Aug, 2008

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News Stories

Will the Housing Bill Lead to a Rebound?
The U.S. housing market remains in the doldrums as a result of the subprime mortgage crisis. With the dramatic increases in house payments facing many homeowners with interest-only adjustable mortgages, there were 1.5 million foreclosures last year and an expected 2.5 million foreclosures this year. Given the depth of the despair in the housing industry, Congress and the President have worked diligently to develop a housing bailout bill. The housing bill (HR 3221) was signed by the President on July 29, 2008. It provides $3.9 billion to state and local governments to purchase foreclosed homes, includes a line of credit for mortgage giants Fannie Mae and Freddie Mac and a number of other tax provisions.

The housing bill includes four specific tax provisions. These are:

1. Repayable $7,500 credit -- New homeowners acquiring their first residence may receive a credit of $7,500. The credit is repaid over the next 15 years. In effect, it is an interest-free loan in that amount. The credit is limited to 10% of new home value, so the full value is available for homes costing $75,000 or more. The credit phases out for married couples with modified adjusted gross incomes between $150,000 - $170,000. For single persons, the credit phases out between incomes of $75,000 - $95,000.
2. Standard deduction for property taxes -- For individuals who take the standard deduction and do not itemize, there is a new above-the-line deduction for property taxes up to $1,000 married or $500 single.
3. Vacation home converted to principal residence - Some homeowners have sold their principal residence and used the $250,000 ($500,000 married) capital gains exclusion. Then they move to a vacation residence, reside for two years and again sell and receive the exclusion. Starting in 2009, the exclusion will be prorated based upon the length of time the property was a vacation home and the length it was a personal residence. This will reduce the value of the exclusion for many owners of vacation properties.
4. Merchant bank reports -- Many individuals have a relationship with a bank that receives credit card amounts from items sold on eBay or in a business. In 2011 and later years, these banks will be required to report the total gross receipts to the individual and to the IRS. This reporting will enable the IRS to check claimed earnings from eBay businesses and other similar sales businesses against the receipts reported by the merchant bank.
   8/4/08 Giftlaw

5 signs it's time to fire your financial planner
The recent drop in the stock markets has caused many stockholders to focus their attention on what is happening in theirmanaged accounts. When times are good and the values are rising, many simply go along for the ride without many questions. But, when statements arrive with steep losses, telephone calls start flooding financial planners. How can you tell if the advice you are getting is good. Or, how can you tell a change is necessary. Here are five warning signs from forbes.com to consider regarding changing financial advisors:

1. "POOR COMMUNICATION: When times are good, your calls may be returned promptly and communication is fine. But if you are stuck with a bad planner, you may get the runaround or not hear much of anything in a downturn. Not getting return phone calls or e-mails, or finding it difficult to schedule a face-to-face meeting may mean it's time to deliver the pink slip."
2. "ABRUPT CHANGES: If the long-term strategy your adviser worked out with you is cast aside when the market tanks, that could be a problem. Experts say some changes may be warranted in a down market, particularly with taxable accounts, but not wholesale ones. For example, it might be worth taking some tax losses by moving money from holdings that have declined in value into similar assets."
3. "NO CLEAR STRATEGY: In a bull market, a sub-par financial planner might be able to produce good results, without any defined strategy. Whether it's sitting tight or looking for under-valued stocks, any strategy needs to be well-thought-out and consider both the short and long term."
4. "TOO MANY TRANSACTIONS: Excessive transactions may be easy to spot if stocks are bought and sold in your account nearly every day. But, it's the unexplained transactions that merit looking into. Is the planner doing something different than she was before? What was the thinking behind the transaction? An investor is wise to ask the adviser questions if he doesn't understand something on the account statement."
5. "TRANSIENT PLANNER: If you have a planner you like but he moves to a new firm, be wary of the reasons. Perhaps the planner is moving up and looking for higher pay. But there's always a possibility there were issues with the services he was offering clients, forcing him to leave."
   8/4/08 Forbes.com

Why Women Worry
The Hartford Financial Services Group, Inc. through its Advance 50 Team of corporate financial gerontologists, and the MIT AgeLab recently joined forces to explore how men and women perceive retirement and worry (or don't) about what it may mean for them. Findings showed that women worry much more about many aspects of retirement, and identified primary areas of concern. Today, they unveil results from this nationwide survey of pre-retirees and retirees on retirement attitudes and emotions and suggest proactive steps women can take to turn angst into action.
For the complete article, click here

Ten Secrets Your Bank Keeps
With the economy slowing, consumers and banks alike are doing what they can to stay afloat. Are you reading your bank's fine print when it comes to fees, online banking, interest rates and more? Here, SmartMoney reveals the top things that your financial institution is probably not telling you. For the full article, click here.

• "Our branches are there to sell you, not serve you."
• "Our fees will only go up."
• "We change our interest rates all the time."
• "College campuses are a gold mine for us."
• "In debt? The courts won't help."
• "We're excited about your trip to Europe too!"
• "For all the fine print, we don't disclose very much."
• "Your money might be better off elsewhere."
• "When it comes to banks, smaller is sometimes better."
• "Your online account info isn't necessarily accurate."
  SmartMoney - 7/20/08

5 Retirement Risks and How to Manage Them
Retiring can be risky business. The Society of Actuaries, a group of professionals who evaluate risk for a living, recently named inflation the top retirement concern among both retirees and people nearing retirement age, according to a survey released this week. About 57 percent of those already retired and 63 percent of those near retirement age said they were concerned that the value of their savings wouldn't keep pace with inflation, the telephone survey of 801 adults ages 45 to 80 found. The Society of Actuaries also offered advice for dealing with the top retirement risks. Here's a summary:
Inflation.
Between 1980 and 2007, U.S. inflation averaged 3.5 percent a year, ranging from 1.1 to 8.9 percent. And yet most retirees have only one source of inflation-adjusted income: Social Security. Time-tested strategies to beat inflation include investing in stocks and stock-based mutual funds, owning a home and other assets, holding TIPS (Treasury inflation-protected securities), buying annuity products that offer a cost-of-living adjustment, and delaying tapping your retirement assets for as long as possible.
Outliving your assets.
A 65-year-old American man can expect to live 17 years on average, while a woman the same age can expect to live 20 years. Fully 30 percent of women and 20 percent of men can expect to reach age 90. Defined-benefit pension plans, Social Security, investments that preserve principal, and deferred annuities that commence at high ages, such as 75 or 80, can all help protect assets.
Loss of a spouse. Women have longer life expectancies and tend to marry men who are older than them, so a widowhood period of 15 years or more is not uncommon. The death of a breadwinner spouse can trigger a dramatic decline in your standard of living. A single person requires nearly 80 percent of the income needed by a married couple, according to the Society of Actuaries. Yet the Social Security benefit paid to a survivor is typically only from 50 to 67 percent of what the couple received. Married couples can consider joint and survivor annuities and life insurance, plus strategies for maximizing their Social Security benefit.
Long-term care.
Long-term care options include home care, adult day care centers, assisted-living facilities, and nursing homes. What they have in common: They're all expensive. The cumulative cost of care may amount to $1 million for a couple, with nursing home costs reaching $70,000 annually. Long-term-care insurance can help pay for the cost of caring for disabled seniors.
Healthcare and medical expenses.
Nearly all retirees and those near retirement say they maintain a healthy lifestyle, and three quarters have or plan to have supplemental health coverage. But retirees need to be prepared for unexpected health problems, Medicare premiums, and the expenses that Medicare doesn't cover.
US News and World Report

8 Rules to Break to Build wealth
Being "upside down" is usually a negative term when applied to financial matters, but multimillionaire Robert Shemin believes that sort of thinking is ... well ... upside down. Shemin, author of "How Come That Idiot's Rich and I'm Not?" feels there are two positions when it comes to wealth: right side up and broke, or upside down and rich. Shemin prefers upside down. The best way to build and maintain wealth, maintains Shemin -- once considered the "least likely to succeed"-- is by breaking the rules you think and hear about when building wealth.
Following are eight rules worth breaking -- in upside-down order -- and what Shemin and other financial gurus have to say about them. Diverging from the traditional mind-set may put you on the right course to riches.
8. Avoid mistakes, learn before investing
7. Don't ask for help
6. Follow the path your advisers recommend
5. Don't invest in uncharted territory
4. Try to time the market
3. Have enough money or good credit to invest
2. Don't get into debt
1. Have a plan
Click here to read the explanation for each one.
bankrate.com in Yahoo Business

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THE ECONOMY: SEVEN INDICATORS - From CNN Money (as of 8/26/08)

The Indicator	What It's Telling Us	Next Update
Consumer Confidence	Consumer confidence rises	Sept 30
Retail sales	Downturn as government stimulus payments end	Sept 12
Leading Economic Indicators	Economy continues to slump	Sept 18
Manufacturing Activity (ISM)	Fell just slightly in July	Sept 2
Industrial Production	Slight rebound	Sept 15
Job Growth	Seventh straight month of losses	Sept 5
Inflation (CPI)	Annual rate surged to 5.6%	Sept 16

Recent Economic News

U.S. consumer confidence rises again; job concerns persist - 8/26/08 MarketWatch
U.S. consumer confidence rose in August - the second consecutive month of gains - but the level remained relatively low and job concerns persisted, the Conference Board reported Tuesday. The August consumer confidence index rose to 56.9 from a July reading of 51.9. Economists surveyed by MarketWatch had expected an August reading of 53. The percentage of consumers saying jobs are "hard to get" rose to 32% in August from 30.2% in July. Meanwhile, the percentage of consumers expecting business conditions to worsen over the next six months fell to 25.8% from 32.4%.

U.S. June Case-Shiller home prices down 15.9% in past year - 8/26/08 MarketWatch
The decline in U.S. home prices picked up speed in June, with prices down a record 15.9% in the past year for 20 key cities, according to the Case-Shiller home price index released Tuesday by Standard & Poor's.

Average U.S. Income Showed First Rise Over 2000 - 8/26/08 NY Times
Americans enjoyed higher average income in 2006 for the first time since 2000, when the last economic expansion ended, the latest tax data show. Adjusted gross income reported on tax returns in 2006 averaged $58,029. In 2006 dollars that was an increase of $739, or 1.2 percent, from the $57,289 average in 2000, analysis of Internal Revenue Service data showed. Total income increased by $619.2 billion or 8.3 percent, all of which went to those making more than $75,000, and 42 percent of which went to the roughly one in 400 taxpayers who made more than $1 million in 2006.

U.S. leading indicators fall 0.7% in July - 8/21/08 MarketWatch
U.S. leading economic indicators fell 0.7% in July, pointing to "slow growth the rest of the year, and possibly an economy grinding to a halt," the Conference Board reported Thursday. "If there's a second-half recovery, it'll be the second half of 2009," said Ken Goldstein, labor economist at the private research organization. Five of the 10 indicators declined in July, led by building permits and stock prices. In the past six months, the leading index has fallen at a 1.8% annual rate, with seven of the 10 indicators falling over that period. The index was flat in June.

Single-family housing permits fall to 26-year low - 8/19/08 MarketWatch
U.S. home builders sharply reduced the number of new homes starting construction in July and dropped the number of new single-family permits to the lowest level in 26 years, the Commerce Department estimated Tuesday. Housing starts fell 11% to a seasonally adjusted annual rate of 965,000 in July, close to the 960,000 expected by economists surveyed by MarketWatch. It marked the lowest level for housing starts in 17 years. June's starts were revised higher to a 1.084 million annual pace. Housing starts are down 29.6% in the past year.

Factory output up 0.4%, best gain in 10 months - 8/15/08 MarketWatch
Led by an increase in motor vehicles, the output of U.S. factories rose 0.4% in July, the best gain in 10 months, the Federal Reserve reported Friday. Overall, industrial production at the nation's mines, utilities and factories increased a seasonally adjusted 0.2% in July as expected, despite a 1.9% drop in output of utilities. Output of mines increased 0.9% in July. After peaking in January, output is down 0.1% in the past year. Capacity utilization - key gauge of inflationary pressures - rose a tenth to 79.9% in July, still far below the level that would signal tight supply chains.

Manufacturing Output Topped Forecasts in July - 8/15/08 NY Times
Industrial production, a measure of the volume of goods produced in the United States, slightly topped expectations in July, a bit of positive news for an economy buffeted by inflation and higher costs.
In a report released Friday, the Federal Reserve said industrial production grew 0.2 percent over the previous month. Economists had expected production to be flat. July's increase was largely driven by a 3.6 percent rise in the production of motor vehicles and parts. The automotive production number has increased in both of the last two months most likely not because of sales - which are at record lows - but because production had been at an unusual low because of a strike at an auto parts supplier, American Axle. Economists expect that production will slow down again in response to dismal demand. The manufacturing front also showed the largest monthly increase in many months.

U.S. Foreclosures Rise 55%, Bank Seizures Reach High - 8/14/08 Bloomberg
Banks repossessed almost three times as many U.S. homes in July as a year earlier and the number of properties at risk of foreclosure jumped 55 percent as falling prices made it harder to sell or refinance. Bank seizures rose 184 percent to 77,295, the steepest increase since reporting began in January 2005, RealtyTrac Inc., an Irvine, California-based seller of foreclosure data, said today in a statement. More than 272,000 properties, or one in 464 U.S. households, got a default notice, were warned of a pending auction or foreclosed on. Nevada, California and Florida had the highest rates. Total foreclosure filings rose 8 percent from the previous month to 272,171, just shy of the record 273,001 set in May, said RealtyTrac, which has a database of more than 1.5 million properties. Through July, 775,244 properties were owned by banks, compared with about 445,000 for all of 2007 and about 224,000 in 2006.

Consumer prices jump 0.8% in July - 8/14/08 MarketWatch
U.S. consumer prices jumped a greater-than-expected 0.8% in July, marked by big increases in energy, food, clothing and cigarettes, the Labor Department reported Thursday. The core consumer price index - which excludes volatile food and energy prices - rose 0.3% for the second straight month. The report was much worse than expected. Economists had predicted the seasonally adjusted CPI to rise 0.5% and the core CPI to increase 0.2%. Consumer prices are up 5.6% in the past year, the biggest year-over-year increase since January 1991. The core CPI has risen 2.5% in the past year, the biggest gain since January.

Inflation Hits Annual Pace Not Seen Since 1991 - 8/14/08 NY Times
Inflation reached a 17-year high last month, fueled by high gasoline and food prices, all but assuring that the Federal Reserve will keep interest rates on hold for the time being. Consumer prices were 5.6 percent higher last month than they were in July 2007, a brisker pace than economists had expected, the Labor Department said on Thursday.
That was the sharpest annual increase since January 1991, as Americans paid more for clothing, food, transportation and recreational products. The overall Consumer Price Index, considered the benchmark gauge of domestic inflation, rose 0.8 percent in July. Economists had forecast a rise of half that rate. In June, prices rose 1.1 percent, the second highest monthly pace in 26 years. The C.P.I. surveys prices of a basket of common consumer goods, measuring everything from toothpaste and prescription drugs to airline fares and restaurant menus.

Weak Retail Sales Report Sends Stocks Down - 8/13/08 NY Times
July was another month of weak sales at retail outlets, adding to the evidence that the spending power of American consumers has weakened considerably, despite help from the government's tax stimulus program. Retail sales declined 0.1 percent in July, led by a sharp drop in the sales of motor vehicles and related parts, the Commerce Department said on Wednesday. Restaurants and health care providers also saw a drop-off in demand. The decline followed a 0.3 percent increase in June, which was revised higher from the government's initial estimate.

U.S. trade deficit falls to $56.8 billion on record exports - 8/12/08 MarketWatch
The U.S. trade gap narrowed by 4.1% to $56.8 billion in June on record exports and a decline in non-oil imports, the Commerce Department estimated Tuesday. The non-petroleum trade deficit fell to the lowest level in five years, the government said. Exports jumped 4% in June to a record $164.4 billion, the biggest gain in four years. Imports rose 1.8% to a record $221.2 billion, largely because of the record $117 price for a barrel of crude oil. After adjusting for inflation, the real trade deficit fell by 10.3% to the lowest level in 6 1/2 years.

U.S. 2Q productivity rises solid 2.2% - 8/8/08 MarketWatch
U.S. firms cut back their employees' working hours in the second quarter, keeping productivity growth relatively high, according to Labor Department data released Friday. Inflationary pressures were subdued, with real hourly compensation falling, a hopeful sign for the fight against inflation, but troubling for economic growth. Productivity in the nonfarm business sector rose at an annual rate of 2.2% in the second quarter. Unit labor costs rose 1.3%.

Pending home sales index rises 5.3% in June - 8/7/08 MarketWatch
In a sign that the U.S. housing market may strengthen in coming months, an index of sales contracts on previously owned U.S. homes rose 5.3% in June from the prior month, the National Association of Realtors reported Thursday. The index, which is considered a leading indicator of existing home sales, was down 12.3% from the June 2007 level. Pending home sales in June rose in all regions, with a gain of 9.3% in the South, 4.6% in the West, 3.4% in the Northeast and 1.3% in the Midwest. The May pending home sales index was revised to a decline of 4.9% from the prior estimate of a 4.7% drop.

June pending home sales up unexpectedly - 8/7/08 Reuters in Yahoo Finance
Home sales contracts signed in June unexpectedly rose across the country to its highest level since October, but still were well below year-earlier levels, a real estate trade group said on Thursday. The National Association of Realtors said its Pending Home Sales Index, which is based on contracts signed in June, was up 5.3 percent to 89.0 from a downwardly revised 84.5 in May. It was the highest reading for the index since October, when it was at 89.8. The pickup in June signings sharply contrasted with forecasts by economists polled by Reuters who had expected home sales contract signings to decline 1 percent.

U.S. weekly initial jobless claims rise 7,000 to 455,000
First-time claims for state unemployment benefits remained unusually high in the latest week as more workers qualified for regular benefits under an unrelated extended federal benefits program, the Labor Department reported Thursday. Claims for the week ending Aug. 2 rose to 455,000, a gain of 7,000 from the 448,000 claims reported a week prior. The four-week average of new claims rose by 26,750 to 419,500, the highest since July 2003. Continuing unemployment claims rose by 31,000 to 3.3 million.

Real spending falls in June despite rebates - 8/4/08 MarketWatch
Real consumer spending fell in June for the first time since February as the windfall of cash from Washington was eaten up by the worst inflation in 27 years, the Commerce Department reported Monday. Nominal spending rose 0.6%, but the increase was all due to higher prices, which rose 0.8% during the month, the most in 27 years. Real spending (which is adjusted for inflation) fell 0.2% in June. Real disposable incomes fell 2.6% in June after a 5.2% gain in May. Inflation surged in June. The personal consumption expenditure price index rose 0.8% in June compared with May and is up 4.1% in the past year, the largest year-over-year inflation in 17 years.

Higher Prices Outpace June Spending by Consumers - 8/4/08 NY Times
Consumer spending increased in June, but those gains were outpaced by rising prices, the Bureau of Economic Analysis reported Monday. The increase in spending was $57.1 billion, or 0.6 percent, from May, but prices rose 0.8 percent in the month. That reversed the trend in May, when stimulus checks from the federal government helped produce a real increase in spending. Monday's announcement followed a tepid report last week on economic growth, which showed a mild positive annual growth rate of 1.9 percent for the second quarter in gross domestic product. While the numbers in the spending report were not as dire as many had forecast, they still indicate months of challenges to come.

Manufacturing flat in July - AP in CNN Money 8/1/08
U.S. manufacturers' business was flat in July, as higher prices and tight credit kept them from expanding, but exports propped them up. The Institute for Supply Management said its reading of activity from the country's producers of cars, airplanes, appliances and other manufactured goods hit 50, down from 50.2 in June. Still, it beat economists' prediction of a reading of 49.2, according to the consensus estimate of Wall Street economists surveyed by Thomson Financial/IFR. A reading above 50 signals growth.

Unemployment at 4-year high - 8/1/08 CNN Money
Employers trim payrolls for seventh straight month in July, as jobless rate rises to 5.7%, a full percentage point higher than year ago. Employers trimmed jobs once again in July and the unemployment rate hit a four-year high, according to a government report Friday that showed the seventh straight month of job losses . The Labor Department reported a net loss of 51,000 jobs in the month, compared to a revised loss of 51,000 jobs in June. Economists surveyed by Briefing.com had been forecasting a loss of 75,000 jobs in the latest report. The latest report brought job losses this year to 463,000.
The unemployment rate edged up to 5.7% from a 5.5% reading in June. It was the worst reading since March 2004, and slightly worse than economists' forecast of a 5.6% rate. The rate has now jumped a full percentage point from a year ago. But the 5.7% unemployment rate only tells part of the problem faced by job seekers. It doesn't include those who have become discouraged from looking for work, or those who have accepted part-time jobs when they want to be working full time. Counting all of those unemployed or underemployed people, the rate rises to 10.3%, the first time that measure has hit double figures since November 2003.

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