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Monthly Economic Update – November

November 16th, 2010 | No Comments | Posted in Monthly Economic Update

MONTHLY QUOTE
“One must work and dare if one really wants to live.”
Vincent Van Gogh

MONTHLY TIP
Take a second look at monthly payments you may have contracted years ago (cell phone usage, for example). Plan prices may have dropped. Are you overpaying? Imagine what an additional $20-$50 per month, contributed to your IRA or 401(k), could add up to by the time you retire!

MONTHLY RIDDLE
You see a large truck stopped just before the underpass of a low bridge. The driver informs you that his truck is 1″ higher than the maximum clearance. This is the only road to his destination. What is the easiest way to help him get his truck through the underpass?

Last month’s riddle:
When can you add two to eleven and get one as the correct answer?

Last month’s answer:
On a clock face.

THE MONTH IN BRIEF
Stocks do poorly in October – right? Well, they didn’t do so poorly in October 2010, a month in which the S&P 500 gained 3.69%.1 Wall Street considered the mid-term elections, the fall earnings season and the all-but-certain resumption of quantitative easing from the Federal Reserve with a lot of anticipation (and a little bit of anxiety). Away from Wall Street, unemployment remained high and consumer spending seemed to be slowing again. With Americans losing faith in incumbent politicians and their claims of moderate economic growth, the Fed and the Obama administration thought about a proper response.

DOMESTIC ECONOMIC HEALTH
It seems almost a given that the Federal Reserve will intervene in the economy again, albeit too late to have an effect on mid-term elections. The latest Commerce Department data showed personal spending up 0.2% for September, not exactly the 0.4% gain economists polled by Bloomberg forecast. Personal wages declined by 0.1% in September, and there hadn’t been a reversal in that category since July 2009. Speaking of reversals, the most respected consumer sentiment survey in America reversed course in October – the University of Michigan’s index fell to 67.7, the lowest reading since November 2009. (The Conference Board’s index did show some improvement, rising 1.6% to 50.2.) 2,3,4

The Commerce Department estimated third-quarter GDP at +2.0%, which mitigated some of the anxieties about a double-dip recession. However, more pronounced growth was needed to make a dent in the nation’s 9.6% jobless rate.5,6 The manufacturing sector was healthy, as evidenced by the October Institute for Supply Management report – a 56.9 reading, up 2.4% from September and marking the fifteenth straight month of growth. ISM’s October service sector index improved 1.1% to 54.3.7,8

We got word that consumer prices rose only 0.1% in September; the core Consumer Price Index was flat, just as it had been in August. Producer prices were up 0.4% for September according to the Labor Department, with core PPI rising only 0.1%. If retailers were keeping prices low to promote a little demand, it was aiding retail sales – the Commerce Department said they were up 0.6% in September following a revised 0.7% advance in August.9,10.11

The Fed made no move with interest rates, but certainly held Wall Street’s attention for most of the month with signals of quantitative easing – and an October 25 Wall Street Journal article asserting that “ it would gradually buy a few hundred billion dollars worth of Treasuries over the next several months” was accurate.12

GLOBAL ECONOMIC HEALTH
Confidence was up in Europe, at least according to the Eurozone’s October index of executive and consumer sentiment. It rose to 104.1, the highest level since December 2007. The key German business confidence index improved along with European manufacturing growth. In the middle of the month, the International Monetary Fund forecast a +1.7% GDP this year for the euro-region economy, which would be a great improvement from the -4.1% mark of 2009. The IMF also predicted +3.3% 2010 GDP for Germany, the EU’s biggest economy. The European Central Bank kept its key interest rate at 1.0%.13

A Goldman Sachs analysis forecast China’s GDP at +10.1% for 2010 and +10.0% for 2011; China’s 3Q 2010 GDP was officially +9.6%. Japan, which had managed a +1.5% GDP for the second quarter, saw the yen touch a 15-year high against the dollar last month.14,15 Manufacturing leapt north in both India and China; India’s HSBC Purchasing Managers’ Index went to 57.2 from September’s 55.1 reading, and China’s benchmark PMI improved from 53.8 to 54.7.16

WORLD MARKETS
Most of the world’s benchmarks posted October gains. Leading the pack: the Shanghai Composite’s A Shares index, which rose +14.1%. Coming in second: Argentina’s MERVAL at +11.5% for the month. Other emerging market indices did quite well, with Brazil’s Bovespa going +6.9%, Mexico’s IPC All Shares at +6.4% and Russia’s RTSI at +6.2%. (Indonesia’s JSX Composite climbed 4.0% last month, and the Hang Seng advanced 3.2%; India’s Sensex gained only 0.2%.) Away from the emerging markets, Germany’s DAX gained 5.1% for the second month in a row; France’s CAC 40 pulled off a 2.6% October gain. Canada’s TSX Composite gained 3.1% and England’s FTSE 100 gained 1.9%. However, Japan’s TOPIX sank 4.3%. The twin MSCI indices did well: in U.S. dollar terms, the World Index gained 3.65% while the Emerging Markets Index advanced 2.81%.17,18

COMMODITIES MARKETS
The bull market in precious metals showed no signs of slowing down. Palladium prices gained 12.9% last month. Platinum and silver prices both gained 2.9% in October, with silver ending the month at a 30-year high ($24.56 per ounce). Gold hit another record close on October 14 ($1,377.60 per ounce) on the way to a 3.7% October advance.19

Crop futures are volatile with the seasons, and there were some big gainers as we moved into fall in the northern hemisphere. Sugar advanced 23.0% in October, and cotton rose 22.0%. Corn gained 17.4%. Oil had a decent month, with futures gaining 1.83% on the NYMEX. The U.S. Dollar Index lost 2.22% for the month. 78.79.20,21,22

REAL ESTATE
Home sales basically had nowhere to go but up – so up they went. Existing home sales rose by a gratifying 10.0% in September, while new home sales climbed 6.6% in that month with the median price up 3.3% from 12 months ago. The August S&P/Case-Shiller home price index showed a year-over-year gain of 1.7%. However, another wave of foreclosures and persistent unemployment and underemployment still stood in the way of any pronounced housing sector recovery.23,24,25

If your home was worth more than its mortgage, it was a great time to refinance. Comparing Freddie Mac’s September 30 Primary Mortgage Market Survey with the October 28 edition, average rates on 15-year FRMs dropped still further from 3.75% to 3.66%. Average rates on 30-year FRMs went from 4.32% to 4.23%. By October 28, average rates on 5-year ARMs (3.41%) and 1-year ARMs (3.30%) had moved lower as well.26

LOOKING BACK…LOOKING FORWARD
It is always nice when you can describe a market month as the “best since…”, and if you are considering assorted Octobers, we can apply a couple of superlatives to October 2010. Last month constituted the finest October for the S&P 500 since 2003 and the best October for the Dow since 2006.1

% CHANGE Y-T-D 1-MO CHG 1-YR CHG 10-YR AVG
DJIA +6.62 +3.06 +11.60 +0.26
NASDAQ +10.50 +5.86 +19.54 -2.14
S&P 500 +6.11 +3.69 +10.99 -1.54
REAL YIELD 10/29 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.50% 1.50% 2.01% 4.03%

Sources: cnbc.com, bigcharts.com, ustreas.gov, bls.gov – 10/29/10 1,27,28,29

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

So the elections are done, and the market pretty much priced them in along with the second installment of Fed easing. What might the rest of November hold? Well, the market could follow history and go into rally mode – as Standard & Poor’s chief investment strategist Sam Stovall recently cited in the Wall Street Journal, the Dow has climbed an average of 17.1% in calendar years following mid-term elections since World War II.30 Of course, stocks have defied historical patterns for the past couple of years, so who knows if 2011 will give investors that kind of gift. When you consider that some major financial and political issues probably won’t be resolved until December or January (the estate tax, the EGTRRA/JGTRRA income tax cuts and health care costs), you get the sense that Wall Street might watch and wait for the next couple of months before taking any kind of strong turn.

UPCOMING ECONOMIC RELEASES: What’s on tap for the rest of the month? Coming up, the October jobless report and September pending home sales (11/5), September wholesale inventories (11/9), the preliminary November University of Michigan consumer sentiment survey (11/12), October retail sales and September business inventories (11/15), October PPI and September industrial output (11/16), October CPI, housing starts and building permits (11/17), the Conference Board’s October leading indicator index (11/18), October existing home sales and the second estimate of 3Q GDP (11/23), a big day just before Thanksgiving with October consumer spending, new home sales and durable goods orders plus the November FOMC minutes (11/24), and then the September Case-Shiller home price index and the Conference Board’s November poll of consumer confidence (11/30).

Citations.
1 – cnbc.com/id/39916022 [10/29/10]
2 – blogs.barrons.com/stockstowatchtoday/2010/11/01/markets-open-higher-despite-spending-woes [11/1/10]
3 – theatlantic.com/business/archive/2010/10/consumer-confidence-remains-weak-going-into-midterms/65173/ [10/26/10]
4 – dailyfinance.com/story/consumer-sentiment-dips-on-economic-concerns-ahead-of-elections/19694879/ [10/29/10]
5 – abcnews.go.com/Business/wireStory?id=12000624 [10/29/10]
6 – bls.gov/news.release/empsit.nr0.htm [10/8/10]
7 – ism.ws/ISMReport/MfgROB.cfm [11/1/10]
8 – ism.ws/ISMReport/NonMfgROB.cfm [11/3/10]
9 – bloomberg.com/news/print/2010-10-15/consumer-prices-in-u-s-rise-0-1-in-september-core-unchanged.html [10/15/10]
10 – foxbusiness.com/markets/2010/10/14/september-producer-prices-rise/ [10/14/10]
11 – bloomberg.com/news/2010-10-15/u-s-consumer-confidence-unexpectedly-decreases-to-67-9-in-michigan-index.html [10/15/10]
12 –online.wsj.com/article/SB10001424052702303891804575576533845166848.html [10/25/10]
13 – bloomberg.com/news/print/2010-10-28/confidence-in-europe-s-economy-rises-more-than-forecast-on-manufacturing.html [10/28/10]
14 – english.peopledaily.com.cn/90001/90778/90862/7186959.html [11/3/10]
15 – blogs.wsj.com/japanrealtime/2010/10/21/its-jrt-official-china-the-new-no-2-economy/ [10/21/10]
16 – ft.com/cms/s/0/1c954a1a-e55f-11df-8e0d-00144feabdc0.html [10/1/10]
17 – emerginvest.com/WorldStockMarkets/Countries.html [10/29/10]
18 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [10/29/10]
19 – bullionpricestoday.com/bullion-prices-soar-in-october-2010/ [11/3/10]
20 – blogs.wsj.com/marketbeat/2010/10/29/data-points-energy-metals-391/ [10/29/10]
21 – forexyard.com/en/news/COMMODITIES-Markets-end-session-month-with-modest-gains-2010-10-29T212601Z [10/29/10]
22 – online.wsj.com/mdc/public/npage/2_3051.html?mod=mdc_curr_dtabnk&symb=DXY [11/3/10]
23 – businessweek.com/news/2010-10-25/u-s-existing-home-sales-rise-more-than-forecast.html [10/25/10]
24 – blogs.wsj.com/developments/2010/10/27/new-home-sales-stuck-at-rock-bottom/?mod=google_news_blog [10/27/10]
25 – bloomberg.com/news/2010-10-26/home-prices-in-20-u-s-cities-rose-less-than-forecast-case-shiller-says.html [10/26/10]
26 – freddiemac.com/pmms/index.html?year=2010 [11/3/10]
27 – bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=10%2F29%2F09&x=0&y=0 [10/29/10]
28 – ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml [10/29/10]
29 – treasurydirect.gov/instit/annceresult/press/preanre/2000/ofm11200.pdf [7/12/00]
30 – online.wsj.com/article/SB10001424052748704062804575510482714106168.html [9/25/10]

Is America Prepared to Retire?

November 16th, 2010 | No Comments | Posted in Financial News

Two-thirds of us have no financial plan.

64% of Americans have no financial strategy at all. That’s right – no plan whatsoever to build wealth or keep it. That finding comes from the 2009 National Consumer Survey on Personal Finance conducted by the Certified Financial Planner Board of Standards, Inc. (The survey collected data from 1,700+ U.S. residents.)1

Only 17% of us have a written financial plan that is updated regularly. So congratulate yourself if you are in that group. The CFP Board found that just 17% of the 36% polled who did have a written financial plan had reviewed it in light of changing times. Notably, 48% said they had benefited from having a written plan.1,2

Just 38% of the 36% having written financial plans retain a financial advisor. The really troubling part: 37% of those with written plans are doing their financial planning on their own. Another 12% of respondents with written plans have consulted a friend or family member who isn’t a financial services professional for advice.1

Why don’t more people have a financial plan? After all, Americans of all incomes and savings levels certainly are free to set financial goals. In the survey, the reasons varied. Some cited the expense of engaging a financial advisor; some said they get along just fine without a financial plan, and others felt their finances weren’t complicated enough to warrant one. Others were hazy about financial services industry qualifications – 40% of respondents had no idea that there were professional credentials or designations for financial advisors.

Syndicated financial columnist Humberto Cruz recently noted that when he told some fellow vacationers in Orlando that he wrote about financial planning, they all asked him if he gave stock tips. He had to explain that he was simply a journalist, not a financial planner.3,4

Defined goals lead to definite plans. If you set financial objectives and plan for them, you vault ahead of most Americans – at least according to the CFP Board’s findings. A written financial plan does not imply or guarantee wealth, of course; nor does it ensure that you will reach your goals. Yet that financial plan does give you an understanding of the distance between your current financial situation (where you are) and where you want to be. Too many Americans, it seems, have little comprehension of their financial situation or their financial potential.

How much planning have you done? Retiring without a financial plan is an enormous risk; retiring with a financial plan that hasn’t been reviewed in several years is also chancy. A relationship with a financial advisor can help to bring you up to date about what you need to do, and provide you with more clarity and confidence when it comes to the financial future.

Citations.
1 cfp.net/downloads/CFP_Board_2009_National_Consumer_Survey.pdf [7/24/09]
2 reuters.com/article/pressRelease/idUS132983+24-Sep-2009+BW20090924 [9/24/09]
3 sltrib.com/business/ci_13467337 [10/2/09]
4 chicagotribune.com/topic/hc-cl-cruz-bio,0,84843.story [10/9/09]

The Value of a Specialized 401(k) Audit

November 16th, 2010 | No Comments | Posted in Financial News

It can reveal hidden flaws and help you improve the plan.

Provided by Keith P. Warmbein

Why do companies request specialized audits of their 401(k)s? After all, the standard annual audit that large companies routinely attach to Form 5500s may seem adequate. Yet a specialized audit may reveal things that have gone unnoticed for years, or conditions that should be improved.

There are four types of specialized 401(k) audits: operational reviews, investment option reviews, compliance audits and governance audits.

Operational reviews. Sometimes the procedures of a plan aren’t being followed – the plan document says something should be done one way, and in real life it is being done quite another way (or not at all). Maybe your plan document says that at the end of the plan year, any participant forfeitures of your company’s discretionary 401(k) contributions are to be reallocated among other plan participants. Well, maybe that hasn’t been done since 2007.

An operational review can help an HR officer uncover and fix these things before the Department of Labor or the IRS has to get involved. These audits are designed to make sure that recordkeeping goes according to the plan document, and they may even include analyses of employee investment patterns. That brings us to the next type of specialized audit …

Investment option reviews. What kinds of account fees are plan participants being charged by the plan provider? Do they seem high? Do other plan providers present more investment choices with lower fees? Is it time to evaluate the current investment options in light of the original IPS (Investment Policy Statement)? This type of review can assess the investment scope (and financial potential) of the current plan.

Compliance audits. You don’t want your plan to commit prohibited transactions or violate ERISA rules. So are payments and loans from the plan being made on time? Are account beneficiaries being named correctly? Have new hires been properly informed about the 401(k)? Are the vesting rules being correctly applied?

These audits confirm that a 401(k) is operating according to the plan document and federal regulations. If two plans have merged or a new plan has been adopted, or if one plan administrator has left and another has come in, these reviews may prove very illuminating.

Governance audits. Is the plan sponsor fulfilling its fiduciary responsibility? How well is the business managing and delegating the responsibility of running a 401(k)? That’s what these reviews are all about. Who is the named fiduciary? What is the degree of transparency? How thoroughly do the owners and HR officer understand governance requirements? You don’t want the IRS or Department of Labor to get the idea that you’re playing things by ear.

Worth the cost? Yes. These specialized audits can bring flaws in a 401(k) to light – leading to a 401(k) that is more efficiently managed, more attractive to new hires and key personnel, and more in line with rules and regulations.

How Much Retirement Income Will You Really Need?

November 16th, 2010 | No Comments | Posted in Retirement News

Many people underestimate lifestyle costs, medical expenses and inflation.

What is enough? What is not enough? If you’re considering retiring in the near future, you’ve probably heard or read that you need about 70% of your end salary to live comfortably in retirement. This estimate is frequently repeated … but that doesn’t mean it is true for everyone. It may not be true for you.

You won’t learn how much retirement income you’ll need by reading this article. You’ll want to meet with a qualified retirement planner who can help you plan to estimate your lifestyle needs and short-term and long-term expenses.

That said, there are some factors which affect retirement income needs – and too often, they go unconsidered.

Health. Most of us will face a major health problem at some point in our lives – perhaps even multiple or chronic health problems. We don’t want to think about that reality. But if you’re a new retiree, think for a moment about the costs of prescription medicines, and recurring treatment for chronic ailments. These minor and major costs can really take a bite out of retirement income, even with a great health care plan. While generics have slowed the advance of prescription drug costs to about 1-2% a year recently,1 one estimate found that a 65-year-old who retired in 2007 would need $215,000 to pay for overall retirement health care costs – up about 7.5% from 2006.2

Heredity. If you come from a family where people frequently live into their 80s and 90s, you may live as long or longer. Imagine retiring at 55 and living to 95 or 100. You would need 40-45 years of steady retirement income.

Portfolio. Many people retire with investment portfolios they haven’t reviewed in years, with asset allocations that may no longer be appropriate. New retirees sometimes carry too much risk in their portfolios, with the result being that the retirement income from their investments fluctuates wildly with the vagaries of the market. Other retirees are super-conservative investors: their portfolios are so risk-averse that they can’t earn enough to keep up with even moderate inflation, and over time, they find they have less and less purchasing power.

Spending habits. Do you only spend 70% of your salary? Probably not. If you’re like many Americans, you probably spend 90% or 95% of it. Will your spending habits change drastically once you retire? Again, probably not. Most people only change spending habits in response to economic necessity or in pursuit of new financial goals. People don’t want to “live on less” once they have had “more”.

Social Security (or lack thereof). In 2005, SSI represented 39% of a typical 65-year-old retiree’s income. But by 2030, Social Security may only replace 29% of that income, after deductions for Medicare premiums and income taxes. Since 1983, retirees earning more than $25,000 in SSI have had to pay income tax on a portion of their benefits.3 This is all presuming Social Security is still around in 2030.

So will you have enough? When it comes to retirement income, a casual assumption may prove to be woefully inaccurate. Meet with a qualified retirement planner while you are still working to discuss these factors and estimate how much you will really need.

Citations.
1 nytimes.com/2007/09/21/business/21generic.html?_r=1&oref=slogin
2 marketwatch.com/news/story/health-care-costs-retirement-rise/story.aspx?guid=%7bEF2B6CDA-E176-4747-B528-76AC814051C5%7d&print=true&dist=printTop
3 money.cnn.com/2007/05/14/pf/retirement/nasi__report/index.htm

Why Invest Money For The Future?

November 16th, 2010 | No Comments | Posted in Financial News

Whatever decisions we make today affect our future. A bright future is possible if you start planning for it today. Choose your long term money investments wisely because they can help improve or destroy your future. Basically we all need to have a long term investments. However, many of us still wonder why it is important to invest money.

It is quite self explanatory. At one point we shall have to retire because we cannot work forever. No matter how strong we are, out health will definitely give way because the aging process comes with many health complications. Therefore, we have to prepare for our lives after retirement. No one can claim to predict how his or her future will be hence the reason why we need to invest money properly. Life is unpredictable; one minute we are healthy and the minute we are sick.

Now you know why it is necessary to invest money and therefore you should start making long term plans for your future. The only problem is that many do not know how to choose a good investment. The first thing that you should do is to define what your future goals are. Ask yourself what kind of investment you want when you retire, how much you will set aside each month or year for your investment project and also your retirement age. Write these goals down so that they can help guide you not to lose focus.

There are many ways you can use to invest money if you take your time to research. The internet is the best resource if you are searching for long term investments that fit into your budget. There are many websites offering useful information on the best long term investments so far. Note that some long term investments are profitable while others fail with time. It is therefore important to look at market changes when choosing a good investment. Remember the internet can offer you all the information you wish to know about long term investment. Visit these websites today and make informed decision.

It is also important to choose the right firm when looking for the right long term investments. The firm you choose should offer you the needed support to help invest money properly. The firm you choose should not be against you. This investment is yours and not the firms. Lastly, choose an investment plan that will not strain your income or force you to borrow huge loans.

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Co-Workers Eating You Lunch?

November 15th, 2010 | No Comments | Posted in Fun

Nail Gun DaVinci

November 15th, 2010 | No Comments | Posted in Uncategorized

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