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

On Friday June 25th the S&P 500 closed @ 1077, and that was...
  
   -0.7% BELOW its 12-Month moving average which stood @ 1084.
   -3.0% BELOW its 40-Week moving average which stood @ 1110.
   -3.7% BELOW its 10-Week moving average which stood @ 1118.


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

An Intractable Fiscal Problem - by David Rosenberg (The Massive, Snowballing Debt Bulge)

An Intractable Fiscal Problem

by David Rosenberg

Even with low interest rates, the massive debt bulge has become so large that interest charges on the public debt are within 3 years of absorbing over 30% of the revenue base, which then makes it that much tougher to reverse course. 

In other words, the fiscal problem is becoming increasingly structural and we are already at the stage where even if the economy were running flat out at full employment, the deficit would still be over 7% relative to GDP. At some point, this will begin to impede economic progress.

When you add up the entitlement programs, you know — the ones you can’t cut back on, and interest payments on the grotesque debt load, we have 65% of total government spending that can’t be touched. 

In the next decade, under status quo policies, this “mandatory” share of the spending pie goes to 72%. Tack on the defense budget, my friends, and we are up to 88% of federal government outlays that are next to impossible to reverse. 

So tell me — we are going to reverse this seemingly intractable run up in the public debt to GDP ratio by slicing 12% of the spending pie that is discretionary? It won’t be enough, even if all that 12% remainder ‘pork and barrel’ spending were eliminated altogether.

So guess what the future holds … higher taxes: very likely a national sales tax. It works in Europe. It has also worked in Canada. Japan is planning to double its national sales tax from 5% to deal with its fiscal challenge. 

It stands to reason that a federal consumption tax will have to be part and parcel of any U.S. strategy to solve what is increasingly becoming an intractable budgetary deficit.

Indeed, while many a Keynesian will point to the need for a government-led demand boost, the problem is that when the deficits and debts become structural, what is known as the “Ricardian Equivalence” sets in and this means that the fiscal stimulus does more harm than good for the economy.

Unfortunately, while the bailouts saved insolvent banks (oh, we’re not Japan at all) the stimulus from this Administration involved a series of short-term quick fixes that provided no long-term multiplier impact. At least FDR put people to work — not merely to pay them to be idle. At least Eisenhower built highways -- with a long-run payback.

Read the entire article here...

An Intractable Fiscal Problem - by David Rosenberg

The Value Added Tax (VAT)...Is It Coming to America?

The "Value Added Tax."  

In its simplest form, a VAT is a tax on the creation of value. At each stage of producing a product, from raw materials to fabrication, to assembly, to packing and shipping, each company is responsible for paying a tax on the value it adds.

As the VAT is always included in the retail prices, and consumers never have to pay more at the cash register, the tax increase would be hidden. In fact, consumers would no longer see a sales tax at the cash register. While that stealth will make a VAT seem "painless" to many, it is also what makes it so dangerous.

Most European countries introduced the VAT at rates around 10% and quickly raised it to the upper teens. Today most European countries have rates around 20% (the only notable exception is Luxembourg at 15%).
 

Country	Year Introduced	Initial Rate	Current Rate
Denmark	1967	10%	25%
Germany	1968	10%	19%
Spain	1986	12%	18%
France	1954	18%	20%
Ireland	1972	16%	21%
Italy	1973	12%	20%
Luxemburg	1970	8%	15%
Netherlands	1969	12%	19%
Sweden	1969	11%	25%
UK	1973	10%	18%

VAT rates have commonly been increased with hardly a whisper from the media. And they don't always go up in incremental single percentage points. Many European countries have raised rates 3% or 4% in one single year. In the case of Estonia, in 1993, rates increased by +8%.

Brand-Name Drug Costs Burden Seniors

• +9.7% - Average annual increase in brand name drug manufacturer prices between April 2009 and March 2010.
  
  
• $6,580 – Average annual cost to someone taking 3 brand name drugs in the same time period.
  
  
• +10% - Average annual manufacturer price increase for brand name drugs with no generic equivalent.
  
  
• 82 – Number of drugs out of 219 in the brand name market that are off-patent.
  
  
• 88% - Percentage of brand name drugs that had a price increase between April 2009 and March 2010.
  
  
• $2,760 – Increase in cost of therapy for someone taking one medication to treat a chronic condition in 2010.
  
  
• -9.7% - Average decrease in price in generic prescriptions used by Medicare beneficiaries.
  

Source: AARP

1 of 5 Senior Americans Has Been Swindled

More than 7.3 million older Americans — 1 out of 5 citizens over the age of 65 — already have been victimized by a financial swindle, according to a new survey.

The survey, by the nonprofit Investor Protection Trust and conducted by Infogroup/ORC, was released Tuesday to mark World Elder Abuse Awareness Day.

The survey of 2,022 American adults — including 706 adult children with at least one parent aged 65 or older and 590 adults who are aged 65 or older and have children — found that half of older Americans exhibit one or more of the warning signs of current financial victimization.

For example, more than one out of three seniors (37%) are currently being pitched by “people [who] are calling me or mailing me asking for money, lotteries, and other schemes.” 

Almost half of those aged 65 or over (44%) got at least 2 out of 4 questions wrong about basic investment knowledge. About 1 out of 3 older Americans (31%) said they are vulnerable in one or more ways to potential financial victimization.

“We now know that a shockingly large number of older Americans are already victims of financial swindles and millions more are in danger of being exploited in such a fashion,” said IPT president and CEO Don Blandin in a statement.

71% of those over 65 handle their finances themselves, while 24% rely on relatives for at least some help and 3% rely on non-family members, according to their children.

89% of children are “very confident” or “somewhat confident” of their parents' current ability to handle personal finances. Only 11% of them said they are “not very confident” or “not confident” at all. 

Chart of the Day - Gold Bull Market Persists

Chart & Analysis Courtesy of Chart of The Day

Today's chart provides some long-term perspective in regards to the gold market.

 

As today's chart illustrates, gold has been in a strong bull market since 2001.

The pace of that upward trend increased beginning in mid-2005. Following the financial crisis of late 2008, gold surged once again.

While gold made another record high in June, it still trades significantly below resistance (dark red line) of its upward sloping trend channel.

In the end, with Gold currently trading near $1,250 per ounce, Gold has more than quadrupled in price during its nine-year bull market.

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

On Friday June 18th the S&P 500 closed @ 1118, and that was...
  
   +2.5% ABOVE its 12-Month moving average which stood @ 1090.
   +0.7% ABOVE its 40-Week moving average which stood @ 1110.
   -1.0% BELOW its 10-Week moving average which stood @ 1129.


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

10 Estate Planning Success Tips

While our representatives continue to talk about the repeal of estate taxes, there is still a federal estate tax in effect. The threshold for imposing this tax was raised to $1 million per person for people dying in 2003, and the estate tax is scheduled to disappear for only one year - 2010. In 2011, the estate tax is scheduled to reappear, so continue to take the following recommended actions in protecting your assets!

1. Keep your will or trust up to date. Many state laws invalidate any will made prior to a major life event, such as marriage, divorce, moving to a new state, or the birth or adoption of a child. Keep your legal residence address, marriage status, beneficiaries list, etc. updated.
   
   
2. Keep track of beneficiaries for all of your IRAs, qualified plans and insurance policies. Do you know who your beneficiaries are for these assets? If you don’t, they may be going to someone you no longer wish to receive them. You can easily change the name of the person who will receive their benefits by filling out a form.
   
   
3. Maximize the liquidity of your estate. Liquidity is defined as the ability to quickly turn assets into cash. Without sufficient cash to pay taxes, funeral, and other expenses, your family may have to sell illiquid assets - such as a family business or other property - at an inopportune time. Avoid putting your family in the position of selling off the estate in a hurry by providing for sufficient liquidity.
   
   
4. Maintain an Appropriate Mix of Investment Risk. It’s detrimental to have too much money allocated to risk in stocks or mutual funds, as a percentage of total cash assets and age. Over time, more risky investments should be moved into safe and stable investments such as Annuities.
   
   
5. Name a dependable executor and/or trustee. Executors are called upon to collect assets, pay obligations, and distribute your assets. Your trustee must enforce all the provisions of any trusts you created. Choose people who have the knowledge, integrity and stamina in the face of pressure from family members to fulfill these obligations.
   
   
6. Explore the ramifications of joint asset ownership with your spouse. This ties in with the estate tax issues in item 1: if your joint net worth exceeds $1 million, you might want to consider owning some assets separately as part of your overall estate plan.
   
   
7. If you have minor children, consider naming one guardian for your minor children and a separate guardian for the property you've left to support them. The best guardian for your children may not be the most effective money manager you know. Just be aware that the person you've chosen as guardian of your children, can be a different person than the guardian that manages your children’s property.
   
   
8. Estate planning for your spouse or other sole survivor scenarios. If your net worth is high enough, your estate may be subject to taxes. A simple estate plan can save some individuals hundreds of thousands of dollars in estate taxes.
   
   
9. Leaving the right assets to the right people. If your child was a "special needs" child, you would not leave him money to handle on his own. Make sure your teenager or other dependents, receive much needed management along with the cash.
   
   
10. Plan, Plan, Plan. The future is in your control. Decisions you make about how you structure your estate will affect your family. Until you’ve taken action, you don’t have an estate plan, but don’t be overwhelmed. Nothing is irreversible, and you can take small steps to put your plan into place. Planning is most important for business owners, who must plan for the succession and/or buy-out of their business. 

3 Ways To Save On Long-Term Care Insurance

The American Association for Long-Term Care Insurance provides the following tips to help consumers get the best rates for Long-Term Care Insurance (LTCI).

1.  Leverage good health. Insurers will require that you meet certain health qualifications to obtain coverage. Discounts are provided to those in good health and 62% of applicants between ages 40-49 qualified in 2009. The percentage drops to 46% for ages 50-59 and only 38% for ages 60-69.

Once obtained, the preferred health discount is not lost when your health changes.

 2.  Right-size coverage. Some long-term care insurance is always better than none. Factor in other sources of income such as Social Security, pension and 401(k) plans that can pay costs and allow you to add money-saving options such as a 90-day deductible (Elimination Period) or consider a limited-pay plan with a Shared Care option that allows two spouses to share a common benefit pool.

 3.  Compare coverage. Each insurer establishes its own rates, health standards and available discounts. As a result, virtually equal protection from two highly-rated insurers can vary by between 30% and 80%. Ask your insurance professional if they have access to policies from just one or from multiple insurers.

Are We 10 years Into A 16-Year Secular Bear Market?

Last week, the Dow Jones Industrial Average rose above 10000—again.

Since March 16, 1999, when it first touched 10000 in intraday trading, the Dow has bounced over that threshold and back 63 times.

On Friday, the index closed 220 points below where it stood exactly 11 years ago.

This isn't the first time stocks have been stuck on a seemingly endless pogo-stick ride.

On January 18, 1966, the Dow hit an intraday high of 1000.50. It broke through the 4-digit barrier 3 more times that January and February, then faded. The Dow cracked 1000 again in 1972 and 1976, then fell back both times.

Not until December 1982 did the Dow finally hurdle above 1000 and stay there.

Are we 10 years into a similar 16-year secular bear market?

Jason Zwieg, Wall Street Journal
 
The Intelligent Investor: 11 Years and Counting - WSJ.com

Recession Time Frames Over The Long Haul

Today's chart shows all the recessions since 1871 as defined by the National Bureau of Economic Research (NBER).

During those nearly 14 decades, the United States has been in recession 30% of the time.

Fortunately the economic conditions have gradually improved over this time frame:

          1871-1900: Recessions = 48% of the time

          1900-1950: Recessions = 37% of the time

          1950-2010: Recessions = 13% of the time

The latest recession could be the longest since the Great Depression.

Status Of This Market: Bull or Bear?

Ned Davis Research reports that the average bull market since 1900 has produced gains of +81.2% and that the S&P had popped up +79.93% through April 23. Therefore, this bullish phase is long in the tooth. 

According to Bespoke Investment Group, there have been 58 corrections of -10% or more in the Standard & Poor's 500 since 1927.

In 25 cases (43%), corrections that reached the -10% mark went on to become a full-fledged bear market, while 57% stopped short of turning truly ugly.

However, Bespoke also warns us that in the 32 instances when the market has dropped as much as this one (as of June 7th the S&P had pulled back -13.7% on a closing basis and -14.68% on an intraday basis) the corrections have a distinct tendency toward continuing.

According to Bespoke’s research, only 7 corrections of this magnitude stopped short of the bear market definition (generally defined as a decline of -20% or more). 

And in the 25 instances in which the decline reached the -20% mark, the average decline of the bear move was -35.5% from top to bottom.

In light of the above, it's prudent to err on the side of capital preservation until the climate improves.

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

On Friday June 11th the S&P 500 closed @ 1092, and that was...
  
   +0.5% ABOVE its 12-Month moving average which stood @ 1086.
   -1.5% BELOW its 40-Week moving average which stood @ 1108.
   -4.0% BELOW its 10-Week moving average which stood @ 1137.


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

Become Your Own Banker and Bank On Yourself! - Part 2

Become Your Own Banker and Bank On Yourself! - Part 1

U.S. Foreclosures Fall, Bank Repossessions (REOs) Hit Record High

The national foreclosure rate continued to fall in May from the previous month, according to a new report released Thursday.

The national foreclosure rate fell by 3.27% in May from the previous month.

However, bank repossessions reached a record high during the same month, a sign that lenders are focusing on their backlog of foreclosure inventory before tackling new distressed loans, according to foreclosure database website RealtyTrac, which released the report.

“What it looks like is that the lenders are focusing on processing the delinquent loans they already have rather than initiating new foreclosures,” said Rick Sharga, senior vice president of RealtyTrac.

Foreclosure activity dropped 3.27% in May from the previous month, and was up +0.45% from May 2009. In all, 322,920 properties generated a foreclosure notice.

1 in every 400 homes in America received a foreclosure notice in May. Bank repossessions (known as real estate owned properties or REOs) hit a record high in May for the second month in a row.

All 50 states reported a year-over-year increases in REOs, according to RealtyTrac. It is projected that over 3 million homes will receive a foreclosure notice over the course of this year, said Sharga.

Is College Tuition The Next Bubble To Burst?

Tuition has been increasing at double triple the rate of inflation.

"On average, college tuition has increased at around 8% per year, which means the cost of college doubles every nine years. Because colleges know that students will simply borrow more money to cover tuition increases, colleges have been relying on steady tuition hikes to solve all of their money problems. If this continues a college degree will soon cost as much as a house."

Read more here.

How Much Does Long-Term Care Insurance Cost Seniors?

20.8% - Percentage of Long-Term Care Insurance (LTCI) policyholders between 61 and 75 who pay less than $1,499 per year for coverage.

73.6% - Percentage of LTCI policyholders between 61 and 75 who pay $1,500 or more for coverage.

78.5% - Percentage of LTCI policyholders over 76 who pay $1,500 or more for coverage.

22.1% - Percentage of LTCI policyholders over 76 who pay less than $1,499 per year for coverage.

Source: American Association for Long-Term Care Insurance

S&P 500's Trading Range Persists

Friday's discouraging employment report knocked the market down over -3% for the day and, therefore, the S&P 500's trading range between 1106 and 1041 remains intact.

Historically, after a strong rally (March 2009 to May 2010) and a sharp "Flash Crash" tumble, stocks move sideways for 3 to 6 months before the trading range is resolved, either to the upside or the downside.

See our May 2nd post for my previous analysis of this chart...
http://protect-your-assets.blogspot.com/2010/06/s-500-carving-out-trading-range.html

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

On Friday June 4th the S&P 500 closed @ 1065, and that was...
  
   -1.6% BELOW its 12-Month moving average which stood @ 1082.
   -3.7% BELOW its 40-Week moving average which stood @ 1106.
   -7.1% BELOW its 10-Week moving average which stood @ 1146.


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

Chart Of The Day: Employment Remains Below Long-Term Trend

Chart & Analysis Courtesy of ChartOfTheDay.com

On Friday, June 4, the Labor Department reported that nonfarm payrolls increased by 431,000 in May.

It is worth noting that a large majority of last month's gain in payrolls was due to the hiring of temporary workers for the 2010 census.

Today's chart provides some perspective on the U.S. job market. Note how the number of jobs steadily increased from 1961 to 2001 (top chart).

During the last economic recovery, however, job growth was unable to get back up to its long-term trend (first time since 1961).

More recently, nonfarm payrolls have pulled away from its 40-year trend (1961-2001) by a record percentage (bottom chart).

In fact, the number of U.S. jobs is currently at level first reached in early 2000.

Commercial Defaults Hit Record for Both Investors and Banks

Pressures continue to drive up commercial mortgage defaults.

The economic downturn has choked off demand for retail and office space, with vacancy rates rising and prospects of new occupants limited by the duress of today’s job market.

At the same time, commercial real estate (CRE) values have dropped more than -40% in some markets, pushing a growing number of property owners severely underwater.

According to new data from Real Capital Analytics, the default rate for commercial real estate loans owned by the nation’s FDIC-insured banks increased from 3.83% in the 4th quarter of 2009 to 4.17% in the 1st quarter of 2010.

Real Capital says this is the highest default rate reported since 1992, the first year for which data is available, when it was 4.55%.

Year-over-year, the default rate is up by 192 basis points. By contrast, at its cyclical low in the first half of 2006, the commercial mortgage default rate was only 0.58%.

As of the 1st quarter of this year, $45.5 billion of bank-held commercial mortgages were in default, according to Real Capital’s tally.

A separate study released this week by Trepp LLC shows that the share of past due loans held by investors in commercial mortgage-backed securities (CMBS), including those already in foreclosure and bank repossessed, jumped 40 basis points in May to 8.42% – the highest in the history of the CMBS industry.

To put the delinquent CMBS universe into perspective, Trepp says that just six months ago, the delinquency rate was 5.65%. One year ago, it was 2.77%.

S&P 500 Carving Out A Trading Range

Chart Courtesy of StockCharts.com

This chart shows the performance of the S&P 500 during the 30 days.

The panic "Flash Crash" low occurred on Thursday, May 6, when the S&P printed a low at 1065.79.

A rally ensued and the market retested the low, trading at a correction low of 1040.78 on May 25, but did close up for the day at 1074.03, which was higher than the May 6 "Flash Crash" low.

Since then the market has moved sideways in a volatile 6% range between 1040 and 1104.

Today's +2.6% rally to 1098 puts us at the upper edge of the range, only 6 points below 1104.

A decisive close below or above this range will decide whether the test of the recent lows has been successful or not.

 

Guaranteed Income Benefits Very Popular In Variable Annuities

87% - Percentage of consumers who elected guaranteed living benefits in the first quarter of 2010.

$440 billion – Variable annuity assets with guaranteed living benefits at the end of the first quarter, up +7% from year-end 2009.

75% - Amount of new premium sold with a guaranteed lifetime withdrawal benefit rider.

$1.433 trillion – Total variable annuity assets at the end of the 1st quarter of 2010.

16% - Percentage of consumers who elected annuities with guaranteed minimum income benefit riders.

4% - Percentage of consumers who elected annuities with guaranteed minimum accumulation benefit riders.

$17.2 billion – New deferred variable annuity premium with guaranteed living benefits in the 1st quarter of 2010.

90% - Guaranteed lifetime withdrawal benefit election rate among independent advisors, as well as wirehouse brokers.