Archive for December, 2011

What Wall Street Doesn’t Want You to Know About Your 401(k)

December 26, 2011 Leave a comment

What Wall Street Doesn’t Want You to Know About Your 401(k)

Posted: 12/20/11 09:15 AM ET

The year is 1946. It is a very special year. The President declares the end of World War II. The U.N. meets for the first time. The President sets up the Central Intelligence Agency. The US Supreme court rules race separation on buses is unconstitutional. Congress passes a law to promote maximum employment and production which is supposed to be a continuing policy and responsibility of the Federal Government. Seems a long way from what Congress is doing these days!

Some guy named Frank Sinatra releases his first album, and this is the beginning of the birth cycle of the biggest group of citizens to ever be known in the U.S., namely, the Baby Boomers!

In our last blog, we told you Congress was looking to find ways to tax the multi-billion dollar 401(k) market, and it seems to be with Wall Street’s help. Those that have employer sponsored 401K retirement plans or a pension plan from their employer are not always being told the truth about their funds. There is an ongoing movement in Wall Street to help the large companies with these plans to modify payment structures so that pension plans become piggy banks, tax shelters, and profit centers for the companies through exploiting loopholes, ambiguous regulations, and new accounting rules. In her book Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers, Pulitzer Prize author Ellen Schultz documents exactly how Wall Street is doing this to Main Street.

The Wall Street Journal recently reported that those with 401(k) plans lost an average of $41,000.00 from those plans over a 6-8 week period. What the article didn’t tell you is that the growth percentage needed to recover the lost funds can be over 38%! Many baby boomers don’t have that much time to make up losses like that. (Brokers don’t tell you this!)
In a recent report by Diane Sawyer of ABC News, it was reported that the day’s average one (1) day 401(k) loss was $4,000.00.

When a Wall Street broker is asking you What is your risk tolerance,” you should replace “risk” with “loss;” he is asking you: “How much money are you willing to lose?” These days you’d have more fun going to Vegas.

According to a recent survey by Sun Life Financial Inc, “Although the recession officially ended in 2009, average Americans feel that the downturn has not ended for them, which is substantially eroding their trust in their retirement future.” Further, the October 20, 2011 survey said that one in five working Americans plan to never retire because they don’t feel they can afford it. On the other hand, we see owners of annuities and long-term care insurance who feel more confident about their ability to retire. They have more confidence because they know they can’t lose their savings to the whim of the stock market. Neither will they have to foot the whole bill if they wind up needing care for a chronic condition that can cost upwards of $6000 a month.

We know that these days the biggest concern is stability and safety, as well as having enough income during retirement so we don’t outlive our funds. The answer may not be the same for everyone, but a fixed or indexed annuity can be the solution. These financial products do not lose money. For a long time, the Wall Street brokers told their clients this product was inferior because it would not make a lot of money. Since the GAO report of June 2011 stating these annuities are a safe financial tool to have in one’s portfolio, some brokers started recommending them. What happened? They realized that these annuities are strong financial tools to make sure you don’t lose your hard-earned funds that have taken you a lifetime to put in place.

However, even if you have your life savings in a financial vehicle that can’t lose money, a chronic condition that requires years of care can wipe them out. No matter who you are, a doctor, in the entertainment business, a bus driver, or just regular folk, these events are not covered by regular health insurance, or if your are old enough, not by Medicare either. If you had an accident or stroke that required you to need care in your home or in a facility for several months or years that your existing insurance didn’t cover, what would you do? How would this sudden expense affect your lifestyle? Eight to ten hours a day of home care can easily cost $6000 a month, and a MetLife survey said long-term care costs are continuing to rise faster than the medical inflation rate.

There was a program called “CLASS ACT” in the new health care reform act which was supposed to cover these costs, but only for working people. Non-working spouses were not covered. This program didn’t receive funding in the 2012 budget and is officially closed. Thankfully, there is insurance that will cover this. In fact, there are state-approved long-term care insurance policies that allow Americans to protect some or all of their assets if they have to turn to Medicaid to pay for extended care after using the insurance to pay first. Most states have this public-private partnership which allows dollars to stay in the state budget for education, public works and to lower taxes by providing an incentive for Medicaid to pay last for long-term care, not first.

Can we help you put a program together that rescues your savings from the stock market and protects them from extended chronic care? Absolutely! All you have to do is ask. In some cases, this insurance program can be free!

Occasionally we encounter men, in particular, who feel strongly they don’t need to insure for this expensive care and figure they can take care of everything. They don’t think ahead to the lifestyle changes they are forcing the rest of the family to endure if they do need extended care. Here is an example of what we are talking about:

Ralph Smith felt that way. He owned a successful insurance agency for many years that sold a lot of long-term care insurance through Phyllis Shelton. His son and daughter both worked in the agency. Whenever his son would ask when his dad was going to buy the product, Ralph just said “I don’t need it, David. I will always take care of your mother.”

Today both Ralph and his wife have advanced Alzheimer’s. David’s sister moved in with them to be the caregiver, leaving her job at the agency and her husband Bill to manage their home. She and David haven’t spoken for over a year due to severe disagreements about how to handle the situation.*

The only way to control the outcome of a long-term care event is to plan ahead. If you wait until it happens, you will likely not have the mental or physical capacity to call the shots, and someone else has to painfully call them for you. The younger you are when you plan, the more choices you will have.

Categories: Economic Update

European Contagion Reduced???

December 23, 2011 Leave a comment

Jim ONeill: Risk of European Contagion Now Significantly Reduced

Wed, Dec 21, 2011 4:04 PM EST

The European Central Bank kicked off its new borrowing facility with a bang Wednesday, lending $645 billion to 523 banks at 1% for up to 3 years. Both the dollar volume of loans and the number of banks seeking funds exceeded expectations.

“In view of everything that’s happened, the fact so many banks are locking in longer-term financing at such generous terms is essentially a good thing,” says Jim O’Neill, chairman of Goldman Sachs Asset Management and author of The Growth Map.

Financial markets didn’t share that view, at least on Wednesday:

After initially rallying to near $1.32 on the news, the euro faded to below $1.31 while European stocks ended in the red. After stumbling all day, U.S. stocks did rebound at the close with the Dow gaining 4 points to end the session at 12,107.

The ECB providing low-costs funds so banks can buy more sovereign debt is a bit odd, given Europe is in the midst of a sovereign debt crisis. Skeptics said the high level of demand for the loans is a sign of how desperate European banks are for financing.

But O’Neill maintains an optimistic view.

The ECB action is “quite significant,” he says. “It seems we are having a slightly more substantial floor put under this European mess compared with recurring disappointments from European politician.”

While many challenges remain – most notably the fate of Greece – O’Neill believes the eurozone will hold together and says the ECB has now “significantly reduced the risks of financial contagion from Europe to the rest of the world.”

If true, that would be very positive for stocks as 2012 gets underway. Indeed, O’Neill writes that “with a little bit of luck, [Europe] might go back to being as dull as it usually is” next year, which is about the most-bullish thing we’ve seen written or said about the continent in many months.

So hold on to your seat belts.

Categories: Economic Update

Seniors Beware!!!

December 23, 2011 Leave a comment

Financial Fraud Against Older Americans

Peaks this Holiday Season

By Stacy Curtin | Daily Ticker – 21 hours ago








If this year is anything like last, baby boomers and older Americans should be on guard this holiday season. Instances of financial abuse and fraud against the elderly increased from November 2010 to January 2011, according to a recent report from MetLife, which found overall investment fraud targeted towards older Americans is on the rise.

Americans over the age of 65 lost nearly $3 billion to financial abuse from April to June 2010, up 12% from the same period in 2008, according to the report. During that time, 51% of the fraud cases reported were perpetrated by strangers, 34% by family, friends and neighbors and 12% by businesses.

But in a separate look at the holidays, MetLife reports fraud by family and friends increased to 45%.

With the baby boomer generation reaching retirement age and comprising 25% of the U.S. population, financial investment fraud is becoming a bigger and more problematic issue facing the country.

The North American Securities Administrators Association found the number of criminal complaints and enforcement actions at the state level against investors 50 years or older more than doubled in 2010 from 2009, reports The Wall Street Journal. And state security officials expected the number of enforcements actions for fraud against that same age group to hit a record this year.

Not only are the boomers older and more vulnerable, but “they tend to have more assets that they tend to rely on to live out through retirement years,” says Raj Date, Special Advisor to the Secretary of the Treasury and acting head of the Consumer Financial Protection Bureau. This combo makes them a more “attractive pray for would be scammers.”

Coupled with the fact that the Dow Jones Index is down nearly 15% since its high back in Oct. 2007, that’s a recipe for disaster. As older investors who have lost much of their retirement look for quick fixes to recoup losses, they become even easier targets of fraud.

“It is a real problem today and at the CFPB we want to make sure that we get out ahead of problems before they become more serious,” says Date.

In an effort to do so, the consumer watchdog has launched the office of Financial Protection for older Americans to help educate seniors on all types of investment matters, including fraud. For more information consumer and investors can visit the Consumer Financial Protection Bureau’s website.

In the meantime, Date does have one piece of advice to guard against fraud against older Americans.

“If it sounds too good to be true you should probably look again, because most things that seem too good to be true, in fact are not true,” he says.

That may be a truism, but it’s one everyone can benefit from in every area of our lives.


Categories: Economic Update

Frannie & Freddie at it again. One of the biggest bailouts of all time.

December 22, 2011 Leave a comment

Nomi Prins: How Many Regulators

Does It Take to Screw Investors Out of $1.2B?

Three-plus years since the subprime mortgage crisis — aided and abetted by Fannie Mae and Freddie Mac — triggered the collapse of Lehman and bailouts of the big banks and AIG, scant little progress has been made to safeguard the markets, investors or the economy.

To add insult to injury, the big banks are bigger and more profitable than ever, but still not a single person has been held accountable for causing the worst recession since the Great Depression.

“Nothing has changed since AIG,” says Nomi Prins, author of Black Tuesday. “These companies are too complex [and] the regulators too inept.”

The most recent fallout from lack of regulatory oversight of the banking and investing industry is the collapse of MF Global, run by former Goldman Sachs CEO Jon Corzine. A stunning $1.2 billion in client funds are still missing more than month after the company buckled on fears of its leveraged bets on European debt. (See: It’s the Leverage, Stupid: Jon Corzine’s MF Global Goes Bust)

The problem is banks and brokers “have too many different competing businesses that are mixed with customer funds… and [there’s] so many different regulators whooshing about not being responsive, not being accountable, not talking to each other,” says Prins, a former managing director at Goldman Sachs and currently a senior fellow at Demos.

Take MF Global (please!): “You had MF Global U.K., which was responsible to the financial services authority in the U.K. You had MF Global Inc., which was [responsible] to the CME, the CBOE,” she notes. “[And] you had it listed as a broker-dealer, which meant it was also supposed to be overseen by the SEC.”

Corzine testified under oath four times this month to four different Congressional panels and denied any wrongdoing or knowledge of what happened to his customers’ missing $1.2 billion. “While the last few days of MF Global were chaotic, I did not instruct anyone to lend customer funds to MF Global for any of its affiliates, nor was I told that anyone had done so,” he said.

“How many inept regulatory bodies does it take to screw customers out of $1.2 billion?” Prins asks in a recent blog post. She believes Corzine is trying to dodge accountability and responsibility — in the grand tradition of so many financial executives that came before him.

“I believe that Corzine knew exactly where those funds went and why they were needed,” she tells The Daily Ticker’s Aaron Task in the accompanying interview. “In the twelfth hour of the firm’s collapse there is no way as a person who knows these markets…who knows where money goes…who knows how it works had no clue what was going on.”

The way things are going for Corzine and the case of MF Global, it looks like he too may skirt free with no criminal charges levied against him.

Watching the Watchdogs

Such disregard for the pain and suffering caused over the last few years has many wondering: Where are the regulators? Where are the perp walks?

Well, the Securities and Exchange Commission, the regulatory body in charge of overseeing the securities industry and markets, has been busy — but only in allowing banks to settle charges of wrongdoing with nothing more than a slap on the wrist. By neither admitting nor denying wrongdoing, the SEC has allowed banks from JPMorgan to Citigroup “get off” on a wide range of issues with just financial penalties and settlements. (See: Taken to Task: Jamie Dimon’s House of Ill Repute)

Enough was finally enough for New York District Court Judge Jed Rakoff. Frustrated with inadequate punishment for financial malfeasance, he last month rejected the $285 million settlement between Citigroup and SEC, saying the deal was “neither reasonable, nor fair, nor adequate, nor in the public interest.” (See: Taken To Task: Capt. Cronyism, Hank Paulson)

The SEC case against Citigroup involves the bank misleading investors on risky mortgages. The regulatory body has appealed Judge Rakoff’s decision. (See: “Risky” for Citi to Defend Itself Against SEC in Court — FT’s John Gapper)

It must be noted, however, that the SEC on Friday did bring the first big civil charges against six former executives of Fannie Mae and Freddie Mac.

But according to Prins, more civil charges are just par for the course and Americans can only expect more of the same until regulators start doing a better job, stop “punting” on the penalties for unlawful behavior and make way for some real financial reform.

Until that time, don’t be surprised when, not if, another MF Global hits.


December 17, 2011 Leave a comment


12/18/11: Saturday

5 Variable Annuity Fees To Ask About


Variable Annuity Fees Can Be High – So Inquire Before You Buy


Variable annuity fees can be as high as 3.25% or more per year if you add additional features. Take the time to understand all the fees and charges before you buy.

The variable annuity fees you incur will fall into the following categories:

  • Mortality Expenses (M&E)
    This is a fee charged by the insurance company to provide you with a death benefit (often just a guarantee to pay out to your beneficiaries at least what was put in). This variable annuity fee can range from .50 – 1.5% of the policy value per year.
  • Administrative Expenses
    Many variable annuity policies have a separate administrative fee to cover the costs of mailings and ongoing service. This fee can range from .30 – .50% of the policy value per year.
  • Investment Expense Ratio
    Inside a variable annuity, the underlying stock and bond investment choices, called sub-accounts, will have an investment management fee which can range from 1.25 – 2.00% of the value in that account per year.
  • Additional Cost of Riders
    Riders are extra features on your variable annuity policy that provide you with additional guarantees or death benefits. Depending on the extent of the benefit, riders can cost .25 – 1.50% of the policy value per year.
  • Surrender Charges
    Many policies pay an upfront commission to the person who sells the policy to you. A surrender charge is put on the variable annuity policy so that if you cancel the policy early, the insurance company can thus recoup the commission they had to pay out.

Try to Avoid policies with long surrender charges.
Surrender charges can vary from 10 years to 15 years in length, which limits your flexibility. If your circumstances change, you will have only limited access to your money if there is a high surrender charge to get to it.

Think twice about going into a plan that has all these fees that take away from your annual gains, and fees are paid whether you have gains or losses.

Categories: Economic Update

Consumers still hurting!

December 17, 2011 Leave a comment

Consumers In TERRIBLE Shape and

“It’s Going to Get Worse”

Weak data on November retail sales and an earnings miss from Best Buy on Tuesday poured ice-cold water on the whole “strong holiday shopping season” meme.

All the upbeat commentary about Black Friday, Cyber Monday and the like was always specious, according to Howard Davidowitz, CEO of Davidowitz and Associates. Like Barry Ritholtz, Davidowitz says Black Friday data, particularly, can’t be trusted and is annually hyped by the retail industry to encourage consumers to get out and spend. (See: Fact or Fiction: Is the Consumer Back?)

In his own inimitable style, Davidowitz explains why the consumer is in “terrible shape” and why “it’s going to get worse,” citing the following:

  • Crushing Debt Load: Consumer debt is 117% of disposable income.
  • Help Not Wanted: Even November’s “strong” report included more people dropping out of the labor pool (315,000) vs. those who found work (278,000), according to the Labor Department’s household survey.
  • Reverse Wealth Effect: Household net worth fell 4% in the third quarter, a drop of $2.4 trillion, according to the Fed. That’s the biggest drop since 2008 and would be hard to overcome even if wages were rising sharply, which they’re most certainly not.
  • Housing Bust Rolls On: Residential housing remains depressed, which is putting tremendous pressure on Americans’ net worth and sense of financial confidence. Davidowitz, among others, sees more downside for housing prices and another increase in foreclosures in 2012.

Longtime viewers will note “it’s going to get worse” is a familiar refrain for Davidowitz, going back to at least 2009. (See: “The Worst Is Yet to Come”: If You’re Not Petrified, You’re Not Paying Attention)

In the accompanying video, I asked what it would take for him to feel like things are getting better. As he’s wont to do with most subjects, Davidowitz answered that question with a stinging critique of President Obama. (See: “The Worst President in My Lifetime”: Howard Davidowitz on Obama)

Barring a Supreme Court ruling that Obamacare is unconstitutional and/or victory in November by any “sensible” Republican — Davidowitz thinks both Mitt Romney and Newt Gingrich qualify — there isn’t much about 2012 he’s looking forward to.



Categories: Economic Update

Deal or no Deal!!!

December 8, 2011 Leave a comment

Deal or No Deal? Stocks Fall as

Skepticism Rises Over Europe

By James B. Driscoll – 12/8/11

“We are very encouraged with the progress that is being made,” Treasury Secretary Tim Geithner said in Paris Wednesday following a meeting with French President Nicolas Sarkozy.

The financial market’s aren’t so sure.

After rising at the open, major averages slipped into the red by 10:00 a.m. EST and the S&P was recently down more than 1%. In Europe, bourses sold off into the close as hopes dim for a “grand bargain” at the EU summit.

The immediate cause for concern were comments from an unnamed German official who played down hopes the European Financial Stability Facility (EFSF) would be combined with the permanent European Stability Mechanism (ESM). Combining the EFSF and the ESM would create a bailout fund with over $1 trillion in firepower, at least on paper, and the official’s comments dampened hopes for dramatic action from EU policymakers.

“As we approach tomorrow’s ECB meeting and Friday’s EU summit, at this point for markets in the short term it all comes down to whether the ECB prints or doesn’t print,” writes Peter Boockvar of Miller Tabak.  Stepping back from the minute-by-minute headlines, the big concern is the European’s seeming inability to back up their rhetoric with concrete action.

“Their track record is not so good,” says Phillip Swagel, a University of Maryland professor and senior fellow at the Milken Institute. “The Germans and French come out with grand statements that they’re ready to address the issue…and then they don’t do it.”

Swagel, an Assistant Secretary of the Treasury during the Bush Administration, says the Europeans would be wise to take Sec. Geithner’s advice, but fears they won’t — or can’t.

“The problem is we don’t have a lot of influence,” he says. “The Germans and the French know what they need to do but politically it’s very difficult. German taxpayers in particular have to write a pretty big check to other countries” in order to save the eurozone.

For these and related reasons, Swagel is “skeptical” a deal gets done this week.

Given the optimism heading into this week, expect major market upheaval if he’s right and potentially something much, much worse. Hopefully the Europeans won’t take themselves – and the global economy – into another full-blown crisis, but the risks are rising.

Stay tuned and batten down the hatches.

Categories: Economic Update