.com/2012/01/06/10-tax-tips-for-advisors-in-2012 [1/6/12]

5 – www.northjersey.com/news/business/business_opinion/136217658_Payroll_tax_cut_benefits_charities.html [12/25/11]

January 6 2012

U.S. STOCKS HELD UP RELATIVELY WELL IN 2011

It was a weak year for equities, but foreign markets had it worse.

Presented by Kenneth Savage

2011 had a definite downside. Statistically, 2011 may end up being characterized as the year stocks stood still: the S&P 500 lost .003%, its smallest year-over-year change of any kind since 1947. Yet it was hardly a placid year; every week seemed to feature big rallies and selloffs, and seemingly every time we checked in on a financial website or TV program, some new anxiety had emerged.¹

If it wasn’t the debt crisis in the European Union, it was legislators on Capitol Hill. If it wasn’t the housing market, it was the job market (and in truth, the two were inescapably linked). Investors were jittery, and as emotions affect stocks as much as earnings and fundamental indicators, the great broad index of the American stock market wound up generating a less than thrilling return.

However, there was also an upside. Is the glass half-empty or half-full at this point? That’s a good question. Bulls were heartened by the way U.S. stocks held up in 2011. Comparatively speaking, the rest of the world may be marveling at how well we did:

DJIA: +5.53%

S&P 500: -0.003% (+2.11% with dividends)
NASDAQ: -1.80%
Russell 2000: -5.45%^1,2,3

Now look at how these foreign indices fared in 2011, according to performance data from the Wall Street Journal’s website:

DAX (Germany): -14.7%

CAC 40 (France): -17.0%
Bovespa (Brazil): -18.1%
All Ordinaries (Australia): -15.2%
Shanghai Composite (China): -21.7%
Hang Seng (Hong Kong): -20.0%
Nikkei 225: -17.3%⁴

The DJIA was a member of the “fortunate five,” one of just five consequential benchmarks around the world that managed a 2011 advance. The others? Indonesia’s Jakarta Composite (+3.2%), Malaysia’s Kuala Lumpur Composite (+0.8%), the Manila Composite in the Philippines (+4.1%) and Venezuela’s Caracas General (+79.1% in a nation where inflation is running at 26%).^4,5

So the evidence points to a degree of decoupling taking place last year. Stateside, investors may have been distracted and troubled by news about EU debt and a slowdown in manufacturing in the Asia-Pacific region, but there was still some residual confidence, which was bolstered in the fourth quarter by some positive news about consumer spending and retail sales, a declining jobless rate, a bit of life in what had seemed a moribund real estate market, and banks being more open to commercial loans.⁶

Will our relative good fortune continue? In 2012, will Wall Street pay more attention to domestic indicators and earnings than the headaches plaguing other economies?

We are all interconnected, of course; financially, the world is a small place. It is very possible that the big market swings characteristic of 2011 will repeat in 2012; currently, few things move the market up or down like news from the EU. However, with many of the EU economies veering toward recession and emerging markets cooling down, a U.S. economy that might realize but a small percentage of growth may start to look very strong indeed to the rest of the world, and that offers hope that our financial markets may perform better next year than some analysts expect.

If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box

Citations.

1 – blogs.wsj.com/marketbeat/2011/12/30/for-the-sp-500-2011-bascially-never-happened/ [12/30/11]

2 – blogs.wsj.com/marketbeat/2011/12/30/data-points-u-s-markets-71/ [12/30/11]

3 – www.cnbc.com/id/45824871 [12/30/11]

4 – online.wsj.com/mdc/public/page/2_3022-intlstkidx.html [12/30/11]

5 – www.cnbc.com/id/45807143 [12/28/11]

6 – money.msn.com/market-news/post.aspx?post=7a929e98-4d99-44cb-98c9-a0ef1c3151c4 [12/30/11]

January 2 2012

WHAT BENEFICIARIES NEED TO KNOW

What do you do when an account owner passes away?

Presented by Kenneth Savage

If your loved ones have invested, saved or insured themselves to any degree, you may be named as a beneficiary to one or more of their accounts, policies or assets in the event of their deaths. While we all hope “that day” never comes, we do need to know what to do financially if and when it does.

Legally, just who is a “beneficiary”? IRAs, annuities, life insurance policies and qualified retirement plans such as 401(k)s and 403(b)s are set up so that the accounts, policies or assets are payable or transferrable on the death of the owner to a beneficiary, usually an individual named on a contractual document that is filled out when the account or policy is first created.

In addition to the primary beneficiary, the account or policy owner is asked to name a contingent (secondary) beneficiary. The contingent beneficiary will receive the asset if the primary beneficiary is deceased.

Some retirement accounts and policies may have multiple beneficiaries. Charities, schools and nonprofits are also occasionally named as beneficiaries. If you have individually listed one (or more) of your kids or grandkids as designated beneficiaries of your 401(k) or IRA, that designation should override a charitable bequest you have stated in a trust or will.¹

A will is NOT a beneficiary form. When it comes to 401(k)s and IRAs, beneficiary designations are commonly considered first and wills second. If you willed your IRA assets to your son in 2008 but named the man who is now your ex-husband as the beneficiary of your IRA back in 1996, those IRA assets are set up to transfer to your ex-husband in the event of your death. Sometimes beneficiary forms are revised; often they are never revised.¹

If a retirement account owner passes away, what steps need to be taken? First, the beneficiary form must be found, either with the IRA or retirement plan custodian (the financial firm overseeing the account) or within the financial records of the person deceased. Beyond that, the financial institution holding the IRA or retirement plan assets should also ask you to supply:

A certified copy of the account owner’s death certificate

A notarized affidavit of domicile (a document certifying his or her place of residence at the time of death)

If the named beneficiary is a minor, a birth certificate for that person will be requested. If the beneficiary is a trust, the custodian will want to see a W-9 form and a copy of the trust agreement.^2,3,4

If you are named as the primary beneficiary, you usually have four options regardless of what kind of retirement savings account you have inherited:

1) Open an inherited IRA and transfer or roll over the funds into it.

2) Roll over or transfer the assets to your own, existing IRA.

3) Withdraw the assets as a lump sum (liquidate the account, get a check).

4) Disclaim as much as 100% of the assets, thereby permitting some or all of them to be inherited by a contingent beneficiary

However, these options may be influenced or limited by four factors:

1) The kind of retirement plan you have inherited.

2) Whether the named beneficiary is a spouse, non-spouse, trust or estate.

3) The age at which the account owner passed away.

4) The resulting tax consequences.

Before you make ANY choice, you should welcome the input of a tax advisor.^3,5

What if you are a spousal beneficiary? If that is the case, you may elect to:

Roll over or transfer assets from a traditional IRA, Roth IRA, SEP-IRA or SIMPLE IRA into your own traditional or Roth IRA, or an inherited traditional or Roth IRA

Withdraw the assets as a lump sum
Roll over or transfer qualified retirement plan assets from a 401(k), 403(b), etc. into your own retirement account, or take them as a lump sum
Disclaim up to 100% of the assets within 9 months of the original account owner’s death^3,5,8

What if you are a non-spousal beneficiary? If this is so, you may elect to:

Roll over or transfer assets from a traditional IRA, Roth IRA, SEP-IRA, SIMPLE IRA or qualified retirement plan into an Inherited IRA

Withdraw the assets as a lump sum
Disclaim up to 100% of the assets within 9 months of the original account owner’s death
Leave the assets in the plan (sometimes permissible with qualified retirement plans)^3,5

What if a trust, estate or charity is named as the beneficiary? If that is the circumstance, there are three choices:

Transfer assets from a traditional IRA, Roth IRA, SEP-IRA, SIMPLE IRA or qualified retirement plan into an Inherited IRA

Withdraw the assets as a lump sum
Disclaim up to 100% of the assets within 9 months of the original account owner’s death^3,5

The next calendar year will be very important. Inheritors of retirement accounts have until September 30 of the year following the original account owner’s death to review and remove beneficiaries, and until December 31 of that year to divide the IRA assets among multiple beneficiaries. Usually, December 31 of the year after the original retirement plan owner’s passing is the deadline for the first RMD (Required Minimum Distribution) from an inherited traditional or Roth IRA.⁶

Now, how about U.S. Savings Bonds? If you are named as the primary beneficiary of a U.S. Treasury Bond, you have three options:

Redeem it at a financial institution (you will need your personal I.D. for this).

Get the security reissued in your name or the names of multiple beneficiaries. You do this via Treasury Department Form 4000, which you must sign before a certifying officer at a bank (not a notary). Then you send that signed form and a certified copy of the death certificate to a Savings Bond Processing Site.
Do nothing at all, as the primary beneficiary automatically becomes the bond owner when the original bond owner passes away.⁷

What about savings & checking accounts? Bank accounts are often payable-on-death (POD) assets or “Totten trusts.” All a beneficiary needs to claim the assets is his or her personal identification and a certified copy of the death certificate of the original account holder. There is no need for probate. (Some states limit charities and non-profits from being POD beneficiaries of bank accounts.)⁷

How about real estate? Lastly, it is worth noting that about a dozen states use transfer-on-death (TOD) deeds for real property. If you live in such a state, you have to go to the county recorder or registrar, usually with a certified copy of the death certificate and a notarized affidavit which informs the recorder or registrar that ownership of the property has changed. If the deed names multiple beneficiaries and some are dead, the surviving beneficiaries must present the recorder or registrar with certified copies of the death certificates of the deceased beneficiaries.⁷

If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box

December 31 2011

PAYROLL TAX CUT EXTENDED TWO MONTHS

Paychecks won’t shrink; long-term jobless benefits will continue.

Presented by Kenneth Savage

A last-minute gift to 160 million Americans. On December 23, Congress approved a 2-month extension of the payroll tax holiday that President Obama quickly signed into law. So we will not see shrunken paychecks come January. The new law also extends long-term unemployment benefits through February 29 and authorizes a 2-month reprieve on pay cuts to doctors by Medicare.¹

Prior to 2011, wage-earners were paying 6.2% in Social Security taxes. If Congress agrees to lengthen the payroll tax holiday across 2012, workers will merely pay 4.2% on the first $110,100 of wages next year.

The latest extension in jobless benefits means that about 1.8 million Americans out of the workforce will keep getting unemployment checks averaging about $296 per week.
Medicare payments to physicians will not diminish by 27% come January.¹

The stopgap measure is both a relief and a prelude to much more debate. In total, the new legislation is projected to cost the federal government about $33 billion.¹

Who will pay for these extensions? The direct answer: Fannie Mae and Freddie Mac. The indirect answer: American homeowners and homebuyers.

Title IV of the new law (“Mortgage Fees and Premiums”) notes that Fannie and Freddie will be boosting guarantee fees on new loans next year. If the payroll tax holiday is approved for all of 2012, anyone who buys or refinances next year will end up giving back about 20% of the approximately $1,000 tax break.²

Instead of collecting from borrowers directly with a fee hike, the twin GSEs will increase fees for banks and other lending institutions starting in January. The Congressional Budget Office projects that this will raise $35.7 billion across 2012-2021, with the revenue going to the Treasury rather than to Fannie and Freddie.²

Comparatively speaking, this means that mortgage costs will be about $17 a month higher for someone purchasing a $200,000 home next year.²

What about that pipeline? Yes, the proposed 1,700-mile Keystone oil pipeline that would run from Alberta to the Gulf of Mexico. House Republicans had wanted it as a sweetener to the bill, contending that it would create tens of thousands of jobs.

The newly passed legislation requires President Obama to either approve or kill the controversial project by March 1. The State Department says it can’t manage a required environmental review by March 1 and therefore won’t be able to recommend the project; citing White House sources, the New York Times says the President will abide by the State Department’s guidance. However, that doesn’t prohibit TransCanada (the company behind the pipeline) or any other energy company from introducing a similar idea.³

The new agreement is effectively a postponement. When Congress returns to Capitol Hill next month, the debate over the yearlong extension of the payroll tax reduction should intensify. There will be three points of contention:

How to pay for the full-year extension. Democrats wanted a new tax on millionaires, while House Republicans preferred a federal pay freeze. The projected cost of the yearlong payroll tax cut is $112 billion.

Rethinking long-term jobless benefits. House Republicans have talked about ending benefits at 59 weeks, something Democrats do not favor.
Consideration for the health of the Social Security trust fund. If Americans do end up paying 2% less in Social Security taxes for all of 2012, how does the trust fund make up the slack? Some legislators want the Treasury to take care of the shortfall; others worry that the payroll tax will be permanently set at the current level and open the door to reduced Social Security benefits in the future.^4,5

Payroll taxes are reduced through February; in terms of the drama surrounding his issue, it’s only an intermission.

If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box

Citations.

1 – money.cnn.com/2011/12/23/news/economy/payroll_tax_cut_deal/ [12/23/11]

2 – blogs.ajc.com/jamie-dupree-washington-insider/2011/12/18/paying-for-the-payroll-tax-cut-extension/ [12/18/11]

3 – www.nytimes.com/2011/12/24/us/provision-may-halt-keystone-pipeline-but-oil-is-still-likely-to-flow.html [12/23/11]

4 – www.kansascity.com/2011/12/23/3335510/congress-approves-payroll-tax.html [12/23/11]

5 – montoyaregistry.com/Financial-Market.aspx?financial-market=tax-loss-harvesting&category=31 [12/23/11]

December 23 2011

WHAT BENEFICIARIES NEED TO KNOW

What do you do when an account owner passes away?

Presented by Kenneth Savage

A certified copy of the account owner’s death certificate
A notarized affidavit of domicile (a document certifying his or her place of residence at the time of death)

If you are named as the primary beneficiary, you usually have four options regardless of what kind of retirement savings account you have inherited:

1) Open an inherited IRA and transfer or roll over the funds into it.

2) Roll over or transfer the assets to your own, existing IRA.

3) Withdraw the assets as a lump sum (liquidate the account, get a check).

4) Disclaim as much as 100% of the assets, thereby permitting some or all of them to be inherited by a contingent beneficiary

However, these options may be influenced or limited by four factors:

1) The kind of retirement plan you have inherited.

2) Whether the named beneficiary is a spouse, non-spouse, trust or estate.

3) The age at which the account owner passed away.

4) The resulting tax consequences.

Before you make ANY choice, you should welcome the input of a tax advisor.^3,5

What if you are a spousal beneficiary? If that is the case, you may elect to:

Roll over or transfer assets from a traditional IRA, Roth IRA, SEP-IRA or SIMPLE IRA into your own traditional or Roth IRA, or an inherited traditional or Roth IRA
Withdraw the assets as a lump sum
Roll over or transfer qualified retirement plan assets from a 401(k), 403(b), etc. into your own retirement account, or take them as a lump sum
Disclaim up to 100% of the assets within 9 months of the original account owner’s death^3,5,8

What if you are a non-spousal beneficiary? If this is so, you may elect to:

Roll over or transfer assets from a traditional IRA, Roth IRA, SEP-IRA, SIMPLE IRA or qualified retirement plan into an Inherited IRA
Withdraw the assets as a lump sum
Disclaim up to 100% of the assets within 9 months of the original account owner’s death
Leave the assets in the plan (sometimes permissible with qualified retirement plans)^3,5

What if a trust, estate or charity is named as the beneficiary? If that is the circumstance, there are three choices:

Transfer assets from a traditional IRA, Roth IRA, SEP-IRA, SIMPLE IRA or qualified retirement plan into an Inherited IRA
Withdraw the assets as a lump sum
Disclaim up to 100% of the assets within 9 months of the original account owner’s death^3,5

Now, how about U.S. Savings Bonds? If you are named as the primary beneficiary of a U.S. Treasury Bond, you have three options:

Redeem it at a financial institution (you will need your personal I.D. for this).
Get the security reissued in your name or the names of multiple beneficiaries. You do this via Treasury Department Form 4000, which you must sign before a certifying officer at a bank (not a notary). Then you send that signed form and a certified copy of the death certificate to a Savings Bond Processing Site.
Do nothing at all, as the primary beneficiary automatically becomes the bond owner when the original bond owner passes away.⁷

If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box

December 17 2011

BUDGETING FOR RETIREMENT

It only makes sense – yet many retirees live without one.

Presented by Kenneth Savage

You won’t be able to withdraw an unlimited amount of money in retirement. So a retirement budget is a necessity. Some retirees forego one, only to regret it later.

Run the numbers before you retire. Often people need about 70-80% of their end salaries in retirement, but this can vary. So years before you leave work, sit down for an hour or so (perhaps with the financial professional you know and trust) and take a look at your probable monthly expenses. Online calculators can help.¹

The closer you get to your retirement date, the more exact you will need to be about your income needs. You first want to look for changing expenses: housing costs that might decrease or increase, health care costs, certain taxes, travel expenses and so on. Next, look at your probable income sources: Social Security (the longer you wait, the more income you can potentially receive), your assorted IRAs and 401(k)s, your portfolio, possibly a reverse mortgage or even a pension or buyout package.

While selling your home might leave you with more money for retirement, there are less dramatic ways to increase your retirement funds. You could realize a little more money through tax savings and tax-efficient withdrawals from retirement savings accounts, through reducing your investment fees, and getting your phone, internet and TV services from one provider.

If you have just retired or are about to, you will enter 2012 with some financial breaks. Social Security benefits will increase by 3.6% next year, Medicare Part B premiums will only rise $3.50 instead of the $10 that Medicare projected, and the Part B deductible will be $22 cheaper in 2012 ($140).²

Budget-wreckers to avoid. There are a few factors that can cause you to stray from a retirement budget. You can’t do much about some of them (sudden health crises, for example), but you can try to mitigate others.

Supporting your kids, grandkids or relatives with gifts or loans.
Withdrawing more than your portfolio can easily return.
Dragging big debts into retirement that will nibble at your savings.

Budget well & live wisely. These are times of low interest rates and modest Wall Street gains. Given those factors, creating a retirement budget makes a lot of sense. A budget – and the discipline to stick with it – may make a financial difference.

If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box

Citations.

1 – www.smartmoney.com/retirement/planning/how-to-set-a-retirement-budget-1304908718392/ [5/12/11]

2 – online.wsj.com/article/SB10001424052970203716204577015673565194532.html [11/6/11]

December 10 2011

A PRIME TIME TO REFINANCE

Interest rates on 15-year fixed mortgages are near record lows.

Presented by Kenneth Savage

Mortgages have become even cheaper. This summer, economists and real estate industry analysts looked at skidding Treasury yields and wondered just how much further interest rates on home loans could fall. The answer: perhaps even further.

On November 17, interest rates on 15-year FRMs averaged just 3.31%. Rates on conventional 30-year home loans averaged 4.00%, and average rates for 5/1-year ARMs and 1-year ARMs were respectively at 2.97% and 2.98%.¹

The yield on the 10-year note was just 2.01% on November 17, and it has been paltry all fall. We recently saw all-time lows of 3.26% for the 15-year fixed and 3.94% for the 30-year fixed (in Freddie Mac’s October 6 Primary Mortgage Market Survey).^2,3

Those able to refinance are seizing the moment. If you can do it, keep your long-term goals in mind. Years ago, a refi came down to one factor: if you could knock a couple of percentage points off your interest rate, you did it. Today, it’s a bit more complex. There are three aspects to consider: a) how much you can save per month, b) lender points and fees, and c) how long you intend to live in your home.

Let’s say a refi frees up $150 for you each month. Sounds great, right? It isn’t so great if the mortgage company tacks on a point up front (think $1,500-5,000, depending on the amount of your loan) and a few hundred dollars in fees. If you’re only going to stay in that home for a few more years, that refi might not be worth it.

If you plan to live in your home for many years, then it’s a different story; you may be poised for substantial savings. This is a simple example, of course. If you are moving from a 30-year loan to a 15-year loan or vice versa, or if you are among those getting out of “ARMs way” and refinancing into a fixed-rate mortgage, you’ve got more variables to think about.

How long will rates stay this low? It is truly hard to say; recent history has illustrated that. On April 10, 2010, a New York Times headline blared: “Interest Rates Have Nowhere to Go but Up”. At that time, the average rate for a 30-year fixed mortgage was 5.31%. Look where it is now.⁴

In November, Cleveland Fed President Sandra Pianalto told Reuters she expects inflation to retreat from the current pace of about 3.5% to around 2% and stay at about 2% through the end of 2013. That kind of forecast doesn’t imply further easing (and the higher interest rates it would encourage). The Fed has left short-term interest rates near zero for about three years now, and has shifted $2.3 trillion into long-term Treasuries to help keep borrowing costs lower.⁵

Through the years, bond investors have often gauged interest rates on conventional home loans by adding about 1.7% to the current percentage yield of the 10-year note. In August, Dow Jones Newswires polled bond dealers to get a consensus forecast for the 10-year Treasury yield; they expected yields to end 2011 at 2.5%. Some fund managers and strategists felt that benchmark Treasury yields could end the year under 2.0%. If that holds true, rates on 30-year fixed mortgages would be in the vicinity of 3.6-4.2% circa New Year’s Eve.⁶

Interest rates will move significantly north at some point, so a window of opportunity beckons – and no one really knows how long it will stay open.

Think before you make a move. Before you get out that pen and sign anything, talk about your options for refinancing with a qualified mortgage specialist, and talk to your financial consultant to see how your choice to refinance relates to your overall financial situation.

If you would like to receive a weekly economic market report every Monday morning send the request to ken@tcmsecurities.com and just type weekly report in the subject box

If you would like to receive a research report on a specific security, mutual fund, or exchange traded fund (ETF) send the request to ken@tcmsecurities.com and just type in the call letters (Symbol) in the subject box

Citations

1 – www.freddiemac.com/pmms/ [11/18/11]

2 – www.reuters.com/article/2011/11/17/markets-treasuries-asia-idUSL3E7MH16O20111117 [11/17/11]

3 – www.usatoday.com/money/economy/housing/story/2011-11-17/Mortgage-rates/51266020/1 [11/17/11]

4 – www.nytimes.com/2010/04/11/business/economy/11rates.html [4/11/10]

5 – www.reuters.com/article/2011/11/17/us-usa-fed-pianalto-idUSTRE7AG20F20111117 [11/17/11]

6 – online.wsj.com/article/BT-CO-20110818-715221.html [8/18/11]

December 2 2011

THE LONG TERM

In this volatile market, perspective is valuable.

Presented by Kenneth Savage

2011 will not be remembered as a banner year on Wall Street. No silver bullet has emerged to take care of the European Union’s debt problems, and after two strong years for U.S. equities, it appears stocks will make minimal annual gains or finish the year in the red.

If your pessimism increased this year, you aren’t alone. This is a very challenging environment, even for fund managers. A recent Wall Street Journal piece referenced that some traders are reluctant to make a decisive move for fear of triggering a big price swing on a particular stock. Liquidity has also been reduced in this market. ⁷

While this sounds gloomy, a little perspective is helpful. When it comes to stocks, it is really about the long term.

This year hasn’t been a disaster, just a struggle. The market has seen far worse stretches than this. Looking at CNNMoney’s handy 5-year chart, the S&P 500 lost 24.06% across the years of 2008-09; yet even with all the drama of 2011, the index is still +3.91% since the start of 2010.¹

On January 14, 2000, the Dow closed at a new all-time high of 11,722.98. On October 9, 2002, it was 37.85% lower after a bear market memorable for a 77.93% decline in the NASDAQ. Yet even in the wake of the dot-com bust and 9/11, the Dow was not crippled. It rose 61% over the next four years to hit a new all-time high of 11,727 on October 3, 2006.²

The blue chips have risen and fallen since then, and so have small caps and tech stocks. Yet investors can still make money in bad Wall Street years; no one invests directly in an index, so the potential to beat the market remains.

Comparatively speaking, we’re holding up pretty well. As we bid goodbye to Thanksgiving weekend, we can be thankful that our stock market is performing better than many others. At the closing bell on November 25, the DJIA was at -2.99% YTD; nearly all the world’s other important stock indices were posting double-digit YTD losses.^{3, 5}

How well-diversified is your portfolio? From 1990-2009, the S&P 500 returned an average of 8.2% annually, yet the typical investor averaged a 3% yearly return. Why? Investors chased performance. They got emotional, responded to headlines, and ignored fundamentals of diversification and patience. They bought at market peaks and bailed out at market lows, and then they waited for that rare “perfect moment” to get back into equities.^{4, 6}

Instead of fleeing the market when stocks hit headwinds, the seasoned investor takes a moment to consult his or her financial professional of choice and adjusts the sails in response while still investing consistently with quality as a key criterion. That approach may help you ride through this year and next and give you a chance to outperform the emotionally-driven investor in the long term.

Do you have concerns about your investments right now? I’m happy to help you address them. Let’s talk about where you are at right now with your portfolio and the level of progress you are making toward your financial objectives. The more you understand about the long-term behavior and potential of the market, the more you realize the need (and value) of patience and perseverance.

If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box

Citations.

1 – money.cnn.com/data/markets/sandp/ [11/25/11]

2 – www.finfacts.com/Private/curency/djones.htm [11/25/11]

3 – money.cnn.com/data/markets/dow/?iid=H_MKT_Data [11/25/11]

4 – www.edwardjones.com/en_US/different/principles/philosophy/long_term/index.html [11/25/11]

5 – news.morningstar.com/index/indexReturn.html [11/26/11]

6 – montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29 [11/26/11]

7 – online.wsj.com/article/SB10001424052970203658804576637544100530196.html [11/28/11]

November 26 2011

THE YEAR IN REVIEW

Debt crises held stocks in check in 2011

Presented by Kenneth Savage

A tumultuous year for stocks. As 2011 winds up, many investors are more concerned with return of capital than return on capital.

That is understandable; Wall Street faced some powerful headwinds this year. With little policy momentum to foster or aid any available economic momentum, U.S. and global indices were poised to finish the year with flat to poor annual returns.

The debt crisis in Greece boiled over to Italy and touched Spain and France, scaring the world economy. Key heads of state from the European Union reaffirmed their countries’ commitments to the euro and sought to reassure investors; many observers saw as much rhetoric as action in their efforts and were skeptical that the EU could effectively address its debt crises in the coming years.

At home, our economy expanded, but not as much as would be hoped for in the typical recession recovery. Unimpressive job creation and high unemployment thwarted any housing rebound, despite record-low mortgage interest rates. Many consumers perceived the economy as bad and Congress as even worse, but consumer spending and retail purchases showed improvement in an economy where inflation hovered around 3.5% and growth hovered around 2%. A super committee of 12 Capitol Hill legislators could not agree on where to make cuts to the federal deficit, only months after a drawn-out fight to raise the debt ceiling prompted Moody’s to issue a historic downgrade of the U.S. credit rating to AA+.¹

Stocks. As the holiday season started, the Dow was more or less flat for 2011: down 0.7% YTD at the close on November 22. Year over year, it was +2.8%. The S&P 500 was down 5.5% YTD on November 22 and its 1-year change was -0.8%; the NASDAQ had lost 0.4% over the previous 365 days and YTD it was at -5.0%. Looking at the small caps, the Russell 2000 was down 11.2% YTD and 4.3% YOY.^2,3,4,5

How about the S&P 500 sectors? Approaching Thanksgiving, the YTD numbers looked like this (again, this snapshot was taken at the close on November 22): utilities, +7.0%; consumer staples, +3.8%; health care, +2.2%; consumer discretionary, -0.5%; info tech, -1.4%; energy, -2.8%; telecom services, -6.3%; industrials, -9.1%; materials, -15.0%; financials, -24.5%. That’s three out of ten in the black. The S&P 500’s total return was -3.78% at that point.⁶

Other global benchmarks suffered from the anxiety generated by years of fiscal mismanagement on the part of sovereign governments. Morningstar data (measured in U.S. dollar terms) showed the following YTD losses among important world indices on November 22: Sensex, -20.2%; CAC 40, -24.6%; DAX, -23.5%; FTSE 100, -11.8%; Hang Seng, -21.0%; Nikkei 225, -18.7%; Australian All Ordinaries, -13.3%; TSX Composite, -12.3%; Shanghai Composite, -14.1%; MSCI Emerging Market Index, -21.0%; MSCI Word Index (ex-USA), -15.5%.⁷

Commodities. Gold and silver had definite allure. Looking at the handy charts from IndexMundi.com gold was up 22.8% YTD and silver 12.3% YTD on November 22; copper, on the other hand, was at -22.4%. In energy, crude oil had advanced 7.8% on the year; natural gas had fallen 20.7%; RBOB Gasoline futures were up 20.5% YTD. In crop futures, wheat was at -11.5%, cocoa -15.3%, oranges +40.6%, barley +7.0%, coffee -5.5%, sugar -11.6%, cotton -38.2%, rubber -26.4% and soybeans -12.7. The U.S. Dollar Index approached Thanksgiving down 0.8% on the year.^8,9

Real estate. The annualized numbers mean most in this sector, and these were the latest available by late November. The pace of existing home sales as measured by the National Association of Realtors was 13.5% better in October 2011 than in October 2010, although the month-to-month data had shown basically a plateau since February. NAR’s pending home sales index (September edition) showed 6.4% annual improvement; the National Association of Home Builders/Wells Fargo Opportunity index showed housing affordability at its highest in more than 20 years. The 20-city S&P/Case-Shiller Home Price Index showed an overall 3.8% year-over-year decline in prices in the September edition.^10,11,12

Total housing permits hit their highest level in seasonally adjusted terms in October since spring 2010 (when the home buyer tax credit expired). New home sales, however, were down 0.9% from a year before in October.^10,13

All in all, it was a year for patience. 2011 required it, and 2012 may require much more. Years of deficit spending have come to haunt key economies. What would have been stunning volatility during most of the 1990s or 2000s seems par for the course today as we have to hang on, stay diversified and ride out the turbulence – hoping that our stock market can manage at least a bit of “decoupling” from the debt troubles plaguing continental Europe.

If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value-weighted index composed of 30 stocks that started January 1, 1986. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The FTSE 100 Index is a share index of

November 18 2011

END-OF-THE-YEAR MONEY MOVES Here are some things you might want to do before saying goodbye to 2011.

Ken Savage Financial Advisor NorthStar Financial & Retirement Planning

Presented by Kenneth Savage

What has changed for you in 2011? Did you start a new job or leave a job behind? Did you retire? Did you start a family? If some notable changes occurred in your personal or professional life, then you will want to review your finances before this year ends and the next one begins. Even if your 2011 has been comparatively uneventful, the end of the year is still a good time to get cracking and see where you can plan to save some taxes and/or build a little more wealth. Do you practice tax loss harvesting? That is the art of taking capital losses (selling securities worth less than what you first paid for them) to offset your short-term capital gains. You might want to consider this move, which should be made with the guidance of a financial professional you trust. In fact, you could even take it a step further. Consider that up to $3,000 of capital losses in excess of capital gains can be deducted from ordinary income, and any remaining capital losses above that can be carried forward to offset capital gains in upcoming years. So you might think of triggering excess capital losses in 2010 and using the losses to shelter future long-term capital gains that could be taxed at a higher rate.¹ If you are in the 10% or 15% tax brackets, your capital gains tax rate is 0% for 2011 and 2012. If you fall into these tax brackets and sell assets you have held for at least a year, you won’t pay any taxes on capital gains. For 2011, the 15% bracket tops out at taxable income of $34,500 or less for individuals, $69,000 or less for joint filers and qualifying widows/widowers, and $46,250 for heads of households.^2,3 Do you itemize deductions? If you do, great. Now would be a good time to get the receipts and assorted paperwork together. Besides a possible mortgage interest deduction, you might be able to take a state sales tax deduction, a student-loan interest deduction, or deductions related to a job search, volunteering expenses, energy-efficient home upgrades, and medical expenses. There are so many deductions you can potentially claim, and now is the time to meet with your tax professional so that you can strategize to claim as many as you can. Could you ramp up your 401(k) or 403(b) contributions? If you can do this in November and December, that will lower your taxable income. Do it enough and you might be able to qualify for other tax credits or breaks available to those under certain income limits. Are you thinking of gifting? How about making a contribution to a charity or some other kind of 501(c)(3) non-profit organization before 2011 ends? In most cases, these gifts are partly tax-deductible. If you pour some money into a 529 plan on behalf of a child, you could get a deduction at the state level (depending on the state).⁴ Of course, you can also reduce the value of your taxable estate with a gift or two. The federal gift tax exclusion is $13,000 for 2011 and 2012. You can gift up to $13,000 to as many people as you wish this year, with the understanding that you have a $5 million lifetime limit before you are actually hit with gift taxes. (Please note: that $5 million lifetime limit is scheduled to reset back to the previous $1 million ceiling in 2013, and that reset could happen sooner; there are rumors within the tax community that the Congressional “super committee” assigned to reduce the federal deficit may move to try and put the lifetime limit back to $1 million before the end of the year.)^5,6 You still have time to make a charitable IRA gift, although it may seem less crucial with the lifetime gifting exemption at the current $5 million. Taxpayers 70½ or older can arrange a direct transfer (a rollover) from their IRA trustee to a qualifying charity, non-profit foundation or non-profit organization. This tax-free donation of IRA proceeds can aid the charity and allow you to take credit for a qualified charitable distribution on your 2011 1040 form. Charitable IRA rollovers are slated to disappear in 2012 unless Congress acts to save them.⁷ Before 2011 ends, why not take a moment to review the beneficiary designations for your IRA, your life insurance policy, and your retirement plan at work? If you haven’t reviewed them for a decade or more (which isn’t uncommon), double-check to see that these assets will go where you want them to go should you pass away. Take a look at your will as well to see that it remains valid and current. Should you go Roth? You know the argument here: converting a traditional IRA to a Roth could potentially bring you long-term tax savings, assuming taxes go higher in the future. Here’s the big question: will the projected tax savings over your lifetime exceed the tax you will trigger from the conversion? No one has a crystal ball, but various possible tax outcomes should be reviewed before any move is made. If you went Roth this year only to see the balance of that IRA diminish (some IRAs have), you could always recharacterize it back to a traditional IRA. Should the markets really take off next year, you could convert that recharacterized traditional IRA to a Roth again. As you have to wait 30 days after a recharacterization to do another conversion, recharacterizing a Roth IRA back to a traditional IRA could be optimal before December rolls around.⁶ What can you do before they sing “Auld Lang Syne”? Talk with a financial or tax professional now rather than in February or March. Little year-end moves might help you improve your short-term and long-term financial situation. Kenneth Savage is a Financial Advisor with NorthStar Financial & Retirement Planning and a Registered Representative with Taylor Capital Management and may be reached at: (910) 599-2182, ken.savage@live.com or www.northstar65.com If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box If you would like to receive a research report on a specific security, mutual fund, or exchange traded fund (ETF) send the request to ken.savage@live.com and just type in the call letters (Symbol) in the subject box This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. Citations 1 – www.irs.gov/taxtopics/tc409.html [3/4/10] 2 – www.taxpolicycenter.org/taxtopics/Tax-Net-Long-Term-Capital-Gains.cfm [11/15/11] 3 –www.bankrate.com/finance/taxes/2011-tax-bracket-rates.aspx [1/5/11] 4 – www.taxact.com/tax-information/articles/2011/cut-your-taxes-with-these-year-end-moves.asp [11/10/11] 5 – turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax/INF12036.html [1/27/11] 6 – www.natlawreview.com/article/2011-year-end-estate-gift-and-income-tax-alert [11/8/11] 7 – www.ctphilanthropy.org/s_ccp/bin.asp?CID=14889&DID=45124&DOC=FILE.PDF [12/17/10]

November 12 2011

UNCERTAINTY OVER ITALY Bond yields climb dangerously high. It looks like the EU may forego a bailout. Presented by Kenneth Savage The Eurozone has another mess on its hands. On November 9, the yield on Italy’s 10-year bond soared to 7.46% – an interest rate clearly unthinkable in the long run, a danger signal EU leaders had to address immediately.¹ Bond yields above 7% have served as a kind of litmus test for the European Union. When 10-year yields topped 7% in Portugal and Ireland, those countries got bailouts, but a bailout for Italy is unlikely. Quite simply, Italy is too big to be rescued; it appears the nation will just have to save itself. “Financial assistance is not in the cards.” So said one Eurozone official (who preferred to remain anonymous) to Reuters; that official said that Italy would not even get a preventive credit line from the EU.¹ Italy dwarfs Greece in economic magnitude. The Dallas-Fort Worth metroplex contributes about as much to the world economy as Greece does. In contrast, Italy is the third-largest economy in the Eurozone and the eighth-largest economy in the world. It is now carrying somewhere between $2.2-2.6 trillion in debt, making its debt ratio 110-130% of its 2010 GDP.^1,2,3 Here’s why a bailout seems off the table. Italy’s sovereign debt is about €1.7 trillion; three times that of Spain, and almost six times that of Greece. Across the next three years, it will have to come up with roughly €650-700 billion to avoid default (so estimates a forecast from Capital Economics). Even with its future increase, the European Financial Stability Fund would be drawn down alarmingly by a bailout of that size. Since Italy is hardly the only EU nation still in trouble, the EFSF would probably be loath to commit to such a mammoth rescue. The three major players funding the EFSF are Germany, France and Italy.^2,4 Guess what EU nation is one of the world’s key government bond markets. That’s right: Italy. Its 10-year note rates rose above 7% on fear that it won’t be able to repay what it owes on government debt. Are the higher yields going to be attractive to foreign investors? Hardly, given that Moody’s and other credit rating agencies have given Italy downgrades.² Name the EU member economy to which U.S. banks are most exposed. Again, the answer is Italy. According to Barclays Capital, that exposure amounted to about $269 billion in total claims as of July. European banks are six times as exposed to Italy ($998.7 billion) as they are to Greece ($162.4 billion).⁵ A call for a core Eurozone. Not surprisingly, French president Nicolas Sarkozy and German chancellor Angela Merkel have visions of an altered EU. On November 8, Sarkozy spoke of a two-tier Europe. It would feature a smaller and more financially integrated core Eurozone comprised of the most economically influential nations on the continent, with the bulk of the EU as a confederation of less economically influential countries with less say in policymaking.⁶ The weeks ahead are crucial. With the debt issues in Italy escalating, the European (and global) economy is looking at another major challenge. Can the European Central Bank buy up a whole bunch of Italian paper? If so, what concessions will Italy have to make? How contagious will this crisis prove, and how will it impact America? Pronounced volatility may be the norm for the next few weeks or months on Wall Street. It is a good time to take a look at where and how you are invested, and a time to review your diversification and your outlook. Kenneth Savage is a Financial Advisor with NorthStar Financial & Retirement Planning and a Registered Representative with Taylor Capital Management and may be reached at: (910) 599-2182, ken.savage@live.com or www.northstar65.com If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box If you would like to receive a research report on a specific security, mutual fund, or exchange traded fund (ETF) send the request to ken.savage@live.com and just type in the call letters (Symbol) in the subject box This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation nor a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. Citations. 1 – www.cnbc.com/id/45225893 [11/9/11] 2 – www.guardian.co.uk/business/2011/nov/09/italys-debt-crisis-ten-reasons-to-be-fearful [11/9/11] 2 – www.guardian.co.uk/business/2011/nov/09/italys-debt-crisis-ten-reasons-to-be-fearful [11/9/11] 3 – www.npr.org/templates/story/story.php?storyId=142158007 [11/9/11] 4 – www.npr.org/blogs/money/2011/11/09/142169733/why-italy-is-so-scary [11/9/11] 5 – www.nytimes.com/2011/07/12/business/global/italy-evolves-into-eus-next-weak-link.html [7/11/11] 6 –www.reuters.com/article/2011/11/09/us-eurozone-future-sarkozy-idUSTRE7A85VV20111109 [11/9/11]

November 4 2011

OBAMA’s NEW DEBT RELIEF INITIATIVES Will they make a difference for homeowners and those with student loans? Presented by Kenneth Savage President Obama has just announced two initiatives to try and ease debt burdens for Americans – moves that some view as election-minded appeals to the younger and middle-class voters that backed him wholeheartedly in 2008. With the American Jobs Act having stalled in the Senate, it isn’t surprising that these changes are coming through executive branch measures rather than proposed legislation. When put into play, will these two ideas have a meaningful economic impact? Let’s take a closer look at them. Could an executive order prompt a mortgage refi boom? If your home is underwater, the Obama administration is trying to offer you a better life raft. It is modifying HARP (the Home Affordable Refinance Program) to make more homeowners eligible for refinancing of mortgages backed by Fannie Mae and Freddie Mac. So far, less than 900,000 homeowners have been able to refi via HARP; the Obama administration envisioned that the program would assist more than 4 million. HARP only worked for homeowners whose residences were less than 25% underwater, so the hardest-hit borrowers were ineligible. Factor in subpar credit scores and the fear that home values would only fall further, and you see why Housing Secretary Shaun Donovan concedes that HARP has “not reached the scale we had hoped.” ¹ The retuned HARP relies on simple criteria. The revision to HARP could be a boon to underwater homeowners in California, Florida, Arizona and Nevada – not coincidentally, some key states for President Obama in the 2012 election. In the new version, it won’t matter how much value your home has lost. Lenders will be primarily concerned with two criteria:

You will have to have a source of regular income.
You will have to be current on your home loan. If you have missed one mortgage payment in the last 6 months or more than one in the past year, you will be ineligible. (If you have refinanced in the past 2½ years, you are also ineligible.)²

Secretary Donovan projects that a borrower able to refinance a home loan at 4% from a previous 5% or 6% interest rate could save as much as $2,500 a year. About 1 million homeowners could potentially benefit from the program – still, that’s less than a tenth of the 11 million who are underwater right now according to CoreLogic.^1,3 There is one major hitch. No mortgage lender will be required to participate in the program; participation is completely voluntary. Again, the opportunity is only available if your home loan is guaranteed by Fannie Mae or Freddie Mac. Fannie and Freddie will come out with the full details on November 15 and the revised version of HARP is scheduled to be ready to roll on December 1.¹ A “Pay as You Earn” plan for student loans. By the time Barack and Michelle Obama had both graduated from law school, they collectively had around $120,000 in college debts; their student loan payments exceeded their mortgage payments. Having “been there”, the President is using an executive order to accelerate the implementation of changes to reduce student loan payments and consolidate such loans. These changes were originally planned for 2014; they will now take effect at the start of 2012.⁵ Under the “Pay as You Earn” initiative, monthly student loan payments would be capped at 10% of a borrower’s discretionary income for 1.6 million Americans, instead of the current 15%. This could potentially means savings of hundreds of dollars per month. (If you wonder if you might qualify for this income-based repayment option, you may visit studentaid.gov/ibr to find out.)⁶ Additionally, up to 6 million borrowers will be allowed to merge debt stemming from government-issued and privately-issued student loans, resulting in one monthly payment. The interest rate on that payment could be up to 0.5% lower. The Obama administration says that for someone with two loans totaling $37,500 in debt, this consolidation could bring about nearly $1,000 in interest savings.⁶ The White House says that these changes could make life easier for up to 8 million taxpayers. However, there are currently more than 36 million taxpayers burdened by outstanding college loans.⁶ President Obama needs to retain the loyalty of younger voters in 2012 and win back the middle class. These initiatives may have major or minor impact, yet they will be appreciated. Kenneth Savage is a Financial Advisor for NorthStar Financial & Retirement Planning and a Registered Representative with Taylor Capital Management he may be reached at: (910) 599-2182, ken.savage@live.com or www.northstar65.com If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box If you would like to receive a research report on a specific security, mutual fund, or exchange traded fund (ETF) send the request to ken.savage@live.com and just type in the call letters (Symbol) in the subject box This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All indices are unmanaged and are not illustrative of any particular investment. Citations. 1 – nj.com/news/index.ssf/2011/10/obamas_new_mortgage_refinance.html [10/25/11] 2 – csmonitor.com/Commentary/the-monitors-view/2011/1024/Moral-blind-spots-in-Obama-mortgage-refinancing-scheme [10/24/11] 3 – investmentnews.com/article/20111026/FREE/111029954 [10/26/11] 4 – montoyaregistry.com/Financial-Market.aspx?financial-market=Six-steps-to-get-out-of-debt&category=29 [10/26/11] 5 – blogs.ajc.com/get-schooled-blog/2011/10/26/president-obama-announces-changes-to-federal-student-loan-repayments [10/26/11] 6 – dailyfinance.com/2011/10/26/obamas-new-student-loan-plan-will-it-let-you-pay-less/ [10/26/11]

October 29, 2011

THE LATEST ON SOCIAL SECURITY

Benefits increase for 2012. Ideas for reform are numerous. Presented by Kenneth Savage Social Security gets its first COLA since 2009. As moderate inflation has made a comeback, the federal government has decided to boost Social Security benefits by 3.6% for 2012. This means an average increase of $39 per month for 55 million Social Security recipients ($467 for all of 2012). Also, more than 8 million Americans who get Supplemental Security Income will get $18 more per month ($216 for 2012).¹ There are two things to note in the fine print.

A COLA increase in Social Security means that Medicare premiums can also increase. Much of the 2012 COLA adjustment could effectively be eaten up this way, as Medicare premiums are automatically deducted from Social Security checks. (2012 Medicare Part B premiums should be announced before the end of October.)^1,2
Businesses should note that the Social Security wage base will rise to $110,100 for 2012. Currently, the federal government levies payroll tax on the first $106,800 of income; next year, that ceiling rises by $3,300. This means about 10 million more high-earning Americans will be subject to the payroll tax, which could vary anywhere from 3.1% to 6.2% in 2012 depending on legislative action (or inaction).^1,2

Will the “super committee” of 12 make cuts to the program? It’s uncertain; the deadline for the long-term budget reform plan from Congress falls on November 23, and the bipartisan and Joint Select Committee on Deficit Reduction (a.k.a. the “supercommittee”) has been meeting more or less in secret, with AARP and other lobbyists pressuring them not to cut Social Security and Medicare.⁵ How might Social Security address its long-term shortfall? Proposals abound, from simple fixes to radical reforms.

President Obama’s fiscal commission has suggested raising the FICA cap. In this proposal, the payroll tax cap would gradually increase between now and 2050 so that 90% of wages earned in America would be subject to Social Security tax by the middle of the century. (This is how it used to be.) Under this plan, the taxable maximum would be $190,000 by 2020.²
Rep. Paul Ryan (R-WI), Chair of the House Budget Committee, has authored the GOP’s “Path to Prosperity” plan, the so-called “Ryan roadmap” that would encourage workers under age 55 to direct some of their payroll taxes into personal retirement accounts. Rep. Ryan’s proposal would also index initial Social Security benefits for most retirees to price growth instead of average wage growth and set the age for Social Security eligibility at 67.^3,4,5
The conservative Heritage Foundation suggests a 5-year strategy in its Saving the American Dream proposal, which calls a reduction in Social Security benefits for the richest 9% of retirees, a $10,000 tax exemption for all who work past the federal retirement age, and the near-term elimination of taxation of Social Security income.⁶
Republican presidential candidate Herman Cain has proposed replacing Social Security with the “Chilean model”. In the early 1980s, Chile’s government ended its retirement entitlement program and put retirement planning solely in the hands of individuals, who maintain personal retirement investment accounts and set their own contribution levels and retirement dates. Investor’s Business Daily notes that on average, the program has yielded better than 9.2% compounded annual returns over 30 years.⁷
Twelve fixes were suggested in a 2010 report issued by the U.S. Senate Special Committee on Aging, among them:
- A 3% cut in benefits
- Taking the payroll tax to 7.3%
- Hiking the full retirement age to 68 or older
- Increasing the Social Security averaging period that determines SSI
- Reducing the typical yearly COLA by 1% or .5%
- Reducing spousal benefits
- Investing some of Social Security’s trust funds in equities
- Directing some estate tax revenues into Social Security’s trust fund

Perhaps a fix lies somewhere within these proposals; unmodified or altered, alone or in combination. How much retirement income do you have these days? With Social Security’s future still a question mark, you may be thinking about where your retirement income will come from in the years ahead. A chat with the financial professional you know and trust may be worthwhile before 2012 arrives. Kenneth Savage is a Financial Advisor with NorthStar Financial & Retirement Planning and a Registered Representative with Taylor Capital Management and may be reached at: (910) 599-2182, ken.savage@live.com or www.northstar65.com If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box If you would like to receive a research report on a specific security, mutual fund, or exchange traded fund (ETF) send the request to ken.savage@live.com and just type in the call letters (Symbol) in the subject box This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All indices are unmanaged and are not illustrative of any particular investment. Citations. 1 – businessweek.com/ap/financialnews/D9QFGU602.htm [10/19/11] 2 – money.cnn.com/2011/10/19/pf/taxes/social_security_tax/ [10/19/11] 3 – montoyaregistry.com/Financial-Market.aspx?financial-market=will-you-have-an-adequate-retirement-cash-flow&category=3 [10/21/11] 4 – articles.cnn.com/2011-09-26/politics/politics_gop-paul-ryan_1_ryan-plan-paul-ryan-government-spending/3?_s=PM:POLITICS [9/26/11] 5 – cbpp.org/cms/index.cfm?fa=view&id=3308 [10/21/10] 6 – savingthedream.org/how-it-affects-you/retirees/ [10/21/11] 7 – investors.com/NewsAndAnalysis/Article/586464/201109291833/Cains-Chilean-Model.htm [10/12/11] 8 – money.usnews.com/money/blogs/planning-to-retire/2010/05/18/12-ways-to-fix-social-security [5/18/10] 8 – money.usnews.com/money/blogs/planning-to-retire/2010/05/18/12-ways-to-fix-social-security [5/18/10]

October 21 2011

Has Wall Street learned from 2008? Some market bears think very little has changed. They could be right. Presented by Kenneth Savage Memories of 2008 are still fresh: The credit crisis; the collapse of Lehman Brothers and Washington Mutual; the federal takeover of Fannie and Freddie; the market downturn. There’s little doubt Wall Street would like to erase it all from its conscience, and maybe it has. Part of the anger of the Occupy Wall Street movement comes from the perception that nothing has changed. While the Dodd-Frank Act (designed to make the financial system more accountable and transparent) is now taking effect, the Volcker Rule (intended to stop banks from trading for their own accounts) may be watered down or put off. Beyond that, the U.S. economic recovery from the Great Recession has sputtered and made people question the recent bullish sentiment. Stocks have rebounded strongly since 2009, but there are still many factors to worry about; this may lead to a little contrarian thinking. This bull market may be a diversion from a secular bear market. For most of 2011, the S&P 500 has been above 1,200 (a great rebound from the March 2009 low of 676). What was behind that? The short answer: a weak dollar. We haven’t exactly had a boom economy in that timeframe.^1,2 Some analysts look at Wall Street right now and see a rerun of the 1970s, when you had momentous rallies masking a bear market that went from 1967-82. In addition, researchers at the Federal Reserve Bank of San Francisco are concerned about the possibility of a generational sell off; a potential market “headwind” for 10 or 20 years stemming from greying Baby Boomers getting out of stocks as they get closer to retirement, countered only partly by overseas investment.^3,4 What has changed on Wall Street since 2008? Perhaps not much. The general perception that the CEOs of the big investment banks and mortgage companies whose thoughtlessness contributed to the Great Recession met with no real consequence seems to be taking hold, as evidenced by the Occupy Wall Street movement. By the way, remember the furor directed at risky derivatives trading? In September 2011, the Comptroller of the Currency had recorded an 11% year-over-year increase in derivatives investment in the banking industry. Banks now hold almost $250 trillion of the contracts.⁵ A truly severe punishment of Wall Street would come at a dear price for Washington. Some of the biggest names from Wall Street (and the real estate sector) have also been major lobbyists and campaign contributors. According to the nonpartisan Center for Responsive Politics, the National Association of Realtors has contributed more than $40 million to federal-level political campaigns since 1989; Goldman Sachs has contributed almost $36 million since then, and Citigroup nearly $29 million. The financial, insurance and real estate industries have collectively spent over $4.6 billion in lobbying efforts since 1998.^6,7 What is happening with the recovery? Not much. While unemployment is above 9%, underemployment is the real story – in September, 16.5% of Americans worked less than 40 hours a week. No wonder homes sit on the market and consumer spending increases mostly in response to rising food and energy prices. Wages even retreated 0.2% in September and incomes fell 0.1% – the first monthly decrease in income since October 2009. Assorted 2012 forecasts see slow or slowing growth in various European and Asian nations.^8,9 Is there a bright side for Wall Street? Actually, there could be. The European Union is making decisive moves to address its debt crisis. Indicators still show that our economy is growing, not contracting; September was the best month for U.S. retail sales since March. Many analysts think that the Dodd-Frank regulations will discernibly impact the Wall Street mindset. Lastly, the strength and duration of seemingly every major bull market has been questioned by the bears; history may record that a secular bull market began in 2009, after all.¹⁰ Only time will tell. Over time, the stock market has faced some great challenges – and risen to meet them again and again. This time around, the hope is that Wall Street’s behavior (and behavioral assumptions) won’t sabotage the rally. Kenneth Savage is a Financial Advisor for NorthStar Financial & Retirement Planning and a Registered Representative with Taylor Capital Management he may be reached at: (910) 599-2182, ken.savage@live.com or www.northstar65.com If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box If you would like to receive a research report on a specific security, mutual fund, or exchange traded fund (ETF) send the request to ken.savage@live.com and just type in the call letters (Symbol) in the subject box This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All indices are unmanaged and are not illustrative of any particular investment. The S&P 500 is a market-capitalization weighted index of 500 Large-Cap common stocks traded in the United States on the NYSE, AMEX and NASDAQ. Citations. 1 – money.cnn.com/data/markets/sandp/ [10/13/11] 2 – moneywatch.bnet.com/economic-news/blog/financial-decoder/jill-on-money-stock-anniversary-mortgages-cash/5308/ [10/8/11] 3 – montoyaregistry.com/Financial-Market.aspx?financial-market=the-financial-security-rulebook-5-crucial-steps&category=3 [10/13/11] 4 – money.msn.com/retirement-investment/latest.aspx?post=9bb7f5b7-8c8a-4723-a543-7930cb51e2af [8/23/11] 5 – dealbook.nytimes.com/2011/09/23/banks-increase-holdings-in-derivatives/ [9/23/11] 6 – opensecrets.org/orgs/list.php?order=A [10/13/11] 7 – opensecrets.org/lobby/top.php?indexType=c [10/13/11] 8 – articles.latimes.com/2011/oct/08/business/la-fi-jobs-report-20111008 [10/8/11] 9 – businessweek.com/news/2011-09-30/u-s-economy-consumer-spending-cooled-in-august-as-wages-fell.html [9/30/11] 10 – latimes.com/business/la-fi-economy-retail-20111014,0,1716584.story?track=rss [10/14/11]

October 14 2011

STOCKS IN THE FOURTH QUARTER Can the last quarter of 2011 live up to historical averages? Presented by Kenneth Savage Is a rally ahead? You may have heard that stocks tend to do well in the fourth quarter. History affirms that perception: while past performance is no guarantee of future results, the last quarter of the year has historically been the best quarter of the year for U.S. equities. As data from Bespoke Investment Group notes:

The S&P 500 has averaged a +2.44% performance in fourth quarters since 1928.
In the last 20 years, it has averaged +4.57% in fourth quarters.
In the last 30 years, it has advanced in 24 of 30 fourth quarters with an average price return of better than 7%.¹

Will the Street put its anxieties aside? Right now, you have a lot of uncertainty. Many analysts see a stock market unimpressed by tepid domestic growth and waiting fearfully for the other shoe to drop (meaning Greece).They see more pain ahead for U.S. investors. On the other hand, there is also talk of when a point of capitulation might be reached, i.e., is Wall Street simply ready to rally even in the face of the debt troubles in Europe and the slow recovery here. You could argue that certain Wall Street psychologies (and tensions) aid 4Q rallies. After all, the pay of money managers relates to performance and there is renewed pressure on them to come through as the end of a year looms. Could new optimism surface? Perhaps it is surfacing now. As the third quarter wrapped up, Reuters polled 350 stock market analysts worldwide. Their consensus forecast was that 18 of 19 major world stock indices would either advance or suffer insignificant losses in the fourth quarter (Taiwan’s TAIEX was the lone exception in the forecast).² They also felt that two indices would achieve 2011 gains: South Korea’s Kospi, and the Dow Jones Industrial Average. They think the Dow will end 2011 up about 2%. The Dow was at -5.74% YTD at the closing bell on September 30.^3,4 On a particularly bullish note, Bloomberg surveyed 12 Wall Street strategists in early October and found them collectively forecasting the greatest 4Q rally in 13 years. They think that the S&P 500 will rise 15% this quarter, which would mean a push to 1,300 by New Year’s Day.⁵ Stocks certainly are cheap. Bloomberg data also indicated that when the S&P nearly closed at bear market levels in early October, it was down to 12x reported earnings; valuations were lower than they had been at any point since 2009. At the end of September, the MSCI World Index was trading at just above 10x its 12-month forward earnings, well under its average of 14.3x earnings since 2001.^2,5 Some analysts are optimistic about the coming quarters. Indeed, the 350 analysts surveyed by Reuters are envisioning some impressive bull runs. They think Russia’s RTSI will advance 32% between now and mid-2012; they feel Brazil’s Bovespa will rise approximately as much in the next three quarters. If you follow emerging markets, forecasts like these may not surprise you much. However, they also see double-digit advances for the Dow, Nikkei 225, All Ordinaries, CAC 40 and DAX by mid-2012.² Historically, stocks have had impressive resilience. Here are two other encouraging statistics in the wake of the Dow and S&P’s double-digit third quarter drops:

The Dow had 14 quarterly losses of 10% or more in the period from 1962-2009. In 79% of the ensuing quarters, the Dow pulled off a quarterly gain.
The S&P suffered 11 quarterly losses of 10% or more during a stretch from 1981-2009. In 80% of the following quarters, it posted a quarterly gain.⁶

Another 4Q rally depends on many variables, but if Greece avoids default and 3Q earnings don’t disappoint, we might see a better end to 2011 than the bears anticipate. Kenneth Savage is a Financial Advisor for NorthStar Financial & Retirement Planning and a Registered Representative with Taylor Capital Management he may be reached at: (910) 599-2182, ken.savage@live.com or www.northstar65.com If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box If you would like to receive a research report on a specific security, mutual fund, or exchange traded fund (ETF) send the request to ken.savage@live.com and just type in the call letters (Symbol) in the subject box This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All indices are unmanaged and are not illustrative of any particular investment. The S&P 500 is a market-capitalization weighted index of 500 Large-Cap common stocks traded in the United States on the NYSE, AMEX and NASDAQ. The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the NYSE and the NASDAQ. Citations. 1 – moneywatch.bnet.com/investing/blog/investment-insights/stocks-ready-for-fourth-quarter-rally/2833/ [10/3/11] 2 – reuters.com/article/2011/09/29/us-markets-stocks-poll-idUSTRE78S4EK20110929 [9/29/11] 3 – montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29 [10/7/11] 4 – cnbc.com/id/44729786 [9/30/11] 5 – bloomberg.com/news/2011-10-07/stock-index-futures-in-u-s-rally-after-employment-growth-beats-forecasts.html [10/7/11] 6 – cnbc.com/id/44677114/Third_Quarter_Pain_Fourth_Quarter_Gain [9/29/11]

October 7 2011

RECESSION AND DIVERSIFICATION

Are we in a major recession, a mild recession, or just a slump? Whatever you want to call it, diversification certainly counts. Presented by Kenneth Savage Investments uncorrelated or indirectly correlated to the stock market – such as CDs, Treasuries and annuities – are getting another look these days. Here’s a look at some of the options before investors. Banking on the future. Under recessionary conditions, short-term CDs, money market accounts and Treasury notes sometimes appeal to those who want to receive a competitive yield versus stocks and bonds over six months or a year with less risk. Treasuries are also free from state income tax, and some Treasuries are TIPS (Treasury Inflation Protected Securities), meaning they are hedged against inflation. The comparative certainty of all these investments appeals to people seeking diversification. Bonding together. In this kind of economic climate, some investors may also be attracted to bonds and bond funds. Bonds, after all, offer the investor a reliable payment stream and repayment of principal. Besides municipal and government bonds, there are also corporate bonds, including fixed-rate capital securities offering predictable monthly, quarterly or semiannual income. Some investors like short-term bond funds, which typically invest in commercial paper, bills, and certificates of deposit. Often, bonds funds generate monthly income, and some allow check-writing so people can meet emergency cash needs. Some exchange-traded funds (ETFs) are bond ETFs, which tend to favor investment in inflation-protected bonds. A contractual choice. Annuities are another type of investment with little or no correlation to the stock market. Under these contracts, you make payments to an insurance company which in turn agrees to make payments to you, immediately or in the near future. A fixed annuity offers “guaranteed” income payments and a “guaranteed” rate of return (“guaranteed” by the insurance company, that is, not the FDIC or SEC). A variable annuity usually allows you the choice of stock market participation (usually via mutual fund investment) with possible protection of your principal. An equity-indexed annuity offers returns tied to an equity index, but with a minimum rate of return “guaranteed” by the insurer. Is it time to diversify? You may want to learn more about these investments, and others that may help you modify your portfolio for a recession or downturn. Before you make any investment decision, be sure and talk with a qualified financial advisor. Kenneth Savage is a Registered Representative with Taylor Capital Management and may be reached at: (910) 599-2182, ken.savage@live.com or www.northstar65.com If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box If you would like to receive a research report on a specific security, mutual fund, or exchange traded fund (ETF) send the request to ken.savage@live.com and just type in the call letters (Symbol) in the subject box These are the views of Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative or Broker/Dealer give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

Citations.

¹ usatoday.com/money/economy/2008-01-10-bernanke-interest-rates_N.htm – 51k – October 1 2011

How Does Greece Impact Me?

Is it all negative, or are there opportunities to consider because of the crisis? Presented by Kenneth Savage Many economists think a Greek default is inevitable. As we enter 4Q 2011, Greece has a debt-to-GDP ratio of about 160% (and that percentage is rising). While Greece accounts for less than 3% of Eurozone GDP, ripples from a Greek default could strain the European banking sector and global financial markets.^1,7 Struggling for the best worst-case scenario. Greece is redoing its financial system, but it is still facing one of five potential (and painful) outcomes.

Greece renegotiates its debts & forces its lenders into write-offs. Many Greek banks are nationalized; Greece endures a long recession.
Greece can’t renegotiate its debts. It sinks into a multi-year depression exacerbated by additional austerity measures.
Greece rejects further austerity cuts recommended by the EU. A standoff with the International Monetary Fund and European Central Bank results; the ECB and IMF blink and continue bailout payments to Greece; Italy and Spain see the way Greece made the ECB and IMF cave in and later wrestle the ECB and IMF into submission in the same way; Germany gets frustrated with all this and ditches the euro.
Greece rejects more austerity cuts & the EU stops bailout payments. Civil unrest jeopardizes the country. Its banks close; its public services halt. The CIA has advised that a coup may occur in Greece in such a scenario.
Greece lapses into a banking/cash flow crisis & leaves the euro. This is the “doomsday” scenario. Assume #4 occurs with Greece also electing to go back to the drachma. That could mean a run on Greek banks, and then Spanish and Italian banks. A return to the drachma could mean frozen borrowing for Italy and Spain and possibly lead to insolvency for major banks in Europe. Picture 17 nations trying to agree on and quickly implement an EU version of TARP. Havoc could result for stocks and the global economy.²
This all sounds very gloomy, but prospects may emerge from the gloom.

A(nother) golden opportunity? In the event Greece defaults, the search for safe havens could mean a quick flight to gold. If a Greek bailout succeeds, there may still be fiscal instability among EU members, and presumably an easy monetary policy fostering loose credit. If Greece defaults, then you could see big drops in the spot prices of currencies plus some competitive devaluation. All of this could make gold look very, very good. On the other hand, if true systemic risk hits global markets, investment banks and hedge funds might need capital fast – and gold is easily liquidated. So a gold selloff could also possibly occur if the situation becomes dire. What about Treasuries & the dollar? Treasuries remain popular, and demand for them could jump after a Greek default. What other choices do central banks have if they want to shop around for a stable, readily available, reasonably liquid investment? The euro is hardly a rival to the greenback right now. How about emerging markets? Here is another option. The BRICs and some of the other emerging-market nations have managed to ride out the recent volatility fairly well – there has been some “decoupling”, if you will.⁸ No one is saying these markets would be immune from a continental banking crisis or a flight from stocks, but you have to concede that emerging markets have the capability for independent behavior. Would it still be worthwhile to own blue chips? Keep in mind that the Dow did not fall to 4,000 after the Lehman Bros. and Washington Mutual failures and the initial rejection of TARP by Congress. Stocks did pull out of that plunge, and spectacularly so; bargains abounded, for that matter. So it might certainly be worthwhile to hold onto stocks in the coming months, especially as some European governments have hinted at possible capital injections for banks if the need arises. On September 13, German chancellor Angela Merkel noted that the EU would not let Greece fall into “uncontrolled insolvency” and reports surfaced of China getting ready to purchase Greek debt. Treasury Secretary Timothy Geithner even got involved in the search for solutions in mid-September.³ Europe’s biggest private lenders may be deemed “too big to fail” by the EU and ECB, and if unwinding of any financial institutions is needed, the authorities should do everything within their reach to try and make it gradual. It could be that Wall Street has already priced in a Greek default and will just wince, not stumble, at its confirmation – assuming the news arrives with more inevitability than frenzy. The biggest fear of all: contagion. Italy and Spain may be “too big to fail” in the eyes of the EU and IMF, but they also face big debt problems. Standard & Poor’s cut Italy’s credit rating to ‘A’ in September; Moody’s Investors Service is weighing downgrades for Italy and Spain before November.^4,5 How diversified are you? These debt issues in Europe may linger for years. With the market so volatile, don’t forget the wisdom of having a diversely allocated portfolio. Kenneth Savage is a Registered Representative with Taylor Capital Management and may be reached at: (910) 599-2182, ken.savage@live.com or www.northstar65.com If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box If you would like to receive a research report on a specific security, mutual fund, or exchange traded fund (ETF) send the request to ken.savage@live.com and just type in the call letters (Symbol) in the subject box This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All indices are unmanaged and are not illustrative of any particular investment. The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the NYSE and the NASDAQ. Citations. 1 – business.financialpost.com/2011/09/21/preparations-for-greek-default-gathering-steam/ [9/21/11] 2 – bbc.co.uk/news/business-14977728 [9/21/11] 3 – thestreet.com/story/11246102/1/stock-futures-sept-13.html [9/13/11] 4 – nytimes.com/2010/01/29/business/global/29bailout.html [1/29/10] 5 – businessweek.com/news/2011-09-20/italy-credit-rating-cut-by-s-p-as-crisis-contagion-spreads.html [9/20/11] 6 – montoyaregistry.com/Financial-Market.aspx?financial-market=advanced-estate-planning&category=30 [9/21/11] 7 – siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf [6/1/11] 8 – firstpost.com/economy/asian-markets-eye-china-data-for-signs-of-decoupling-66749.html [8/23/11]

September 23 2011

FINANCIAL MISSTEPS MADE BY MARRIED WOMEN

Plan to avoid these common money blunders. Presented by Kenneth Savage A recent survey found that over 60% of women feel they are better at handling money than men are.¹ However, married women sometimes find themselves in perplexing financial situations – conditions that might be avoided with a little planning and/or foresight. With vigilance, you can plan to steer clear of these mistakes. Not saving enough for retirement after marriage. If your spouse earns a huge salary and has invested avidly, you may have less impetus to save for retirement yourself. Your IRA, 401(k) or 403(b) may start to seem more supplemental than primary. Yet what happens if the relationship ends someday and you personally end up with a retirement savings shortfall? Keep contributing to your own retirement accounts. Dipping into retirement savings once married. If your spouse is really wealthy or has much greater net worth than you do, your retirement nest egg may seem minor in comparison. Your spouse may tell you that with all the investments and savings that you collectively possess, you taking a loan out of your 401(k) won’t be that bad. Well, drawing down your own retirement savings could look like a very bad move 20 or 30 years from now. Who knows what changes life could have in store? Resist the temptation to siphon off your retirement savings. Trusting a reckless spouse with your finances. When you love someone who is cavalier with money, look out. Beware of ceding financial control or your financial say in such a situation. If you marry someone with severe debt problems, don’t think that you will be financially immune from the effects of those problems. If your spouse is a wastrel or has a terrible credit rating, do not “hand over the keys” to the household finances. Watch what goes on with the bank accounts, investment accounts and credit cards among you– keep communication open and encourage transparency. Forfeiting some or all of your financial identity. You may have taken your spouse’s name, but that does not mean you need to give up your own credit card for a shared one, merge your personal checking account into a joint one, and so forth. If you don’t use a credit card for several months or years, you won’t have to pay a fee but it could show up as “inactive” on your credit report. The credit card issuer may move to close the account, and losing the credit history of that card could hurt your credit score. Retain individual savings and investment accounts and individual credit cards.² Divorcing with an “equal” rather than equitable financial settlement. If a divorce happens, the impulse may be to amicably split things “50/50” … or, the focus may be on keeping custody of your kids or keeping your home with your financial potential a distant second. However, you must keep your financial future in mind. Quite often, a woman will be instrumental in building a business or professional practice with her spouse – but she may not be a part of that successful company or professional entity after a divorce. If you divorce and have helped your spouse build a business to greater or lesser degree, you may not only find yourself out of work but taking a job that pays less or having to learn new skills to compete in the job market. Your earnings potential and retirement savings potential may be affected. If you should divorce, seek an equitable settlement that considers your future financial potential; this is even more important than retaining material wealth or real property from the marriage. Losing touch with your career path. If you have happily put a career aside to raise kids, keep in mind that you might find yourself returning to work sooner rather than later. Life events, economic necessity, personal desire and growing children may all be factors. Yet a long, total absence from the workplace can make it difficult to step back in – the technology or outlook of any given field can change radically across a few short years. Try to keep a foot (or at least a toe) in your career via consulting or networking efforts. The takeaway: look out for your financial well-being. It is okay to emphasize (and plan for) your own financial destiny when you are married. In fact, it is both wise and appropriate to do so. Kenneth Savage is a Registered Representative with Taylor Capital Management and may be reached at: (910) 599-2182, ken.savage@live.com or www.northstar65.com If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box If you would like to receive a research report on a specific security, mutual fund, or exchange traded fund (ETF) send the request to ken.savage@live.com and just type in the call letters (Symbol) in the subject box This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. Citations. 1 http://www.synovate.com/news/article/2009/03/global-survey-shows-six-in-ten-women-consider-themselves-financially-independent.html [02/03/2009] 2 articles.moneycentral.msn.com/Banking/YourCreditRating/unused-credit-cards-can-hurt-you.aspx [5/14/10] 3 montoyaregistry.com/Financial-Market.aspx?financial-market=finding-a-financial-consultant&category=5 [9/15/11] September 16 2011

ASSESSING THE AMERICAN JOBS ACT

Will Congress pass it? What difference could it potentially make? Presented by Kenneth Savage On September 8, President Obama announced a new plan to improve the economy – the $447 billion American Jobs Act, a sequel of sorts to his past economic stimulus proposals. His announced goal: job creation without new taxation. While the President took some sharp jabs at Republicans in his speech to Congress (“I know that some of you have sworn oaths to never raise any taxes on anyone for as long as you live”), early indications are that the bill will have noticeable bipartisan support.¹ What’s in this bill? The AJA would try to boost the economy through seven different tactics – extensions and expansions of tax breaks, and infusions of federal dollars. The current payroll tax holiday would be extended through the end of 2012.

The payroll tax would fall to 3.1% – not only for workers, but also for businesses with payrolls of $5 million or less.
Companies could get a tax credit as large as $4,000 for hiring the long-term unemployed (people who have been out of work for at least 6 months).
Long-term jobless benefits would again be extended.
$80 billion of federal money would be assigned to new infrastructure projects (highways, bridges and schools).
Businesses could expense 100% of their investments in 2012, just as they have been able to do in 2011.
Additional federal money would be given to struggling state and local governments to help them avoid layoffs of first responders and teachers.^2,3

How could this all be funded without new taxes? President Obama claims the effort can be paid for as a byproduct of his plan to reduce the federal deficit (a plan he will discuss in greater detail in a September 19 speech).^1,4 The bill isn’t set in stone yet. The AJA goes to the House for a vote this week, and though the House Republican leadership likes the essence of the plan, it may seek major alterations. In a jointly authored statement issued on September 9, House Speaker John Boehner (R-OH), House Majority Leader Eric Cantor (R-VA), Majority Whip Kevin McCarthy (R-CA) and Conference Chairman Jeb Hensarling (R-TX) said the plan “merits consideration”, but they also hoped that the President’s ideas were not offered “as an all-or-nothing proposition, but rather in anticipation that the Congress may also have equally as effective proposals to offer for consideration.”⁴ Indeed, Republicans have had an alternative plan in the works for a while – the so-called Plan for America’s Job Creators – which centers on tax reduction, decreased non-defense discretionary spending and less costly industry regulations to stimulate private-sector job growth. There isn’t much support for it among Democrats. What do economists think the AJA could accomplish? Some think the economy would get some short-term relief if it became law. Others see an upcoming object lesson in failed Keynesian economics.

Moody’s Analytics chief economist Mark Zandi is big on the bill – he believes it could add 2% to GDP, cut 1% off the jobless rate, and create 1.9 million jobs in an economy “on the edge of recession”.
University of Pennsylvania Wharton School of Business professor Susan Wachter thinks the payroll tax reductions alone could generate 1 million jobs and expand the economy by 1%.
At Pimco, Mohamed El-Erian calls it a “credible program that is focused on the right structural areas.”
Unicredit’s Harm Bandholz thinks the AJA could “add up to 2 percentage points to growth in the coming year.”
“Bottom line: not a lot of bang for the buck here,” states Tom Porcelli of RBC Capital Markets, who feels that the economic impact of the infrastructure investments will likely be “fairly modest … the red tape and politics involved in allocating these funds makes the implementation a long and drawn-out process.”
The Heritage Foundation’s J.D. Foster sees “a bunch of retread policy ideas that two years after they were first tried managed to create an arithmetic novelty – exactly zero job growth in August. In total, the President is calling for more new spending on proven policies that are proven failures.”^5,6

As the economy is in such a low gear, you may see Democrats and Republicans support the bill with newfound unity or at least tolerance. While America can’t reach across the Atlantic and fix the Eurozone crisis hampering world stocks, this envisioned lease stimulus could help our economy make some small strides. Kenneth Savage is a Registered Representative with Taylor Capital Management and may be reached at: (910) 599-2182, ken.savage@live.com or www.northstar65.com If you would like to receive a weekly economic market report every Monday morning send the request to ken.savage@live.com and just type weekly report in the subject box This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. Citations. 1 – advisorone.com/2011/09/09/obama-chides-congress-as-he-urges-passage-of-jobs [9/9/11] 2 – montoyaregistry.com/Financial-Market.aspx?financial-market=maxxing-out-your-ira&category=1 [9/9/11] 3 – money.msn.com/business-news/article.aspx?feed=AP&date=20110909&id=14243169 [9/9/11] 4 – latimes.com/news/politics/la-pn-house-jobs-plan-20110909,0,2297315.story [9/9/11] 5 – usatoday.com/money/economy/story/2011-09-09/obama-jobs-plan-economists/50336434/1 [9/9/11] 6 – blogs.wsj.com/economics/2011/09/09/more-economists-react-gauging-impact-of-obama-jobs-proposal/ [9/9/11] 6 – blogs.wsj.com/economics/2011/09/09/more-economists-react-gauging-impact-of-obama-jobs-proposal/ [9/9/11]

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ASSESSING THE AMERICAN JOBS ACT