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All Things Inflation

At the end of May, the Commerce Department reported that the price index for personal consumption expenditures increased by 1.6 percent in April from a year earlier — the fastest pace since November 2012. This is the latest sign that U.S. inflation is starting an upward trend.

Banking on expectations for a targeted 2 percent inflation rate, the Federal Reserve Bank is scheduled to phase out its bond purchase program this fall. New Federal Reserve Bank Chairwoman Janet Yellen has indicated that the Federal Open Market Committee plans to keep short-term interest rates at near-zero level for a “considerable” time after the quantitative easing program ends. The plan is to increase rates very gradually thereafter.

[CLICK HERE to read the article, "Inflation Creeps Higher but Undershoots Fed Target for Two Years," at The Wall Street Journal, May 30, 2014.]

[CLICK HERE to read the article, "Fed's George wants rate hikes soon, and not too gradual," at CNBC, May 30, 2014.]

When it comes to inflation, however, the consumer price index is not the only indicator to monitor closely. Wages — including the current debate over whether (and by how much) to increase the minimum wage — also tend to be a powerful influence. That’s because once increased, wages tend to stay at a certain level — they do not fluctuate up and down like inflation rates and stock prices. Consequently, wage hikes can have an enormous impact on consumer confidence and spending. Greater spending, in turn, can influence prices — which affects inflation.

However, high unemployment tends to put a downward pressure on inflation, as spending rates remain conservative. With fewer jobs available, employers can offer lower wages. Add in competitive labor markets across the globe, and there is further downward pressure on both wage and employment rates. So you can see how both unemployment and wage levels impact inflation — which then impacts the direction of interest rates.

[CLICK HERE to read the report, "Janet Yellen on Inflation," at Western Asset Management, April 2014.]

[CLICK HERE to read the article, "Why Inflation Is So Low," at NPR, May 15, 2014.]

Despite the leading economic indicators that are tenaciously tracked and analyzed by nearly every economist, money manager and think tank out there, inflation continues be relatively unpredictable — and in some cases uncontrollable.

[CLICK HERE to read the article, "Weird Money Facts: 5 True Cases of Unbelievable Inflation," at WiseBread.com, retrieved May 15, 2014.]

But like most things in life, how well we weather the unknown comes down to how well we prepare for it. Inflation can impact each of us differently because we all have different priorities — such as the value of education, health and nutrition, lifestyle luxuries and ideas for retirement.

[CLICK HERE to read the article, "How to Protect Clients' Portfolios against Inflation," at Financial Planning, May 28, 2014.]

It’s our job to help protect our clients’ retirement income from the effects of inflation. Please contact us if you would like to inflation-check your current financial situation.

Our firm assists retirees and pre-retirees in the creation of retirement strategies that include the use of insurance products.

These articles are being provided for informational purposes only and should not be used as the basis for any financial decisions. While we believe this information to be correct, we do not guarantee the accuracy or completeness of the information included. All clients are encouraged to consult qualified tax and legal professionals before making any decisions about your personal situation.

If you are unable to access any of the news articles and sources through the links provided in this text please contact us to request a copy of the desired reference.

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Bully for Us: Consumerism Soars

Summer is here. The housing market has gained strength, jobs and incomes have risen, and overall consumers are feeling bullish. Seeing most of us have had to adjust to the “new normal” since the turn of the millennium, recent conditions are the relative equivalent to “happy days are here again.”

[CLICK HERE to read the article, "Economic check-in: Good backdrop for stocks," at Fidelity, May 16, 2014.]

[CLICK HERE to read the article, "Sales of New U.S. Homes Increase by Most in Six Months," at Bloomberg, May 23, 2014.]

As it turns out, we’re also pretty good at turning a negative event into a positive force. For years we’ve been reading about how the “graying of America” will leave shortfalls in the workforce and medical field while spending will increase exponentially in health and long-term care. Fortunately, the market tends to follow demand.

According to Chief Investment Officer Chris Hyzy at U.S. Trust, baby boomers are the largest demographic force we have in terms of volume, wealth, consumer spending and jobs. He observes that older Americans are emerging as a tremendous economic asset – working longer, buying more goods, and generally propelling economic growth.

Here are a couple of examples of how markets have adapted to our aging workforce. In the U.S., one drugstore chain noticed that senior customers felt more comfortable asking older employees for assistance. As a result, the chain offered retiring workers who planned to spend their winters in warmer climates the opportunity to split their time between store locations and work more flexible hours. In Germany, one factory made physical changes to accommodate older workers so they would stay on the job longer, including softer wooden floors, adjustable worktables and orthopedic shoes. The changes yielded significantly lower absenteeism and productivity soared.

One forecasting firm has estimated that the products and services Americans over 50 consume, and the industries that serve them, generate about $7.1 trillion annually. This number is expected to increase to $13.5 trillion within 18 years, at which point they will represent more than 50 percent of our gross domestic product.

[CLICK HERE to read the article, "The End of Old," at Merrill Lynch, retrieved May 23, 2014.]

A couple of the challenges we can expect moving forward are relatively new to us; the impact of adult children — or boomerang children — returning to the proverbial “empty nest” for financial reasons, and the dominance of large corporations. On the surface, you would think more breadwinners under one roof would provide a stronger fiscal picture. In reality, perhaps not.

[CLICK HERE to read the article, "Your kids will never let you retire," at Marketwatch.com, May 23, 2014.]

[CLICK HERE to read the article, "The biggest economic threat? Big companies," at Marketwatch.com, May 22, 2014.]

The U.S. economy and many households have come a long way. Not just since the recession, but since the beginning of the millennium when progress was thwarted by the technology industry bust and the events surrounding 9/11. While financial markets seem to teeter on 24/7 exposure to news stories, most of us have worked hard toward improving our fiscal house and creating a more cautious plan to help foster a future unfazed by fleeting headlines.

[CLICK HERE to read the article, "America's Lost Decade Turns 12: Even the Rich Are Worse Off Than Before," at The Atlantic, Sep. 17, 2013]

As is usually the case, past events breed insight and wisdom, and Americans have plenty of that going forward. If we can assist you in harnessing that wisdom for an income plan to help facilitate your future, please contact us.

Our firm assists retirees and pre-retirees in the creation of retirement strategies that include the use of insurance products.

These articles are being provided for informational purposes only and should not be used as the basis for any financial decisions. While we believe this information to be correct, we do not guarantee the accuracy or completeness of the information included. All clients are encouraged to consult qualified tax and legal professionals before making any decisions about your personal situation.

If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Positive News on Jobs, Food and Fitness Fronts

April unemployment numbers brought good news. About 288,000 new jobs were created, representing the highest one-month total in two years. Unemployment is now at 6.3 percent, its lowest level since September 2008. Employers added an average of 238,000 jobs each month over the last three months, which is a substantial improvement over the average of 167,000 per month in the previous three.

Consumer spending is up, but only modestly. Due to the chilly weather, in the first quarter we spent more money on utilities and health care. Spending on consumer goods was relatively flat, but in March Americans bought more cars and boosted retail numbers at shopping malls.

[CLICK HERE to read the article, "American Economy Bounces Back From Brutal Winter" at UT San Diego website, May 2, 2014.]

Home sales are also up. March marked the first gain in pending sales over the last nine months. Like a stack of dominoes, as more jobs become available, more people will move to accept them, and that brings about more inventory in the real estate market. Low inventory is viewed as the main snag for lagging growth in this market. However, houses valued at one million dollars or more represent the greatest number of sales, and the vacation home market is robust as retirees seek to replace their primary homes. Housing prices continue to increase, but as more inventory enters the market that is expected to level off price growth.

[CLICK HERE to read the article and view the video, "Pending Home Sales Increase in March," at National Association of Realtors, Apr. 28, 2014.]

It may take a couple of years, but food manufacturers will soon be required to change the way they label nutrition information on packages. The format for providing information on these labels hasn’t changed in 20 years, so many in the healthcare and food industry are applauding the initiative. New labels will display the calorie count in a larger and more prominent manner to be easily read by consumers, and will also reflect a change in the base serving size to mirror today’s consumer’s eating portions and habits. Another positive change will be an accurate representation of sugar that is added to food. As of now, that line item includes both naturally occurring and added sugars.

Much of the influence for requiring new standards for labeling nutrition facts on food containers is attributed to First Lady Michelle Obama. Her high-profile “Let’s Move” campaign to educate children and parents on the importance of exercise and nutrition also appears to have made an impact on recent lower childhood obesity rates.

[CLICK HERE to watch, "Michelle Obama Puts Nutrition Center Stage," at ABC News, Feb. 27, 2014.]

[CLICK HERE to watch, "Obesity Rates in Children Decline 43 Percent in Ten Years," at ABC News, Feb. 25, 2014.]

This increased focus on fitness and healthy eating provides interesting avenues for economic growth. Companies associated with or benefiting from this trend appear to be outpacing other industries. Costco is one company that is capitalizing on the newfound interest in natural and organic food. In the first year the warehouse chain began offering fresh organic ground beef, it generated $25 billion in sales – 80 percent of those sales were to members previously not in the habit of purchasing beef there.

[CLICK HERE to read the article, "How to invest in healthy living" at Fidelity, May 1, 2014.]

It’s always great to get some positive news, and we’re excited about the continued economic prospects for 2014. If we can help assess your financial picture and position you to take advantage of your future financial strategy, please contact us to schedule an appointment.

Our firm assists retirees and pre-retirees in the creation of retirement strategies that include the use of insurance products.

These articles are being provided for informational purposes only and should not be used as the basis for any financial decisions. While we believe this information to be correct, we do not guarantee the accuracy or completeness of the information included. All clients are encouraged to consult qualified tax and legal professionals before making any decisions about your personal situation.

If you are unable to access any of the news articles and sources through the links provided in this text please contact us to request a copy of the desired reference.

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Global Perspectives

Many Americans tend to assume we’re the greatest nation. After all, people from other countries are frequently trying to move here. For the most part, we have a strong economy, we’re well educated, we make decent money, and we have the NFL, NBA, and MLB for gosh sakes. The U.S. rules.

Except when it doesn’t. The state of our economy is greatly influenced by what goes on in other countries. For example, as the Ukraine-Russia conflict increases the risk profile in Europe, the United States could benefit from greater global capital inflow. On the other hand, should Russian aggression become more pronounced, our government officials may soften the pressure they have placed on regulators to decrease the U.S. defense budget – requiring politicians to look elsewhere for a solution to the country’s deficit woes.

[CLICK HERE to read the article, "Old Embers Never Die," at Guggenheim, May 8, 2014.]

[CLICK HERE to read the article, "May market update: Positive signs," at Fidelity, May 8, 2014.]

It’s important – yet often difficult – for Americans to recognize that as powerful as our nation is, we’re not the only players out there. The new millennium firmly entrenched a global economy in which events that happen in far flung countries can impact us, and vice versa. Therefore, it pays to pay attention.

[CLICK HERE to read the article, "Uneven global economy a test for central banks," at CNBC.com, May 15, 2014.]

[CLICK HERE to read the article, "Global Economy Watch: May 2014," at Price Waterhouse Coopers, May 2014.]

[CLICK HERE to read the article, "Global economy strengthening but significant risks remain, says OECD in latest Economic Outlook," at The Organisation for Economic Co-operation and Development, May 6, 2014.]

Some are predicting this could be the era of Chinese consumerism, creating a foundation for China to become the world’s largest economy. In addition, there are increasing signs that India would not be far behind to outpace China’s success.

[CLICK HERE to read the article, "Why global recovery could depend on China's taste for luxury," at The Guardian, May 10, 2014.]

[CLICK HERE to read the article, "China is an economic powerhouse, but size isn't everything," at The Guardian, May 8, 2014.]

[CLICK HERE to read the article, "Why India Will Soon Outpace China," at Forbes, May 4, 2014.]

The U.S. is hardly the only country struggling with government expenditures, high unemployment, and slow economic growth. As we currently grapple with the question of whether to increase the hourly minimum wage to $10.25, Switzerland recently voted on a referendum to raise the national wage to the equivalent of $25 an hour. While the Swiss as a whole enjoy low unemployment and fewer work hours, the average household boasts about $30,000 in net discretionary income. Sound rich? Only for a minority of the population given the great income discrepancy — those in the top 20 percent earn nearly five times what those in the bottom 20 percent earn.

[CLICK HERE to read the article, "Where could you get $25 minimum wage?" at CNNMoney.com, May 16, 2014.]

It appears that from many different perspectives, the grass may seem greener somewhere else. If we can help you develop a clearly defined picture of your own financial strategy within your household, please give us a call.

Our firm assists retirees and pre-retirees in the creation of retirement strategies that include the use of insurance products.

These articles are being provided for informational purposes only and should not be used as the basis for any financial decisions.  While we believe this information to be correct, we do not guarantee the accuracy or completeness of the information included. All clients are encouraged to consult qualified tax and legal professionals before making any decisions about your personal situation.

If you are unable to access any of the news articles and sources through the links provided in this text please contact us to request a copy of the desired reference.

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A Health Care Plan – For You

A survey released in late July found that one in three doctors say they will quit practicing medicine in the next decade. But not because they’ll retire. Reasons given included declining reimbursement, unprofitable practices, and the high cost of doing business.

According to the report, “this confluence of economic and regulatory pressures is driving some physicians to early retirement and others out of the medical profession altogether. Plus, it’s influencing the emerging generation of talent to avoid the debt and risks inherent in becoming doctors.”

[CLICK HERE to read the article, "A Tough Time for Physicians: 2012 Medical Practice & Attitude Report," at Jackson Healthcare, July 25, 2012.]

Well, that’s going to make things really difficult. The number of adults age 65 and older is projected to soar by more than 75 percent by 2030 – to nearly one in five U.S. residents.[1] We all know that the good health we tend to enjoy in younger years will likely deteriorate as we get older, so it’s easy to imagine demand for health care providers will increase exponentially during this timeframe. And in an era when demand will ramp up more than any other time in history, supply will be leaving the profession in droves – with reduced potential for replacement players.

Furthermore, when demand is high and supply is low, prices generally increase. Just to give you an idea of where they stand right now, the Society of Actuaries estimates a couple, both age 65, will need $230,000 to cover the cost of acute medical care and Medicare in their lifetimes, which doesn’t include the cost of long-term care insurance (that could cover some of these projected costs).[2]

[CLICK HERE to read the article, "Boomers Need Health-Care Costs Reality Check," at FoxBusiness.com, August 16, 2012.]

[CLICK HERE to read the article, "Stern Advice - Managing medical costs in retirement," at Reuters, August 8, 2011.]

[CLICK HERE to read the new release, "Federal report details health, economic status of older Americans," at National Institutes of Health, August 16, 2012.]

We might be living long but, unfortunately, living longer doesn’t necessarily mean living healthier. In fact, the more active you’ve been in your younger years, the more likely you’ll need a joint replacement in old age. The less active you’ve been in your younger years, however, you may have more health issues overall.

Currently only about 25% of American employees have considered a plan for health care expenses in retirement.[3] Because medical expenses tend to increase the older you get, developing a separate plan to cover them is an important consideration. This requires estimating your health care needs and costs in retirement and determining if you should purchase additional health care coverage (Medigap insurance) to help preserve your personal assets and retirement income.

Feel free to contact us to talk about your personal health care plan in retirement. We’d like to help ensure it doesn’t conflict with your retirement income plan.

If you are unable to access any of the news articles and sources through the links provided in this text please contact us to request a copy of the desired reference.


[1] Institute of Medicine, “The Mental Health and Substance Use Workforce for Older Adults,” July 2012.

[2] Society of Actuaries, “Securing Health Insurance for the Retirement Journey,” 2012.

[3] Sun Life Financial Unretirement Survey; “Flying Blind: How Working Americans View Healthcare Costs in Retirement,” May 24, 2011.

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What “Recovery” Feels Like

What “Recovery” Feels Like

Today’s headlines are dominated by the claims, promises, accusations and trash talk of our noble presidential candidates. Each says they’re fighting for the future of middle-class Americans, a category of citizens for whom neither can admit to being a card-carrying member.

But who is the middle class, anyway? Recent research and survey trends have unleashed some interesting findings. For example, since 2000 the middle class has shrunk in size, from 61% of the adult population in 1971 to 51% in 2011. Not surprisingly, there were increases in the upper economic tier (from 14% to 20%) and lower tier (from 25% to 29%) during the same time frame.1

1[CLICK HERE to read the news release, "The Lost Decade of the Middle Class," at Pew Research Center, August 22, 2012.]

[CLICK HERE to read the article, "Middle Class Exit 'Lost Decade' With Little Hope: Pew Report," at The Huffington Post, August 22, 2012.]

Even though the Great Recession officially ended three years ago, the middle class isn’t really feeling much recovery in terms of its income – or home equity for that matter. Sixty-two percent say they had to reduce household spending in the past year due to money issues, whereas at the height of the recession in 2008, only 53% reported cutting back.1

According to data from the Federal Reserve’s Survey of Consumer Finances, American’s median net worth fell 28% from 2001 to 2010, erasing two decades of gains. From 2007 to 2010 alone, the value of middle income family assets fell by 19%.1

 

Mature Middle Class

From 2001 to 2011, adults ages 65 and older fared best, or so it would seem. Their incomes are higher now than in 2001, but you could also attribute this to the fact that many 65+ folks are continuing to work, whereas before they could retire. 

And speaking of earning income, mature workers do not appear to be enjoying the increases their younger peers are getting. According to a new report from Sentier Research, the typical household income for people age 55 to 64 years old is almost 10% less in today’s dollars than it was three years ago – when the recovery officially began. Actually, in almost every demographic group nationwide, Americans are earning less today on average than they did in June 2009, despite our third year in recovery.

Perhaps we should reconsider what “recovery” really means.

[CLICK HERE to read the article, "Big Income Losses for Those Near Retirement," at The New York Times, August 23, 2012.]
 

Who’s Getting Paid More?

A recent AOH Hewitt survey found that companies are spending less on base pay increases for all workers, opting instead to reward high-performing workers with larger bonuses. According to an AON Hewitt spokesperson, “It is unlikely that salary increases will reach pre-recession levels of 4% or higher any time soon.” Aon Hewitt projects base pay increases of 3% in 2013 for executives, salaried exempt and nonexempt workers.

However, some areas of the country are more likely to pay higher increases than the national average, including Denver, Austin, Dallas/Fort Worth, Detroit, San Diego, Houston and Kansas City. Cities expected to pay lower-than-average increases in 2013 include San Francisco, Chicago and Minneapolis/St. Paul.

[CLICK HERE to read the news release, "Aon Hewitt Survey Shows Marginal Rise in Salary Increases in 2012; Spending on Performance-Based Awards Remains Strong," at Aon Hewitt, August 13, 2012.]

[CLICK HERE to read the Employment Cost Index news release for June; U.S. Bureau of Labor Statistics, July 31, 2012.]

As our “recovery” continues to amble along, you may feel more confident about the future by putting your savings on track for risk-managed growth opportunity – coupled with retirement income security – for the future. We’ve got strategies that can help you do that. Please give us a call.

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Making Homeownership Viable Again

There’s been discussion in recent years about renting being a better investment than buying a home. Analysts have emphasized that homeowners need to take the perspective that owning a home is more about quality of life than the road to riches. But that’s like saying don’t invest in stocks when prices are low, which is a very short-term view. We’ve been taught to buy low and sell high, and that means even when the real estate market takes a turn for the worse, we need to steel ourselves, hang in there and trust in the long-term return.

 

It appears the residential market is poised to reward us for that long-term view. Maybe it didn’t make sense to sell your house when prices were dropping, but buying was and continues to be a very good way to build equity for the future. And with mortgage rates still at record lows, homebuyers today can position themselves for some very high returns on their investment in the future.

 

[CLICK HERE to read the article, "Rent vs. Buy: What the Standard Indices Aren't Telling You," at Zillow Real Estate Research, August 1, 2012.]

 

Jobs to Increase Prices

While improvement on the unemployment front is slow and generally disappointing, there is some comfort in knowing that lower home prices are more influenced by this economic factor rather than pure demographics. With a massive population of baby boomers in or on the cusp of retirement, there’s been concern that overbuilding over the last 30 years to accommodate this population increase would result in mass vacancies as the generation diminishes. However, the recession has helped curbed housing starts and the formation of new households – creating pent-up demand that may well explode when jobs return.

 

Young college graduates have been forced to move back in with mom and dad, mid-career layoffs have turned elderly parents into landlords, and a proliferation of fixed-income seniors have moved in with their adult children. This constriction of new and previous household formations has lowered demand for housing, thus reducing prices further. Traditionally, the average number of households fluctuated based on demographics, but now we can take heart in knowing that the current excess supply of vacant homes is at least partially due to pent-up demand, and we won’t have to wait for demographics to catch up with supply.

 

[CLICK HERE to read the commentary, "Pent-up Housing Demand: The Household Formations That Didn't Happen - Yet," at HousingEconomics.com, February 2, 2011.]

 

New Rules Proposed for “Investment Statements”

You might call it your mortgage bill, but the Consumer Financial Protection Bureau (CFPB) wants your monthly mortgage statement to look and act more like an investment statement – so you can monitor and manage this asset more closely. A few rules recently proposed by the CFPB include:

 

·     Servicers would have to send regular bills to homeowners each billing cycle that spell out payments by principal, interest, fees and escrow; the amount of and due date of the next payment; and warnings about fees.

·     Servicers would have to alert homeowners with adjustable rate mortgages that their interest rates are about to change as early as 7 months before the changes kick in.

·     Servicers would have to credit homeowners’ mortgage accounts the day payment is received.

 

[CLICK HERE to read the article, "New rules aimed at helping homeowners," at CNNMoney, August 10, 2012.]

 

Home ownership has long been considered not only a good investment, but also the key to building significant wealth over a lifetime. As you approach retirement, there are many ways you can position this investment asset to help secure your lifestyle. Please give us a call if you’d like to discuss these options.

 

 

 

If you are unable to access any of the news articles and sources through the links provided in this text please contact us to request a copy of the desired reference.

 

The information and opinions contained herein are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by our firm. Content is provided for informational purposes only and is not a solicitation to buy or sell the products mentioned. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.

 

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Midyear Recap

The commentaries are in – July brought with it a host of analysis about how the economy is doing so far this year.

 

According to Fidelity Investments, “The U.S. remains in a mid-cycle expansion and the corporate sector remains solid, but improvement has slowed, and global and policy risks dampened the overall outlook for riskier assets.” Its 2nd quarter report provides a market summary with analysis on the economy, policy risks, securities markets both domestic and abroad, and asset allocation themes in light of this being an election year.

 

[CLICK HERE to read, "Quarterly Market Update," at Fidelity Investments, Second Quarter, 2012.]

 

If you want to see how the outcome of the presidential and congressional elections may impact the market and the economy, check out an in-depth perspective from LPL Financial Research. Among other observations, the firm’s 2012 Mid-Year Outlook states that, “We believe the impact of congressional elections may be more meaningful than the presidential one this year.”

 

[CLICK HERE to read the commentary, "Campaign 2012: What the Elections Hold for Investors," at LPL Financial, Second Quarter, 2012.]

 

In its third quarter overview, UBS acknowledges that the “re-flaring of the eurozone sovereign debt crisis, continued policy uncertainty in the US, and the lagged effects of the monetary tightening cycle within the emerging markets are chiefly responsible for the current economic slowdown.” However, it cites the following reasons for optimism:

 

·         Lower energy prices are likely to start turning into a supportive force for growth.

·         Emerging markets policies are now accommodative; policymakers have greater latitude to ease policy; and further stimulus is likely in the months ahead.

·         The recovery in U.S. housing prices and the rebound in both existing home sales and housing starts suggest that residential real estate has shifted from being a headwind to a tailwind.

 

[CLICK HERE to read the commentary, "Investment Strategy Guide: I know what you did last summer," from UBS Wealth Management Research, Third Quarter, 2012.]

 

Speaking of residential real estate, Zillow.com recently published a report emphatically stating that the US housing market has finally turned a corner. The Zillow Home Value Forecast estimates that 67 of the 156 markets it covers will experience an increase in home values over the next 12 months.

 

The report notes that, overall, national home values are back to January 2004 levels, having fallen 22.9% since their peak in May of 2007.

 

[CLICK HERE to read the article, "Home values rise for the first time in 5 years," at CNNMoney, July 24, 2012.]

 

[CLICK HERE to read the commentary, "Housing Market Turns Corner; U.S. Home Values Post First Annual Increase in Nearly Five Years," at Zillow Real Estate Research, July 23, 2012.]

 

[CLICK HERE to read the commentary, "U.S. housing market lays new foundation," at The Globe and Mail, July 24, 2012.]

 

Despite lingering high unemployment and the risks associated with Europe’s financial crisis, there is little news in recent mid-year reports that would indicate the U.S. economy has altered from its slow but gradual course to recovery. Now might be a good time to take a look at your current situation to see if there are strategic moves you can make to help position your assets for longer-term growth – or protect them from a similar economic setback in the future. As always, give us a call if you’d like to discuss your situation.

 

 

If you are unable to access any of the news articles and sources through the links provided above, please contact us to request a copy of the desired reference.

The information and opinions contained herein are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by our firm. Content is provided for informational purposes only and is not a solicitation to buy or sell the products mentioned. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.

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Banks: Too Big to Break Up?

After the Great Depression, Congress passed the Banking Act of 1933, which included banking reforms such as the Glass-Steagall Act (named for its Congressional sponsors, Senator Carter Glass (D) of Virginia and Representative Henry B. Steagall (D) of Alabama). That Act was designed to limit the activities and affiliations commercial banks could engage in with securities and securities firms. In 1999, those restrictions were repealed via the Gramm-Leach-Bliley Act under President Clinton.

And here we are today. Since the subprime mortgage crisis that launched the country into economic recession, debates abound regarding the wisdom of limiting the size and security-based risks in which banks are allowed to engage.

 

Jumping into the fray just recently is former Citibank CEO Sandy Weil, whose resume includes acquiring insurance companies, retail brokerages, and investment banks and merging them into the behemoth empire known as Citigroup. He claims to have been instrumental in lobbying for the repeal of the Glass-Steagall Act. To the surprise of the banking industry, Weil went on CNBC’s “Squawk Box” recently to call for the return of Glass-Steagall-like reforms:

 

“What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail.”

 

[CLICK HERE to watch video of Sandy Weill, "Wall Street Legend Sandy Weill: Break Up Big Banks," at CNBC.com, July 25, 2012.]

 

[CLICK HERE to read the article, "Insight: Banks bristle at breakup call from Sandy Weill," at Reuters, July 27, 2012.]

 

Good Service Isn’t Profitable
Since receiving bailout money from the federal government during the height of the “Great Recession,” banks have built up strong balance sheets and appear to be fully recovered. In fact, they appear to now be so strong that customer experience isn’t exactly a priority.

Time quotes an industry analyst who observed, “There’s no evidence in the US banking system that offering a labor-intensive personalized service is successful in terms of letting the banking institutions survive. It’s very costly with virtually no benefit.”

 

With the electronic age, technology enables banks to offer faster, more convenient – but less personal – service. And it saves them money, since ATM machines don’t take sick days, ask for raises, or need health insurance.

 

Electronic ties also make it difficult for customers to switch banks thanks to direct deposit, automatic draft payments, and elaborate bill pay systems. A new Consumer’s Union survey reveals that while nearly one in every five customers has considered changing banks in the last year, nearly half of them don’t because it’s too much trouble.

 

[CLICK HERE to read the article, "Uh Oh: Bad Customer Service Is Good For Bank," at Time, July 26, 2012.]

 

[CLICK HERE to read the news release, "Survey Highlights Top Impediments to Switching and Reforms That Would Make Consumers More Likely To Move Their Money," at ConsumersUnion.com, July 24, 2012.]

 

The progress of banks and their relationships to consumers, Wall Street and politicians will continue to rule headlines – at least until the economy has officially turned the corner. If you’d like to discuss how developments in this industry may impact your financial picture, please contact us.


The information and opinions contained herein are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by our firm. Content is provided for informational purposes only and is not a solicitation to buy or sell the products mentioned. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.   

 

If you are unable to access any of the news articles and sources through the links provided in this text please contact us to request a copy of the desired reference.

 

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Does Student Loan Debt Make You Smart?

It used to be that garden-variety wisdom behooved you to go to college to make something of yourself. These days, with around $1 trillion in outstanding student loan balances nationwide ($150 billion in private student loan debt), many are questioning that wisdom.

 

According to finaid.org, the average college student’s debt is more than $18,000, but many carry loans well over $50,000. The biggest shame of it all is that in this economic environment, young adults are coming out of college and having to work the same sort of temporary or transitional jobs they’ve worked for years – food and beverage, retail, lifeguarding, valets, etc. They’re lucky if they can find an unpaid internship to gain “real world” work experience while paying the bills by bussing tables. Many have little opportunity to make a dent in student loan debt, and each year the competition for jobs grows denser.

 

[CLICK HERE to read the blog post, "College Loans: A Punitive System?" at Boston College, Center for Retirement Research, June 5, 2012.]

[CLICK HERE to read a report from the Consumer Financial Protection Bureau and the US Department of Education titled, "Private Student
Loans,"at ConsumerFinance.gov, July 20, 2012.

[CLICK HERE to read the article, "Private student loan debt reaches $150 billion," at Yahoo Finance, July 20, 2012.]

 

Subprime Student Loans

Much like the American dream of owning your own home, the student loan industry relaxed qualifying criteria and actively marketed and approved loans to people who did not have a credit history for paying back loans. Exploiting parental claims that you can’t get a good job without an education, lenders used Asset-Backed Securities (ABS) to finance student loans because they were more profitable, giving them incentive to increase loan volumes regardless of creditworthiness.

[CLICK HERE to read the article, "How the Student Private Loan Industry Resembles the Subprime Mortgage Market," at ThinkProgress.com, July 20, 2012.]

Government Intervention

Similar to the subprime crisis, where private lenders may have faltered, the federal government has taken measures to try to provide relief. In recent years, the government has launched the income-based repayment program to allow debt-laden graduates to repay federal student loans based on their level of income. After a certain time period, any remaining balance would be forgiven (note that forgiven balances may be considered income on which taxes are owed).

 

Furthermore, Congress recently extended the current 3.4% interest rate on federally subsidized student loans just prior to the July 1 expiration date, when the rate was scheduled to double. The extension is only for one year, however, so this issue is likely to rear its ugly head in the first two quarters of 2013. 

[CLICK HERE to read the article, "Uncle Sam's Income-Based Student Loan Repayment Plan," at Nightly Business Report, July 19, 2012.

[CLICK HERE to read the article, "Congress extends low student loan rates," at CNNMoney.com, June 29, 2012.

Not a Generational Issue

If you think student loan debt is a problem just for the young, think again. Nearly one-third of the total student loan debt is carried by people over age 40 - still paying down loans from their college years. On top of that statistic, loans to parents to fund their kids' education is among the fastest-growing of the government's education loan programs. Imagine - paying your child's college student loans while still paying down your own.

 

Many middle-aged adults went back to school after losing their jobs during the latest economic crisis in an effort to beef up their resumes in light of ageism and the other challenges that come with seeking a new job mid-career. Taking on more student loan debt while unemployed (or under-employed) and losing value in your home equity is equally daunting.

[CLICK HERE to read the article, "Student Debt Hits The Middle-Aged," at The Wall Street Journal, July 17, 2012.]

 

The best way to tackle student loan debt is to plan early and save/invest regularly. But even if you’ve waited late to start a plan for financial health, you may have assets that can be positioned to help pay for college. Don’t hesitate to call us to review your situation and discuss strategies.

 

   

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