Claims Information
Parties with claims related questions concerning Motors Liquidation Company can email claims@motorsliquidation.com, or call (800) 414-9607.
http://www.motorsliquidation.com/ClaimsInformation.aspx
MOTORS LIQUIDATION COMPANY
BAR DATE NOTICE FAQS
The Bankruptcy Court has set November 30, 2009 at 5:00 p.m. Eastern Time as the deadline for creditors, including governmental units, to file Proofs of Claim based on
claims that arose prior to June 1, 2009. This deadline is commonly referred to as the
“Bar Date.” Proofs of claim must actually be received by the Debtors prior to the Bar
Date. If you do not file your Proof of Claim before this deadline, you will lose your
potential claim against the Debtors.
Who are the Debtors?
The Debtors are the following entities:
• Motors Liquidation Company (formerly known as General Motors Corporation)
• MLCS, LLC (formerly known as Saturn, LLC)
• MLCS Distribution Corporation (formerly known as Saturn Distribution
Corporation)
• MLC of Harlem, Inc. (formerly known as Chevrolet-Saturn of Harlem, Inc.)
People Who Do Not Need to File Proofs of Claim:
You do not need to file a Proof of Claim by the Bar Date if:
• Your claim is correctly listed in the Debtors’ Schedules of Assets and Liabilities
AND is not listed as “disputed”, “contingent”, or “unliquidated” AND you agree
with the dollar amount and listing of your claim as scheduled
• Your claim has already been paid in full
• You have already filed a Proof of Claim
• One of the other “exceptions” described in paragraph 2 of the Bar Date Notice
applies to you
****** Please read the Bar Date Notice carefully to determine if you must file a Proof of
Claim. You should consult with an attorney if you are unsure whether you need to
file a Proof of Claim. A copy of the Bar Date Notice is available at
www.motorsliquidation.com. The Debtors cannot tell you whether or not you
need to file a Proof of Claim.
What is a Bar Date?
A Bar Date is a deadline for filing a Proof of Claim. The Bar Date is set by the
Bankruptcy Court. If you do not file a Proof of Claim by the Bar Date, you will be barred
from asserting your potential claim against the Debtors.
When is the Bar Date?
The Bankruptcy Court set November 30, 2009 at 5:00 p.m. Eastern Time as the Bar
Date.
MOTORS LIQUIDATION COMPANY
BAR DATE NOTICE FAQS
What is a Governmental Bar Date?
Governmental units/agencies typically have their own bar date. Here, the
Governmental Bar Date is the same as the General Bar Date - November 30, 2009.
What is a Proof of Claim form?
The Proof of Claim form is a fill-in-the-blank document that must be completed by the
creditor or the creditor’s legal counsel. Instructions for completing the Proof of Claim
form are set forth on the back of the Proof of Claim form. You will also need to attach
documentation substantiating your claim when you mail your Proof of Claim form.
Why did I receive a Proof of Claim form?
The Debtors mailed the Proof of Claim form to all known and potential creditors,
including, employees, vendors, suppliers, and some customers holding warranty claims.
Where can I find a copy of a Proof of Claim form?
A Proof of Claim form can be found at www.motorsliquidation.com or at the bankruptcy
court’s website at www.uscourts.gov/bkforms.
What is a “claim”?
A “claim” is a right to payment from the Debtors. Please review the Bar Date Notice for
a more detailed description.
I received a Bar Date Notice and Proof of Claim form. Does this mean that I have a
claim?
No. The Debtors must mail the Bar Date Notice to known and potential creditors,
including employees, vendors, suppliers, and some customers holding warranty claims.
You do not necessarily have a right to payment just because you received the Bar Date
Notice and Proof of Claim form.
What if I have a claim and do not file a Proof of Claim by the Bar Date?
You must submit your Proof of Claim form by the Bar Date or you will permanently lose
your potential claim against the Debtors.
MOTORS LIQUIDATION COMPANY
BAR DATE NOTICE FAQS
What is the deadline for filing claims arising from the rejection of an executory
contract?
The deadline is the later of (i) the Bar Date, and (ii) the date which is 30 days from entry
of the order approving the rejection.
Can I get an extension?
No, the Bar Date of November 30, 2009 at 5:00 p.m. Eastern Time was set by the
Court, and all Proofs of Claim must be submitted and actually received by the Debtors
on or before this time.
Can I e-mail or fax the Proof of Claim form?
No. You must mail or hand-deliver your Proof of Claim form to one of the address set
forth below. E-mails and faxes will not be accepted.
Can I send the Proof of Claim form to the Debtors?
No.
Where do I mail my Proof of Claim form?
You must mail your Proof of Claim form to:
If by overnight courier or hand delivery to:
The Garden City Group, Inc.
Attn: Motors Liquidation Company Claims Processing
5151 Blazer Parkway, Suite A
Dublin, Ohio 43017
If by first-class mail, to:
The Garden City Group, Inc.
Attn: Motors Liquidation Company
P.O. Box 9386
Dublin, Ohio 43017-4286
Or if by hand delivery to:
United States Bankruptcy Court, SDNY
One Bowling Green
Room 534
New York, New York 10004Does my Proof of Claim need to be received or stamped by the Bar Date?
Proofs of Claim must be mailed in enough time so that they are physically received on
or before November 30, 2009 at 5:00 p.m. Eastern Time.
MOTORS LIQUIDATION COMPANY
BAR DATE NOTICE FAQS
Where can I view a copy of the Schedules of Assets and Liabilities?
Copies of the Schedules are available electronically at the Debtors’ website
www.motorsliquidation.com, and on the Court’s official docket at ecf.nysb.uscourts.gov
(a user ID and password are required and can be obtained through the PACER Service
Center at www.pacer.psc.uscourts.gov).
You can also examine the Schedules between the hours of 9:00 a.m. and 4:30 p.m.
(Eastern Time) at the office of the Clerk of the Bankruptcy Court, United States
Bankruptcy Court for the Southern District of New York, One Bowling Green, Room 511,
New York, New York 10004.
You can obtain copies of the Schedules by writing the Debtors’ claims agent:
The Garden City Group, Inc.
Attn: Motors Liquidation Company
P.O. Box 9386
Dublin, Ohio 43017-4286
Who do I call or email if I need more information?
The Debtors cannot provide legal advice, tell you how to complete your Proof of Claim
form, or discuss your Scheduled claim. However, if you have specific questions that are
not answered by the Bar Date Notice, the Proof of Claim form, or these FAQs, you may
call or email: 800-414-9607; claims@motorsliquidation.com.
What You Will Find Here
- OJOS11
- Articles and news of general interest about investing, saving, personal finance, retirement, insurance, saving on taxes, college funding, financial literacy, estate planning, consumer education, long term care, financial services, help for seniors and business owners.
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Hannity Promises To Expose CNN & NBC News In "EpicFail" - *"Tick tock."* In a mysterious tweet yesterday evening to his *3.19 million followers,* Fox News' Sean Hannity offered a preview of what is to come from ...
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Don’t Forget These Important Retirement Deadlines - *Now that fall is in full swing, be sure to mark your calendar for steps that can help boost your tax-advantage retirement savings.*
Investing in Preferred Stock ETFs (Businessweek)
The Preferred Approach
High-yield bonds aren't the only risky asset to benefit from investors' renewed quest for higher returns. Preferred stocks, which trade like equities but earn most of their return from fixed dividends, have more than doubled from their March low—they were down nearly 50% during the first two months of 2009. (The stocks are "preferred" because their holders receive dividends before shareholders of the common stock get paid.)
On Sept. 17, State Street (STT) launched the SPDR Wells Fargo Preferred Stock ETF, which competes with two other exchange-traded funds, the PowerShares Preferred Portfolio (PGX) and the iShares S&P U.S. Preferred Stock Index Fund (PFF). Like those two, the SPDR boasts a hefty dividend yield—topping 8%—and has a portfolio that is more than 80% financial companies. But it tries to reduce some of the risk by maintaining a highly diversified portfolio—it holds 164 securities, more than the other two funds combined (the PowerShares fund has 67, the other 94). Says Matt McCall, a financial adviser with Ridgewood (N.J.)-based Penn Financial Group: "It's a more conservative approach."
—Ben Levisohn
High-yield bonds aren't the only risky asset to benefit from investors' renewed quest for higher returns. Preferred stocks, which trade like equities but earn most of their return from fixed dividends, have more than doubled from their March low—they were down nearly 50% during the first two months of 2009. (The stocks are "preferred" because their holders receive dividends before shareholders of the common stock get paid.)
On Sept. 17, State Street (STT) launched the SPDR Wells Fargo Preferred Stock ETF, which competes with two other exchange-traded funds, the PowerShares Preferred Portfolio (PGX) and the iShares S&P U.S. Preferred Stock Index Fund (PFF). Like those two, the SPDR boasts a hefty dividend yield—topping 8%—and has a portfolio that is more than 80% financial companies. But it tries to reduce some of the risk by maintaining a highly diversified portfolio—it holds 164 securities, more than the other two funds combined (the PowerShares fund has 67, the other 94). Says Matt McCall, a financial adviser with Ridgewood (N.J.)-based Penn Financial Group: "It's a more conservative approach."
—Ben Levisohn
Guaranteeing Lifetime Income (Yahoo.com , Forbes)
by Scott Woolley
Wednesday, May 13, 2009
If your assets are barely sufficient for your own needs, stiff your heirs. Put your money into an annuity.
As a purely financial matter, it's difficult to die at just the right time. Pop off unexpectedly young and you could rob your family of paychecks it was counting on. Hang on too long and you could exhaust your savings, impoverishing your family or consigning yourself to a decrepit retirement home.
One unexpected side effect of the recent financial crisis: a boom in sales of fixed immediate annuities, which dispense guaranteed income for life. Sales at New York Life, the largest issuer, hit $425 million in the first quarter, up 82% from last year.
For most clients those new annuities are likely to be a good deal. A 65-year-old man who pays New York Life $100,000 today will receive $650 a month for life. That's equal to taking out 7.8% of the total each year, which is double what long-term Treasurys yield. (Because of her longer life expectancy, a woman of the same age would receive $600, or 7.2%.) Wait longer to buy an annuity and the payout is, of course, higher (see table).
Part of the sales surge is because of the crash. Fixed-annuity buyers sailed peacefully through the recent market turmoil with monthly checks intact. Another factor: Many older Americans now find themselves planning for retirement with shrunken portfolios. Instead of living off dividends and leaving the principal to heirs, they need to consume the whole sum for their own needs.
Annuities offer the best way to lock in guaranteed lifetime income, argues Christopher Blunt, who runs New York Life's retirement division. Retirement income generated from a stock-and-bond portfolio requires keeping plenty of assets in reserve in case they're needed to fund a long life or contend with a nasty bear market. Blunt's pitch: Get the same retirement income as you could from a stock-and-bond portfolio, with 25% to 40% less principal.Annuities' ability to generate superior retirement income is conjured by pooling risk. The annuities transfer savings from people who don't need it (because they're dead) to those who do.
This ability to match assets to future liabilities sends academic hearts aflutter. Economists who study the retirement market have long been sold on the merits of annuities and frustrated by consumers' aversion to them. U.S. vendors sold a piddling $6 billion worth of immediate fixed annuities last year. The 2008 figure will likely be around $10 billion. This in a country with $2.7 trillion tucked away in 401(k)s.
One explanation for poor sales is that immediate fixed annuities aren't very profitable for the salesperson. A 70-year-old client who plunks down $500,000 for an annuity and cashes a $3,600 monthly check probably doesn't need much else.
Another impediment to sales has been crummy marketing by insurers. Fixed immediate annuities have gotten a bad rap in part for sharing an association with their deferred-annuity cousins. These are complex vehicles that promise a tax deferral but subject buyers to a multiyear "accumulation phase," during which assets are subjected to all manner of surrender penalties, commissions, fees and insurance charges, before paying out a dime. Most are great deals for the sales reps and lousy ones for clients.
Unlike fee-laden deferred annuities, immediate ones are likely to be a square deal for buyers. The typical buyer receives a string of payments worth (at discounted present value) 95 cents for every premium dollar he pays in. The obvious reason for the efficiency in the pricing is that prices are easy to compare. Someone with $1 million to put in gets quotes from several vendors and takes the best payout.
Insurers do the best they can to make the product more opaque and complicated. Responding to customers' fear that they'll get a really bad deal (by dying young and leaving heirs nothing), vendors offer such features as a guaranteed minimum payout. A 65-year-old man who buys an annuity with a "ten-year period certain" feature has the right to checks for ten years, even if his heirs are the ones to cash them. For this he cuts his annual payout from 7.8% to 7.5%. That might seem like a small price to pay, but the drop-off is so tiny only because the guarantee is unlikely to cost the insurer much. Almost all 65-year-olds live at least into their early seventies.
Assuming you're in good health and keep your product features simple, there aren't a lot of downsides to fixed immediate annuities. One to think about is the risk that the insurer will go bust in your lifetime. However, there are segregated asset pools as well as state-run guarantee funds to make a loss unlikely. In the bankruptcy of Executive Life, some annuity holders lost 20% of their payout. Try to buy from a company with a rating of double-a or better from A.M. Best. New York Life, tiaa and Northwestern Mutual qualify.
A bigger risk is inflation. New York Life offers a rider that increases payouts at a set rate of between 1% and 5% annually but is not pegged to actual price rises. More in keeping with the buy-it-and-forget-it philosophy are payouts linked to the Consumer Price Index, which are available from Lincoln Life Insurance and others. For a 65-year-old man an inflation-indexing feature would cut his initial annual payout from 8% to 5% of his original principal. If inflation averages 4%, the indexed payout would surpass the conventional one in year 12.
Do you want to protect a spouse? That will cost you. If our hypothetical 65-year-old man is married to a 60-year-old woman, he'll cut the annual payout to 6.3% if it has to last until they are both dead.
Immediate annuities aren't a great fit for everyone. If your annual retirement living expenses (including income taxes) come to less than 3% of your assets, you should be able to safely fund your lifestyle by owning a conservative mix of securities, without effectively handing over 7% to an insurer to cover your longevity risk. For everyone else the standard advice is to annuitize the portion of your nest egg you'll need to cover living expenses, including supplemental health insurance. The rest you can invest as you please.
One way or the other, an immediate annuity is an investment you're unlikely to regret buying. If it turns out that the insurer got the better deal, you won't be around to fret about it.
Income for Life
Buy a fixed annuity for $100,000 and what you get depends on your age and gender. Adding a guarantee of ten years of payments (even if you die tomorrow) is surprisingly cheap.
Plain annuity (life)/With 10-year guarantee/With cash refund
Buyer would receive Monthly Check ( Yield )
65-year-old man $650 (7.8%) / $629 (7.5%) / $601 (7.2%)
65-year-old woman 600 (7.2) / 592 (7.1) / 571 (6.9)
70-year-old man 723 (8.7) / 691 (8.3) / 654 (7.8)
70-year-old woman 667 (8.0) / 650 (7.8) / 619 (7.4)
80-year-old man 1,026 (12.3) / 858 (10.3) / 836 (10.0)
80-year-old woman 960 (11.5) / 818 (9.8) / 785 (9.4)
Source: New York Life.
Copyrighted, Forbes.com. All rights reserved.
Wednesday, May 13, 2009
If your assets are barely sufficient for your own needs, stiff your heirs. Put your money into an annuity.
As a purely financial matter, it's difficult to die at just the right time. Pop off unexpectedly young and you could rob your family of paychecks it was counting on. Hang on too long and you could exhaust your savings, impoverishing your family or consigning yourself to a decrepit retirement home.
One unexpected side effect of the recent financial crisis: a boom in sales of fixed immediate annuities, which dispense guaranteed income for life. Sales at New York Life, the largest issuer, hit $425 million in the first quarter, up 82% from last year.
For most clients those new annuities are likely to be a good deal. A 65-year-old man who pays New York Life $100,000 today will receive $650 a month for life. That's equal to taking out 7.8% of the total each year, which is double what long-term Treasurys yield. (Because of her longer life expectancy, a woman of the same age would receive $600, or 7.2%.) Wait longer to buy an annuity and the payout is, of course, higher (see table).
Part of the sales surge is because of the crash. Fixed-annuity buyers sailed peacefully through the recent market turmoil with monthly checks intact. Another factor: Many older Americans now find themselves planning for retirement with shrunken portfolios. Instead of living off dividends and leaving the principal to heirs, they need to consume the whole sum for their own needs.
Annuities offer the best way to lock in guaranteed lifetime income, argues Christopher Blunt, who runs New York Life's retirement division. Retirement income generated from a stock-and-bond portfolio requires keeping plenty of assets in reserve in case they're needed to fund a long life or contend with a nasty bear market. Blunt's pitch: Get the same retirement income as you could from a stock-and-bond portfolio, with 25% to 40% less principal.Annuities' ability to generate superior retirement income is conjured by pooling risk. The annuities transfer savings from people who don't need it (because they're dead) to those who do.
This ability to match assets to future liabilities sends academic hearts aflutter. Economists who study the retirement market have long been sold on the merits of annuities and frustrated by consumers' aversion to them. U.S. vendors sold a piddling $6 billion worth of immediate fixed annuities last year. The 2008 figure will likely be around $10 billion. This in a country with $2.7 trillion tucked away in 401(k)s.
One explanation for poor sales is that immediate fixed annuities aren't very profitable for the salesperson. A 70-year-old client who plunks down $500,000 for an annuity and cashes a $3,600 monthly check probably doesn't need much else.
Another impediment to sales has been crummy marketing by insurers. Fixed immediate annuities have gotten a bad rap in part for sharing an association with their deferred-annuity cousins. These are complex vehicles that promise a tax deferral but subject buyers to a multiyear "accumulation phase," during which assets are subjected to all manner of surrender penalties, commissions, fees and insurance charges, before paying out a dime. Most are great deals for the sales reps and lousy ones for clients.
Unlike fee-laden deferred annuities, immediate ones are likely to be a square deal for buyers. The typical buyer receives a string of payments worth (at discounted present value) 95 cents for every premium dollar he pays in. The obvious reason for the efficiency in the pricing is that prices are easy to compare. Someone with $1 million to put in gets quotes from several vendors and takes the best payout.
Insurers do the best they can to make the product more opaque and complicated. Responding to customers' fear that they'll get a really bad deal (by dying young and leaving heirs nothing), vendors offer such features as a guaranteed minimum payout. A 65-year-old man who buys an annuity with a "ten-year period certain" feature has the right to checks for ten years, even if his heirs are the ones to cash them. For this he cuts his annual payout from 7.8% to 7.5%. That might seem like a small price to pay, but the drop-off is so tiny only because the guarantee is unlikely to cost the insurer much. Almost all 65-year-olds live at least into their early seventies.
Assuming you're in good health and keep your product features simple, there aren't a lot of downsides to fixed immediate annuities. One to think about is the risk that the insurer will go bust in your lifetime. However, there are segregated asset pools as well as state-run guarantee funds to make a loss unlikely. In the bankruptcy of Executive Life, some annuity holders lost 20% of their payout. Try to buy from a company with a rating of double-a or better from A.M. Best. New York Life, tiaa and Northwestern Mutual qualify.
A bigger risk is inflation. New York Life offers a rider that increases payouts at a set rate of between 1% and 5% annually but is not pegged to actual price rises. More in keeping with the buy-it-and-forget-it philosophy are payouts linked to the Consumer Price Index, which are available from Lincoln Life Insurance and others. For a 65-year-old man an inflation-indexing feature would cut his initial annual payout from 8% to 5% of his original principal. If inflation averages 4%, the indexed payout would surpass the conventional one in year 12.
Do you want to protect a spouse? That will cost you. If our hypothetical 65-year-old man is married to a 60-year-old woman, he'll cut the annual payout to 6.3% if it has to last until they are both dead.
Immediate annuities aren't a great fit for everyone. If your annual retirement living expenses (including income taxes) come to less than 3% of your assets, you should be able to safely fund your lifestyle by owning a conservative mix of securities, without effectively handing over 7% to an insurer to cover your longevity risk. For everyone else the standard advice is to annuitize the portion of your nest egg you'll need to cover living expenses, including supplemental health insurance. The rest you can invest as you please.
One way or the other, an immediate annuity is an investment you're unlikely to regret buying. If it turns out that the insurer got the better deal, you won't be around to fret about it.
Income for Life
Buy a fixed annuity for $100,000 and what you get depends on your age and gender. Adding a guarantee of ten years of payments (even if you die tomorrow) is surprisingly cheap.
Plain annuity (life)/With 10-year guarantee/With cash refund
Buyer would receive Monthly Check ( Yield )
65-year-old man $650 (7.8%) / $629 (7.5%) / $601 (7.2%)
65-year-old woman 600 (7.2) / 592 (7.1) / 571 (6.9)
70-year-old man 723 (8.7) / 691 (8.3) / 654 (7.8)
70-year-old woman 667 (8.0) / 650 (7.8) / 619 (7.4)
80-year-old man 1,026 (12.3) / 858 (10.3) / 836 (10.0)
80-year-old woman 960 (11.5) / 818 (9.8) / 785 (9.4)
Source: New York Life.
Copyrighted, Forbes.com. All rights reserved.
Bank Overdraft Fees - news from B of A (Charlotte Observer)
BofA Alters Policies on Overdrafts: Bank Raises No-Fee Ceiling From $5 to $10 Amid Criticism and Threat of Crackdown.
By Rick Rothacker and Christina Rexrode, The Charlotte Observer, N.C.
Sep. 23--Bank of America Corp. is making significant changes to its overdraft fee policies, as banks face increasing criticism and potential new laws around customer surcharges.
Starting Oct. 19, the Charlotte-based bank said Tuesday it will no longer charge overdraft fees if a customer's account is overdrawn by less than $10 per day. Previously, the bank charged a $10 fee if an account was overdrawn by less than $5 per day.
In addition, the bank said it will not charge overdraft fees on more than four instances per day. In the past, the cap was 10 per day. The fee stays at $35 per overdraft.
The bank also said that customers can visit a branch or call the bank to opt out of overdraft protection, meaning payments won't be made on their behalf if they don't have enough money in their accounts. The bank also plans more changes next year.
In a down economy, overdraft fees have become a particular sore point lately because customers can rack up big charges if they withdraw money at an ATM, write a check or use a debit card and don't have enough money in their account. With the proliferation of debit cards, in particular, they can rack up multiple fees in a short span of time.
The announcement comes a little more than a month after Brian Moynihan took charge of the bank's consumer banking unit, following a management shakeup. In an interview Tuesday, Moynihan said changes were already in the works but he pressed for them to be completed quickly.
"The economy kept getting tougher and tougher," Moynihan said. "Customers continued to be stretched more and more. We were watching how customers were being affected."
Moynihan said the bank was driven by customer need, not legislative pressure. A bill in the U.S. House would require banks to inform customers that an ATM withdrawal or debit payment is about to put them into the negative. Senate Banking Committee Chairman Chris Dodd, D-Conn., has also said he is drawing up legislation.
Overdraft fees have been a major source of income for banks, especially at a time when they're struggling with rising loan losses. Bank of America's deposits segment, which includes checking accounts and other services, collected $3.3 billion from all service charges in the first half of this year.
Moynihan declined to say how much income the bank might lose from the change.
"If the customer gets the benefit, that's less fees for the company," he said. "Long-term, it's in the best interest of the customer and the shareholder."
Research firm Moebs Services has estimated the industry will make $38.5 billion from overdraft fees this year, up from $18 billion in 1999, partly because the average fee has climbed.
Mike Moebs, an economist and the CEO of Moebs Services, lauded Bank of America's announcement and said he hopes the bank will introduce more consumer-friendly initiatives in the next month or two. For example, he said, the bank could drop its overdraft fee of $35 for most transactions to the industry median of $26. "I highly praise Bank of America, even if it's totally political," Moebs said. "It's a huge step in the right direction."
Bank of America, the nation's biggest bank, also said Tuesday it has more changes in the works starting in June 2010.
The bank will introduce an annual limit on the number of times customers can overdraw their accounts when they make a purchase at a store.
Customers will be contacted when they near that limit. The bank will also allow customers to opt out of overdraft capability when they open a new account.
Moynihan said the bank already warns customers of possible overdraft fees at the bank's own ATMs, but doesn't have that capacity when customers make retail purchases. In the future, though, customers will be able to opt out of different aspects of overdraft protection, he said.
-----
To see more of The Charlotte Observer, or to subscribe to the newspaper, go to http://www.charlotteobserver.com.
Copyright (c) 2009, The Charlotte Observer, N.C.
By Rick Rothacker and Christina Rexrode, The Charlotte Observer, N.C.
Sep. 23--Bank of America Corp. is making significant changes to its overdraft fee policies, as banks face increasing criticism and potential new laws around customer surcharges.
Starting Oct. 19, the Charlotte-based bank said Tuesday it will no longer charge overdraft fees if a customer's account is overdrawn by less than $10 per day. Previously, the bank charged a $10 fee if an account was overdrawn by less than $5 per day.
In addition, the bank said it will not charge overdraft fees on more than four instances per day. In the past, the cap was 10 per day. The fee stays at $35 per overdraft.
The bank also said that customers can visit a branch or call the bank to opt out of overdraft protection, meaning payments won't be made on their behalf if they don't have enough money in their accounts. The bank also plans more changes next year.
In a down economy, overdraft fees have become a particular sore point lately because customers can rack up big charges if they withdraw money at an ATM, write a check or use a debit card and don't have enough money in their account. With the proliferation of debit cards, in particular, they can rack up multiple fees in a short span of time.
The announcement comes a little more than a month after Brian Moynihan took charge of the bank's consumer banking unit, following a management shakeup. In an interview Tuesday, Moynihan said changes were already in the works but he pressed for them to be completed quickly.
"The economy kept getting tougher and tougher," Moynihan said. "Customers continued to be stretched more and more. We were watching how customers were being affected."
Moynihan said the bank was driven by customer need, not legislative pressure. A bill in the U.S. House would require banks to inform customers that an ATM withdrawal or debit payment is about to put them into the negative. Senate Banking Committee Chairman Chris Dodd, D-Conn., has also said he is drawing up legislation.
Overdraft fees have been a major source of income for banks, especially at a time when they're struggling with rising loan losses. Bank of America's deposits segment, which includes checking accounts and other services, collected $3.3 billion from all service charges in the first half of this year.
Moynihan declined to say how much income the bank might lose from the change.
"If the customer gets the benefit, that's less fees for the company," he said. "Long-term, it's in the best interest of the customer and the shareholder."
Research firm Moebs Services has estimated the industry will make $38.5 billion from overdraft fees this year, up from $18 billion in 1999, partly because the average fee has climbed.
Mike Moebs, an economist and the CEO of Moebs Services, lauded Bank of America's announcement and said he hopes the bank will introduce more consumer-friendly initiatives in the next month or two. For example, he said, the bank could drop its overdraft fee of $35 for most transactions to the industry median of $26. "I highly praise Bank of America, even if it's totally political," Moebs said. "It's a huge step in the right direction."
Bank of America, the nation's biggest bank, also said Tuesday it has more changes in the works starting in June 2010.
The bank will introduce an annual limit on the number of times customers can overdraw their accounts when they make a purchase at a store.
Customers will be contacted when they near that limit. The bank will also allow customers to opt out of overdraft capability when they open a new account.
Moynihan said the bank already warns customers of possible overdraft fees at the bank's own ATMs, but doesn't have that capacity when customers make retail purchases. In the future, though, customers will be able to opt out of different aspects of overdraft protection, he said.
-----
To see more of The Charlotte Observer, or to subscribe to the newspaper, go to http://www.charlotteobserver.com.
Copyright (c) 2009, The Charlotte Observer, N.C.
How Long for that Check to Clear ? (NYTimes)
September 19, 2009
Your Money
Hurry Up and Credit My Account
By RON LIEBER
What is it with these banks that are so quick to hit you with a fee for spending more than you have in your checking account but take their own sweet time in crediting deposits?
My colleague Andrew Martin and I heard that complaint repeatedly from readers after we wrote about overdraft fees earlier this month. The angry questions happened to arrive as we approach the five-year anniversary of when the federal law known as Check 21 took effect. The law allows banks to turn paper checks into digital images and settle them electronically instead of shipping bags of paper around the country on airplanes.
Once banks embraced the new procedures, money disappeared from your account much faster when you wrote a check. But the old laws on how quickly banks must credit your account when you make a deposit did not change at all. They still haven’t. In fact, they haven’t changed in more than 20 years.
In part because of that, consumers are suspicious that banks earn more money by not making the funds available until they absolutely have to. Banks, meanwhile, say that they often make deposited funds available before they know that the checks haven’t bounced.
The banks and the Federal Reserve have made some progress in speeding up many deposits. But the rules — and especially their exceptions — still trip up plenty of people.
So first, a refresher course on the rules, the ones the bank explained to you when you signed up for an account in a fine print document that you probably ignored.
Banks are supposed to allow you to withdraw the following types of deposits no later than the next business day after the bank receives them: cash, electronic payments like paychecks and other direct deposits, government checks, postal money orders and cashier’s checks. That said, if you don’t make the deposits in person (say, if it’s through an A.T.M.), there may be further delay.
For other checks, the Federal Reserve rule that governs deposits makes a distinction between local checks and nonlocal checks. Once you deposit your check in your own bank, it may go to a Federal Reserve check processing center before it heads to the bank of the person or company who wrote it. If the same center services both banks, then the check is local. If not, it’s nonlocal.
Banks must make your deposits of local checks available no later than two business days after you hand them over. But they get a full five days on nonlocal accounts. In either case, they must make $100 available to you the next business day after the deposit as a sort of good-faith advance. That number, too, has not changed in two decades.
One piece of good news here is that because of the rapid adoption of electronic check imaging, the Federal Reserve is a year or so away from completing the consolidation of all its processing centers. As a result, many more checks are already local. So when you deposit them, they hit your account more quickly.
The bad news, however, is that there are still a number of exceptions that allow banks to put a hold on part or all of the deposit, often for at least five business days. Any deposit over $5,000 is automatically suspect. If your account has been overdrawn at least six days in the last six months, then the bank can delay all deposits to your account. If your account is less than 30 days old, then your bank gets the extra time there, too (plenty of fraud happens in new accounts).
The large deposit exception ensnares plenty of people, according to Gail Hillebrand, senior attorney for Consumers Union. They include those who are paid on commission or quarterly and those earning royalties, and a large number of others moving money around from, say, a brokerage account to their checking account to pay big medical or tuition bills or buy a car or house.
She suggested taking an active approach with the bank when big money is involved, deposit by deposit. “Ask the bank if there will be a hold and how soon you can have the money. Don’t assume it’s going to be there because the teller smiled at you and accepted it,” she said. “If you’re moving money for a big payment, do it well in advance.”
Banks can and do move faster than the regulations require. And some have pushed their daily deadlines for depositors later by a few hours. Credit unions, in particular, tend to clear deposits more quickly, according to a 2007 Federal Reserve study of the effect of Check 21.
But you can’t count on that happening. So if you can’t keep a cushion in your checking account to protect yourself from running out of money while waiting for deposits, there are a few other available tactics.
Use direct deposit for everything you possibly can, from government benefit checks to tax refunds to reimbursement from your health insurer or flexible spending account administrator. Freelancers who do regular work for large companies can often receive payment via direct deposit, too.
If you’re sending money to a child in school or supporting a relative in some other way, you’ll spare yourself a lot of desperate phone calls if you can find a way to transfer money electronically into their account from your own linked account, say by listing yourself on the account with them.
There’s one big win for consumers arising from Check 21 that should have happened by now but mostly hasn’t. It’s something bankers like to call remote deposit capture. In plain English, that means you scan the check using your home computer and send it to the bank without having to bother with envelopes and mailboxes or remembering to stop at the branch in person.
Banks were fairly quick to make this available for their biggest customers — businesses. But only a couple of hundred banks or credit unions have given it to consumers so far, according to Bob Meara, a senior analyst with Celent, a financial services consulting firm.
The early adopters tend to be institutions like USAA Federal Savings Bank, which has only one branch but has lots of customers serving in the United States military who don’t want to send money in from an Army base. In fact, the bank has gone a step further and created an iPhone application that allows many of its customers to take pictures of their checks and deposit them that way. One in four of the bank’s check deposits now arrive remotely.
Customers of bigger banks could get their deposits into their bank accounts a lot faster if only the institutions were willing to let them move money this way. So why don’t they?
According to Mr. Meara, 90 percent of all transactions with bank tellers involve checks. If everyone had an iPhone deposit app, people wouldn’t come into the branch as often. That would be fine had banks not invested so much time and energy in training branch workers to persuade checking account customers to move into more profitable products.
“One the one hand, fewer deposit transactions could mean a headcount reduction,” he said. “But it invites the erosion of store profitability. The banks are struggling with the enormity of what it means.”
It can’t hurt to ask your bank for this sort of deposit-at-home service. But Mr. Meara thinks it will be many years before everyone gets to use it. That’s too bad. Until the Federal Reserve acts to tighten the deposit crediting rules further, having more ways to make deposits is one of the best benefits that can still come out of Check 21. If only your bank were in a bigger hurry to give you the tools.
Copyright 2009 The New York Times Company
Your Money
Hurry Up and Credit My Account
By RON LIEBER
What is it with these banks that are so quick to hit you with a fee for spending more than you have in your checking account but take their own sweet time in crediting deposits?
My colleague Andrew Martin and I heard that complaint repeatedly from readers after we wrote about overdraft fees earlier this month. The angry questions happened to arrive as we approach the five-year anniversary of when the federal law known as Check 21 took effect. The law allows banks to turn paper checks into digital images and settle them electronically instead of shipping bags of paper around the country on airplanes.
Once banks embraced the new procedures, money disappeared from your account much faster when you wrote a check. But the old laws on how quickly banks must credit your account when you make a deposit did not change at all. They still haven’t. In fact, they haven’t changed in more than 20 years.
In part because of that, consumers are suspicious that banks earn more money by not making the funds available until they absolutely have to. Banks, meanwhile, say that they often make deposited funds available before they know that the checks haven’t bounced.
The banks and the Federal Reserve have made some progress in speeding up many deposits. But the rules — and especially their exceptions — still trip up plenty of people.
So first, a refresher course on the rules, the ones the bank explained to you when you signed up for an account in a fine print document that you probably ignored.
Banks are supposed to allow you to withdraw the following types of deposits no later than the next business day after the bank receives them: cash, electronic payments like paychecks and other direct deposits, government checks, postal money orders and cashier’s checks. That said, if you don’t make the deposits in person (say, if it’s through an A.T.M.), there may be further delay.
For other checks, the Federal Reserve rule that governs deposits makes a distinction between local checks and nonlocal checks. Once you deposit your check in your own bank, it may go to a Federal Reserve check processing center before it heads to the bank of the person or company who wrote it. If the same center services both banks, then the check is local. If not, it’s nonlocal.
Banks must make your deposits of local checks available no later than two business days after you hand them over. But they get a full five days on nonlocal accounts. In either case, they must make $100 available to you the next business day after the deposit as a sort of good-faith advance. That number, too, has not changed in two decades.
One piece of good news here is that because of the rapid adoption of electronic check imaging, the Federal Reserve is a year or so away from completing the consolidation of all its processing centers. As a result, many more checks are already local. So when you deposit them, they hit your account more quickly.
The bad news, however, is that there are still a number of exceptions that allow banks to put a hold on part or all of the deposit, often for at least five business days. Any deposit over $5,000 is automatically suspect. If your account has been overdrawn at least six days in the last six months, then the bank can delay all deposits to your account. If your account is less than 30 days old, then your bank gets the extra time there, too (plenty of fraud happens in new accounts).
The large deposit exception ensnares plenty of people, according to Gail Hillebrand, senior attorney for Consumers Union. They include those who are paid on commission or quarterly and those earning royalties, and a large number of others moving money around from, say, a brokerage account to their checking account to pay big medical or tuition bills or buy a car or house.
She suggested taking an active approach with the bank when big money is involved, deposit by deposit. “Ask the bank if there will be a hold and how soon you can have the money. Don’t assume it’s going to be there because the teller smiled at you and accepted it,” she said. “If you’re moving money for a big payment, do it well in advance.”
Banks can and do move faster than the regulations require. And some have pushed their daily deadlines for depositors later by a few hours. Credit unions, in particular, tend to clear deposits more quickly, according to a 2007 Federal Reserve study of the effect of Check 21.
But you can’t count on that happening. So if you can’t keep a cushion in your checking account to protect yourself from running out of money while waiting for deposits, there are a few other available tactics.
Use direct deposit for everything you possibly can, from government benefit checks to tax refunds to reimbursement from your health insurer or flexible spending account administrator. Freelancers who do regular work for large companies can often receive payment via direct deposit, too.
If you’re sending money to a child in school or supporting a relative in some other way, you’ll spare yourself a lot of desperate phone calls if you can find a way to transfer money electronically into their account from your own linked account, say by listing yourself on the account with them.
There’s one big win for consumers arising from Check 21 that should have happened by now but mostly hasn’t. It’s something bankers like to call remote deposit capture. In plain English, that means you scan the check using your home computer and send it to the bank without having to bother with envelopes and mailboxes or remembering to stop at the branch in person.
Banks were fairly quick to make this available for their biggest customers — businesses. But only a couple of hundred banks or credit unions have given it to consumers so far, according to Bob Meara, a senior analyst with Celent, a financial services consulting firm.
The early adopters tend to be institutions like USAA Federal Savings Bank, which has only one branch but has lots of customers serving in the United States military who don’t want to send money in from an Army base. In fact, the bank has gone a step further and created an iPhone application that allows many of its customers to take pictures of their checks and deposit them that way. One in four of the bank’s check deposits now arrive remotely.
Customers of bigger banks could get their deposits into their bank accounts a lot faster if only the institutions were willing to let them move money this way. So why don’t they?
According to Mr. Meara, 90 percent of all transactions with bank tellers involve checks. If everyone had an iPhone deposit app, people wouldn’t come into the branch as often. That would be fine had banks not invested so much time and energy in training branch workers to persuade checking account customers to move into more profitable products.
“One the one hand, fewer deposit transactions could mean a headcount reduction,” he said. “But it invites the erosion of store profitability. The banks are struggling with the enormity of what it means.”
It can’t hurt to ask your bank for this sort of deposit-at-home service. But Mr. Meara thinks it will be many years before everyone gets to use it. That’s too bad. Until the Federal Reserve acts to tighten the deposit crediting rules further, having more ways to make deposits is one of the best benefits that can still come out of Check 21. If only your bank were in a bigger hurry to give you the tools.
Copyright 2009 The New York Times Company
Companies Likely to go Bankrupt Next (according to auditintegrity.com. )
Audit Integrity Announces Results of Corporate Bankruptcy Study; Identifies Companies Most Likely to Declare Bankruptcy
Wed Sep 16, 2009 9:00am EDT
Media and Transportation Sectors Have the Highest Number of Companies at Risk
LOS ANGELES--(Business Wire)--
In response to amplified concern in the market for risk related to corporate
insolvency, Audit Integrity, an independent financial research and risk modeling
firm, today released the results of its bankruptcy model research and has
identified 20 corporations, with $1 billion or more in market capitalization,
that have the highest probability of declaring bankruptcy in the next twelve
months.
According to the U.S. Bankruptcy Courts, the number of business bankruptcy
filings during the first six months of the year rose 64 percent over the first
half results in 2008. With the increased incidence of company failures,
corporate stakeholders such as insurance companies, auditing professionals,
procurement executives and regulators, find corporate survival to be a critical
risk issue.
Current approaches to determining bankruptcy risk generally fail to react
quickly to changes to the economic environment, and do not factor in the
potential for corporate fraud. By incorporating these risk factors into the
Audit Integrity Business Risk Model, this new approach has been found to greatly
improve the identification of companies at risk of bankruptcy. Against the most
widely used bankruptcy model, the Altman Z-Score, the Audit Integrity bankruptcy
Risk Model results have been more than 20 percentage points higher in predicting
bankruptcy.
The results from Audit Integrity`s bankruptcy research indicate that the media
and transportation industries are especially vulnerable. Of the over 2,500 U.S.
corporations receiving bankruptcy risk scores from Audit Integrity, TV and
Publishing companies were found to be over four times as risky as other
companies, while automobile and airline industries were just slightly less
risky.
The findings suggest that fraudulent accounting and poor governance impact
bankruptcy risk in addition to more generally accepted factors such as measures
of liquidity, leverage and profitability.
"Evidence shows that bankruptcy filings tend to lag after an economic downturn
so its extremely important that investors and those concerned with the risks
around corporate failure mitigate their exposure to companies likely to
collapse," said Jack Zwingli, CEO of Audit Integrity. "Market volatility and
sudden downturns such as we have been experiencing must be factored into
bankruptcy risk. Fraud also plays a part, especially when companies are faced
with survival decisions. These are the toughest companies to identify because,
on paper, they appear solvent. Our model uncovers the underlying fraud that can
be behind seemingly healthy financial statements."
Audit Integrity has identified the following companies that have the highest
probability of declaring bankruptcy among publicly traded firms with more than
$1 billion market capitalizations:
* Advanced Micro Devices, Inc.
* Amkor Technology, Inc.
* AMR Corporation
* Apartment Investment and Management Co.
* CBS Corporation
* Continental Airlines, Inc.
* Federal-Mogul Corporation
* Hertz Global Holdings, Inc.
* Interpublic Group of Companies, Inc.
* Las Vegas Sands Corp.
* Liberty Media Corporation (Capital)
* Macy's, Inc.
* Mylan Inc.
* Oshkosh Corporation
* Redwood Trust, Inc.
* Rite Aid Corporation
* Sirius XM Radio Inc.
* Sprint Nextel Corporation
* Textron Inc.
* The Goodyear Tire & Rubber Company
To get the full list of companies Audit Integrity has identified, including
small-cap and mid-cap firms, please visit www.auditintegrity.com or call
877-880-8820.
About Audit Integrity
Founded in 2002, serving investors, insurers, auditors and corporate finance
professionals, Audit Integrity is a leading independent research firm that rates
more than 12,000 public companies in North American and Europe based on their
corporate integrity. In addition to its flagship Accounting and Governance Risk
(AGR) ratings, Audit Integrity also forecasts bankruptcy risk, class action
litigation risk, material financial restatement risk, and equity performance
risk. The statistical correlation of these ratings has been confirmed by
internal and third-party tests. Audit Integrity has offices in Los Angeles and
New York City. For more information, please visit www.auditintegrity.com.
Starkman & Associates
Jeffrey Richardson, 212-252-8545, ext. 11
jrichardson@starkmanpr.com
or
James Cheston, 212-252-8545, ext. 22
jcheston@starkmanpr.com
Copyright Business Wire 2009
Wed Sep 16, 2009 9:00am EDT
Media and Transportation Sectors Have the Highest Number of Companies at Risk
LOS ANGELES--(Business Wire)--
In response to amplified concern in the market for risk related to corporate
insolvency, Audit Integrity, an independent financial research and risk modeling
firm, today released the results of its bankruptcy model research and has
identified 20 corporations, with $1 billion or more in market capitalization,
that have the highest probability of declaring bankruptcy in the next twelve
months.
According to the U.S. Bankruptcy Courts, the number of business bankruptcy
filings during the first six months of the year rose 64 percent over the first
half results in 2008. With the increased incidence of company failures,
corporate stakeholders such as insurance companies, auditing professionals,
procurement executives and regulators, find corporate survival to be a critical
risk issue.
Current approaches to determining bankruptcy risk generally fail to react
quickly to changes to the economic environment, and do not factor in the
potential for corporate fraud. By incorporating these risk factors into the
Audit Integrity Business Risk Model, this new approach has been found to greatly
improve the identification of companies at risk of bankruptcy. Against the most
widely used bankruptcy model, the Altman Z-Score, the Audit Integrity bankruptcy
Risk Model results have been more than 20 percentage points higher in predicting
bankruptcy.
The results from Audit Integrity`s bankruptcy research indicate that the media
and transportation industries are especially vulnerable. Of the over 2,500 U.S.
corporations receiving bankruptcy risk scores from Audit Integrity, TV and
Publishing companies were found to be over four times as risky as other
companies, while automobile and airline industries were just slightly less
risky.
The findings suggest that fraudulent accounting and poor governance impact
bankruptcy risk in addition to more generally accepted factors such as measures
of liquidity, leverage and profitability.
"Evidence shows that bankruptcy filings tend to lag after an economic downturn
so its extremely important that investors and those concerned with the risks
around corporate failure mitigate their exposure to companies likely to
collapse," said Jack Zwingli, CEO of Audit Integrity. "Market volatility and
sudden downturns such as we have been experiencing must be factored into
bankruptcy risk. Fraud also plays a part, especially when companies are faced
with survival decisions. These are the toughest companies to identify because,
on paper, they appear solvent. Our model uncovers the underlying fraud that can
be behind seemingly healthy financial statements."
Audit Integrity has identified the following companies that have the highest
probability of declaring bankruptcy among publicly traded firms with more than
$1 billion market capitalizations:
* Advanced Micro Devices, Inc.
* Amkor Technology, Inc.
* AMR Corporation
* Apartment Investment and Management Co.
* CBS Corporation
* Continental Airlines, Inc.
* Federal-Mogul Corporation
* Hertz Global Holdings, Inc.
* Interpublic Group of Companies, Inc.
* Las Vegas Sands Corp.
* Liberty Media Corporation (Capital)
* Macy's, Inc.
* Mylan Inc.
* Oshkosh Corporation
* Redwood Trust, Inc.
* Rite Aid Corporation
* Sirius XM Radio Inc.
* Sprint Nextel Corporation
* Textron Inc.
* The Goodyear Tire & Rubber Company
To get the full list of companies Audit Integrity has identified, including
small-cap and mid-cap firms, please visit www.auditintegrity.com or call
877-880-8820.
About Audit Integrity
Founded in 2002, serving investors, insurers, auditors and corporate finance
professionals, Audit Integrity is a leading independent research firm that rates
more than 12,000 public companies in North American and Europe based on their
corporate integrity. In addition to its flagship Accounting and Governance Risk
(AGR) ratings, Audit Integrity also forecasts bankruptcy risk, class action
litigation risk, material financial restatement risk, and equity performance
risk. The statistical correlation of these ratings has been confirmed by
internal and third-party tests. Audit Integrity has offices in Los Angeles and
New York City. For more information, please visit www.auditintegrity.com.
Starkman & Associates
Jeffrey Richardson, 212-252-8545, ext. 11
jrichardson@starkmanpr.com
or
James Cheston, 212-252-8545, ext. 22
jcheston@starkmanpr.com
Copyright Business Wire 2009
What to do about the Falling Dollar (Credit Suisse)
The Dollar Is the First Victim of the Recovery
Joy Bolli, Online Publications Credit Suisse
14.09.2009 Over the last few weeks, stock markets have been performing positively – optimism seems to be back. According to Giles Keating, Head of Credit Suisse Global Economics & Strategy Group, this optimism is based on real facts. However, what is good for the world economy doesn't look to be so good for the dollar.
Joy Bolli: Giles, what's behind all this good news?
Giles Keating: First of all, the economy is recovering more strongly than most people expected – albeit from a very low base: We still have lots of unused capacity and we still have high unemployment, but things are moving in the right direction. Secondly, there is a lot of cash out there. Many investors were left behind given the strength of the early pick-up in the stock market. Now they are wondering if they shouldn't be putting their money to work. And thirdly, the policy makers - central banks, governments - have signaled that they are going to maintain a very expansive economic policy, that they are going to keep interest rates very low for a long time, and that they are going to continue their fiscal spending.
What are the risks going forward?
Clearly, one risk is that this economic recovery won't continue, and some economists are very concerned that things might start to drop off when the current rather strong momentum is over in perhaps two or three months' time. The consensus in the Credit Suisse Economic and Strategy Group is, however, that this risk is not very high. On balance, we think that the recovery will continue, given the expansiveness in monetary and fiscal policies. Another risk is that we could actually see some markets moving ahead too strongly, for example some commodity prices. And that, of course, could create trouble elsewhere.
Does this mean that the next bubble is just around the corner?
I think there is a small risk that there's a bubble around the corner. It's more likely that the problem of a bubble lies perhaps 12 months, 24 months or maybe slightly longer into the future. We do know that the financial markets are very prone to lurch between crash and bubble. The very strong medicine that's currently being administered in terms of very low interest rates is great for getting us out of the slump. But history tells us that it does tend to lead us toward the next bubble. So I think there is a risk, but right now it is more likely that we will see prices tending to move up in a number of areas, though probably not reaching into bubble territory for quite some time.
Amid all this good news, the dollar seems to be in trouble. Just a temporary weakness, or a fundamental problem?
The dollar has seen some big downward movements over the last couple of weeks, and although we think that this won't continue in a straight line, we do think it likely that the dollar will continue to weaken over the next six to twelve months. This can be expected to happen both against the major currencies like the euro and the Swiss franc, as well as against some of the high yielders like the Australian dollar and even some of the emerging market currencies like the Brazilian real. So we are recommending diversification out of the dollar.
What makes the dollar so weak?
Interest rates are, of course, very low in the United States, at almost zero. Although they are low in other countries as well, historically the dollar has needed an interest rate premium - a higher interest rate - than in Europe in order to remain stable or rise in value. Another key reason is that, strangely, as financial conditions get less risky and become more stable, people tend to move out of the dollar. Moreover, a lot of people put money into the dollar during the crisis, and now they have too many dollars. And finally, financial transactions were made by some of the world's major banks at the end of last year since they had to buy dollars in order to square up their balance sheets. That effect is now more or less over. For some banks, this is actually going into reverse, so they are now selling dollars.
Do all investors share this rather pessimistic view of the dollar?
No, of course this is a controversial issue, and I know that many investors, although they recognize the dollar problem, also see problems with other major currencies like the euro. But we believe that there are many financial forces that will boost the euro against the dollar. We would therefore recommend a diversification strategy for those who don't feel entirely confident with the euro. In fact, we consider it a good idea for all investors to diversify broadly into a number of other currencies, as well as – to a lesser extent - into precious metals like gold.
Which industry will surprise us with good news in the next six months?
I think a number of them could, but one in particular that my colleagues and I at Credit Suisse would pick out is the technology sector. We have already begun to see parts of the tech sector move up from very low levels. And as we move forward, there are several very favorable factors here. It's not so much consumer demand, although that could play a bit of a role; rather, it's greater demand from companies that cut back their IT expenditure in a big way during the slump. This, along with some new technologies that are coming through, leads us to think that this sector could perform rather well.
And which commodities will be among the best performers?
We think precious metals can continue to move up. At this current time, gold for example has just broken through the 1000 dollar level, and we think it could certainly head to somewhere around the 1100 level. And some of the other precious metals like platinum could continue higher. We are slightly more cautious about base metals such as copper. We think their inventories have gotten somewhat too high. Regarding oil, some of the bigger countries in OPEC are not keen to see oil get too strong. So we think the trend is up, but perhaps not dramatically so.
Joy Bolli, Online Publications Credit Suisse
14.09.2009 Over the last few weeks, stock markets have been performing positively – optimism seems to be back. According to Giles Keating, Head of Credit Suisse Global Economics & Strategy Group, this optimism is based on real facts. However, what is good for the world economy doesn't look to be so good for the dollar.
Joy Bolli: Giles, what's behind all this good news?
Giles Keating: First of all, the economy is recovering more strongly than most people expected – albeit from a very low base: We still have lots of unused capacity and we still have high unemployment, but things are moving in the right direction. Secondly, there is a lot of cash out there. Many investors were left behind given the strength of the early pick-up in the stock market. Now they are wondering if they shouldn't be putting their money to work. And thirdly, the policy makers - central banks, governments - have signaled that they are going to maintain a very expansive economic policy, that they are going to keep interest rates very low for a long time, and that they are going to continue their fiscal spending.
What are the risks going forward?
Clearly, one risk is that this economic recovery won't continue, and some economists are very concerned that things might start to drop off when the current rather strong momentum is over in perhaps two or three months' time. The consensus in the Credit Suisse Economic and Strategy Group is, however, that this risk is not very high. On balance, we think that the recovery will continue, given the expansiveness in monetary and fiscal policies. Another risk is that we could actually see some markets moving ahead too strongly, for example some commodity prices. And that, of course, could create trouble elsewhere.
Does this mean that the next bubble is just around the corner?
I think there is a small risk that there's a bubble around the corner. It's more likely that the problem of a bubble lies perhaps 12 months, 24 months or maybe slightly longer into the future. We do know that the financial markets are very prone to lurch between crash and bubble. The very strong medicine that's currently being administered in terms of very low interest rates is great for getting us out of the slump. But history tells us that it does tend to lead us toward the next bubble. So I think there is a risk, but right now it is more likely that we will see prices tending to move up in a number of areas, though probably not reaching into bubble territory for quite some time.
Amid all this good news, the dollar seems to be in trouble. Just a temporary weakness, or a fundamental problem?
The dollar has seen some big downward movements over the last couple of weeks, and although we think that this won't continue in a straight line, we do think it likely that the dollar will continue to weaken over the next six to twelve months. This can be expected to happen both against the major currencies like the euro and the Swiss franc, as well as against some of the high yielders like the Australian dollar and even some of the emerging market currencies like the Brazilian real. So we are recommending diversification out of the dollar.
What makes the dollar so weak?
Interest rates are, of course, very low in the United States, at almost zero. Although they are low in other countries as well, historically the dollar has needed an interest rate premium - a higher interest rate - than in Europe in order to remain stable or rise in value. Another key reason is that, strangely, as financial conditions get less risky and become more stable, people tend to move out of the dollar. Moreover, a lot of people put money into the dollar during the crisis, and now they have too many dollars. And finally, financial transactions were made by some of the world's major banks at the end of last year since they had to buy dollars in order to square up their balance sheets. That effect is now more or less over. For some banks, this is actually going into reverse, so they are now selling dollars.
Do all investors share this rather pessimistic view of the dollar?
No, of course this is a controversial issue, and I know that many investors, although they recognize the dollar problem, also see problems with other major currencies like the euro. But we believe that there are many financial forces that will boost the euro against the dollar. We would therefore recommend a diversification strategy for those who don't feel entirely confident with the euro. In fact, we consider it a good idea for all investors to diversify broadly into a number of other currencies, as well as – to a lesser extent - into precious metals like gold.
Which industry will surprise us with good news in the next six months?
I think a number of them could, but one in particular that my colleagues and I at Credit Suisse would pick out is the technology sector. We have already begun to see parts of the tech sector move up from very low levels. And as we move forward, there are several very favorable factors here. It's not so much consumer demand, although that could play a bit of a role; rather, it's greater demand from companies that cut back their IT expenditure in a big way during the slump. This, along with some new technologies that are coming through, leads us to think that this sector could perform rather well.
And which commodities will be among the best performers?
We think precious metals can continue to move up. At this current time, gold for example has just broken through the 1000 dollar level, and we think it could certainly head to somewhere around the 1100 level. And some of the other precious metals like platinum could continue higher. We are slightly more cautious about base metals such as copper. We think their inventories have gotten somewhat too high. Regarding oil, some of the bigger countries in OPEC are not keen to see oil get too strong. So we think the trend is up, but perhaps not dramatically so.
Focus on Utilities for High Yield (Barrons)
Boring Beauties With Powerhouse Yields
By ANDREW BARY
Barron's Andrew Bary says that electric utilities may look dull - if cheap stocks, stable companies and fat dividends aren't your thing. Why they could outrun the market.
ELECTRIC-UTILITY STOCKS may lack sizzle, but many sport attractively low price-earnings multiples and offer ample dividend yields.
Regulated utilities now trade for an average of 12 times projected 2009 profits, a sharp discount to the Standard & Poor's 500 stock index, which, at around 1040, fetches around 17 times this year's anticipated profits. Based on 2010 earnings estimates, the utilities' P/E multiple of 11.5 likewise is comfortably beneath the broad market's 14. Utility dividend yields average just over 5%, more than double the 2.1% of the S&P 500.
Many utilities have big capital-spending projects, financed by equity and debt. A credit-market rally has facilitated borrowing.
The yield spread between the utilities and the S&P 500 is near a five-year high. The utility dividend yield also stacks up well against 10-year Treasury bonds, which now yield 3.3%, and top-grade 10-year municipal bonds, now yielding 3% or less after the sharp muni-market rally this year. Dividends paid by the major regulated utilities look safe, and investors could see modest annual increases, enhancing the appeal of utility stocks relative to bonds.
Most utilities are expected to report average earnings gains of 6% to 7% in coming years -- impressive for a supposedly dull industry. Warren Buffett is a fan of the sector, admiring its predictable, if moderate, gains. One of the largest divisions within Buffett's Berkshire Hathaway (ticker: BRK-A) is MidAmerican Energy, which owns regulated utilities in Iowa and the Pacific Northwest.
Investors won't make a killing in the major utility stocks. Still, many of the shares could see upside of 10% or more in the coming year; include dividends, and the total return might top 15%. And given their defensive characteristics, utilities are apt to hold up better than the S&P if the stock market corrects.
Utilities are a contrarian investment these days. Hoping to capitalize on a recovering economy, many investors are piling into "offensive" shares in the faster-growing financial, technology and industrial sectors. Reflecting this mood, most equity strategists featured in Barron's cover story in our Sept. 7 issue urged investors to underweight utilities.
Playing Defense: Utilities have trailed the market lately as investors chase faster growers. That could mean opportunity.
"This is not ordinarily a time to buy utilities, given the economic recovery and the associated risk of higher inflation and interest rates," says Hugh Wynne, the utility analyst at Sanford C. Bernstein. "But utility stocks may already have factored in the threat of higher rates as well as the risk of increased taxes on dividends when the Bush tax cuts expire in 2011. You shouldn't assume they will underperform." Dividends are now taxed at a favorable rate of 15%. Historically, the bulk of utility returns have come from dividends.
Wynne likes PG&E (PCG) and Edison International (EIX). To those who argue that utilities will underperform in a market rally, he and others counter that this already has happened. The Dow Jones Utility Average is up about 25% from its March low, roughly half the gain of the S&P 500. But year to date, the utility index is flat, versus the S&P's 15% rise. Stocks such as Southern Co. (SO), American Electric Power (AEP), Entergy (ETR) and Exelon (EXC) are down in 2009.
The risks to utilities appear modest, especially compared with the threats facing big telecoms, such as Verizon Communications (VZ) and AT&T (T). Most utilities are in the midst of big capital-spending programs to rebuild their power grids, construct new transmission lines and open new plants.
Utilities typically are allowed to raise electric rates to fund new infrastructure. Most state regulatory commissions agree that the companies need roughly 10% equity returns on their investments in order to keep building capacity. Power demand has dropped about 4% in the past year, owing to the recession -- but that hasn't hurt most utilities. Over time, U.S. electricity demand is likely to rise modestly, spurred by population growth, a recovering economy and increased ownership of electric cars.
There's little variation in the P/E ratios of the big regulated utilities. Companies such as Southern, Consolidated Edison (ED), PG&E, Duke and American Electric are among the safest in the group, because they get the vast majority of their revenue from regulated power operations and little from independent power divisions, whose profits swing, based on market prices for electricity. Prices have been weak because of the recession, a cool summer in much of the country and falling natural-gas prices.
MOST UNREGULATED POWER producers own low-cost nuclear and coal plants. When natural-gas prices are high, open-market electric prices tend to increase, providing a pricing umbrella for the independent power operators. With gas tumbling this year to $3 per thousand cubic feet, power prices have fallen, reducing the independents' profits.
Among the big regulated utilities, Wynne favors PG&E, which serves the northern and central parts of California. Its operations are almost entirely regulated, and its shares trade around 40, or for nearly 13 times projected 2009 profits of $3.16 a share and almost 12 times estimated 2010 earnings of $3.40. Wynne contends that PG&E's profits can expand at an 8% annual clip in the coming years, fueled by capital spending, primarily on new transmission and distribution infrastructure. His price target is 45
A CASE CAN BE MADE for most of the major regulated utilities. Con Edison is low-risk because it is involved mostly in the transmission and distribution of electricity and gas. It is largely out of the power-generation business, and is allowed to pass on changes in purchased-power costs to its New York customers. It yields nearly 6%. Southern historically has had one of the highest P/Es in the group, owing to a favorable regulatory environment and good growth prospects. Its stock has lagged this year, leaving it undervalued.
Citigroup analyst Brian Chin favors American Electric Power, which has one of the group's lowest P/Es. At 30, it trades for less than 11 times projected 2009 profits and yields 5.3%. With operations in the Midwest and Texas, American Electric Power is more exposed to weak industrial markets, and the regulatory environment in Ohio is viewed as difficult. Also, environmentalists and others have stalled construction of a half-finished $1.6 billion coal plant that an American Electric unit is building in Arkansas.
EDISON INTERNATIONAL, Dominion Resources (D), Entergy, Exelon, FPL Group (FPL) and Public Service Enterprise Group , or PSE&G (PEG), are integrated utilities, which have a mix of regulated and unregulated operations. Thus, they carry more risk than regulated companies. Their stocks have trailed those of regulated operators, reflecting weakness in power prices.
Wynne likes Edison International, the parent of both Southern California Edison and independent power producer Edison Mission Energy, which owns a group of coal-fired generators. He has called Southern California Edison "perhaps the fastest-growing, most favorably regulated electric utility in the United States."
SoCal Edison, which is expected to contribute about 80% of Edison's projected earnings of $3 a share this year, is capable of generating 11% growth in annual profits in the next five years. Wynne values SoCal Edison alone at $33 a share, in line with Edison's current share price. That means that investors effectively get Mission Energy free. Wynne has a price target of 36 on the stock.
Edison's profits are expected to fall almost 20% this year, reflecting declining earnings at Mission. If power prices recover, Mission will do better, potentially lifting the stock. It peaked around 60 in 2007.
Exelon, with the largest independent power unit fueled by nuclear plants, is a play on carbon legislation. The more onerous the burden on carbon-heavy coal plants, the better the outlook for Exelon's low carbon-emission nuclear plants.In sum, electric utilities, with safe and ample dividends and decent growth prospects, are good bets for investors seeking income or protection from the next slide in stocks.
--------------------------------------------------------------------------------
E-mail: andrew.bary@barrons.com
By ANDREW BARY
Barron's Andrew Bary says that electric utilities may look dull - if cheap stocks, stable companies and fat dividends aren't your thing. Why they could outrun the market.
ELECTRIC-UTILITY STOCKS may lack sizzle, but many sport attractively low price-earnings multiples and offer ample dividend yields.
Regulated utilities now trade for an average of 12 times projected 2009 profits, a sharp discount to the Standard & Poor's 500 stock index, which, at around 1040, fetches around 17 times this year's anticipated profits. Based on 2010 earnings estimates, the utilities' P/E multiple of 11.5 likewise is comfortably beneath the broad market's 14. Utility dividend yields average just over 5%, more than double the 2.1% of the S&P 500.
Many utilities have big capital-spending projects, financed by equity and debt. A credit-market rally has facilitated borrowing.
The yield spread between the utilities and the S&P 500 is near a five-year high. The utility dividend yield also stacks up well against 10-year Treasury bonds, which now yield 3.3%, and top-grade 10-year municipal bonds, now yielding 3% or less after the sharp muni-market rally this year. Dividends paid by the major regulated utilities look safe, and investors could see modest annual increases, enhancing the appeal of utility stocks relative to bonds.
Most utilities are expected to report average earnings gains of 6% to 7% in coming years -- impressive for a supposedly dull industry. Warren Buffett is a fan of the sector, admiring its predictable, if moderate, gains. One of the largest divisions within Buffett's Berkshire Hathaway (ticker: BRK-A) is MidAmerican Energy, which owns regulated utilities in Iowa and the Pacific Northwest.
Investors won't make a killing in the major utility stocks. Still, many of the shares could see upside of 10% or more in the coming year; include dividends, and the total return might top 15%. And given their defensive characteristics, utilities are apt to hold up better than the S&P if the stock market corrects.
Utilities are a contrarian investment these days. Hoping to capitalize on a recovering economy, many investors are piling into "offensive" shares in the faster-growing financial, technology and industrial sectors. Reflecting this mood, most equity strategists featured in Barron's cover story in our Sept. 7 issue urged investors to underweight utilities.
Playing Defense: Utilities have trailed the market lately as investors chase faster growers. That could mean opportunity.
"This is not ordinarily a time to buy utilities, given the economic recovery and the associated risk of higher inflation and interest rates," says Hugh Wynne, the utility analyst at Sanford C. Bernstein. "But utility stocks may already have factored in the threat of higher rates as well as the risk of increased taxes on dividends when the Bush tax cuts expire in 2011. You shouldn't assume they will underperform." Dividends are now taxed at a favorable rate of 15%. Historically, the bulk of utility returns have come from dividends.
Wynne likes PG&E (PCG) and Edison International (EIX). To those who argue that utilities will underperform in a market rally, he and others counter that this already has happened. The Dow Jones Utility Average is up about 25% from its March low, roughly half the gain of the S&P 500. But year to date, the utility index is flat, versus the S&P's 15% rise. Stocks such as Southern Co. (SO), American Electric Power (AEP), Entergy (ETR) and Exelon (EXC) are down in 2009.
The risks to utilities appear modest, especially compared with the threats facing big telecoms, such as Verizon Communications (VZ) and AT&T (T). Most utilities are in the midst of big capital-spending programs to rebuild their power grids, construct new transmission lines and open new plants.
Utilities typically are allowed to raise electric rates to fund new infrastructure. Most state regulatory commissions agree that the companies need roughly 10% equity returns on their investments in order to keep building capacity. Power demand has dropped about 4% in the past year, owing to the recession -- but that hasn't hurt most utilities. Over time, U.S. electricity demand is likely to rise modestly, spurred by population growth, a recovering economy and increased ownership of electric cars.
There's little variation in the P/E ratios of the big regulated utilities. Companies such as Southern, Consolidated Edison (ED), PG&E, Duke and American Electric are among the safest in the group, because they get the vast majority of their revenue from regulated power operations and little from independent power divisions, whose profits swing, based on market prices for electricity. Prices have been weak because of the recession, a cool summer in much of the country and falling natural-gas prices.
MOST UNREGULATED POWER producers own low-cost nuclear and coal plants. When natural-gas prices are high, open-market electric prices tend to increase, providing a pricing umbrella for the independent power operators. With gas tumbling this year to $3 per thousand cubic feet, power prices have fallen, reducing the independents' profits.
Among the big regulated utilities, Wynne favors PG&E, which serves the northern and central parts of California. Its operations are almost entirely regulated, and its shares trade around 40, or for nearly 13 times projected 2009 profits of $3.16 a share and almost 12 times estimated 2010 earnings of $3.40. Wynne contends that PG&E's profits can expand at an 8% annual clip in the coming years, fueled by capital spending, primarily on new transmission and distribution infrastructure. His price target is 45
A CASE CAN BE MADE for most of the major regulated utilities. Con Edison is low-risk because it is involved mostly in the transmission and distribution of electricity and gas. It is largely out of the power-generation business, and is allowed to pass on changes in purchased-power costs to its New York customers. It yields nearly 6%. Southern historically has had one of the highest P/Es in the group, owing to a favorable regulatory environment and good growth prospects. Its stock has lagged this year, leaving it undervalued.
Citigroup analyst Brian Chin favors American Electric Power, which has one of the group's lowest P/Es. At 30, it trades for less than 11 times projected 2009 profits and yields 5.3%. With operations in the Midwest and Texas, American Electric Power is more exposed to weak industrial markets, and the regulatory environment in Ohio is viewed as difficult. Also, environmentalists and others have stalled construction of a half-finished $1.6 billion coal plant that an American Electric unit is building in Arkansas.
EDISON INTERNATIONAL, Dominion Resources (D), Entergy, Exelon, FPL Group (FPL) and Public Service Enterprise Group , or PSE&G (PEG), are integrated utilities, which have a mix of regulated and unregulated operations. Thus, they carry more risk than regulated companies. Their stocks have trailed those of regulated operators, reflecting weakness in power prices.
Wynne likes Edison International, the parent of both Southern California Edison and independent power producer Edison Mission Energy, which owns a group of coal-fired generators. He has called Southern California Edison "perhaps the fastest-growing, most favorably regulated electric utility in the United States."
SoCal Edison, which is expected to contribute about 80% of Edison's projected earnings of $3 a share this year, is capable of generating 11% growth in annual profits in the next five years. Wynne values SoCal Edison alone at $33 a share, in line with Edison's current share price. That means that investors effectively get Mission Energy free. Wynne has a price target of 36 on the stock.
Edison's profits are expected to fall almost 20% this year, reflecting declining earnings at Mission. If power prices recover, Mission will do better, potentially lifting the stock. It peaked around 60 in 2007.
Exelon, with the largest independent power unit fueled by nuclear plants, is a play on carbon legislation. The more onerous the burden on carbon-heavy coal plants, the better the outlook for Exelon's low carbon-emission nuclear plants.In sum, electric utilities, with safe and ample dividends and decent growth prospects, are good bets for investors seeking income or protection from the next slide in stocks.
--------------------------------------------------------------------------------
E-mail: andrew.bary@barrons.com
What's Next for the Economy: Stocks vs Bonds (Marketwatch)
Bonds and stocks diverge on U.S. economy
By Nick Godt, MarketWatchLast Update: 4:20 PM ET Sep 9, 2009
NEW YORK (MarketWatch) -- For those investors who believe the stock market works perfectly at discounting risks and rewards, the U.S. economy and corporate profits must seem to be on track for a stellar recovery.
After a spectacular 50% surge since March, stocks on the S&P 500 Index ($SPX) have continued rising through the summer and into September.
Yet, the market for U.S. government bonds, considered among the safest assets around, seems to be telling a different story."There is a growing group of people following the view that we'll have a jobless recovery in the economy," said Bill O'Donnell, head of Treasury strategy at RBS Securities.
"They're asking what comes after the sugar-high from the government stimulus measures, and what they see is rising joblessness, consumers spending less and lower inflation. All in all, good conditions for bonds."
On Wednesday, U.S. stocks continued to advance after the Federal Reserve's so-called Beige Book of current economic conditions. The central bank said the economy is improving across most U.S. regions but that consumer spending remains sluggish.
The Dow Jones Industrial Average ($INDU) finished up 49 points, or 0.5%, at 9,547. The Nasdaq Composite (COMP) was up 22 points, or 1.1%, at 2,060, while the S&P 500 gained nearly 8 points, or 0.8%, to 1,033.
Separately, Treasurys turned higher after the Beige Book and after the government's auction of $20 billion worth of 10-year notes was met by ample demand.
Demand for benchmark 10-year Treasury notes surged over the past month, sending their yields (UST10Y) down by about 40 basis points. Bond yields move inversely to price.
Government bonds provide fixed income over periods of time. This means that longer-dated bonds, such as the 10-year note, are more susceptible to inflation as fixed income loses value if prices rise in general.
When bond prices rise and their yields fall, it generally means that the chance of rising inflation is waning -- along with the outlook for economic growth.
Who's right?
Unfortunately for stock investors, bonds have often provided a better gauge of economic trends than equities. A recent example was when Treasury yields began sliding in June of 2007, as defaults on subprime mortgages surged and deteriorating credit conditions led fixed-income investors to seek safety.
Yet stocks continued to rally for another four months, reaching record highs by the middle of October 2007 before taking the big plunge. In those four months, the yield of the benchmark 10-year Treasury bond had already slumped by about 70 basis points.
Perhaps similarly, yields rose sharply for most of this year, as investors abandoned the safety of bonds and jumped into the massive equity rally. But over the past few months, yields have started to slump again.
Strong demand for even shorter-dated maturities, such as the 3-year notes sold at a government bond auction on Tuesday, is now raising doubts about the economic outlook among a number of market strategists.
"What does it say about the view on economic growth that there is such big demand for the 3-year note?" asked Peter Bookvar, equity strategist at Miller Tabak, in a research brief.
"Why isn't this money going into riskier assets? Again, it's another data point of the disconnect between the U.S Treasury market and equities," he said.
The visible hand of government
"The government has got a heavy hand in this recovery," says Jack Ablin, chief investment officer at Harris Private Bank.
Ablin does believe the economy and stocks are still running on the "sugar high" provided by government spending. However, while the bond market may be looking further ahead when the economy might run out of momentum next year, he doesn't believe stocks have to come down.
"There's still 10 donuts in the box [out of 12]," Ablin says. "We've only spent about 10% of the $800 billion or so committed. "The government is still spending a lot of money and that's going to be reflected in the economy and profits at least for the next couple of quarters."
And corporate bonds also continue to improve steadily, he noted.
Meanwhile, government bonds may simply have become a good bet again because of the lack of inflation in the outlook for the economy.
With the government raising close to $2 trillion to help shore up the economy, and as markets took the view back in March that those measures had helped avoid the worst, Treasurys seemed to be a bad bet for most of the year, and yields surged along with stocks.
Some of the hesitations on the way up were that government spending would pressure the dollar and boost inflation, and that raising money might become harder as buyers of U.S. debt, including foreigners, would become more scarce.
But while the dollar has returned to its lows of the year, few believe inflation is in the cards as long as the economy continues shedding jobs, and consumer spending, which makes up for about 70% of the economy, remains muted.
And judging by the results of this year's auctions, demand for U.S. government bonds remains strong.
For Ablin, if there's one area where a weak dollar has led to too much speculation, it's commodities, including gold topping $1,000 an ounce.
"I'd think twice before melting down your Rolex," Ablin said.
By Nick Godt, MarketWatchLast Update: 4:20 PM ET Sep 9, 2009
NEW YORK (MarketWatch) -- For those investors who believe the stock market works perfectly at discounting risks and rewards, the U.S. economy and corporate profits must seem to be on track for a stellar recovery.
After a spectacular 50% surge since March, stocks on the S&P 500 Index ($SPX) have continued rising through the summer and into September.
Yet, the market for U.S. government bonds, considered among the safest assets around, seems to be telling a different story."There is a growing group of people following the view that we'll have a jobless recovery in the economy," said Bill O'Donnell, head of Treasury strategy at RBS Securities.
"They're asking what comes after the sugar-high from the government stimulus measures, and what they see is rising joblessness, consumers spending less and lower inflation. All in all, good conditions for bonds."
On Wednesday, U.S. stocks continued to advance after the Federal Reserve's so-called Beige Book of current economic conditions. The central bank said the economy is improving across most U.S. regions but that consumer spending remains sluggish.
The Dow Jones Industrial Average ($INDU) finished up 49 points, or 0.5%, at 9,547. The Nasdaq Composite (COMP) was up 22 points, or 1.1%, at 2,060, while the S&P 500 gained nearly 8 points, or 0.8%, to 1,033.
Separately, Treasurys turned higher after the Beige Book and after the government's auction of $20 billion worth of 10-year notes was met by ample demand.
Demand for benchmark 10-year Treasury notes surged over the past month, sending their yields (UST10Y) down by about 40 basis points. Bond yields move inversely to price.
Government bonds provide fixed income over periods of time. This means that longer-dated bonds, such as the 10-year note, are more susceptible to inflation as fixed income loses value if prices rise in general.
When bond prices rise and their yields fall, it generally means that the chance of rising inflation is waning -- along with the outlook for economic growth.
Who's right?
Unfortunately for stock investors, bonds have often provided a better gauge of economic trends than equities. A recent example was when Treasury yields began sliding in June of 2007, as defaults on subprime mortgages surged and deteriorating credit conditions led fixed-income investors to seek safety.
Yet stocks continued to rally for another four months, reaching record highs by the middle of October 2007 before taking the big plunge. In those four months, the yield of the benchmark 10-year Treasury bond had already slumped by about 70 basis points.
Perhaps similarly, yields rose sharply for most of this year, as investors abandoned the safety of bonds and jumped into the massive equity rally. But over the past few months, yields have started to slump again.
Strong demand for even shorter-dated maturities, such as the 3-year notes sold at a government bond auction on Tuesday, is now raising doubts about the economic outlook among a number of market strategists.
"What does it say about the view on economic growth that there is such big demand for the 3-year note?" asked Peter Bookvar, equity strategist at Miller Tabak, in a research brief.
"Why isn't this money going into riskier assets? Again, it's another data point of the disconnect between the U.S Treasury market and equities," he said.
The visible hand of government
"The government has got a heavy hand in this recovery," says Jack Ablin, chief investment officer at Harris Private Bank.
Ablin does believe the economy and stocks are still running on the "sugar high" provided by government spending. However, while the bond market may be looking further ahead when the economy might run out of momentum next year, he doesn't believe stocks have to come down.
"There's still 10 donuts in the box [out of 12]," Ablin says. "We've only spent about 10% of the $800 billion or so committed. "The government is still spending a lot of money and that's going to be reflected in the economy and profits at least for the next couple of quarters."
And corporate bonds also continue to improve steadily, he noted.
Meanwhile, government bonds may simply have become a good bet again because of the lack of inflation in the outlook for the economy.
With the government raising close to $2 trillion to help shore up the economy, and as markets took the view back in March that those measures had helped avoid the worst, Treasurys seemed to be a bad bet for most of the year, and yields surged along with stocks.
Some of the hesitations on the way up were that government spending would pressure the dollar and boost inflation, and that raising money might become harder as buyers of U.S. debt, including foreigners, would become more scarce.
But while the dollar has returned to its lows of the year, few believe inflation is in the cards as long as the economy continues shedding jobs, and consumer spending, which makes up for about 70% of the economy, remains muted.
And judging by the results of this year's auctions, demand for U.S. government bonds remains strong.
For Ablin, if there's one area where a weak dollar has led to too much speculation, it's commodities, including gold topping $1,000 an ounce.
"I'd think twice before melting down your Rolex," Ablin said.
FDIC Deposit Insurance Extended through 2013
FDIC Deposit Insurance Coverage
Final Rule FIL-53-2009
September 9, 2009
Summary: On September 9, 2009, the FDIC Board of Directors approved a rule to finalize: (1) the deposit insurance coverage regulations to reflect the extension of the temporary increase in the standard maximum deposit insurance amount (SMDIA) to $250,000 through December 31, 2013, and (2) the 2008 interim rules regarding revocable trust accounts and mortgage servicing accounts.
Contact:
FDIC Call Center at 1-877-275-3342
Final Rule FIL-53-2009
September 9, 2009
Summary: On September 9, 2009, the FDIC Board of Directors approved a rule to finalize: (1) the deposit insurance coverage regulations to reflect the extension of the temporary increase in the standard maximum deposit insurance amount (SMDIA) to $250,000 through December 31, 2013, and (2) the 2008 interim rules regarding revocable trust accounts and mortgage servicing accounts.
Contact:
FDIC Call Center at 1-877-275-3342
Use These Tax Breaks Before the End of the Year (Kiplingers)
Take Advantage of These Stimulus Breaks Soon
Posted Thu Sep 3, 11:05 am ET
Provided by:
The economic-stimulus plan that President Obama signed into law February 17 includes several tax breaks that will expire in the next few months. Some of these breaks are for big purchases, which may require a few months' worth of planning. And people who lose their job in 2010 won't be able to take advantage of some stimulus-related benefits. Here's a reminder about a few key provisions that are scheduled to end soon -- including a major credit that disappears before the end of the year.
First-time home-buyer credit. The stimulus plan provides a tax credit of up to $8,000 for purchasing a first home between January 1 and November 30, 2009. Keep in mind that this break does not last through the end of the year -- you must close on the home no later than November 30.
You don't have to pay back the credit, as long as you live in your home for at least three years. You're considered a first-time home buyer if you (and your spouse, if you're married) haven't owned a home in the past three years. The credit begins to phase out if your modified adjusted gross income is more than $75,000 (or $150,000 if married filing jointly), and it disappears if your income exceeds $95,000 if you're single (or $170,000 if married filing jointly).
You don't need to wait until next April to get the money. After you close on the house, you can get the $8,000 refund quickly if you claim the credit for a 2009 purchase on an amended 2008 tax return (file Form 1040X.
Tax break for new-car purchases. If you're thinking about buying a new car, it may pay to do so before the end of the year. The stimulus plan lets you write off state and local sales taxes and excise taxes paid on up to $49,500 of the cost of a new car you buy between February 17 and December 31, 2009. If you live in a state that doesn't have a sales tax, you still get a tax break if your state imposes a flat fee on the purchase of vehicles or a fee based on the price you pay. The tax break applies to new (not used) cars, light trucks, motor homes and motorcycles. To qualify, your modified adjusted gross income must be less than $135,000 if you're single, or $260,000 if married filing jointly (the deduction starts to phase out if you earn more than $125,000 if single, or $250,000 if married filing jointly).
Two breaks for the unemployed will expire
COBRA subsidy. When you lose your job, you can generally remain on your employer's health-insurance coverage for up to 18 months, as long as you pay the full premium yourself. The stimulus provides a subsidy that covers 65% of the COBRA premiums for up to nine months after you lose your job. But this break applies only if you lose your job by December 31, 2009. You won't get the break on premiums if you lose your job in 2010.
Breaks for unemployment benefits. The stimulus also provides an extra $25 in weekly unemployment checks until December 31, 2009, and lets you exclude up to $2,400 in unemployment benefits from your taxes in 2009. But neither of these provisions has been extended yet to apply to 2010.
Some of these breaks could be extended into 2010, but it seems unlikely at the moment. "Extension of these items has not yet been included in any major tax bills," says Mark Luscombe, principal analyst with CCH, a tax-publishing firm. "As talk continues of the recession ending this quarter, it appears more likely that at least the new tax breaks on the list may be allowed to expire, as was just done with the 'cash for clunkers' program. If, however, as the fall progresses, concern about the health of the economy continues, some of these provisions could be considered for extension."
Posted Thu Sep 3, 11:05 am ET
Provided by:
The economic-stimulus plan that President Obama signed into law February 17 includes several tax breaks that will expire in the next few months. Some of these breaks are for big purchases, which may require a few months' worth of planning. And people who lose their job in 2010 won't be able to take advantage of some stimulus-related benefits. Here's a reminder about a few key provisions that are scheduled to end soon -- including a major credit that disappears before the end of the year.
First-time home-buyer credit. The stimulus plan provides a tax credit of up to $8,000 for purchasing a first home between January 1 and November 30, 2009. Keep in mind that this break does not last through the end of the year -- you must close on the home no later than November 30.
You don't have to pay back the credit, as long as you live in your home for at least three years. You're considered a first-time home buyer if you (and your spouse, if you're married) haven't owned a home in the past three years. The credit begins to phase out if your modified adjusted gross income is more than $75,000 (or $150,000 if married filing jointly), and it disappears if your income exceeds $95,000 if you're single (or $170,000 if married filing jointly).
You don't need to wait until next April to get the money. After you close on the house, you can get the $8,000 refund quickly if you claim the credit for a 2009 purchase on an amended 2008 tax return (file Form 1040X.
Tax break for new-car purchases. If you're thinking about buying a new car, it may pay to do so before the end of the year. The stimulus plan lets you write off state and local sales taxes and excise taxes paid on up to $49,500 of the cost of a new car you buy between February 17 and December 31, 2009. If you live in a state that doesn't have a sales tax, you still get a tax break if your state imposes a flat fee on the purchase of vehicles or a fee based on the price you pay. The tax break applies to new (not used) cars, light trucks, motor homes and motorcycles. To qualify, your modified adjusted gross income must be less than $135,000 if you're single, or $260,000 if married filing jointly (the deduction starts to phase out if you earn more than $125,000 if single, or $250,000 if married filing jointly).
Two breaks for the unemployed will expire
COBRA subsidy. When you lose your job, you can generally remain on your employer's health-insurance coverage for up to 18 months, as long as you pay the full premium yourself. The stimulus provides a subsidy that covers 65% of the COBRA premiums for up to nine months after you lose your job. But this break applies only if you lose your job by December 31, 2009. You won't get the break on premiums if you lose your job in 2010.
Breaks for unemployment benefits. The stimulus also provides an extra $25 in weekly unemployment checks until December 31, 2009, and lets you exclude up to $2,400 in unemployment benefits from your taxes in 2009. But neither of these provisions has been extended yet to apply to 2010.
Some of these breaks could be extended into 2010, but it seems unlikely at the moment. "Extension of these items has not yet been included in any major tax bills," says Mark Luscombe, principal analyst with CCH, a tax-publishing firm. "As talk continues of the recession ending this quarter, it appears more likely that at least the new tax breaks on the list may be allowed to expire, as was just done with the 'cash for clunkers' program. If, however, as the fall progresses, concern about the health of the economy continues, some of these provisions could be considered for extension."
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