Wednesday, December 21, 2011

Wrangling Over a Phantom Stimulus By Bob Veres

The headlines are screaming again, this time about the Capitol Hill controversy over payroll tax cuts. And, as usual, there is more to the story than what you're reading.

First the good news. Earlier reports said that a stalemate on the tax cut would shut down the government, but before the Senate went home for the holidays, it passed a separate bill that finances the government through next September.

Better news: by all reports, Republicans and Democrats were--and are--in general agreement that there should be some kind of stimulus to the still-recovering economy, and the biggest, least-stimulated sector is consumer spending. The Republicans argued for more tax relief for the wealthiest Americans, and want to reduce pollution controls and force the President to approve the proposed Keystone XL pipeline, which would deliver oil from tar sands in Alberta, Canada to refineries in Texas. Meanwhile, the Democrats wanted a broad-based stimulus measure that would put spending money in the hands of more mainstream American consumers. And they supported environmentalist opposition to the pipeline and the pollution proposals.

Naturally, the two sides couldn't agree on a compromise, so the Senate, by an overwhelming majority, kicked the can down the road for two months by agreeing to continue the reduction in Social Security taxes from 6.2% to 4.2% until Congress could get back in session early next year.

It seems clear that the Senators expected their colleagues in the House of Representatives to follow this simple solution. But nothing is simple in this partisan political atmosphere, and the House (for now, at least) has rejected the measure.

There are several interesting complexities here that should have gotten more attention. One of them is the problems that this wrangling has created for employers, who will have to scramble at the last minute to change their payroll systems to reflect either the 6.2% rate or the 4.2% rate. Which will it be? Who knows? All anybody knows for sure is that the withholding amount will need to be correct starting January 1, and the National Payroll Reporting Consortium has already said that, as a result of the brinkmanship, there is now not enough notice to accommodate any changes that quickly.

Of course, if and when the whole issue is taken up at the end of the proposed two-month extension, companies would face exactly the same dilemma. Chalk this up to a Congress that is oblivious to the consequences of its actions on the business community--especially small businesses.

Behind the scenes, there are other dramas. One involves the very complicated way that the Social Security tax reduction is structured. Reducing the payroll tax would obviously reduce the flow of money into the Social Security trust fund, which is famously experiencing solvency troubles of its own. Neither side wanted to be seen as making the entitlement mess any worse, so the stopgap bill would have had the U.S. Treasury pick up the payments--a sideways accounting move has no real substance. The bill also prevents doctors who accept Medicare payments from receiving a 27% reduction in reimbursement payments, which would weaken the financial stability of another entitlement program, so the Treasury will pay that out of its pocket as well.

But the surprising thing here is that this is actually a revenue-neutral piece of legislation. The Treasury coffers would be replenished through a side door that nobody seems to have noticed. Title IV, entitled "Mortgage Fees and Premiums," would have raised the amount that Fannie Mae and Freddie Mac--the organizations that back a majority of home loans in the U.S.--would collect in mortgage fees after January 2012. In all, the raised mortgage fees--which would increase the cost of homeownership at a time when the housing market is staggering--would pay for the two month extension of the payroll tax cut (estimated at $20 billion) plus two months of additional jobless benefits for 2.5 million out-of-work Americans (an estimated $8.4 billion) and two months of added Medicare reimbursements to doctors (an estimated $6.6 billion).

Can we call this a stimulus, when money comes out of the pockets of home buyers and put in the pockets of payroll workers, the unemployed and doctors? Since the bill seems to be stuck in partisan wrangling, maybe the question is moot anyway.

Thursday, December 08, 2011

Don't Kill The Messenger

Don’t kill the messenger!

In days of old messengers were often killed by leaders, if they brought bad news to them, after awhile the messengers would defect or leave the country rather than bring bad news that would get them killed. Can you blame them?

Since the middle of August there has not been that much good news to talk about. I know some of you have been pretty disappointed that investments have not done better. Most people just want some good news. However, my job is to tell you the truth and safe guard your investments during times like this.

November 30th the DJIA was up almost 500 points and people were disappointed that we were not completely back into our investments. Yet if you understand what caused the rally you might be happier with cash.

First, China cut its reserve ratio requirement by 50 basis points overnight, which is the most effective means it has for trying to boost bank lending. This sent the markets up a bit over 1%. This is the first time since 2008 they have done so, indicating that the recent weakness in housing and construction markets in China is bad enough that China had to do something. The part that should be worrying you is China’s economy has hit a wall despite massive amounts of bank lending and deficit spending by China equal to at least 37% of its GDP in each of the last three years.

Second, there was a coordinated global central bank action to lower swap rates for European banks borrowing dollars. The U.S. Fed, ECB (European Central Bank) and other central banks are trying to make it attractive for banks in the Euro-zone to borrow dollars directly from the ECB instead of in the private or interbank markets. This keeps interest rates low. This was good for another 2% or so move in the markets. However, this does nothing to solve the underlying credit issues that are plaguing Europe, but merely postpones the day of reckoning. Everything I see and read tells me Europe will be in a recession like we had in 2008 within 18 months.

Third, the markets were oversold and trading on light volume which makes the sustainability of this move suspect. Despite the big move the markets stopped dead in the middle of the resistance band of 1245 to 1250 on the S&P 500.

Don’t Miss the Ten Best Days in the Stock Market

We have all seen the articles “Don’t Miss the Ten Best Days in the Stock Market” which all show that missing just a small percentage of the market's best days dramatically reduces an investor’s return. This assertion has been repeated so often that it's become unquestioned. Have you read an article that disputes this belief?

If you look at the top one-day gains and losses for the Dow Jones Industrial Average (DJIA), you will notice an interesting phenomenon.

1.The worst days seemed to be in close proximity to the best days

2.In the majority of cases, large percentage gainers were no more than 90
trading days away from a large percentage loser, sometimes before and sometimes

3.In 50 percent of the cases, gainers and losers were separated by no more than
12 trading days.

4.When looking at Nasdaq's the largest gainers and losers, all but two have
occurred since 2000.

These observations make it hard to believe that investment success rested upon being fully invested in order to catch the winning days. Rather, especially in the case of the Nasdaq crash of 2000, it suggests that it was more important to miss the worst bear market which brings us to the other side of the coin: All of the "Don't Miss the Ten Best" articles fail to mention what would happen to your portfolio if you missed the ten worst days. We know that it takes a 100% gain to make up for a 50% loss and Monte Carlo retirement analysis shows that low volatility portfolios often last longer than those tuned for high returns especially during your retirement years when you are drawing on your investments. So it's more important to avoid large losses than it is to pursue large gains.

What happens if rather than missing the ten best days, you miss the ten worst?

Paul Gire, CFP®, from Strategic Advisory Services decided to study this. He examined one of the most bullish periods in Dow history, from 1984 to 1998. In addition, He examined the impact from missing not just the 10 best and worst days, but also examined the 20, 30, and 40 best and worst days. What he found was simply remarkable.

1.The buy-and-hold return for this 15-year period was 17.89%, one of the most
bullish periods in the stock market’s history.

2.As expected, missing the best days lowered returns, and missing just 40 of
the best days over this 15 year period cut returns nearly in half.

3.Missing the worst days has the expected result of increasing returns
substantially, improving the return by 77% for missing the 40 worst days.

However, how realistic can it be to get in and out of your investments and be in your investments on the best days and out of your investments on the worst days, if 50% of those days are within 12 trading days of each other and all the rest are within 90 days of each other? Paul’s next discovery was really remarkable and to me the final key to my puzzle.

By missing both the best and the worst days between 1984 to 1998 you got a remarkably consistent return. Whereas missing just the best or worst had a magnified impact as the number of days increased, missing both produced a consistent return of approximately 20%, as shown by the chart at the beginning of this post.

Not only does missing both result in superior returns, imagine the benefits from lower volatility:

1.Lower mental and physical stress.

2.Less volatility on retirement income making it last much longer.

As investors learned during the 2000 to 2002 and 2008 to 2009 market meltdowns, it's one thing to stay the course when investments are booming, yet quite another when market meltdowns are rapidly eroding gains from years of careful saving and investing. The 30 months 2000 to 2002 stock market meltdown erased half of the market gains made since 1974, the previous 26 years. Then came 2008 and early 2009. Now look at what is happening in 2011.

Is it possible we are missing something when we look at the last 110 and 10 year periods? Stay tuned for next month's post!

Thursday, November 17, 2011

World problems and November 23rd:

The current worldwide problems have so many twists and turns you just don't know what to do next. Let’s take a look at what I am seeing right now.

Europe: Every time one of the PIIGS (Portugal, Italy, Ireland, Greece & Spain) appears to have or not have a solution to their debt problems your investments go crazy. The DJIA can move up and down 500 points in a day. The problem as I see it is that we have five countries with debt problems and only one or two have been working on their problems. So does this mean we will continue to have 500 point swings until all five countries get things under control? Probably?

United States: The Presidential cycle tells us that we have 7 ½ months before the market volatility will slow down in the United States. Our unemployment is way too high, with no hope to go lower until after the election next year. Does that last statement surprise you? It should not. The Republicans do not want the country to get better, or they won’t be able to put a Republican in the White House.

Inflation and Interest Rates: Here the government maybe down right lying to us. They tell us that we have no inflation and it is better for the recovery to keep interest rates low.

I was buying this for a while. Then I heard the statement, “If Italy could pay 2%, rather than 6% on their bonds, Italy would not have its current debt problems.

That got me thinking, since I was also told that higher inflation would help the recovery rather than hurt it. With inflation housing prices would go up, companies could raise prices, profits would go up, individual wealth would increase, companies would have a reason to start hiring and the economy could get better.

So why has the Federal Reserve stated that they will keep interest rates low for the next two year. The Government maybe afraid if inflation and interest rates were to be allowed to move freely, the interest rate the government would have to pay on their bonds would go up so high that the United States could be in the same shape that the PIIGS are now.

The Super Committee: Before you start thinking of Thanksgiving turkey or holiday shopping, there’s a big hurdle we have to surmount. The Nov. 23 deadline for the “Super Committee” of the U.S. Congress to come up with at least $1.2 trillion in cuts to the federal budget deficit over the next 10-years. If they don’t work out a deal, automatic budget cuts will take effect, as ordered by last summer’s debt ceiling agreement. While we’ve been watching Greece and Italy, this small group of legislators has been trying to work out an agreement on how to do this. Neither party wants their members to give in to an agreement that does not help their own party in the coming election.

If there isn’t some give and take now, the consequences could be draconian cuts in everything from the military budget to all social programs, not to mention what this would do to the stock markets.

There are other possibilities. The committee could ask for a deadline extension. The goal is to have the Congressional Budget Office “score” the savings in time for Congress to pass the package by the end of the year. They will only have four weeks to do that, after the 23rd, if they want to go home for Christmas.

If the committee is deadlock and fails to agree, it could put the United States in the position that Italy and Greece are currently in.

If they could come to agree on even deeper cuts than the minimum, it could set America back on the right course for the next generation. Today's voters would not like what it would take to do this, but it would have a very positive effect on the future of the country and the stock markets. What do you think the chance of this happening is?

The results that come out of the Super Committee will create a significant turning point for the economy. So we want to be prepared to adjust your long-term investment allocations, but we don’t want to jump before thinking about the consequences.

If the Super Committee and Congress can’t come to an effective resolution, gold will surely soar; inflation or debt default will push interest rates much higher. The stock market’s immediate reaction would be downward as market participants don't like uncertainty, but stocks historically have been a very good hedge against inflation. If the Super Committee does not come up with a solution by November 23rd and the stock markets fall; any cash you currently have will look pretty good. Yet, you will need to get that cash invested while the markets are down to profit from our government’s inability to do what it should do.

So how should you invest if that happens?
That just went out in my latest newsletter to clients.

Thursday, October 06, 2011


Since April 2011 Americans witnessed a political theater over the U.S. debt ceiling. The Standard and Poor’s review of that performance resulted in a downgrade of the federal government’s credit rating.

While Congress raised the debt ceiling for now, the U.S. debt remains a problem and the short-term solution offered by the deal in Congress does little to give us a long-lasting solution.

The creation of a “super” deficit committee by Congress merely kicked the can down the road. Congress, and its long years of indecision regarding what to do about deficits and the national debt, is the problem!

The U.S. is currently experiencing historically high levels of debt. The best way policy experts have of measuring debt burden is comparing the national debt to total Gross Domestic Production (GDP). Today, the total net debt is 75% of GDP. This type of high debt is normal during periods of war like that of WWI and WWII. We are at war in Afghanistan and Iraq; however, that is nowhere near the wartime mobilization of WWI and WWII.

The U.S. debt is an accumulation of many years of deficits, which has been brought about by exceeding revenues during past fiscal year. These deficits did not cause our current situation alone. The U.S. has run an annual deficit in almost every year since 1945. But we have never encountered debt levels as perilous as the one we have now.

Our debt is due to structural causes brought about by poor political choices. These poorly designed public policies directly contributed to the housing bubble, loose oversight of Fannie Mae and Freddie Mac, lack of regulations on sub-prime lending and low-interest rates for far to long.

Public policies in response to the 2008 meltdown led to even higher debt with its fiscal stimulus and monetary policy. We should not fault the federal government’s response to the crisis in 2008; there were very few alternatives available once we got into that mess.

So you see, our large debt burden problem is structural and will not be reversed when the economy picks up. The hole the Congress has dug for our country is far to deep and getting deeper at an accelerating rate. We are coming to a tipping point. If we reach that point, several negative consequences could result.

1. The national debt will crowd out private investment.
2. Spending will have to be cut and taxes raised to pay off just the increasing interest on the U.S. debt.
3. The debt load will severely restrict the government’s ability to act in times of an emergency.

There is time to start reversing the trend; we are not doomed to the fate of countries such as Greece and Ireland. Yet, it will take a bipartisan approach and shared sacrifice to correct our present course and here in lays the problem. We have seen how our Congress and Senate work together, or should I say do not work together. If the U.S. continues down the same road it has been on for the last 12 years, we are going to get the same results: recessions, higher U.S. debt and continued high unemployment.

The definition of insanity is continuing to do the same thing you have always done an expecting a different results.

You can be part of the solution. We are about to go through the thing that has always made this country GREAT! A National election! You need to meet with our candidates and listen closely to them. You also need to be heard by them. You need to be heard saying that you will not stand for politics as usual. You know in your heart of hearts that to actually fix the problems of the U.S. debt, unemployment and our country; we will have to raise taxes and cut spending. Don’t stand for a politician that is promising “No new taxes” or “We can cut spending” alone. They are simply saying what you want to hear to get elected. Stand up for what you personally feel it is going to take to fix our country!

Thursday, August 04, 2011

Did anyone get the license number of the truck that just ran over the stock markets?

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity…” These words, penned in 1859 by Charles Dickens, could well describe the technical picture of our current market.

Without the help of any particularly bad news announcements, the stock market fell hard today, August 4th, with Dow Jones Industrial Average down nearly 513 points.

We moved our bond money back into markets during the first of the week just before the debt problem was fixed. Yes, Washington just kicked the can down the road and did not fix the problem, but they did enough that the markets should have been happy for now. However, look what is happening?

I have checked the Yield curve, oil prices and transportationals and only the transportationals show any signs of a problem.

I am not sure what is causing the current problem, except Washington’s dragging out the debt crisis and other problems like the air traffic control problem. Washington may have spooked the world by their ineptitude and lack of understanding of what goes on in the real world. Congress and the Senate went on vacation while the U.S. Markets (Roman) burns.

Every year the stock markets have a 10% or 15% correction. We had a 10% correction caused by the Japanese Tsunami. I had hope that would be the only one this year. However we are down 10% this week, during a period of time that we should be going up? It feels like October 1987?

Stay tuned for tomorrow!

God bless!

Thursday, June 09, 2011

How to use your computer to get high quality low cost hotels!

Priceline, Bidding For Travel and Trip Advisor.

This information was originally given to me by a friend. I have changed it a little to try and make it easier to understand and use. OK,I’ll admit it: I’m on a mission to teach others how to get high quality hotel rooms at the lowest cost possible when they travel. So I would like to share how to make the most of, the website that helps users obtain discount rates for travel related services like airline tickets, hotels and rental cars. Priceline is not a direct supplier of these services. Instead, it facilitates its suppliers’ services to its customers.

Priceline offers two basic services:

1. A fixed-price travel service just like any other travel agency.
2. The other is the “Name Your Own Price” feature.

Priceline’s fixed-price service offers nothing special in terms of pricing, unless Priceline happens to posts a mistake rate that users can jump on if they act quickly. But that’s rare.

However, the “Name Your Own Price” feature can save you up to 60 percent on hotel costs
if you know how to use it.

To make the most of Priceline, you have to start by becoming familiar with four other sites:,,, and

BiddingForTravel, TravelBuddy, and BetterBidding are sites that list successful previous Priceline bids for airfares, hotels and car rentals around the world. Along with TripAdvisor, they also list reviews for the hotels in any given city, and by region, and by star rating, Five Star is the best, One Star is really bad. I bid for Four Star and Three Star hotels and, if the reviews are OK, Two and a Half Star hotels in a region where I want to stay.

To go through the steps, I’ll use a trip I took to see a client a few years ago. He lived in Boston at the time.

First, I went to and the Name Your Own Price hotels and found the various regions listed for the Boston market as well as the top hotel ratings in that zone.


1. I opened another window and headed to On that site, I went to “hotels,” then “Mass,” then “Boston.” I checked previous accepted prices in the various regions of Boston.

2. Then I looked at reviews of the hotels on

3. Then decided what star level I was comfortable with.

For me the downtown Copley and the Back Bay regions were too expensive. The airport region was best for me and within my frugal budget, especially since it came with shuttle service to the subway stop (“T”) to go downtown and then back to the hotel. On other trips to Boston, I’ve typically gotten the Hyatt Harborside Hotel, at Boston Logan Airport for $56 per night. It’s a beautiful hotel that costs $149 a night on a typical weekend. I always ask for a waterside room. If you do not ask for what you want, when you get to the hotel, they will give you a bad view by the elevators.

The key to being successful at is to read carefully the section on bidding and re-bidding. It is located in the Hotels FAQ. Suppose you want “Zone Airport” and a Four-Star hotel. From previous bidders, you see that $56 has been won in the past, so your first bid should be: Zone Airport, 4 stars, $50. If you don’t win that one, then add another zone that only has lower star levels available, and this time bid $54. If there are five zones without a hotel over three and one half stars, you get five free re-bids until you get an accepted bid.

Re-bidding allows you to start low and move your price higher without changing your parameters. But I have to caution you again: Read these sections of before going to where you will actually place your bids. You should even practice this technique with several imaginary cities without hitting the “Buy My Hotel” button. Once you’ve booked on Priceline, there are no refunds.

We have had people stay in Priceline rooms in over 30 U.S. cities, as well as in London, Dublin, Paris and Rome and they have never been disappointed. The key is to do your research on or first, then double-check the reviews at

It’s also important to remember to bid one star level higher in Europe for accurate comparisons to U.S. hotels. One bad hotel in a given zone and at a given star rating should force you to bid at a higher level or different zone for that city.”

Bottom line: By using these websites in conjunction – Priceline, TripAdvisor, BiddingForTravel, BetterBidding - you can save 60% on your travel expenses for the rest of your travel life.

It takes some work, but a dollar in your pocket is better than a dollar in someone else’s pocket. Play with this a couple of times and it will become easier than you think.

Thursday, May 26, 2011

The U.S. debt ceiling is no place for politicians to be playing chicken!

If you want a less-than-serious look at how our banking system works, try this short video on for size:

But if you want to know how Washington works, you need an insider to guide you.

Chances are, you've been a little dismayed about what you're seeing in Washington these days. Not only are the two parties constantly bickering at each other, but they seem to be blocking each other from getting anything done. That may be a great thing under normal circumstances, but at a time when there are so many major problems to be solved, gridlock doesn't seem to be the ideal solution.

That's why so many financial advisors were interested to hear what David Gergen said when he spoke at NAPFA’s conference in Salt Lake City. Gergen has worked for both Democratic and Republican presidents, and has managed to keep an insider's view of Washington. In his view, are things really as bad as they seem?

Gergen told the audience that, despite all the bickering, both sides of the aisle see the current debt crisis through the same basic filter. "People in Washington basically agree on the nature of the problem and its consequences," he said. "which are outlined in the theories proposed by economists Ken Rogoff and Carmen Reinhart."

Rogoff and Reinhart's influential book, entitled "This Time It's Different," looks at various debt, fiscal and economic crises in different countries around the world over a period of several hundred years. Their conclusion is that the most crippling economic scenarios play out over a familiar pattern. First, you have a financial crisis, and the government throws a ton of money to end it. "But then," said Gergen, "you have thrown so many resources at the problem that it moves from a financial to a fiscal crisis, because the government had to borrow so much to stop the financial crisis. And it is how they handle the fiscal crisis that determines their long-term well-being as a country."

The book also outlines some danger zones. If public debt grows larger than 60% of the size of the country's economy, you start to enter a danger zone. "At that point, you really need to deal with the problem or you are moving into deeper water," said Gergen.

If the debt level reaches 100% of GDP, the country moves into the danger zone. Its economic growth rate goes down at least a percentage point, and creditors (think: China) begin to get nervous and demand higher rates on their government bond investments. Borrowing costs go up, adding to the problem, and the lower economic growth rate lowers tax revenues, making it harder to pay down the debt, which and sends the whole situation into another round of still higher borrowing costs and lower economic growth.

Gergen noted that since World War II, U.S. government debt has generally run about 38% of America's Gross Domestic Product--what Rogoff and Reinhardt would call a healthy range. This last year, we reached the 60% level. Under the government's current trajectory, we might hit that 100% level in less than a decade.

Both Republicans and Democrats want to avoid that scenario, which is the good news. The bad news is that they disagree on how to do it. "There are two ways to address the problem," Gergen told the audience. "You can cut spending, or you can raise revenues. Spending is 25% of GDP right now. The Republicans want to get that down to 21%, the Democrats want to cut but not that far, and they both want to cut different things." To make up the difference, the Democratic leadership wants to raise taxes on upper-income Americans; the Republicans want to maintain the current tax rates.

Is there any hope? Gergen noted that a bipartisan committee headed by Republican ex-Senator Alan Simpson and Democratic former White House chief of staff Erskine Bowles has mapped out a way to reduce total government debt by $4 trillion, cutting spending by two dollars for every dollar of tax increases. A so-called Gang of 6 in Congress that included both liberal Democrats and Conservative Republicans was working on an alternative proposal, but that fell apart a week before Gergen spoke. A third group, chaired by Vice President Joe Biden, is still holding meetings.

Overhanging any negotiations, and making them more complicated, is the debt ceiling limit, which will be breached on August 2, throwing the U.S. in technical default on all of its bond obligations. "[U.S. Treasury Secretary Tim] Geithner would like to get this resolved well before August 2, so as not to rattle the markets," Gergen told the audience. "The Wall Street folks are warning the people in Washington not to play with the debt ceiling, that any loss of confidence in the U.S. could be a big deal. Meanwhile, the Republican leadership thinks they'll get a better deal as they approach August 2, and some Republicans think there may not be a problem if the negotiations go past August 2."

The silent party to these negotiations, the general public, seems not to understand the severity of the issue, Gergen said. "In recent polls, 60% of them think we should not raise the debt limit," he told the audience.

In the long run, Gergen said, if Congress manages to address the debt issue responsibly, it could make America stronger. "Otherwise," he said, "it will be very bad news." Because the political risks of taking action that might alienate the public, both Congress and the White House seem to prefer kicking the government debt issue down the road for 18 months, deferring any serious action until after the 2012 elections, which Gergen finds dismaying.

"We're playing right close to the edge on this," he told the group. "This is dangerous stuff for our politicians to be playing with." He described it as one of the most serious issues he has seen in Washington in the last 30-40 years.

Wednesday, May 04, 2011

Are the gasoline prices going to slow the current economic recovery?

Yesterday, when I filled up my, Lincoln MKZ Hybrid, gasoline tank I hit my all time record for the cost of a tank of gas, $64. So I started asking everyone I talked to, “How are the current gasoline prices affecting your activities?” They have all said gasoline prices are having an effect on how often they drive and the plans they are making for the summer.

Since crude oil is one of my three main indicators for stock market problems I decided to go back and see how crude and gasoline prices today relate to those in the past.

First, when crude oil prices go up near 80% on the first day of the month over the same price 12 months before, it signals a stock market problem coming. It has correctly signaled this January 1, 1974, September 1, 1979, July 1, 1987, September 1, 1990, November 1, 1999, July 1, 2000, October 1, 2004, November 1, 2007 and January 1, 2010. This was the only signal that called the October 1987 crash. So let’s take a look at what it is telling us today:

• Crude oil prices were up 54.02% over the same price 12 months ago on May 1, 2011, current Midwest regular gasoline price were $4.19 per gallon.
• The last time crude oil was this high was April 1, 2008, crude oil prices were $100.98 per barrel and gasoline prices were $3.71 per gallon.
• By July 1, 2008 crude oil prices were $140.97 per barrel and Midwest regular gasoline prices were $4.21 per gallon.
• Crude oil prices at or near $130.64 per barrel on June 1, 2011 would be a very red flag.

Interestingly enough, all reports show that we have a surplus of gasoline today. This is being explained because of all of the hybrid and high mileage cars that have been bought in the past few years.

If this is the case then why are prices so high? Well part of the reason is the political problems around the world in oil producing countries. The other part might be because of speculators within the investment markets. Our current gasoline prices are as high as when crude oil was at $140 per barrel not $111 per barrel. Why might that be?

Finally, why is this important to you: Crude oil has to do with everything you do and have; it does not just affect your gasoline prices? Crude oil is used for:

• Farmer’s fertilizer when they are planting your food.
• Medical chemicals.
• Clothing chemicals.
• Furniture finishing products.
• Cleaning chemicals.
• Transportation of products to factories and then to retailers and much more.

Only time will tell how big of a problem this is

Monday, May 02, 2011

Slow Buring Crisis

Through a combination of procrastination and bad timing baby boomers are facing a personal finance disaster just as they're hoping to retire. In January this year, more than 10,000 baby boomers a day began turning 65, a pattern that will continue for the next 19 years.

The boomers, who in their youth revolutionized everything from music to race relations, are set to redefine retirement. But a generation that made its mark in the tumultuous 1960s now faces a crisis as it hits its own mid-60s.

"The situation is extremely serious because baby boomers have not saved very effectively for retirement and are still retiring too early," says Olivia Mitchell, director of the Boettner Center for Pensions and Retirement Research at the University of Pennsylvania.

Today, I sees a lot of new empty-nesters who spent all their years and money raising kids, putting them through school and clothing them in the right brands.

"Now their kids are gone, and they realize they've done nothing to prepare for retirement. Many prospects come in to see us today and think they have all this money and they ask how they're doing, and they're shocked when I tell them they are in trouble. When they were kids, they thought that if they had $100,000, they were rich. Today, that doesn't go very far."

There are several reasons to be concerned:

• The traditional pension plan has disappearing. In 1980, 39% of private-sector workers had a pension that guaranteed a steady payout during retirement. Today that number stands closer to 15% and getting smaller, according to the Employee Benefit Research Institute.

• Reliance on stocks in retirement plans is greater than ever; 42% of those workers now have 401(k) accounts. But the past decade has been a lost one for stocks.

• Many retirees banked on their homes as their retirement fund. But the crash in housing prices has slashed a third of a typical home's value. Now 22% of homeowners, or nearly 11 million people, owe more on their mortgage than their home is worth. Many are boomers.

Failure to save

Too many boomers have ignored or underestimated the worsening outlook for their finances, says Jean Setzfand, director of financial security for AARP, the group that represents Americans over age 50. By far the greatest shortcoming has been a failure to save. The personal savings rate - the amount of disposable income unspent - averaged close to 10% in the 1970s and '80s. By late 2007, the rate had sunk to -1%.

The recession has helped improve the savings rate - it's now back above 5%. Yet typical boomers are still woefully short on retirement savings. Boomers in their 50s and 60s with a 401(k)account for at least six years had an average balance of less than $150,000 at the end of 2009.

Signs of coming trouble are visible on several other fronts, too:

Mortgage debt: Nearly two in three people age 55 to 64 had a mortgage in 2007, with a median debt of $85,000.

Social Security: Nearly 3 out of 4 people file to claim Social Security benefits as soon as they're eligible at age 62. That locks them in at a much lower amount than they would get if they waited.

The monthly checks are about 25 percent less if you retire at 62 instead of full retirement age, which is 66 for those born from 1943 to 1954. If you wait until 70, your check can be 75 percent to 80 percent more than at 62. So, a boomer who claimed a $1,200 monthly benefit in 2008 at age 62 could have received about $2,000 by holding off until 70.

Medical costs: Health care expenses are soaring, and the availability of retiree benefits is declining.
"People cannot fathom how much money will be needed to simply cover out-of-pocket medical care costs," says Mitchell of the University of Pennsylvania.

A 55-year-old man with typical drug expenses needs to have about $187,000 just to cover future medical costs. That's if he wants to be 90 percent certain to have enough money to supplement Medicare coverage in retirement, according to the Employee Benefit Research Institute. Because of greater longevity, a 65-year-old woman would need even more to cover her health insurance premiums and out-of-pocket health expenses: an estimated $213,000.

Employment: Boomers both need and want to work longer than previous generations. But unemployment is near 10 percent, and many have lost their jobs.

The average unemployment period for those 55 and older was 45 weeks in November. That's 12 weeks longer than for younger job-seekers. It's also more than double the 20-week period this group faced at the beginning of the recession in December 2007.

If financial neglect turns out to be many boomers' undoing, challenging circumstances are stymieing others.

'Slow-burning' crisis

Add this all up, and there's a "slow-burning" retirement crisis for boomers, says Anthony Webb, a research economist at the Center for Retirement Research.

"If you have a crisis where the adverse consequences are immediately clear, then people understand that they have to do something," Webb said. "When the consequences will be felt 20 or 30 years in the future, the temptation is that we kick the can down the road."

As a result, he believes many won't change their behavior.

For less affluent boomers, it won't take that long to feel the pain of poor planning. Concerns about financial trouble will hang over many of those 65th birthday celebrations in 2011.

Many seem to view their plight through rose-colored granny glasses. An AARP survey last month of boomers turning 65 next year found that they worry no more about money than they did at age 60 - before the recession or the collapse of home prices. But in an acknowledgement of reality, 40% of boomers said they plan to work "until they drop."