Hill's Personal Finance

Market Watch

Market statistics from the week ending September 26, 2008 from Bob Carey at First Trust Portfolios, LP

Download week_of_september_29th.pdf

Market Outlook from Brian Wesbury

Brian Wesbury is one of my favorite economists because he is always looking for the opportunity in any economic event. His weekly outlook gives some silver lining to our current economic situation.

Download psychology_and_the_economy.pdf

US Automakers get a Loan

This may be good news for auto stocks, and boost the auto industry.

 Congress earmarks $25 billion for the auto industry. While everyone was watching Capitol Hill for news about the Wall Street bailout, Congress quietly approved the funding of a loan program to help U.S. automakers and parts suppliers. Starting in 2009 or 2010, eligible auto industry firms will be able to take out 25-year, low-interest government loans to help upgrade their factories to build more fuel-efficient vehicles.1

 Money to help Detroit compete. For months, U.S. automakers have struggled and watched the public shift away from SUVs and trucks toward small, fuel-efficient cars. This loan program may give them a chance to rework their model lineups, and eventually change consumer perception.

The automakers must meet some strict criteria to qualify for these loans. The money is intended to be used to develop cars, trucks, and SUVs that will get 25% better fuel economy than their direct competitors. The loan program guidelines also include a preference to direct the money toward the modernization of auto manufacturing plants at least 20 years old, even if they have been mothballed.2

The arrangement will let auto manufacturers and automotive industry suppliers borrow the money at about 5%, instead of the approximately 15% interest rate they might have to shoulder in the financial markets. (That amounts to saving $100 million on a $1 billion loan.)2

 The loans aren’t limited to the Big Three. Automakers and parts suppliers with at least a 20-year footprint in the United States can qualify. That means the U.S. divisions of Nissan and Honda can apply for these loans as well, which certainly will not sit well with General Motors, Ford and Chrysler.3 But the program can’t get rolling soon enough, especially for policymakers in Michigan – for example, Bloomberg.com, reporting the average estimates from five analysts, predicts GM sales will be down 26%, Chrysler sales down 34%, and Ford sales down 22% for September.4

Whether you are in the auto industry or not, it’s time to think about your money. Where are you at financially? What lifestyle or financial objectives would you like to realize someday? A practical financial plan may help you pursue them – and that’s a good reason to confer with a respected financial advisor.

Citations.

1 cnn.com/news/newsfeeds/articles/apwire/88ec3c8a043edf070c3095fa46ce790d.htm [9/29/08] 2 freep.com/apps/pbcs.dll/article?AID=/20080928/BUSINESS01/809280366&imw=Y [9/28/08] 3 usnews.rankingsandreviews.com/cars-trucks/daily-news/080929-Auto-Bailout-Passes-Big-Three-to-Get-Big-Check-from-Uncle-Sam/ [9/29/08] 4 bloomberg.com/apps/news?pid=20601087&sid=aA2OteanMb9Q&refer=home

Citigroup Buys Wachovia

The FDIC brokers another banking merger.

Technically, this isn’t a bank failure … but technicalities aside, Citigroup’s move to buy Wachovia’s banking assets Monday morning was engineered by the Federal Deposit Insurance Corporation. Once again, the FDIC took “timely actions” to save a lender, in the words of Federal Reserve Chairman Ben Bernanke.¹

The market reacted predictably to the rescue: the Dow Jones Industrial Average was down about 250 points by early afternoon Monday, and not just because of anxiety over the bailout plan vote.² The Wachovia buyout and the overseas failures of some major European banks made investors jittery.

What does this mean if you have money at Wachovia? It means you’re now going to be with Citigroup. This was not a bank failure, it was a bank merger – and mergers usually don’t impact deposit holders. For the record, the FDIC insures up to $100,000 per depositor in individual accounts, and protects up to $100,000 per person in jointly held accounts. It also insures up to $250,000 for individual retirement accounts invested in CDs or cash.³

By the way, the sale does not include Wachovia’s securities assets: it will still own its A.G. Edwards Inc. brokerage and its Evergreen family of mutual funds.⁴ Wachovia Insurance Services will become a stand-alone operation.⁵

Are we going to see any more bank failures? In terms of major lenders, maybe not. The Wachovia bailout might represent a stopping point of sorts, at least in the US, where Wachovia was the last of the “big guns” in trouble. But the fact remains that many smaller banks are struggling. According to an FDIC estimate, 117 banks and thrifts were facing financial troubles in the second quarter of 2008, and we don’t have the third quarter data in yet.¹

The silver lining. Of course, Citigroup is not exactly on easy street. It hasn’t turned a profit for three quarters. Yet the new federal bailout plan could really help Citigroup, by giving it a chance to unload illiquid assets for a higher price than it paid for them. You see, while the bailout package prevents lenders from profiting on the sale of most troubled assets to the Treasury, it doesn’t prohibit making a profit from assets acquired in a merger, a buyout, or via bankruptcy.¹

So, do you have concerns about your money? If you do, it’s understandable. Every day seems to bring a “new development”. Who can help you sort it out? A qualified financial advisor. Talk to the financial advisor you know and trust today, or ask one in your community for his or her perspective.

Citations.

¹ ap.google.com/article/ALeqM5jBpTstzcj2LSvdE72t247CeMqW6QD93GE59G0     [9/29/08]

² money.cnn.com/2008/09/29/markets/markets_newyork/?postversion=2008092911    [9/29/08]

³ seattletimes.nwsource.com/html/businesstechnology/2008192638_pfprotection210.html          [9/21/08]

⁴ bizjournals.com/portland/stories/2008/09/29/daily1.html          [9/29/08]

⁵ tradingmarkets.com/.site/news/Stock%20News/1908784/      [9/29/08]

AIG and Your Annuity

What has happened, and what might happen next?

 

Since AIG promotes itself as the world’s premier provider of fixed annuities, you may be worried if you have an annuity – or life insurance policy - with the worldwide insurance giant. But in reality, you probably don’t have much to worry about. Let’s look beyond the media frenzy and into the reality of AIG and its current situation.

No need to panic. The federal government now owns an 80% stake in AIG, as a result of an $85 billion loan.¹ So Uncle Sam is now the majority shareholder in the company. That ought to make anyone feel a little better.

Beyond the federal intervention to prop up AIG, you also have state guaranty associations ready to protect annuity owners and life insurance policy owners. So even in a worst-case scenario, the picture is not as bleak as the headlines would have you believe.

What if my annuity is sold? Last week, AIG did announce plans to sell off some of its subsidiaries, such as its annuity business. Insurance laws in most states allow for a seamless transition when one insurer buys the annuities or policies of another. So if AIG sells your annuity contract or your life insurance policy to another insurance company, the terms and conditions of your contract or policy should stay the same.²

If your annuity should remain with AIG, the $85 billion Federal Reserve loan is designed to help AIG maintain assets sufficient to meet its contracts and claims. This unique government support for your insurer is a compelling reason to stay the course - and to avoid the hefty surrender charge that may accompany a withdrawal.

How healthy is AIG right now? Well, AIG still faces a challenge. The

U.S.

government didn’t guarantee its debt the way it did with Fannie Mae and Freddie Mac; it simply offered AIG a two-year loan with an 11.3% interest rate.³ But state regulators and insurance industry analysts across the nation don’t anticipate a bankruptcy.

Last week, National Association of Insurance Commissioners president (and

Kansas

state insurance commissioner) Sandy Praeger said: "We have a very strong message for consumers: if you have a policy with an AIG insurance company, they are solvent and have the capability to pay claims."⁴

State protection. There are state guaranty associations that protect life insurance policy owners and annuity owners. If AIG were to go bankrupt and liquidate its assets, you would still have protection for your assets thanks to these agencies.

If you own a fixed annuity, state guaranty associations generally provide up to $100,000 protection in case of insurer bankruptcy – and some states go as high as providing $300,000 or more in protection.⁵

If you own a life insurance policy, state guaranty associations usually provide up to $100,000 protection in cash surrender or withdrawal value, and at least $300,000 in death benefits.⁵

If you have a variable annuity, the investment subaccounts are your assets – creditors snapping up an insurer’s assets won’t be able to touch them. The part of the contract promising a payout from the insurer is usually covered by state insurance regulations.⁵

Care to talk? It is a momentous time financially, and I know you are certainly thinking about your money. I welcome your questions and thoughts, and I invite you to call me or e-mail me to learn even more about the state of your investments and your financial options.

 

WaMu last week...Wachovia next

Today on the Street.com it reported that Wachovia was having merger talks with Citigroup. They have also talked with Morgan Stanley, Wells Fargo, and Banco Santander (whom I believe is a 20% shareholder already).

What does this mean -- is Wachovia in trouble? Will Charlotte remain the #2 financial city in the US?

stay tuned --same bank time  -same bank channel

to read the Street.com article by Laurie Kulikowski

 

Bailout:Good Deal for Taxpayers?!

This week's Barron's cover story Making a Mint tells how the misnamed bailout may be actually good for tax payers. It explains the math and the problems that could be encountered if we let the politicians have to much input.

One thing that it sresses is that there are so fundamental problems in our current situation that need to be resolved soon. The lack of credit activity will grind our economy to halt, just like a car without oil in the engine.

Best and Worse Indices for the week ending September 26, 2008

The best performing indices for the week ending September 26, 2008 were:

• Dow Jones Islamic Market World Emerging Market Travel & Leisure Index (25.32%)

• Dow Jones Stoxx Global 1800 Asia/Pacific Insurance Index (5.93%)

• Dow Jones US Footwear Index (4.99%)

The worse performing indices were:

• Dow Jones Wilshire Real Estate Operating Index (-17.83%)
• Dow Jones US Steel Index (-15.61%)
• Dow Jones US Coal Index (-15.02%)

Indices in a buying position:

• Software Holders Index
• Bank of New York Spain ADR Index
• Dow Jones Poland Index

Myths about Credit Scores

By. Debbie Dragon

 

It is common knowledge that your credit score is one of the main ways in which a lender judges your creditworthiness.  But how much do you really know about credit scores and how they are compiled?  Is what you believe based on fact or myth?  There are plenty of truths and untruths floating around out there, so let’s look at a few commonly believed myths.

 

1)      There is just one score – This is false.  There are several different scores that lenders can look at, and they are all often different. However, there is some truth in this myth of one score, most people are familiar with the FICA score which is undoubtedly the most popular or familiar score.

2)      Closing Old or Unused Accounts will help your score – Part of your credit score is determined by credit history.  If you close older accounts it will make your credit history appear shorter.  Another factor to consider is your score is affected by debt to credit ratio.  If you have $1000 of credit extended to you that you are not using, or have used but paid off, you are in fact showing that you are responsible with your credit and less of a risk to lenders.

3)      Paying off a negative record removes it from your account – I’m sure everyone wishes this were true, however in reality negative records can remain on your credit score for 7-10 years.  This does not mean you shouldn’t pay your debt, simply that you will not see the positive results until that term is over.

4)      Participating in debt consolidation or credit counseling will improve your score. – This is one of those half truths.  The initial period after you sign up for consolidation or counseling will have a negative impact on your score, because you are not paying your lenders as agreed per contract.  However, the longer you participate in the program and actively pay down your debt, you will see your credit score begin to improve.

5)      Married couples share a credit report.   – Credit reports are individual reports.  We each have one regardless of marital status.  However any accounts that you and your spouse share will show up on both individual reports. 

6)      Checking your report will hurt your score. -  It is very important that we all check our credit report.  It is one of the ways to prevent identity theft, or catch it if it occurs.  It is also important to check for inaccuracies that can be damaging.  Your credit score is negatively affected when there are too many inquiries to extend you credit.  If you receive ten offers a day for credit cards, your score is not affected.  Now if you apply for each of these offers, you score will be negatively impacted.

 

These are just a few of the myths that most of us have heard but it pays to review the information from time to time.  It is always a good idea to research information regarding your credit report or credit score.  Even if you do not know what your current score is, you can be sure; other people are looking at it.  Your bank, credit card companies, insurance companies, your landlord, and even your boss.  And that... is no myth.

 

 

 

 

 

Debbie Dragon is a writer for CreditorWeb.com, where she writes about credit cards, rewards programs and general personal finance.

Pimco's Bill gross on the BAILOUT

In a Washington Post op-ed piece today  Bill Gross, CEO of bond fund Giant PIMCO,  addresses how the $700 billion bailout in mortage securities could be beneficial and profitable for taxpayers.

If congress can't understand this - we should boot them all out of office.