© Copyright 2006
US FlagMay 1, 2006 Edition
1stLifeSettlements


PAUSE IN PUSH TO RAISE RATES - Fed Chairman Ben Bernanke indicated in Congressional testimony that the economy, while healthy, faces the prospect of "stagflation," slower growth and higher inflation from a cooling housing market and rising energy costs.  As a result, the Fed may take a temporary break from interest rate increases.

CONSUMER CONFIDENCE AT 4-YEAR HIGH – Despite rising gasoline prices, consumer confidence in the economy hit a 4-year high in April. In addition, sales of existing homes rose at a pace faster than expected in March, but analysts warned that the upswing could be short-lived, given the rise in borrowing rates.

GAO VS. SEC - A Government Accountability Office (GAO) report on the Security and Exchange Commission (SEC) reveals that the SEC, which enforces standards for financial reporting by public companies, has failed to fix problems of its own with computer security, fine collection and financial statements in 2005. "The SEC continues to face the same material weaknesses in internal control that we reported as part of our audit of SEC's fiscal year 2004 statements."

IS THIS ANYWAY TO RUN A HEALTH CARE SYSTEM? - UnitedHealth has granted $2.4 billion in stock options to its top executives - $1.6 billion to its chief executive alone.  In response, the California retirement system, Calpers, has requested a meeting with UnitedHealth executives, warning that it may withhold its proxy votes.  The Calpers challenge comes a week after the Minnesota attorney general filed a lawsuit against UnitedHealth over the same stock options.  Then we have WellPoint, the nation's largest health insurer, reporting a 20% profit increase in the midst of mounting evidence that the "company is engaging in widespread and illegal cancellations of coverage."  Employees have admitted "that they reviewed 1,500 policies a week and targeted patients with certain diseases for retroactive cancellations."

AHP UNCERTAIN - The National Underwriter reports, "the fate of legislation that would create association health plans remains uncertain."  To some degree, the bill would provide for federal pre-emption of state health care mandates, a primary concern of critics of the legislation.

COMPLIANCE COST DOWN – Bloomberg reports that the cost for large companies to comply with Sarbanes-Oxley is not as high as previously thought. Compliance costs for the nation's largest publicly traded companies fell 44% in 2005, to an average of $4.8 million.

TRADITIONAL PENSIONS OUT - The vast majority of CPAs serving as corporate CEOs, CFOs, Comptrollers and in other executive positions believe American companies can't continue providing pensions that adequately cover their employees' retirement years, according to the results of a new survey by the American Institute of Certified Public Accountants (AICPA). "The traditional system of rewarding employees with pensions after long years of service is on its way out, because companies simply cannot bear the cost. Therefore, employees will have to find alternate methods of funding their retirement."

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SHAREHOLDER REVOLTS – At their annual meetings, many mutual fund managers will be facing serious discontent from shareholders. Among other grievances, shareholders will be demanding reductions in director and executive compensation and asking for greater participation in director elections.

SOLDIER PROTECTION BILL? – This from Investment News regarding the Senate bill for soldier protection..."Soldiers already receive $250,000 in free life insurance from the government, and the additional insurance deals being peddled to them are viewed by critics as unnecessary or too costly." These critics don't seem to have a clue about human life value. Further, it is hard to justify just $250,000 for soldiers when the government saw fit to give victims of 9/11 ten times that amount. Regardless, NAIFA and ACLI are supporting the legislation, but do not want any mandated suitability requirements for agents.

SETTLEMENTS - JPMorgan Chase has agreed to pay $425 million for allegedly rigging IPOs during the Internet boom. Other bank defendants are likely to follow suit. Freddie Mac will pay $410 million to settle a series of lawsuits related to accounting "errors" and $3.8 million to settle a dispute with the Federal Election Commission over alleged violations of campaign-finance law.

NAILBA IN NEW ORLEANS – Kudos to the National Association of Independent Life Brokerage Agencies. NAILBA will be holding its 2006 FOCUS event on June 6th in New Orleans despite damage caused by Hurricane Katrina.

LONGEVITY CONTINUES TO RISE - The Centers for Disease Control and Prevention's National Center for Health Statistics reports that the life expectancy of Americans born in 2004 rose to 77.9 years from 77.5 years in 2003. The total number of deaths declined by almost 50,000, or 2.4%, from 2003 to 2004, the largest one-year drop in several decades. The last time the number of deaths fell instead of rose was in 1997, when there were 445 fewer deaths than in 1996. The gender gap is narrowing as well. Life expectancy for women is 80.4 years on average, up from 80.1 years in 2003. Men born in 2004 can expect to live 75.2 years, up from 74.8 years. The 5.2-year difference between the sexes was the smallest since 1946.

SQUAWK BOX FRAUD – A NYSE clerk has been sentenced to one year in prison for illegally obtaining "squawk box" information from brokers at Merrill Lynch, Lehman and Citigroup.  He is the first to be sentenced but more individuals are implicated. A "squawk box" is the basic communications tool between brokerage houses and their brokers.

PENNY COSTS 1.4 CENTS - The cost of the metals in the penny has risen above 0.8 cents, more than twice just 6 months ago. Add another 0.6 cents that it costs the government to produce it and the government is losing money minting pennies. Not sure what this means, but there could be a problem if the price of the metals rises so high that it would be economical to melt down pennies for the metals they contain. Most of a penny is zinc with just a thin coat of copper, but the price of zinc has tripled since 2003.

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TAX FREEDOM DAY – Tax Freedom Day is when we stop working for the government and start working for ourselves. For the average worker in 2006, that day was April 26, when he or she made enough money to pay taxes to the federal, state, and local governments. A 2006 report by the nonpartisan Tax Foundation says the federal tax burden has been reduced by seven days since the end of the Clinton administration. During the Clinton years (1992-2000), the tax burden grew by 12 days. However, Tax Freedom Day falls three days later than it did last year, and 10 days later than in 2004. If you add the costs of fees, gas tax, complying with regulations etc., the cost of government to society is over 50%.

FUND SALES UP – Despite shareholder discontent, mutual funds are having a banner year. March saw $34 billion invested in mutual funds. That is an all time high for March and the first quarter results of about $94 billion is the second best quarter ever.

ANNUITY SETTLEMENTS – There is a rising secondary market for people looking to cash in annuities for a lump sum settlement. Experts wonder if the plans are a perfect escape hatch for people locked into an annuity they don't want or just another way to take advantage of seniors. J.G. Wentworth, a company that got its start buying structured payments from court awards, is now the market leader with 70% of the market for annuity settlements.

MIDDLE INCOME LACK HEALTH INSURANCE - Research by The Commonwealth Fund found that more than 40% of Americans making between $20,000 and $40,000 a year went without insurance for at least part of the year last year. The Commonwealth Fund researchers called the 40% figure a "dramatic and rapid increase from 2001," when 28 percent of people in this moderate-income bracket were uninsured.

NEW MOTTO: WORK FOREVER - Paul Farrell writes an interesting commentary for MarketWatch on the subject of saving for retirement:  Quit scolding us: Don't save, never retire, have fun today!   Here's a sampling: "Let's all go yell out our windows: 'Get off our backs with your obsessive drumbeat about savings. Why should we care about saving for retirement? Washington's out of control, killing our future anyway. Live for today!' Yell it loud. Tell 'em you're mad as hell!"

LIFE APPS DOWN – MIB reports that the number of written life insurance applications fell 7.2% in March compared to a year earlier.

BOOMER WORRIES – A study by the American Institute of CPAs revealed 51% of Americans age 45 and older worry more about short-term financial issues--rising energy costs, uninsured medical expenses, the price of gas and credit-card debt--than they do about caring for aging parents, lack of savings for an emergency and even retirement itself.
 
PLANNING BEFORE THE STORM - "The better people prepare for a disaster, the better they will be able to survive it," said Jeanne M. Salvatore, vice president for consumer affairs with the Insurance Information Institute. The first item on any planning agenda has to be securing the safety of all family members and then protecting property. However, a "financial escape plan" that ranges from making sure you have spending money to protecting your financial documents is also important.

AARP TO SELL MUTUAL FUNDS - AARP has launched three low-cost, asset-allocation funds aimed at helping people age 50 and older save for retirement. The association for old folks expects public acceptance based on low costs and low investment minimums.

KEEP ESTATE TAX – Expect to see estate tax repeal back on the political frontline soon. A survey by Penn Schoen & Berland reveals that 57% of Americans want to keep the estate tax as is and 23% want to repeal the tax entirely. Regardless, the Senate is set to debate repeal this month.  Kiplinger reports that there was short-lived optimism that a compromise could be reached, such as lowering the maximum rate to around 25% and hiking the exemption amount to $5 million.  President Bush, however, "will accept nothing less than repeal."  What everyone really needs to know is what will happen when the current law expires in 2010.

HOT MARKET - According to the Small Business Administration, small businesses represent 99.7% of all employers, employ 50% of the U.S. non-farm private sector employees and account for more than 50% of the nation's non-farm GDP.  That all adds up to an attractive opportunity for financial services firms to market retirement plans to small businesses.

MORE RICH FOLKS - According to a Spectrem Group study, the number of very rich Americans (over $5,000,000 in investable assets) is up by 26% and the number of millionaires is up 11% to 8.3 million. Further, many of the very rich are making more international investments.

TOTAL LIVING COVERAGE - That's the name of a new product from Genworth Life Insurance Company..."a comprehensive insurance solution that creatively merges features of universal life insurance and long term care insurance into a single product."

ONLINE TAX FILERS – During this tax season, filers flocked to the IRS's Web site as online tax filing reached record levels this year. At 12:30 p.m. on April 17, IRS.gov recorded 3,237 visits per second. The site registered a record total of more than 3.3 million hits over the tax deadline day, making it one of the most heavily visited sites on the Internet. Online filing is up more than 6% from 2005, with more than 70 million tax returns filed electronically so far, and more expected from taxpayers who requested extensions.

THE AFFLUENT AND THEIR MONEY - A study by TNS Financial Services reveals that while 60% of affluent households use a professional financial adviser, the number is down from 70% in 2004 and 79% in 2001.  Of those who don't seek professional help, "48.6% said they didn't trust advisers to act in their best interests, and 39% said they had stopped using an adviser because they didn't like the way their finances were managed."

DIMINISHING TAX RETURNS - Economist Arthur Laffer says the law of diminishing returns applies to tax rates. The Laffer Curve holds that there comes a point beyond which increased taxation actually yields fewer tax dollars being collected. The Kennedy tax cuts of 1964 reduced the top tax rate from 91% to 70% and tax revenues increased. Reagan tax cuts in 1981 reduced the top marginal rate from 70% to 50%. Revenues soared again. Between 1980 and 1997, the share of federal income taxes paid by the top 1% rose from 19% to 33%. The Laffer Curve works: Give the wealthy a tax break and they end up shouldering an even greater share of the tax burden.

VA SALES AND EXCHANGES - Variable annuity sales were up, but total net flows were $20.5 billion last year, compared with $40.2 billion in 2004. This would indicate that many VAs are simply being exchanged for other VAs. Other reasons for the lower net flows are increased regulatory scrutiny and negative media coverage.

EXPECT MORE PODCASTS – Investment firms are turning to podcasts to "get the word out" to brokers, as well as to clients. Podcasts allow the companies to provide current information inexpensively and available to users anytime via iPods and even telephones.