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 October 15, 2009
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WHAT NOW AMAZING DOW?
- The Dow Jones industrial average has reclaimed 10,000 for the first
time in a year. The Dow crossed five figures Wednesday, seven months
after it hit a 12-year low of 6,547.05 on March 9.
FHA NEXT?
- Edward Pinto, a consultant and a former Fannie Mae executive,
believes the Federal Housing Administration likely will require
government aid because of substantial losses. However, FHA Commissioner
David H. Stevens said "under no circumstances will a taxpayer bailout
be needed." Bets anyone?
RECESSION OVER
– The National Association for Business Economics (NABE) reports
that more than 80% of top economists believe that the recession that
started almost two years ago is finally over. But most don't expect
meaningful improvement in jobs, credit or housing for months to come.
The only organization that can officially declare the beginning or the
end of a recession is the National Bureau of Economic Research. But
that group doesn't make any sort of declaration until months after the
fact, in order to take into account final readings of various economic
measures such as employment, income and industrial production.
Well, it sure isn't over for the nearly 10% unemployed, but the same
can't be said for Wall Street. The Wall Street Journal reports
that major U.S. banks and securities firms are on track to pay
employees about $140 billion in total compensation and benefits this
year, up about 20% from 2008.
HEALTH CARE VOTE
- The Senate Finance Committee finally finished its more than three
weeks of mark-up, and reported out its version of health care reform.
The vote was 14 – 9 with Senator Olympia Snowe (R-ME) the sole
Republican to join all the Democrats in voting in favor of the measure.
The vote follows the Congressional Budget Office (CBO) estimate that
the bill's approximate cost will be $829 billion over ten years.
The Kaiser Family Foundation has updated its side-by-side comparison
of the various health bills. The site enables you to get a
complete comparison or a comparison of just specific provisions of
interest to you.
GLOVES OFF
– Someone in the health care industry has finally understood that
the government has no clue about the industry they are poised to "take
over." The America Health Insurance Providers (AHIP) commissioned a
report by PricewaterhouseCoopers. The report contends that an average
family would pay $4,000, or 18%, more in premiums in 2019 then they
would absent reform. The problem highlighted by the report is that the
Senate Finance bill would require insurers to offer policies to all at
a price that disregards their health status, yet the penalties for
going without insurance would be a fraction of the cost of
coverage...just $750 per adult, once phased in by 2017. The combination
would create "a powerful incentive for people to wait until they are
sick to purchase coverage."
INSURANCE 101
- Unless Congress and the Obama administration come to grips with
several absolute laws of insurance, the effort at health care reform is
doomed to failure. One of these is the law of large numbers...the more
low-risk people in the pool of insureds, the lower overall premiums can
be set. Another is adverse selection...the tendency of people at the
highest risk to want health insurance the most, while those at the
lowest risk, such as younger people, want it the least. With a
requirement that those with pre-existing conditions must be covered and
without a strong enforceable requirement of at least near-universal
coverage, these two insurance laws crash into each other with the
almost inevitable result that premiums will increase from current
levels as sicker people enter the insurance pool and low-risk people
don't...unless and until they become sick that is.
GOLD RECORD
- Gold rallied to an intraday record...up $6.30 to $1,063 an ounce
after climbing to a high of $1,069.70. Gold has been on a
record-breaking run since prices rose firmly above $1,000 an ounce last
month. Many analysts expect the rally to continue into next year.
Driving the cost upward was a decrease in the value of the dollar and
bets that inflation will become a problem in the future. In addition to
the weak dollar and inflation concerns, investors continue to buy gold
as a hedge against economic and geo-political uncertainty.
DOLLAR DOWN, CRUDE UP
- Oil prices neared $75 a barrel and a high for the year as the dollar
slipped against other major currencies, demonstrating how much the
weakened U.S. currency can affect consumers globally. The U.S. dollar
index, where the U.S. currency is measured against other major
currencies, hit a 14-month low. Because crude is bought and sold in
dollars, it essentially becomes cheaper for international investors who
have flooded into energy markets despite a big surplus of oil.
CFPA -
The White House-proposed Consumer Financial Protection Agency (CFPA)
intended to police credit cards, mortgages and other consumer products
would allow states to have the authority to implement stricter rules.
House Democrats are in disagreement on allowing states to trump federal
regulations. The discord threatens to derail the broader overhaul of
financial regulation.
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CORPORATE BONDS SELLING FAST
– Corporate bond issuance surpassed $1 trillion this year as
borrowers capitalize on lower interest rates and government support to
raise funds.
SPIN OR FRAUD
- A federal court will consider whether two former Bear Stearns
executives committed securities fraud. The defendants tried to keep two
hedge funds afloat as mortgage-market prices fell in 2007. "This case
will be viewed by many as a test of where the boundary lies between
acceptable, positive spin and outright fraud."
DEVIL YOU KNOW OR THE ONE YOU DON'T
- Financial advisers are striving to avoid oversight by FINRA to the
point of accepting the idea of paying the SEC for supervision. Rep.
Paul Kanjorski, D-Pa., included the pay-for-regulation idea in
legislation he introduced this month. The SEC is promoting the concept
of allowing them to collect fees "designed to help recover the cost of
inspections and examinations of registered investment advisers." FINRA
is probably against the idea.
INFLATION RISK
– Some think that James Bullard, president of the St. Louis Fed,
believes the risk of inflation could be higher than expected. Judge for
yourself based upon this quote. "I am concerned about a popular
narrative in use today -- the narrative being that the output gap must
be large since the recession is so severe. And so, any medium-term
inflation threat is negligible, even in the face of extraordinarily
accommodative monetary policy. I think this narrative overplays the
output gap story." Greek to me.
DOUBLE WHAMMY OF UNEMPLOYMENT
– High unemployment results in more taxpayer dollars spent on
unemployment checks and less tax revenue. This will cost the government
about $100 billion a year. The current solution to this seems to be
throwing more money at the unemployed and increasing taxes on the very
people who would be able to create jobs for these people...to get them
off the government dole. Creating jobs, not spending money, is the
solution.
FED SECRETS
- Reps. Ron Paul, R-Texas, and Alan Grayson, D-Fla., plan to send a
letter to Christopher Dodd, chairman of the Senate banking committee,
urging him to postpone the confirmation hearing of Federal Reserve
Chairman Ben Bernanke. The lawmakers want the Fed to release additional
information about which financial institutions received emergency loans
from the central bank, as well as meeting transcripts of the Federal
Open Market Committee.
AGAIN, BEWARE THE GOVERNMENT/FINANCIAL COMPLEX
- The Treasury is set to announce today that BlackRock, Wellington
Management and others are committed to investing $1.94 billion into the
Public-Private Investment Program. The Treasury will match the
investment dollar for dollar, as well as provide debt financing. Two
other firms had agreed to invest $1.13 billion in an earlier PPIP. Who
is making these decisions?
CALIFORNIA SETTLEMENT LAW
- California has a new law that bans stranger-originated life insurance
(STOLI) policies and prohibits policyowners from entering into a life
settlement for two years after the policy is issued. More
information is available at the National Underwriter.
ARE FEDERAL WORKERS OVERPAID?
- It's bad enough that the average federal worker is paid more than the
average private-sector worker, especially taking into account the value
of benefits like health insurance and pensions. But what's really
shocking is that the gulf between the total compensation (wages plus
benefits) enjoyed by federal workers and private-sector workers has
increased since 1990. See chart by clicking here.
FREE ENTERPRISE IN FIVE EASY PIECES -
One:
Everything any of us owns (our houses, our clothes, our
cars...everything) has its origination in wealth created by free
enterprise.
Two:
Free enterprise has paid for our universities, for Social Security, for
Medicare, for Medicaid, for salaries of federal, state and municipal
employees, for our parks, for our roads, for all our social programs.
Three:
Free enterprise creates all wealth. Government creates no wealth...It
simply taxes free enterprise and spends the wealth created by free
enterprise.
Four:
If government needs more wealth than it can generate from current
taxes, it borrows money based upon the free enterprise wealth creation
of future generations.
Five:
There is a tipping point where free enterprise can no longer support
government spending and borrowing. At that point, we will not only lose
the free enterprise system, but our personal freedoms as well.
Who knows where that tipping point is, but according to estimates by
the nonpartisan Tax Policy Center,
roughly 47% of households (71 million households) will owe no federal
income tax in 2009 and some of those households will get money from the
government in the form of refundable tax credits.
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IT'S OFFICIAL
- The Social Security Administration announced there will be no
cost-of-living increase in Social Security benefits for 2010 because
consumer prices have fallen over the past year, the first time Social
Security benefits have not been increased year over year since the
cost-of-living adjustment was put into effect in 1975. President Obama
wants Congress to send another $250 relief payment to seniors in 2010
to ease the economic strain, which would be equivalent to about a 2%
COLA increase. With no increase in the COLA, the law prohibits an
increase in the maximum amount of earnings subject to Social Security
tax, meaning that the taxable wage base will remain at $106,800 in 2010.
RETIREMENT PLANS NAVIGATOR
- The IRS has released a new resource to assist small businesses in
evaluating the type of qualified plan that might be best for
them. Check it out at www.retirementplans.irs.gov.
NAILBA CHARITABLE AUCTION ONLINE
- For the first time, the NAILBA Charitable Foundation will be holding
their annual auction online. Past auctions were held only at
NAILBA’s annual meetings. Current auction offerings include
autographed memorabilia, golf getaways and electronics, with new prizes
added until bidding closes at 5PM Eastern on November 13. Get a "deal"
and do some good at www.nailbaauction.cmarket.com.
HELP FOR ADVISOR SUCCESSION
- The John Hancock Financial Network Equity and Succession Survey found
that 63% of advisors said that succession planning is a concern for
them, while 55% said that the financial services industry does an
inadequate job of preparing advisors for the transition. Here is
a succession idea for you, bring in a junior associate (son, daughter,
relative or friend) to handle all your B and C clients as they learn
the business. How do you train them? For about $20 a month, these folks
do it for you. Check out The Virtual Assistant and their Building Your Financial Services Practice module.
I AM A LIFE INSURANCE POLICY - Click here to read this great one-page description of life insurance presented in the most recent edition of Financial Services Journal.
PAYING TAXES IS BETTER THAN JAIL TIME
- Some 7,500 international tax dodgers have applied for an IRS amnesty
program that promises no jail time and reduced penalties for tax cheats
who come forward. The tax dodgers were hiding money in more than 70
countries and on every continent except Antarctica. Accounts ranged
from just over $10,000 to more than $100,000,000. Fewer than 100 people
apply for the program in a typical year, but the government is "hard
strapped" and could use revenue...wisely we presume.
TELL ME MORE
- A new report from Mintel Comperemedia reveals that 75% of adults are
trying to increase their financial know-how because of the current
economic crisis. Additionally, people are also looking to
professionals more for financial advice. More information on the study
is available by clicking here.
BACK TO SCHOOL - The Alliance for Investor Education has released Back to School: Investor Education in the Classroom,
which highlights 10 of the best web-based resources for educating
children. Some grown-ups might benefit from these resources as
well.
ROTH CONVERSION RULES
– Watch for a possible big jump in Roth IRA Conversions after
1/1/2010, when new rules go into effect that will allow anyone,
regardless of income, to convert a traditional IRA to a Roth IRA and
spread the income tax burden on the conversion into 2011 and 2012.
Right now you can only convert to a Roth IRA if you fall below certain
income thresholds. The ability to spread the tax impact over the
following two years is currently only allowed for conversions taking
place in 2010.
ANOTHER 2010 CHANGE
- Starting January 1, 2010, long-term care annuities receive a new tax
break. Distributions from these contracts used to pay for
long-term care costs will be tax free. More information is
available at smartmoney.com.
TAX PREDICTIONS
- On the tax front, Kiplinger predicts that the first time homebuyer
credit will be extended for a few months, 13 extra weeks for
unemployment is a "sure thing," Congress will approve an extra payment
to Social Security recipients of $150 to $250 in 2010 and the
$3,500,000 estate tax exemption and 45% top rate in effect for 2009
will apply in 2010 as well.
SOFTWARE SURVEY
- Financial Planning wants to know what software you use in your
practice and how well it works for you. Take ten minutes to answer
their 36-question survey. Be sure to write in The Virtual Assistant as the most comprehensive support tool in the industry!
COLI AND MICHAEL MOORE
– This from life insurance industry associations. Michael Moore's
most recent film, "Capitalism: A Love Story," includes a small focus on
a segment of the life insurance marketplace called corporate-owned life
insurance, commonly referred to as COLI. Mr. Moore's assertions on
COLI, and some subsequent media reports, mischaracterize the truth
about this important life insurance product. In the current fiscal
environment, protecting jobs and employee benefits has never been more
important. COLI serves both of these functions. COLI is a life
insurance policy used by employers to keep businesses running and
protect jobs after the death of owners or key employees. It also is
used to finance employee benefits, including broad-based health,
disability, survivor and supplemental retirement benefits. See report
at aaluaction.org.
SAVE MORE, SHOP MORE?
- Americans have good reason to be confused about what they should be
doing to help the economy. On one hand, the Obama administration is
crafting policies designed to make them save more and be more
responsible about their finances. On the other, the same government is
offering them incentives to spend, such as tax rebates and the "cash
for clunkers" program. To a large extent, the mixed signals reflect a
conflict between the stimulus the economy needs now and what's good for
it in the longer term. Not sure, but we think it will be hard to do
both.
NEW ECONOMY - According to "How the New Economy Is Changing the Way Americans Save"
from Allianz and LIMRA, more Americans are now looking closely at
protecting principal and generating income for life. Sounds to us
like a prescription for a fixed annuity.
TAXING TRANSACTIONS
- The Economic Policy Institute suggested taxing financial
transactions, such as stock trades but not consumer transactions, to
raise as much as $150 billion annually. Lawmakers, labor unions, the
International Monetary Fund and others support taxing financial
transactions as a way reduce budget deficits or fund initiatives, such
as health care. Many economists warned that such a tax might have
unintended consequences for markets.
FIDO AND FICA
- A bill making the rounds on Capitol Hill marries two feel-good
propositions, tax cuts and pet ownership, by allowing a tax break of up
to $3,500 per person for pet care expenses. Don't hold your breath on
this one, but the Humane Society says, "We think this is as much a
health care bill as any. It's a human health issue to ensure that pets
are provided with better care because of the role they play in our
families." The measure even has an acronym...the HAPPY Act, as in
Humanity and Pets Partnered Through the Years.
HOW BAD IS IT? -
- The economy is so bad that I got a pre-declined credit card in the mail.
- The economy is so bad that CEOs are now playing miniature golf.
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economy is so bad that if the bank returns your check marked
"Insufficient Funds," you call them and ask if they meant you or them.
- The economy is so bad Hot Wheels and Matchbox stocks are trading higher than GM.
- The economy is so bad the Mafia is laying off judges and Exxon-Mobil laid off 25 Congressmen.
©
Copyright 2009 Financial Services Online, Inc.
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