What might this mean for the economy & the markets?
Congress punts on third down. Unable to reach consensus, the Congressional super committee of 12 offered America a disappointing result Monday. Panel co-chairs Rep. Jeb Hensarling (R-TX) and Sen. Patty Murray (D-WA) announced that "it will not be possible to make any bipartisan agreement available to the public before the committee's deadline" on November 23, throwing in the towel with two days to go.1
The big divide was over the Bush-era tax cuts. While Sen. John Kerry (D-MA) reminded the public and his fellow legislators that "we are not a tax-cutting committee, we're a deficit-reduction committee," there was stiff opposition to rolling back the EGTRRA and JGTRRA cuts of the 2000s. The super committee paired some strange bedfellows among Capitol Hill legislators, so this head-butting was not unexpected.2
What happens now? As the super committee failed to create a plan to trim $1.2 trillion or more from the federal deficit, that sets things up for an automatic $1.2 trillion in cuts effective over a 10-year stretch beginning January 2, 2013. According to the Budget Control Act passed in summer 2011, that $1.2 trillion will be slashed almost 50/50 from the defense budget and government services programs. Social Security and Medicaid payments, military pay and veteran's benefits will be exempt from cuts; current Medicare recipients will not be directly affected. This default deficit reduction could mean as much as a 9.3% cut to some federal programs, by the estimate of the left-leaning Center for Budget and Policy Priorities.3,4
This is what the super committee's apparent failure means politically. Economically, it could result in pain for American investors given the probable impact on our credit rating, stock market, tax laws and economic growth.
Is another downgrade ahead? Standard and Poor's cut the U.S. credit rating a notch to 'AA+' on July 14, and it warned that another cut to 'AA' was possible by mid-2013 without decisive federal action on the issue. After the super committee conceded defeat on November 21, S&P, Fitch's and Moody's stood pat regarding a possible downgrade.5,6
What might be in store for the market? In a November 21 note to investors, Goldman Sachs equity strategist David Kostin warned that the S&P 500 could potentially correct to 1100 as a result of this gaffe. Other analysts are less gloomy; some feel that the market may have priced this one in and will at least maintain some momentum barring a second downgrade (Monday's selloff certainly could have been worse).7
What does this mean tax-wise? The Bush-era tax cuts are set to expire at the end of 2012 as part of the involuntary deficit reduction now set to occur. There could be other possible tax consequences as a result of the super committee's failure. Unless Congress unexpectedly passes the President's American Jobs Act, the payroll tax holiday will go away in 2012 (worth about $935 to the average worker, which some legislators wanted to make permanent). RBC Capital Markets analysts warn that taking the payroll tax back to 6.2% could shave 1% of U.S. GDP next year. For businesses, the current "bonus" depreciation write-offs for new capital equipment and the R&E tax credit could also become casualties. Additionally, when you do a broad cut to federal programs, you are impacting payments from Washington to state programs; state taxes could rise to compensate for that lost money.4,8
How about Medicare, the SSA & jobless benefits? While Medicare recipients won't be bitten by the default deficit reduction, payments to Medicare providers could be shrunk by 2%. Long-term unemployment insurance would also dry up for 2.1 million Americans by February, according to the Department of Labor's forecast; JPMorgan Chase economists think that development alone might hurt U.S. GDP by 0.75%.4,8
The Social Security Administration is in line for budget cuts as a result of the super committee's indecision, along with Head Start and federal job training programs. A Congressional Budget Office analysis shows that the Pentagon would face the largest cut in 2013 (10%). Federal agriculture, environmental and education programs would face cuts of approximately 8% starting in that year.4,9
Could congress "undo" this? President Obama is emphatic that there will be no rewind on this one. While there could be a move in Congress to try and nullify or alter the automatic budget cuts, the President has said he will not support such a bill.
There had to be deficit reduction at some point, and the legislators of the super committee faced a Herculean task to come up with a plan that satisfied their many constituencies. However, it will be difficult to convince economists and investors that doing nothing is better than doing something; this unpalatable easy out may leave many in the lurch.
Citations
1 -www.cnbc.com/id/45391077 [11/21/11]
2 - www.foxnews.com/politics/2011/11/20/blame-game-erupts-as-hope-for-deficit-deal-fades/ [10/20/11]
3 - blogs.abcnews.com/politicalpunch/2011/07/debt-ceiling-framework-where-they-landed.html [7/31/11]
4 - www.usnews.com/news/articles/2011/11/21/so-the-super-committee-failed-how-will-that-affect-you [11/21/11]
5 - bloomberg.com/news/2011-08-06/u-s-credit-rating-cut-by-s-p-for-first-time-on-deficit-reduction-accord.html [8/5/11]
6 - blogs.wsj.com/marketbeat/2011/11/21/sp-super-failure-wont-affect-us-credit-rating/?mod=google_news_blog [11/21/11]
7 - www.cnbc.com/id/45355898 [11/21/11]
8 - www.csmonitor.com/Business/Latest-News-Wires/2011/11/21/Super-committee-fails [11/21/11]
9 - www.foxnews.com/politics/2011/11/21/clock-ticks-down-to-super-committee-failure/ [11/21/11]
Sincerely,
William T. Morrissey, CFP®
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commerical St., Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
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Monday, November 28, 2011
Thursday, November 17, 2011
UNCERTAINTY OVER ITALY
Bond yields climb dangerously high. It looks like the EU may forego a bailout.
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.
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]
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.
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]
Thursday, November 10, 2011
YOUR ANNUAL FINANCIAL TO-DO LIST
Things you can do before and for the New Year.
The end of the year is a good time to review your personal finances. What are your financial, business or life priorities for 2012? Try to specify the goals you want to accomplish. Think about the consistent investing, saving or budgeting methods you could use to realize them. Also, consider these year-end moves.
Think about adjusting or timing your income and tax deductions. If you earn a lot of money and have the option of postponing a portion of the taxable income you will make in 2011 until 2012, this decision can bring you some tax savings. You might also consider accelerating payment of deductible expenses if you are close to the line on itemized deductions – another way to potentially save some bucks.
Think about putting more in your 401(k) or 403(b). In 2011, you can contribute up to $16,500 per year to these accounts with a $5,500 catch-up contribution also allowed if you are age 50 or older. Has your 2011 contribution reached the annual limit? There is still time to put more into your employer-sponsored retirement plan.1
The IRS has announced 2012 contribution limits for 401(k) and 403(b) accounts, most 457 plans and the federal government’s Thrift Savings Plan (TSP). The annual contribution limit for each of these retirement plans will be $17,000 next year; the catch-up contribution again maxes out at $5,500.1
On a related note, SIMPLE IRA contribution limits won’t change next year. Up to $11,500 can be contributed to a SIMPLE IRA in 2012, $14,000 if you are 50 or older.2
Can you max out your IRA contribution at the start of 2012? If you can do it, do it early - the sooner you make your contribution, the more interest those assets will earn. (If you haven’t yet made your 2011 IRA contribution, you can still do so through April 17, 2012.)
The IRS has decided that IRA contribution limits won’t increase next year. In 2012 you will be able to contribute up to $5,000 to a Roth or traditional IRA if you are age 49 or younger, and up to $6,000 if you are age 50 and older (though your MAGI may affect how much you can put into a Roth IRA).3
The IRS has also boosted the income limits for a tax deduction for traditional IRA contributions. If you participate in a workplace retirement plan in 2012, the MAGI phase-out ranges will be $58,000-68,000 for singles and heads of households and $92,000-112,000 for couples. (In 2011, those phase-out ranges are set $2,000 lower.) If you own an IRA, you aren’t covered by a workplace retirement plan and you are married and filing jointly, the 2012 phase-out range is $173,000-183,000 based on a couple’s combined MAGI, hiked by $4,000 from 2011.3
Should you go Roth between now and the end of 2012? While you can no longer divide the income from a Roth IRA conversion across two years of federal tax returns, converting a traditional IRA into a Roth before 2013 may make sense for another reason: federal taxes might be higher in 2013. Congress extended the Bush-era tax cuts through the end of 2012; that sunset may not be delayed any further.4
Some MAGI phase-out limits affect Roth IRA contributions. These phase-out limits have been adjusted north for 2012. Next year, phase-outs will kick in at $173,000 for joint filers and $110,000 for single filers. (The 2011 phase-outs respectively kick in at $169,000 and $107,000.) Should your MAGI prevent you from contributing to a Roth IRA at all, you still have a chance to contribute to a traditional IRA in 2012 and then roll those IRA assets over into a Roth.3,5
Consult a tax or financial professional before you make any IRA moves. You will want see how it may affect your overall financial picture. The tax consequences of a Roth conversion can get sticky if you own multiple traditional IRAs.
If you are retired and older than 70½, don’t forget an RMD. Retirees over age 70½ must take Required Minimum Distributions from traditional IRAs and 401(k)s by December 31, 2012. Remember that the IRS penalty for failing to take an RMD equals 50% of the RMD amount.6
If you have turned or will turn 70½ in 2011, you can postpone your first IRA RMD until April 1, 2012. The downside of that is that you will have to take two IRA RMDs next year, both taxable events – you will have to make your 2011 tax year withdrawal by April 1, 2012 and your 2012 tax year withdrawal by December 31, 2012.6
Plan your RMDs wisely. If you do so, you may end up limiting or avoiding possible taxes on your Social Security income. Some Social Security recipients don’t know about the “provisional income” rule – if your modified AGI plus 50% of your Social Security benefits surpasses a certain level, then a portion of your Social Security benefits become taxable. For tax year 2011, Social Security benefits start to be taxed at provisional income levels of $32,000 for joint filers and $25,000 for single filers.7
Consider the tax impact of any 2011 transactions. Did you sell any real property this year – or do you plan to before the year ends? Did you start a business? Are you thinking about exercising a stock option? Could any large commissions or bonuses come your way before the end of the year? Did you sell an investment that was held outside of a tax-deferred account? Any of these moves might have a big impact on your taxes.
You may wish to make a charitable gift before New Year’s Day. Make a charitable contribution this year and you can claim the deduction on your 2011 return.
You could make December the “13th month”. Can you make a January mortgage payment in December, or make a lump sum payment on your mortgage balance? If you have a fixed-rate mortgage, a lump sum payment can reduce the home loan amount and the total interest paid on the loan by that much more. In a sense, paying down a debt is almost like getting a risk-free return.
Are you marrying next year, or do you know someone who is? The top of 2012 is a good time to review (and possibly change) beneficiaries to your 401(k) or 403(b) account, your IRA, your insurance policy and other assets. You may want to change beneficiaries in your will. It is also wise to take a look at your insurance coverage. If your last name is changing, you will need a new Social Security card. Lastly, assess your debts and the merits of your existing financial plans.
Are you returning from active duty? If so, go ahead and check the status of your credit, and the state of any tax and legal proceedings that might have been preempted by your orders. Review the status of your employee health insurance, and revoke any power of attorney you may have granted to another person.
Lastly, have you reviewed your withholding status? It may be time for a withholding adjustment if...
• You tend to pay a great deal of income tax annually.
• You tend to get a big refund each year from the IRS.
• You recently married or divorced.
• A family member recently passed away.
• You have a new job that pays you much more than your old one.
• You opened up your own business or started freelancing.
Don’t delay – get it done. Talk with a qualified financial or tax professional today, so you can focus on being healthy and wealthy in the New Year.
Citations.
1 www.irs.gov/newsroom/article/0,,id=248482,00.html [10/20/11]
2 www.irs.gov/retirement/participant/article/0,,id=211345,00.html [10/20/11]
3 money.usnews.com/money/blogs/planning-to-retire/2011/10/21/401k-and-ira-changes-coming-in-2012 [10/21/11]
4 www.post-gazette.com/pg/11032/1121982-28.stm [2/1/11]
5 www.irs.gov/retirement/participant/article/0,,id=202518,00.html [11/1/10]
6 www.montoyaregistry.com/Financial-Market.aspx?financial-market=required-ira-distributions&category=1 [9/15/11]
7 www.dentbaker.com/LinkClick.aspx?fileticket=5gZQwSHvjwQ%3d&tabid=36 [9/6/11]
The end of the year is a good time to review your personal finances. What are your financial, business or life priorities for 2012? Try to specify the goals you want to accomplish. Think about the consistent investing, saving or budgeting methods you could use to realize them. Also, consider these year-end moves.
Think about adjusting or timing your income and tax deductions. If you earn a lot of money and have the option of postponing a portion of the taxable income you will make in 2011 until 2012, this decision can bring you some tax savings. You might also consider accelerating payment of deductible expenses if you are close to the line on itemized deductions – another way to potentially save some bucks.
Think about putting more in your 401(k) or 403(b). In 2011, you can contribute up to $16,500 per year to these accounts with a $5,500 catch-up contribution also allowed if you are age 50 or older. Has your 2011 contribution reached the annual limit? There is still time to put more into your employer-sponsored retirement plan.1
The IRS has announced 2012 contribution limits for 401(k) and 403(b) accounts, most 457 plans and the federal government’s Thrift Savings Plan (TSP). The annual contribution limit for each of these retirement plans will be $17,000 next year; the catch-up contribution again maxes out at $5,500.1
On a related note, SIMPLE IRA contribution limits won’t change next year. Up to $11,500 can be contributed to a SIMPLE IRA in 2012, $14,000 if you are 50 or older.2
Can you max out your IRA contribution at the start of 2012? If you can do it, do it early - the sooner you make your contribution, the more interest those assets will earn. (If you haven’t yet made your 2011 IRA contribution, you can still do so through April 17, 2012.)
The IRS has decided that IRA contribution limits won’t increase next year. In 2012 you will be able to contribute up to $5,000 to a Roth or traditional IRA if you are age 49 or younger, and up to $6,000 if you are age 50 and older (though your MAGI may affect how much you can put into a Roth IRA).3
The IRS has also boosted the income limits for a tax deduction for traditional IRA contributions. If you participate in a workplace retirement plan in 2012, the MAGI phase-out ranges will be $58,000-68,000 for singles and heads of households and $92,000-112,000 for couples. (In 2011, those phase-out ranges are set $2,000 lower.) If you own an IRA, you aren’t covered by a workplace retirement plan and you are married and filing jointly, the 2012 phase-out range is $173,000-183,000 based on a couple’s combined MAGI, hiked by $4,000 from 2011.3
Should you go Roth between now and the end of 2012? While you can no longer divide the income from a Roth IRA conversion across two years of federal tax returns, converting a traditional IRA into a Roth before 2013 may make sense for another reason: federal taxes might be higher in 2013. Congress extended the Bush-era tax cuts through the end of 2012; that sunset may not be delayed any further.4
Some MAGI phase-out limits affect Roth IRA contributions. These phase-out limits have been adjusted north for 2012. Next year, phase-outs will kick in at $173,000 for joint filers and $110,000 for single filers. (The 2011 phase-outs respectively kick in at $169,000 and $107,000.) Should your MAGI prevent you from contributing to a Roth IRA at all, you still have a chance to contribute to a traditional IRA in 2012 and then roll those IRA assets over into a Roth.3,5
Consult a tax or financial professional before you make any IRA moves. You will want see how it may affect your overall financial picture. The tax consequences of a Roth conversion can get sticky if you own multiple traditional IRAs.
If you are retired and older than 70½, don’t forget an RMD. Retirees over age 70½ must take Required Minimum Distributions from traditional IRAs and 401(k)s by December 31, 2012. Remember that the IRS penalty for failing to take an RMD equals 50% of the RMD amount.6
If you have turned or will turn 70½ in 2011, you can postpone your first IRA RMD until April 1, 2012. The downside of that is that you will have to take two IRA RMDs next year, both taxable events – you will have to make your 2011 tax year withdrawal by April 1, 2012 and your 2012 tax year withdrawal by December 31, 2012.6
Plan your RMDs wisely. If you do so, you may end up limiting or avoiding possible taxes on your Social Security income. Some Social Security recipients don’t know about the “provisional income” rule – if your modified AGI plus 50% of your Social Security benefits surpasses a certain level, then a portion of your Social Security benefits become taxable. For tax year 2011, Social Security benefits start to be taxed at provisional income levels of $32,000 for joint filers and $25,000 for single filers.7
Consider the tax impact of any 2011 transactions. Did you sell any real property this year – or do you plan to before the year ends? Did you start a business? Are you thinking about exercising a stock option? Could any large commissions or bonuses come your way before the end of the year? Did you sell an investment that was held outside of a tax-deferred account? Any of these moves might have a big impact on your taxes.
You may wish to make a charitable gift before New Year’s Day. Make a charitable contribution this year and you can claim the deduction on your 2011 return.
You could make December the “13th month”. Can you make a January mortgage payment in December, or make a lump sum payment on your mortgage balance? If you have a fixed-rate mortgage, a lump sum payment can reduce the home loan amount and the total interest paid on the loan by that much more. In a sense, paying down a debt is almost like getting a risk-free return.
Are you marrying next year, or do you know someone who is? The top of 2012 is a good time to review (and possibly change) beneficiaries to your 401(k) or 403(b) account, your IRA, your insurance policy and other assets. You may want to change beneficiaries in your will. It is also wise to take a look at your insurance coverage. If your last name is changing, you will need a new Social Security card. Lastly, assess your debts and the merits of your existing financial plans.
Are you returning from active duty? If so, go ahead and check the status of your credit, and the state of any tax and legal proceedings that might have been preempted by your orders. Review the status of your employee health insurance, and revoke any power of attorney you may have granted to another person.
Lastly, have you reviewed your withholding status? It may be time for a withholding adjustment if...
• You tend to pay a great deal of income tax annually.
• You tend to get a big refund each year from the IRS.
• You recently married or divorced.
• A family member recently passed away.
• You have a new job that pays you much more than your old one.
• You opened up your own business or started freelancing.
Don’t delay – get it done. Talk with a qualified financial or tax professional today, so you can focus on being healthy and wealthy in the New Year.
Citations.
1 www.irs.gov/newsroom/article/0,,id=248482,00.html [10/20/11]
2 www.irs.gov/retirement/participant/article/0,,id=211345,00.html [10/20/11]
3 money.usnews.com/money/blogs/planning-to-retire/2011/10/21/401k-and-ira-changes-coming-in-2012 [10/21/11]
4 www.post-gazette.com/pg/11032/1121982-28.stm [2/1/11]
5 www.irs.gov/retirement/participant/article/0,,id=202518,00.html [11/1/10]
6 www.montoyaregistry.com/Financial-Market.aspx?financial-market=required-ira-distributions&category=1 [9/15/11]
7 www.dentbaker.com/LinkClick.aspx?fileticket=5gZQwSHvjwQ%3d&tabid=36 [9/6/11]
Tuesday, November 8, 2011
MONTHLY ECONOMIC UPDATE
MONTHLY QUOTE
“The family you come from isn’t as important as the family you’re going to have.”
– Ring Lardner
MONTHLY TIP
Do you need several credit cards? Maybe not, especially if you don’t use some of them. Unused credit cards can negatively affect you if you apply for a mortgage or personal loan as lenders look at your “available credit” (used and unused) to decide if you are overextended.
MONTHLY RIDDLE
I went into the woods and got it. I sat down to seek it. I brought it home with me because I couldn't find it. What is it?
Last month’s riddle: I'm dressed in a golden jacket. I take it off abruptly, accompanied by a loud noise. When I do, I become larger but weigh less. What am I?
Last month’s answer:
A kernel of corn.
November 2011
THE MONTH IN BRIEF
In October 2011, stocks had their best month in nearly 20 years. The S&P 500 climbed 10.77% as optimism returned; investors were relieved that Eurozone nations were progressing toward a solution to avert a Greek default. However, the month ended with a political curveball that threatened to sabotage the whole effort. At home, consumer confidence and mortgage rates were at generational lows while consumer spending, auto sales and new home sales held up. Occupy Wall Street gained the world’s attention, as the hazily defined movement may have inspired its first tangible financial change.1
DOMESTIC ECONOMIC HEALTH
In the month of October, the most reassuring stateside economic indicator was a quarterly one. The initial estimate of 3Q GDP was a 2.5% rise: precisely what economists were forecasting and exactly what was needed to silence arguments that we were on the cusp of a double-dip recession.2
Consumers had become pessimists, but they were still spending enough money to move the economy along. They weren’t happy: the month’s final University of Michigan consumer sentiment survey came in at 60.9, better than the preceding month’s 59.4 but still very low. The Conference Board’s October poll fell to an abysmal 39.8. Yet personal spending had improved by 0.6% in September, even as incomes only rose 0.1% in that month.3,4
At both the mall and the factory, there were still signs of vitality. The latest purchasing manager indexes from the Institute for Supply Management showed mild sector expansion: 50.8 in October for the manufacturing index, 53.0 in September for the service sector index. Retail sales zoomed north 1.1% in September, according to the Commerce Department. U.S. auto sales posted a 7.5% monthly gain in October. Overall durable goods orders retreated 0.8% in September, yet there was a 1.7% gain in hard good orders ex-transportation.5,6,7,8,9
Moderate inflation was also alive and well; the federal government’s Consumer Price Index showed annualized inflation reaching 3.9% in September; annualized core CPI was unchanged from the August reading of 2.0%. The CPI posted a 0.3% monthly gain for September while the Producer Price Index went up 0.8% after a flat August.10
The jobless rate didn’t move for the third straight month; in September, it remained at 9.1%. On Capitol Hill, President Obama’s American Jobs Act stalled in the Senate and there were indications that the “super committee” of 12 legislators assigned to craft a deficit reduction plan wasn’t making much progress. President Obama used an executive order to speed up implementation of rules intended to ease the debt burden from college loans, and another to broaden the qualifying criteria for HARP, the federal government’s underutilized mortgage relief program. The Occupy Wall Street protest spread to other cities; while some of the protesters seemed naïve and poorly informed about the relationship of Main Street to Wall Street, they may have hit one of their targets. Late last month, Bank of America announced it was dropping its proposed $5 monthly fee on debit card use; other lenders considering debit card usage fees publicly reconsidered them.11,12
GLOBAL ECONOMIC HEALTH
Things were looking so much better in Europe, until one politician made a truly scary announcement on Halloween. Greek prime minister George Paparandou stunned the European Union with his intent to make the latest austerity cuts for Greece contingent on a public vote. On November 2, German Chancellor Angela
Merkel and French President Nicolas Sarkozy gave Paparandou an ultimatum: no more money from the EU or the IMF unless Greek voters approve the cuts. One day later, Paparandou scuttled the referendum and faces a potentially grim political future. In late October, key bankers and insurers within the Eurozone agreed to a 50% writedown on their Greek debt holdings; additionally, European finance ministers unveiled a plan to boost bank capital ratios to 9% or better by June and increase the size of the Eurozone bailout fund fourfold.13,14,15,35
So what was going on in Asian economies? Some inflation readings were lower than analysts expected: 4.4% for Indonesia; 4.2% for Thailand; 3.9% for South Korea. India’s PMI improved 1.6% in October to 52.0 and its exports surged 36% in the month. On the downside, Taiwan’s latest GDP reading was lower than anticipated, and so was China’s official PMI, which approached a three-year low last month.16
WORLD MARKETS
Looking at Morningstar’s figures for global indexes (calculated in USD terms), we see some impressive one-month rebounds from September. England’s FTSE 100 went +8.11% and the French CAC 40 +8.75%, but that paled in comparison to the German DAX at +11.62% and Hong Kong’s Hang Seng at +12.50%. Other nice performances: India’s Sensex, +7.60%; Australia’s All Ordinaries, +7.13%; the TSX Composite of Canada, +5.40%; the Shanghai Composite of China, +4.62%; Japan’s Nikkei 225, +3.31%. The MSCI World Index rose 10.26% last month while the MSCI Emerging Market Index gained 13.08%.17,18
COMMODITIES MARKETS
Metals rebounded in October, as follows: gold, +6.3%; silver, +14.2%; copper, +15.0%; platinum, +5.5%; palladium, +6.0%. Gold ended up +21.3% YTD when October concluded. Oil rose $13.99 on the month, settling at $93.19 a barrel on Halloween. The real yield of the 10-year note (already down to 0.17% on September 30) diminished to 0.08% by October 31. The U.S. Dollar Index retreated 3.03% last month.19,20,21,22,23
REAL ESTATE
There was some good news: the Census Bureau reported housing starts up by a whopping 15.0% for September, and it said new home sales improved by 5.7% in that month. The August edition of the S&P/Case-Shiller Home Price Index posted an overall advance for the third month in a row (0.2%), with prices rising in 10 of 20 metro areas and the year-over-year price decline shrinking to just 3.8%.24,25,26
On the downside, the National Association of Realtors said existing home sales fell 3.0% for September, leaving sales on pace for a 2012 total of 4.91 million; this was be precisely the same amount of residential resales as 2010, that year being the worst on record for the category since 1997. NAR also said that pending home sales slipped 4.6% in September (economists polled by Bloomberg had forecast a 0.4% gain). 27,28
Mortgage rates went up in October. Freddie Mac’s October 27 Primary Mortgage Market Survey showed the average rate on the 30-year FRM at 4.10%, up from the bedrock-low 4.01% on September 29. Other average interest rates moved as follows during that interval: 5/1-year ARMs, from 3.02% to 3.08%; 1-year ARMs, from 2.83% to 2.90%; 15-year FRMs, from 3.28% to 3.38%.29
LOOKING BACK…LOOKING FORWARD
This sterling market month started and ended with sour notes: the Dow’s worst trading days of October were October 1 and Halloween. Those notes aside, October was positively amazing for the blue chips. In percentage terms, the DJIA had its finest month since October 2002 (and that was with a 2.26% fall on Halloween). All 30 components advanced; the last month in which that happened was September 2010. Also worth noting: the NASDAQ had its best month since September 2010.
Here was the tale of the tape at the end of October. 1
% CHANGE
Y-T-D
1-MO CHG
1-YR CHG
10-YR AVG
DJIA
+3.26
+9.54
+7.46
+3.17
NASDAQ
+1.19
+11.14
+7.17
+5.88
S&P 500
-0.35
+10.77
+5.82
+1.83
REAL YIELD
10/31 RATE
1 YR AGO
5 YRS AGO
10 YRS AGO
10 YR TIPS
0.08%
0.49%
2.34%
3.50%
Sources: online.wsj.com, bigcharts.com, treasury.gov - 10/31/111,30,31,32,33
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.
These returns do not include dividends.
This is the time of year many investors look forward to; November often marks the start of the traditional fall-winter “sweet spot” for the market. According to the Stock Trader’s Almanac, the S&P 500 has advanced in 57% of Novembers since 1928, with an average gain of 0.78%. Not only that, November has been the second-best month of the year for the S&P 500 since 1950. However, the yet-unresolved situation in Europe is hanging over the market like a cloud; Europe is the market mover now and for the near future. The current Greek government may or may not survive a seemingly inevitable confidence vote; Greek PM George Papandreou’s recent backtrack on a bailout referendum only adds to the uncertainty. So November proceeds with a caution flag for investors; in the best-case scenario, EU pressure on the Papandreou government and a calming of internal Greek political strife lowers that flag.34, 35
UPCOMING ECONOMIC RELEASES: The rest of November offers the following news items: the October ISM service sector index (11/3), the October unemployment report (11/4), September’s wholesale inventories (11/9), the initial University of Michigan November consumer sentiment survey (11/11), the October PPI, October retail sales and September business inventories (11/15), October’s CPI and industrial output (11/16), October housing starts and building permits (11/17), the Conference Board’s October Leading Economic Indicators index (11/18), October existing home sales (11/21), the latest FOMC minutes and the BEA’s second estimate of 3Q growth (11/22), the October consumer spending and durable goods orders reports and the final University of Michigan October consumer sentiment survey (11/23), October new home sales (11/28), the September Case-Shiller home price index and the Conference Board’s November consumer confidence snapshot (11/29), and finally the October pending home sales report and a new Beige Book from the Federal Reserve (11/30).
.
Citations.
1 - blogs.wsj.com/marketbeat/2011/10/31/data-points-u-s-markets-60/ [10/31/11]
2 - abcnews.go.com/Business/gdp-grew-25-percent-boosted-consumer-spending-double/story?id=14821833 [10/27/11]
3 – www.foxbusiness.com/markets/2011/10/28/consumer-spending-rises-weak-incomes-worry/ [10/28/11]
4 - www.npr.org/blogs/thetwo-way/2011/10/25/141683694/consumer-confidence-back-down-to-recession-level [10/25/11]
5 - www.ism.ws/ISMReport/MfgROB.cfm [11/1/11]
6 – www.ism.ws/ISMReport/NonMfgROB.cfm [10/5/11]
7 - www.latimes.com/business/la-fi-economy-retail-20111014,0,1716584.story?track=rss [10/14/11]
8 - online.wsj.com/article/
SB10001424052970204528204577011691060440660.html [11/1/11]
9 - www.forbes.com/2011/10/26/durable-goods-order-rise-extransportation-mortgage-apps-rise-marketnewsvideo.html [10/26/11]
10 - www.nytimes.com/2011/10/20/business/economy/us-consumer-inflation-subdued-housing-starts-up.html [10/19/11]
11 – www.marketwatch.com/story/september-data-show-improvement-in-jobs-market-2011-10-07 [10/7/11]
12 - bottomline.msnbc.msn.com/_news/2011/11/01/8583136-after-debit-card-battle-beware-of-more-bank-fees [11/1/11]
13 - www.reuters.com/article/2011/10/31/us-greece-referendum-analysts-idUSTRE79U7GO20111031 [10/31/11]
14 - www.marketwatch.com/story/greek-bondholders-to-take-50-haircut-2011-10-26 [10/27/11]
15 - www.guardian.co.uk/world/2011/nov/02/greece-ultimatum-austerity-forego-eu?intcmp=239 [11/2/11]
17 - news.morningstar.com/index/indexreturn.html [11/1/11]
18 -mscibarra.com/products/indices/international_equity_indices/gimi/
stdindex/performance.html [10/31/11]
19 - www.bullionpricestoday.com/bullion-prices-rally-in-october-2011/ [10/31/11]
20 - www.marketwatch.com/gold-futures-drop-as-us-dollar-surges-2011-10-31 [10/31/11]
21 - online.wsj.com/mdc/public/npage/2_3051.html?mod=mdc_curr_dtabnk&symb=DXY [11/2/11]
22 - blogs.wsj.com/marketbeat/2011/10/31/data-points-energy-metals-528/ [10/31/11]
23 – www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldYear&year=2011 [11/1/11]
24 – www.thestreet.com/story/11283665/1/raise-the-roof-housing-starts-up-15-in-september.html [10/20/11]
25 - marketwatch.com/story/new-us-home-sales-rise-as-prices-tumble-2011-10-26 [10/26/11]
26 - articles.latimes.com/2011/oct/25/business/la-fi-home-prices-20111026 [10/25/11]
27 - ajc.com/business/sales-of-previously-occupied-1206303.html [10/20/11]
28 - bloomberg.com/news/2011-10-27/pending-sales-of-u-s-existing-homes-unexpectedly-falls-4-6-on-demand-ebb.html [10/27/11]
29 - freddiemac.com/pmms/ [11/2/11]
30 - montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29 [11/2/11]
31 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F1%2F10&x=0&y=0 [11/2/11]
31 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F1F2%2F10&x=10&y=18 [11/2/11]
31 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F1%2F10&x=0&y=0 [11/2/11]
31 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=10%2F31%2F01&x=0&y=0 [11/2/11]
31 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=10%2F31%2F01&x=0&y=0 [11/2/11]
31 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=10%2F31%2F01&x=0&y=0 [11/2/11]
32 - www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [11/2/11]
33 - www.treasurydirect.gov/instit/annceresult/
press/preanre/2001/ofm71101.pdf [7/11/01]
34 - www.cnbc.com/id/45082000 [11/2/11]
35 - www.nytimes.com/2011/11/04/world/europe/greek-leaders-split-on-euro-referendum.html [11/3/11]
“The family you come from isn’t as important as the family you’re going to have.”
– Ring Lardner
MONTHLY TIP
Do you need several credit cards? Maybe not, especially if you don’t use some of them. Unused credit cards can negatively affect you if you apply for a mortgage or personal loan as lenders look at your “available credit” (used and unused) to decide if you are overextended.
MONTHLY RIDDLE
I went into the woods and got it. I sat down to seek it. I brought it home with me because I couldn't find it. What is it?
Last month’s riddle: I'm dressed in a golden jacket. I take it off abruptly, accompanied by a loud noise. When I do, I become larger but weigh less. What am I?
Last month’s answer:
A kernel of corn.
November 2011
THE MONTH IN BRIEF
In October 2011, stocks had their best month in nearly 20 years. The S&P 500 climbed 10.77% as optimism returned; investors were relieved that Eurozone nations were progressing toward a solution to avert a Greek default. However, the month ended with a political curveball that threatened to sabotage the whole effort. At home, consumer confidence and mortgage rates were at generational lows while consumer spending, auto sales and new home sales held up. Occupy Wall Street gained the world’s attention, as the hazily defined movement may have inspired its first tangible financial change.1
DOMESTIC ECONOMIC HEALTH
In the month of October, the most reassuring stateside economic indicator was a quarterly one. The initial estimate of 3Q GDP was a 2.5% rise: precisely what economists were forecasting and exactly what was needed to silence arguments that we were on the cusp of a double-dip recession.2
Consumers had become pessimists, but they were still spending enough money to move the economy along. They weren’t happy: the month’s final University of Michigan consumer sentiment survey came in at 60.9, better than the preceding month’s 59.4 but still very low. The Conference Board’s October poll fell to an abysmal 39.8. Yet personal spending had improved by 0.6% in September, even as incomes only rose 0.1% in that month.3,4
At both the mall and the factory, there were still signs of vitality. The latest purchasing manager indexes from the Institute for Supply Management showed mild sector expansion: 50.8 in October for the manufacturing index, 53.0 in September for the service sector index. Retail sales zoomed north 1.1% in September, according to the Commerce Department. U.S. auto sales posted a 7.5% monthly gain in October. Overall durable goods orders retreated 0.8% in September, yet there was a 1.7% gain in hard good orders ex-transportation.5,6,7,8,9
Moderate inflation was also alive and well; the federal government’s Consumer Price Index showed annualized inflation reaching 3.9% in September; annualized core CPI was unchanged from the August reading of 2.0%. The CPI posted a 0.3% monthly gain for September while the Producer Price Index went up 0.8% after a flat August.10
The jobless rate didn’t move for the third straight month; in September, it remained at 9.1%. On Capitol Hill, President Obama’s American Jobs Act stalled in the Senate and there were indications that the “super committee” of 12 legislators assigned to craft a deficit reduction plan wasn’t making much progress. President Obama used an executive order to speed up implementation of rules intended to ease the debt burden from college loans, and another to broaden the qualifying criteria for HARP, the federal government’s underutilized mortgage relief program. The Occupy Wall Street protest spread to other cities; while some of the protesters seemed naïve and poorly informed about the relationship of Main Street to Wall Street, they may have hit one of their targets. Late last month, Bank of America announced it was dropping its proposed $5 monthly fee on debit card use; other lenders considering debit card usage fees publicly reconsidered them.11,12
GLOBAL ECONOMIC HEALTH
Things were looking so much better in Europe, until one politician made a truly scary announcement on Halloween. Greek prime minister George Paparandou stunned the European Union with his intent to make the latest austerity cuts for Greece contingent on a public vote. On November 2, German Chancellor Angela
Merkel and French President Nicolas Sarkozy gave Paparandou an ultimatum: no more money from the EU or the IMF unless Greek voters approve the cuts. One day later, Paparandou scuttled the referendum and faces a potentially grim political future. In late October, key bankers and insurers within the Eurozone agreed to a 50% writedown on their Greek debt holdings; additionally, European finance ministers unveiled a plan to boost bank capital ratios to 9% or better by June and increase the size of the Eurozone bailout fund fourfold.13,14,15,35
So what was going on in Asian economies? Some inflation readings were lower than analysts expected: 4.4% for Indonesia; 4.2% for Thailand; 3.9% for South Korea. India’s PMI improved 1.6% in October to 52.0 and its exports surged 36% in the month. On the downside, Taiwan’s latest GDP reading was lower than anticipated, and so was China’s official PMI, which approached a three-year low last month.16
WORLD MARKETS
Looking at Morningstar’s figures for global indexes (calculated in USD terms), we see some impressive one-month rebounds from September. England’s FTSE 100 went +8.11% and the French CAC 40 +8.75%, but that paled in comparison to the German DAX at +11.62% and Hong Kong’s Hang Seng at +12.50%. Other nice performances: India’s Sensex, +7.60%; Australia’s All Ordinaries, +7.13%; the TSX Composite of Canada, +5.40%; the Shanghai Composite of China, +4.62%; Japan’s Nikkei 225, +3.31%. The MSCI World Index rose 10.26% last month while the MSCI Emerging Market Index gained 13.08%.17,18
COMMODITIES MARKETS
Metals rebounded in October, as follows: gold, +6.3%; silver, +14.2%; copper, +15.0%; platinum, +5.5%; palladium, +6.0%. Gold ended up +21.3% YTD when October concluded. Oil rose $13.99 on the month, settling at $93.19 a barrel on Halloween. The real yield of the 10-year note (already down to 0.17% on September 30) diminished to 0.08% by October 31. The U.S. Dollar Index retreated 3.03% last month.19,20,21,22,23
REAL ESTATE
There was some good news: the Census Bureau reported housing starts up by a whopping 15.0% for September, and it said new home sales improved by 5.7% in that month. The August edition of the S&P/Case-Shiller Home Price Index posted an overall advance for the third month in a row (0.2%), with prices rising in 10 of 20 metro areas and the year-over-year price decline shrinking to just 3.8%.24,25,26
On the downside, the National Association of Realtors said existing home sales fell 3.0% for September, leaving sales on pace for a 2012 total of 4.91 million; this was be precisely the same amount of residential resales as 2010, that year being the worst on record for the category since 1997. NAR also said that pending home sales slipped 4.6% in September (economists polled by Bloomberg had forecast a 0.4% gain). 27,28
Mortgage rates went up in October. Freddie Mac’s October 27 Primary Mortgage Market Survey showed the average rate on the 30-year FRM at 4.10%, up from the bedrock-low 4.01% on September 29. Other average interest rates moved as follows during that interval: 5/1-year ARMs, from 3.02% to 3.08%; 1-year ARMs, from 2.83% to 2.90%; 15-year FRMs, from 3.28% to 3.38%.29
LOOKING BACK…LOOKING FORWARD
This sterling market month started and ended with sour notes: the Dow’s worst trading days of October were October 1 and Halloween. Those notes aside, October was positively amazing for the blue chips. In percentage terms, the DJIA had its finest month since October 2002 (and that was with a 2.26% fall on Halloween). All 30 components advanced; the last month in which that happened was September 2010. Also worth noting: the NASDAQ had its best month since September 2010.
Here was the tale of the tape at the end of October. 1
% CHANGE
Y-T-D
1-MO CHG
1-YR CHG
10-YR AVG
DJIA
+3.26
+9.54
+7.46
+3.17
NASDAQ
+1.19
+11.14
+7.17
+5.88
S&P 500
-0.35
+10.77
+5.82
+1.83
REAL YIELD
10/31 RATE
1 YR AGO
5 YRS AGO
10 YRS AGO
10 YR TIPS
0.08%
0.49%
2.34%
3.50%
Sources: online.wsj.com, bigcharts.com, treasury.gov - 10/31/111,30,31,32,33
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.
These returns do not include dividends.
This is the time of year many investors look forward to; November often marks the start of the traditional fall-winter “sweet spot” for the market. According to the Stock Trader’s Almanac, the S&P 500 has advanced in 57% of Novembers since 1928, with an average gain of 0.78%. Not only that, November has been the second-best month of the year for the S&P 500 since 1950. However, the yet-unresolved situation in Europe is hanging over the market like a cloud; Europe is the market mover now and for the near future. The current Greek government may or may not survive a seemingly inevitable confidence vote; Greek PM George Papandreou’s recent backtrack on a bailout referendum only adds to the uncertainty. So November proceeds with a caution flag for investors; in the best-case scenario, EU pressure on the Papandreou government and a calming of internal Greek political strife lowers that flag.34, 35
UPCOMING ECONOMIC RELEASES: The rest of November offers the following news items: the October ISM service sector index (11/3), the October unemployment report (11/4), September’s wholesale inventories (11/9), the initial University of Michigan November consumer sentiment survey (11/11), the October PPI, October retail sales and September business inventories (11/15), October’s CPI and industrial output (11/16), October housing starts and building permits (11/17), the Conference Board’s October Leading Economic Indicators index (11/18), October existing home sales (11/21), the latest FOMC minutes and the BEA’s second estimate of 3Q growth (11/22), the October consumer spending and durable goods orders reports and the final University of Michigan October consumer sentiment survey (11/23), October new home sales (11/28), the September Case-Shiller home price index and the Conference Board’s November consumer confidence snapshot (11/29), and finally the October pending home sales report and a new Beige Book from the Federal Reserve (11/30).
.
Citations.
1 - blogs.wsj.com/marketbeat/2011/10/31/data-points-u-s-markets-60/ [10/31/11]
2 - abcnews.go.com/Business/gdp-grew-25-percent-boosted-consumer-spending-double/story?id=14821833 [10/27/11]
3 – www.foxbusiness.com/markets/2011/10/28/consumer-spending-rises-weak-incomes-worry/ [10/28/11]
4 - www.npr.org/blogs/thetwo-way/2011/10/25/141683694/consumer-confidence-back-down-to-recession-level [10/25/11]
5 - www.ism.ws/ISMReport/MfgROB.cfm [11/1/11]
6 – www.ism.ws/ISMReport/NonMfgROB.cfm [10/5/11]
7 - www.latimes.com/business/la-fi-economy-retail-20111014,0,1716584.story?track=rss [10/14/11]
8 - online.wsj.com/article/
SB10001424052970204528204577011691060440660.html [11/1/11]
9 - www.forbes.com/2011/10/26/durable-goods-order-rise-extransportation-mortgage-apps-rise-marketnewsvideo.html [10/26/11]
10 - www.nytimes.com/2011/10/20/business/economy/us-consumer-inflation-subdued-housing-starts-up.html [10/19/11]
11 – www.marketwatch.com/story/september-data-show-improvement-in-jobs-market-2011-10-07 [10/7/11]
12 - bottomline.msnbc.msn.com/_news/2011/11/01/8583136-after-debit-card-battle-beware-of-more-bank-fees [11/1/11]
13 - www.reuters.com/article/2011/10/31/us-greece-referendum-analysts-idUSTRE79U7GO20111031 [10/31/11]
14 - www.marketwatch.com/story/greek-bondholders-to-take-50-haircut-2011-10-26 [10/27/11]
15 - www.guardian.co.uk/world/2011/nov/02/greece-ultimatum-austerity-forego-eu?intcmp=239 [11/2/11]
17 - news.morningstar.com/index/indexreturn.html [11/1/11]
18 -mscibarra.com/products/indices/international_equity_indices/gimi/
stdindex/performance.html [10/31/11]
19 - www.bullionpricestoday.com/bullion-prices-rally-in-october-2011/ [10/31/11]
20 - www.marketwatch.com/gold-futures-drop-as-us-dollar-surges-2011-10-31 [10/31/11]
21 - online.wsj.com/mdc/public/npage/2_3051.html?mod=mdc_curr_dtabnk&symb=DXY [11/2/11]
22 - blogs.wsj.com/marketbeat/2011/10/31/data-points-energy-metals-528/ [10/31/11]
23 – www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldYear&year=2011 [11/1/11]
24 – www.thestreet.com/story/11283665/1/raise-the-roof-housing-starts-up-15-in-september.html [10/20/11]
25 - marketwatch.com/story/new-us-home-sales-rise-as-prices-tumble-2011-10-26 [10/26/11]
26 - articles.latimes.com/2011/oct/25/business/la-fi-home-prices-20111026 [10/25/11]
27 - ajc.com/business/sales-of-previously-occupied-1206303.html [10/20/11]
28 - bloomberg.com/news/2011-10-27/pending-sales-of-u-s-existing-homes-unexpectedly-falls-4-6-on-demand-ebb.html [10/27/11]
29 - freddiemac.com/pmms/ [11/2/11]
30 - montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29 [11/2/11]
31 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F1%2F10&x=0&y=0 [11/2/11]
31 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F1F2%2F10&x=10&y=18 [11/2/11]
31 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F1%2F10&x=0&y=0 [11/2/11]
31 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=10%2F31%2F01&x=0&y=0 [11/2/11]
31 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=10%2F31%2F01&x=0&y=0 [11/2/11]
31 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=10%2F31%2F01&x=0&y=0 [11/2/11]
32 - www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [11/2/11]
33 - www.treasurydirect.gov/instit/annceresult/
press/preanre/2001/ofm71101.pdf [7/11/01]
34 - www.cnbc.com/id/45082000 [11/2/11]
35 - www.nytimes.com/2011/11/04/world/europe/greek-leaders-split-on-euro-referendum.html [11/3/11]
The Latest on Social Security
Benefits increase for 2012. Ideas for reform are numerous.
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:
o A 3% cut in benefits
o Taking the payroll tax to 7.3%
o Hiking the full retirement age to 68 or older
o Increasing the Social Security averaging period that determines SSI
o Reducing the typical yearly COLA by 1% or .5%
o Reducing spousal benefits
o Investing some of Social Security's trust funds in equities
o 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.
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]
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:
o A 3% cut in benefits
o Taking the payroll tax to 7.3%
o Hiking the full retirement age to 68 or older
o Increasing the Social Security averaging period that determines SSI
o Reducing the typical yearly COLA by 1% or .5%
o Reducing spousal benefits
o Investing some of Social Security's trust funds in equities
o 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.
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]
Thursday, November 3, 2011
OBAMA’S NEW DEBT RELIEF INITIATIVES
Will they make a difference for homeowners and those with student loans?
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.
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]
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.
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]
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