Where the Jobs Will Be (WSJ)

Landing a Job of the Future Takes a Two-Track Mind
Career Experts Say Positions in Growing Fields Will Require an In-Demand Degree Coupled With Skills in Emerging Trends


By DIANA MIDDLETON

If you're gearing up for a job search now as an undergraduate or returning student, there are several bright spots where new jobs and promising career paths are expected to emerge in the next few years.

Technology, health care and education will continue to be hot job sectors, according to the Bureau of Labor Statistics' outlook for job growth between 2008 and 2018. But those and other fields will yield new opportunities, and even some tried-and-true fields will bring some new jobs that will combine a variety of skill sets.



The degrees employers say they'll most look for include finance, engineering and computer science, says Andrea Koncz, employment-information manager at the National Association of Colleges and Employers. But to land the jobs that will see some of the most growth, job seekers will need to branch out and pick up secondary skills or combine hard science study with softer skills, career experts say, which many students already are doing. "Students are positioned well for future employment, particularly in specialized fields," Ms. Koncz says.

Career experts say the key to securing jobs in growing fields will be coupling an in-demand degree with expertise in emerging trends. For example, communications pros will have to master social media and the analytics that come with it; nursing students will have to learn about risk management and electronic records; and techies will need to keep up with the latest in Web marketing, user-experience design and other Web-related skills.

Technology Twists

More than two million new technology-related jobs are expected to be created by 2018, according to the BLS. Jobs that are expected to grow faster than average include computer-network administrators, data-communications analysts and Web developers. Recruiters anticipate that data-loss prevention, information technology, online security and risk management will also show strong growth.

The Next Finance Hiring Hot Spots
A computer-science degree and a working knowledge of data security are critical to landing these jobs. Common areas of undergraduate study for these fields include some of the usual suspects, such as computer science, information science and management-information systems.

But those might not be enough. That's because not all of those jobs will be purely techie in nature. David Foote, chief executive officer of IT research firm Foote Partners, advises current computer-science students to couple their degrees with studies in marketing, accounting or finance. "Before, people widely believed that all you needed to have were deep, nerdy skills," Mr. Foote says. "But companies are looking for people with multiple skill sets who can move fluidly with marketing or operations."

Social media has opened the door to the growth of new kinds of jobs. As companies turn to sites like Twitter, LinkedIn and Facebook to promote their brands, capture new customers and even post job openings, they will need to hire people skilled in harnessing these tools, Mr. Foote says. In most cases, these duties will be folded into a marketing position, although large companies such as Coca-Cola Co. are creating entire teams devoted exclusively to social media.

Similarly, employment for public-relations positions should increase 24% by 2018. Job titles—like interactive creative director—will reflect the duality of the required skill sets.

Back to School
Students will have to study strategy to maximize relationships between third-party content providers and their company's Web team. Other key skills will be search-engine optimization to maximize Web traffic and marketing analytics to decipher the company's target demographic, says Donna Farrugia, executive director of Creative Group, a marketing and advertising staffing agency in Menlo Park, Calif.

Many universities and community colleges are offering certification programs focused on burgeoning sectors. For example, the University of California at Los Angeles's extension program offers a certificate in information design.

That, program, like similar certificate studies at other schools, aims to give students an edge in Web site search optimization—a major attraction for Web-based companies who want to boost user traffic, says Cathy Sandeen, dean of UCLA's extension program.

User-experience design—a sort of architecture for information that Web viewers see—is another emerging field. Jobs there include experience specialists and product designers at firms ranging from computer-game companies to e-commerce Web sites.

Ms. Sandeen says the school will offer a certificate program for user-experience design as well, at a cost of about $3,000 to $5,000. The program will run one to two years, depending on a student's schedule, and will couple product design with consumer psychology and behavior.

"Our students [will] learn to think like anthropologists, evaluating how easy it is to utilize the products," she says.

Not surprisingly, green technology, including solar and wind energy and green construction, are also booming areas. Engineers who can mastermind high-voltage electric grids, for example, will have a great advantage over other job applicants, says Greg Netland, who oversees recruiting for the U.S., Latin America and Canada for Sapphire Technologies, an IT staffing firm in Woburn, Mass. that is a division of Randstad.

"Global sustainability will become more important to employers," Mr. Netland says. "It cuts costs, making experts in the field highly attractive to employers."

Jobs in alternative-energy systems, including wind and solar energy, will require a variety of skills: engineers to design systems, consultants who will audit companies' existing energy needs, and those who will install and maintain the systems.

Financial Opportunities
Despite the slashing of positions seen in the financial sector during the economic crisis, recruiters also expect thousands of new jobs to be created in the compliance field, says Dawn Fay, district New York/New Jersey president of Robert Half International.

Ms. Fay counsels job seekers to look at the misdeeds of the past year or two to identify where new jobs will bloom in the financial sector. "It was a year of Ponzi schemes and banking meltdowns," she says. "Be strategic and position yourself as someone who can mitigate those risks."

That makes risk management an emerging specialty with strong growth in jobs expected. Those on track to be financial analysts can get additional certification in risk management through organizations like the Risk Management Association or the Risk and Insurance Management Society.

"Risk management was a mainstay in financial companies, but I believe it will be present in every Fortune 500 company," says Jeff Joerres, chairman and chief executive officer at staffing firm Manpower Inc.

Hospital Upgrades
Health care is expected to continue to see a surge in hiring, with more than four million new openings estimated by 2018, according to the BLS. Hiring for physical and occupational therapists will likely be strongest. But new specialties are popping up, particularly in case management, says Brad Ellis, a partner with Kaye Bassman International, an executive-search firm based in Plano, Texas.

Case managers do everything from managing the flow of information between practitioner and insurance company to mitigating risk to the hospital.

"If you're a licensed nurse, for example, getting a certificate in risk management from the state board of health would make you extremely competitive," Mr. Ellis says.

Harris Miller, president of the Career College Association in Washington, D.C., says IT will be increasingly important in the quest to drive down health-care costs, too. Students specializing in nursing informatics, which combines general nursing with computer and information sciences, at the master's degree level will swap a clipboard for a smart phone to manage patient data. Schools like Vanderbilt University are offering nursing informatics degrees via distance learning, and certification is offered through American Nurses Credentialing Center, based in Silver Springs, Md.

The strong push toward making medical records and information more accessible through computerized record-keeping means opportunity, Mr. Miller says. "This is going to require people who are skilled in the hardware and software of nursing informatics."

Write to Diana Middleton at diana.middleton@wsj.com

Convert To Roth IRA - Not So Fast

Advisors Caution Against Rush To Roth IRA

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Why Are CDs, Money Market Rates So Low? (NY Times)

December 26, 2009
At Tiny Rates, Saving Money Costs Investors
By STEPHANIE STROM
Millions of Americans are paying a high price for a safe place to put their money: extremely low interest rates on savings accounts and certificates of deposit.

The elderly and others on fixed incomes have been especially hard hit. Many have seen returns on savings, C.D.’s and government bonds drop to niggling amounts recently, often costing them money once inflation, fees and taxes are considered.

“Open a Savings Plus Account today and get a great rate,” read an advertisement in the Dec. 16 Newsday for Citibank, which was then offering 1.2 percent for an account. (As low as it was, the offer was good only for accounts of $25,000 and up.)

“They’re advertising it in the papers as if they’re actually proud of that,” said Steven Weisman, a title insurance consultant in New York. “It’s a joke.”

The advertised rate for the Savings Plus account has expired, according to the bank’s Web site; as of Friday, the account paid an interest rate of 0.5 percent. The bank’s highest-yield savings account, the Ultimate, was paying 1.01 percent.

The best deal Mr. Weisman has found is 2 percent on a one-year certificate of deposit offered by ING Direct, an online bank that has become a bit of a darling among the fixed-income crowd.

Interest on one- and two-year Treasury notes was just 0.40 percent and 0.89 percent, as of Monday. Bank of America offers 0.35 percent on a standard money market account with $10,000 to $25,000, and Wells Fargo will pay 0.05 percent on a basic savings account.

Indeed, after fees are subtracted, inflation is accounted for and taxes are paid, many investors in C.D.’s, government bonds and savings and money market accounts are losing money. In fact, Northern Trust waived some $8 million in fees on money market accounts because they would have wiped out all interest, and then some.

“The unemployment situation and the general downturn in the economy had an impact, but what’s going to happen now as C.D.’s mature is that retirees and the elderly are going to take anywhere from a half to three-quarters of a percent cut in their incomes,” said Joe Parks, a retired accountant in Houston on the advisory board of Better Investing, an organization that works to help people become savvier investors. “It’s a real problem.”

Experts say risk-averse investors are effectively financing a second bailout of financial institutions, many of which have also raised fees and interest rates on credit cards.
“What the average citizen doesn’t explicitly understand is that a significant part of the government’s plan to repair the financial system and the economy is to pay savers nothing and allow damaged financial institutions to earn a nice, guaranteed spread,” said William H. Gross, co-chief investment officer of the Pacific Investment Management Company, or Pimco. “It’s capitalism, I guess, but it’s not to be applauded.”
Mr. Gross said he read his monthly portfolio statement twice because he could not believe that the line “Yield on cash” was 0.01 percent. At that rate, he said, it would take him 6,932 years to double his money.

Many think the Federal Reserve is fueling a stock market bubble by keeping rates so low that investors decide to bet on stocks instead. Mr. Parks of Better Investing moved more money into the stock market early this year, when C.D.’s he held began maturing and he could not nearly recover the income they had generated by rolling them over.

He began investing some of the money in blue chip stocks with a dividend yield of at least 3 percent and even managed to find an oil-and-gas limited partnership that offered 8 percent.

Mr. Parks said, however, that he would not pursue that strategy as more of his C.D.’s matured. “What worked in the first quarter of this year isn’t as relevant, because the market has come up so much,” he said.

No one is advising a venture into higher-risk investments. Katie Nixon, chief investment officer for the northeast region at Northern Trust, said that, in general, “no one should be taking risks with their pillow money.”

“What people are paying for is safety and security,” she said, “and that’s probably just right.”

People who rely on income from such investments for support, however, are being forced to consider new options.

Eileen Lurie, 75, is taking out a reverse mortgage to help offset the decline in returns on her investments tied to interest rates. Reverse mortgages have a checkered reputation, but Ms. Lurie said her bank was going out of its way to explain the product to her.

“These banks don’t want to be held responsible for thousands of seniors standing in bread lines,” she said.

Such mortgages allow people who are 62 and older to convert equity in their homes into cash tax-free and without any impact on Social Security or Medicare payments. The loans are repaid after death.

“If your assets aren’t appreciating and aren’t producing any income, you’re getting eaten up in this interest rate environment,” said Peter Strauss, a lawyer who advises the elderly. “A reverse mortgage is one way of making a very large asset produce income.”

Eve Wilmore, 93, has watched returns on her C.D.’s drop to between 1 percent and 2 percent from about 5 percent a year or so ago. Yet the Social Security Administration recently raised her Medicare Part B premium based on those higher rates she had been earning. “I’m being hit from both sides,” Mrs. Wilmore said. “There’s some way I can apply for a reconsideration, and I’m going to fight it. I have to.”

She said she was reluctant to redeploy her money into higher-risk investments. “I don’t know what my medical bills will be from here on in, and so I want to keep the money where I can get to it easily if I need it,” she said.

Peter Gomori, who taught a course on money and investing for Dorot, a nonprofit that offers services for the elderly, did not advise his students on investment strategies but said that if he had, he would probably have told them to sit tight.

“I know interest rates are very low for Treasury securities and bank products, but that isn’t going to be forever,” he said.

But investment professionals doubt rates will rise any time soon — or to any level close to those before the crash.

“What the futures market is telling me,” Mr. Gross said, “is that in April 2011, these savers that are currently earning nothing will be earning 1.25 percent.”

Estate Tax Mess from Congress Inaction (Forbes)

Taxes
Congress Throws Estate Plans Into Disarray
Ashlea Ebeling, 12.17.09, 7:45 PM ET


Barring a last-minute political deal, the federal estate tax is set to disappear as of Jan. 1, 2010--for just one year. Democratic leaders of Congress are vowing to resurrect the tax retroactively sometime next year, but the impending lapse has estate planners in a tizzy. They worry the lapse could turn into a nightmare for some families.

"We may have to change every other client document," laments Carol Harrington, the head of the Private Client Group at McDermott Will & Emery.

The one-year repeal of the estate tax has been a part of the law since the Bush tax cuts were passed in 2001. In 2011, when those tax cuts expire, the estate tax will come roaring back to life with a $1 million per estate exemption from tax and a 55% top rate. By contrast, for those dying in 2009, $3.5 million of each estate is exempt from federal tax and the top estate rate is 45%.

While planners have bemoaned the uncertainty since 2001, few believed the politicians would be reckless (or deadlocked) enough to let the tax expire and then come back. They always assumed there would have to be some sort of a political deal before time was up.

"I've never seen Congress do anything so stupid," says Harrington. "The uncertainty is paralyzing. We were not cynical enough."

You might think heirs of those who die between Jan. 1 and the signing of a new estate tax law will be in luck. That's why there have been jokes about 2010 being the year to "throw mama from the train" or to send Dad hunting with Dick Cheney.

But the reality is that the families of those who die during the lapse--including those who aren't so wealthy--may not save any tax and could face a real mess. "Beneficiaries will deal with uncertainty for years," warns Kaye Thomas, a tax lawyer who opines on tax issues at his Web site, fairmark.com. "Having a brief period when the estate tax doesn't apply will almost surely lead to questions as to whether wills and trusts drafted under the assumption that the tax would remain in force truly reflect the intent of the decedent," he adds.

An unlimited amount can be left to a spouse tax-free. So estate planning documents drafted for couples often include formula clauses designed to preserve the estate tax exemption of the first spouse to die. But those clauses could spell trouble during the lapse.

Here's how one such clause might backfire: A man has $6 million in net worth and his will gives his children from his first marriage the "exemption" amount with the rest going to his second wife. If he dies in 2009, when the exemption is $3.5 million, wife No. 2 is left with $2.5 million and the $3.5 million going to the kids is exempt from estate tax. Sounds fair and tax-savvy.

But if the man dies on Jan. 1, his will could be interpreted to leave the entire $6 million to his children with his widow left out in the cold. Imagine the family feuds--and litigation.

Even if the family gets along, and with no second-marriage issue, a will that unintentionally transfers all assets to the kids could create huge problems, including incurring extra state estate taxes (23 states and the District of Columbia have their own estate taxes).

In addition, if Congress reinstates the estate tax retroactively, some heirs of those who die during the no-estate tax time period are likely to put up a fight instead of paying big bucks in estate tax. "If there's a significant estate, you're going to have litigation," predicts Donald Hamburg, an estates lawyer in New York City.

The question for the courts would be: "Is the retroactive estate tax an unconstitutional ex post facto law?" To be sure, a constitutional challenge is a long shot. Taxpayers sued and lost on whether it's constitutional to retroactively increase the top estate tax rate in Nationsbank of Texas v. U.S. In that case, a woman died in March 1993, when the estate tax was 50%, with a $28 million estate. But as part of the 1993 budget deal, Congress later raised the rate for 1993 deaths retroactively to 55%. Her heirs sued over the extra tax, took it up to a Court of Appeals and lost. They were denied a hearing by the U.S. Supreme Court.

Still, the retroactive imposition of a tax--as opposed to a retroactive tax rate increase--is arguably different, says Blanche Lark Christerson, managing director at Deutsche Bank Private Wealth Management.

Heirs would have to wait until the constitutional issue is resolved in the courts before they get their inheritances. "It certainly will mean that inheritances will be delayed in whole or in part," says Linda Hirschson, an estate lawyer with Greenberg Traurig in New York.

As a practical matter, people can take the position that the tax is retroactive and they're not going to fight it, or they can take the position it's not retroactive and gear up for a fight with the IRS and later in the courts. If they take the latter position, they'd better keep funds in the estate until things have cleared up, Hirschson says.

While only perhaps 5,500 estates over $3.5 million would have a tax problem with the retroactive imposition of the estate tax, tens of thousands of smaller estates still face a logistical and tax mess during the period the law has lapsed. As part of the current law, during the one year that the estate tax disappears, so too does a provision which gives all inherited assets a "step-up" in basis to their value at the time of the owner's death. (Step-up means heirs can sell right away without owing any capital gains taxes.)
Instead, for the one year of the estate tax lapse, only the first $1.3 million in assets gets a step up in basis. That means heirs of some estates larger than that will have to pay lawyers and accountants extra to figure out which assets to include in the $1.3 million. Moreover, they may not even know what the original cost of various assets was.

Harrington notes that if there's a surviving spouse, he or she can get an additional $3 million of assets that have been stepped up. So in theory, some estates might be able to shield up to $4.3 million from capital gains, depending on how an estate plan is drafted.

Still, the loss of step-up is a key reason planners assumed the politicians--if they wanted to keep their jobs--would change the law before 2010. Congress actually repealed step-up once before, but never allowed the provision to take effect because of the outcry from families, lawyers and accountants.

With all these problems there is a potentially huge planning opportunity, says Hamburg.

Along with the repeal of the estate tax is the repeal of the so-called "generation-skipping tax" (GST), a stiff extra tax that applies to transfers to grandchildren and others, which is designed to limit multigenerational gifts that skip a generation of tax. Wealthy grandma can make significant gifts to grandchildren using multigenerational trusts, paying a gift tax (which isn't repealed) but no GST. "Lawyers are talking about setting up these trusts in January," Hamburg says. It's not clear if this will work if Congress reinstates the GST retroactively and it is held to be constitutional.

Where will this all settle? An estate tax with a $3.5 million per-person exemption ratcheting up to $5 million over 10 years, and a 35% top rate (or perhaps a top rate tied to the top personal income tax rate), predicts Dean Zerbe, national managing director with the AlliantGroup and former tax counsel to Sen. Charles Grassley, R-Iowa.

"This is a classic football exercise--you get politicians on both sides posturing," Zerbe says. "The biggest winners out of this are the estate tax attorneys. It's a sad day for everybody else."

Should you walk away from your mortgage? (WSJ)

REAL ESTATE DECEMBER 17, 2009

Debtor's Dilemma: Pay the Mortgage or Walk Away
In Down Real-Estate Market, Homeowners Are Deciding to Abandon Their Loan Obligations Even if They Can Afford the Payments

By JAMES R. HAGERTY and NICK TIMIRAOS
PHOENIX -- Should I stay or should I go? That is the question more Americans are asking as the housing market continues to drag.

In good times, it would have been unthinkable to stop paying the mortgage. But for Derek Figg, a 30-year-old software engineer, it now seems like the best option.

Mr. Figg felt trapped in a home he bought two years ago in the Phoenix suburb of Tempe for $340,000. He still owes about $318,000 but figures the home's value has dropped to $230,000 or less. After agonizing over the pros and cons, he decided recently to stop making loan payments, even though he can afford them.

Mr. Figg plans to rent an apartment nearby, saving about $700 a month.

A growing number of people in Arizona, California, Florida and Nevada, where home prices have plunged, are considering what is known as a "strategic default," walking away from their mortgages not out of necessity but because they believe it is in their best financial interests.

A standard mortgage-loan document reads, "I promise to pay" the amount borrowed plus interest, and some people say that promise should remain good even if it is no longer convenient.
George Brenkert, a professor of business ethics at Georgetown University, says borrowers who can pay -- and weren't deceived by the lender about the nature of the loan -- have a moral responsibility to keep paying. It would be disastrous for the economy if Americans concluded they were free to walk away from such commitments, he says.


Walking away isn't risk-free. A foreclosure stays on a consumer's credit record for seven years and can send a credit score (based on a scale of 300 to 850) plunging by as much as 160 points, according to Fair Isaac Corp., which provides tools for analyzing credit records. A lower credit score means auto and other loans are likely to come with much higher interest rates, and credit card issuers may charge more interest or refuse to issue a card.

In addition, many states give lenders varying degrees of scope to seize bank deposits, cars or other assets of people who default on mortgages.Even so, in neighborhoods with high concentrations of foreclosures, "it's going to be really difficult to prevent a cascade effect" as one strategic default emboldens others to take that drastic step, says Paola Sapienza, a professor of finance at Northwestern University. A study by researchers at Northwestern and the University of Chicago found that as many as one in four defaults may be strategic.



Driving this phenomenon is the rising number of households that are deeply "under water," owing much more than the current value of their homes. First American CoreLogic, a real-estate information company, estimates that 5.3 million U.S. households have mortgage balances at least 20% higher than their homes' value, and 2.2 million of those households are at least 50% under water. The problem is concentrated in Arizona, California, Florida, Michigan and Nevada.
Josh Cotner, who owns an insurance agency, says his mortgage balance is about $100,000 more than the market value of his home in Gilbert, Ariz. Mr. Cotner could rent a bigger home nearby for $600 a month, far below the $1,655 he now pays on his mortgage, home insurance and property tax. He says he recently stopped making mortgage payments because his lender wouldn't help him reduce the principal on his loan under a federal program in which he believes he is qualified to participate. Given the sometimes lengthy legal process of foreclosure, he may be able to stay in the home for at least another nine months without making any payments.

Banks warn they may get tough with strategic defaulters by pursuing legal claims on a borrower's other assets. "We will try to reduce people's payments if they have a hardship," says Thomas Kelly, a spokesman for J.P. Morgan Chase & Co. "But we have a financial responsibility to get people to pay what they owe if they can afford it."Steven Olson, a loan officer and roof installer in Roseville, Minn., defaulted in 2007 on a plot of land in Florida he had bought as an investment. "I thought I could move on with my life," he says. But the lender, RBC Bank, a subsidiary of Royal Bank of Canada, sued him, seeking to make him pay more than $400,000 to the bank to cover its losses on the loan. Mr. Olson has hired a Florida lawyer, Roy Oppenheim, to resist the claim. An RBC spokesman declined to comment.

States where lenders generally can pursue such legal claims include Florida and Nevada but not California and Arizona, where laws generally prohibit lenders from pursuing other assets of mortgage borrowers. A new Nevada law will protect many borrowers from these judgments if they bought a home for their own use after Sept. 30, 2009.
Another risk for defaulters is that banks could sell the rights to pursue claims to collection agencies or other firms, which could then dun the borrowers for up to 20 years after a foreclosure. Such threats appear to deter some borrowers. A recent study from the Federal Reserve Bank of Richmond found that under-water borrowers were 20% more likely to default in a state where mortgage lenders can't pursue claims on other assets than in those where they can.

Brent White, an associate law professor at the University of Arizona who has written about this issue, says homeowners should make the decision on whether to keep paying based on their own interests, "unclouded by unnecessary guilt or shame." He says borrowers can take a cue from lenders that "ruthlessly seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility."

But it isn't just a matter of the borrower's personal interest, says John Courson, chief executive of the Mortgage Bankers Association, a trade group. Defaults hurt neighborhoods by lowering property values, he says, adding: "What about the message they will send to their family and their kids and their friends?"

In Mesa, another suburb of Phoenix, low prices are helping to draw buyers who may walk away from other homes. Christina Delapp bought a house out of foreclosure in July for $49,000 in cash. She says she will stop paying the mortgage on another home she still owns in Tempe if she can't sell in the next few months for more than the $312,000 that she owes.

Ms. Delapp, who has been jobless for 18 months, says that the new home is part of her survival strategy. "I feel very fortunate," she says. "Regardless of what happens to my credit, we've managed to put together the best safety plan that I possibly could."

Mr. Figg says that deciding to default on his loan was "the toughest decision I ever made." He worried that if he ever loses his job he would be marooned in a home that he couldn't sell for enough to pay off his loan, limiting his ability to find work in other parts of the country: "I couldn't move up. I couldn't move down. I couldn't move out of the city. It was a very claustrophobic situation."

By moving to an apartment, Mr. Figg expects to lower his costs by about $700 a month. He plans to put that into his savings account and says he is willing to rent for the next five years or so.

Lenders are guilty of having "manipulated" the housing market during the boom by accepting dubious appraisals, Mr. Figg says. "When I weighed everything," he says, "I was able to sleep at night."

Write to James R. Hagerty at bob.hagerty@wsj.com and Nick Timiraos at nick.timiraos@wsj.com

Printed in The Wall Street Journal, page A22

What's Ahead for Dividend Stocks (S&P)

S&P Estimates 6.1% Dividend Increase for the S&P 500 Companies in 2010; 2009 Dividend Payment Expected to Post 21.4% Decline

NEW YORK, Dec. 7 /PRNewswire/ -- Standard & Poor's, the world's leading index provider, announced today that it expects the 2009 dividend payment for the S&P 500 to end the year at $22.31, a 21.4% decline from the $28.39 paid in 2008. The decline equates to an aggregate payment of $195.3 billion, compared to the $247.9 billion paid in 2008 leaving investors with $52.6 billion less in dividend payments for 2009.

Year-to-date, there were 147 dividend increases in the S&P 500 (adding $9.5 billion to payments) compared to 241 increases for all of 2008 (which added $19.1 billion). According to S&P Indices senior index analyst, Howard Silverblatt, the difficulty has not been so much the lack of increases, but the high number of decreases. "There were 78 dividend cuts so far this year which decreased payments by $48.0 billion, and that was on top of the 62 cuts in 2008 that reduced payments by $40.6 billion," explains Silverblatt.

At the start of 2009, Financials represented 20.5% of all dividend income in the S&P 500, down from the sector's peak of 30%, and now accounts for just 9% of the payments. However, cuts were posted across all sector lines, with the lone exception of Consumer Staples. Year-to-date, 33 of the 34 dividend actions in Consumer Staples were positive as the sector became the leading and most consistent dividend payer in the Index accounting for 17.4% of the payments.

As for 2010, Standard & Poor's overall view for dividends is positive. "While we do expect additional dividend decreases, Standard & Poor's believes that improving economic conditions will inspire companies to slowly increase their payouts," notes Howard Silverblatt, Senior Index Analyst at S&P Indices. "We expect dividend rate increases to average in the mid to high single digits, with the second half of the year much better than the first half as companies will need time to reassure themselves of their product and financial position."
"Our initial S&P 500 dividend estimate for 2010 is set at $23.67, a 6.1% gain over our 2009 estimate of $22.31. However, given a historical 5.6% dividend growth rate, it would takes years of above par increases to yield back what has been lost," adds Silverblatt. "Our optimistic outlook is set at $24.30, or an 8.9% increase over the 2009 estimate."

"On the pessimistic side of the equation, an increase in unemployment, stimulus spending and government-based programs would reduce our estimate to $17.91," continues Silverblatt. "However, under this scenario, dividends might be the least of our problems."
Additional dividend research from Standard & Poor's can be found by visiting: www.marketattributes.standardandpoors.com and clicking on "Dividends".





YEAR POSITIVE NEGATIVE
ISSUES ACTIONS BREADTH* ACTIONS ACTIONS
2007 310 24.83 298 12
2008 303 3.89 241 62
YTD 2009 225 1.88 147 78
Total 838 4.51 686 152

YEAR
ISSUES INCREASES INITIALS DECREASES SUSPENSIONS
2007 287 11 8 4
2008 236 5 40 22
YTD 2009 141 6 68 10
Total 664 22 116 36


$CHANGE-MIL ACTIONS** CHANGE POSITIVE NEGATIVE
2007 $37,175 $25,455 $31,315 -$5,860
2008 $59,712 -$21,506 $19,103 -$40,609
YTD 2009 $57,584 -$38,508 $9,538 -$48,046
Total $154,471 -$34,560 $59,956 -$94,515


$CHANGE-MIL INCREASES INITIALS DECREASES SUSPENSIONS
2007 $29,374 $1,941 -$5,243 -$617
2008 $18,160 $943 -$31,867 -$8,742
YTD 2009 $7,767 $1,771 -$46,845 -$1,201
Total $55,300 $4,655 -$83,954 -$10,561

*Breadth: (increases + initials) /(decreases + suspensions)
**Absolute changes




SECTOR 2009 2009 2009 2009 2009
YTD TOTAL YTD YTD YTD YTD
ACTIONS INCREASES INITIAL DECREASES SUSPENSIONS
Consumer Discretionary 37 20 2 11 4
Consumer Staples 34 32 1 1 0
Energy 13 7 1 4 1
Financials 55 15 0 37 3
Health Care 11 10 0 1 0
Industrials 31 25 0 6 0
Information Technology 11 9 1 0 1
Materials 15 8 0 6 1
Telecommunication
Services 2 1 1 0 0
Utilities 16 14 0 2 0
Total 225 141 6 68 10




INCREASES INITIALS DECREASES SUSPENSIONS
2009: 1/01 - 12/04 141 6 68 10
2008: 1/01 - 12/31 236 5 40 22
2007: 1/01 - 12/31 287 11 8 4
2006: 1/01 - 12/29 299 6 7 3
2005: 1/01 - 12/30 306 10 9 2
2004: 1/01 - 12/31 272 10 3 2

About S&P Indices

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SOURCE Standard & Poor's

Alert: Annuities Sold in Banks (NY TImes)

December 10, 2009
A.I.G. Units Omit Name and Excel
By MARY WILLIAMS WALSH

Just months after dropping the telltale “A.I.G.” from its sales brochures, the company has leapfrogged its competitors and reclaimed a title it held for many years before its bailout — the top seller of fixed annuities to bank customers.

People buying the annuities in bank branches may be surprised to know they are signing up with A.I.G. The contracts are being offered under the names of two subsidiaries, Western National Life and First SunAmerica. Until last June, they carried the name of A.I.G. Annuity.

The booming annuity sales are a bright spot for American International Group, which must raise cash to pay back the federal government.

But some competitors and consumer advocates are questioning A.I.G.’s comeback, saying its ability to keep drawing federal money is giving it an unfair advantage just a year after its government rescue.

Often sold as alternatives to certificates of deposit, fixed annuities are insurance contracts that guarantee a set rate of return, unlike variable annuities, whose returns may track the ups and downs of the markets.

The people who buy them in banks tend to be looking for something safe, but which pays more than a certificate of deposit. Fixed annuity contracts usually run for many years, and even before A.I.G.’s bailout last year, its customers began to have qualms about tying up their money with a company whose future was uncertain.

After the bailout, they accelerated their withdrawals from A.I.G., even if they had to pay a penalty to get their money back. Most new buyers sought out other insurers, like Transamerica and New York Life, which had higher ratings and did not get assistance through the Troubled Asset Relief Program.

But since June, and the name change, the A.I.G. subsidiaries have slogged their way back to the top. In the third quarter, Western National sold more fixed annuities in banks than any other insurer, according to Kehrer-Limra, a research and consulting firm that tracks sales of insurance and investment products in banks.

New York Life, which had claimed the lead in the first half of this year, has now fallen back to third place, and Transamerica is fourth. Other former contenders, like Genworth and MetLife, are not in the top five anymore.

Even though fixed annuities can bring their issuer a lot of cash quickly, like bank deposits, they can also erode an insurer’s capital faster than sales of other types of insurance. That is because they require the company to set aside very large reserves from the outset.

The risks this can pose are not just theoretical. Another A.I.G. subsidiary — one that the Federal Reserve Bank of New York recently took a $9 billion stake in — sold such a large volume of fixed annuities through Japanese banks that it wound up with insufficient capital to support its businesses.

A spokesman for A.I.G., Mark Herr, said the unit, the American Life Insurance Company, had restored its capital by transferring risks “using coinsurance and modified coinsurance,” among other techniques. He said the problem had not recurred since 2007.

In normal times, only well-capitalized insurers tend to promote fixed annuities heavily, to avoid stretching their resources too thin.

But these are not normal times. Western National was one of a dozen A.I.G. insurance subsidiaries whose investment portfolios were dipped into by A.I.G. Securities Lending — an affiliate that pooled more than $80 billion worth of the insurers’ assets and lent them out to banks and Wall Street firms, to use in trading.
The securities lending program imploded. Western National’s share of the losses was $7.9 billion, and the company was recapitalized as part of the federal bailout of A.I.G.

Joseph M. Belth, editor of the Insurance Forum, a consumer-oriented newsletter that tracks the financial strength of insurance companies, said that at the very least, purchasers were entitled to know the extent to which A.I.G., the parent, was standing behind the annuities of its subsidiaries. Only the subsidiaries are monitored to make sure enough money stands behind their promises.

Competitors said they believed Western National was using the new money from the Treasury to finance some of the highest teaser rates in the industry.

“Some insurers are selling annuities at rates that suggest that they are either building more risk into the investment portfolio than might be prudent, or using this as a way of raising cash, perhaps to pay off other obligations,” said Gary E. Wendlandt, the chief investment officer and vice chairman of New York Life.

Judith Alexander, of Beacon Research, which tracks annuity terms, confirmed that Western National was offering some of the higher “bonus rates” on fixed annuities through banks, allowing customers to capture more than 5 percent for one year, but she said it also offered contracts that guaranteed lower rates, in the neighborhood of 2.6 percent, over a longer period.

The chief executive of Western National, Bruce R. Abrams, said customers were opting for the longer terms.

“We’re not selling much bonus-rate product,” he said. “It’s the multiyear guaranteed rate. That’s what the customers are looking for, and that’s what we’re selling them.”

He also cited Western National’s longstanding relationships with banks, which he said allowed the company to negotiate individual terms with banks every week, giving them a high degree of flexibility. For example, he said, if a bank wanted to capture the attention of customers by offering them a higher interest rate than Western National proposed, Western National might arrange for them to do so by offsetting the cost with a smaller commission. The bank would then try to make up the difference on volume.

“That’s unique,” he said. “We’ve been doing that for over 15 years.”

Breaks for Small Business (Business Week)

Diversity December 4, 2009, 3:00PM EST text size: TT
How Minority-Owned Businesses Can Catch a Break
Minority- and women-owned businesses may not be using all the resources—such as professional associations and municipalities—that can help them
By Amy S. Choi

Expanding your business is always tough, and never more so than in the midst of a long-running economic slump. But women and minority entrepreneurs, who together own more than 10 million U.S. businesses, have access to more resources than they might realize. These range from business planning advice to certifications aimed at helping entrepreneurs win government and big-company contracts. Help is offered by myriad groups, from professional associations to local municipalities.

A variety of small business owners told SmallBiz that they were initially wary of describing themselves as minority business owners, preferring to let their capabilities speak for themselves. But others have found that there is no time like the bruising present to begin pursuing all avenues to success.

The services and organizations that follow aren't necessarily new, but they're among the most effective in helping minority and women entrepreneurs boost their businesses. Here is our guide, plus links to organizations that can help.

FINANCING
Commercial banks with active small business portfolios or Small Business Administration lending programs also often have programs for minorities and women. Wells Fargo, which last year ranked as the largest national bank lender in the SBA's flagship 7(a) loan program, has set a goal of lending $5 billion to Asian American business owners by the end of 2013 as part of its Asian Business Services Div. KeyBank also runs a minority and women's business enterprise program to help boost those outfits. Members of the Global Banking Alliance for Women, such as Bank of America and UPS Capital, have committed to building their lending programs for women entrepreneurs. wellsfargo.com; key.com; GBAforwomen.org; bankofamerica.com; capital.ups.com
Specialized angel funds such as Golden Seeds, for women, as well as local angel groups, such as the Minority Angel Investor Network in Philadelphia, may also be resources. Even if a fund isn't targeted specifically toward minorities or women, a little research into a fund's portfolio companies and the principals' interests can give you an idea of how receptive they might be. goldenseeds.com; minorityangelinvestornetwork.com

Springboard Enterprises also helps connect women business owners with investors, offering training and assistance in developing pitches and business plans. springboardenterprises.org

The SBA's Women's Business Centers can help you find local lenders who run programs for women business owners. SBA.gov/aboutsba/sbaprograms/online-wbc/index.html

Your city or state economic development agency may offer grants or loans to women- and minority-owned businesses. Although such grants may be geared toward low-income entrepreneurs, they're worth an inquiry. Many also offer grant programs or seed funding for minority- and women-owned businesses generally.

Certified minority business owners can apply for financing through the National Minority Supplier Development Council's Business Consortium Fund. This fund provides money to companies that are doing business with other members of the NMSDC. nmsdc.org

PEER ADVISORY
The U.S. Hispanic Chamber of Commerce, the U.S. Pan Asian American Chamber of Commerce, the National Black Chamber of Commerce, and the U.S. Women's Chamber of Commerce offer peer counseling. Connecting with fellow members at the local level can help you navigate particular issues. Industry associations are also useful in this arena. ushcc.com; uspaacc.com; nationalbcc.org; uswcc.org

The Women Presidents' Organization offers peer counseling for entrepreneurs who, on average, have revenues of about $1 million a year. Local chapter members often advise one another informally. In addition to monthly meetings hosted by professional facilitators, the organization, which has more than 80 chapters, offers Webinars, regional seminars, and an annual conference. womenpresidents.org

The nonprofit Count Me In offers peer mentoring and professional coaching to women business owners. Its marquee event, Make Mine a Million, is a yearlong online competition to build a business to $1 million in revenues. makemineamillion.org

NETWORKING
The many chambers also offer opportunities for education and networking. "The chambers are great contacts to have at the city level to know where business is going," says Ana Harvey, assistant administrator of the SBA and former president of the Hispanic Chamber of Commerce.

Professional organizations such as the National Association of Women Business Owners, the WPO, the NMSDC, and the Women's Business Enterprise National Council also offer networking and educational resources. Locally or regionally, you may also encounter dozens of organizations for your ethnic or racial group. The Alliance of Business Leaders & Entrepreneurs in Chicago, for example, connects established black entrepreneurs with decision makers at large corporations. nawbo.org; WBENC.org; ablechicago.com

Industry or professional groups you belong to, whether a real estate organization or retail industry group, may also provide networking opportunities for women and specific minorities.

mentoring & business Planning
The SBA offers a broad spectrum of assistance. Its Office of Women's Business Ownership oversees more than 100 Women's Business Centers, which offer advisory services including business planning, loan applications, and certification help. They are primarily for businesses with less than $200,000 in sales. The Minority Business Development Agency, through the Commerce Dept., operates five regional business development centers that help minority entrepreneurs launch and boost their companies. In addition to tools and guidance, the centers help minority-owned businesses find financing. mdba.gov
A number of corporations also offer business planning and general advisory programs. IBM's Small & Medium Enterprise Toolkit offers online advice, mentoring, and tools for women and minority business owners. More specialized help is often available from services companies, too. Accounting firm Citrin Cooperman and financial-products company Principal Financial Group, for example, host meetings and Webinars for women business leaders. us.smetoolkit.org; citrincooperman.com; principal.com.

CERTIFICATION
There are three main certifying agencies for minority and women business owners: the NMSDC, WBENC, and the SBA's 8(a) program. The first two are primarily for corporate contracts, but they can also help you network with other women or minority business owners who have their own contracts to fill. Some minority business owners can be certified through chambers such as USPAAC, which offers certification for both U.S-born and naturalized citizens as well as those holding green cards. These can help entrepreneurs gain access to corporate procurement programs, although many government programs buy only from citizen-owned businesses.

Many small business owners find that their fellow certified vendors become their clients. Within the WBENC list, for example, up to 50% of certified business owners sign procurement contracts with other small women-owned businesses.

The SBA's 8(a) federal certification program promotes access for socially and economically disadvantaged entrepreneurs— those who face bias because of their identity and therefore have limited access to the free enterprise system—to federal contracts. It also serves as a directory of qualified small businesses for prime contractors. State and local governments may also offer their own certification programs. Generally, certification as a minority or woman-owned business also allows entrepreneurs to attend pre-bid conferences on state and federal contracts. SBA.gov/about-SBA/sbaprograms/8abd

GOVERNMENT CONTRACTs
Several organizations work with entrepreneurs to demystify the government contracting process. "It's really not that complicated or difficult, you just need to know what it entails," says Barbara Kasoff, president of advocacy organization Women Impacting Public Policy. wipp.org

Kasoff notes that the SBA is an excellent place to start. But her organization has also joined with American Express Open to launch the Give Me 5 program, named after the 5% of all federal contracts that are supposed to go to women business owners. It offers monthly Webinars and other tools for those who want to sell to the federal government. In November, Amex launched Open for Government Contracts, an online tool that walks one through the process of applying for a government contract. openforum.com

Minority groups may also offer assistance with federal contracting. The USPAAC and the Hispanic Chamber offer extensive online resources to help navigate the government procurement process and offer training on how to make bids. "The opportunities are there," says Javier Palomarez, president of the Hispanic Chamber. "We want to make sure that our members are prepared and ready to take them."

EDUCATION
Many colleges and universities offer significant resources for entrepreneurs, and plenty are open to the community. For established businesses, the Tuck School of Business at Dartmouth offers one-week courses such as Building the High-Performing Minority Business and Growing the Minority Business to Scale. Other schools have programs for launching or growing a business. Among Babson College's offerings is Moving from Managing to Leading, an executive course for women leaders. The Kellogg School of Management at Northwestern University also offers an executive program in partnership with the NMSDC. tuck.dartmouth.edu; babson.edu; kellogg.northwestern.edu

INFORMATION RESOURCES
Rather than offering services to members, the National Women's Business Council, a policy advisory council to the President and Congress, serves as an information clearinghouse. Resources include research on entrepreneurship and papers on current issues that affect entrepreneurs, as well as lists of other organizations that may provide aid. nwbc.gov

Choi is a staff writer for BusinessWeek SmallBiz in New York.

Where the Yields Are (Barrons) MLPs, preferreds, dividend stocks

BARRON'S COVER 12/7/09
Even Better Than Bonds

By ANDREW BARY


With bonds fully priced, it may be time to swap into preferred shares, utility stocks and other investments that produce income but offer protection if interest rates rise.




TIRED OF THE PUNY YIELDS ON YOUR BONDS? Worried that interest rates and inflation will rise, clobbering their prices? Now may be the time to start moving into high-yielding stocks, while scaling back fixed-income holdings.

Bonds rode the price roller coaster up as interest rates fell. They could take a scary plunge if rates shoot up.
This means buying utility and telecom stocks, which have lagged behind the overall stock market this year, as well as master limited partnerships focused on the transportation of natural gas and oil-related products. Other alternatives to traditional bonds include bank preferred stock and convertible securities.

In contrast to bond yields, many of which are near multi-decade lows, yields on these alternatives often run in the 5%-to-9% range. The underlying investments also offer the potential for capital gains and rising income to offset inflation. In addition, income from most of these investments now benefits from favorable tax treatment.

Chuck Lieberman, chief investment officer at Advisors Capital Management, a Hasbrouck Heights, N.J., investment advisor, calls this "investing for income with growth. This strategy offers growth of income and principal, in contrast with a fixed-income portfolio." Lieberman is partial to master limited partnerships, high-dividend stocks, preferred shares and convertibles. Another alternative to U.S. bonds is foreign sovereign debt, which offers a hedge against a weakening dollar.

Master limited partnerships could be the past decade's quietest investment success, generating annualized returns of 18%, against 15% for gold and about zilch for the Standard & Poor's 500. While the MLP market has rallied sharply this year, major operators like Kinder Morgan Energy Partners (ticker: KMP), Enterprise Products Partners (EPD) and Boardwalk Pipeline Partners (BWP) still yield 7% to 8% and have good growth prospects.
Bill Gross, the managing director of Pimco, the giant bond manager, wrote recently in his monthly commentary that electric-utility stocks looked attractive. He noted that their dividend yields now exceed those on utility bonds, while offering the added benefit of more favorable tax treatment than bond interest. "Growth in earnings should mimic the U.S. economy as it always has, and importantly, utilities yield 5% to 6%, not 0.01%," Gross wrote, the 0.01% yield referring to the pitifully low yields on money-market funds.

The two major U.S. telecom operators, Verizon Communications (VZ) and AT&T (T), have trailed the S&P this year and their shares yield more than 6%. Preferred stock from Bank of America, Citigroup and Wells Fargo yield 8% to 9%. Those yields are down from the teens at the market's bottom in March, but still look attractive, given the banks' improving balance sheets and a recovering economy.

Many investors view the stock market as a minefield and the bond market as a haven. But at very low yield levels, bonds become dangerous. "If there is a little bit of a bubble somewhere, it's in the bond market," Lieberman says.

The "safest" part of the market, Treasuries, seems to be the most overvalued, and high-grade corporate bonds don't look much better. Treasury yields range from just 0.85% on two-year notes to 4.4% on 30-year bonds, while high-grade corporates generally offer 3% to 5%. Federally backed mortgage securities also look unattractive at 4% yields. These securities are apt to return little or nothing after inflation and taxes.

While investors are apt to have their principal repaid if they hold their bonds until they mature, they will suffer losses if rates rise and they sell prior to maturity. As for investors in bond funds, they typically have no guarantee of getting their money back. And the funds often levy stiff management fees on their holdings.

Vanguard is an exception, but even with the help of low fees, its big mortgage and muni funds don't yield much. Both the $37 billion Vanguard GNMA Fund (VFIIX) and the $26 billion Vanguard Intermediate-Term Tax-Exempt Fund (VWITX) yield about 3%. These funds carry annual expenses of less than one-quarter of a percentage point, roughly a quarter of what their rivals charge. It's tough to justify taking a fee of a percentage point for a fund invested in 3% or 4% securities, but many fund companies do.
Low yields haven't prevented a stampede into bond funds, which have had more than $40 billion in net inflows during each of the past three months from risk-averse investors who have been pulling money from domestic stock funds.

The Treasury and mortgage markets look particularly vulnerable because they are being supported by the Federal Reserve's keeping short rates near zero and by its purchases of these securities. The Fed's $1.25 trillion program to buy mortgage securities is due to end March 31.

Essentially, bond investors are giving cheap money to American business, the Treasury, new home buyers and overleveraged homeowners. The game may end badly for bondholders because rates are apt to rise in 2010 and 2011 from what appear to be artificially low levels.

The municipal market, a favorite of individual investors, looks overpriced for maturities of under 10 years, where yields are under 3%, and fairly priced for long-term maturities, where yields are around 5%. To get yields close to 6%, investors must buy dicier debt like that of California.

Many investors are chasing the junk-bond market, but the 50%-plus returns seen there this year will be unattainable in 2010, because yields have dropped to an average of 8% from 20% at the start of 2009. Yields on money-market funds are at or near zero, effectively resulting in a confiscation of investor money after inflation.

Real-estate investment trusts have attracted yield seekers, too. But REITs, up nearly 50% in the past 12 months, are no longer a bargain. Green Street Advisors, a Newport Beach, Calif., advisory firm, recently termed them "pricey," in part on high valuations based on earnings relative to the S&P 500. Public-market values of real estate also are high compared with those in the private market. REIT dividend yields are averaging just 4%, and fundamentals in many sectors, including apartments and office buildings, look weak. Net operating income could fall in 2010 for the second straight year.

With all that in mind, here's a look at some sectors that do provide decent yield alternatives to traditional bonds:

MASTER LIMITED PARTNERSHIPS: This $100 billion group is dominated by companies like Kinder Morgan, Enterprise Products and Magellan Midstream (MMP), which transport natural gas, jet fuel, heating oil, gasoline and other petroleum products.
Despite generating some of the best returns of any asset class in the past decade, MLPs are unfamiliar to most investors. That ought to change, because MLPs now provide 7%-to-8% dividend yields, and much of that income is tax-deferred. Dividend growth could run in the mid- to-high-single-digit range in the coming years, resulting in total annual returns above 10%. Kinder Morgan, one of the largest pipeline MLPs, recently said it will pay $4.40 in distributions in 2010, up 5% from 2009's level. Its shares, at 56, yield 7.8%, based on the expected 2010 distribution.

"Think of an analogy to toll roads," suggests Lieberman. "Pipelines are expensive to build, but operating costs are relatively low, which means they generate outstanding cash flow that services debt and finances sizable distributions to owners." Pipelines are utility-like because their rates often are set by federal regulators.

Pipeline shares were slammed in late 2008 because of concern about reduced access to the capital markets. MLPs rely on equity and debt financing for expansion, as they typically pay out nearly all their annual cash flow in dividends. The fears about market access didn't materialize and the stocks have come roaring back with the Alerian MLP Index (AMZ) up 65% in 2009 (with dividends included).

For many large master limited partnerships, 70% or more of their dividends -- technically distributions -- are tax-deferred. That's because dividends usually are far greater than reported net income, largely as a result of noncash depreciation expenses.

Let's say an MLP pays a $2 annual dividend, 80% of which is tax-deferred. An investor would owe income taxes on only 40 cents of that dividend (but the 40 cents would be taxed at regular-income rates, not the preferential dividend rate). The other $1.60 wouldn't be taxed and instead would reduce the investor's cost. If the investor paid $25 a share for an MLP, the cost basis would be reduced to $23.40. Taxes would be paid on the $1.60 when the shares are sold.

Many investors -- particularly the elderly -- simply hold MLP shares, with the intention of putting them in their estates. This essentially results in permanent tax deferral and a muni-like income stream, if the investor's estate isn't subject to federal inheritance taxes. Taxes on the sale of a long-held MLP can be high because an investor's cost basis can drop toward zero after many years of dividends.

MLPs are best held in taxable accounts: they can cause tax headaches in IRAs and other tax-deferred accounts. Investors need to know that they will get an annual K-1 tax form, not a standard 1099, and that can complicate annual filings. Another wrinkle: MLPs often share annual income gains with general partners, or GPs, some of which are publicly traded. This can limit dividend increases. Magellan Midstream has an advantage because it has combined its limited and general partners, meaning there is no GP to cut into the income allocated to the limited partners.

Utilities: Because they're seen as defensive, utility stocks have trailed the market. The Dow Jones Utilities Average has risen just 4% this year, versus a 22% gain for the S&P 500. But investors are warming to utilities, which rose 3% last week.

Until recently, the sector has been held back by various factors, including reduced power consumption, that have dampened profits at Midwestern utilities like First Energy (FE) and American Electric Power (AEP) that have a lot of industrial customers. Another negative has been the plunge in natural-gas prices, which has reduced the price advantage that nuclear utilities like Exelon (EXC) had over gas-fired rivals.

Regulated utilities, such as American Electric Power (AEP), Duke Energy (DUK), PG&E (PCG), Consolidated Edison (ED) and Southern Co. (SO), trade around 13 times projected 2009 profits and roughly 12 times estimated 2010 net, a discount to the S&P 500. "This is a safe level of valuation, and a lot of bad news already is discounted," says Hugh Wynne, utility analyst at Sanford Bernstein. Wynne, who notes that utility dividend yields average close to 5%, favors laggards such as Exelon and FirstEnergy, as well as PG&E.

PG&E, at 43, trades for 13 times projected 2010 profits of $3.42 a share. The other big California utility, Edison International (EIX), also looks appealing, trading near 35, or 10 times next year's estimated earnings. Bulls argue that the company's regulated utility business is worth almost as much as the stock price and that investors effectively are paying little for its independent power division, Edison Mission Group, whose profits have been hit by weak power prices.

As an alternative to individual stocks, investors can buy the Utilities Select Sector SPDR (XLU), an ETF that trades around 31 and yields 4.1%. Several closed-end funds focus on utilities. One is Cohen & Steers Select Utility (UTF), which at its recent price near 15 -- an 11% discount to its underlying net asset value -- was yielding 6%.

TELECOM SHARES: Verizon and AT&T have perked up lately, although their slight losses this year leave them way behind the market. The telecom business faces greater challenges than electric utilities because Americans continue to cut the cord to wireline phones, eroding a once-lucrative business. Yet both companies remain financially solid, trade for low valuations, carry juicy dividends around 6% and are strong players in the wireless market. Reflecting its control of the country's top wireless operation, Verizon, at 32, trades for about 13 times projected 2010 profits of $2.45 a share. AT&T, at 28, fetches 11 times estimated 2010 cash earnings of $2.50, which exclude about 25 cents of goodwill amortization from acquisitions.

Other high-yielders among big companies include major drug companies Bristol-Myers Squibb (BMY), Merck (MRK) and Eli Lilly (LLY), as well as cigarette makers like Altria Group (MO) and Lorillard (LO). They yield anywhere from 4% to 7%.
PREFERRED STOCK: This market was hit in 2008 by multiple shocks, including the bankruptcy of preferred issuer Lehman Brothers, the banking industry's troubles and the government's surprise decision against protecting preferred shareholders of Fannie Mae and Freddie Mac, when Uncle Sam effectively seized those mortgage agencies. Fannie and Freddie preferred trade for about five cents on the dollar.

After bottoming in March, preferreds have surged, with most yields dropping to 6% to 9%. "Preferred stock is subject to the same inflation problem as bonds," Lieberman says. "But yields are significantly higher. That provides sufficient compensation...for the lack of inflation protection."

Citigroup's trust preferred securities, like its Series C, yield more than 9%. Bank of America's 7.25% Series J preferred trades around 21, for a yield of 8.60%, and Wells Fargo's 7.50% Series L preferred trades near 900 for an 8% yield. The Wells Fargo issue has a face value of $1,000, as opposed to $25 for most preferreds.

JPMorgan's preferred has lower yields, just under 7%, reflecting Wall Street's favorable view of the bank. Many foreign banks have issued preferreds; Lieberman likes Barclays, whose preferred yields about 8.5%. Among REITs, the largest preferred issuer is Public Storage, owner of self-storage facilities. Its preferred yields more than 7% and looks pretty safe, given the company's solid balance sheet.

There are two types of preferred. Regular preferred is a senior form of equity, while trust preferred is junior debt and is senior to regular preferred. Therefore it is safer, but it generally yields less. The advantage of regular preferred is that its payouts are taxed at the preferential dividend rate of 15%, while trust-preferred dividends are taxed as ordinary income.

CONVERTIBLE SECURITIES: These hybrid securities, which can be converted into common shares under preset conditions, were battered in 2008 by a weak stock market, the junk-bond market's collapse and forced sales by leveraged convertible hedge funds. But convertibles have risen sharply this year, with Putnam and Fidelity convertible mutual funds up 50% to 60%. The catalysts: the sharp rally in the shares of the generally more speculative companies that issue converts and the junk market's big gains..

This makes for slimmer picking than in early 2009, when investors could get 10% to 15% yields on reasonably solid converts. Be forewarned: It's tougher to buy converts than preferred stock because many convertible bonds are traded in an over-the-counter market where bid/offer spreads can be wide for individuals buying $25,000 to $100,000 of the securities. Convertible funds are a better bet for most investors.

For those willing to do their own work, converts can be an attractive lower-risk alternative to common stock, while offering much of common's appreciation potential.

The money-losing airline industry has needed to raise capital and their converts carry lower rates than regular debt. Issuers include USAirways Group, UAL (parent of United Airlines), Continental Airlines and JetBlue Airways.

Chip maker Micron Technology has a 1.875% issue trading around 85, yielding 5% with a hefty conversion premium of 50%.

One way to play Ford is via its Series S convertible preferred stock, which trades around 36. Ford stopped paying dividends on that issue this year, but some investors are betting the reviving auto maker may resume the payout in 2010 and give investors unpaid dividends of more than $1.50 a share. If Ford resumes the $3.25 annual dividend, the yield would be 9%. The car maker must pay the preferred dividend if it wants to resume a common dividend.

In sum, while hardly anything is as cheap or attractive as it was earlier this year, MLPs, utility stocks, preferred and converts offer appealing alternatives to increasingly unattractive bonds.

Is Converting to a Roth IRA for You? (WSJ)

RETIREMENT PLANNING
DECEMBER 6, 2009
Get Ready for 2010—the Year of the Roth IRA

By ANNE TERGESEN
New tax rules are about to give more people access to a Roth individual retirement account, one of the most effective vehicles in which to accumulate money for retirement or heirs.

Roth IRAs are currently off-limits to a whole group of people. Individuals with modified adjusted gross income of $120,000 or more can't contribute to one of these accounts. For married couples, the threshold is $176,000. And individuals with modified adjusted gross income of more than $100,000 and married taxpayers who file separate returns are barred from moving assets held in traditional IRAs into Roth IRAs.



But starting Jan. 1, Uncle Sam will permanently eliminate both the income and filing-status restrictions on transferring money from a traditional IRA to a Roth -- a procedure known as converting. So, anyone willing to pay the income taxes due upon making such a move will be able to funnel retirement savings into a Roth, where it can grow tax-free.

Money When You Want It
Under the new rules, high-income taxpayers who wish to contribute to a Roth IRA are still out of luck: Income limitations on funding these accounts will remain in effect. However, Uncle Sam's decision to allow high earners to convert will give these individuals a back-door way to fund a Roth on a continual basis.
How so? Each year, these taxpayers can open a traditional IRA (which has no income limits) and contribute the maximum (currently, $6,000 for individuals age 50 and older) on a pretax or aftertax basis. Then, they can convert the assets to a Roth IRA.
Why bother with a conversion? Roths have several advantages over traditional IRAs.

Perhaps the biggest one concerns taxes -- or a lack thereof. For the most part, withdrawals from Roth IRAs are tax-free as long as an account holder meets the rules for minimum holding periods. If you convert assets to a Roth from other IRAs or retirement plans, you have to hold those assets in a Roth for five years, or until you turn age 59½, whichever comes first, to make penalty-free withdrawals on your converted amounts. Each conversion has its own five-year clock.

Another benefit: no required distributions. With a traditional IRA, individuals are required to begin tapping their accounts -- and to pay taxes on those withdrawals -- after reaching age 70½. Roth accounts aren't subject to mandatory distributions, so the money in a Roth can grow tax-free for a longer period of time.

If you are planning to leave your IRA to heirs, Roths have yet another advantage. Although people who inherit both traditional and Roth IRAs must make annual withdrawals from those accounts (based on their life expectancies), Roth beneficiaries owe no income tax on the money.

Tax Bill Upfront
Still, there is a cost to converting to a Roth -- namely, the income-tax bill. When you withdraw money from your traditional IRA, you will have to pay income tax on the withdrawal, or, more precisely, on the portion of it that represents pretax contributions and earnings.
In 2010, Uncle Sam is offering taxpayers who convert a special deal: They can choose to report the amount they convert on their 2010 tax returns, or they can spread it equally across their 2011 and 2012 returns. (If you are worried that Congress may raise tax rates, consider paying the tax bill in 2010.)

To determine whether it makes financial sense for you to convert, it's important to consider various factors. For example, converting may be the right move if you expect to pay higher future tax rates or if the value of your IRA account is temporarily depressed, says Ed Slott, an IRA consultant in Rockville Centre, N.Y. In either case, by converting to a Roth today you'll lock in a lower tax bill than you would otherwise pay.

To estimate your potential tax bill, first calculate your "basis." Expressed as a percentage, this is the ratio of two numbers: aftertax contributions you have made to your IRAs (if any), and the total balance in all your IRAs.

For example, if you contributed $40,000 aftertax to your IRAs and have a total of $250,000 in those accounts, your basis would be 16% (or $40,000 divided by $250,000). As a result, if you plan to convert $100,000 to a Roth, 16% of that $100,000 (or $16,000) could be transferred tax-free.

Another factor is how long you can afford to leave the money in a Roth. Because the Roth's major advantage lies in its ability to deliver tax-free growth from age 70½, the longer you can afford to forego withdrawals, "the more converting plays to your advantage," says Aimee DeCamillo, head of personal retirement solutions at Merrill Lynch Wealth Management.

Before pulling the trigger, speak to a financial adviser. You also can crunch the numbers using online calculators at sites including RothRetirement.com and Fidelity.com/rothevaluator.

Maximize the Benefit
If you determine that it pays to convert, the following strategies can help you maximize the benefit:

Financial experts say it's ideal to have money to pay the taxes due upon conversion from a source other than your IRA. That allows you to retain a bigger sum in your tax-sheltered retirement plan.

Keep in mind that you don't have to convert your entire IRA. It might make sense to do it piecemeal, as you can afford it, over a number of years.

Put converted holdings into a new account, rather than an existing Roth. That way, if the value falls after you've paid the tax bill, you can change your mind, "recharacterize" the account (meaning you move the money back into a traditional IRA) and wipe out your income-tax liability.

You have until Oct. 15 of the year following the year of conversion to recharacterize. For example, if you were to convert your IRA to a Roth in 2010, you would have until Oct. 15, 2011 to recharacterize it. Later on, you could choose to convert the assets to a Roth again.

Better still: Consider opening a separate Roth for each type of investment you hold. That way, you can recharacterize the ones that perform poorly and leave the winners alone.

Write to Anne Tergesen at anne.tergesen@wsj.com

Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved

Preferred Stock Basics (Montreal Gazette)

A mini-primer on preferred shares


By JOHN ARCHER, Freelance December 7, 2009

With interest rates remaining stubbornly low, investors hankering for yield are finding slim pickings in the term-deposit and bond market.

One area of fixed income investing that tempts yield seekers is the preferred-share market, where yields are ranging from four per cent to 6.5 per cent. Preferred shares remain a mystery to the average investor, however, so here is a quick primer.

Preferred shares carry attributes similar to bond and stock investments. Preferred shares, like common shares, represent a form of ownership in a corporation.

The fact that preferred shares are traded on a stock exchange sometimes confuses investors, whereas preferred shares should be purchased primarily as and evaluated against fixed income instruments.

Some characteristics are common to all preferred shares: As an equity investment, preferred shares rank above the interests of common equity holders. As well, the preferred-share investor is entitled to a set rate of dividend that must be paid out of earnings before any dividends are distributed to common shareholders. It should also be noted that dividends receive favourable tax treatment relative to other forms of income.

Finding value in the preferred-share market can be a challenge for the individual investor, which is why using an adviser is recommended. Furthermore, preferred shares can be bought only through an investment dealer, though dividend mutual funds are more widely available.

The following factors should be considered before making a preferred share investment: Calculate the yield on the investment. The easiest way to evaluate the yield on a preferred share is to measure the current yield - the dividend divided by the market price. Current yield, however, does not account for accrued dividends, capital gains or losses realized when the share is purchased at a price different from the redemption value, or the lower taxation rate on the dividend income.

A different measure of yield for preferred shares is the "bond-equivalent yield," which provides an all-in rate of return (based on purchase price, dividend payments, lower tax rates on dividend income, and the maturity value). The bond-equivalent yield is then compared with bonds of similar term to provide a gauge of relative value. The greater the difference (spread) between the preferred share's bond-equivalent yield and the yield on Government of Canada bonds of similar term, the greater the value to the investor.

Other factors to consider in purchasing preferred shares include knowing the issuer's credit rating. Investors should also understand other risks associated with preferred shares, like interest rate risk, as preferred shares are often affected by changes in interest rates. Should interest rates rise, existing preferred share prices may fall. The longer the preferred share's maturity, the more sensitive it will normally be to interest rate changes.

While there might be a learning curve involved in adding preferred shares to your income portfolio, comparing their superior yields to those of other fixed income investments should reward you in today's low interest rate environment.

Copyright (c) The Montreal Gazette

High Return Junk Stocks - What's Next (Hulbert in NYT)

December 6, 2009
Strategies
When the Performance Looks a Little Too Good
By MARK HULBERT

SANMINA-SCI, the supplier of electronics services, is loaded with debt and in each of the last eightyears has lost money. Its shares have risen more than 600 percent since the stock market rally began on March 9.

Wal-Mart Stores, the discount retailer, has lots of cash on its balance sheet, has very little debt and has consistently turned a profit. Since March 9, its shares have gained just 14 percent.
The disparate treatment meted out to these two companies by the stock market highlights an unusual and, in some ways, worrisome phenomenon: to an extent not seen in decades, shares of companies with weak balance sheets have been soaring, generally outperforming firms with stronger fundamentals.

In part, this is a consequence of the terrible pummeling given to riskier assets of all kinds during the worst months of the financial crisis. Shares of companies that were deemed to be weakest were hit the hardest. It’s only natural that they would bounce back the most at the first hint that financial disaster had been averted.

But the performance gap between the weak and the strong has rarely been as pronounced as it has been since March’s market lows. The extreme outperformance of the more speculative stocks could make them vulnerable to another market shock.
Ford Equity Research, an independent research firm based in San Diego, rates stocks’ financial quality based on a number of factors, including a company’s size, debt level, earnings history and industry stability. All told, Ford Equity follows more than 4,000 stocks. Those in the bottom fifth of its ratings — including Sanmina-SCI — produced an average stock market return of 152 percent from the beginning of March to the end of November, according to an analysis conducted for The New York Times.

The stocks in the highest quintile for quality — including Wal-Mart — produced an average gain of 66 percent over the same period, or roughly 85 percentage points less. That is the biggest disparity over the first nine months of any bull market since 1970, which is the first year for which Ford Equity has quality ratings.

Historical comparisons to bull markets prior to 1970 must rely on a proxy for financial quality, and perhaps the best available is market capitalization. Not all large-cap companies are financially healthy, of course, and not all small caps are weak. But, historically, as a group, the difference between the large- and small-cap sectors has proved to be roughly correlated with the disparity between high- and low-quality stocks.

Since the March lows, for example, according to Ford Equity, the 20 percent of stocks with smallest market capitalizations have on average outperformed the largest 20 percent by 72 percentage points — only slightly less than the 85-point disparity between the lowest- and highest-quality issues.

By contrast, in the first nine months of all bull markets since 1926, the average outperformance of the small-cap sector was just 21 percentage points, or less than one-third as much as the disparity over the last nine months, according to calculations by The Hulbert Financial Digest.

Only once since 1926 have the first nine months of a bull market produced a gap greater than this year’s. That was in the bull market that began in February 1933, in the middle of the Great Depression, when small caps outperformed large caps by an incredible 196 percentage points.

How can we explain the current extreme performance disparity? The federal government’s stimulus program is the main cause, in the view of Jeremy Grantham, the chief investment strategist at GMO, a money-management firm based in Boston. Mr. Grantham said in an interview that by temporarily reducing the danger of incurring risk, the government had effectively encouraged huge amounts of risk-taking in financial markets. “The sizable disparity of junk over quality should not have come as a big surprise,” he said, “given how massive the government’s stimulus has been.”

As an unintended consequence, Mr. Grantham said, high-quality stocks today are about as cheap as they have ever been relative to shares of firms with weaker finances.

“It’s almost a certain bet that high-quality blue chips will outperform lower-quality stocks over the longer term,” he said.

Mark Hulbert is editor of The Hulbert Financial Digest, a service of MarketWatch. E-mail: strategy@nytimes.com.

What does Dubai mean to you? (El-Erian in The Daily Telegraph )

Dubai: what the immediate future holds
Until last Wednesday, most investors saw Dubai as an attractive tourist destination, a regional financial centre and an example of what bold and visionary leadership can achieve.

By Mohamed A El-Erian
Published: 12:23AM GMT 29 Nov 2009

Some worried that Dubai's impressive achievements came with a debt burden that would prove difficult to sustain after last year's financial crisis.

This weekend, investors around the world are united in wondering "what does Dubai mean for me?"


At the local level, the standstill is an explicit recognition that the Emirate's debt and leverage levels cannot be sustained in what, at PIMCO, we have called the "new normal". The question for Dubai is now two-fold: can an orderly extension of debt payments be achieved; and how will this impact the risk premium that is attached to other economic and financial activities in the Emirate?

The key issue at the national level is how Abu Dhabi, the largest and richest of the seven UAE Emirates, will react. Here, it is a question of willingness. The leaders of Abu Dhabi must strike that delicate balance between using enormous wealth to support Dubai and ensuring appropriate burden sharing among those that repeatedly failed to heed Abu Dhabi's past warnings about the excesses in Dubai.

The regional dimension is captured by a word familiar to investors in emerging markets: "contagion". The immediate reaction of almost all markets (and too many commentators) is to lump together countries in the region that have very different characteristics. Witness how market measures of risk have surged for all the oil exporters in the region even though they share none of Dubai's debt and leverage characteristics.
At the global level, the Dubai announcement serves as a catalyst to take the froth off expensive financial markets. For the last few months, massive injections of liquidity (primarily by the US), aimed at limiting the adverse impact of the financial crisis on employment, have turbo-charged financial market valuations rather than make their way to the real economy. While many have worried about the generalised over-extension of equity markets, most have hesitated to take money off the table as there did not appear to be a catalyst to break the general "trend is your friend" mentality. Dubai is that catalyst.

So, what next?

First, it will take time to sort out the Dubai situation. Inevitably, this is an uncertain and protracted process that involves both on- and off-balance sheet exposures. It will cast a cloud not only on companies in the Emirate itself but also on institutions that have large exposures there, especially in the banking and real estate sectors.

Second, the immediate indiscriminate sell-off in regional (and emerging market) names will, over time, give way to greater differentiation based on economic and financial realities. Those with strong fundamentals will recover (including Abu Dhabi, Brazil, Kuwait, Qatar and Saudi Arabia) while others, including countries with large deficits and debt burdens in eastern/central/southern Europe, may come under more pressure.
Finally, and most importantly, Dubai serves as a warning to those that were quick to find comfort in the sharp market rally of the last few months. Since the summer, the appreciation of risk assets has been driven predominantly by artificial liquidity injections rather than fundamentals. The Dubai announcement is a reminder that a flood of government-induced liquidity cannot mask all excesses, all the time.
Investors should treat last Wednesday's announcement as an illustration of the lagged financial effects of the global financial crisis. The Dubai situation is no different than that facing commercial real estate in the US and UK.
Let Dubai be a reminder to all: last year's financial crisis was a consequential phenomenon whose lagged impact is yet to play out fully in the economic, financial, institutional and political arenas.

Mohamed A El-Erian is CEO and co-CIO of PIMCO, the investment management firm

Things to Do Before End of the Year: Tax Tips (WSJ)

Smart year-end tax moves

BY Laura Saunders,

The Wall Street Journal — 11/13/2009

Time to review your taxes — before it's too late.
Year-end tax planning always makes sense, but this year it's especially vital.

Convulsions in the markets and the economy have shifted the ground beneath many taxpayers, and next year may bring major tax changes as lawmakers confront the record deficit.

Bottom line: review your taxes before it's too late. "Too often, I can't do anything for people who come to me in February," says Douglas Stives, an accountant with Curchin Group in Red Bank, N.J.

Here are areas especially relevant now. (For more details, go to www.irs.gov.)

First-time home-buyer tax credit
Congress has just extended and altered this benefit, making it more generous for many. The new rules took effect on Nov. 6. The provision is a true dollar-for-dollar tax credit of up to $8,000 for 10% of the cost of a home. The credit is also refundable, meaning that even if a buyer doesn't owe $8,000 of tax, she can claim the full benefit and receive a refund check.

The new law has more generous phase-outs. The credit now begins to disappear for single taxpayers with modified adjusted gross incomes of $125,000 and married couples with incomes of $225,000. It is available for purchases through July 1, 2010 if the buyer has a contract in place before May 1, 2010. Unlike the prior law, however, this credit is capped: those buying homes for more than $800,000 get no credit at all, as of Nov. 6.

The new law also authorizes a similar $6,500 credit for buyers who already own a home. It too is a refundable credit for 10% of the purchase price of a house costing no more than $800,000. To qualify the buyer has to have owned and lived in the same home for five of the eight years preceding the new home purchase, and the new home must become the buyer's principal residence.

There are interesting twists. Two or more unmarried people buying a house together may be able to allocate the credit as they wish, say to the lowest earner. Taxpayers who buy this year may also claim the credit on either a 2008 or 2009 return, and those who buy in 2010 can claim the credit either in 2009 or 2010. Some people claim the credit in one year rather than another to avoid phase-outs.

Unemployment benefits
Alas, these are subject to income tax. But this year there is an exemption of $2,400 per individual. Still, many unemployed taxpayers receiving benefits may need to estimate and pay quarterly taxes or risk penalties when they can least afford them. IRS spokesmanEric Smith points out that all recipients can choose to have 10% of benefits withheld by the payer. "That should protect many," he says.

American opportunity credit
In the roster of fiendishly complex and highly limited education incentives, this one is more useful than most. It is a tax credit for as much as $2,500, generated by spending on tuition and other education expenses (books, possibly a computer) up to $4,000. Currently this credit is available for 2009 and 2010 to single taxpayers with less than $80,000 of modified adjusted gross income and married couples earning less than $160,000. Amounts paid in 2009 for the spring of 2010 are eligible for a 2009 credit.

New car purchases
Taxpayers who buy a new car before Jan. 1, 2010, may deduct sales and excise taxes and other fees on as much as $49,500 of the purchase price. This provision has generous phase-outs: It disappears between $250,000 and $260,000 of modified adjusted gross income for married couples and $125,000 and $135,000 for singles.

Retirement savings
Have you just started a job? Remember that you can still put in an entire year's 401(k) contribution, which is $16,500 ($22,000 if you're over 50). "Some workers who begin a job in the last quarter arrange to have an entire paycheck or two go into the plan," says Melissa Labant, an attorney with the American Institute of CPAs.


Charitable gifts
Unless Congress acts, this will also be the last year for taxpayers over 70 1/2 to make a charitable contribution directly from an IRA. This provision is useful: without it, the donation would have to be withdrawn from the IRA, claimed as income and then deducted as a donation. That, in turn, can trigger deduction limits or jack up Medicare premiums in the future.

Investments
Take losses! Even after the run-up following the lows of last March, many investors still have long-term capital losses on investments held longer than one year. Taxpayers may deduct up to $3,000 of these losses per year against ordinary income, with the excess carried forward for use in future years. The assets must be held in cash accounts, as opposed to IRAs and other tax-sheltered retirement plans.

Capital losses also may be matched dollar-for-dollar against long-term capital gains — so if you have $20,000 of long-term losses on some investments and $15,000 of gains on others, after the $3,000 deduction, you'd only have a net loss of $2,000 to carry forward. What's more, if you are bullish on an investment with gains and you sell it to soak up losses, you may buy the winner back right away. The tax code's "wash sale" rules only apply to losers, which can't be purchased for 30 days either before or after a sale. Note: The IRS also prohibits selling a loser from a regular account and then repurchasing it within an IRA inside of 30 days.

The current top capital-gains tax rate of 15% is the lowest in decades, and it is almost certain to rise at some point as the government scrambles to pay down the deficit. "If you have a buyer and a decent price, think about selling," suggests Mr. Stives of the Curchin Group.

Medical expenses
This has long been one of the least useful deductions in the tax code, unless a taxpayer is seriously ill or in a nursing home, because the taxpayer must spend more than 7.5% of adjusted gross income to claim any deduction. But rising insurance costs and diminishing coverage plus this year's economic tumult may qualify more people for this deduction.

In general, taxpayers may deduct all un-reimbursed medical expenses recognized by the IRS. This category includes after-tax dollars spent on insurance premiums, Medicare Part B and D premiums, and co-payments for drugs and treatments. It also extends to costs that insurance almost never covers- such as weight-loss plans (if prescribed for a medical condition), lead abatement, bandages, wigs after chemotherapy, acupuncture, and medical travel (24 cents per mile). But it typically does not cover expenses for over-the-counter drugs such as aspirin or antihistamines, which some Flexible Spending Plans reimburse.


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Copyright © 2009 Dow Jones & Company, Inc. All Rights Reserved.