Hill's Personal Finance

Coping With A Layoff

What can you do to help yourself?

You go to work and get the word … you’re being laid off. Maybe it’s no surprise. Maybe it comes as a shock. The question becomes: what now?

Basically, you have three quick to-dos: leaving work with as much money as possible, securing health insurance for the interim, and arranging unemployment benefits. Beyond these items, stay calm and stay in the hunt – or alternatively, work for yourself.

Negotiate your exit. While no law requires your employer to give you a severance package, some employers do provide them.¹ Severance package or not, you may very well receive two weeks pay and perhaps compensation for unused vacation or sick days.

Don’t be meek here. If you’ve been a key employee or simply a good employee, make the case for your company to extend your health coverage a little longer or give you a true severance package. They may see the merit if you have proven yours.

In tax terms, it may be better to receive your severance pay in the form of recurring checks rather than a lump sum. If you get a lump sum, it’s quite possible you could have too much withheld.

If you know you are getting laid off in the next few months, you can request to reduce the amount of withholding taxes on your last few paychecks to give yourself more take-home pay. And if it looks like you are going to receive a lump sum severance before December 31, think about deferring that payment until 2010 so you don’t have to include it on your 2009 tax return.

Keep yourself insured. If you can sign up as a spouse for the plan offered by your spouse’s employer, it makes sense to do it as soon as you can. If that doesn’t describe your situation, then the options are extending coverage through COBRA or keeping up the payments on private life or disability insurance that your company provided.

If you sign up for COBRA at the moment, the federal government will subsidize 65% of the cost for nine months as a result of the federal stimulus. In COBRA, you will have to pay the entire premium on your health insurance plus a 2% administrative fee.¹

Sign up for unemployment benefits. As few of us have bank accounts equal to six months or a year of salary, it is wise (not demeaning) to sign up for these benefits. You will want to do so ASAP, because it may take a few weeks for that first check to arrive. In some states, you can receive unemployment checks even if you have been given a severance package – although you may have to wait until the entirety of the severance is issued to you before jobless benefits can follow.¹

Remember that the federal government is pulling out all the stops right now. Take advantage of the federal economic stimulus effort, which is directing $500 million toward helping the jobless find jobs. New search assistance, education, and retraining programs are available. The government is also boosting unemployment payments a bit and elongating parameters of eligibility. Currently, the average weekly unemployment check in a America is about $300. Jobseekers can receive unemployment benefits for up to 46 weeks – up to 59 weeks in states where the unemployment rate tops 6% for more than three months in a row, which would be just about everywhere right now. Under the stimulus, weekly unemployment checks will increase by $20 – and the first $2,400 of unemployment payments will be tax-exempt.¹

Press flesh, not just keys. Despite the buzz surrounding job boards like Monster.com, Dice.com and CareerBuilder.com, an article this winter in the San Francisco Chronicle noted that only about 2-3% of new hires find their jobs through such resources. About 15% of new hires find work directly by applying at a company’s web site, and about 65% find new jobs through that old standby – networking.²

Older employees may actually cope with layoffs better. That’s what a collaborative study coming from the Federal Reserve Bank of Chicago and Columbia University has just concluded. It found that laid-off workers younger than 55 experience a much greater increase in “mortality hazards” than their older counterparts – stress and health risks, addictions, and negative personal behaviors. Perhaps this is because workers over 55 are somewhat less likely to deal with making ends meet and the pressures of raising a family; they may have already thought about (and planned for) a retirement transition and they have the options of Medicare and Social Security now or in the near future.³

Have you been given a gift? That’s one way to look at it: one door closes, another opens. If you have an entrepreneurial ambition, or just suspect that like many Americans you will one day have to be your own boss, then maybe now is the time to talk over your options with a potential mentor – a friend who owns a business or makes a living as an independent professional in your industry. If you are mature and want or need to keep working, you might even think about a life or career coach – someone who can help you see the full range of possibilities, including those that you may not have considered five or ten years ago.

Citations.

¹ smartmoney.com/personal-finance/employment/4-ways-to-survive-a-layoff/        [7/2/09]

² sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/12/20/BU2914Q1JE.DTL         [12/20/08]

³ usnews.com/blogs/the-inside-job/2009/07/01/the-correlation-between-health-employment-and-layoff-fears.html         [7/1/09]

Managed Futures & Savvy Investors

Why this alternative asset class is getting attention.

Why is there a buzz about managed futures? They offer the dual possibility of improving returns while reducing overall portfolio risk. When the stock market sputters, managed futures can offer a terrific hedge – as they did in 2008. While stocks slumped 37% that year, managed futures funds gained an average of 18.3% according to the Credit Suisse/Tremont Index.¹

Finding the positive in the negative. In a bad year for stocks, who wants a portfolio anchored in mutual funds or hedge funds? In contrast, a managed futures fund could perform relatively well in such a year, aided by negative correlation – the tendency for alternative asset classes to outperform a down market.

To take advantage of negative correlation, a managed futures fund may direct assets to assorted futures contracts, options on those contracts, currencies, and Treasury bonds and notes as alternatives to stocks. If certain commodities make a bull run, the fund may let you take advantage.

In any economy, investing in asset classes with low or no correlation to the stock market is a savvy move. When seasoned investors think of managed futures, they think “balance”, “diversification”, and “opportunity.” They see an absolute return strategy they would like to enact or know more about.

The mission: exploit market trends. Managed futures programs use computer models to try to determine near-term market movements (the “near term” may be anywhere from the next few market days to the next few months). The more price movement, the more opportunity for the fund.

It’s not just about exploiting the upside: a managed futures fund also seeks to capitalize on the downside. To do all this, the fund manager (the CTA, or commodity trading advisor) truly has to “run the show” and take discretionary control over the invested assets.

The Barclay CTA Index (which tracks representative performance of commodity trading advisors) has posted a 12.2% average annual gain since 1980. It has had only three losing years in that period.² From January 1980 to May 2003, the gap between the peak return and the worst return for managed futures was just -15.7%, compared to a -44.7% variance for the S&P 500 and a -75.0% variance for the Nasdaq.³

Strong regulation. Managed futures funds are closely monitored by the Commodity Futures Trading Commission (CFTC) – that’s a federal entity. Another layer of supervision exists: the private-sector National Futures Association patrols their behavior. Additionally, each CTA has to pass an FBI background check.²

A welcome level of transparency. Investors in managed futures programs often have online access to their accounts and can see each individual trade made by a CTA. They can usually also make redemptions whenever they wish. These funds only trade in liquid instruments – no REITs, no private equity funds or leveraged buyouts. All capital invested in managed futures funds is held in customer-segregated accounts – CFTC rules prohibit commingling of assets.⁴

As for fees and minimums … The minimums on these accounts vary widely. Annual fees can be high, as high as 6-8%. (Returns are reported after fees are deducted, sales charges excepted.)²

For serious investors only. Trading futures can involve considerable risks as well as considerable rewards, and you must recognize this if you direct part of your investable assets into a managed futures program. Futures markets tend to run in cycles, which is why many investors tend to hold their accounts for several quarters or longer. They understand this is not a short-term trading opportunity.

If you are seriously looking for a way to diversify your portfolio and improve its performance, then take a look at managed futures with your financial advisor. You may soon join the ranks of the savvy investors who are assigning slices of their portfolios to this alternative asset class.

 

 

Citations.

¹ securitiesindustry.com/issues/19_91/-23323-1.html     [3/30/09]

² online.wsj.com/article/SB124242429895325075.html    [5/16/09]

³ investopedia.com/articles/optioninvestor/05/070605.asp          [5/26/09]

⁴ transworldmanagedfutures.com/overviewofmanagedfutures.html             [6/22/09]

Health Care Reform

President Obama’s vision may be carried out – in part.

 

The U.S. is the only developed nation without a comprehensive national health care system. President Barack Obama aims to change all that with a massive reform bill to bring health insurance to 46 million Americans without it over the next 10 years.

Huge reform, huge questions. How much will this cost? Who will pay for it? Could the reform put private health insurers out of business? Will it work? These are just some of the questions swirling around the proposed legislation.

Huge compromises. The most controversial aspects of the bill may soon be watered down. Part of that has to do with cost; part of it has to do with appeasing the private sector. The Senate and House must reconcile different versions of the bill. In the House version, 95% of Americans would be eligible for health coverage; in the Senate version, 97% of Americans would qualify.^1,2

Possibly kaput: the government-sponsored option for health insurance. Could private health insurance companies hope to compete with the federal government? Private insurers railed against their proposed new competitor – and last week, Sen. Kent Conrad (D-ND), a Senate Finance Committee member, told Bloomberg News that talk was shifting away from that concept in the Senate and toward nonprofit cooperatives. The House version of the bill still includes the government-run plan.¹

Also possibly kaput: mandatory health insurance for employees. In the original conception, businesses would pay federal fines in the future if they refused to provide health coverage to workers. According to Sen. Conrad, the Senate version of the bill would ask businesses to shoulder a portion of the cost of Medicaid coverage received by their workers, or 100% of the Medicaid tab for certain workers poor enough to qualify for a tax credit that could help them buy health insurance.¹

If the bill passes, the amount of employer-provided health benefits exempt from income taxation might be limited. Sen. Max Baucus (D-MT), current chair of the Senate Finance Committee, has suggested a $15,000-$17,000 ceiling on that tax exclusion.¹

Definitely disliked: the proposals to fiddle with private Medicare plans. The Obama administration has set goals of ending overpayments to Medicare Advantage, which it claims would save the government $177 billion by 2019. In that same time frame, it also wants to use Medicare reimbursements to reduce preventable hospital readmissions – for a conceived $25 billion in additional savings.³ The Obama reforms would also give Medicaid members a bigger prescription drug discount, while reducing that discount for high-income Medicare members.⁴

In testimony before the House energy and commerce panel, Blue Cross and Blue Shield Association senior VP Alissa Fox contended that any cuts in Medicare funding “would cause millions of Medicare Advantage enrollees to lose their coverage and lead to significant reductions in benefits or increases in premiums for millions more.” In addition, Blue Cross, Blue Shield and America’s Health Plan recently presented a letter to Sen. Ted Kennedy (D-MA), referencing a Milliman study that found the average family of four pays $1,700 a year more than they should in health insurance premiums due to Medicare and Medicaid underpaying hospitals and physicians.^1,5

Obama claimed before the American Medical Association that his reforms “will actually extend the life of the Medicare Trust Fund by 7 years and reduce premiums for Medicare beneficiaries by roughly $43 billion over 10 years.”³

The proposed total costs: apparently almost $1 trillion. Sen. Baucus and Sen. Chuck Grassley (R-IA) worked in late June with the Senate Finance Committee to whittle down the House’s $1.6 trillion version of the bill to less than $1 trillion.²

Who pays for it? Tax increases and savings would fund the reforms. More specifically, the President has talked about cutting back the value of the itemized deductions available to the wealthiest American taxpayers. House Ways and Means subcommittee chair Rep. Richard Neal (D-MA) said other ideas a payroll tax and a value-added tax. The Senate seems to prefer the idea of taxing employee health benefits.⁶

More change likely to come. “We are still early in this process," Obama noted Thursday. “We have not drawn lines in the sand.” Expect those sands to shift further as legislators and lobbyists exert pressures on another of the President’s ambitious reforms in July.

Citations.

¹ bloomberg.com/apps/news?pid=20601103&sid=aki1sLcOe4GM         [6/26/09]

² cnn.com/2009/POLITICS/06/25/health.care.proposal/            [6/25/09]

³ usatoday.com/news/washington/2009-06-15-obama-speech-text_N.htm           [6/25/09]

⁴ forbes.com/2009/03/03/obama-health-plan-lifestyle-health_obama_health_budget.html                              [3/3/09]

⁵ usatoday.com/news/washington/2009-06-23-health-congress_N.htm                  [6/23/09]

⁵ washingtonpost.com/wp-dyn/content/article/2009/06/18/AR2009061804053.html                         [6/18/09]

Best & Worse Indices for the week ending July 2, 2009

The best performing indices for the week ending July 2, 2009 were:

• Bank of New York Indonesia ADR Index (5.09%)
• Bank of New York Argentina ADR Index  (4.70%)
• Bank of New York Portugal ADR Index (4.63%)

The worse performing indices were:

• Dow Jones Full Line Insurance Index (-16.30%)
• Dow Jones US Mobile Telecommunications Index (-11.43%)
• Dow Jones US Platinum & Precious Metals (-8.44%)

Indices in a buying position:

• Dow Jones Consumer Goods Index
• Dow Jones AIG Softs Index
• Dow Jones Asia/Pacific - Ex. Japan Industrials

Best & Worse Indices for the week ending 6/26/09

The best performing indices for the week ending June 26, 2009 were:

• Dow Jones CBN China Basic Materials Index (6.19%)
• Bank of New York Portugal ADR Index (5.69%)
• Dow Jones South Africa Titans 30 Index (5.65%)

The worse performing indices were:

• Dow Jones US Footwear Index (-8.75%)
• Dow Jones US Tire Index (-8.44%)
• Dow Jones Italy Utilities Index (-7.70%)

Indices in a buying position are:

• Dow Jones World Consumer Goods Index
• Dow Jones Islamic Market Consumer Goods Index
• Dow Jones US Travel & Tourism Index

Obama's Plan to Overhaul the Financial System

The President calls for more regulation – and a more powerful Federal Reserve.

 

Since September 2008, the federal government has committed $10.5 trillion to fixing the economy – bailing out Citigroup, Bank of America, AIG, Freddie Mac, Fannie Mae, Chrysler and General Motors in the process.¹ To try to prevent further economic nightmares, President Obama is proposing a “sweeping overhaul” of the U.S. financial system on a level unseen since the 1930s.

An answer to “an absence of oversight.” If enacted, Obama’s plan would hand more power to the Federal Reserve, the Treasury and the Federal Deposit Insurance Corporation, fuse two federal agencies into a single regulator of the nation’s largest banks, create a new agency to regulate consumer financial products, police hedge funds and private equity funds, and rein in the use of mortgage-backed securities.

The Fed’s role. Under the plan, the Federal Reserve would become the top watchdog of the U.S. financial system. It would regulate the banks, brokerages, insurers and hedge funds deemed too big to fail, see that they are keeping enough capital in reserve, and respond quickly in a crisis. The goal is to avoid another Bear Stearns or Lehman Bros. debacle, and the system-wide shock that could follow.²

The Treasury could get veto power. Treasury Secretary Timothy Geithner would chair a regulatory council to work side-by-side with the Fed as it monitors the biggest financial firms. This council could potentially veto emergency loans made by the Fed to financial companies.³

The FDIC could expand its reach. It would gain the ability to seize and unwind not only banks, but other kinds of financial firms.³

The OTS dies. If Obama has his way, the much-criticized Office of Thrift Supervision would merge with the Office of the Comptroller of the Currency. This revamp would create a new entity, a National Bank Supervisor to monitor all deposit-taking thrifts. Under current rules, some banks may essentially select their regulator.^2,3

The CFPA would be born. That’s the Consumer Financial Protection Agency. This new office would regulate credit cards, mortgages and other consumer-marketed financial products. If would set guidelines for banks and bank holding companies, and if they got out of line, it would punish them with penalties and fines.²

More scrutiny over hedge funds & private equity funds. Under the plan, all private equity and hedge funds would have to register with the Securities and Exchange Commission, and throw open their books when regulators demand.⁴

 

A tighter rein on securities and derivatives. Banks that package and sell mortgage-linked securities (and other debt-linked securities) would have to keep at least 5% of those securities on their books. In fact, all financial firms that originate a security would have to retain 5% of the “securitized exposure” and maintain an investment interest in that security even if it is resold. The idea here is to discourage the promotion of exotic home loans and other complex financial products that were half-understood by investors and borrowers.^3,4

 

Will all this change really take place? It will likely take several months for any version of the Obama proposal to become law. The plan notes that the Fed has “the most experience to regulate systemically significant institutions.” But some Capitol Hill opinion leaders are especially concerned about expanding the Fed’s powers. Even Sen. Chris Dodd (D-CT) is unconvinced. “Giving the Fed more responsibility at this point … is like a parent giving his son a bigger … faster car right after he crashed the family station wagon,” he noted, referencing the testimony of former Federal Reserve examiner Mark Williams.⁵

 

“You cannot convene a committee to put out a fire,” Treasury Secretary Tim Geithner noted June 18, defending the idea of the Fed as the “first responder” to any future financial crisis. But Sen. Richard Shelby (R-AL) pointed out that the Fed could end up regulating “insurance companies, hedge funds, asset managers, mutual funds, and a variety of other financial institutions that it has never supervised before.” Rep. Jeb Hensarling (R-TX), a vocal critic of last fall’s Wall Street bailout, says the plan “disappointed” him: “They essentially leave all the old regulatory infrastructure in place, and then they simply add on to it.” When it comes to regulation of the financial industry, however, many consumers and individual investors may feel the same as Sen. Dodd, who called for “focused and empowered, aggressive watchdogs rather than passive enablers of reckless practices.”⁵

 

Citations.

¹ money.cnn.com/news/storysupplement/economy/bailouttracker/ [6/15/09]

² bloomberg.com/apps/news?pid=20601103&sid=aJTI_GE0pf8Y          [6/17/09]

³ money.cnn.com/2009/06/17/news/economy/regulatory_reform/index.htm?postversion=2009061712&eref=rss_topstories  [6/17/09]

⁴ topics.nytimes.com/topics/reference/timestopics/subjects/c/credit_crisis/financial_regulatory_reform/index.html    [6/17/09]

⁵ features.csmonitor.com/politics/2009/06/19/congress-%E2%80%93-including-democrats-%E2%80%93-in-no-hurry-to-approve-obamas-regulatory-reform/               [6/19/09]

Roth IRA Conversions for 2010

A unique opportunity for IRA owners.

 

In 2010, anyone may convert a traditional IRA to a Roth IRA. No income limits will stand in the way of the conversion.¹ Should you do it? Here’s why it may (or may not) make sense for you to go Roth next year.

Why you might want to consider it. A Roth IRA permits tax-free growth and tax-free income distributions in retirement (assuming you are age 59½ or older and have held your Roth account for 5 years or longer). You can contribute to a Roth IRA after age 70½, without having to take mandatory withdrawals. While contributions to a Roth IRA aren’t tax-deductible, the younger you are, the more attractive a Roth IRA may seem.²

However, older investors have reason to go Roth as well – especially if they don’t really need to withdraw IRA assets. Under present tax law, converting an untapped traditional IRA to a Roth will shrink the size of your taxable estate, and careful estate planning could foster decades of tax-free growth for those IRA assets.³

Currently, if you name your spouse as the beneficiary of your Roth IRA, your spouse can treat the inherited IRA as his or her own after you die and forego withdrawals. So those Roth IRA assets can keep compounding untaxed across the rest of your spouse’s life.

If your spouse then names a son or daughter as a beneficiary, that heir has the choice to make minimum withdrawals according to his or her life expectancy, all while the assets continue to compound tax-free. Currently, withdrawals from an inherited Roth IRA are not subject to income tax.³

Why you may want to think twice about it. The IRS regards a traditional IRA-to-Roth IRA conversion as a distribution from a traditional IRA – a taxable event.⁴ You’ll need to pay taxes on the entire amount of the conversion. Do you have the money to do that?

Keep in mind, however: with the market down, many IRA values are lower than they have been for years. That translates to paying less tax on gains. It is also worth remembering that tax rates could increase in the years ahead – another reason why now may be a good time to convert. (You could simply do a partial Roth IRA conversion if converting the full amount would send you into a higher tax bracket.)⁴

You may be tempted to use the current IRA assets to pay the conversion tax, but should you? If you’re younger than 59½, you’re looking at a 10% penalty on the amount you withdraw, and you’ll lose the chance for tax-free compounding of those assets within the Roth IRA.⁵

Why you might want to fund a Roth IRA this year. In 2009, any withdrawals from a traditional IRA can be used to fund a Roth IRA.⁶ Interesting. Why is this so?

In years past, mandatory withdrawals from a traditional IRA typically couldn’t be deposited into a Roth IRA. But the federal government has suspended mandatory IRA withdrawals for 2009.⁷ Any IRA withdrawals made in 2009 are thereby elective withdrawals. So, if your adjusted gross income (AGI) is $100,000 or less, you have an option to fund a Roth IRA with a withdrawal from a traditional IRA – at least through the end of 2009.⁶

In 2009, you can fund a Roth IRA with after-tax contributions to a 401(k), 403(b) or 457 retirement savings plan. This year, you can take those contributions and convert them to a Roth IRA tax-free, provided your AGI is $100,000 or less. More good news: there is no limit to the conversion amount.¹

A potential tax break for those who convert in 2010. If you do a Roth conversion during 2010, you can choose to divide the taxes on the conversion between your 2011 and 2012 federal returns.⁸

Be sure to consult your tax advisor before you convert. This is a very good idea before you arrange any rollover, trustee-to-trustee transfer, or same-trustee transfer of your IRA assets. In any year, you should fully understand the potential tax impact of a Roth conversion on your finances and your estate. Also, remember that while the income limit on Roth IRA conversions will go away in 2010, the income limits on Roth IRA contributions still apply next year and for the foreseeable future.⁸

 

Citations.

¹ kiplinger.com/magazine/archives/2009/01/sweet-deal-on-roth-ira-conversion.html          [1/09]

² thestreet.com/print/story/10505164.html    [5/26/09]

³ smartmoney.com/personal-finance/retirement/estate-planning-with-a-roth-ira-7966/      [1/22/09]

⁴ smartmoney.com/personal-finance/retirement/roth-iras-you-wanted-to-know-7967/       [1/9/08]

⁵ smartmoney.com/personal-finance/retirement/roth-iras-to-convert-or-not-7965/              [1/10/08]

⁶ online.wsj.com/article/SB123033785000236433.html            [12/26/08]

⁷ usnews.com/blogs/planning-to-retire/2008/12/23/president-bush-signs-pension-relief-bill.html       [12/23/08]

⁸ kiplinger.com/columns/ask/archive/2009/q0601.htm              [6/1/09]

 

Best & Worse Indices for the Week Ending June 19, 2009

The best performing indices were:

• Dow Jones CBN China Financial Services (8.76%)
• Dow Jones US Recreational Services Index (7.21%)
• Dow Jones CBN China Food & Beverage Index (6.77%)

The worse performing indices were:

• Dow Jones Wilshire Hotels (-16.24%)
• Dow Jones US Platinum & Precious Metals (-14.60%)
• Dow Jones Forestry & Paper Products (-12.81%)

Indices in a buying position:

• Dow Jones US Insurance Brokers Index
• Dow Jones Stoxx Global 1800 - ex. Europe Utilities Index
• Dow Jones Poland Index

Capital Investment Council June 2009 Outlook

by Hal Eddins, Capital Investment Council

A few months back, a client asked us how we would “know” when the equity markets had gotten “better”. Our reply was that at some point, people would be more afraid to be out of the stock market as opposed to being afraid to be in it.  The public’s outlook on stocks has improved since the market’s rally off of the March 6 lows.  Over that time, volatility and fear levels have dropped from a reading of 55 for the VXO on March 6^th to a recent level of 26.

In early March, the Dow was barely 6500.  Just three months later and we see the Dow at 8800.  It’s ironic that some now feel that the “all clear” has been sounded and it’s time to invest heavily.  I won’t argue that stocks can still be considered inexpensive, especially compared with their 2007 levels.  However, the major averages have still rallied 33% in twelve weeks, and we may be due for a pause.  Note the use of the qualifier “may”.  

             I feel the market could have the potential for a 7% to 9% correction over the next few months, but I also see the potential for the Dow to reach 11,600 in the next few years.  The question is not so much the destination but rather the route we take to get there.  In my opinion, a near term key level for the Dow is 9050.  A close over that level could likely set into motion the beginnings of the longer term rally I spoke of above.  Again, the sticking point may be the timing.   Markets have run into resistance levels at a time when they are also a bit extended and overbought. 

The best markets have a tendency to get overbought and stay overbought.  For an example, think back to the big run off of the bottom in March 2003 as the US invaded Iraq.  By May of that year, the S&P had reached an overbought status; however, the market defied the odds, stayed strong through the remainder of the year, and finished with a 26% gain.

No matter the outcome, markets have enjoyed a solid three months.  The market could be signaling a recovery in the overall economy over the next 12 months.  At Counsel, we are monitoring our favorite companies.  We are circling potential targets and the prices we would be willing to pay for them.

I try not to delve too deeply into politics, but the large amount of spending of “our” money by the current administration makes me take a second look at the deficit.  To gain some perspective, let’s look back to the end of the Reagan Era.  In 1988, our national debt was 41% of gross domestic product.  Fast forward 20 years to George W. Bush’s last year in office and we see that debt is still 41% of GDP.  So far so good, but the government’s current rate of spending shows the debt to GDP ratio to potentially soar to 80% by the end of President Obama’s time in office.

Some markets are already displaying signs of worry over excessive US government spending.  Perhaps the most visible sign is one that we see and use everyday: the price of a gasoline.  Gas has rallied sharply over the last three months.  While the world economies have seemed to strengthen, I feel it is unlikely that they have strengthened enough to support oil at $70 a barrel.  Supply and demand don’t seem to be doing a good job of forecasting the current action in commodities.  Some market participants appear to be acting in a manner that runs counter to common sense.

  One of those market participants will likely prove to be China.  In addition to their large consumption of oil, China has  developed a taste for gold as well.  In fact, China has doubled their gold holdings over the last six years.  That may well account for the bulk of the gold’s rise from $450 an ounce in 2005 to our current level of $964 China is attempting to hedge their large exposure to the U.S. dollar; as the dollar drops, gold tends to rise.  How does this story end?  I’m asked by many if gold is a good investment.  The answer is not simple.  Gold has doubled in the past four years, and gold tends to shine when other asset classes are floundering.  There are hyper-inflation fears out there.  As the general economy continues to recover, we may actually see gold drop as much of the move has already been discounted. 

             What about that old maxim “sell in May and go away”?  Should we be practicing that this year?  Maybe not.  Historically, the best seasonal periods for stocks tend to be the six months from November to April.  The problem currently is that the “other” six month period (May through October) has proven to come into its own during bear markets.

 Since 1929, there have been 14 bear markets.  In 12 of those 14 markets, the S&P 500 has had an average rally of 12% during the May through October period.  Some fund managers were caught short (literally) by the market’s sharp rise in the last three months.  These managers have cash on hand and are eager to invest it less they miss out again.  That could potentially make our market pullbacks shallow during the summer and early fall.

 

Disclosures:

Past performance is not indicative of future results.  This material is not financial advice or an offer to sell any product.  The actual characteristics with respect to any particular client account will vary based on a number of factors including but not limited to: (i) the size of the account; (ii) investment restrictions applicable to the account, if any; and (iii) market exigencies at the time of investment. Capital Investment Counsel reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. The information provided in this report should not be considered a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in an account's portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account's entire portfolio and in the aggregate may represent only a small percentage of an account's portfolio holdings.  It should not be assumed that any of the securities transactions, holdings or sectors discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein. All recommendations within preceding 12 months or applicable period are available upon request.

Capital Investment Counsel is a registered investment advisor. More information about the about the advisor including its investment strategies and objectives can be obtained by visiting www.capital-invest.com.

Capital Adviser's June 2009 Outlook

This month our fearless money manager speaks on our need for the best and brightest to help solve the current economic situation.

read more:

Download June 2009

 

This piece is for personal consumption only. Any redistribution without the expressed written consent of Capital Adviser's is strictly prohibited.

Best & Worse Indices for the week ending 6/12/09

The best performing indices for the week ending June 12, 2009 were:

• Bank of New York Singapore ADR Index (9.58%)
• Dow Jones Aluminum Index (9.16%)
• Bank of New York Phillipines ADR Index (9.09%)

The worse performing indices were:

• Dow Jones US Full Line Insurance Index (-8.78%)
• Internet Infrastructure Index (-8.23%)
• Dow Jones US Airline Index (-7.67%)

Indices in a buying position

• Dow Jones STOXX Global 1800 ex. Europe Media Index
• Dow Jones CBN China retail Index
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When Your Mortgage is Upside Down

You now have more refi options to explore.

 

Are you underwater? Upside down? Those terms mean the same thing: you owe more on your mortgage than your home is worth. If that is your predicament, what are some of your refinancing options?

You could turn to Fannie and Freddie. Fannie Mae and Freddie Mac have revamped their underwriting engines. If your loan is held by Fannie or Freddie (or the Federal Housing Administration), it may be possible to refinance to up to 105% of your home’s value, get a lower interest rate or reduce monthly payments, and move from an ARM to a fixed-rate loan. Owner-occupants of single-family homes, condos, and rental properties of up to four units are all potentially eligible for this.¹

Am I eligible for the Fannie or Freddie programs? To find out, go to this web page: makinghomeaffordable.gov/refinance_eligibility.html. To see if your mortgage servicer is participating, visit makinghomeaffordable.gov/contact_servicer.html. (It’s worth remembering that your lender might bring in underwriting "overlays" more rigorous than the Fannie or Freddie guidelines.)

Another possibility: the FHA programs. Maybe FHA Secure and Hope for Homeowners (H4H) can help. FHA Secure lets borrowers with non-FHA home loans to refi current or delinquent mortgages into an FHA mortgage. H4H looks long-range, assisting borrowers to refinance current mortgages into a new 30- or 40-year home loan with more reasonable monthly payments. You don’t have to be behind on your mortgage to get help from these programs. If you are 90 days or more delinquent, the FHA offers a Streamlined Modification Program to help you in that case.²

A deadline looms. The Making Home Affordable program is scheduled to end on June 10, 2010 – but there is the possibility that application deadline could be extended.¹

Another option: try to renegotiate on your own. Many homeowners have tried this, and for many, the result has been “no” or an extended run-around between this department and that department of a mortgage lender. Mortgage redos are more commonly arranged via the Fannie, Freddie and FHA programs.³

Mortgage industry pros suggest that if you have to try and do it on your own, you should present your case for renegotiating as politely and professionally as you can, and keep talking to the same human being (the same contact person) consistently and persistently. When you get a Broker's Price Opinion to back up your argument for a refi, get multiple BPOs from brokers not involved in your transaction.

Get as much knowledge as you can. Yes, you could simply suck it up and continue to make the payments, or rent all or part of your home out and become a landlord. Your neighbor might have settled for a short sale or a deed in lieu of foreclosure, or walked away. If you are entertaining any of those options, why not check out the new refinancing possibilities mentioned above? There may be options available to you now that weren’t there several months ago. Talk to us 800-572-6024 or email at shill@capital-invest.com

 

Citations.

¹ bankrate.com/finance/mortgages/do-you-qualify-for-refi-plan-1.aspx     [5/7/09]

² mainstreet.com/article/moneyinvesting/real-estate/dont-walk-away-underwater-mortgage                [12/16/08]

³ cbs4denver.com/recession/refinancing.payment.mortgage.2.1015314.html            [5/20/09]