Friday, November 27, 2009

The Coming FDIC Crisis

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

I am often asked how I can be positive on the stock market, yet so negative on the economy. As I’ve discussed before, the stock market’s rally is based on liquidity, meaning a tsunami of money flooding the financial system needing to find a home. I absolutely do not believe it’s based on sound and well thought out fundamental policy and systemic changes. This was my main theme in two CNBC interviews. (Click Here to Listen) They are the first two listed on the page.

My ongoing concerns are the same ones I’ve had all along. The global financial system cannot stand on its own two feet without government support, intervention and manipulation. At some point, the free money ride will end without private investment being able to take its place. That’s when the house of cards crumbles again. The Federal Reserve and Treasury used the vast majority of their immense arsenal to stem the tide in 2008 and 2009. I doubt they will be able to have the same affect next time.

One area I want to spend some time on today is the FDIC, the agency that insures member bank deposits, now up to $250,000. Along with Ben Bernanke, I believe Sheila Bair, the FDIC chairman, deserves very high marks for her handling of the financial crisis. When so many “experts” were running around with their heads cut off, she remained firmly in control, offering multiple plans on how to stem the tide and attack the crisis head on. As things began to stabilize her agency also offered some quality suggestions on proposed regulatory reform.

On Nov. 24, the FDIC (Federal Deposit Insurance Corp.) released its Third Quarter Report on member banks. It’s no secret that we are seeing more FDIC-led bank takeovers than at any time since the Resolution Trust Corp (RTC) was created to help solve the S&L Crisis in the early 1990s. So far in 2009, there are 95 insured institutions that have failed in the third quarter alone. Any time the FDIC comes in for a “rescue”, it usually means that its own capital must be employed to shore up the bank’s reserves. With its coffers already stretched to the dangerous level, another major financial problem is brewing.

If I really believed the economy and financial system were healing correctly, I wouldn’t worry so much about the FDIC. But since I don’t, and the number of “problem” banks is up to 552 ($345B) from 416 in June, some drastic measures will likely be taken. First, the FDIC can tap an emergency line of credit with U.S. Treasury, something that Sheila Bair doesn’t seem too keen on doing. Second, the FDIC can issue fixed income instruments, like bonds and notes and borrow from investors.

Currently, the FDIC is requiring banks to prepay the next three years of fees to help shore up the agency’s own capital base without having to resort to more draconian measures. While I applaud Sheila Bair’s efforts at trying to fix this with minimalist intervention, the problem is that the FDIC will take capital from the banks when they can least afford to give it up. The process of recapitalizing banks will likely take a good decade or so, but we’ll continue to see more banks fail along the way. Prepaying fees with so many institutions still capital starved will only make credit harder to come by, which is the perfect segue to the next problem.

Perhaps the most troubling thing about our banking system is that credit continues to shrink at an historic rate. In the very first sentence of the FDIC’s report, they start with the good news that member banks are making a lot of money. How could they not? If you own a bank and can borrow at essentially 0% to either loan out or invest in something paying 2, 3 or 4%, how can you lose? Add leverage into that equation and the banks essentially have a license to print profits in this environment, exactly what the Fed, Treasury and FDIC need them to do.

At the end of the first sentence, they give us the really bad news, “but loan balances declined by the largest percentage since quarterly reporting began in 1984.” According to Casey Research, bank credit has fallen by $500 billion over the past year. Think about it. That’s half a trillion dollars no longer available for lending and growth. It is nearly impossible for the economy to achieve a sustainable recovery without credit flowing freely. Almost every small business I visit or speak to share their frustration in trying to obtain a loan or line of credit. Since small business is the backbone of our economy, this doesn’t speak well for future organic growth.

The FDIC is in a very tough position, but they’re only one of the problems we face. Until we get the financial system stable and entice private capital back in, whatever growth we are currently seeing is only temporary. With state and local tax receipts falling off a cliff, the various governments need to get their own financial houses in order immediately. That means cutting unnecessary spending and keeping taxes as is or cutting them. Raising taxes without real economic growth will have disastrous implications. Tax incentives must be given to small businesses and entrepreneurs to hire workers and encourage growth. With all of our problems, there is one positive thing I am certain about. This country, economy and financial system has successfully emerged from every single crisis in our history. And this one, too, shall pass with time.

I wish you and your family a very happy, bountiful and peaceful Thanksgiving!

Until next time…

Paul Schatz

Friday, November 20, 2009

Up or Down from Here? YES!

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

Since late September, the common theme in my stock market forecasts has been for a 7-17% decline lasting well into November with varying small rallies along the way. You can click on the following links for more detail. Storms Brewing for the Stock Market The Dow at 10,000: Is It Time to Celebrate? We were fortunate enough to nail the low in early October, the ensuing rally from there and then the final peak mid month. The market cooperated with the roadmap and saw a roughly 7% decline into late October.

In the previous issue of my Street$marts newsletter, I wrote about Dow 10,000... AGAIN?. I talked about a "time to rally", where stocks should bounce, but ultimately fail to exceed the mid-October peak. So far, the Dow, S&P and NASDAQ have all reached higher levels, proving me wrong, while the Russell 2000 Midcap 400 have yet to get there. I concluded that: "IF the market is to remain on the exact same trajectory as we've seen since March, the whole decline is over at roughly 7% and we are going right back to new highs for 2009. You shouldn't be surprised that I do not believe this is the case."

The question I've received a lot lately is, "Is the market done correcting and how high is it going?"

Although at the October low, the stock market had reached some fairly significant oversold readings, I was surprised at just how easily the rally caught fire. I was not expecting to see new highs just yet. By turning so strongly at exactly the moment it was doing the first really wrong thing since the bull run began in March, the market showed a tremendous amount of resilience and pent up demand into weakness. And it's possible that the pullback we saw was it for 2009.

But I am not ready to relax and embrace the rally just yet. There are still some cracks in the pavement that either need time and sideways market movement or another short-term pullback into December to fix. I am still not comfortable with the lack of volume on strong up days. As you know, volume is the horsepower of the market's engine and it's just not confirming the recent strength.

As stretched as stocks were at the recent low, they are now back to stretched again on the upside. This can be seen easily looking at the advance/decline and up/down volume data. While this can persist for days, weeks or even months, the odds favor a resolution sooner than later.

Market sentiment (the number of bulls versus bears) has been moving around like a yo-yo this year. While we saw too many negative investors at the late October low, we're now seeing too many investors positive on the market's outlook. Those indicators are usually contrarian in nature, meaning the majority tends to be wrong at highs and lows.

But I guess the thing that bothers me most right now is that fewer and fewer key market sectors are leading the charge higher. Prior technology leaders, like semiconductors, telecom and networking have yet to eclipse their October highs. The same can be said of energy and homebuilders. This can all be corrected with higher prices, but given the other concerns listed above, I am taking a "prove it to me" approach for a bit longer.

On the flip side, consumer staples, healthcare and pharma all seem to be assuming leadership roles. The problem is that these sectors are defensive in nature/ less volatile/ lower risk profiles and are generally unable to lead the market higher for more than a blip. In the past, they have followed along with other key leadership groups, but not replace them.

As I've mentioned before, this week is options expiration (3rd Friday of every month) when various derivative contracts stop trading. The trend has been for the market to remain in the direction it has been since the previous expiration, which in this case is up. It's also been a trend to see a reversal the next week, so we'll see how the bears react.

IF we get one more pullback, which I lean towards but not as strongly as I did earlier this quarter, I think it will be contained to 5-8% and wrap up by early December. The exciting part is that my models have upward projections to a minimum of 11,000 on the Dow with a chance to see 12,000 by next summer, before the next major bout of nastiness sets up. But we can talk about that in a month or so.

As always, please feel free to contact me directly at with any questions or comments.
Have a very happy and enjoyable Thanksgiving!

Thursday, November 19, 2009

Department of Homeland Security Tips for Safe Holiday Travel

Department of Homeland Security (DHS) Secretary Janet Napolitano, Dr. Anne Schuchat of the federal Centers for Disease Control and Prevention(CDC)and Transportation Security Administration (TSA) Acting Administrator Gale Rossides on Thursday jointly issued these steps travelers can take to prevent the spread of the flu.

“Following these simple travel tips will help expedite the screening process at airports and keep travelers healthy and safe throughout the holiday travel season,” Napolitano said in a statement.
TSA Travel Tips

TSA’s holiday travel tips will help decrease the amount of time passengers spend in line at airport security checkpoints, increase the overall efficiency of airport operations and enhance security by engaging passengers in the shared responsibility of watching out for suspicious activity at airports across the nation.

Pay attention to your health before traveling
The best way to prevent the spread of the flu is to stay home if you’re sick or have flu-like symptoms.
The CDC recommends you get both H1N1 and seasonal flu vaccines.

Practice good hygiene while traveling
Cover your mouth when coughing or sneezing.
Wash your hands regularly to help prevent the spread of germs and illness.

Ensure your government-issued ID and boarding pass are out and ready
Getting all travel documents together and ready before you get in line will help security officers quickly verify that you, your identification, and your boarding pass match and are valid.

Wear easily removable shoes and jackets
Wearing footwear that can be easily removed helps speed the process for X-ray screening. Be prepared to remove all shoes, jackets and other outerwear for screening.

Take out liquids and laptops
Remember the 3-1-1 rule for liquids, gels and aerosols at the checkpoint:
3-ounce bottles or less for all liquids, gels and aerosols;
1 quart-sized, clear, plastic zip-top bag; and
1 bag per passenger placed separately in a security bin for X-ray screening.
The liquid restriction applies only to carry-on bags. Passengers can pack larger quantities of liquids and gels in checked baggage.
Be prepared to remove your laptop from its case and place it in separate bin for X-ray screening.

Use TSA Family Lanes if you or your family needs extra time or assistance
Last year, TSA expanded its popular Family Lanes to every security checkpoint in the United States.
Family Lanes allow infrequent travelers, those with small children or passengers who need additional assistance to move through security at their own pace.Officers in these lanes work with passengers to screen medically necessary items like baby formula and insulin.

Keep an eye out for suspicious activity
Transportation security is a shared responsibility. The traveling public plays an important role in keeping holiday travel safe.
Travelers should report all suspicious activities or items to airport security personnel.

Remember TSA’s new Secure Flight program when booking new airline tickets

Fulfilling a key 9/11 Commission recommendation, TSA is working with airlines to implement Secure Flight.

Secure Flight pre-screens passenger name, date of birth and gender against government watch lists for domestic and international flights—making travel safer and easier by keeping known or suspected terrorists from obtaining a boarding pass.

In addition, Secure Flight helps prevent the misidentification of passengers who have names similar to individuals on government watch lists.

When booking airline tickets, use your name as it appears on the government ID you plan to use when traveling—along with your date of birth and gender. Providing this information will clear 99 percent of travelers to print boarding passes at home.

Airlines are phasing in this program; if you are not prompted for this information when booking travel or if there are small variations between your name and your reservation, don’t worry—you will still be able to travel.

For more information on these and other helpful travel tips, visit the TSA's Web site here.

Winter Auto Safety Can Drive Down Costs

The goal for every driver should always be to arrive at his or her destination safely and without interruption.

Yet, the winter brings extreme weather including snow, sleet, and freezing rain - all of which create driving challenges, including an increased risk of accidents.

In addition to remaining alert on the road, the best way to maintain vehicle safety and avoid winter accidents is to make sure your car is protected through proper maintenance. Another aspect of protection is to make sure your auto insurance policy is up to date and includes the right types of coverage.

To help you drive with peace of mind this winter, Carin Stepeck (pictured above), vice president The Hartford Financial Services Group talks with FiscallyFit about tips to help people protect themselves on the road and save a few dollars in the process.

Be on the Defense
Drivers should consider taking a defensive driving class as winter weather approaches. Stepeck said classes are a way to brush up on ways to respond in dangerous conditions.
Remember to keep a safe distance, position mirrors adequately and know your state's laws of the road.
For example, she said, Connecticut's "Click It or Ticket" campaign reminds motorists of laws requiring drivers and front-seat passengers to fasten their seat belts, as well as rear passengers ages 4 to 16. The fine for violation is $37.

Take Care and Repair
According to the Car Care Council, more than 5% of all vehicle accidents result from underperformed vehicle maintenance.
The Hartford is advising drivers never to skimp on routine vehicle service.
"Ensure the battery is working well and that the connections are clean and corrosion-free," Stepeck said, adding that car owners also should check anti-freeze levels, keep the gas tank at least half full and maintain proper tire pressure.
"As the temperature drops, the tires lose pressure," she said.

Peruse Your Policy
Review your coverage to see if you qualify for important auto policy features, such as accident forgiveness. If you have this feature and are involved in an accident, it won't count against you and your rates won't increase.
Stepeck said The Hartford applies accident forgiveness in the case of a driver's first accident and afterwards, will guarantee the workmanship on covered repairs for as long as the affected driver owns the vehicle and chooses a certified repair shop.
Company statistics show a 6% to 8 % increase in the occurrence of accidents during the winter season, with most of them happening early on, she said. "I think that the winter can come upon us fairly quickly and we're not at all prepared," Stepeck said.

Park It
This may sound simple, but the best way to keep your car in working condition is to not drive it when the weather turns really ugly. It's best to stay safe at home than risk damage to your car, or worse. "If you do have the flexibility, stay put," Stepeck said. "It will definitely reduce the chances of getting involved in an accident. We realize not all our customers have the flexibility."

More information about decisions related to auto insurance policies can be found at a resource site offered by The Hartford.

Saturday, November 14, 2009

Recall Alert

Consumers should stop using recalled products immediately unless otherwise instructed.

The U.S. Consumer Product Safety Commission has issued the following recalls:

1. Treestands by Gander Mountain Co.

Name of Product: Hang-On Fixed Position Treestands
Units: About 13,000
Importer: Gander Mountain Co., of St. Paul, Minn.
Manufacturer: StrongBuilt, of Waterproof, La.
Hazard: The clasp may open unexpectedly if the strap is fastened incorrectly, causing the treestand and user to fall to the ground.
Incidents/Injuries: Gander Mountain has received two reports of consumers falling while using the treestands: one sustained unspecified injuries and a second person sustained a broken pelvis and broken arm.
Description: Gander Mountain is recalling the 2008 model GMT101 and 2008 model GMT103 Hang-On Fixed Position Treestands. The recalled treestands have wire mesh on the base of the platform to the top of the footrest and a Gander Mountain logo on the front of the seat. In addition, the seat has a camouflage pattern that is branded "AP" and "REALTREE". Model GMT101 has "Steel Hang-On With Foot Rest" printed in large bold print on the exterior of the box and the GMT103 has "Large Steel Hang-On With Foot Rest" printed on the exterior of the box. This recall does not affect the 2009 year models GMT101 and GMT103 Hang-On Fixed Position Treestands manufactured by Rivers Edge.
Sold at: The treestands were sold only at Gander Mountain stores from July 2008 until July 2009. The GMT101 was sold for about $60 and the GMT103 was sold for about $80. Manufactured in: China
Remedy: Consumers should immediately stop using the recalled treestands and return them to Gander Mountain for a refund, exchange for a 2009 model or a store credit.
Consumer Contact: Gander Mountain at (888)-542-6337 Mon.- Fri. between 8 a.m. and 10 p.m and Saturday and Sunday between 9 a.m. and 8 p.m. EST or visit

2. Backpack Blowers by Homelite

Name of Product: Homelite Backpack Blowers
Units: About 85,000
Distributor: Homelite Consumer Products Inc., of Anderson, S.C.
Hazard: The fuel tank can leak gasoline, posing a fire hazard to consumers.
Incidents/Injuries: Homelite has received 18 reports of fuel tanks leaking gasoline including one report of minor skin irritation.
Description: This recall involves the Homelite Mighty Lite backpack blowers. The blowers are red and black.
Product Model: Manufacturing Date Codes Range UT08580: ATK1820001 through ATK3659999 UT08580A: ATL1530001 through ATL3669999, ATM0010001 through ATM1749999 The model number and manufacturing date code are printed on the blower's data label which is located on the red plastic housing above the choke knob and adjacent to the fuel tank. Products with a green "dot" on the outside of the package or the letters "CA" embossed on the fuel tank are not included in the recall.
Sold at: Home Depot stores and various retailers of refurbished products including Direct Tools Factory Outlets, CPO Homelite, Gardner, Tap Enterprises, Isla Supply and Heartland America stores nationwide from September 2007 through October 2009 for between $90 and $140.
Manufactured in: China
Remedy: Consumers should stop using their backpack blowers immediately and contact Homelite for the closest dealer location to schedule a free fuel tank replacement.
Consumer Contact: Homelite Consumer Products, Inc. at (800) 242-4672 between 8 a.m. and 5 p.m. EST Mon.-Fri. or visit

3. Bicycles by Easton Sports

Name of Product: Bicycles with EA30 Stems
Units: About 6,400
Importer: Easton Sports, of Scotts Valley, Calif.
Hazard: The bicycle stem can crack and cause the rider to lose control, posing a risk of serious injury if the rider falls.
Incidents/Injuries: The company received a report of a stem breaking, causing a minor injury to the rider.
Description: This recall involves all Raleigh 2007, XXIX 700c MTN, RX1.0, Diamondback 2007, Mission, and Sortie bicycles with EA30 stems. The EA30 stems are black with white-and-gray graphics and feature a four-bolt stem face cap."EA30" is printed on the stem. EA30 stems sold as aftermarket items are included in this recall.
Sold through: Independent bicycle dealers nationwide from August 2007 through August 2009 for between $500 and $1,200. Aftermarket stems were sold from August 2007 through September 2009 for about $30.
Manufactured in: China
Remedy: Consumers should immediately stop riding the bicycles and contact any authorized Easton Sports for a free replacement stem.
Consumer Contact: Eason Sports toll-free at (866) 892-6059 between 8 a.m. and 5 p.m. CT Mon.-Fri. or visit

The U.S. Consumer Product Safety Commission is charged with protecting the public from unreasonable risks of serious injury or death from thousands of types of consumer products under the agency's jurisdiction. To report a dangerous product or a product-related injury, call CPSC's Hotline at (800) 638-2772 or CPSC's teletypewriter at (800) 638-8270.

Friday, November 13, 2009

Bond Market ABCs

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

In the media, we often hear that the stock market was up or down a certain amount of points. By “the stock market,” reporters are usually referring to the Dow Jones Industrial Average, an index of 30 very large companies that are supposed to represent the economy. I’ve never believed that was an accurate representation of the market since 30 mega cap stocks often don’t tell the story beneath the surface.

As a professional investment manager, we often compare our returns to the S&P 500, which represents the 500 largest companies in the U.S. and the most widely used benchmark in the industry. There are plenty of other indices that investors watch, from the small cap Russell 2000 to the large cap Russell 1000 to the all inclusive Wilshire 5000. Just remember that the Dow Jones Industrials may not always be the most accurate.

When we hear about the bond market, people are usually referring to the treasury bond market, those instruments issued by the U.S. treasury and backed by the full faith and credit of the U.S. government. And they come in all maturities from 3 month treasury bills all the way out to 30 year treasury bonds. Over the past decade or so, the benchmark bond has become the 10 treasury note. We often hear that the bond market lost a certain amount, like ¼ point, forcing yields higher. Remember, and this is the most confusing part to understand, when bond prices rise (good if you own bonds), bond yields fall and vice versa.

Unlike stocks, where most of the indices generally trend in the same direction, but to different magnitudes, bonds are all over the place. Besides treasuries, there is the government and agency bond market, which includes issues from Fannie Mae, Freddie Mac, Ginnie Mae, Federal Farm Credit and so on.

Next we have the municipal bond market, which acts much differently than treasuries and govies. The muni market is more economically sensitive than the previous two as it relies on the financial stability of the issuing entity. If tax receipts are on the rise, the price of those munis will likely rise as well. When the local economy falters or collapses, muni bond prices will as well since that local issuer may have trouble paying interest or repaying principal.

The last major muni bond crisis occurred during the fourth quarter of 1994, known as the Orange County Crisis. Orange County California began investing their money in non traditional instruments that took on significantly more risk than what was generally accepted to increase return. It worked without a hitch until some of their cutting edge strategies began to fail miserably. Once that little snowball rolled over the edge, it grew and grew rapidly, leading to an early December 1994 bankruptcy filing that sent shockwaves through not only the muni bond market, but the entire financial system.

Beyond the municipal market, you may have heard about the investment grade corporate bond market. These are bonds issued by companies, from IBM to GE to Microsoft, and carry a credit rating of BBB- or better. This market typically does not behave like any of three bond markets already mentioned, but does have some similarities with the stock market.

At the end of the food chain, there is the high yield or junk bond market, which is made up of companies with credit rating worse than BBB-. These usually have the highest risk of default, but also tend to offer the greatest reward. Legendary financier and former Drexel Burnham Lambert superstar, Michael Milken, is credited with really creating the modern day junk market from almost nothing into trillion dollar machine. If you know the story, he also was convicted of insider trading, securities fraud and racketeering as Drexel collapsed in early 1990. After being released from prison, he continued his philanthropy through the Milken Foundation and Milken Family Institute and remains a huge supporter of medical research. (Sorry for the digression)

Junk bonds usually behave more like stocks than any of their fixed-income counterparts. During massive bull market rallies in stocks, like we’ve been seeing since March and again during 2003, junk bonds offered comparable returns to stocks with much less volatility and downside movement. In fact, in 2009, many of the popular junk bond funds have outpaced their equity brethren!

When trying to determine if investment grade and junk bonds are cheap or expensive, many people turn to what’s called spreads. Analysts measure the difference in yield between the bond and a treasury instrument like the two year, five year and 10 year note. The smaller the spread, the less an investor is being compensated for taking on the risk of a non treasury issue.

In early 2007, the spread between treasuries and junk fell to an all-time low, meaning that investors were not worried about the companies defaulting and just wanted to reach for the most yield possible, forcing junk bond prices higher and higher. As we know, those bubble investors were severely punished with prices falling 30, 40, 50 and as much as 80% in less than two years!

Conversely, earlier this year and in early 2003, with the financial markets and economy in collapse, junk bonds spreads widened to levels never before seen. Astute investors picked up bonds yielding 15-20% and have been immediately rewarded with prices rallying as much as 50%!
If you have any questions or comments about any of the equity or fixed income indices or markets mentioned, feel free to email me at

Friday, November 6, 2009

Bernanke & Co. Have Their Hands Full

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

As I begin to write this, the Federal Reserve just announced that the Fed Funds rate (short-term interest rates) will remain as is, in the range of 0% to .25% for an extended period. It’s the same message Bernanke & Co. have sent for almost the past year. Borrowing is essentially free to banks as Japan did for years and years and years, hoping to stimulate loan demand, money velocity and credit growth. As you may know, it’s been 20 years of poor economic growth and deflation in Japan with no end in sight. They are an aging and non growing population with a dim future.

While I totally agree with the Fed on their interest rate position, it’s FAR from enough to get us out of crisis mode for more than a few months or quarters. As I mentioned in a previous post, there have only been two real periods of deflation in the modern world, the 1930s and Japan over the past 20 years. The 1930s were “cured” with the outbreak of World War II as we shifted to a war time economy. In Japan, the government has tried almost everything with no meaningful results and no end in sight.

That’s why the Fed has thrown the textbooks out the window and show almost no concern about any inflation problem. We already have a successful modern day model from the Volcker Fed days to fight inflation. They have nothing to go on to fight deflation.

People have been outraged at the profits being reported by some of the financial companies. But in the Fed’s eyes, giving them free money to either loan out or buy low risk, higher return securities was the only way to help them repair their decimated capital bases over a period of time without injecting another trillion dollars directly into the banks. It’s no secret that the Federal Deposit Insurance Corp. is essentially broke and Bernanke & Co. couldn’t let any of the major banks force the FDIC to make emergency arrangement with U.S. Treasury. It’s bad enough now that the FDIC is going to force banks to pre-pay future fees; can you imagine the cost of bailing out Citibank and/or Bank of America?

Over the years, I’ve written my fair share of critical articles on the Fed, especially Alan Greenspan who I believe was a major contributor to the stock market crash of 1987. For all his supposed brilliance, from my seat, he left rates way too low for too long and choked off growth for too long on the opposite side. In less than 15 years, the Greenspan Fed presided over the crash in 1987, Long Term Capital debacle in 1998 and the bubble/bust in 2000.

Anyway, not to let you think I can only be critical, I think Sheila Bair, chair of the FDIC, has done an absolutely outstanding job and continues to offer creative, non partisan solutions to some of our financial woes. And since January 2008, I give Ben Bernanke et al very high marks for their handling of one of the worst financial crisis’ in history. I don’t agree with everything they’ve done, but it’s not like there’s a roadmap to follow. Prior to January 2008, I often referred to Bernanke as Rip Van Bernanke, as I was convinced the man was asleep at the switch during the very early stages of the crisis when sub prime was the main issue. I still remember his 2007 commentary about sub prime being contained and no recession was on the horizon.

Getting back to the current Fed’s behavior, it’s unlikely that rates are going up any time soon, but remember that the Fed only controls very short-term rates and affects products like your home equity line. Longer-term rates are a function of supply and demand along with inflation and are determined by the “free” market. In normal times, mortgage rates are a function of the 10 year treasury note, however, the Fed has been buying all kinds of mortgages during their quantitative easing process to put more money into the financial system.

While I would love to have been a fly on the wall during all those scheduled and emergency Fed meetings from 2007 through today, I certainly don’t envy the position they are in. They have been forced to pick their poison in what is almost guaranteed to be a very rough and rocky road for the foreseeable future. But it almost feels like this is why he was put on earth, for his lifelong academic study of the Great Depression to be put to use. I often wonder if Ben Bernanke would have taken the job had he known beforehand what he was awaiting him.

Wednesday, November 4, 2009

U.S. Senate Votes to Expand Homebuyer's Tax Credit and Extend Unemployment Benefits

U.S. Sen. Christopher Dodd's office announced late Wednesday that the Senate passed legislation to extend the $8,000 tax credit for first-time homebuyers and create a $6,500 tax credit for so-called "move-up" buyers who purchase before April 30, 2010.

Qualifying move-up buyers are those who already own a home that has been their principal residence for 5 years or more; are 18 years or older; have incomes of up to $125,000 for an individual tax return or $225,000 for a joint return. The homes must cost less than $800,000 and homebuyers with binding contracts as of April 30 will also qualify for the credit if they complete the transaction within 60 days.

Dodd, a Democrat representing Connecticut, was an original co-sponsor of the bill, which would provide 14 additional weeks of jobless benefits for Connecticut workers.

"This is a double victory for families in Connecticut," Dodd said. "Extending unemployment insurance benefits will help Connecticut families make ends meet in a tough economy. And thousands more middle class Connecticut residents may now be eligible to take advantage of the successful homebuyer's tax credit. By helping unemployed workers keep from falling further behind, and helping middle class families get ahead, we're taking positive steps to get our economy back on track."

Dodd was joined in announcing the Senate action by U.S. Sen. Johnny Isakson (R-GA) .

Members of the military, military intelligence, and foreign service who are on qualified extended official duty are not subject to the recapture fee and individuals who have been deployed overseas for 90 days or more in 2008 or 2009 can claim the credit through April 30, 2011.

Connecticut Health Care Advocate Announces $2.7 Million in Savings

Connecticut Health Care Advocate Kevin Lembo announced Wednesday that his office saved consumers $ 2.7 million through the third quarter of 2009.

The office saved $700,000 for consumers in the third quarter alone, officials said.

“Our office continues to provide the most cost-effective consumer assistance on health insurance issues in the state of Connecticut ," Lembo said. "The diligent staff, their dedication and personal attention to consumers and their perseverance make a difference.”

While OHA does not measure the success of its efforts solely in consumer dollars saved—the office has a legislative policy function and works on state and federal health care issues that impact Connecticut’s health care consumers—the amount saved for consumers is an indicator of the level of demand for and success of OHA’s intervention.

Referrals to the Office of the Health Care Advocate come from previous satisfied consumers of OHA services who go on to refer a friend or family member. So far this year, OHA has worked on 2,476 cases, and projects a 50% year-end increase in cases over 2008, Lembo said.

“The true measure of our value comes from the repeat referrals we get from providers, legislators and consumers who come away very happy with and thankful for our efforts ," he said. "We don’t win every case, but consumers know that when they come to OHA we exhaust all avenues to address their concerns.”

Lembo expects the demand for the office’s individual case work to rise pending substantive health care reform: “We are committed to bringing back to the legislature our long-advocated changes in state law on utilization review, as well as our initiative on post-claims underwriting, which protect consumers from unfair denials of coverage and rescission of their insurance policies. These reforms are long overdue. It is long past time that the playing field is leveled to give patients and their families a fair shot when they go to battle with their insurer.”

Last year the office saved consumers over $5.2 million in denied claims or services by health insurance companies that were ultimately reversed in the consumers favor.

Consumers who are experiencing difficulties in getting needed health care, whether it’s the inability to find a provider or the denial of medical or mental health or dental treatment, may call OHA at 1-866-466-4446 for free and confidential expert assistance.

Sunday, November 1, 2009

Kids’ Allowance: The New Normal

Anton Simunovic, a father of six from Norwalk, Conn. has ditched piggy banks.

He’s come up with “ThreeJars,” a new online service that teaches children to earn, use or donate money and track their activity along the way.

Sounds like the early pinning of lessons in personal finance doesn’t it?

Well - Simunovic wanted to give families a resource that makes it easier for parents to monitor household finances, while teaching children how to responsibly manage money and help their fellow man, or animals or the environment at the same time.

Using ThreeJars, kids divvy up their allowance, or other money they have earned, into virtual jars representing three categories and actions: Save, Spend, Share.

Parents guide them in their decisions on how much to stash away, how much to spend and how much to give to a cause they select. Each month, children may choose among four new organizations to contribute to and they can help direct donations made by ThreeJars.

Some examples include Save the Children, The Nature Conservancy and the Whale and Dolphin Conservation Society.

“It’s 100 percent safe,” Simunovic said. There are no advertisements, no outside links “and no bullying,” he emphasized. “I have six kids, so for me it’s a deal.”

Save, spend, share are values he said he wants his children to have as they experience life.

“Kids are learning that money is an infinite resource. When using their own money, they are much more thoughtful. It turns into better decisions,” he said.

We Care.
We care about your children as we care for our own - a lot. We all want a better future for our kids, and we owe it to them to show them the right path.
----The ThreeJars Team

The site does not act as a bank or a custodian of a family’s money. Parents hold the cash and demonstrate for their children how to reconcile the financial records online. “Everything’s very organized. It’s very convenient,” Simunovic said. “It’s really the child that’s making all the decisions, but the parent is in control.”

It also is up to the parents to pay the interest that accrues on the virtual accounts.

The site has been about two years in the making. Families are allowed a free trial for 15 days and after that, membership is $30 per year per family.

“The 2008 meltdown taught us about the need to be financially self-reliant. ThreeJars is an empowering and fun service which gets kids thinking more positively about their own money,” Simunovic said.