Former Fed Chairman Volcker Details Threats to State Finances

Former Fed Chairman Volcker Details Threats to State Finances

  • Posted on: 9 December 2015
  • By: admin

Former Fed Chairman Volcker Details Threats to State Finances

A report by the State Budgetary Crisis Task Force, co-chaired by former Federal Reserve Chairman Paul Volcker, has identified six major threats to states’ fiscal health. You can read the full Wall Street Journal article at http://online.wsj.com/article/SB10001424052702303933704577532971037875532.html

Why You Should Care

The six major threats identified are:

·         Medicaid spending

·         Federal deficit reduction

·         Underfunded retirement promises

·         Narrow and eroding tax bases

·         Local government fiscal stress

·         Budgetary “gimmicks” designed to solve short-term cash needs

The City of Compton, California appears to be the next municipality that will file for bankruptcy and the list is only going to grow as states seek out more financial flexibility. At the end of the day, basic services are going to be harder to provide, and legislators need to do a better job at planning, rather than simply fulfilling campaign promises to increase spending.

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U.S. Corn Crop Deteriorating Further

U.S. Corn Crop Deteriorating Further

  • Posted on: 9 December 2015
  • By: admin

U.S. Corn Crop Deteriorating Further
We wrote about the drought plaguing the U.S. last week and its impact on the corn crop, but this morning’s USDA weekly crop report showed that the percentage of U.S. corn that was in good/excellent condition fell to 31%, down from 77% on May 21st. You can view the report at http://usda01.library.cornell.edu/usda/current/CropProg/CropProg-07-16-2012.pdf
Why You Should Care
No shock, but the United States is the largest producer of corn in the world. We put it in everything. From the food we feed livestock, to the soft drinks we consume, to our fuel tanks. We export roughly 25% of the U.S. corn supply every year, which means we are ultimately responsible for supplying 10-15% of the world’s corn needs outside the U.S.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Since June 15th, the price of a bushel of corn has risen 54%, and if the drought continues, expect that price to rise even more sharply. The U.S. uses close to 40% of its corn to produce ethanol that is then used to dilute fuel. The subsidy to ethanol producers cost U.S. taxpayers approximately $7 billion per year. It would seem that now is a good time to reconsider that subsidy.

China’s Growth Contiues to Slow – GDP grew 7.6% in the June Quarter, Slowest Pace in Three Years

China’s Growth Contiues to Slow – GDP grew 7.6% in the June Quarter, Slowest Pace in Three Years

  • Posted on: 9 December 2015
  • By: admin

China’s Growth Contiues to Slow – GDP grew 7.6% in the June Quarter, Slowest Pace in Three Years

China released their second quarter GDP figures which showed the economy grew at a 7.6% annual rate, slightly below the 7.7% expectations, and down from 8.1% in the first quarter. You can read recap from the Wll Street Journal at http://blogs.wsj.com/chinarealtime/2012/07/13/economists-react-china-gdp-growth-hits-three-year-low/

Why You Should Care

China is the world’s third largest economy behind the U.S. and European Union, and with the EU on it’s back and the U.S. stuck in muddle through mode, China is also the economy that was expected to carry global demand and help the global economy recover. But China’s growth has been in steady decline since reaching a post Great Recession peak of 11.9% growth in the first quarter of 2010. 

At the end of the day, the gobal economy cannot work if all three major economies are stagnating or slipping. Economic data for all three economies continues to worsen, and with a lack of political will in the U.S. and Europe, China’s ability to force stimulus on its population is really the only way to get the global economy moving again.

The 7.6% growth figure was considered a positive today as experts believe that China will avoid a "hard landing" meaning a crash of their economy. 

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Housing Rebound? Foreclosures are beginning to Rise…Again

Housing Rebound? Foreclosures are beginning to Rise…Again

  • Posted on: 9 December 2015
  • By: admin

Housing Rebound? Foreclosures are beginning to Rise…Again

According to RealtyTrac Inc., initial notices of foreclosure in the second quarter increased by 6% over last year, the first annual increase since 2009. You can read the full Bloomberg story at http://www.bloomberg.com/news/2012-07-12/housing-rebound-signaled-as-banks-resume-foreclosures-mortgages.html

Why You Should Care

Given the positive trends in home prices we have seen nationwide over the last 6+ months, we have to keep our eye on foreclosure rates as an increase in foreclosure properties on the market could lead to price pressure in the short-term. Due to Government intervention and lawsuits, banks have delayed foreclosures since 2010, but now that the moratorium is over, we may be in for another round. 

Home prices have an immense impact on consumer confidence, and after 5 years of price declines, a slow sustained increase in prices could work wonders for our collective psyche. But banks are sitting on a great deal of distressed inventory so don’t go tapping that equity line just yet. 

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Widespread drought causes corn prices to surge; are grocery goods next?

Widespread drought causes corn prices to surge; are grocery goods next?

  • Posted on: 9 December 2015
  • By: admin

Widespread Drought causes Corn Prices to Surge; Are Grocery Goods Next?
 

Massive swaths of Midwest farmland are suffering through one of the most widespread droughts in history, causing corn prices to soar as the USDA scales back its predictions for a record crop. Corn farmers are expected to yield an average of 146 bushels an acre – a 20-bushel drop from the Department of Agriculture’s June estimate. Coupled with intense demand for the plant – it is a key component in a panoply of consumer foods and goods – analysts now fear that supermarket goods including meat, vitamins, textiles and anything made with corn syrup will become more expensive.
 

http://www.latimes.com/business/money/la-fi-mo-drought-corn-prices-20120711,0,5480984.story

Why You Should Care
 

Despite tame inflation of late, a recent surge in oil and food costs directly impact EVERYBODY. Should these two trends persist, the associated cost increases negatively impact an already strapped consumer. We recommend keeping an eye on consumer spending data, the cost of food at your grocery store, and the impact higher near-term food and energy costs can have on the economy. We will be watching closely.

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Government Overpaid $14 Billion in Unemployment Benefits

Government Overpaid $14 Billion in Unemployment Benefits

  • Posted on: 9 December 2015
  • By: admin

Government Overpaid $14 Billion in Unemployment Benefits

Don't spend that unemployment check too fast. The government might ask you to pay it back. Overpayments are a rampant problem in the unemployment insurance system. The federal government and states overpaid an estimated $14 billion in benefits in fiscal 2011, or roughly 11% of all the jobless benefits paid out, according to reports from the U.S. Labor Department. Of the states, Indiana was the worst offender, making more improper payments than it did correct ones.
 

http://finance.yahoo.com/news/government-overpaid-14-billion-unemployment-085800667.html

Why You Should Care

Just another in a long line of government gaffs. Our guess is the $14 billion grossly understates the overpayments if the trend of government estimates remains intact. We by no means are against unemployment benefits; rather, we want to point out yet another example of the waste and poor oversight often associated with large bureaucratic groups like state and federal governments (and investment banks). Good luck getting the money back…

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President Obama Seeks to Extend Bush Tax Cuts for People Earning Under $250,000 – Does He Really Mean It?

President Obama Seeks to Extend Bush Tax Cuts for People Earning Under $250,000 – Does He Really Mean It?

  • Posted on: 9 December 2015
  • By: admin

President Obama Seeks to Extend Bush Tax Cuts for People Earning Under $250,000 – Does He Really Mean It?

This morning, President Obama floated a plan to extend the Bush-era tax cuts for those earning less than $250,000/year for one more year. You can read the full New York Times article at http://www.nytimes.com/2012/07/09/us/politics/obama-seeks-2013-tax-cuts-within-limits.html?_r=1

Why You Should Care

After a disappointing June employment report on Friday, the White House is looking to pivot to a new talking point which is the President’s plan to extend the Bush tax cuts for those earning under $250,000. While this sounds like a nice move toward addressing a portion of the looming fiscal cliff, it is yet another campaign tactic that is sure to fail as Republican, and even senior Democrat, Senators oppose limiting the extension to only people earnings less than $250,000. 

We cannot afford the continued campaigning as we need real solutions. Floating a plan that is sure to fail to make the other side look like they are intractable and don’t want to get anything done is ridiculously unproductive. We need leadership, from whatever side wants to stand up and show it. 

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Question of the Month - How Much Should I Withdraw from My Retirement Assets

Question of the Month - How Much Should I Withdraw from My Retirement Assets

  • Posted on: 9 December 2015
  • By: admin

Question of the Month - How Much Should I Withdraw from My Retirement Assets

Withdrawal rates during retirement

At Pathlight, we are having more frequent conversations with clients regarding their retirement plans. In particular, the conversations focus on the amount of money they can spend from their assets during retirement. In financial planning parlance, this amount is known as the withdrawal rate. Although there is no hard and fast rule, years of empirical research suggest a good starting point is 4% ($1,000,000 X 4%= $40,000).

Although 4% may be a good starting point, the reality is that an appropriate withdrawal rate depends on several factors. They include the following: expected rate of return, spending habits, inflation, tax rate, other sources of income, and life expectancy.  Due to the vast amount of unknowns, determining a safe amount to extract from one’s assets should be a tailored and dynamic process.

Factors to consider

Most financial planning programs assume static withdrawal rates, meaning a set percentage each year. However, we all know that life isn’t static. Spending needs are variable and certain expenditures unavoidable. For example, early in retirement, one is more likely to travel and spend on discretionary items. Later in life, medical costs can be a larger portion of spending. Recognizing the variability of costs and factoring in what-ifs are important to successful retirement planning.

A common error that we often see is the miscalculation of taxes. Withdrawals from retirement accounts, even 401Ks, are taxable as income. It is as if you received a paycheck, and for many, these taxes can substantially eat away at the net amount. Furthermore, future tax rates are uncertain and potentially will be higher, increasing the need for proper timing of withdrawals and planning from which account(s) to withdraw. The objective need not only be withdrawal amount, but tax efficiency of the distributions.

Often, there is a laser focus on managing investment risks. While we understand and agree that investment allocation must be appropriate to one’s risk tolerance, too there must be an understanding of the various kinds of risk. The largest, quite possibly, is the risk of outliving one’s money. Depending upon the assets and spending needs, conservative investors may require riskier assets in order to meet their long-term goals. This is very important, as we would argue that the greater risk is to outlive your money than to own riskier investments. 

What to Do

There are many aspects of retirement planning, some of which can be controlled and some which cannot. Furthermore, given the vast amount of unknowns, planning is part art and part science. This requires focus on doing that which gives one the greatest likelihood of success. A few keys to success in planning for retirement include the following:

 

1.      Focus on what you can control (spending, length of work, savings)

2.      Pay down debt (#1 factor we see to a successful retirement is zero debt)

3.      Don’t fund others’ obligations at your own expense (supporting adult children, college funding, housing down-payments for family members)

4.      Start planning early (it’s never too early to start)

A successful retirement means different things to different people, but one universal aspect is the removal of financial worry. With proper understanding, education, and planning, a successful and fulfilling retirement can become a reality. 

For more information or to schedule an appointment for a complementary retirement analysis, please contact M.J. Nodilo at (602) 795-7611 or mnodilo@pathlightinvestors.com

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Expert's Corner - Divorce 101 - Tips on Keeping it Civil

Expert's Corner - Divorce 101 - Tips on Keeping it Civil

  • Posted on: 9 December 2015
  • By: admin

Divorce 101 - Tips on Keeping it Civil

Communication between spouses in a divorce is stressful and can easily get out of control, leading to counterproductive results.  Combative communications can jeopardize the ability of the parties to parent effectively, function in their daily lives and manage a divorce toward a favorable outcome.  Although animosity between parties is understandable, both parties need to make conscious choices about the manner in which they communicate.  Taking control of this process means being conscious of what you are doing and saying, while recognizing the effect it can have on all involved.  In today’s economy, people are often forced to live together while going through divorce.  Litigants must be mindful of the atmosphere their emotions create for the children living in the home.  Plus, errant communication may become fodder for the opposing party; something neither wants working against them.

Once the emotions are under control, the parties can focus on dividing the marital assets and debt.  Suddenly there will be a need to maintain two separate households.  The first step is to look at respective budgets.  Parties need to realize that their lifestyles will be affected when they have to maintain two separate households.  It is much more expensive to live separately than it is to live together. 

The parties need to decide if one will maintain the marital residence.  This can be both a financial and emotional decision for couples.  Parents need to realize the impact on their children when considering a move-out of a marital residence.  They must also consider whether they will continue to co-own the residence, sell the residence in the near future, or buy out the other party’s interest. In the current housing market, the decision on the residence can be quite challenging. Whatever the decision, each person must be willing to work together to ensure that the family does not suffer as a result. 

Parties to a divorce also need to determine future ownership of jointly held or community businesses.  If the parties own a community business, they will need to address the value of the business, continued ownership of the business, day to day functioning of the business pending division, and future direction of the business.  These can be complicated decisions that require experts and experienced attorneys to guide the parties through the process and ensure an equitable result for all involved.

In order to effectuate a successful outcome, both parties need to take responsibility for their own behavior.  Experienced attorneys can guide your way through the legal process helping to make sure your emotions do not cloud your judgment.  An emotional argument does not yield productive results.  Avoid the verbal attack.   While it may feel good in the short run, it rarely helps in the long run.

Jennifer B. Rubin and Yvette D. Ansel are attorneys with Hymson Goldstein & Pantiliat located in Scottsdale, Arizona. They can be reached at JBR@legalcounselors.com and YDA@legalcounselors.com respectively. 
 
The views and opinions expressed are not those of Pathlight Investors and are intended to be for educational purposes only. Pathlight Investors does not provide legal advice and cannot vouch for the accuracy of the information presented. Please contact the author of the article to determine how this information pertains to your specific situation.

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