Tuesday, May 29, 2012

Government Payments to Households Grow

The Census Bureau recently released figures that show 49.1% of the U.S. population lives in a household that received some type of government benefit or assistance in the first quarter of 2011.  This figure has ballooned since the early 1980’s when it measured 30% and since 2008 when it measured 44.4%.   

Friday, May 25, 2012

European Heads of State Clash

There has been a great deal of posturing and positioning this week amongst European leaders as they hold their 18th summit of the past two years.   The strong countries are being pushed to help their weaker neighbors, while Greece is being called upon to stick to the austerity measures they previously agreed to or risk being cut-off from aid.  The most recent heated discussions centered on issuing joint Euro bonds to raise money for Greece, Spain, Italy and Portugal.  But joint-country borrowing is not finding any support from Germany, which is one of the few European countries still seeing its economy in positive territory.  This strategy is extremely unpopular amongst German leaders and their citizens who are afraid of being drug into a recession.

Policy makers need to create economic growth initiatives, not just force cost cutting on already weak economies.  They also need to have a stronger fiscal union to provide true support for their monetary union.  The European Central Bank should be ready to provide liquidity to the banks as government debts will certainly require further restructuring, and although austerity is important, creating economic growth is more important.  Unfortunately it may take a real crisis, like Greece leaving the European Monetary Union and defaulting on its debts, for the parties to find common ground for a solution.  The deeper this crisis goes, the more volatility we’re likely to see in the prices of risk assets.   

Friday, May 18, 2012

In Perspective: Facebook

In its normal fashion, the investment marketplace has focused 110% over the recent days on the Facebook Initial Public Offering.  The investment markets and news outlets feed the public frenzy that often occurs surrounding the next market phenomenon and for Facebook it is no different. 
The big secret that many seem to forget…In five, ten and twenty years, looking back at Facebook’s IPO will reveal no measurable impact on one’s financial life as he sees it.  While many individuals focus on “the next big thing” in the investment marketplaces, no attention is given to the bigger financial decisions that will impact one’s life long-term! 
The bigger picture will always be more important than the biggest phenomenon on which the media outlets want you to focus.  The tough part is shifting attention away from the glitz and glamour of “the next Facebook deal” and shifting attention toward a meaningful long-term plan by answering the following question:  Do I have a platform to evaluate my progress towards my future financial goals? 

Saturday, May 12, 2012

What is to be done?

One of the market experts we follow is Jim Swanson who is the Chief Investment Strategist for MFS Investments.  He typically provides an interesting and insightful perspective on global events.  We especially enjoyed reading his comments on the recent European elections and have decided to share them with you. 

Posted: 10 May 2012 02:14 PM PDT by Jim Swanson

"The fault, dear Brutus, is not in our stars,
But in ourselves, that we are underlings."
-Julius Caesar by William Shakespeare
The recent elections in Europe have created a new crisis of confidence in the world markets. Last year, fear of contagion raged, as bank failures spread throughout eurozone. This year, we are experiencing a different kind of contagion. Voter backlash has swept two austerity-imposing governments from power and now threatens other eurozone regimes that have tried to impose their harsh brand of fiscal authority in an effort to appease European creditors.

In France, the president has been thrown out. In Greece, newly elected legislators from the left-of-center party are demanding a reversal of what they are calling the "barbarous" austerity measures agreed to by the former government.
With more elections on the way, politicians are now taking a fresh look at the timing of budget cuts that are being implemented with the eurozone in the midst of recession. They seem to have concluded that growth and austerity are incompatible. But, is that really the case, or is it rather a case of who or what is fueling the growth that will enable a country's economy to be lean at the same time that it is prosperous?

Wednesday, May 2, 2012

Social Security Board of Trustees Report Released

The 2012 annual report on the financial status of the Social Security Trust Fund was recently released by the Social Security Board of Trustees.  Under the current system, the Board’s long-range projections indicate the combined OASDI (Old-Age and Survivors Insurance and Disability Insurance) Trust Funds may be exhausted in 2033.  It’s noteworthy that this projection is 3 years earlier than the Board projected within its 2011 annual report.  It is estimated that only 75% of scheduled benefits will be available for recipients once the Trust Funds are exhausted. 

The report urges legislators to act soon to increase the program’s solvency and provides the following options for the combined Trust Funds to remain healthy for the full 75-year projection period:

1.    Permanently increase the payroll tax by 2.61% (split equally at 1.305% each for employee and employer),
2.    Immediately reduce scheduled benefits by 16.2%,
3.    Create more revenue, or
4.    Some combination of these options.

Our view is that Social Security will certainly remain in place, but lawmakers will be forced to make changes eventually – as have occurred in the past – to create long-term stability.  These changes will most likely impact younger generations and may consist of increasing the Social Security defined full retirement age, reducing benefits for high income wage earners, increasing the taxability of benefits (currently up to 85% of benefits are subject to federal income tax), raising the amount of income subject to the payroll tax ($110,100 currently), increasing the payroll tax, etc.

The full 242 page report can be found here:  www.socialsecurity.gov/OACT/TR/2012/. 

April 2012 Market and Planning Update


ACTING IN AN UNCERTAIN WORLD
Everyone has likely heard plenty about the inevitable tax and spending changes coming at the end of this year. Change will occur whether it is by default (in the event Congress and the President do nothing) or whether it is by our leaders’ own actions prior to midnight on 12/31/2012. When evaluating certain wealth planning strategies that have to do with income tax, estate tax, levels of projected growth and the like, a world rife with uncertainty can be challenging for the key financial decision maker in the average American household. READ MORE


MARKET COMMENTS & OBSERVATIONS
We saw most stock market indexes take a breather during April although many are still considerably higher for 2012. Out of the five financial market indices represented below, only the two bond indexes posted positive gains this past month. Stock prices have appreciated significantly this year thanks to continued easy money policies by central banks, healthy corporate balance sheets, better earnings, and a gradually improving economic picture. READ MORE