Consumers want high-performing security systems online

WINDSOR — According to a recent survey conducted by ING, nine in 10 adults agree that financial services companies should be doing more to protect customers’ personal and financial information.

Survey findings also indicated that 75% of respondents access financial accounts online, such as checking, savings, 401(k) or investment accounts. However, when it comes to their level of experience with protecting their personal and financial information online, just 5% of adults surveyed characterize themselves as being an expert.

While few consider themselves experts when it comes to protecting their information online, 93% agree that they are aware of the risks involved with managing online accounts.

Due to the high levels of awareness regarding online security threats, 93% of survey respondents report that they take online privacy and security very seriously and do everything they can to protect their own information.

Some of the security steps they take include keeping their anti-virus software updated (72%); only accessing their accounts from secure computers (60%); and only working with companies or financial institutions that they trust (56%). However, 84% expect companies to notify them of any suspicious activity and to utilize the most up-to-date security protocols and software (76%).

"Protecting customers’ personal information is one of ING’s highest priorities," Rob Leary, chief executive officer, ING Insurance U.S., said in a statement. "Our customers put a great deal of trust in us to manage their financial futures, and with that trust is great responsibility - a responsibility to secure their personal and financial information. As Americans become more and more comfortable with managing their finances online, it’s important that financial services companies continuously upgrade and evolve their technology capabilities around protecting customer data."

ING said it is responding to security concerns with the opening of its new global security operations center in Minneapolis. The culmination of five years of investment, the center is staffed with employees 24 hours a day, 7 days a week, 365 days a year.

Where Real Estate Is Headed… Your Survey Results Part I

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

For several weeks, I asked you to offer your thoughts on where the residential real estate market is headed. With primary homes being the greatest asset many people own, I thought it would be a good topic here as well as in my Street$marts newsletter. As I think I mentioned, my wife and I sold our house in August. She had been wanting more space and I have been concerned about another significant leg down in real estate. So although our reasons were about as far apart as possible, we both agreed to sell. By doing that, according to our real estate super agent, Judy Cooper, we also would have maximum flexibility when it came time to buy and be viewed very positively by sellers as we wouldn’t have a house that needed to sell first.

When my wife first mentioned the idea of selling, like I unfortunately do with almost everything in life, I created a financial model that compares properties on an apples to apples basis using several different metrics and formulas so we could rationally and unemotionally determine what our house should sell for along with how much to pay another house. Over the past two years, this has prevented us from leaping into what ended up being some very overpriced properties.

As an aside, when we were first house looking in 2000 and 2001, my wife had a habit of loudly telling me in front of the seller’s agent “I want it. I want it. I want it. Let’s pay asking price!” Little did she realize so early in our marriage that her husband (me) wasn’t known for parting with a buck so easily! But after all this time, as she just emailed me a new listing with the word “perfect” in it, she now knows that unless the house is able to be bought within the parameters of the model I created, it’s unlikely to happen. And before you open an email to tell me, yes I know, I am a pain in the rear end when it comes to money! My wife deserves an award for putting up with me!!

Getting back to the topic, I found it interesting that unlike the survey I did regarding what our government’s top priority should be along with where you sit politically, the real estate results were almost the same from blog readers as they were for my Street$marts newsletter readers. Here are the results:

Over the next year real estate prices will:

Rise 32%
Fall 68%

Over the next 5 years real estate prices will:

Rise 64%
Fall 36%

Over the next 10 years real estate prices will:

Rise 82%
Fall 18%

Over the next 20 years real estate prices will:

Rise 90%
Fall 10%

Generally speaking, as you would expect, the longer the time horizon, the more favorable you view an investment in real estate. I am a bit surprised that only 32% believe that home prices will advance in the next year. I imagined that number would have been closer to 50%. The five year number of 64% makes sense and 10 years from now, the vast, vast majority of you believe things will be back to “normal” and real estate will rise.

If I had to guess, I would think that the real estate bears 10 and 20 years out are folks with a semi-permanent bearish stance, just like what I will guess on the stock side. I am not saying you are right or wrong, just that I think that’s somewhat as expected.

The group with a positive long-term opinion must have used the past 30 years of real estate pricing as a guide. We’ve seen several busts during that time, but prices always seemed to have come back over a period of years. Coincidentally, the last 30 years have seen the greatest bull market in bonds (read: lower interest rates) in history. With the conventional 30 year fixed rate mortgage at or near all time lows around 4.50%, you have to ask yourself what the likelihood is of continuing this bond bull market for another 10 or 20 years.

I am going to end this piece here and pick up again next Friday with some analysis and charts, so please be sure and check back next week!

I would be interested to learn your feelings about stock prices, so if you have a chance, please CLICK HERE and take a 30 second survey for a future contribution.

If you watched CNBC’s exclusive interview with well respected hedge fund manager David Tepper last week or read or heard his comments repeated that the only path for stock prices is UP, I offered a very different tune in a CNBC interview on September 27.

Feel free to email me with any questions or comments at Paul@investfortomorrow.com.

Until next time…


Paul Schatz
Heritage Capital LLC
http://www.investfortomorrow.com/
 http://RetirementPlanningConnecticut.com/

An open letter from the IRS to CT charities: File or lose tax-exempt status (w/list)

The Internal Revenue Service released this open letter Tuesday, as an outreach effort to let these charities and nonprofits know that they must file by Oct. 15 to retain their tax exempt status.



Dear Editor:

We at the Internal Revenue Service are concerned because as many as 3,900 small community-based nonprofits in Connecticut are in jeopardy of losing their tax-exempt status. The loss of this status could greatly impact the organizations' charitable work and their donors' potential tax deductions.

Among the organizations that could lose their tax-exempt status are local sports associations and community support groups, volunteer fire and ambulance associations and their auxiliaries, social clubs, educational societies, veterans groups, church-affiliated groups, groups designed to assist those with special needs and a variety of others.

The organizations that are at risk failed to file the required returns for 2007, 2008 and 2009, according to IRS records. The requirement to file is the result of a tax law change that occurred in 2006. For many of these small organizations, complying with the new law may be as simple as completing a 10-minute form online. They can preserve their exempt status under a one-time relief program the IRS announced in July, but only if they file by Oct. 15, 2010.

The IRS has made numerous attempts to alert these organizations, but we are concerned that many may not have gotten the word. A list of the organizations that were at-risk as of the end of July is posted at IRS.gov along with instructions on how to comply with the new law.

We encourage everyone who is connected with a small nonprofit community group to make sure that their organization is aware of the law change and is in compliance before the Oct. 15 deadline.

Best regards,
Gregg Semanick
IRS CT Spokesperson
200 Sheffield Street, Mountainside NJ

The Coming Tradeoff between Dividends and Appreciation

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

The 2003 tax cuts reduced the tax rate on most ordinary dividends from the taxpayer's personal income tax rate to a maximum of 15%, equalizing the tax treatment of dividends and long-term capital gains. One result of the change was renewed focus on income investing. Many public companies initiated dividend programs to attract stable investors.

Unless the 2003 tax rates are extended, or new rules are enacted before then, dividends will be taxed at ordinary income rates once again after December 31, 2010.

The question for investors is how will that impact dividend payouts or the number of firms paying regular dividends.

Studies of corporate behavior following the 2003 tax cut show total dividends reversing their recent downward trend and special dividends spiking. Perhaps more important was the increase in the number of firms paying regular dividends.

  Total Regular and Special Dividends

Non-Financial, Non-Utility and Non-Foreign Firms

 

 
 
   

Effect of Tax Cut on Initiation of Dividends

Breakdown by Expected Earnings Growth

With the expiration of the 2003 tax cuts, dividends again will be taxed at a taxpayer's personal tax rate. This could be as high as 43.5% when the tax to pay for health care, imposed on couples who earn more than $250,000 a year, goes into effect in 2013. In addition to giving the U.S. one of the highest dividend tax rates in the industrialized world, the change in dividend tax treatment can also be expected to change investor behavior and corporate dividend plans.

The reason is simple mathematics. A dividend of $10,000 will be worth $5,650 in after tax value at the highest income rates. A capital gain of $10,000 will have an after tax value of $8,000 based on the long-term capital gains tax rate of 20% effective 2011. The incentive to high income investors and corporations is to increase long-term capital gains and minimize dividends. Another advantage of long-term capital gains is that investors have greater ability to "schedule" the recognition of capital gains to offset losses.

For assets held in a tax-deferred retirement account, the tradeoff between dividend and long-term gain is a non-issue, because all withdrawals are taxed at the individual's personal income rate (with the exception of non-deductible IRA contributions where only gains are taxed).

What's the best approach for you to take with respect to dividends versus capital gains? The right answer depends on your personal circumstances.

Feel free to email me with any questions or comments at Paul@investfortomorrow.com.


Until next time…

Paul Schatz

Heritage Capital LLC
http://www.investfortomorrow.com/
http://RetirementPlanningConnecticut.com/

Insurance Fraud Swells During Storm Season

This past summer, when Connecticut Department of Consumer Protection investigators were operating an undercover sting house designed to catch unregistered home improvement contractors, they were "amazed" at the offer they received from one contractor. Their work and cooperation with local police and agents from the National Insurance Crime Bureau led to the arrest of the contractor for insurance fraud, and the case is now being tried in court.

The investigators were posing as homeowners seeking bids on a variety of home improvement jobs, including roof repairs. According to the investigators’ report, a contractor visited the house in June, and before even inspecting the roof, asked if any roof damage had been caused by wind or storm, and indicated that if he, the contractor, “can time the damage to a storm, [the homeowner’s insurance company] will pay.”

In other words, he told undercover agents (who were posing as homeowners) that they could get a free roof, paid for by their insurance company.

The contractor offered to bury the insurance deductible into the cost of the job and to contact the insurance company right away to begin the claims process. When inspecting the roof, he noted where damage existed and indicated that he would have to show damage to both sides of the roof in order to get the entire job paid for.

Once the insurance company paid the claim, the 'homeowners' were to sign the check over to the contractor.

“Consumers should avoid doing business with anyone whose business practices are questionable or seem fraudulent. When arrested, this contractor claimed he didn’t believe he had done anything wrong, and placed that the blame on the consumers. You don’t want to place your home and your trust in the hands of someone who is ready and willing to involve you in committing a crime,” Consumer Protection Commissioner Jerry Farrell said.

Nationwide, the total cost of non-health insurance fraud is estimated to be more than $40 billion each year, Farrell said. “That means insurance fraud costs the average family between $400 and $700 a year in the form of increased premiums," the commissioner said.

Washington Needs a Wake-up Call

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

So far so good on the preferred path for the stock market. I’ve written many times since early July about higher and much higher prices coming and now, the major indices are sitting right at their June and August high levels. While I am very happy to see that (beats a stick in the eye), as stocks go higher and higher, so does risk. Once we see another 1% on the upside, I believe volatility is going increase along with the chance for a downside reversal within 3-5%. If you’ve benefited from the rally, now is not the time to get complacent and party like its 1999. Dancing close to the door is a good strategy now and will be even more warranted at higher levels.

I am keenly watching the behavior of high yield (junk) bonds along with the number of stocks advancing and declining daily and which sectors are leading the market higher or not participating. This should give at least some warning of a change coming, but it’s far from guaranteed.

The big political/market news lately was something I discussed during the summer; the potential for the democrats to throw a Hail Mary in hopes of saving the mid-term elections in November, although with the Tea Party doing so well this week, that’s got to have dems celebrating!

Barack Obama did not disappoint. From my seat on the positive side, the administration is seeking to allow businesses to write off all new plant and equipment investments in 2011, rather than amortizing over many years. The end result is a potential positive shock to jobs to create the goods as well as potentially more jobs from the company making the investment.

This is one area I've written about and discussed in the media for years; the need to offer tax incentives and credits and help business help themselves without bailouts and handouts. Hopefully, this is a sea change for the administration and more programs like this will follow,

On the negative side, long time readers already know my skepticism (to put it politely) regarding government stimulus. It's a slippery slope that once begun, there's no turning back. During the first quarter of 2009, Congress and the administration passed a record $787B spending bill without the means to pay for it that was sold as a modern day New Deal, heavy on new jobs and infrastructure. It's far from a stretch to say that it's been a bust with only a small percent of "shovel ready" projects funded and underway.

Now we are being a sold another infrastructure bill of goods that emphasizes jump starting the jobs market with "only" $50B to start and at least another $50B over the next five years. Do we need monies allocated for our aging and almost decrepit infrastructure? OF COURSE, we do! And we need monies for job training and education improvements and disease research and technological upgrades and renewable energy, etc. But targeting big energy by "closing loopholes" because the ground is fertile against them isn't the answer.

Where does it end? Does the government just keep creating spending bill after spending bill and hoping they work? Hope certainly isn't a viable investment strategy and it's no better a fiscal one either! As George W. Bush so eloquently mumbled in 2002, ""There's an old saying in Tennessee - I know it's in Texas, probably in Tennessee - that says, fool me once, shame on - shame on you. Fool me - you can't get fooled again."

Regarding taxes, I am pleased that both parties have embraced making the Bush tax cuts permanent for the middle class. That makes perfect sense in any economy, but especially one in as poor shape as ours. The problem I’ve had all along is that raising taxes on any constituency is bad enough in good times (but sometimes necessary and palatable), but is simply disastrous in bad economic times.

According to Wilbur Ross, fully 40% of all discretionary spending in the U.S. is from families making $250,000 a year or more. Raising taxes is only going to curtail and hamper what little growth is currently occurring. To further rub salt in the wound, the Obama administration is also floating the idea of adding more taxes on top of the already largest tax increase in history. While I am not a believer in high taxes and big government, it’s more tolerable in “normal” years without trillion plus dollar deficits. Raising taxes will not work to cut the deficit!

I’ve noticed a very interesting paradigm shift in this country since I began my career in 1988 when the entrepreneurial spirit was so high. It used to be that we all strived to become successful, and revered and idolized people who made it on their own with creativity, perseverance and good ole American ingenuity. It seems like successful Americans are now demonized and targeted, as somehow they are to blame for our woes and should be punished. That’s not good for our long-term health and survival as a world power. We are all in this together!

I will be on CNBC’s The Call today (September 17) between 11:05am and 11:15am.

Feel free to email me with any questions or comments at Paul@investfortomorrow.com.


Until next time…

Paul Schatz

Heritage Capital LLC
http://www.InvestForTomorrow.com
http://RetirementPlanningConnecticut.com/

Sell Rosh Hashanah...Buy Yom Kippur

(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 was watching Squawk Box this morning on CNBC and heard an interview with a Chicago regular who offered that stock market volume may remain low for the rest of 2010 as many large market players are in the process of essentially closing up shop, not for the quarter, but for the YEAR. By "closing up shop", I don't mean that they are liquidating all of their portfolios and going to cash, but rather, not committing new money to trades, not taking on more risk and hedging where appropriate. It's dumb enough to hear this mindless drivel in October when mutual funds have their own fiscal year ends, but now? With four full months left in a toss-up year? It's absurd!

I can’t imagine what my clients would say if I took that tact, yet still charged them management fees. I’ve always thought we were hired and paid to do a job over the long-term. If we compromise that for an arbitrary annual date, how long until it’s quarter by quarter and then month by month?

Turning to the markets, we left off with stocks set to Explode Higher or Implode Lower? at a critical juncture and my call for a significant rally looking like the former division leading San Diego Padres, losers of 10 games in a row. The Dow was trading just below 10,000 and it was make or break time for the bulls. With all of the positive indicators and supportive sentiment, the market was supposed to rally strongly. If it could not, I feared an imminent meltdown that would have really turned our own very good year into sour grapes.

The bears came close, but their efforts were thwarted several times in late August and the bulls turned around and shot stocks higher, something I was very glad to see! The stock market continues to support a rally, although it's come very far, very fast. A few days down to refresh the rally would be healthy and welcomed, and set up another assault on the June and August highs this month.

With the Jewish holidays upon us, the old Wall Street adage may apply. Sell Rosh Hashanah, buy Yom Kippur, which means the market tends to be on the weak side during the week that separates the two holidays.

As I mentioned recently, I fully expect this rally to be more selective with some sectors rising to new 2010 highs, like our largest positions, REITs and Consumer Staples, while other sectors, like banks, will be pulled along but lag the market.

The ultimate peak, which I had forecasted to be in place by Labor Day still seems unclear to me. It could have been the April high, but there just may be enough energy to test that high before long. As always, we'll take it one day at a time and let our models guide us. Unless we see dramatic improvement in market internals, like the number of stocks going up and down, new highs and lows along with sector leadership, the potential for a 10-20% decline still exists this year.

On the bond side, there continues to be a tsunami of money heading that way from the investing public along with corporations issuing debt at a record pace, just like we saw with tech stocks in 1999 and 2000 and housing after that. Similar to tech and housing, the bond party isn't going to end well, whether that's this year or 2011 or 2012. Manias tend to go on much longer and higher than anyone forecasts, but when they end, it's with a bang and not a fizzle.

Several of our investment programs own high yield, investment grade and treasuries, but are under no impression that it's for the long-term. As I mentioned here and on CNBC, we happily rode the treasury bandwagon for many months in our Global Asset Allocation Program before becoming more active of late with our trades. I continue to believe that the more nimble you can be, the better the chance to avoid the upcoming bond collapse and earn money elsewhere.

I will be on CNBC’s Squawk on the Street this Monday, September 13, at 9:35am.

Feel free to email me with any questions or comments at Paul@investfortomorrow.com.

Until next time…

Paul Schatz
Heritage Capital LLC
http://www.investfortomorrow.com/
http://RetirementPlanningConnecticut.com/