HOW does Greece impact me?

HOW does greece impact me?

Is it all negative, or are there opportunities to consider because of the crisis?

Presented by Kip A. Hoover

Many economists think a Greek default is inevitable. As we enter 4Q 2011, Greece has a debt-to-GDP ratio of about 160% (and that percentage is rising). While Greece accounts for less than 3% of Eurozone GDP, ripples from a Greek default could strain the European banking sector and global financial markets.^1,7

Struggling for the best worst-case scenario. Greece is redoing its financial system, but it is still facing one of five potential (and painful) outcomes.

1. Greece renegotiates its debts & forces its lenders into write-offs. Many Greek banks are nationalized; Greece endures a long recession.
2. Greece can’t renegotiate its debts. It sinks into a multi-year depression exacerbated by additional austerity measures.
3. Greece rejects further austerity cuts recommended by the EU. A standoff with the International Monetary Fund and European Central Bank results; the ECB and IMF blink and continue bailout payments to Greece; Italy and Spain see the way Greece made the ECB and IMF cave in and later wrestle the ECB and IMF into submission in the same way; Germany gets frustrated with all this and ditches the euro.
4. Greece rejects more austerity cuts & the EU stops bailout payments. Civil unrest jeopardizes the country. Its banks close; its public services halt. The CIA has advised that a coup may occur in Greece in such a scenario.
5. Greece lapses into a banking/cash flow crisis & leaves the euro. This is the “doomsday” scenario. Assume #4 occurs with Greece also electing to go back to the drachma. That could mean a run on Greek banks, and then Spanish and Italian banks. A return to the drachma could mean frozen borrowing for Italy and Spain and possibly lead to insolvency for major banks in Europe. Picture 17 nations trying to agree on and quickly implement an EU version of TARP. Havoc could result for stocks and the global economy.²
   
   

This all sounds very gloomy, but prospects may emerge from the gloom.

A(nother) golden opportunity? In the event Greece defaults, the search for safe havens could mean a quick flight to gold. If a Greek bailout succeeds, there may still be fiscal instability among EU members, and presumably an easy monetary policy fostering loose credit. If Greece defaults, then you could see big drops in the spot prices of currencies plus some competitive devaluation. All of this could make gold look very, very good.

On the other hand, if true systemic risk hits global markets, investment banks and hedge funds might need capital fast – and gold is easily liquidated. So a gold selloff could also possibly occur if the situation becomes dire.

What about Treasuries & the dollar? Treasuries remain popular, and demand for them could jump after a Greek default. What other choices do central banks have if they want to shop around for a stable, readily available, reasonably liquid investment? The euro is hardly a rival to the greenback right now.

How about emerging markets? Here is another option. The BRICs and some of the other emerging-market nations have managed to ride out the recent volatility fairly well – there has been some “decoupling”, if you will.⁸ No one is saying these markets would be immune from a continental banking crisis or a flight from stocks, but you have to concede that emerging markets have the capability for independent behavior.

Would it still be worthwhile to own blue chips? Keep in mind that the Dow did not fall to 4,000 after the Lehman Bros. and Washington Mutual failures and the initial rejection of TARP by Congress. Stocks did pull out of that plunge, and spectacularly so; bargains abounded, for that matter. So it might certainly be worthwhile to hold onto stocks in the coming months, especially as some European governments have hinted at possible capital injections for banks if the need arises. On September 13, German chancellor Angela Merkel noted that the EU would not let Greece fall into “uncontrolled insolvency” and reports surfaced of China getting ready to purchase Greek debt. Treasury Secretary Timothy Geithner even got involved in the search for solutions in mid-September.³

Europe’s biggest private lenders may be deemed “too big to fail” by the EU and ECB, and if unwinding of any financial institutions is needed, the authorities should do everything within their reach to try and make it gradual.

It could be that Wall Street has already priced in a Greek default and will just wince, not stumble, at its confirmation – assuming the news arrives with more inevitability than frenzy.

The biggest fear of all: contagion. Italy and Spain may be “too big to fail” in the eyes of the EU and IMF, but they also face big debt problems. Standard & Poor’s cut Italy’s credit rating to ‘A’ in September; Moody’s Investors Service is weighing downgrades for Italy and Spain before November.^4,5

                                                                                                                  

How diversified are you? These debt issues in Europe may linger for years. With the market so volatile, don’t forget the wisdom of having a diversely allocated portfolio.

Kip A. Hoover may be reached at 440-729-0036 or kip.hoover@lpl.com.

www.goodmoneycents.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All indices are unmanaged and are not illustrative of any particular investment. The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the NYSE and the NASDAQ.

Citations.

1 - business.financialpost.com/2011/09/21/preparations-for-greek-default-gathering-steam/ [9/21/11]

2 - bbc.co.uk/news/business-14977728 [9/21/11]

3 - thestreet.com/story/11246102/1/stock-futures-sept-13.html [9/13/11]

4 - nytimes.com/2010/01/29/business/global/29bailout.html [1/29/10]

5 - businessweek.com/news/2011-09-20/italy-credit-rating-cut-by-s-p-as-crisis-contagion-spreads.html [9/20/11]            

6 - montoyaregistry.com/Financial-Market.aspx?financial-market=advanced-estate-planning&category=30 [9/21/11]

7 - siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf [6/1/11]

8 - firstpost.com/economy/asian-markets-eye-china-data-for-signs-of-decoupling-66749.html [8/23/11]

IS NOW THE TIME TO BUY?

IS NOW THE TIME TO BUY?

Some bulls see great opportunities in this correction.

Presented by Kip A. Hoover

“The lower things go, the more I buy.” The legendary Warren Buffett said those words on August 9 in a chat with Fortune. Buffett is a buy-and-hold kind of guy, and even if you don’t buy into his approach, you have to admit stocks are cheap in the wake of the recent correction. For many investors, a downturn like this means picking up quality stocks at markdown prices, including dividend-paying stocks.¹   Note that the general risks inherent to investments in stocks include the fluctuation of market prices and dividend, loss of principal, market price at sell may be more or less than initial cost and potential illiquidity of the investment in a falling market.

Just how cheap are stocks in August? We have some compelling valuations out there. Just to give you some idea of where the broad market is at, the 12-month forward equity earnings yield of the MSCI World Index (according to Reuters) was just above 10% on August 12. This was the highest earnings yield since January 2009 – and more than five times the yield of the 10-year Treasury in mid-August.²

Domestically, Capital IQ data from August 12 shows that stocks in the S&P 500 are trading at a forward price-to-earnings ratio of around 12. Historically, the forward P-E ratio for the S&P 500 has averaged about 16. Judging by that yardstick, we have a buyer’s market right now.³

Returning to Buffett, the “oracle of Omaha” once famously said that you should “only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.” The stock market is very much a long-term proposition. The last decade or so aside, taking a long view and sticking it out has had its merits.⁴

When you were in college, where was the Dow trading at? Where is it now? For most people, the answer would be “notably higher”.

Have you noticed how oil prices have fallen? The ripple effect of this development also bodes well for equities. Oil settled at $85.38 a barrel on the NYMEX August 12. Compare that to the $100 oil of February. Oil price cuts imply a stronger U.S. economy – with better corporate profits, lower energy costs, and improved tax receipts.⁵

Could a QE3 come along? The Federal Reserve hasn’t indicated this, but don’t rule it out considering that President Obama’s popularity is scraping new lows and he would like another term in office. Another monetary stimulus from the Fed would mean more cash, which could mean more money directed into gold or equities.

Fed policy could be a big factor in the market’s direction. On August 9, the Fed issued a remarkably definite statement, pledging to keep the federal funds rate at near-zero levels through mid-2013. Wall Street’s volatility might ebb when institutional investors conclude whether or not that tactic will really improve America’s GDP. ⁶

Is the glass half-full or half-empty? Bears are arguing that we don’t have enough job creation in the economy (or buying pressure in the stock market) to drive stocks up. They also point out that the Dow dipped beneath its 50-day moving average and 200-day moving average during the choppy trading week of August 8-12.⁷

Bulls are countering these arguments by pointing to the relative strength index of the DJIA. On August 11, for example, the Dow’s RSI was at 26.6. A reading below 30 is interpreted as a signal that the market is oversold. The S&P 500’s RSI hit 16.5 on August 8, which was a 10-year low. They also think that Ben Bernanke’s approach will succeed – that is, that these sustained low interest rates will encourage businesses to borrow and expand, with gains in consumer income and consumer spending as byproducts. On top of that, many corporations are generating decent or better profits, and carrying much less debt than they did two or three years ago.^7,8

Markets eventually rebound – so these prices won’t last forever. Falling share prices may translate to some outstanding long-term opportunities. Whether you simply practice dollar-cost averaging or something more hands-on, persistence and longevity can be good friends.

Last week, Chicago Tribune columnist Gail MarksJarvis noted how quickly we came back from the 2007-09 bear market. A hypothetical investor with $10,000 in assets divided evenly among long-term Treasuries and an index fund mirroring the S&P 500 would have had but $7,700 by April 2009. By October 2010, the value of that portfolio would have grown 46.8% in 18 months to around $11,300. You don’t want to miss comebacks like that – and Wall Street is certainly capable of making them.⁹

Kip A. Hoover may be reached at «440-729-0036 or kip.hoover@lpl.com.

www.goodmoneycents.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

Citations.

1 - finance.fortune.cnn.com/2011/08/11/warren-buffett-buy-stocks/ [8/11/11]       

2 - reuters.com/article/2011/08/12/us-markets-global-weekahead-idUSTRE77B39D20110812 [8/12/09]               

3 - google.com/hostednews/ap/article/ALeqM5jzRK3TF86yN06W1SofDFjPh8eudg?docId=77bfe0d2fbf547498af426d607e98515 [8/12/09]       

4 - billionaires.forbes.com/quote/06lobtIfiO10y?q=Warren+Buffett [8/12/11]             

5 - blogs.wsj.com/marketbeat/2011/08/12/data-points-energy-metals-511/ [8/12/11]

6 - online.wsj.com/article/BT-CO-20110809-716770.html [8/9/11]

7 - ibtimes.com/articles/196193/20110811/dow-jones-industrial-average-dow-djia-stocks-market-banks-financical-crisis.htm [8/11/11]

8 - bloomberg.com/news/2011-08-09/s-p-500-relative-strength-lowest-since-2001-technical-analysis.html [8/9/11]

9 - chicagotribune.com/business/yourmoney/ct-biz-0812-gail-20110812,0,2500613.column [8/12/11]

10 - montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29 [8/14/11]

A TIME FOR PATIENCE

A TIME FOR PATIENCE

Coping with the market during a rough week for stocks.

Presented by Kip A. Hoover

As expected, a plunge. World stock markets swooned on August 8 in reaction to Standard & Poor’s downgrade of U.S. long-term debt. On Wall Street, the DJIA fell 634.76, the S&P 500 79.92 and the NASDAQ 174.42. It was the toughest day on Wall Street since December 1, 2008, when the National Bureau of Economic Research announced America had lapsed into a recession.^1,2

Investors endured a shock like this last year. In spring 2010, the S&P 500 pulled back 16% from a peak. At the close on August 8, the index was down 16.8% from its spring 2011 high.³

In 2010, the market healed within a few months. What happened after the 2010 correction? We had a sustained rally from September to New Year’s Eve. The DJIA finished 2010 up 11.0%, the S&P 500 up 12.8% and the NASDAQ up 16.9%.⁴

When will we see capitulation? Yes, when will this mood lift? When will investors see merit in buying? Several factors might encourage a relief rally or something greater.

·         The European Central Bank plans to buy up debt from Italy and Spain.

·         The Federal Reserve could decide to buy up 10-year Treasury bonds and other long-term notes, echoing a move it made during the early 1960s. Economists and bond market analysts are beginning to think we could see this kind of QE3.

·         Amid the heavy volume, bargain hunters will inevitably start shopping. As Suze Orman told CNBC August 8, “This is a gift from the stock-market heavens … in 2008 we had far grander problems than we do today. But by March of 2009, the stock market was rising again. What makes you think that won’t happen again?” In this correction, dollar-cost averaging could potentially snag great values.

·         Some positive signals can be found in the turmoil: falling oil prices imply lower retail gasoline prices for consumers, the manufacturing and service sectors are still growing, interest rates are quite low and corporate profits have nicely improved. As to the chance of a double-dip recession, the U.S. economy is projected to grow 2-3% in 2012, which is about double the growth forecasts for the European Union, Great Britain or Japan.

·         Nobody’s running away from Treasuries. In fact, Treasury yields sank 0.18% August 8, making it cheaper for the U.S. to finance its debt.^5,6,7,8

How might the downgrade of Fannie & Freddie affect the housing market? It might impact consumer confidence more than anything else. S&P’s August 8 downgrade of Fannie Mae and Freddie Mac to AA+ from AAA didn’t immediately shake up the mortgage market, as 10-year Treasury yields were down to 2.40% Monday.^7,8

Moody’s affirms America’s Aaa rating. “Despite the outlook for some further deterioration in the government’s debt metrics over the coming few years, we believe that the U.S. continues to exhibit the characteristics compatible with an Aaa rating,” Moody’s Investors Service senior credit officer Steven Hess wrote in an August 8 note. Moody’s also noted America’s longstanding track record of economic growth as a big reason for confidence. Fitch Ratings also refrained from a U.S. credit downgrade, and both Moody’s and Fitch stated that the possibility of sovereign default was remote.^9,10

Relatively speaking, stocks still look cheap next to bonds & cash. As the dust settles from these big market drops, Wall Street will have to weigh its collective direction. On the one hand, you have rampant anxiety; on the other hand, you have attractive valuations. Patience may prove to be a virtue as the saga plays out and we eventually return to market fundamentals.

Kip A. Hoover may be reached at 440-729-0036 or kip.hoover@lpl.com

www.goodmoneycents.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

Citations.

1 - blogs.wsj.com/marketbeat/2011/08/08/data-points-u-s-markets-38/ [8/8/11]   

2 - money.cnn.com/2008/12/01/markets/markets_newyork/index.htm [12/1/08]  

3 - articles.latimes.com/2011/aug/04/business/la-fi-0804-markets-qa-20110804 [8/4/10]       

4 - blogs.wsj.com/marketbeat/2010/12/31/data-points-us-markets-337/ [12/31/10]

5 - cnbc.com/id/44029585 [8/8/11]

6 - cnbc.com/id/44064969 [8/8/11]

7 - foxbusiness.com/markets/2011/08/08/despite-downgrade-us-still-towers-over-peers/#ixzz1UTwUYiFa [8/8/11]

8 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield [8/8/11]

9 - blogs.wsj.com/developments/2011/08/08/sp-downgrade-could-feed-home-buyer-anxiety/ [8/8/11]

10 - advisorone.com/2011/08/08/stocks-plummet-on-downgrade-as-obama-defends-aaa-m [8/8/11]

Rounding up the rankings of places to be (and not to be) financially.

THE BEST AND THE WORST

Rounding up the rankings of places to be (and not to be) financially.

Presented by Kip A. Hoover

Do you live in one of the worst tax states for retirees? Are you fortunate enough to live in one of the best states to do business? Here is a roundup of the miscellaneous, fascinating rankings offered by leading magazines and websites.

What are the best (and worst) states for business? Well, CNBC has ranked all 50 states based on 43 criteria including quality of work force, cost of doing business, quality of life, state economies and access to capital. Coming in at #1: Virginia. Number two is Texas, number three is North Carolina. The state with the lowest cost of doing business – Iowa – ranked 9th. The bottom three? Hawaii (48th), Alaska (49th) and … Rhode Island? Yes, it was dead last. CNBC cited its 10.9% jobless rate and a corporate tax rate nearly as high.^1,2

                     

What are the best (and worst) tax states for retirees? Kiplinger sees four “tax hells” in the Northeast. Vermont is ranked #1 (high property taxes along with state levies of up to 8.95%) and Maine, Connecticut and New Jersey also make the bottom ten. Minnesota is #2, Nebraska #3, Oregon #4 and California #5. As to the best, Wyoming ranks #1 among the “tax heavens”, followed by Mississippi, Pennsylvania, Kentucky and Alabama. Wyoming has no estate tax, no state income tax, and only a 4% sales tax; the state collects abundant revenues from oil and mineral firms.^3,4

What cities may be especially attractive for a retiring baby boomer? Fortune offers 4 “great places”, citing ideals among four types of retirement destinations. It ranks Athens, GA as the best college town, Seattle as the best big city, St. George, UT as the best town for outdoors lovers and San Rafael, Argentina as an ideal foreign city for retirement.⁵

Where could I live well and prosper in my career or business? Kiplinger has ranked its Best Value Cities – metro areas featuring “vibrant economies, a low cost of living, and plenty of lifestyle amenities.” The #1 place to be is ... Omaha. Then we have Charlotte at #2, Nashville at #3, and respectively 4th-10th we have Colorado Springs, Knoxville, Lexington, Little Rock, Wichita, Cedar Rapids and Cincinnati. It also identifies the metro areas with the largest household income growth between 2005-09: Midland, TX (+31.3%), Grand Junction, CO (+24.8%) and Jacksonville, NC (+21.8%) came in 1-2-3, while the three biggest household income declines were in St. George, UT (-11.2%), Muskegon-Norton Shores, MI (-11.4%) and Albany, GA (-11.9%).^6,7

Kip A. Hoover may be reached at 440-729-0036 or kip.hoover@lpl.com     

www.goodmoneycents.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

Citations.

1 - cnbc.com/id/41666602 [7/29/11]

2 - advisorone.com/2011/06/29/top-10-best-states-for-business?t=marketing-technology [6/29/11]

3- finance.yahoo.com/focus-retirement/article/112987/tax-unfriendly-states-retirees [6/24/11]

4 - finance.yahoo.com/retirement/article/113021/5-tax-friendly-states-retirees-kiplingers [7/1/11]

5 - advisorone.com/2011/06/03/4-great-places-for-baby-boomers-to-retire?page=2 [6/3/11]

6 - kiplinger.com/guides/best-cities/ [7/31/11]

7 - kiplinger.com/tools/bestcities_sort/index.php?sortby=salary&sortorder=ASC [7/31/11]

THE D WORD HAUNTS WALL STREET

THE D WORD HAUNTS WALL STREET

Is there a chance that America could actually default on its debt?

Presented by Kip A. Hoover

When will the debt ceiling issue be solved? The NFL, the NBA, the EU, Congress … wherever you look, it seems people would rather wrangle these days than resolve their differences. The U.S. Treasury has set a hard deadline of August 2 for Congress to settle its divide on the federal debt ceiling, and if partisan bickering interferes, the world economy could suffer a severe hit.

What would happen if we miss the deadline? According to federal budget analysts at the Bipartisan Policy Center, the Treasury would only be able to make a slight majority of its 80 million monthly payments in August. Treasury Secretary Timothy Geithner would likely be put in the same position as a struggling consumer low on cash and behind on his bills: he would have to selectively decide which debts to pay for the month and which to ignore.¹

Should August 2 come and go without a solution, Congress’s inaction (and Geithner’s subsequent decisions) would have dramatic global repercussions. Most likely, his big priority would be to pay off bond investors so that a formal default wouldn’t occur. Yet even if these institutional investors are assuaged, the Treasury would still have to postpone millions of payments at home … payments to Social Security recipients, federal employees, contractors and soldiers possibly among them.¹

So technically, America wouldn’t actually default come August 2 – certain federal payments would be delayed. The federal government’s existing revenue stream is decent enough so that it could still pay interest and principal on unpaid debts. ²

That said, the postponed federal payments would have a dramatic impact on cash flow, consumer spending, consumer credit and even interest rates.

S&P threatens to give America a D. The venerated credit rating agency says it will cut the U.S. debt rating from AAA all the way to D if the debt cap isn’t increased by the August deadline. (That’s right – the U.S. would go from the best credit rating to the worst.) Moody’s has indicated it would cut the U.S. rating to somewhere in the Aa range, which is three steps beneath its highest ranking.³

On Bloomberg Television, S&P sovereign rating committee chairman John Chambers warned that a U.S default would rock global markets in a way that would be “much more chaotic” than the shock from the 2008 Lehman Brothers bankruptcy. Fitch Ratings is less gloomy; on June 21, it characterized the U.S. as “very likely” to raise its debt ceiling before the deadline looms.³

It may just be a matter of time. This negotiation is ultimately like so many others: a ticking clock will exert the most leverage. Given the gravity of what could happen, concessions will inevitably occur, a deal should happen (albeit probably at the eleventh hour), and both sides will put their own spin on the agreement. Until then, a hint of tension haunts Wall Street.

                     

Kip A. Hoover may be reached at 440-729-0036 or kip.hoover@lpl.com.

www.goodmoneycents.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

Citations.

1 - money.cnn.com/2011/07/01/news/economy/debt_ceiling_deadline/ [7/1/11]

2 - money.cnn.com/2011/05/23/news/economy/debt_ceiling_deadline/index.htm [5/23/11]             

3 - bloomberg.com/news/2011-06-29/moody-s-would-likely-cut-u-s-debt-rating-to-aa-range-in-event-of-default.html [6/30/11]

4 - content.usatoday.com/communities/theoval/post/2011/06/poll-obama-leads-gop-candidates-but-remains-vulnerable/1 [6/3/11]

5 - montoyaregistry.com/Financial-Market.aspx?financial-market=tax-loss-harvesting&category=31 [7/3/11]

THE CURRENT CD QUANDARY

THE CURRENT CD QUANDARY

Today’s yields can’t beat inflation.

Presented by Kip A. Hoover

CD investors are effectively losing money. According to Market Rates Insight, a research firm tracking bank rates, annualized inflation has surpassed long-term certificate of deposit rates since February. In April, 12-month inflation hit 3.16% while the highest-yielding 5-year callable CD on the market offered a 2.4% interest rate. May’s Consumer Price Index put annualized inflation at 3.6%; as of mid-June, the highest-yielding nationally available 5-year CD was at 3.05% APY.^1,2,3

Still, the Federal Reserve found that almost $9 trillion of American wealth was held in CDs, bank accounts and various FDIC-insured products as of April.⁴

It’s a case of déjà vu. This is the second time in recent history that CD investors have been punished for assuming so little risk. During the period from January-July 2008, the negative yield on 5-year CDs was 1.8% according to MRI.⁵

                     

They might come out ahead … should inflation diminish. As Bankrate.com senior financial analyst Greg McBride reminded Bloomberg, “Investing in a CD isn’t compensating you for last year’s inflation; it’s compensating you for next year’s inflation, which is unknown.” Will inflation ease in the long term? Many analysts aren’t betting on it.

The appeal of CDs remains strong. After all, not many investments are federally insured. MRI vice-president Dan Geller said it best to Bloomberg: “Right now, people are more concerned about the return of their deposits rather than a return on their deposits.”

With 63% of Americans still believing the nation is in a recession (according to a recent Rasmussen Reports poll), there is still plenty of skittishness about equity investment. Even with the Fed’s bond-buying campaign sending yields on short-term Treasuries and CDs toward all-time lows, some investors really aren’t hungry for risk.⁵

Are CDs still worth it? There is no pat answer. Your own answer will depend on your preferred investment style, your risk tolerance and your financial objectives. Many people choose to park some of their invested assets in CDs and other savings instruments as part of a diversification approach. The inflation-adjusted return is dismal at the moment, but knowing that your principal is safe certainly has its appeal.  Note that Surrender charges apply should you attempt to liquidate your CD.  Any guarantees regarding safety of principal are based on the claims paying ability of the issuing financial institution.  Traditional CD’s are FDIC insured and offer a fixed rate of return if held to maturity. 

Kip A. Hoover may be reached at 440-729-0036 or email:  kip.hoover@lpl.com .

www.goodmoneycents.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

Citations.

1 - bloomberg.com/news/2011-05-23/savers-lose-as-long-term-cd-yields-fall-below-inflation.html [5/23/11]      

2 - bls.gov/news.release/cpi.nr0.htm [6/15/11]             

3 - depositaccounts.com/blog/2011/06/highest-5year-cd-rate-in-the-nation-at-fort-knox-federal-credit-union.html [6/17/11]

4 - articles.philly.com/2011-06-13/news/29653033_1_inflation-rate-mutual-funds-stock-market/2 [6/13/11]

5 - online.wsj.com/article/BT-CO-20110523-712255.html [5/23/11]

6 - montoyaregistry.com/Financial-Market.aspx?financial-market=roth-ira-rules-and-regulations&category=1 [6/19/11]

REASONS FOR OPTIMISM - Stocks are fizzling ... but things could change this summer.

REASONS FOR OPTIMISM

Stocks are fizzling ... but things could change this summer.

Presented by Kip A. Hoover

When was the last time the Dow took a six-week tumble? On June 10, the Dow dipped below 12,000 and posted its sixth straight weekly decline. You have to go back to October 2002 to find a Dow losing streak that long. If you’re hearing bearish groans in the distance, you’re not alone: the bears are making their voices heard as the Dow is down almost 7% from where it was at the end of April.¹

June certainly has been tough on Wall Street, with the bulk of economic indicators flashing a slowdown. However, there is reason to think the third and fourth quarters of 2011 may be better for stocks – in fact, that’s what many analysts believe.

Q2 earnings projections are quite good. Investment research firm FactSet finds that despite the losing streak, aggregate Q2 S&P 500 earnings estimates are basically unchanged from late May. The collective forecast projects a 14.6% growth in earnings for the quarter and a 10.4% jump in revenues. (That double-digit revenue growth would be the best since Q1 2010.) As earnings are truly the mother’s milk of stocks, the market could heat up this summer if these collective predictions come true.²

Stocks are still cheap. On June 3, the S&P 500’s P/E ratio was 16.4 compared to 18.3 a year earlier. Most stocks look like a fair value right now.³

The economy is still growing. The Federal Reserve’s latest Beige Book and the twin PMI indices from the Institute for Supply Management both signal this. In fact, the ISM service sector index showed the growth of that sector accelerating in May.⁴

Homebuying could be poised to pick up. Sustained high unemployment isn’t going away this year, but some silver linings are emerging that bode well for the housing market. Moody’s Analytics says that the ratio of home prices to income is now 20.9% below the average ratio from 1985-2010. Mortgage interest rates are at levels unseen since the early 1960s. There are also indications that prices may be approaching a bottom in metro areas not rampant with short sales and foreclosures. Real estate analytics company CoreLogic found that home prices were down 7.5% year-over-year in April, but only down 0.5% when distressed sales were factored out.⁵

                     

Hang in there. The bull market is maturing; QE2 is ending. We haven’t yet seen a correction, just a pullback. Mays and Junes have brought more than a few of those.

Kip A. Hoover may be reached at 440-729-0036 or kip.hoover@lpl.com     

www.goodmoneycents.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

The Standard & Poor’s 500 Index is an unmanaged index generally representative of the U.S. Stock Market.  It is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Stock investing involves market risk including loss of principal. 

² Actual results, performance or event may differ substantially from those in such statements.  Past performance cannot be utilized as an indicator of future results or returns.

Citations.

1 - blogs.wsj.com/marketbeat/2011/06/10/were-going-streaking/ [6/10/11]      

2 - blogs.wsj.com/marketbeat/2011/06/10/q2-earnings-and-revenue-estimates-remain-upbeat/ [6/10/11]

3 - smartmoney.com/invest/stocks/why-the-market-worrywarts-are-wrong-1307117379674/ [6/3/11]

4 - ism.ws/ISMReport/NonMfgROB.cfm [6/3/11]

5 - online.wsj.com/article/SB10001424052702304563104576361522020024248.html [6/4/11]

6 - montoyaregistry.com/Financial-Market.aspx?financial-market=money-and-happiness&category=29 [6/12/11]

A WOMAN’S FINANCIAL REALITY

A WOMAN’S FINANCIAL REALITY

Your financial future is up to you … and no one else.

Presented by Kip A. Hoover

Will this be your future? Did you know that Social Security income represents two-thirds of income for women 65 and older? Did you know that without Social Security, an estimated 58% of widows aged 65 and older would live in poverty? ¹

These findings are from a 2010 U.S. Congress Joint Economic Committee report. As Rep. Carolyn Maloney (D-NY) put it, “Social Security is literally a lifeline for most elderly women.”

That lifeline is barely adequate. With inflation and other economic pressures, a mature woman relying on SSI may eventually have to choose between food or medicine, or rent or car repair, or contend with other stressful money dilemmas.

When these women were younger, did they envision such a meager future ahead of them? Probably not. More than a few probably wish they had understood money matters better or actively invested for retirement.

How much do you know about personal finance? The more knowledge you have, the more action you can take to define and pursue your financial goals and build retirement savings. You can also respond to a few financial realities common to women’s lives.

                     

The average woman spends 12 years out of the working world. So finds WISER, the non-profit formally called Women’s Institute for a Secure Retirement. Typically some of this absence is for parenting, some of it for caregiving. This means the average woman has 12 fewer years to pour steady money into that 401(k), 403(b) or IRA.²

Women live longer. According to the latest estimates from the Centers for Disease Control and Prevention, female life expectancy is at roughly 80.5 years versus about 75.5 years for males. The reality unnoticed in these numbers is that many women will live on their own for a decade or more after being divorced or widowed.³

Women face an earnings gap. On the whole, women do not earn as much as men. In 2009, the Government Accountability Office noted that women earn $0.78 for every $1 that men earn. Some people question this statistic, arguing that it reflects gender inequality in career paths rather than distinct salary discrimination. Regardless, the gap exists – and it is even more pronounced for women of color.⁴

At work, many women are worth more than the salaries they receive. Some women are reluctant to negotiate a better salary for themselves. Will it upset the equilibrium at the office? Will it be seen as too aggressive? The answers here are probably “no” and “no”. It takes confidence (and it may take a little research) to affirm your professional worth in front of your boss – and it should be done.

A rich spouse does not equal a retirement plan. It is nice to have a spouse whose wealth allows you freedom from financial worries. Yet even if you are blessed with a rich and attractive mate, there is no telling where that mate (and that money) might end up someday but for fate.

How do you plan to arrange a comfortable future for yourself? If you don’t want to end up dependent on Social Security, then see that you have the financial education that will let you make major money decisions with confidence. Study fundamentals of investing and read up on the basics of retirement and estate planning. Follow up by meeting with a financial consultant who can help you put a strategy into action.

Kip A. Hoover may be reached at 440-729-0036 or kip.hoover@lpl.com     

www.goodmoneycents.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

Citations.

1 - thehill.com/blogs/on-the-money/801-economy/126543-changes-to-social-security-could-negatively-affect-women [10/29/10]

2 - mainstreet.com/article/retirement/women-still-far-behind-retirement-plans [4/25/11]    

3 - nytimes.com/2011/03/17/health/17brfs-ART-AMERICANLIFE_BRF.html [3/17/11]

4 - civilrights.org/archives/2009/04/291-equal-pay-day.html [4/29/09]

5 - montoyaregistry.com/Financial-Market.aspx?financial-market=money-and-happiness&category=29 [6/5/11]