Why This Is More Than Just Your Garden-Variety Recession...

An economy that 33 months after a recession begins, with zero policy rates, a stuffed central bank sheet, and a 10% deficit-to-GDP ratio, is still in need of government help for its sustenance suggest that this isn't your garden-variety recession.

Moreover you know it’s a more than just a typical recession when, 33 months after the onset of recession...

·         Wages & salaries are still down -3.7% from the prior peak;

·         Corporate profits are still down -20% from the peak;

·         Real GDP is still down -1.3% from the peak;

·         Industrial production is still down -7.2% from the peak;

·         Employment is still down -5.5% from the peak;

·         Retail sales are still down -4.5% from the peak;

·         Manufacturing orders are still down -22.1% from the peak;

·         Manufacturing shipments are still down -12.5% from the peak;

·         Exports are still down -9.2% from the peak;

·         Housing starts are still down -63.5% from the peak;

·         New home sales are still down -68.9% from the peak;

·         Existing home sales are still down -41.2% from the peak;

·         Non-residential construction is down -35.7% from the peak.

Unfortunately, in a normal recession-recovery cycle, practically all these indicators are making new highs at this juncture of the business cycle.

More Go Without Life Insurance...

Nearly a third of U.S. households have no life-insurance coverage, the highest percentage in more than 4 decades, according to research firm Limra.

About 35 million U.S. households neither own their own life-insurance policies nor are covered under employer-sponsored plans, up from the 24 million, or 22% of households, without coverage in 2004, according to the study this year by Limra, of Windsor, Conn.

The percentage without life insurance is a sign of the financial pressures on middle-income families as the economy struggles.

The rise reflects tight household budgets, loss of employer-provided coverage as a result of layoffs, and cutbacks by some employers in their benefits packages, Limra said.

50% of the respondents in the latest survey said they needed more life insurance, but many haven't bought it because their financial priorities include paying off debt.

Among households with children under 18, 4 in 10 respondents said they would immediately have trouble meeting living expenses if a primary wage earner died, and another 3 in 10 would have trouble keeping up with expenses after several months.

"Clearly, more American families are living on the edge, surviving paycheck to paycheck, and, as our new study suggests, too many are without the safety net that life insurance provides," said Robert Kerzner, president of Limra.
Many survey respondents said they didn't know where to get help buying life insurance.

Almost 8 in 10 don't have an insurance agent or broker. 60% of baby-boomer households would prefer to buy life insurance face to face, while younger generations are interested in gathering information online, the survey found.

In 2009, insurers issued 9.4 million individual life policies in the U.S., about 1 million fewer than in 2004, according to Limra.

Analysts said the industry hasn't solved the puzzle of how best to reach middle-income households in a cost-efficient manner and in a way that enables consumers to feel comfortable making financial decisions.

7 Things to Know About Social Security

Social Security turned 75 last month, and many facets of this huge institution are not widely known. Here are 7 things you should know about Social Security, according to an article by U.S. News and World Report reporter Emily Brandon. 

1. It's not only a retirement program. Disability benefits and payments for a beneficiary's spouse and children were added to the program. Annual mailings to all workers age 25 and older include an estimated amount you would be paid if you become disabled and how much your spouse and children would receive if you should pass away.

2. You pay 6.2% of your income into the system. 94% of American workers pay 6.2% of their taxable income, up to $106,800 annually, into the fund. Employers pay a matching 6.2% for each worker. Self-employed workers must contribute 12.4% of their income annually.

3. Annual cost-of-living adjustments didn't exist until 1975. Before 1975, an act of Congress was required to increase benefits to keep up with consumer prices. Now increases in payments are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers. Increases have ranged from 1.3% in 1996 and 1998 to 14.3% in 1980. In 2010, there was no cost of living adjustment because the index did not increase between the 3rd quarter of 2008 and 2009.

4. Retirees can increase annual payments by waiting to claim. Workers can begin receiving Social Security benefits at age 62. But payouts increase by 7% to 8% for each year you delay your start date, up until age 70.

5. Existing beneficiaries can get a do-over! If you've already signed up for Social Security and received a reduced payout, it's not too late to boost your check. If you pay back the entire amount you have already received from Social Security without interest, you can then qualify for higher payments for the rest of your life.

6. Paper checks will soon be retired. Recipients will be required to collect payments by direct deposit into a bank account or a government Direct Express Debit MasterCard beginning on March 1, 2011. Existing beneficiaries must switch to electronic payments by March 1, 2013. Paperless payments are expected to save $300 million over 5 years, according to Treasury Department estimates.

7. The trust fund has a projected deficit. The fund is currently expected to provide payments until the end of 2037. Unless changes are made to the program, there will only be sufficient resources to pay about 78% of scheduled benefits. Congress is currently weighing possible fixes, including tax increases, benefit cuts and pushing back the retirement age. The U.S. Senate Special Committee on Aging report released in May found somewhat minor changes could put the fund back on sound financial ground for at least 75 more years.

Source: Yahoo! Finance

Rising Out-of-Pocket Costs Threaten Seniors' Retirement

Unless health care practices or public policy change, seniors’ out-of-pocket spending will likely grow in coming years as health care costs continue to increase...

+50% increase in the median annual real out-of-pocket costs for Americans age 65 and older, from about $2,600 to about $6,200 in the next 30 years.

1 in 10 older adults will spend more than $14,000 per year on health care in 2040.

+9% increase in the median share of household income spent on health care by adults age 65 and older, between 2010 and 2040.

+17% increase by 2030, and 27% increase by 2040, in the share of adults age 65 and older spending more than 20% of their household income on health care.

+52% increase in the share of older Americans with burdensome costs if employers eliminate all retiree health benefits by 2040.

+18% increase between 2010 and 2040 of the median share of income spent on health care by older adults in the bottom 20% of the income distribution.

Source: Urban Institute

Quote of The Day: De Tocqueville on The American Republic...

"The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money."

- Alexis De Tocqueville

Faith in Government Low...

Steen Jakobsen, Chief Investment Officer at Litmus Capital Partners, says a big risk for markets is the fact that faith in the U.S. government's ability to fight the economic markets, as well as in central banks' monetary policy tools, is eroding.

"The fact of the matter is that people have a huge disbelief in government," he said.  "The real crisis 2.0 is not about the new normal or whatever term is being used, the new crisis is a crisis of faith in the U.S. system. We're far away from that point now but that is a clear risk," Jakobsen said. 

Because people are losing faith in the governments' ability to bring the economy back on track, the impact of various policies is smaller, while keeping interest rates at record lows has altered investors' perception about what this actually means for the market, Jakobsen warned.

Investors no longer perceive low rates as good for stock markets because they create liquidity, but as a sign that a slowdown in economic growth is coming, he said. 

Jakobsen predicts zero or even negative growth for the US economy for the third and fourth quarters.

Retirement? Are You Ready?

How Establishing Your Own Private Bank Can Secure A Worry-Free Retirement for Generations To Come...

Long-Term Care: The Two-Household Test...

Are you wondering if you should buy long-term-care insurance?

A good rule of thumb is that if a couple can afford to run two households they can afford to self-insure, according to David Keator, an advisor and partner in the Keator Group in Lennox, MA.

That is because having one spouse in a nursing home effectively doubles the cost of housing and care for the couple.

“The cost of private nursing home is about the cost of running a household,” he said. “It takes about $2.5 million of assets to pay privately for nursing home as well as take care of the spouse who’s not in the nursing home. If a couple has less than $2.5 million, it becomes more important to review a long-term-care policy because they don’t have the capital to generate enough income.”

The rule doesn’t apply to single people who can help cover the cost of a nursing home by selling their house. Because they can include the value of their real estate, a single person would need less assets outside of their house to self-insure.

“A single person with Social Security and a pension would need a net worth of about $1 million including their home to self insure for health care,” Keator said. If the person did not have social security and a pension, then they would probably need $2 million.

It’s also different if the client doesn’t care about leaving money to heirs because after the client runs out of their own money, they can go onto Medicaid. It helps to start off paying for yourself, however, Keator said.

“While it’s not supposed to be that way, we see the reality is that if you can private pay for nursing home care in the beginning you can usually get into a nicer place,” he said.

Vantage Point UPDATE: Intermediate-Term and Long-Term Trend Analysis

On Friday September 17th the S&P 500 closed @ 1126, and that was...
  
   +3.8% ABOVE its 12-Month moving average which stood @ 1084.
   +1.0% ABOVE its 40-Week moving average which stood @ 1114.
   +2.8% ABOVE its 10-Week moving average which stood @ 1095.


Therefore, the INTERMEDIATE-Term trend IS NEUTRAL and the LONG-Term trend is  NEUTRAL. Both trends are much improved in September.

The Top 5 Financial Mistakes Business Owners Make - And How to Avoid Them - #5 of 5

Financial security expert Pamela Yellen, author of Bank On Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future, believes that business owners are prone to making financial mistakes that undermine their efforts to build wealth. Here is the fifth of the top five mistakes (#5 of 5) she sees and strategies on how to avoid them...

5. Not Demanding Guarantees from Your Financial Advisors...

Do you know what your retirement account will be worth in 10, 20, or 30 years, or on the day you plan to tap into it? If your answer is "No" or "I'm hoping it will be worth $X" - you don't have a plan. 

If you're relying on a financial advisor, stock broker or plan administrator for advice, ask them if they can tell you what your account will be worth on the day you plan to retire. Then follow it up with, "And will you give me a money-back guarantee if you don't hit that savings target?"

If they say "No" - FIRE THEM!
 

The Top 5 Financial Mistakes Business Owners Make - And How to Avoid Them - #4 of 5

Financial security expert Pamela Yellen, author of Bank On Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future, believes that business owners are prone to making financial mistakes that undermine their efforts to build wealth. Here is the fourth of the top five mistakes (#4 of 5) she sees and strategies on how to avoid them...

4. Giving Up Control to Financial Institutions

The financial and credit crisis has made us painfully aware of how little control we have when we rely on other people's money. And credit still remains very tight for entrepreneurs who need capital to start or expand their businesses.

Many believe that paying cash for things - rather than leasing or financing them - is the answer. But this ignores an important, but little-known principle of economics - you finance everything you buy.

Let's say you've decided you're going to beat the financing and leasing rackets by paying cash for major purchases. So you start putting money aside into a savings or money market account.

When you hit your savings target, you pull your money out to pay cash for that item. You're earning zero interest on your money at that point, which is why financing, leasing and paying cash are all losing scenarios.

You're either going to pay interest to others to finance things, or you're going to lose the interest or investment income you could have earned, had you kept your money invested instead.

Specially designed dividend-paying whole life policies can be used to "Bank On Yourself" and become your own source of financing by answering just one question: How much do you want?

The Top 5 Financial Mistakes Business Owners Make - And How to Avoid Them - #3 of 5

Financial security expert Pamela Yellen, author of Bank On Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future, believes that business owners are prone to making financial mistakes that undermine their efforts to build wealth. Here is the third of the top five mistakes (#3 of 5) she sees and strategies on how to avoid them...

3. Following Conventional Financial Planning Strategies

Following traditional financial and retirement planning methods is what got us into the mess we're in.

If those strategies were working, most Americans wouldn't be wondering if they'll ever be able to retire, and what they'll have to give up in order to do so.

Consider proven and time-tested ways to grow a substantial nest egg - without the risk or volatility of stocks, mutual funds, real estate, and other investments.

A dividend-paying whole life policy grows by a guaranteed and pre-set amount every year. Little-known options can be added that supercharge the growth of your equity in the policy.

In addition, the growth is exponential, meaning it gets better every single year you have the policy, simply because you stick with it. This gives you some protection against inflation and provides peak growth at the time you need it most - retirement.

It's possible to take a guaranteed and predictable retirement income from these policies with little or no tax consequences, under current tax law.

The Top 5 Financial Mistakes Business Owners Make - And How to Avoid Them - #2 of 5

Financial security expert Pamela Yellen, author of Bank On Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future, believes that business owners are prone to making financial mistakes that undermine their efforts to build wealth. Here is the second of the top five mistakes (#2 of 5) she sees and strategies on how to avoid them...

2. Confusing "Saving" with "Investing"

Wall Street and the financial planning industry have led us to believe that saving and investing are the same thing.

They are not!

The money you have in savings is money you don't want (or can't afford) to lose. Money you invest is subject to loss. Most people today invest to save, and as a result, have no idea what their nest egg will be worth when they plan to tap into it. 

Don't put money you can't afford to lose into stocks, real estate or other traditional investments.

Before investing, ask yourself if your money didn't grow for 20 or more years, or even went backwards, could you live with that? 

The Top 5 Financial Mistakes Business Owners Make - And How to Avoid Them - #1 of 5

Financial security expert Pamela Yellen, author of Bank On Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future, believes that business owners are prone to making financial mistakes that undermine their efforts to build wealth. Here is the first of the top five mistakes (#1 of 5) she sees and strategies on how to avoid them...

1. Deferring Taxes:

Business owners love the idea of deferring taxes. That's a big part of the appeal of tax-deferred retirement plans, such as 401(k)'s.

But what direction do you think tax rates will be going over the long term?

If, like many people, you believe taxes are going up, consider that if you're successful in growing your nest-egg, you'll only end up paying higher taxes on a bigger number.

Even if tax rates stay the same, I estimate that by deferring your taxes, you'll ultimately pay 10 to 20 times more in taxes over a 30-year period.

Consider paying your taxes up front - at least you know what they are.

Vantage Point UPDATE: Intermediate-Term and Long-Term Trend Analysis

On Friday September 10th the S&P 500 closed @ 1110, and that was...
  
   +1.8% ABOVE its 12-Month moving average which stood @ 1090.
   -0.3% BELOW its 40-Week moving average which stood @ 1113.
   +2.6% ABOVE its 10-Week moving average which stood @ 1081.


Therefore, the INTERMEDIATE-Term trend IS NEUTRAL and the LONG-Term trend is  NEUTRAL.

4 MORE Reasons Why Cash-Value Life Insurance Is Such A Valuable Financial Tool...

Here are four more (see yesterday's post) reasons to own cash-value life insurance:


1. It’s discounted estate tax insurance. Federal estate tax returns on January 1, 2011, because of sunset provisions in previous legislation. The exclusion returns to $1 million, and the maximum rate increases to 55%. Americans who were not subject to the tax now could be. Do you want to pay these taxes with whole dollars, or would you prefer a discount instead, using pennies to buy dollars? The answer is obvious: Life insurance provides that discount.

2. It’s a fully funded contractual will. Regular wills have many inadequacies. Even when they work, they proceed through probate, incurring costs and opening your affairs to the scrutiny of the public. When wills don’t work, your desires can be contested, at great cost, and can even be declared invalid. Life insurance “wills” have none of these problems and even fully fund your estate for the determined value at the precise time it is needed.

3. Life insurance pays what someone else would have to pay. Someone always pays for life insurance. The head of the family, if insurable, pays for their life insurance with a few dollars from their income. If they do not, and they die too soon, then someone else -- a widow, an orphan or a business -- inevitably ends up paying costs that would have been covered by life insurance. Ask yourself, “Do you want to make a big mistake or a little mistake?” The premium is the little mistake. Putting your family or business in jeopardy by dying without life insurance is the big mistake.

4. It’s transferred risk. Many fathers have daughters who are married to inadequately insured husbands. Who does the risk transfer to if the husband dies prematurely? Answer: The father (and loving grandfather). One solution: Insure the son-in-law. Have the cash value belong to the grandfather, and the death benefit belong to the daughter. Now the risk has been transferred.

4 Reasons Why Cash-Value Life Insurance Is Such A Valuable Financial Tool...

Though often misunderstood, life insurance will always be a necessity. Here are four reasons why life insurance is such a valuable financial asset...

1. Life insurance replaces economic value. If people work to retirement age, they will collect all or most of their economic value, thus being able to share it with their loved ones. If, due to premature death, some portion of this value is lost, the economic damage is as real. Life insurance covers this lost value.
   
   
2. Life insurance is collateral. Many people have forgotten the powerful benefits of having life insurance. Life insurance provides guaranteed borrowing power! Even if a bank rejects your prospect or client for a loan, they could still borrow from their life insurance.
   
   
3. Life insurance is a magnificent gift. When a parent or grandparent buys and pays for a substantial cash value life insurance policy, they are giving a gift that can grow into a veritable fortune. It can provide a protective safety net as well as establish an amazing foundation of savings that will benefit a child or grandchild throughout their entire life.
   
   
4. Life insurance is property. Life insurance reaches full value at the exact moment we need it to. It provides full value at death or full accumulated value at retirement. Life insurance is one of the most valuable pieces of property a consumer can own!
   
   

 

Why A Double Dip Recession Cannot Be Ruled Out...

Claus Vogt, an analyst for Money and Markets noted when the Economic Research Institute’s (ECRI) Weekly Indicator crossed a point that almost guarantees a recession.

On July 14 the index’s growth rate was -8.3%. In the week ending July 30 the index declined even further to -10.3% growth rates. The year over year percentage of growth crossed the zero mark in May, and has not seen positive growth since.

The ECRI Weekly Indicator has NEVER fallen this low and avoided recession.

Issues that signal the likelihood of recession, according to Vogt include:

1. The end of the recent recession was bought with heavy reliance on government stimulus which is now over 80% spent.

2. Despite heavy government spending and debt the rebound is one of the weakest recession rebounds ever.

3. Credit is still tight.

4. Unemployment is still at astronomical levels and is deteriorating again

 

High-Yield Bonds Hit Record...

Junk bonds closed out a record-setting August and look poised to resume their bull run in September, despite—and because of—persistently weak returns and outlooks for other asset classes.

August saw $23.0 billion in high-yield bond issuance, according to data provider Dealogic, the 7th-largest monthly volume on record. The performance was remarkable because August has historically been a relatively quiet month, and because no junk bonds priced during August's final 10 days.

After holding firm in July and early August, corporate bonds faded late in the month, losing some value in thin secondary market trade. A market respite is normal during peak late-summer vacation season, but this one also coincided with the worst August for equity markets since 2001.

Junk bonds, which often move in tandem with stocks, now are tasked with regaining their momentum in September—historically the worst month of the year for equities—and October, the second worst.

Despite how far junk bonds have come—returning +57% in 2009 and +8.3% in 2010 to date, according to Merrill Lynch—investors still see the potential for further gains.

"Considering the continued improvement in corporate balance sheets and how much demand there's been for high yield, there's still a lot of value in the high yield market," said Gibson Smith, fixed-income portfolio manager at Janus Capital Group.

Fund managers such as Mr. Smith cite current average high-yield risk premiums of +6.9 percentage points above Treasurys, more than a full percentage point higher than historical norms, and say that could shrink further without getting out of line with default expectations, even while underlying Treasury rates bounce along near historic lows.

The economy keeps struggling, but fixed-income market participants point out that their asset class is less reliant on growth than equities in order to produce solid returns.

"The last several weeks there's been a lot of press given to the weak economic data and slowing growth numbers, and that's led to a downturn in equities," said Jim Merli, head of debt distribution and origination at Nomura Securities. "We're of the view that we are going to see relatively modest growth at a level which will be positive for the credit markets."

Vantage Point UPDATE: Intermediate-Term and Long-Term Trend Analysis

On Friday September 3rd the S&P 500 closed @ 1105, and that was...
  
   +2.2% ABOVE its 12-Month moving average which stood @ 1080.
   -0.8% BELOW its 40-Week moving average which stood @ 1113.
   +2.2% ABOVE its 10-Week moving average which stood @ 1081.


Therefore, the INTERMEDIATE-Term trend IS NEUTRAL and the LONG-Term trend is  NEUTRAL.

Why Market Risk May Be Higher Than You Think: Reason #5 of 5...

5. The jobs picture is much worse than they're telling you.

Forget the "official" unemployment rate of 9.5%. Alternative measures? Try this: Just 61% of the adult population, age 20 or over, has any kind of job right now. That's the lowest since the early 1980s—when many women stayed at home through choice, driving the numbers down. Among men today, it's 66.9%. And many of those still working right now can only find part-time work, so just 59% of men age 20 or over currently have a full-time job.

This is bullish?

Why Market Risk May Be Higher Than You Think: Reason #4 of 5...

4. People still owe way too much money.

Households, corporations, states, local governments and, of course, Uncle Sam. It's the debt, stupid.

According to the Federal Reserve, total U.S. debt—even excluding the financial sector—is basically twice what it was 10 years ago: $35 trillion compared to $18 trillion.

Households have barely made a dent in their debt burden; it's fallen a mere -3% from last year's all-time peak, leaving it 2 times the level of a decade ago.