US FlagJanuary 1, 2009 Edition



THAT TIME OF YEAR - More so than in most years, we face the "great unknown" in 2009.  Here are a couple of commentaries and predictions you may want to review:
 MADOFF FALLOUT - While the final chapter in the Bernard Madoff story is far from being written, the fallout is already being felt far and wide.  Consider:
 PONZI AND WYLIE COYOTE - At least one expert believes some of the Madoff investors are partially to blame for their losses. Any good con game relies on not just the naivety, but also the greed of the victims. Check it out here.  

BAILOUT SUMMARY - Here is a complete guide to the current status of the Great Bailout of 2008. Even if it is more than you want to wade though, the handy guide to bailout acronyms that this mess has created is interesting. 

UNCLE JAY EXPLAINS 2008 - Treat yourself to this one.  It's well worth 3:21 minutes. 
   
DEFAULTS ON DEFAULTS - A new report issued jointly by the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) says that some 57% of Fannie Mae modified loans were 30 days past due after six months. John Dugan, the Comptroller of the Currency, suspects that lenders are not going far enough to lessen the mortgage burden on homeowners. We are not sure what lenders should do if borrowers can't or don't pay.

DUMBEST BUSINESS MOVES - Fortune has produced its annual list of the year's most laughable business moves and here are a few:  
  • Detroit execs flying to D.C.
  • Detroit execs driving to D.C.
  • Henry Paulson's initial $700 bailout proposal: All of three pages
  • The final bailout: 451 pages and loaded with pork including, unbelievably, a cut in taxes on toy arrows and an extended tax break on "wool products."
  • 'I am rich' app: Eight people download a $999.99 screen-saver for iPhone.
  • Paulson tells Congress in July he thinks he won't actually need to use the funds he's requesting to support Fannie Mae and Freddie Mac.
  • In May, CEO Daniel Mudd says his company will "feast" on weakened competition in the mortgage market.
  • Scandal at the Department of Interior: Staffers were taking gifts, having sex and engaging in illegal drug use with employees of the oil companies they oversee.
  • Congress passes bill to keep hundreds of thousands of troubled borrowers in their homes. A whopping 321 applications get filed.
  • On the morning of Sept. 15, as Lehman Brothers declares bankruptcy, John McCain declares "the fundamentals of this economy are strong."
  • Obama's economic adviser privately assures Canadian officials in February that his candidate didn't really mean it when he threatened to renegotiate the NAFTA.
  • Microsoft bids for Yahoo: The $31-per-share offer was 61% premium over Yahoo's price at the time of the February overture.
  • Yahoo turns down Microsoft's offer: If Microsoft's offer for Yahoo was wrong-headed, Yahoo's opposition to it was downright bone-headed.
  • The Madoff miss: As news reports reveal that the SEC had probed Madoff and his investment firm over the years, chief Christopher Cox cops to the screw-up.
  • Oil speculator scapegoats: Are speculators to blame for $37 oil too?
  • Phil Gramm and the "nation of whiners": In early July, as the financial crisis spreads to Main Street, McCain campaign co-chair and former senator Phil Gramm appeals to voters and their economic anxieties by calling them a "nation of whiners" and dismisses a troubled economy as a "mental recession."

WORST PREDICTIONS OF 2008 - Some of these are astounding and provide conclusive evidence that no one really knows what happened or is happening to our economy.

  • "A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!" -- Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008
  • AIG "could have huge gains in the second quarter." -- Bijan Moazami, analyst, Friedman, Billings, Ramsey, May 9, 2008.
  • "I think this is a case where Freddie Mac and Fannie Mae are fundamentally sound. They're not in danger of going under. I think they are in good shape going forward." -- Barney Frank (D-Mass.), House Financial Services Committee chairman, July 14, 2008.
  • "The market is in the process of correcting itself." -- President George W. Bush, in a Mar. 14, 2008 speech.
  • "No! No! No! Bear Stearns is not in trouble." -- Jim Cramer, CNBC commentator, Mar. 11, 2008.
  • "Existing-Home Sales to Trend Up in 2008" -- Headline of a National Association of Realtors press release, Dec. 9, 2007.
  • "I think you'll see (oil prices at) $150 a barrel by the end of the year" -- T. Boone Pickens, June 20, 2008.
  • "I expect there will be some failures. I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system." -- Ben Bernanke, Federal Reserve chairman, Feb. 28, 2008. 
  • "In today's regulatory environment, it's virtually impossible to violate rules." -- Bernard Madoff, money manager, Oct. 20, 2007.

BLUE CHRISTMAS - Retailers experienced the worst holiday sales in nearly 40 years and, as a result, many are being forced to close stores to avoid bankruptcy. In 2009, some expect retailers will close as many as 12,000 stores throughout the U.S.

AIG CEO: REPAY U.S. IN 2009, DEFENDS "RETENTION PAY" - AIG CEO Edward Liddy, reportedly says the company "would like to" pay back the $60 billion loan next year, and plans to sell businesses that include life insurance, retirement services and others in order to repay the loan. In response to criticism relating to cash awards given in order to help retain employees, Liddy says the payments are necessary. "Anybody who wants to start an insurance company or beef up their positions, they will come to our organization and pick people off. If that happens, we can't maintain the businesses."

OBAMA HEALTH PLAN - The Congressional Budget Office (the government agency that provides Congress with non-partisan analysis) says that the health care proposals by President-elect Barack Obama will be costly, while providing moderate savings. However, the report finds that without action, the cost of health care will continue to skyrocket, while the ranks of the uninsured could increase an additional one million a year. In addition, in 2025, health care spending will rise to 25% of gross domestic product, up from 16% in 2007.  If you're interested, click here for a guide the CBO will use to estimate the effects of health care proposals on costs, coverage and outcomes.  

GOOD APPOINTMENT - With the appointment of Christina Romer as head of his Council of Economic Advisers, many believe president-elect Obama is looking for a "successful presidency, not an ideological one."  University of California, Berkeley, economics professor Christina Romer has published economic research showing that tax increases actually kill jobs. See more here.  

GOOD RECESSION OUTCOMES - Recessions suck, but as Americans have learned about 10 times over the last 50 years, they are also necessary to and keep the economy healthy. Here are a few of the good outcomes of a bad thing: Increased savings, smarter spending, great buying opportunities, better lending practices, less "swagger," tougher consumers, less traffic (especially air travel), more innovation and entrepreneurs.

RESOLUTION NUMBER ONE - The top resolution for 2009 for individuals across the U. S. is to get out of debt. Let's hope the U.S. Government will adopt a similar resolution, but don't hold your breath. The major problem with virtually all municipal, state and federal entities is not a lack of revenue, but spending too much!  Here's an article about California that describes what one-party rule has done to the "once-golden state."  

MORE TIPS FOR TOUGH TIMES - These from Business Week:

1. Don't try to predict the future.
2. Do keep enough cash available.
3. Do invest internationally.
4. Don't try to pick one winning investment. Diversify.
5. Do think about energy efficiency.
6. Don't stop contributing to 401(k) and other retirement accounts.
7. Do live below your means. Save.
8. Don't make sudden moves.
9. Do pay off expensive debts.
10. Don't give up on stocks.
11. Do track your spending.
12. Don't pay high management fees.
13. Do review your credit reports.
14. Don't follow the herd. "Be fearful when others are greedy, and be greedy when others are fearful."
15. Do write down an investing plan and budget, and stick to them.
16. Don't forgo necessary insurance.
17. Do check out your financial adviser.
18. Don't invest in anything you don't understand.
19. Do make sure safe investments are actually safe.
20. Don't take more risk than you can handle.
REQUIRED MINIMUM DISTRIBUTIONS SUSPENDED FOR 2009 - The Worker, Retiree and Employer Recovery Act (H.R. 7327) suspends for one year an IRS requirement that account holders of 401(k)-style plans, including regular IRAs, must withdraw a minimum amount of money every year after they reach age 70-1/2. The purpose is to not force seniors to take money out while asset values are depressed.

ANNUITIES TO THE RESCUE - Here is a great article to forward to your clients. Annuities have had a bad rap for too long and this could help people see the value of guarantees.  

CLIENTS ARE JOB ONE - According to Cerulli Associates, asset managers and other financial services executives see maintaining client relationships and increasing sales as their biggest challenges for 2009. Most believe maintaining client relationships is the top priority. We see this is a critical activity in good times as well as bad.

COMPARE NURSING HOMES - The government has now rated all of the 15,800 nursing homes that participate in Medicare or Medicaid. The Centers for Medicare & Medicaid Services assigns facilities star ratings ranging from a low score of 1 star to a high of 5 stars. Click here to review.  

BANK HSAs GROW - According to Celent, health savings account programs sponsored by banks continue to grow. Reasons are that more banks are now offering HSAs and the rising cost of health care. From January to July, accounts grew by 22% and balances by 40%. Good to hear some good news for the banks!

RECESSION AND LTC - Predictions are the current downturn could affect where that help is provided...at home, in assisted living or in a nursing home as well as affect who provides the care...a family member or someone who is hired. Likely trends:
  • Medicaid. Even before the current recession, Medicaid was growing and straining the ability of states to pay the cost. This has caused states to restrict eligibility for benefits. Such restrictions are likely to tighten further.
  • With fewer people working, more will be available to care for family members at home, perhaps delaying or avoiding the move to assisted living or a nursing home.
  • With money becoming scarcer for just about everyone, families will be more reluctant to pay for nursing home, assisted living or home care. In fact, according to the 2008 MetLife Market Survey of Nursing Home & Assisted Living Costs, over the past year the cost of semi-private rooms in nursing homes increased just 1.1%.
  • We are likely to see bankruptcies of nursing homes and assisted living facilities if they cannot fill their beds as anticipated and if Medicaid and Medicare reimbursement rates are insufficient to cover their expenses. 
  • With alternative jobs less plentiful, the supply of care providers should grow.
  • Planning ahead is even more important, whether purchasing long-term care insurance, protecting assets to qualify for Medicaid, or simply making one's wishes known ahead of time.
RETIREES WANT LIQUIDITY - A MetLife survey found 37% of retirees keep most of their assets in "liquid" accounts such as CDs, savings accounts and money market funds, in order to have ready access to their assets. However, they could be losing out on building their savings because of excessive concern for liquidity. In 2008, though, many benefitted from this liquidity bias...mainly because they were not exposed to the huge downswing in securities. 

CONSUMER CONFIDENCE HITS ALL-TIME LOW - Consumer confidence hit an all-time low in December, dropping unexpectedly in the face of rising layoffs, in yet another sign that consumer spending is unlikely to pull the U.S. out of a yearlong recession any time soon.

STOCKS STEADY - Despite the consumer confidence reports, the stock market has held steady...perhaps boosted by General Motors Corp.'s troubled financing arm (GMAC) receiving $5 billion of government financing.

529 CHANGES - In 2009, the IRS will allow more changes in investment allocation inside 529 college savings programs. In the past, plan holders were limited to changing investment allocations once a year, or when the designated account beneficiary was changed. The IRS will allow changes in investment strategies twice per calendar year "in response to concerns that have been caused by the recent condition of the financial markets."

MORTGAGES AT 30 YEAR LOW - Fixed rates on 30-year mortgages averaged 5.19% for the week ending Dec. 18, the lowest average in 37 years. 15-year fixed rate mortgages fell to 4.92%, their lowest rate in almost five years.

PREPARING FOR LAYOFF - Most of us are fortunate enough to have a job, but what can your clients do to prepare financially for a coming layoff? Here are a few tips:
  • Build a savings cushion...3-6 months of income
  • Get out of debt
  • Cut your spending now and
  • Identify other areas you can cut later.
WORK UNTIL YOU DIE - The Employee Benefit Research Institute's 2008 annual survey found that 22% of workers surveyed have not saved at all for retirement or for anything else. A Bankrate Financial Literacy survey found that one in five people expect to work until they die. If you want to do that, here are 8 ways to ruin your chance of retiring, but 1 and 2 are the real killers!

1.    Spend a lot
2.    Save nothing
3.    Ignore savings vehicles
4.    Disregard taxes
5.    Overestimate portfolio earnings
6.    Miscalculate lifetime earnings
7.    Adopt the ostrich approach
8.    Be ignorant about investments