When is the GM IPO? (Wall St Journal)

The Big Guns Coming Out for GM Deal

By RANDALL SMITH And SHARON TERLEP

Wall Street bankers are salivating over one of their biggest potential paydays since the market meltdown of 2008: the planned initial public offering of General Motors Co.

With a size that may top $10 billion, the GM IPO could generate fees of $275 million or more for the Wall Street underwriters, the most fees from a single stock deal since the $19.7 billion IPO of credit-card giant Visa in March 2008 generated $550 million.

Some Wall Street bankers said they expect the GM initial public offering will be led by just two firms, who would typically command the lion's share of the fees.Above, GM's world headquarters in Detroit.
All of which explains why top officials of several major financial giants personally participated in what is known on Wall Street as a "bake-off," a series of meetings in which the bankers present their best ideas for how to sell the stock.

James Dimon of J.P. Morgan Chase & Co., John Mack of Morgan Stanley and Brian Moynihan of Bank of America Corp. all personally took part in the meetings with officials of both GM and the U.S. Treasury Department, which acquired its current 61% stake in a $50 billion bailout last year.

Vikram Pandit of Citigroup Inc., who was visiting Citi offices in Mexico, took part by phone. Although Lloyd Blankfein of Goldman Sachs Group was in London, Goldman's president, Gary Cohn, attended, along with David Solomon, the firm's co-head of investment banking.

Other firms sent some of their best-known personalities as well. For example, Mr. Dimon attended with James B. Lee, the well-known top deal maker at J.P. Morgan. The Citi delegation also included John Havens, head of Citi's institutional-clients group, and Tyler Dickson, the firm's head of global capital-markets origination. The bake-off meetings were previously reported by Fox Business.

Before the bake-off pitches, the Wall Street firms were sent questionnaires asking how they have supported GM in the past, according to one person told of the meetings.

Some Wall Street bankers said they expect the GM deal will be led by just two firms, who would typically command the lion's share of the fees. Firms with armies of retail brokers such as Morgan Stanley and Bank of America, which has brokers from Merrill Lynch, could have an advantage. Another firm with an edge is J.P. Morgan, which has been the biggest lender to the auto industry over the past decade, one person said.

Although the value of GM's former common stock was vaporized in its visit to bankruptcy court last year, the No. 1 U.S. auto maker by sales has been able to slash its debt from $45.9 billion at the end of 2008 to less than $10 billion currently.

It isn't clear yet to what extent GM's other shareholders will sell stock in the offering. They include a union trust for retired auto workers, which holds 18%, the Canadian government, which owns 12%, and former debt holders who own 10%.Some Wall Street analysts estimate GM's market value could top that of Ford at $41 billion and even exceed $70 billion, the level needed for the U.S. government to break even on its investment. That would top GM's peak market value of $60 billion in 1999, when both the stock market and sales of high-profit sport-utility vehicles were booming. Two months ago, J.P. Morgan Chase debt analyst Eric Selle put GM's stock-market value at $90 billion. By comparison, the market value of Toyota is $116 billion.

The Obama administration has said it is hopeful GM can make an offering by the end of this year and is eager to shed its stake in the company, though the auto maker and the Treasury have stressed that the timing is up to GM.

The company doesn't want to rush the offering and would prefer to address some issues—namely its lack of a company-run finance arm and losses in Europe, the site of clashes with labor and state governments over layoff plans—said people with direct knowledge of the company's strategy.

The IPO pickings have been slim for Wall Street ever since the Visa deal. After peaking at $55.3 billion in 2007, the volume of U.S. IPOs tumbled 70% to $16.7 billion last year, Dealogic said. The biggest U.S. IPO since Visa was just $2.2 billion, Verisk Analytics from last October.

The U.S. Treasury recently chose Lazard Ltd. to advise on the IPO. Among those playing a lead role in the underwriter selection are the Treasury's "car czar," Ron Bloom, himself a Lazard banker in the 1980s, and GM Chief Financial Officer Chris Liddell, an alumnus of software giant Microsoft Corp.

In its most recent financial report, GM showed a profit of $863 million in the first quarter of 2010, compared with a $6 billion loss a year earlier, marking the auto maker's first profitable quarter since 2007. Revenue grew 40% to $31.5 billion, and the company generated $1 billion in cash.

GM has cut its costs in the past few years. Deutsche Bank analyst Rod Lache estimates GM cut fixed costs in North America to $20 billion from $40 billion in 2008. He says the recent results show "these guys are building momentum and they have a lot of positives happening."

Earlier in the decade, the auto maker needed U.S. sales to reach 16 million to 17 million annually to make money. Today, GM says it can be profitable in the U.S. market with 10.5 million sales; analysts expect 11.5 million this year. Because bankruptcy slashed GM's debt, interest costs fell to $337 million in the first quarter, less than one-third the former level. Shifting retiree health costs to a union trust fund and other changes to retirement benefits reduced annual costs by another $3 billion.

Write to Randall Smith at randall.smith@wsj.com and Sharon Terlep at sharon.terlep@wsj.com

The Do-Over - How to Get More Money from Social Security (Kiplingers)

Secret Ways to Boost Your Social Security - Kiplinger

Secret Ways to Boost Your Social Security - Kiplinger

Posted using ShareThis

Online Marketing for Small Businesses (Information Week)

Ten Local Online Marketing Mistakes (And How to Avoid Them)
May 25, 2010
By Court Cunningham


In his new book, "Local Online Advertising for Dummies," Court Cunningham shares strategies and tips that can help SMBs seize opportunities in local markets and sidestep common mistakes.
The following excerpt from Court Cunningham's book "Local Online Advertising for Dummies," is presented by InformationWeek SMB courtesy of Wiley Publishing.

BOOK EXCERPT

Local Online Advertising for Dummies

Chapter 18: Ten Local Online Marketing Mistakes (And How To Avoid Them)

This foray into the world of online advertising is kind of a grand adventure. Although there is clearly a beaten path that you need to follow to maximize your chances for success, at times, you'll see your efforts come up short and wonder: What the heck am I doing wrong?

In a lot of cases, the fault isn't so much with the execution, but with the thinking or preconceptions. Because these things are part and parcel of your inner self, they can be really hard to recognize as the actual culprits when your efforts aren't having the results you want.

In our experience, many people make certain mental errors when launching themselves into the online arena -- and in this chapter, we list the ten most common.

1. Assuming Your Customers Behave Like You
Maybe you're a 25-year-old running online marketing for a retirement community. Just because you go to the blogosphere before you buy any products or services doesn't mean that your target audience does. Conversely, you might be a 70-year-old dentist, and you think the Internet is just a fad. You need to think the way customers think and figure how they find businesses. No matter what your mom told you, in this case, don't be yourself.

2. Not Knowing Your Limits

You can create your own Web site, do search engine optimization (SEO), and run your own pay-per-click (PPC) campaigns. That's one of the reasons books like this exist. However, to do these things right, you need to spend an appropriate amount of time on them. That means that the five minutes you spend monthly on your PPC campaign may not be enough, and consequently, you're wasting money that could just as well go to pay someone to take care of your local online advertising for you. Think hard about whether you'll make an ongoing commitment to optimizing your advertising campaigns. If not, maybe the best thing to do is go with the pros.

3. Assuming Web Site Aesthetics Equals Web Site Success

You may think all the frames, flash, and images you've put on your Web site look great. Unfortunately, that great stuff is all but invisible to the search engines. Like Joe Friday, search engines want only the facts. The subjective stuff on your site can be a lot of fun to create, but if content on your Web site can't even be read by the search engines, you aren't even in the game. Think like a search engine does. Make sure you have


A search engine-friendly URL
A site map (or site index)
Contact information on every page
Keyword-rich copy
Footers
Reciprocal links In other words, position yourself to be found before you worry about being impressive. And when in doubt, test and learn.

4. Creating a Web Site That No One Visits

If you build it, they will come, right? Wrong. Just because you have a Web site doesn't mean anyone will go there. To get people to your site, you need to drive traffic -- whether that means using SEO, PPC, e-mails, banners, or some of the other tools we talk about in this book. The moral of the story: Give people a road; then they will come.

5. Making It Difficult for Potential Customers to Contact You

You'd be surprised how many local business Web sites we see that don't even show the phone number. Or the contact information is buried deep down the Contact Us page. Your phone number (or however you want your potential customers to contact you) needs to be large and in charge on your Web site. Throw an easy-to-fill-out form on your page, too. That way potential customers who don't want to call still have a way to contact you.




6. Caring Too Much about How Many People Visit Your Site

This may at first seem contrary to the mistake of creating a Web site that no one visits, but it isn't. True, you need people to go to your site to get sales, but not all site visitors are equal. You can waste a lot of money paying vendors or directories for meaningless clicks that don't convert into new customers. This is especially important to remember when you use something like PPC. Sometimes you're better off to pay a premium for expensive keyword search terms instead of driving a lot traffic that represents only traffic -- and no sales.

7. Having Google Tunnel Vision

Yes, Google is the most important search engine by a long shot. We know this, you know this, and so do all your competitors. Although the most traffic is on Google, it isn't unusual for other search engines and directories to have more cost-efficient ways to drive traffic. When possible, the best strategy is to test a variety of sites (including Google) and see which one ultimately works best for your business.

8. Not Knowing whether Your Marketing Is Really Working

One of the greatest things about online advertising is that it's so measurable. The rub, of course, is that measuring takes work. But the payoff will be well worth it because you can focus your ad dollars on those channels and methods that work while cutting the fat out of your budget.

Arguably, the best five things for you to measure are

Traffic numbers (the number of visitors you get)
Conversion rates
Your cost per lead
Your cost per acquisition
Your return on investment
You can keep track of other things as well, such as how long visitors from particular channels stay on your site, but the five items here tell you what you most need to know.

9. Not Getting Sales from Calls

Your phone rings off the hook, but you still aren't getting any new customers. What could be wrong? For starters, answer your phone! According to a survey by FastCall411 of 5,000 local businesses, approximately two-thirds of incoming calls to local businesses go unanswered. What's more, a study by market research firm Synovate found that four out of five Americans regard immediate availability by phone as an important -- or the most important -- factor when selecting a local service provider. In the end, not picking up your phone is akin to taking that cash that you paid for your advertising and throwing it into a bonfire. Additionally, make sure that you or your staff handles those calls with the utmost care. After all, those people on the other end of the line have your future in their hands.

10. Not Doing Any Loyalty/Retention Marketing

Getting new customers is far more expensive than keeping existing ones. Make sure you're doing everything you can to take care of the ones you have. Keep in touch via an e-mail newsletter or offer them occasional special deals. Today's online tools make that sort of thing easy to do. So do it!


Court Cunningham is CEO of Yodle, a leading local online advertising company that works with thousands of businesses. Before joining Yodle, he held positions at Community Connect and Double Click.

What Ever Happened to Eastern Financial Credit Union (NYTimes)

May 14, 2010
A Credit Union That Played With Fire
By GRETCHEN MORGENSON

WHEN Wall Street is accused — as it has been so often these days — of selling risky products to unwitting customers, it usually argues that investors in such exotic stuff are sophisticated adults capable of assessing any hidden dangers.

So it goes with collateralized debt obligations, or C.D.O.’s, which are bonds, loans and other assets that the Street pools together and sells as packages of securities. Purveyors of C.D.O.’s maintain that buyers who lost billions in these mortgage-related instruments were, of course, sophisticated.

But as a recent report from the inspector general of the National Credit Union Administration shows, it is neither credible nor factual that only savvy investors bought C.D.O.’s.
The report analyzes the April 2009 collapse of the Eastern Financial Florida Credit Union. Based in Miramar, Fla., this state-chartered institution was created in 1937 to serve the Miami employees of what later became Eastern Airlines. The institution added other Florida employee groups and was serving 208,000 members when it failed last year.
Eastern Financial had $1.6 billion in assets at the end of 2008. The company was placed in conservatorship on April 24, 2009. It was taken over by the Space Coast Credit Union of Melbourne, Fla. The failure will cost the National Credit Union Share Insurance Fund, the federal agency that guarantees credit union deposits, an estimated $40 million.

Because it was based in Florida, the doomed credit union had its share of bad real estate loans on its books. But the inspector general’s autopsy report said that the major cause of the Eastern Financial collapse was its decision to dive head-first into toxic C.D.O.’s just as the mortgage mania was faltering.

Between March 2007 and June 22, 2007, the credit union committed nearly $100 million to buy 16 of these instruments; most contained dicey home equity loans.

The timing of these purchases is intriguing. The spring of 2007 was when Wall Street’s mortgage machinery was sputtering; New Century Financial, a big subprime lender, filed for bankruptcy that April. Brokerage firms that had provided funding to lenders like New Century and Countrywide began pulling in their credit lines. At the same time, it became a matter of some urgency for these firms to jettison mortgage-related securities in their pipelines.

Who sold Eastern Financial its toxic securities? Alas, the inspector general identifies neither the C.D.O.’s the credit union bought nor the firms that peddled them.

But the report did note that the instruments Eastern Financial bought were private placements, “which provided less readily available market data to perform analysis and provide better understanding of underlying assets and grading system, tranches, etc.” In other words, the most obscure C.D.O.’s imaginable.

“This situation illustrates yet again why over-the-counter securities and derivatives are not suitable for federally insured banks and other ‘soft’ institutional clients,” said Christopher Whalen, editor of The Institutional Risk Analyst. “Wall Street securities dealers who knowingly cause losses to federally insured depositories should go to jail.”

Credit unions are nonprofit entities and typically do not engage in the risky investing that bank executives did during the credit bubble. Federal credit unions are also limited in the types of securities they can buy. While they can purchase mortgage-backed securities, they are barred from buying C.D.O.’s.

State-chartered credit unions have more leeway to invest in exotic instruments if their home states allow it. Florida, California and Michigan are three such states. But according to the National Credit Union Administration, less than 1 percent of all credit union investments fall into the exotic category.
THOSE state-chartered institutions that can buy C.D.O.’s and other riskier investments must set aside reserves of 100 percent of mark-to-market losses in such securities when they decline in value. This is intended to deter credit union executives from venturing down the risk spectrum.

The Florida credit union met that requirement, but clearly the deterrence didn’t work. Eastern Financial’s failure may be an outlier, but it makes for a terrific case study.

Indeed, the inspector general’s analysis is depressingly familiar. Eastern Financial’s management and board “relied too heavily on rating agencies’ grading of C.D.O. investments,” it concluded, and failed to evaluate and understand their complexity.

Almost immediately after the credit union bought the C.D.O.’s, they fell in value. By September 2007, the credit union had recorded $63.4 million in losses on the products, almost two-thirds of the original investment. By the time of its failure, the credit union had charged off all 18 C.D.O. investments, resulting in total losses of nearly $150 million.

Richard Field, managing director of TYI, which develops transparency, trading and risk management information systems, says the Eastern Financial collapse is yet another example of why investors in complex mortgage securities need to be able to consult complete loan-level data on what is in these pools.

“A sizable percentage of the problems in the credit markets and bank solvency are directly related to this lack of information,” Mr. Field said.

But the Eastern Financial insolvency also illustrates why regulators should make Wall Street adhere to concepts of suitability for institutions as well as individuals, Mr. Whalen said.

“The dealers who sold the C.D.O.’s to this credit union should be sanctioned,” he said. “It might even be possible to pursue the dealer who sold the C.D.O.’s under current law. At a minimum, the Securities and Exchange Commission should impose retail investor suitability standards onto banks and public sector agencies to end the predation by large Wall Street derivatives dealers.”

Will the National Credit Union Administration pursue any of the credit union’s executives or the firms that sold it the toxic securities? “We always consider potential claims of third-party liability in cases of this magnitude," said John J. McKechnie III, director of public and congressional affairs at the administration.

How Healthy are the US Banks? (Zacks)

Analyst Interviews: U.S. Banks Stock Update

By Zacks Investment Research on May 19, 2010

Although a major recovery in the asset markets has been witnessed in recent quarters, the outlook for the U.S. banking industry still remains in question due to several negatives, including asset-quality troubles, drawbacks of new regulations and the continuation of both residential and commercial real estate loan defaults.

After enduring extraordinary shocks in 2008, the U.S. banks entered an exceptional state of turmoil in 2009. Starting as a credit issue in the subprime segment of the mortgage market, the situation affected about the entire financial services industry, in all corners of the globe. In other words, the financial crisis ultimately morphed into a massive economic crisis, which has had major ramifications across the whole world.

Although the banking industry is dealing with liquidity and confidence challenges in 2010, it is now comparatively stable, with financial support from the U.S. government. The government had taken several steps, including programs offering capital injections and debt guarantees, to stabilize the financial system.

We believe that the worst of the credit crisis is now behind us. After more than a year of initiating the $700 billion Troubled Asset Relief Program (TARP), a lot has improved with respect to the economic crisis.

But the banking system is not yet out of the woods, as there are persistent problems that need to be addressed by the government before shifting the strategy to growth. We believe that the U.S. economy will regain its growth momentum once these issues are resolved.

While the bigger banks benefited greatly from the various programs launched by the government, many smaller banks are still in a very weak financial state, and the Federal Deposit Insurance Corporation’s (FDIC) list of problem banks continues to grow.

Bank Failures Continue

Despite the government’s strong efforts, we continue to see bank failures. Tumbling home prices, soaring loan defaults and a high unemployment rate continue to take their toll on small banks. As the industry tolerates bad loans made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more bank failures.

Furthermore, government efforts have not succeeded in restoring the lending activity at the banks. Lower lending will continue to hurt margins and the overall economy, though the low interest rate environment should be beneficial to banks with a liability-sensitive balance sheet.

Out of the $247 billion given to the banks, more than half has come back from the healthy banks who have repaid their TARP funds in full. Banks have also paid about $11 billion in interest and dividends. Also, taxpayers have received decent returns on many of its financial-sector investments. Repayments under the TARP have generated a 17% annualized return from stock-warrant repurchases and $12 billion in dividend payments from dozens of banks.

Many of the major banks that have already repaid the bailout money include JPMorgan Chase (JPM: 39.56 +0.54 +1.38%), Goldman Sachs (GS: 138.90 +1.54 +1.12%), Morgan Stanley (MS: 26.98 +0.25 +0.94%), BB&T (BBT: 32.44 -0.10 -0.31%), US Bancorp (USB: 24.37 +0.01 +0.04%), Bank of America (BAC: 16.2894 +0.3394 +2.13%), Wells Fargo (WFC: 30.17 -0.42 -1.37%) and Citigroup (C: 3.82 +0.09 +2.41%).

Following the U.S. Treasury’s appeal to the world banking system to maintain stronger capital and liquidity standards by the end of 2010 to prevent a re-run of the global financial crisis, 15 large banks that control the majority of derivative trading worldwide have committed themselves to maintaining greater transparency in the $600 trillion market, which needs stricter oversight in the interest of the global financial system.

Moreover, in mid-January 2010, the Obama Administration proposed a tax on about 50 of the nation’s largest financial firms in order to recover the losses incurred by the government on its $700 billion bailout program. On approval of Congress, the tax, which the White House calls a “financial crisis responsibility fee,” would force the banks to reportedly pay the federal government about $90 billion over 10 years.

Targeting banks to recover the shortfall in bailout money can be considered justified, as they are the major beneficiaries of the taxpayers’ largesse. Most of the bailout loan was provided to financial institutions, as they form the backbone of the economy and were the primary victims of the crisis.

If the economic recovery tails off, high-risk loan defaults could re-emerge. About $500 billion in commercial real estate loans would be due annually over the next few years.

Above all, there are lingering concerns related to the banking industry as well as the economy. Continued asset-quality troubles are expected to force many banks to record substantial additional provisions at least through the end of 2010. This will be a drag on the profitability of many banks for extended periods, which will further stretch their capital levels.

While the economy is in a recovery phase, a lot remains to be done. The Treasury continues to hold huge direct investments in institutions like American International Group (AIG: 37.4205 -0.3595 -0.95%), Fannie Mae (FNM: 0.9394 -0.0406 -4.14%) and Freddie Mac (FRE: 1.265 -0.085 -6.30%).

Additionally, rating agency Standard & Poor’s said in March 2010 that it is maintaining its negative outlook for the U.S. banking industry based on FDIC’s industry financial performance data as of the end of 2009. The agency expects credit losses in the loan books of banks to be on the upside. Further, the agency warned that the pressure on ratings has not yet fully eased.

In conclusion, we expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans. Also, as a result of a rise in charge-offs, the levels of reserve coverage have fallen over the past quarters and the banks will have to make higher provisions at least in the near term, affecting their profitability. We think that the financial crisis is far from over, and it will be awhile before we can write the end to this crisis story.

OPPORTUNITIES

The Treasury’s requirement of focusing on banking institutions towards higher-quality capital will help banks absorb big losses. Though this would somewhat limit the profitability of banks, a proper implementation would bring stability to the overall sector and hopefully address bank failures.

Specific banks that we like with a Zacks #1 Rank (Strong Buy) include Central Valley Community Bancorp (CVCY: 6.21 -0.09 -1.43%), Financial Institutions Inc. (FISI: 17.57 -0.08 -0.45%), S&T Bancorp Inc. (STBA: 22.56 -0.07 -0.31%), Bank of the Ozarks, Inc. (OZRK: 37.16 +0.25 +0.68%), First Community Bancshares, Inc. (NASDAQ:FCBC), Republic Bancorp Inc. (NASDAQ:RBCAA) and Old National Bancorp. (NYSE:ONB).

There are currently a number of stocks in the U.S. banking universe with a Zacks #2 Rank (Buy) including Mainsource Financial Group (NASDAQ:MSFG), Bancorp Rhode Island, Inc. (NASDAQ:BARI), MBT Financial Corp. (NASDAQ:MBTF), Mercantile Bank Corp. (NASDAQ:MBWM), MidWest One Financial Group, Inc. (NASDAQ:MOFG), Tower Financial Corporation (NASDAQ:TOFC), BancFirst Corporation (NASDAQ:BANF), Southwest Bancorp Inc. (NASDAQ:OKSB), Viewpoint Financial Group (NASDAQ:VPFG), Center Financial Corporation (NASDAQ:CLFC), North Valley Bancorp (NASDAQ:NOVB), Summit State Bank (NASDAQ:SSBI), Washington Banking Co. (NASDAQ:WBCO), Washington Trust Bancorp Inc. (NASDAQ:WASH), Lakeland Bancorp Inc. (NASDAQ:LBAI), Fidelity Southern Corporation (NASDAQ:LION) and Cardinal Financial Corp. (NASDAQ:CFNL).

We favor Commerce Bancshares Inc. (NASDAQ:CBSH) in this space since this company is one of the few names that did not report losses even during the current financial crisis. We believe that Commerce is one of the best-capitalized banks in the industry and will generate positive earnings throughout the credit cycle. While the bank had a decent growth in deposits in the most recent quarter, trends in its credit metrics were negative.

WEAKNESSES

The financial system is going through massive de-leveraging, and banks in particular have lowered leverage. The implication for banks is that the profitability metrics (like returns on equity and return on assets) will be lower than in recent years.

Furthermore, the current crisis has dramatically accelerated the consolidation trend in the industry. As a result, failure of a large financial institution will be a major concern in the upcoming quarters as weaker entities are being absorbed by the larger ones.

We think banks with high exposure to housing and Commercial Real Estate loans, like Wilmington Trust Corporation (NYSE:WL), KeyCorp (NYSE:KEY) and Zions Bancorp (NASDAQ:ZION), will remain under pressure.

Also, there are currently a number of stocks with a Zacks #5 Rank (Strong Sell) including Nara Bancorp Inc. (NASDAQ:NARA), Sierra Bancorp (NASDAQ:BSRR), Bryn Mawr Bank Corp. (NASDAQ:BMTC), Horizon Bancorp (NASDAQ:HBNC), Hudson Valley Holding Corp. (HUVL), Legacy Bancorp Inc. (NASDAQ:LEGC), VIST Financial Corp. (NASDAQ:VIST), Metrocorp Bancshares Inc. (NASDAQ:MCBI), Firstbank Corporation (NASDAQ:FBMI) and First Financial Bancorp (NASDAQ:FFBC).

Taking Care of Parents (Forbes Magazine)

Elder Care
How To Parent Your Aging Parents
Liz Davidson, 05.18.10, 11:19 AM ET


How do you take the car keys away from a father who taught you to drive? When did he go from wise council to frail, elderly man?

Unfortunately, the What to Expect When You're Expecting book series on parenting doesn't have a volume on parenting your parents. If anyone thinks dealing with aging parents is easy, they're deluding themselves. It is often one of the most difficult challenges people face during their adult lives--and one for which they're least prepared.

The consequences of inaction, meanwhile, can be severe. Many adult children don't understand the complexity of the problem. Why would their parents resist setting up a power of attorney? Will they have to be dragged kicking and screaming to a senior facility? The answer all too often is "yes," even well after it has become painfully apparent to others that they are no longer capable of handling their own affairs.

The fact is many elderly people don't see themselves as elderly and hate being around other old people. To them, moving to a senior facility involves making a move that they feel they can never undo; they are moving in their minds from independence to dependence. Hence the kicking and screaming.


Knowing this, many parents hide trouble signs from their children. Couple such behavior with the fact that many children are themselves pressed for time and unprepared to take responsibility for their parents, and the entire situation is fraught with peril. Early on, children often ignore danger signs or delude themselves into thinking that their parents can still make good decisions.

I know an attorney whose 92-year-old mother enjoyed sending out $15 and $20 checks to play sweepstakes. Soon the mother became obsessed with winning so she could leave a large legacy to her sons. It didn't take long before a woman who had run an investment club, golfed into her eighties and taken Spanish lessons in her nineties was doing nothing but playing sweepstakes. Since her phone number was on her checks, she started receiving phone calls from scam artists and eventually was "caught" by her kids taking a cab to the bank to send $2,000 to a "nice fellow named John in Seattle" who supposedly had an even larger check waiting for her.


The cab ride became the wakeup call for the woman's family. My friend talked to his mother at length about her sweepstakes obsession and finally confiscated her checkbook, took over her bank accounts and had her mail diverted to his own home. With no sweepstakes offers arriving at his mom's house, she slowly returned to her community activities. For my friend, who'd ignored signs along the way and let the situation reach the breaking point before intervening, the solution required months of effort.


At least he'd had the power of attorney that enabled him to act and had his mother in a good assisted living facility. Imagine the difficulties when none of this is in place. Being proactive early on, rather than reactive after problems arrive, provides adult children with the tools to intervene effectively. Here are some important proactive steps to make sure you and your family are prepared:

--Establish a financial power of attorney. If your parent has concerns about losing control, consider a "springing" power that goes into effect only after the parent is unwilling, or unable, to make financial decisions alone.

--Add a durable power of attorney for health care to the estate plan. Be sure to discuss with your parent and family what medical treatment is, and is not, desired.

--Consider working with a financial advisor who specializes in multigenerational planning. This can help you balance the needs of parents for elder care, your own children for college and you for retirement. Aging parents may also be more apt to cooperate after receiving advice from an outside expert.

--Keep on hand updated lists of parents' medications. This is especially helpful in tracking drug interactions when parents use multiple doctors.

--Add a family member to your parents' safe deposit box and keep track of the key.

--Review long-term care policies and consider in advance ways to fund additional care if it becomes necessary.

--Talk with parents and siblings about the types of care that are available and when it would be wise to move. This helps prepare everyone mentally for big life changes.

It's impossible to pinpoint when any one family will have to take action on behalf of an aging parent, but it's important for grown children to keep in mind that their parents may downplay or hide signs that they're struggling to remain independent. Here are some early warning signs:

--A parent stops participating in activities and becomes isolated.

--His or her routine changes, often with a shift from cooking to eating packaged foods.

--He or she shows signs of poor judgment in managing money and becomes susceptible to fraud.

--His or her support system changes, with people who used to help having moved elsewhere or passed away.

--The parent becomes forgetful.

For many adult children, becoming a member of the sandwich generation involves taking care of elderly parents precisely at the time in their lives when they're faced with the challenges of getting their own children safely through their teenage years. To minimize the tribulations of this difficult time in life, it is critical to prepare early and have plans in place to take action if and when it becomes necessary. The alternative is to face the risk of a major family crisis right around the time you're taking the car keys from your parents and giving them to your teenager.

Liz Davidson is CEO of Financial Finesse, a provider of financial education for employers nationwide.

How Business Owners Can Take Control of Taxes, their Own Retirement ( WSJ)

MAY 11, 2010, 4:12 P.M. ET Retirement-Plan Options for Business Owners By BARBARA WELTMAN

Many small-business owners believe that their businesses will furnish a comfortable retirement for them. As golden years approach, they anticipate selling their nest egg and living off the proceeds.

This may account for the fact that retirement plans are severely underutilized by business owners. The Small Business Administration's Office of Advocacy reported that fewer than 2% of business owners had a Keogh (self-employed profit-sharing) plan, only 18% participated in a 401(k) plan, and more than nine million self-employed individuals do not have any retirement plan coverage.
Business owners who rely on the sale of their businesses for retirement income may be disappointed. Unfortunately, not all businesses can be sold at a profit, as evidenced by the thousands of companies forced to close during the recent recession (including many that had been operating profitably for decades).

Here's a better strategy for ensuring that you'll have sufficient retirement income to supplement Social Security benefits: Make annual contributions to a qualified retirement plan. It's a tax-advantaged savings method: contributions go into a qualified retirement plan on a tax-deductible basis; annual earnings are tax-deferred; and benefits are taxed only when and to the extent that distributions are made.

Choosing a Plan
A number of retirement plans can be used by small businesses. Keep in mind, if you want to use plans other than traditional or ROTH IRAs, you'll have to include any employees in the plan (with some exceptions).

Here are the best retirement-plan options:

SIMPLE-IRAs. This type of plan is limited to employers with 100 or fewer employees. Much like 401(k) plans, employees make salary reduction contributions to the SIMPLE-IRA and employers make certain mandatory (but modest) matching contributions.

SEPs. This option is for self-employed individuals as well as companies of any size. The plan is funded entirely by employer contributions.

401(k) plans. As in the case of large corporations, small businesses can allow employees to make pre-tax contributions to the plan; the employer can make matching contributions (and must do so if employees are automatically enrolled in the plan so that the plan is not considered discriminatory in favor of owners). A 401(k) plan can even be used by a self-employed individual who has no employees; the individual makes an "employee" contribution as well as any "employer" contribution.

Profit-sharing plans. These plans (often called "Keoghs" when used by self-employed individuals) allow employers to contribute a percentage of employee compensation to the plan. The same percentage used by the owner must be used for employees, so if the owner wants to contribute 10% of his earnings to the plan, he/she must contribute 10% of each participant's salary to the plan as well. The employer invests the contributions on behalf of participants whose retirement income depends on plan performance.

Defined benefit plans. These are pension plans that promise to pay a fixed amount when participants retire, regardless of how well (or poorly) the plan has performed.

Db(k) plans. This is a type of hybrid plan that debuted in 2010. It combines a small pension (funded by the employer) with a 401(k)-type feature (funded by employees with certain employer matching contributions). Because the IRS has yet to issue guidance, these plans are not yet commercially available, but hopefully will be a viable option for 2011.

Deciding Your Goals
Which plan you choose depends on your situation and what you hope to accomplish. Some factors to consider:

Contribution limits. The tax law sets limits on how much can be added annually to a particular type of plan. Owners with little or no staff who are primarily concerned with savings for their own retirement and maximizing tax deductions for contributions might want to use a 401(k) or defined benefit plan. The latter is especially useful for older professionals because sizable contributions are usually needed to meet promised pension targets.

Contribution costs. If the business is profitable and wants to benefit not only its owner but also its staff, contribution costs can be high; contributions within the limits allowed by law are tax deductible. Businesses that want to provide a plan for staff but can't afford sizable contributions might opt for plans that shift most of the cost to employees, such as SIMPLE-IRAs and 401(k)s.

Administrative burdens. Generally, the business must file an annual return for a qualified retirement plan, which usually entails additional accounting fees. However, no annual filing is required for SIMPLE-IRAs and SEPs, so these plans are the least burdensome from an administrative point of view.

Other costs. Expect to pay consulting fees if working with a benefits expert to select or design a custom plan. For defined benefit plans, you typically need to pay an actuary to determine your annual contribution (generally, that's the amount needed to meet the promised pension, given the expected retirement date, earnings in the plan, and other factors). Also, annual premiums must be paid to the Pension Benefit Guaranty Corporation for defined benefit plans, and there are bonding requirements.

Other Considerations
In addition to the personal goals of the owner, there are other compelling reasons to offer a retirement plan for staff.

Recruitment tool. Offering a retirement plan is a way for small businesses to compete with large corporations for talent in the jobs market.

Tax savings. Making contributions to a retirement plan may help to save more taxes than merely the savings resulting from the contributions. The deduction for employer contributions reduces income, which may help owners to avoid higher tax brackets as well as the additional Medicare taxes scheduled to take effect in 2013.

Flexible borrowing. Certain retirement plans, such as profit-sharing plans and 401(k) plans, can allow participants, including owners, to borrow from their accounts as needs arise.

Business owners can find more information about retirement plans in IRS Publication 560. As always, discuss the use of qualified retirement plans with your tax or financial advisor to determine the best plan to select.


About the Author
Barbara Weltman is an attorney who has written several books, including "J.K. Lasser's Small Business Taxes" and "The Complete Idiot's Guide to Starting a Home-Based Business." She publishes "Idea of the Day" and monthly e-newsletter "Big Ideas for Small Business" at www.barbaraweltman.com, and hosts the "Build Your Business" radio show.

Making Money from Volatility (WSJ)

Playing The Market Plunge
The Return of Volatility Has Investors on Edge. Here's What to Do Next
By JEFF D. OPDYKE, JANE J. KIM, ELEANOR LAISE and LAURA SAUNDERS

Lest anyone had thought the rally of the past 14 months had restored calm to the stock market, Thursday's trading action was a reminder that the investing game is as dicey as ever.

During one brief afternoon spasm in which the Dow Jones Industrial Average plunged nearly 1,000 points, happy assumptions about the markets' solid footing and the U.S. economy's enduring recovery were wiped away. More selling on Friday reinforced the growing sense of unease.


"People had been thinking, 'Oh, that [global financial crisis] thing; I'm glad that's over,' and we're back to the races again," says Rob Arnott, chairman of Research Affiliates, a Newport Beach, Calif., investment firm. "But when expectations are that everything is fine again, a bolt from the blue can come from anywhere to send this market lower very quickly. It's a wake-up call that risk remains in the system."

Most unsettling was the apparent lack of an explanation for Thursday's violent swing. With the Greek debt crisis as a backdrop, some pointed to glitches in computer-trading programs. But upsets in a mechanism as complex as the global financial markets have no simple causes. Regulators and economists are poring over the trading tape in search of an answer.

It wasn't only individual stocks that were whipsawed. Several exchange-traded funds—portfolios that are listed on stock exchanges—traded at zero for a spell on Thursday. One, Vanguard Industrials, a basket of 372 stocks, fell from $54.66 to zero at 2:46 pm, then shot back up around $40 by 2:48 pm, then crashed right back down to 20 cents at 2:54 pm, then leaped back up by $54 by 3:06 pm.

The good news was that many of the trades that took place during those perilous few minutes are being canceled. The bad news is that the Dow still lost 5.7% for the week, its worst performance since March 2009.

Greece has investors the world over fretting that an economic contagion will sweep through Europe, which could, in turn, undermine major U.S. companies that sell into the European market. And although the U.S. economy is looking a bit healthier these days, fund managers say analysts' earnings estimates for U.S. companies are inflated by unrealistic profit-margin expectations; if earnings later this year start to arrive lighter than expected, the stock market could again see a sell off.


This week's instability and the possibility of more troubles have prompted investors like Maureen Green to rethink their portfolios. The 62-year-old retired nurse in Sarasota, Fla., estimates she lost about $40,000 on Thursday and is now planning to sell a chunk of her stocks. She says that until this week she had considered herself an aggressive investor, with 65% to 75% of her investments in stocks. Now, she's planning to bring that equity allocation closer to 55%.

"After having gone through the last two years," Ms. Green says, "there was such a lump in my stomach. It's too scary, especially when you're retired and this is what you're living on."

At times like these it is important to remember that the soundest investment strategies are built on level-headed stability and long-term execution. Not only can periods of high volatility be tamed—they can even create opportunities for profits.

Investors concerned with safety needn't flee stocks entirely to tone down their portfolio's risk. Lou Stanasolovich, president and chief executive of Legend Financial Advisors in Pittsburgh, offers clients several low-volatility portfolios that combine bond holdings with stock-focused funds that can also trade options or sell stocks short. Shorting involves selling borrowed shares in the hopes of buying them back later at a lower price.

Legend's most conservative portfolio, designed to have less volatility than an intermediate bond fund, has a 75% bond allocation. But it also includes mutual funds like Hussman Strategic Growth, which can use options and index futures to reduce exposure to market swings, and Caldwell & Orkin Market Opportunity, which uses short-selling and other strategies to neutralize the negative impacts of falling stock prices.

Investors who simply want to insure against a big market tumble can buy "put" options that rise in value as a broad-market index like the S&P 500 declines because they allow the owner to sell the index at a higher level.

Another options strategy that can help tamp down volatility: covered-call writing, which involves selling call options on stocks you already hold. (Selling a call obligates you to sell the shares at a predetermined price on or before a predetermined date.) The "premium" you receive—the price of the option that the buyer pays to you—tends to rise along with market volatility, and that income can provide some buffer against modest stock declines. In market rallies, however, this strategy lags because, amid soaring prices, stocks get called away by the buyer of the call options.

People who don't want to dabble directly in options trading can pursue this strategy through a fund such as the PowerShares S&P 500 BuyWrite ETF.
Investors seeking insulation from the market's ups and downs might also consider a counterintuitive step: buying direct exposure to market volatility. The iPath S&P 500 VIX Short-Term Futures exchange-traded note, for example, seeks to mimic the Chicago Board Options Exchange Volatility Index, or VIX.

Since volatility spikes tend to coincide with stock-market crashes, such an investment should zig when stock holdings zag and provide "a way to smooth out the entire portfolio," says Paul Justice, associate director of ETF research at investment-research firm Morningstar Inc.
Matthew Tuttle, a financial adviser in White Plains, N.Y., actually made money on one of his portfolios during Thursday's wild ride. He had a 15% position in the iPath exchange-traded note. That position, which gained 12% on Thursday, helped Tuttle's portfolio—which also holds gold and is short Treasurys—eke out a 1% gain for the day.

"Initially, when we put the trade on, it was a protection strategy," says Mr. Tuttle, who added the VXX in March. But he says he's also been able to profit from the position, which is up 31% since he bought it.

People can also invest in "bear market" funds, which aim to move in the opposite direction from specific market indexes. Though these funds do well in down markets, "their long-term returns haven't been very good,' says Russel Kinnel, director of fund research at Morningstar. ProFunds' UltraBear ProFund, for example, posted total returns of 65% in 2008, lost 52% last year and is down about 7% so far this year.
Meanwhile, so-called long-short, market neutral and absolute-return mutual funds, which follow hedge-fund strategies in hopes of generating returns in any market environment, can help pare losses in a down market, but often lag during a bull run.

A market plunge is also a good opportunity for investors to evaluate their diversification strategies. Diversification isn't only about owning a broad mix of drug stocks, retailers and energy companies. The practice takes many forms—across asset types, time and credit profiles, among others.

Over the last decade, even a strategy as simple as holding 60% stocks and 40% bonds beat the Standard & Poor's 500-stock index by more than six percentage points, and with far less risk. Over long periods, owning exposure to multiple types of assets, from stocks, bonds and cash to alternative assets like real estate, gold and commodities, can smooth the ride and boost returns.

In shorter time periods, diversification is less of a cure-all. An extreme downdraft can pull many asset classes down at once. During the financial crisis, notes financial planner Dean Barber in Lenexa, Kan., 38 of 41 asset classes declined at once—everything but cash, gold, and short-term Treasurys. So investors should be mindful of their time horizon: the sooner they need their money, the more of it should be in cash.
The strategy known as dollar-cost averaging is an easy way to diversify away the risk of time: by buying stocks in regular intervals rather than all at once, investors can lower the risk that they're jumping in at a short-term market top.

Grant Gardner, research director at Russell Investments, recommends investors also diversify across credit risks. How sound, for instance, is the insurance company that sells an annuity, or the municipality backing your local-government bonds? Concentrating too many of your assets in a single financial-services company can expose a portfolio to the risk that a major upheaval disrupts that firm's operations.

Finally, investors should marshal their cash smartly. For a decade or more, Wall Street's financial-planning machinery has claimed to have optimized the investing equation and boiled it down to simple calculations encouraging investors to abide by asset-allocation models heavy reliant on stocks, bonds and alternative assets. Cash was generally limited to a small fraction of an overall portfolio.

Yet cash serves a useful purpose, even if it earns paltry yields. It's emotional ballast.
In moments of unexpected market convulsions, low-cash portfolios are more painful both financially and psychologically. During Thursday's meltdown, for example, Christopher Schons, an aviation-policy analyst in Arlington, Va., watched nearly 10% of his family's wealth vanish on paper in just minutes. "I felt like I was in a Dali painting," he says.

Mutual-fund firm Invesco takes a "barbell" approach in its Charter Fund that is easily applicable to individual investor portfolios: 80% to 85% of its assets in investments on one side and 15% to 20% in cash on the other.

"Cash doesn't have market risk," says Ron Sloan, chief investment officer of Invesco's U.S. core equities group. "Don't be afraid to leave money on the table for your own sleeping comfort."

—Jason Zweig contributed to this article.
Write to Jeff D. Opdyke at jeff.opdyke@wsj.com, Jane J. Kim at jane.kim@wsj.com, Eleanor Laise at eleanor.laise@wsj.com and Laura Saunders at laura.saunders@wsj.com

Printed in The Wall Street Journal, page B7

What to Look for in A Disability Policy (Ken Dolan)

The Importance of a Disability Insurance Policy
by Ken Dolan October 6, 2009 10:34 AM
Posted in: Insurance


You bought life insurance to take care of your family should something happen to you. That's great. But is your family protected if you become disabled and can't work? Could you and your family still pay the bills if you didn't get a paycheck for a few weeks, months or even years? It's a question we all have to face, because between the ages of 35 and 65 we have a far greater chance of becoming disabled than dying.
Ask your employer's benefits officer if you have a disability plan at work. If you do have disability insurance through work, ask your employer how long your company will continue paying your regular paycheck if you become disabled, what percentage of your salary your disability plan pays while you're laid up, and how long you have to wait for the benefits to start. Using this information, you can decide if your employer's policy is adequate, or if you need to buy additional coverage.

First, add your sick pay and any other income (spouse's salary, investment income, etc.) to your emergency savings, then divide that total by the amount of your monthly expenses. This will tell you how long you can wait for your employer's disability benefits to kick in.

Our hope is that you have enough "rainy day" money tucked away that you can get through this waiting period on your own. If you don't have emergency savings and think it will take you some time to build up enough funds to get through a waiting period, consider buying a disability policy to bridge the gap.

If you already have disability insurance through work, the only other reason you may need additional coverage is to make up for an income shortfall. For example, if your employer's plan pays 60% of your current salary and you can't get by on that, you could make up some of that missing income with your own policy. Keep in mind, however, that the most income you'll be able to replace through all sources of disability income combined is 80% of your salary. So, if you have disability insurance through your employer that pays you 60% of your current salary, you could only cover another 20% of your salary through an individual policy.

If you don't have disability insurance through your employer, you should consider buying a policy of your own. You can buy an individual policy from any top insurance company. You should also check with any professional organizations you belong to - they may offer quite a savings on policies.

Top Features of a Good Disability Policy

Here are the key features of a top-notch disability policy that will protect you and your family without draining your wallet:

1. A waiting period that works for you. The waiting period is the amount of time you must be disabled before you can begin to collect benefits. Waiting periods range from 30 days to one year. The longer you can wait, the lower your premiums. For example, you can cut your premiums by about 20% if you can wait two months for your policy to kick in...90 days is even better!

2. A benefit period to age 65. The benefit period is the length of time that you'll receive benefits. You can save up to 75% with a policy with benefits to age 65 instead of lifetime coverage.

3. Re-insurability. The insurance company should not be able to cancel your policy for any reason except failure to pay the premium.

4. Waiver of premium. After a certain period of disability, say 90 days, you should be excused from paying the premium. This waiver is standard in most policies.

5. Coverage for a disability caused by accident OR illness.

6. Residual disability protection. This rider lets you receive partial benefits if you are partially disabled. Be sure your policy would pay you a percentage of your benefits based on the amount of income you have lost.

7. Coverage if you can't return to your chosen job. A good insurance policy will include this coverage at no extra cost. An "any occupation" policy means your insurance company can refuse to pay you any benefits if you're still capable of performing any job. For example, if you're a nurse, and then have an accident, your insurance company may refuse to pay you benefits because you could still get a job flipping burgers.

8. Recurrence: If the same disability recurs within a certain period of time, such as 6 months, you shouldn't have to go through a waiting period again before benefits start. As you grow older and your assets grow, your needs will change, so reassess your disability needs every few years.