Summer brings fresh optimism to Wall Street.
Corporations are making money again. Earnings reports amount to some of the most powerful indicators on Wall Street, so it has been great to see some of the headlines in the news this month. On August 6, with 80% of S&P 500 firms having shared 2Q 2009 earnings, CNBC.com rounded up data and found that 74% of S&P 500 companies had beaten estimates - a seismic shift from the first quarter.
While some of these profits reflected corporate decisions to downsize into smaller, leaner firms, others were attributable to the power of the global economy. After all, corporations such as Microsoft, Caterpillar, Intel and IBM now earn most of their revenue overseas, with surging/emerging economies in Asia often playing a big role in their profitability.
AIG feels confident it can repay the government. Shares of the insurance titan shot up 21% on August 20. Its newly appointed CEO, ex-Met Life CEO Robert Benmosche, told Bloomberg News that “we believe we will be able to pay back the government and we hope we will be able to do something for our shareholders as well.” Edward Liddy, AIG’s former CEO, again stated this month that it could probably pay the entirety of the federal bailout funds back within 3-5 years.
AIG made money in the second quarter - $1.8 billion, in fact. It still owes the federal government more than $80 billion – but that’s much less than the $182 billion in debt it once faced.
New optimism for Citigroup, other big banks. Although banks are still comparatively hesitant to lend, earnings certainly improved for some big names – Goldman Sachs, Citigroup, JPMorgan Chase and Bank of America combined for $13.6 billion in profit, just two quarters after they posted $20.8 billion in collective losses. Citi’s shares went up almost 9% on August 20 – capping a climb of about 56% during the last month – on growing faith that Citi will sell some of its troubled assets and pay back the federal government in reasonable time. Analysts liked the news that the Swiss government intended to reduce its stake in UBS, musing that the U.S. government might in turn wish to reduce its stake in Citi. Shares of State Street Corp. and SunTrust Banks Inc. also respectively rose 5.4% and 4.1% on August 20.
Speaking of UBS, its analysts recently concluded that the U.S. Treasury is up nearly $10 billion since it converted $25 billion worth of preferred Citi shares in March. They converted at $3.25 per share; as of August 21, they were trading at about $4.70 a share, about 48% north of the March level. It appears risk has brought reward.
Ford Motor Co. made money – and GM & Ford are boosting production. The C.A.R.S. program certainly was a tonic for domestic auto sales. In mid-August, Ford said it would make 10,000 more cars and trucks in 3Q 2009, and 141,000 more in 4Q 2009. General Motors said it would ramp up car/truck production by 60,000 vehicles in the second half of 2009, putting 1,350 employees back on the job and providing almost 10,000 workers with overtime. Ford made $2.3 billion in 2Q 2009 profit and was in the black by $834 million for the year’s first two quarters – largely through accounting gains, but still notable.
Can we see a strong September? As many longtime market watchers know, September is historically the weakest month for stocks. On average, the S&P 500 has lost 1.3% in September and the DJIA 1.2%. Trading volume has been light through the summer rally. It will be interesting to see if the current Wall Street optimism will translate into a September of strong gains.
Monday, August 24, 2009
Monday, August 17, 2009
Clearing Up The Health Care Debate
Who would fund the reforms? Would there really be a “death list”?
Sorting out the possibilities, facts and misconceptions.
The town hall debates over health care reform have ignited Americans like few recent issues. Discourses have become shouting matches. Away from the noise, here is a roundup of where things currently stand.
Who would pay for all this? Over the next 10 years, the federal government will need (by President Obama’s estimation) $950 billion to fund its health care programs. As planned, roughly a third of the money will be raised through increased revenues (i.e., limiting tax deductions for the wealthiest Americans) and two-thirds of it is supposed to come from reallocations of taxpayer money the federal government is already scheduled to receive. A coalition of pharmaceutical industry CEOs met with the President in July and have since pledged $80 billion in cost savings over the coming decade to help pay for the reform.
Would Medicare be cut? Republicans and Democrats disagree. “Nobody is talking about trying to change Medicare benefits,” President Obama stated during a July AARP teleconference. “What we want to do is to eliminate some of the waste that is being paid for out of the Medicare trust fund.” The non-partisan Congressional Budget Office figures that the House of Representatives version of the bill would trim Medicare spending by $500 billion across the next decade with no impact on Medicare benefits. AARP claims that “none of the health care reform proposals being considered by Congress would cut Medicare benefits or increase your out-of-pocket costs for Medicare services.” However, in an August 15 Republican Party radio address, Sen. Orrin Hatch contended that “hundreds of billions of dollars” will be cut from Medicare and used to “expand a financially-strapped Medicaid program and create another government-run plan.”
Would this run up the deficit further? The Congressional Budget Office says yes. It forecasts that President Obama’s reforms would add $239 billion to the federal deficit. Few on Capitol Hill think the reform effort could pay for itself.
Would health care be rationed? That’s what ex-Alaska Governor Sarah Palin contended in a Facebook post. The potential Republican presidential candidate stated that the reforms would lead to a system that would “refuse to allocate medical resources to the elderly, the infirm, and the disabled who have less economic potential.” Democrats and other supporters of the reforms counter her claim by saying that the current health care system already features “rationed” care dictated by health insurance company bureaucrats.
Would there really be “death panels”? Earlier this month, Palin contended that the President’s health care reform proposals included “death panels” that would decide if seriously ill patients would live or die. In the eyes of many legislators, Palin was wildly misinterpreting a provision in the health care reform bill that would allow doctors to offer voluntary consultations about living wills, hospice care, health care directives and pain medication to patients and loved ones facing end-of-life decisions. (If the reforms pass, Medicare would pay physicians to provide this consulting.) The Senate Finance Committee has dropped this idea from its version of the proposed legislation; it remains in the House version.
Would the government (and taxpayer dollars) pay for abortions? It is uncertain. In one variant of the health care reform bill, abortions would have to be available via at least one insurance plan; however, Democrats say any abortions would be paid through patient premiums.
Would undocumented immigrants get free health care? On the CBS Evening News, Sen. Ben Cardin (D-MD) was heard stating, “Illegal aliens will not be in this bill, period, the end.” As currently written, the legislation states that only those lawfully present in the United States can qualify for health coverage. Yet what if one family member is in America legally, but others aren’t? Could his or her relatives become eligible? Republicans say that the proposed legislation offers no way to effectively stop undocumented immigrants from applying for health care benefits.
The debate rages on. Politically, the health care reform effort seems poised to end up being the story of the year – and the contention and negotiation will certainly last into fall. Stay tuned.
Sorting out the possibilities, facts and misconceptions.
The town hall debates over health care reform have ignited Americans like few recent issues. Discourses have become shouting matches. Away from the noise, here is a roundup of where things currently stand.
Who would pay for all this? Over the next 10 years, the federal government will need (by President Obama’s estimation) $950 billion to fund its health care programs. As planned, roughly a third of the money will be raised through increased revenues (i.e., limiting tax deductions for the wealthiest Americans) and two-thirds of it is supposed to come from reallocations of taxpayer money the federal government is already scheduled to receive. A coalition of pharmaceutical industry CEOs met with the President in July and have since pledged $80 billion in cost savings over the coming decade to help pay for the reform.
Would Medicare be cut? Republicans and Democrats disagree. “Nobody is talking about trying to change Medicare benefits,” President Obama stated during a July AARP teleconference. “What we want to do is to eliminate some of the waste that is being paid for out of the Medicare trust fund.” The non-partisan Congressional Budget Office figures that the House of Representatives version of the bill would trim Medicare spending by $500 billion across the next decade with no impact on Medicare benefits. AARP claims that “none of the health care reform proposals being considered by Congress would cut Medicare benefits or increase your out-of-pocket costs for Medicare services.” However, in an August 15 Republican Party radio address, Sen. Orrin Hatch contended that “hundreds of billions of dollars” will be cut from Medicare and used to “expand a financially-strapped Medicaid program and create another government-run plan.”
Would this run up the deficit further? The Congressional Budget Office says yes. It forecasts that President Obama’s reforms would add $239 billion to the federal deficit. Few on Capitol Hill think the reform effort could pay for itself.
Would health care be rationed? That’s what ex-Alaska Governor Sarah Palin contended in a Facebook post. The potential Republican presidential candidate stated that the reforms would lead to a system that would “refuse to allocate medical resources to the elderly, the infirm, and the disabled who have less economic potential.” Democrats and other supporters of the reforms counter her claim by saying that the current health care system already features “rationed” care dictated by health insurance company bureaucrats.
Would there really be “death panels”? Earlier this month, Palin contended that the President’s health care reform proposals included “death panels” that would decide if seriously ill patients would live or die. In the eyes of many legislators, Palin was wildly misinterpreting a provision in the health care reform bill that would allow doctors to offer voluntary consultations about living wills, hospice care, health care directives and pain medication to patients and loved ones facing end-of-life decisions. (If the reforms pass, Medicare would pay physicians to provide this consulting.) The Senate Finance Committee has dropped this idea from its version of the proposed legislation; it remains in the House version.
Would the government (and taxpayer dollars) pay for abortions? It is uncertain. In one variant of the health care reform bill, abortions would have to be available via at least one insurance plan; however, Democrats say any abortions would be paid through patient premiums.
Would undocumented immigrants get free health care? On the CBS Evening News, Sen. Ben Cardin (D-MD) was heard stating, “Illegal aliens will not be in this bill, period, the end.” As currently written, the legislation states that only those lawfully present in the United States can qualify for health coverage. Yet what if one family member is in America legally, but others aren’t? Could his or her relatives become eligible? Republicans say that the proposed legislation offers no way to effectively stop undocumented immigrants from applying for health care benefits.
The debate rages on. Politically, the health care reform effort seems poised to end up being the story of the year – and the contention and negotiation will certainly last into fall. Stay tuned.
Friday, August 7, 2009
Getting a Mortgage Today
What can you do to help yourself get pre-approved?
Remember when getting a mortgage was easy? Now, you need pre-approval. So how can you increase your chances of passing that all-important test?
You want a lender in your corner. Sellers and agents don’t want to waste their time working with a buyer who isn’t pre-approved. Why should they contend with uncertainty?
A buyer with a pre-approved loan gets respect when a seller gets multiple offers. A pre-approval shows the seller the size and terms of the loan the bank is ready to greenlight. Commonly, a pre-approval is good for 90-120 days.
Pre-approval is a whole different level than pre-qualification. You can supply very basic financial information to a bank or lender and walk out with an estimate of how much mortgage you might be able to carry. However, that is no promise. Pre-approval is an actual commitment from the lender to you.
So what can you do to earn that commitment?
Test the waters well before you test the housing market. Visit more than one lender, and see what you can borrow, just how much home you can afford, and what kind of mortgage options you have. Keep in mind that a pre-approval is a pledge that a mortgage lender makes to you, not a contract. Should some other bank or mortgage company make you a more attractive pledge, you are free to switch horses.
Make your case. Don’t skimp on the documentation you bring to the appointment. Usually, a mortgage lender will want to see the hard data of your financial life over the last couple of years: the bank statements, the federal tax returns, the W2s, the pay stubs. If you earn investment income, bring paperwork showing that you do. If you deposited any big sums into your bank account recently, you’ll probably be asked what that deposit represents.
The amount you are pre-approved for typically reflects three factors: how much you have saved up for a down payment, your FICO score and your current address. It should only take a few business days for a lender to get back to you and let you know how much mortgage it will pre-approve for you.
Aim to get pre-approved within 30 days. This way, you don’t risk harming your FICO score so much. The majority of credit-scoring paradigms out there don’t penalize your credit rating for home loan, student loan and car loan inquiries made 1-30 days prior to the score calculation.
Don’t expect all the details right away. When you apply for a loan, your lender is using that day’s mortgage rates to calculate costs and payments, and rates move. So the pre-approval may be light on particulars about the interest rate or the loan type.
Avoid fly-by-night lenders. The seller and the seller’s agent want to see that a reliable, “name” lender is issuing its stamp of approval here, not an obscure Johnny-come-lately. Credibility counts.
Can’t get a standard loan? Don’t forget about the Federal Housing Administration, through which you might be able to arrange a mortgage with as little as 3.5% down. Most lenders can process an FHA loan like a standard loan, and commonly the rates are about an eighth of a point higher than a standard mortgage. Also, remember that first-time buyers have until the end of 2009 to qualify for an $8,000 federal tax credit which can be put toward the down payment and closing costs.
Remember when getting a mortgage was easy? Now, you need pre-approval. So how can you increase your chances of passing that all-important test?
You want a lender in your corner. Sellers and agents don’t want to waste their time working with a buyer who isn’t pre-approved. Why should they contend with uncertainty?
A buyer with a pre-approved loan gets respect when a seller gets multiple offers. A pre-approval shows the seller the size and terms of the loan the bank is ready to greenlight. Commonly, a pre-approval is good for 90-120 days.
Pre-approval is a whole different level than pre-qualification. You can supply very basic financial information to a bank or lender and walk out with an estimate of how much mortgage you might be able to carry. However, that is no promise. Pre-approval is an actual commitment from the lender to you.
So what can you do to earn that commitment?
Test the waters well before you test the housing market. Visit more than one lender, and see what you can borrow, just how much home you can afford, and what kind of mortgage options you have. Keep in mind that a pre-approval is a pledge that a mortgage lender makes to you, not a contract. Should some other bank or mortgage company make you a more attractive pledge, you are free to switch horses.
Make your case. Don’t skimp on the documentation you bring to the appointment. Usually, a mortgage lender will want to see the hard data of your financial life over the last couple of years: the bank statements, the federal tax returns, the W2s, the pay stubs. If you earn investment income, bring paperwork showing that you do. If you deposited any big sums into your bank account recently, you’ll probably be asked what that deposit represents.
The amount you are pre-approved for typically reflects three factors: how much you have saved up for a down payment, your FICO score and your current address. It should only take a few business days for a lender to get back to you and let you know how much mortgage it will pre-approve for you.
Aim to get pre-approved within 30 days. This way, you don’t risk harming your FICO score so much. The majority of credit-scoring paradigms out there don’t penalize your credit rating for home loan, student loan and car loan inquiries made 1-30 days prior to the score calculation.
Don’t expect all the details right away. When you apply for a loan, your lender is using that day’s mortgage rates to calculate costs and payments, and rates move. So the pre-approval may be light on particulars about the interest rate or the loan type.
Avoid fly-by-night lenders. The seller and the seller’s agent want to see that a reliable, “name” lender is issuing its stamp of approval here, not an obscure Johnny-come-lately. Credibility counts.
Can’t get a standard loan? Don’t forget about the Federal Housing Administration, through which you might be able to arrange a mortgage with as little as 3.5% down. Most lenders can process an FHA loan like a standard loan, and commonly the rates are about an eighth of a point higher than a standard mortgage. Also, remember that first-time buyers have until the end of 2009 to qualify for an $8,000 federal tax credit which can be put toward the down payment and closing costs.
Tuesday, August 4, 2009
Cash for Clunkers
Junk a clunker, get a credit. The Car Allowance Rebate System (cars.gov) is ready to roll. Friday, July 24 was the day that auto dealers could start registering for the Obama administration’s plan to get gas guzzlers off the highways through new car buyer incentives.
Save $3,500, $4,500, or maybe even $9,000 if your car qualifies. That’s how much you may be able to chop off the sticker price of a new, more fuel-efficient car. Chrysler is offering you another $4,500 through August 31 (in cash or in 0% financing for 72 months through GMAC Financial Services) on top of the $3,500 or $4,500 credit from the government. Other automakers may chime in with supplemental incentives before the program ends.
Think old trucks and SUVs (but not too old). Your clunker has to be from 1984 or newer, and it has to get 18 MPG or less when you combine the highway/city numbers. (How do you find out the MPG of your make and model? You can use the New Combined EPA MPG ratings at either fueleconomy.gov or cars.gov.) So for example, a 1992 Honda Civic or a 1995 Saturn SL is not eligible by that MPG yardstick. However, the prospects sure look promising for a 1989 Chevy Suburban.
Whatever car you buy has to meet federal fuel efficiency requirements and have an MSRP of $45,000 or less. (No Lamborghinis.) If you’re trading in a passenger car, you get the $3,500 credit if you buy a new vehicle that gets 4 MPG more than your old car. The $4,500 credit is yours if your new car gets 10 MPG or better than the old one.
The standards are a little more lenient if you are bringing in a big clunker – a minivan, truck, or SUV. (Even large work trucks weighing 6,000+ lbs. may be traded in under the program.) In the case of these larger vehicles, you get a $3,500 rebate if you buy a new vehicle getting at least 2 MPG better than the trade-in. If the new vehicle will get 5 MPG or more than the trade-in, you can qualify for the $4,500 credit.
Is this really so green? It is possible to use the credit to buy a new truck or SUV with gas mileage just slightly better than the old one. Yet you may not use the credit to buy a used hybrid – or for that matter, a used anything.
Trade-in value, too? No, you don’t get to apply trade-in value toward the purchase of the new car in addition to the government credit. Still, if you’ve got a $1,000 or $2,000 car chugging around, this program could give you the equivalent of real trade-in value.
Your old junker will be destroyed, not resold or parted out. In fact, the dealership will drain the oil out, pour in two quarts of sodium silicate solution, and then run the engine for up to seven minutes according to instructions from the National Highway Traffic Safety Administration. Scrap heap, here we come. The government wants to prevent fraud and flipping of old cars. Your clunker has to be running and drivable when you trade it in, and licensed and insured for at least a year. Dealers must gain the vehicle title, and direct a junkyard to crush the car within six months of submission.
250,000 new car sales? That’s what the federal government would like the cash-for clunkers program to achieve. While the program could stimulate sales at
What about leasing? Yes, you can use the credit to offset the lease price of a new car. However, it will have to be a pretty long lease – five years or longer. Americans typically lease cars for about three years.
Deadline: November 1. Actually, you may not have that much time. If you see a parade of $1,000 cars headed for your local auto center, you might want to hurry. The program will last until November 1 or until the $1 billion of rebates dries up – so think about junking the clunker now rather than later.
America Delays Retirement
Is 70 the new 65? It may be, for many Americans are electing to postpone retirement as an effect of the recent volatility in the financial markets. If 70 is the new 65, some workplace changes are worth noting – these trends may be affecting you, your employer, and your financial future. Retirement will increasingly be a process, not an event. In the years ahead, more and more people will probably leave the workplace gradually. For baby boomers that want to stay active and engaged, this isn’t necessarily a bad thing. A vice-president who worked 50 hours a week may become a consultant or a coach working three days a week. Or he or she might simply want to work less, for less pay, or make a lateral move within a company that would allow an exit on his or her terms.
Boomers will have the opportunity to shape their exit. If gradual retirement becomes more common (and today’s financial pressures would seem to make it so), expect more and more mature employees to negotiate the terms of their retirement – how many hours they will work on their way out, how accessible they will be, if they will work from home or the office, and who will take the reins in their hands someday. If a boomer offers a personal exit plan of sorts that will help a business to cut labor costs without losing a valued employee, isn’t that a favor to management?
Businesses and non-profits face a tough question. The 2009 Retirement Survey from the Employee Benefit Research Institute found that 51% of Americans age 25 and older now think they will retire at age 66 or older. In June 2009, the Bureau of Labor Statistics estimated that 23% of Americans employed or seeking work were age 55-64.
This is problematic for businesses, who in this economy might want to pay older workers to retire so that they can stay profitable. Universities, state and local governments and public agencies will probably not see the same kind of retirement turnover they did in the past. Should they stop recruiting new managers, new faculty, or new administrators for the near future? Organizationally, what is the economic value of retaining wisdom and experience?
Will we see a wave of “rehirement”? In the EBRI survey, 20% of the roughly 1,200 respondents felt they would never retire, compared to 11% in the 2007 poll.1 Part of that increase obviously reflects what happened in the stock market, but it also may represent a perception shift in progress. Baby boomers are doers, proud contributors to society who are tearing up the old retirement template. It could be that two distinct phases of American life are emerging – one in which you work for a living, followed by another in which you work for meaning. It may lead to a wave of mature employees, professionals and entrepreneurs – a zeitgeist of sorts, the likes of which this country has never seen.
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