© Copyright 2007
US FlagMarch 1, 2007 Edition
1stLifeSettlements


WORST DAY IN 3 YEARS - Stocks tumbled across the board Tuesday, with the Dow sinking about 500 points before closing 415 points down...the biggest one-day drop in three years.  The NYSE tried to limit declines by imposing trading curbs.  The massive sell-off was triggered by declining markets in China and Europe, as well as by a steep drop in durable goods ordered.  Chinese stocks dropped 9%, triggering declines in other Asian markets, followed by European markets.  A graphic demonstration of how inter-connected stock markets around the world are.

CENTER OF THE WORLD MOVING? -  Some experts believe the "center of the financial world" is moving from America and blame the expenses associated with regulations such as the Sarbanes-Oxley Act as a partial cause. The question is can the move be prevented. Many believe it can and should be since the U.S. has been a major driver in the current strong world economy. We'll see.

INTERESTING ARTICLE - For a deeper perspective on the risk of the U.S. losing its edge in the financial world, here's a good article from Bloomberg: "IPOs Shun U.S. Exchanges While Wall Street Collects Record Fees."

PUBLIC AND PRIVATE BENEFIT GAP – USA TODAY points out that as the first wave of 79 million baby boomers heads to retirement, the nation is dividing into two classes of workers: those who have government benefits and those who don't. And, unfortunately, the benefit gap between the groups is accelerating in pensions, medical benefits, retirement ages. Retired government workers are twice as likely to get a pension as their counterparts in the private sector, and received a median benefit of $17,640 in 2005 versus $7,692 for the private sector retiree. Here is a shocker: the federal government has a bigger unfunded liability for military and civil servant retirement benefits ($4.7 trillion) than it does for Social Security ($4.6 trillion). Since we taxpayers are bearing the burden of these accelerating benefits, this is a very depressing situation.  

HOSPITAL GROUP WANTS UNIVERSAL INSURANCE – The Federation of American Hospitals, which represents about 20% of the industry, has made a proposal to solve the growing problem of the uninsured. The hospital group's plan, estimated to increase federal spending by $115 billion, would build on the employer-based health system, under which most Americans already get coverage. Individuals would be required to sign up for a health insurance plan. If they don't, the government will do it for them and then those individuals will be assessed taxes to pay for the insurance premiums. The plan also encourages states to automatically enroll more people in public health programs like Medicaid.

GREENSPAN WARNING - Former Fed chairman Alan Greenspan is warning that the U.S. economy may face a recession by the end of this year.  "When you get this far away from a recession, invariably forces build up for the next recession, and indeed we are beginning to see that sign," according to Mr. Greenspan.  He also warned that the U.S. budget deficit is a continuing concern.  Needless to say, the markets weren't thrilled with Mr. Greenspan's forecast.

CITIGROUP WOES – According to Reuters, problems at Citigroup have encouraged some to speculate that the biggest U.S. bank might be considering the purchase of a major rival like Wells Fargo or Goldman Sachs.  Others say the company should get its own house in order first.

CORPORATE BOND SALES UP, DEFAULTS AT RECORD – According to Moody, corporate bond sales jumped from $15.8 billion last week to $22.2 billion this week. Default rates are at 1.57%...a 25-year low.

MUNI BONDS UP TOO – SIFMA reports that municipal bond sales were $387 billion last year. While not a record year, the sales were higher than expected. The forecast for 2007 calls for $395 billion plus and a possible record.

SOX COST SOARS - According to a report by AMR Research, the administrative costs of complying with the Sarbanes-Oxley Act are rising much too rapidly. North American companies will shell out $29.9 billion in annual compliance spending this year...an increase of 8.5% over 2006. SOX costs alone are projected to be $6 billion in 2007. We have to add the observation that, based on the number of scandals, frauds, fines, etc. at the executive levels, the increased spending doesn't seem to be accomplishing too much.

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SEC CUTS FEES – The SEC cut back regulatory fees to issuers of securities transactions and registrations by $700 million. Registration fees will drop about 70% and transaction fees will be reduced about 50%. "The investors who bear the burden of these SEC fees deserve this relief," said SEC Chairman Christopher Cox. "It will mean that more of their hard earned savings will be available for important needs such as education, health care, and retirement -- and less will be diverted to Washington." Now isn't that nice!  Let's just hope these savings find their way to individual investors.

HIDING IDENTITIES – USA Today reports that a thriving mini-industry in secret corporate ownership has been created by gaps in domestic incorporation laws and lack of oversight some U.S. states...specifically Nevada, Wyoming and Delaware. It is asset protection gone awry. "The purpose of corporations originally was to provide limited liability, not anonymity. Now they're providing both limited liability and anonymity, and the law enforcement folks … are very upset. They want to know who it is that's behind these corporations."

NO HEDGE FUND CRACKDOWN - The President's Working Group on Financial Markets, which consists of the heads of the Treasury, Federal Reserve, SEC and Commodity Futures Trading Commission, has determined that no new regulations are needed to protect the economy from risks associated with hedge funds and private equity.  Instead, the group released a set of voluntary guidelines which, together with "market discipline," will provide adequate safety for investors, markets and the global economy.

BEAR STEARNS TO PAY FOR HEDGE FUND COLLAPSE - Servicing hedge funds is big business on Wall Street, but a recent Bear Stearns fine may force firms to more carefully oversee these lucrative clients. Bear Stearns will have to pay $160 million to the bankruptcy court for a fund they oversaw that lost $400 million of investors' money during the technology boom of the late 1990s.

HEALTH COSTS CONTINUE TO RISE - Watson Wyatt reports health care costs rose 8.5% last year and employers expect the same rate of increase the next several years. While the rate is below the double-digit increases of the past, it is still increasing at three times the rate of inflation.  In fact, the Centers for Medicare and Medicaid Services predict that overall national health expenditures will increase an average of 6.9% from 2006 to 2016, resulting in a doubling of health care spending by 2016.

RAYMOND JAMES TO PAY $2.75 MILLION –The NASD has fined Raymond James $2.75 million for failing to supervise more than 1,100 branch managers nationwide, including one who pushed an 84-year-old to invest most of her money in a single, aggressive mutual fund. The NASD said that Raymond James allowed branch managers to supervise their own sales activities. Big issue was, of course, suitability.

FANNIE MAE WON'T PAY - Fannie Mae says it will not pay the $44.4 million it budgeted for eight senior executives and other officers who led the mortgage finance company during years of faulty accounting. Well, that seems like the right thing to do.

PONZI SCHEME - Click here to read about a doozy of a Ponzi scheme that could lead to financial advisers becoming the fall guys.

CHRYSLER RESTRUCTURING - Chrysler will eliminate about 11,000 jobs and close one and possibly two assembly plants in Delaware and Missouri in an effort reduce costs by about $1,000 per vehicle.


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BIG BENEFIT OPPORTUNITY - According to LIMRA, there is more than $200 billion in employee benefits up for grabs. Currently the market stands at about $410 billion, but LIMRA estimates a total market of $624 billion annually from both existing enrollees and potential enrollees. That leaves $213 billion of total unrealized market premium on the table. However, LIMRA studies reveal saturation has nearly been reached in traditional products like medical, dental and life insurance in the 100+ employee market. Suggestion: Look for smaller groups and maybe some non-traditional products.

TOP BENEFITS OBJECTIVE: RETENTION - According to the 5th annual MetLife Study of Employee Benefits Trends, employee retention is the top objective among employers, edging out controlling costs for the first time in the study's history.  The study also reveals a strong correlation between benefits satisfaction and job satisfaction.  More information about the study is available at whymetlife.com.

529 PLANS AND STUDENT FINANCIAL AID - Currently, the federal government counts only a relatively small percentage of assets (up to approximately 6%) in 529 plans controlled by parents against a student's aid eligibility. And since last year, assets in 529 accounts controlled by dependent students are not counted at all against their aid eligibility, though such accounts make up only 1% of all 529 plan accounts, according to estimates by the College Savings Foundation, a Washington-based industry association.  President Bush's fiscal 2008 federal budget proposes eliminating all 529 plan assets from consideration in determining federal student financial aid.  This change would go a long way in eliminating confusion about the impact of 529 plans, but getting it through Congress is far from a slam dunk.

MEGA RICH INVESTING - According to a report by Spectrem Group, "ultrahigh-net-worth Americans are moving to lower-risk investments." The report found that 43% of investors with a net worth of $5 million or more said they preferred a guaranteed rate of return for the majority of their investments in 2006...up from 29% in 2003.

MORNINGSTAR BUYS S&P's FUND DATA – Morningstar has paid $55 million to acquire S&P's mutual fund data business. The business consists of data for more than 135,000 managed investments. The acquisition is said to provide Morningstar new opportunities for overseas activities.

COMPANIES ADDING ROTH - According to the Profit Sharing/401k Council of America, an increasing number of companies are planning to add a Roth 401(k) option to their retirement plans.  Nearly 70% of companies that don't offer the Roth option say they're more likely to do so soon.

ONLINE BANKING TO MOBILE BANKING – Online banking has become pretty standard in the last several years. If you aren't doing so, you really should. Huge time saver, not to mention the expected USPS increase to $.41 for first class postage, makes it well worth your while.  With PDAs, telephones and other wireless devices becoming common, mobile banking is coming of age. Expect banks to begin offering simple and easy to use interfaces for these new mobile devices.

AMERICANS SAVING TOO MUCH? - Last month The New York Times ran an article suggesting that Americans might be saving too much for retirement. The article featured an economics professor at the University of Wisconsin who has found that 80% of pre-boomers born between 1931 and 1941 saved enough to maintain their standard of living in retirement. Baby Boomers and younger groups were not studied, but the professor said there's no strong evidence to suggest the results would be much different. Needless to say, financial planners are not really happy with the professor's conclusions. Considering that the current U.S. savings rate is negative, we too would have to question validity of the article's conclusions.

AUTOMATIC ENROLLMENTS UP - Fidelity reports that the number of workplace savings plans with auto enrollment jumped 95% in 2006 versus 2005. Based on employer polls, Fidelity expects the rates will continue to rise for the near future.

ANNUITY RISK - We're beginning to see some concern being raised about the impact of increased longevity on the risk assumed by insurance companies that sell guaranteed lifetime annuities.  A combination of more people living longer than the companies expect coupled with a decline in anticipated investment returns could spell trouble down the road.

ON THE OTHER HAND - Many financial advisers are complaining that the industry has not delivered on promises to provide new and simple products to provide income in retirement.  Complaints about current retirement income products: too expensive/high fee, too complicated and convoluted, inflexible.

DEMOCRATIC TAX PACKAGE - Kiplinger reports that Democrats are proposing tax relief primarily for middle-income taxpayers.  Their wish list includes higher AMT exemptions, larger dependent-care credit, larger and simpler education tax incentive, higher first year child tax credit.  The higher AMT exemption is likely to pass.  Don't hold your breath on the others.

AUTOMATED 401(k) NOT ENOUGH – Don't let your clients rely only on their automated employer 401(k) retirement plan. It is a good deal, but they are designed to get participants started and should be viewed as just an "entry point." Some experts recommend contributions of at least 15% of their paychecks every year and more for workers who have started saving at advanced ages. Our "rule of thumb?" Save as much as you can!

IRS SMALL BUSINESS E-NEWSLETTERS - e-News for Small Businesses is a free electronic mail service designed to provide tax information for small business owners and self-employed individuals. Sign-up and you will receive information about:
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SANDWICH GENERATION - Unfortunately, many Americans in midlife are squeezed between kids, parents and saving for our own retirement. Here is some advice from Kiplinger...if you're in that situation, your number-one priority is...you. Don't even think about funding college for your kids or supporting adult children at the expense of your retirement. Be careful not to needlessly sacrifice your career...especially during peak earning years...as it could be disastrous for your own financial security.

IRS CLOSES USED CLOTHES BUSINESS - The Pension Protection Act has tightened up rules on charitable contributions for cash and other donations. Those of you who have been doing your spring cleaning by sending junk to Goodwill etc. need to be aware.  New rules require that only clothing and household items in good used condition or better can be considered eligible for a charitable deduction. Items with minimal monetary value, even in good condition, were excluded, so forget the used socks and underwear.