The Sequester Looms

Posted on February 20, 2014 by

If federal budget cuts occur March 1, how might they be felt economically?

 

Provided by S. Brett Anderson

On March 1, $85 billion in federal budget cuts are supposed to take place – and it doesn’t look like they will be delayed any longer. Congress went on recess last week, so there was no concerted legislative effort to stave them off (in the manner of the fiscal cliff deal).1

At this point, the cuts seem inescapable. How might they impact Main Street and Wall Street?

Is Main Street all that worried about the cuts? A February Pew Research Center poll found that 29% of Americans didn’t even know about the sequester, while 40% said that they should be allowed to happen. Eyeing the poll results a bit more, a big picture emerges – 70% of those polled indicated that legislation to significantly reduce the deficit should be a federal priority.2

Will the cuts damage the economy as deeply as some fear? In the White House Budget Office projection, defense programs will take a 13% cut, with $34 billion in belt-tightening by the Army, Navy and Air Force resulting in layoffs or furloughs for at least 450,000 people. USA TODAY research forecasts nearly 35,000 jobs being lost in Texas, and Maryland, Virginia and Alabama each suffering between 20,000-30,000 job losses.3,4

In addition, the White House projects a 9% reduction in spending for other federal programs, with job cuts or furloughs anticipated for INS, FDA, TSA and FAA employees (and myriad other federal workers), reduced jobless benefits for the long-term unemployed, and layoffs of 10,000 teachers and school employees, including some with the Head Start program.1,3

Less abstractly, what could this hit to growth mean for the business and housing sectors? In a February 21 New York Times article, George Mason University School of Public Policy professor Stephen Fuller estimated that 1.4 million private sector jobs might disappear in the wake of the cuts. Fuller, who testified before the House Small Business Committee on the possible effects of the sequester, thinks that small businesses could let over 700,000 employees go and absorb 34% of the job losses projected for federal contractors. He reminded the Times that suppliers and vendors to those contractors could also be hit hard.5

HUD Secretary Shaun Donovan believes the sequester would be “deeply destructive” to the real estate market. If FHA staff is reduced by 9%, that could hurt the agency’s ability to originate loans, process refis and sell foreclosed homes in its possession. (By the way, the average interest rate on a conventional home loan was 3.78% last week, according to the Mortgage Bankers Association. That’s a high unseen since August 2012.)6

Or will the cuts have less economic impact than commonly believed? Some analysts think the fear is overblown. As CNBC columnist Larry Kudlow recently pointed out, the $85 billion haircut slated for March 1 is to budget authority, not budget outlays. Actual federal budget outlays, according to the Congressional Budget Office, will only shrink by $44 billion – which is but 0.25% of GDP and 1.25% of the $3.6 trillion federal budget.7

Kudlow notes that while the sequester would trim the growth of federal spending, “it’s clear that it won’t result in economic Armageddon.” He argues that the sequester might actually have positive effects, for as “the government spending share of GDP declines, so does the true tax burden on the economy. As a result, more resources are left in the free-market private sector, which will promote real growth.”7

As for the markets, opinion varies. If the cuts occur, Nomura thinks that they will be undone by Congress within weeks. A Wells Fargo analysis concludes that “in the end we are not looking for a significant cut in government spending this year.” On the other hand, Credit Suisse sees a 0.5% reduction in U.S. GDP to 1.5%, and Macroeconomic Advisors thinks the jobless rate will creep up to 7.9% by the end of 2013 – a projection matching that of many economists, who see unemployment rising 0.2-0.3% this year with payrolls slimming by about 500,000 jobs.8

March 1 could be a very big day on Wall Street. If the sequestration happens as scheduled Friday, it won’t be the only major economic news item on tap: the February jobs report, February’s ISM manufacturing index, the January consumer spending report and the final February consumer sentiment index from the University of Michigan will all be out that day. If some of these reports surprise to the upside (or downside), there is a chance that they may pull focus from the (assumed) budget cuts. Or, if the cuts occur as slated, perhaps the market will price them in more than some analysts believe.

If the sequester delivers a serious economic punch, it could deter the Federal Reserve from any notions of phasing out QE3 this year or tinkering with interest rates in 2014. We shall see how the drama plays out in March and the months that follow.

S. Brett Anderson may be reached at (832) 230-1896 or banderson@allsureinsurance.com.

www.allsureinsurance.com

Citations.

1 – online.wsj.com/article/SB10001424127887324449104578314113835559092.html [2/20/13]

2 – www.cbsnews.com/8301-250_162-57570484/poll-40-say-let-the-looming-budget-cuts-happen/ [2/21/13]

3 – www.cbsnews.com/8301-250_162-57570191/will-sequestration-really-be-that-bad/ [2/20/13]

4 – www.usatoday.com/story/news/nation/2013/02/19/army-state-by-state-sequester-details/1931051/ [2/19/13]

5 – boss.blogs.nytimes.com/2013/02/21/many-expect-budget-cuts-to-hit-small-businesses-hard-but-not-the-n-f-i-b/ [2/21/13]

6 – www.cnbc.com/id/100474955 [2/20/13]

7 – www.cnbc.com/id/100476675/The_ProGrowth_Sequester [2/21/13]

8 – www.cnbc.com/id/100475956 [2/20/13]

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SOME FISCAL CLIFF SCENARIOS

Posted on February 20, 2014 by

What could play out in the near future?

Presented by S. Brett Anderson | Allsure Insurance

 

Will 2013 be as severe as some economists think? The fiscal cliff is getting closer and closer. How will Congress respond?

 

In the worst-case scenario, Congress argues and deadlocks. Tax hikes and roughly $109 billion in federal spending cuts take a bite out of GDP and another recession becomes a possibility.1

There are other possibilities, however. The fiscal cliff may yet be averted, or at least we might back away from its edge. One of several scenarios might come to pass.

Scenario A: Congress buys time. Many analysts think this is exactly what will happen. Congress is in a lame-duck session. The option for legislators to “pass the buck” may prove tantalizing. So we could see a short-term, stopgap deal with the idea that the next session of Congress will tackle the problem later in 2013. The debt ceiling could be raised, and a “down payment” might be made on longer-term liabilities.1

Scenario B: Congress can’t make a deal. This may not be so improbable; if you remember the “super committee” assigned to craft a deficit reduction plan in 2011, you will also remember that it didn’t accomplish the set task. In fact, we are facing the fiscal cliff because of that committee’s failure.2

The “fiscal cliff” already amounts to Plan B. When Congress and the White House reached an accord to raise the debt ceiling back in August 2011, $1 trillion in federal spending cuts were green lighted and Congress was told to find $1.2 trillion more to slash. As that didn’t happen, $1.2 trillion in automatic cuts are set to begin next year. So Congress would actually be following federal law if it did nothing to respond to the issue.2

Doing nothing seems unsuitable, but there is the risk that history could repeat itself. Election outcomes may alter political assumptions and interfere with consensus. If it looks like we will go over the cliff in the waning days of 2012, there is a strong possibility that the incoming 113th Congress could vote quickly to reinstate select spending levels and tax breaks. That might mute some of the clamor from global financial markets.3

 

Scenario C: Middle ground is reached. Some degree of compromise occurs that leaves no one particularly satisfied. Certain short-term provisions are phased out, such as the payroll tax holiday, the recent increases for small business expensing, and assorted tax credits and tax breaks for education. The Bush-era tax cuts are preserved (at least temporarily) for the middle class, but rates rise for those making $1 million or more per year. The clock turns back to 2009 with regard to estate taxes. The rich face higher taxes on capital gains and dividends. Perhaps some defense cuts are postponed.

Scenario D: The “Grand Bargain.” Congress and the White House boldly arrive at a something more than an incrementally enacted deficit reduction plan. They reach a “grand bargain,” a deal designed to cut the deficit by $4 trillion by the mid-2020s, after historic, long-range compromises are made to reach stability on assorted tax and spending issues. With a lame-duck Congress, this may be a longshot.1

 

Scenario E: The “Down Payment.” Legislators could always tear a page from another playbook in trying to solve this problem. The Bipartisan Policy Center, for example, thinks a “grand bargain,” or anything approximating a real deal on the fiscal cliff, is unlikely given the short interval between the election and 2013. It recommends a “down payment” of deficit cuts that could be approved by a fast-tracked simple majority vote. If Congress didn’t take further steps to cut the deficit next year, then certain tax breaks would disappear and cuts would hit social welfare programs (excepting Social Security).2

Whatever happens in Washington, this is a prime time to consider financial moves with the potential to lower your taxes and insulate your wealth. Explore the possibilities before 2013 arrives.    

S> Brett Anderson may be reached at (832) 230-1896 or banderson@allsureinsurance.com.

Http://www.allsureinsurance.com

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

  

Citations.

1 – articles.marketwatch.com/2012-10-25/economy/34719282_1_fiscal-cliff-tax-cuts-defense-cuts [10/25/12]

2 – thehill.com/blogs/on-the-money/budget/262893-bipartisan-policy-center-floats-fiscal-cliff-solution [10/12/12]

3 – www.salon.com/2012/11/01/a_look_at_3_scenarios_as_the_fiscal_cliff_looms/singleton/ [11/1/12]

Posted in Texas Life and Health Insurance | 0 Comment

THE BIG TAX QUESTIONS OF 2013

Posted on February 20, 2014 by

How will Congress resolve these issues?

Presented by S. Brett Anderson Allsure Insurance

 

Decisions must be made. In the next couple of months, Congress will address several major tax matters. Here are the big questions looming.

 

The Bush-era income tax cuts. Will the current 10%-15%-25%-28%-33%-35% federal tax rate structure give way to 15%-28%-31%-36%-39.6% tax brackets in 2013? After the election, some analysts feel a compromise will be struck to maintain some of the Bush-era cuts for another year. In 2013, you may see the 10%, 15%, 25% and 28% brackets being retained while the wealthy face higher taxes.1

 

Tax rates on capital gains & dividends. Right now, dividends and most long-term capital gains are taxed at either 0% or 15% (depending on the income tax bracket you fall into). In 2013, dividends are scheduled to be taxed as regular income (cf. 15%-39.6% tax brackets above) and the capital gains tax rates are set to increase to 10% and 20%. So will dividend taxes and capital gains taxes only increase for the rich in 2013? That may very well turn out to be the case.2

Estate & gift taxes. President Obama’s proposal has the U.S. returning to a top estate tax rate of 45% with a $3.5 million exemption. In other words, estate taxes would return to 2009 levels as opposed to 2001 levels (55% top rate, $1 million exemption), which is what would happen if the Bush-era cuts simply expired. While Sen. Orrin Hatch (R-UT) and others in Congress have called for an end to estate taxes, many analysts think they will return to 2009 levels as a byproduct of Obama’s re-election. Will we see a unified gift and estate tax in 2013? That is a possibility, though not a given. It could be that the lifetime gift tax exemption becomes $3.5 million in 2013 (it is currently $5.12 million per individual with the unused portion of an individual exemption portable between spouses) with gifts past the exemption taxed at 35%. That would be better than the alternative: a scheduled $1 million exemption, along with a 55% maximum gift tax rate.2,3

 

The payroll tax holiday. Months ago, the consensus was that this would not survive into 2013. Yet last month, Rep. Christopher Van Hollen, the top Democrat on the House Budget Committee, told C-SPAN that it should be extended. Former Treasury Secretary and Obama administration economic advisor Larry Summers agrees. So it may live on for another year.4

 

The marriage penalty. Our federal tax code has a longstanding quirk: occasionally, married couples pay more in tax than they would if they were single filers. The Economic Growth and Tax Relief Reconciliation Act of 2001 attempted to lessen the penalty in two ways. It made the standard deduction for married joint-filing couples twice what it was for singles, and it made the bottom two tax brackets for those married and filing jointly twice as broad as for singles. In 2013, the marriage penalty could become more severe: the standard deduction for joint filers will be only about 167% of the standard deduction for singles and those widened joint-filer tax brackets are slated to narrow. As middle-income couples will probably face higher payroll taxes in 2013, retaining the current softer penalty seems likely.2

 

Child & childcare tax credits. Both of these credits are set to shrink next year. The child tax credit is supposed to be halved to $500, and the maximum childcare credits available to most parents ($600 for one child aged 12 or younger, $1,200 for more than one) are poised to drop to $480 and $960. Extending these credits into 2013 could amount to good PR for a disdained Congress.5

The American Opportunity Credit. In 2009, the up-to-$1,800 Hope tax credit was supercharged into the AOC: an up-to-$2,500 education credit which could be claimed for four tax years that include college education rather than two. In 2013, the AOC is scheduled to disappear with an $1,800 (or possibly $1,900) Hope credit slated to reappear. The AOC may be extended into 2013; again, it would be a popular move at a time when Congress is riding a wave of unpopularity.5,6

 

College expense deduction. Back in 2011, you could write off as much as $4,000 in tuition on your federal return. Some legislators would like to see this deduction made available again in 2013 and perhaps even made retroactively available for 2012. It would be a popular move and it could prove a nice “sweetener” on any bill addressing tax issues for the coming year.5

 

Charitable IRA gifts. Universities and retirees found the IRA charitable rollover quite useful, but it faded away at the end of 2011. Many in the education community (and some in Congress) would like to see it return for 2013, and given that tax hikes seem to be imminent next year, a big tax break like this might be offered pursuant to a Congressional compromise.5

   

IDLs & PEPs. In 2010, itemized deduction limits and personal exemption phase-outs were repealed. In 2013, they may return as the federal government seeks much-needed tax revenues.2

 

S. Brett Anderson may be reached at (832) 230-1896 or banderson@allsureinsurance.com

http://www.allsureinsurance.com

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – money.usnews.com/money/blogs/the-best-life/2012/08/29/get-ready-for-5-key-money-changes-in-2013 [8/29/12]

2 – www.smartmoney.com/taxes/tax-policy/key-tax-issues-to-watch-postelection-1351019063876 [10/23/12]

3 – www.deseretnews.com/article/765589424/Sen-Orrin-Hatch-calls-for-end-of-estate-tax-as-Jan-2013-taxmageddon-looms.html [7/12/12]

4 – online.wsj.com/article/SB10000872396390444734804578066991225311524.html [10/18/12]

5 – www.marketwatch.com/story/14-tax-issues-to-watch-after-the-election-2012-11-01 [11/1/12]

6 – www.finaid.org/otheraid/hopescholarship.phtml [11/8/12]

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BUILDING AN EMERGENCY FUND

Posted on February 20, 2014 by

Creating a financial cushion for stressful times.

Presented by S. Brett Anderson

How would you respond to sudden financial demands? We all define “emergencies” differently, but we are not immune to them. How can we plan to stay afloat financially when they occur?

 

Most households are not financially prepared for an emergency – not even close. A recent study from the National Foundation for Credit Counseling found that 64% of Americans had less than $1,000 in funds earmarked for a crisis.1

 

While the recession did its part to siphon emergency funds from families, attention must be paid to rebuilding those funds. It may be difficult; it may be inconvenient. That doesn’t make it any less of a priority.

 

Emergencies tend to be linked to long-term debt. Having a designated emergency fund can help you attack that debt. When most people think of financial emergencies, they think of medical problems and burdensome costs that their insurance won’t fully absorb – but there are other paths to long-term debt, such as a sudden layoff, a natural disaster, a family issue with financial underpinnings or even an abrupt need to move to another metro area, for whatever reason.

 

How large should the fund be? You decide. An old rule of thumb is six months of net income or six months of expenses. If you are snickering or laughing out loud at your chances of saving that much, you aren’t alone. If your prospects of building a five-figure emergency fund seem remote, try to create one equivalent to two or three months of net income. Any amount is better than none.

 

How do you do it without hurting your standard of living? Few of us have a lump sum we can just reassign for emergencies. So consider these subtle savings opportunities.

> You could pay cash whenever possible, opening the door to incremental savings that credit card companies would otherwise take from you. A few dozen bucks can become a few hundred bucks, then a few thousand bucks over time. Incidentally, in a nationwide survey conducted by Chase Blueprint and LearnVest, 31% of people polled cited credit card debt as a major barrier to achieving financial objectives. The credit card debt carried by this 31% averaged about $5,000. Clearly, living on credit cards will thwart your effort to build a rainy day fund.2

> You could vow not to spend frivolously, thereby retaining money you might be tempted to throw away on impulse.

 

> You could sell stuff – stuff somebody else, maybe down the street or across the country, might want. Incidental shipping and handling costs could seem irrelevant next to the cash you generate.

 

> You could arrange direct deposit or start a seasonal savings account. The psychology behind both moves is simple: you are less likely to spend money if it doesn’t pass through your wallet.

 

Here’s how not to do it. Try to avoid building a crisis fund through self-defeating methods. For example:

 

> Don’t start an emergency fund with a loan. Do it with your own accumulated savings, bonus money from your job performance, royalties – whatever the origin, use money you have made or and/or saved yourself, not money you have borrowed from lenders or relatives.

 

> Don’t do it using payday loans or cash advances. High-interest short-term loans and cash advances on credit cards are often pitched as rescues to struggling households. Thanks to their absurd interest rates, payday loans are not financial “life rafts” by any means. Cash advances on credit and debit cards come with disproportionately high fees. Sadly, people who go in for these loans and advances once commonly go in for them again.

 

> Don’t refrain from paying certain bills.Let’s say that you have eight debts you have to pay per month. If you only pay three of them each month and carefully alternate which debts get paid down, can you create an emergency fund with the money you avoid paying? Well, yes – but you may imperil your credit rating in the process.

 

If you don’t have a designated emergency fund, you can build it up in the same way that you probably invest: a little at a time, with relatively little impact on your lifestyle. It can be done. It should be done.

«representativename» may be reached at «representativephone» or «representativeemail».

«representativewebsite»

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – www.learnvest.com/knowledge-center/5-ways-to-start-an-emergency-fund/ [8/14/12]

2 – www.foxbusiness.com/personal-finance/2012/11/01/seven-reasons-why-need-to-create-emergency-fund-now/ [11/1/12]

Posted in Texas Life and Health Insurance | 0 Comment

Ways to Save for College

Posted on February 20, 2014 by

Comparing & contrasting the potential of some popular vehicles.

 

Provided by S. Brett Anderson

 

How expensive will college be tomorrow? The Department of Education projects that by 2030, the tuition cost of obtaining a four-year degree at a public university will surpass $200,000. Staggering? Indeed, but college is plenty expensive already. In 2012, tuition averaged $15,100 a year at public colleges and $32,900 a year at private colleges.1

A Sallie Mae study finds that today’s students, on average, can only pay for 24% of their college expenses. It is little wonder that student loan debt exceeds credit card debt today.1

How can you start saving to meet those costs today? With interest rates being what they are, don’t look to a garden-variety savings account. Even if current interest rates soon ascend to 2% or 3%, you would be at a disadvantage even if the bank account was large as tuition costs are climbing more significantly than inflation.

The message is pretty clear: to meet college costs, you need either a prepaid tuition plan or a savings vehicle that taps into the power of equity investing. Let’s look at some options.

Prepaid 529 plans. Offered by states and public colleges, these plans let you buy tomorrow’s tuition with today’s dollars. You purchase X dollars of tuition today, and that is guaranteed to pay for an equivalent amount of tuition in the future.

You can do this in two different ways. Some of these prepaid plans are unit plans, in which you pay for X number of college credits or units now with a promise that the same amount of credits will be covered in the future. In other words, you’re locking in tuition at current rates.

As an example, let’s say a year of college at Hypothetical State University requires 36 units. Mom and Dad use a unit plan to pay $7,500 for those 36 units now for their 6-year-old daughter. In turn, the plan promises to pay whatever those 36 units cost when she starts her first semester at Hypothetical State 12 years from now, even though it might be much more.2

The other prepaid 529 plan variant is the contract plan, or guaranteed interest plan. In these prepaid plans, you make a lump sum contribution (or arrange recurring contributions), essentially buying X number of years of tuition. In turn, the plan guarantees to cover this predetermined amount of tuition expenses in the future.2

Usually, beneficiaries of prepaid tuition plans must be residents of the state offering the plan, or prospective students of the college offering the plan. In the wake of the recession, some of these plans are not accepting new investors as some states are worried about underfunding.2,3

529 college savings plans. These state savings plans allow you to invest to build college savings rather than simply prepay them. Plan contributions are typically allocated among funds, and possibly other investment classes; the plan’s earnings grow without being taxed. The withdrawals aren’t taxed by the IRS either, as long they pay for qualified education expenses.2

You can contribute up to six-figure sums to these 529 plans – there’s a lifetime contribution limit that varies per state. Most of them are open to out-of-state residents. If the market does well, you can harness the power of equity investing through these plans and potentially make a big dent in college costs.2

There are two caveats about 529 plans. Should you elect to withdraw money from a 529 plan and use it for non-approved purposes, that money will be taxed by the IRS as regular income – and you will pay a penalty equal to 10% of the withdrawal amount. 529 balances can also negatively affect a student’s chances for need-based financial aid. In a given school year, that eligibility can be reduced by up 5.64% of your college savings.3

 

Coverdell ESAs. Originally called Education IRAs, Coverdell Education Savings Accounts offer families some added flexibility: the withdrawals may be used to pay for elementary and secondary school expenses, not just college costs. These are tax-deferred investment accounts, like 529 savings plans. Unfortunately, the current annual contribution limit for a Coverdell is $2,000. Any remaining account balance must generally be withdrawn within 30 days after the beneficiary’s 30th birthday, with the earnings portion of the balance being taxable.3,4,5

Roth IRAs. Yes, it is possible to use a Roth IRA as a college savings vehicle. While the IRA’s earnings will be taxed, withdrawals used to pay for qualified college expenses will not be taxed and will face no IRS penalty. Additionally, if your son or daughter doesn’t go to college or comes into some kind of windfall that pays for everything, you end up with a retirement account. While Roth IRA balances don’t whittle away at a student’s chances to get need-based financial aid, the withdrawal amounts do come under the category of untaxed income on the FAFSA.3

Life insurance. Some households look into so-called “cash-rich” life insurance – whole or universal life policies – as a means to fund a college education. This requires a big head start, as when you buy one of these policies the bulk of your premiums go toward the life insurance part of the contract for several years and you have yet to build up much cash value. The big feature here is that most colleges don’t consider life insurance when evaluating financial aid applications.3

Would a trust be worth the expense? Rarely, families set up tax-advantaged trusts for the purpose of college savings. In the classic model, the family is incredibly wealthy and the kids are “trust-fund babies” bound for elite and very expensive schools. Unless you have many children or your family is looking at potentially exorbitant college costs, a trust is probably overdoing it. The college savings vehicles mentioned above may help you save for education expenses just as effectively, all without the administrative bother associated with trusts and the costs of trust creation.

S. Brett Anderson  may be reached at (832) 230-1896 or banderson@allsureinsurance.com.

www.allsureinsurance.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Posted in Texas Life and Health Insurance | 0 Comment

MAJOR RISKS TO FAMILY WEALTH

Posted on February 20, 2014 by

Will your accumulated assets be threatened by them?

Presented by S. Brett Anderson, Allsure Insurance

 

All too often, family wealth fails to last. One generation builds a business – or even a fortune – and it is lost in ensuing decades. Why does it happen, again and again?

 

It is because families fall prey to serious money blunders – old and new. Classic mistakes are made, and changing times aren’t recognized.

 

Procrastination. This isn’t simply a matter of failing to plan, but also of failing to respond to acknowledged financial weaknesses.

 

For example, let’s say we have a multimillionaire named Alan. Alan gets a call one afternoon from his bank, which considers him a VIP. It turns out that his six-figure savings account lacks a designated beneficiary. He thanks the caller, and says he will come in soon to take care of that – but he never does. His schedule is busy, and the detour is always inconvenient.

 

While Alan knows about this financial flaw, knowledge is one thing and action is another. Sadly, procrastination wins out in the end and those assets end up subject to probate. Then his heirs find out about other lingering financial matters that should have been taken care of regarding his IRA, his real estate holdings, and more.

 

Minimal or absent estate planning. Forbes notes that 55% of Americans lack wills, and every year multimillionaires die without them – not just rock stars and actors, but also small business owners and entrepreneurs. Others opt for a living trust and a pour-over will, or just a basic will created online.1

 

This may not be enough. Anyone reliant on a will risks handing the destiny of their wealth over to a probate judge. The multimillionaire who has a child with special needs, a family history of Alzheimer’s or Parkinson’s, or a former spouse or estranged children may need more rigorous estate planning. The same is true if he or she wants to endow charities or give grandkids a nice start in life. Is this person a business owner? That factor alone calls for coordinated estate and succession planning.

 

A finely crafted estate plan has the potential to perpetuate and enhance family wealth for decades, perhaps generations. Without it, heirs may have to deal with probate and a painful opportunity cost: the lost potential for tax-advantaged growth and compounding of those assets.

The lack of a “family office”. Years ago, wealthy families sometimes chose to assign financial management to professionals. The family mansion boasted an office where those professionals worked closely with the family. While the traditional “family office” has disappeared, the concept is as relevant as ever. Today, wealth management firms consult families, provide reports and assist in decision-making in an ongoing relationship with personal and responsive service. This is a wise choice when your financial picture becomes too complex to address on your own.

 

Technological flaws. Hackers can hijack email accounts and send phony messages to banks, brokerages and financial advisors greenlighting asset transfers. Social media can help you build your business, but it can also lend personal information to identity thieves who want access to digital and tangible assets.

 

Sometimes a business or family installs a security system that proves problematic – so much so that it is turned off half the time. Unscrupulous people have ways of learning about that. Maybe they are only one or two degrees separated from you.

 

No long-term strategy in place. When a family wants to sustain wealth for decades to come, heirs have to understand the how and why. All family members have to be on the same page, or at least read that page. If family communication about wealth tends to be more opaque than transparent, the mechanics and purpose of the strategy may never be adequately conveyed to heirs.

 

No decision-making process. In the typical high net worth family, financial decision-making is vertical and top-down. Parents or grandparents may make a decision in private, and it may be years before heirs learn about it or fully understand it. When the heirs do become decision makers, it is usually upon the death of the elders – only now the heirs are in their forties or fifties, with current and former spouses and perhaps children of their own to make family wealth decisions more trying.

 

Horizontal decision-making can help multiple generations understand and participate in the guidance of family wealth. Estate and succession planning professionals can help a family make these decisions with an awareness of different communication styles. In-depth conversations are essential; good estate planners recognize that silence does not necessarily mean agreement.

 

You may plan to reduce these risks (and others) in collaboration with financial and legal professionals who focus on estate planning and wealth transfer issues. It is never too early to begin.

 

S. Brett Anderson may be reached at (832) 230-1896 or banderson@allsureinsurance.com.

Http://www.allsureinsurance.com

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – www.forbes.com/sites/financialfinesse/2012/01/19/a-common-sense-approach-to-estate-planning/ [1/19/12]

Posted in Texas Life and Health Insurance | 0 Comment

Has someone tried to steal your Identity?

Posted on February 20, 2014 by

HAS YOUR IDENTITY BEEN STOLEN?

 

Keep an eye out for these signs.

Presented by

Allsure Insurance

   

According to data compiled by Norton, cybercrime hits over 74 million Americans annually. You know you have been victimized when you get that courtesy call or email from a bank or credit card issuer – but is there a way you can tell prior to that moment?1    

There are warning signs of cybercrime. Watching out for them just might save you money and headaches. If you notice any of the following conditions,  pay attention.

Odd little charges appear on your credit card. Big charges are of course a giveaway, but criminals might first venture some little charges. This often happens when more sophisticated identity thieves buy or obtain credit or debit card numbers through syndicates or online forums (they do exist). 

You stop getting credit or debit card statements. A thief may have changed the billing address. What time of the month do these bills arrive? Knowing when may alert you to something fishy.  

Weird packages show up at your home or office. “I didn’t order a new PC,” you react when the truck pulls up at your door. Well, maybe a thief did and forgot to change the default shipping address on your online profile at a retailer.   

Bizarre calls & emails enter your life. Your friends get spam in their inboxes; you get calls from debt collection agencies. At first, you may categorize the calls as simple mistakes and apologize for the spam. Instead, check it out – it may indicate crime.

Your loan apps get rejected. Your credit score can plunge as a result of a thief’s extravagance and detachment. If you can’t get a loan or your credit report shows a plunging score, something may be up.

Victimization can be quite subtle. Some identity thieves never progress to shopping sprees or draining bank balances. They have other goals in mind, just as ignoble.

Some people steal personal information so that they can hide from creditors. They would like to plug in your address or phone number on assorted financial, federal and state documents for purposes of evasion as well as future opportunity. If you suspect this may be happening, file an identity theft report with the U.S. Postal Service (or a police report, but some identity theft experts think notifying the USPS may be just as effective). You can also let bill collectors who mistakenly call know that you have done so, out of a belief that you have been victimized.2

 

Tax refund identity theft rose 97% last year. The Taxpayer Advocate Service (an independent agency within the Internal Revenue Service) looked into more than 34,000 cases of such theft in fiscal year 2011, nearly double the amount from fiscal year 2010. Certain taxpayers logged into the IRS website this year to see the status of their refunds only to be asked to verify essential information. Identity thieves had filed online income tax returns in their name and using their Social Security numbers, but the crooks had directed the tax refunds toward new addresses. The IRS is finding it hard to resolve such issues as speedily as it used to: its workload has increased in recent years, but its funding has not.3

S. Brett Anderson may be reached at 832-230-1896 or banderson@allsureinsurance.com

Http://www.allsureinsurance.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – www.dailyfinance.com/2012/07/12/8-signs-your-identity-has-been-compromised/ [7/12/12]

2 – www.credit.com/blog/2012/05/can-you-be-sort-of-an-id-theft-victim/ [5/15/12]

3 – abcnews.go.com/Business/income-tax-identity-theft-needed-social-security-number/story?id=15834826#.UB4G_JGluZQ [3/8/12]

Posted in Texas Life and Health Insurance | 0 Comment

August 20 Weekly Economic Update

Posted on February 20, 2014 by

Allsure Insurance Presents:
WEEKLY ECONOMIC UPDATE

 

 

WEEKLY QUOTE

“Loyalty to a petrified opinion never yet broke a chain or freed a human soul.”

    

– Mark Twain

   

  

WEEKLY TIP

We all have impulses that can make us spend more and save less. Recognizing them can help us to improve our financial behaviors.

 

  

WEEKLY RIDDLE

What is the longest word in the English language to have only one vowel repeated? (Hint: It has 16 total letters and the vowel is repeated 4 times).

  

  

Last week’s riddle:

A common English word refers to a person or thing not being in a place. But just by inserting a space within it, you can get two words meaning that a person or thing is present. What is this word?

  

Last week’s answer:

Nowhere. It can become now here by inserting a space.

August 20, 2012

    

CPI FLAT FOR A SECOND CONSECUTIVE MONTH

In July, the federal Consumer Price Index showed no overall advance. That was the case in June as well, and that might just bolster the case for easing at the Federal Reserve. Consumer prices rose only 1.4% annually, the smallest increase since the November 2010 index. Core CPI (minus food and energy costs) rose 0.1% last month. As for wholesale prices, they rose 0.3% in July – the largest jump in five months, even as wholesale gas prices slipped 3.1%.1,2

RETAIL SALES IMPRESS

American retail purchases soared 0.8% in July after a (downwardly revised) 0.7% retreat in June. It was a real sea change – the first positive month for the category since March. The monthly increase in retail gasoline sales was just 0.5%, which had little effect on the overall gain.3

Housing starts DIP; permits hit  4-YEAR peak

U.S. builders broke ground on 1.1% fewer projects in July. The good news: permits for new construction hit a pace of 812,000, a high unseen since August 2008.4

CONSUMERS ARE FEELING A BIT BETTER

Economists polled by MarketWatch expected a dip in August’s initial University of Michigan consumer sentiment index. Instead, it rose 1.3% to 73.6 – the best reading since May. The index’s gauge of current economic conditions improved to 87.6 in August from 82.7 in July.5

THE SUMMER RALLY ROLLS ON

Feeling slightly bullish? You aren’t alone. The Dow and S&P 500 have now advanced for six straight weeks, and the CBOE VIX (the “fear index”) closed at 13.47 Friday, its lowest mark in five years. The numbers for the week: DJIA, +0.51% to 13,275.20; S&P 500, +0.87% to 1,418.16; NASDAQ, +1.84% to 3,076.59. Gold lost 0.21% on the COMEX for the week while oil soared 3.38% on the NYMEX. Gold settled Friday at $1,619.40, oil at $96.01.6,7,8

THIS WEEK: On Monday, Lowe’s reports Q2 earnings. Tuesday, Best Buy, Dell and Meditronic follow suit. Wednesday brings the National Association of Realtors report on July’s existing home sales, the July 31 FOMC minutes and earnings from Hewlett-Packard. In addition to weekly jobless claims, Thursday offers July data on new home buying, a new FHFA home price index and Q2 results from Hormel. Friday, the report on July’s durable goods orders arrives along with the latest USDA outlook on food prices.

% CHANGE

Y-T-D

1-YR CHG

5-YR AVG

10-YR AVG

DJIA

+8.66

+16.34

+0.30

+5.12

NASDAQ

+18.10

+22.50

+4.56

+12.61

S&P 500

+12.77

+18.78

-0.38

+5.27

REAL YIELD

8/17 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

-0.43%

0.01%

2.45%

3.10%

 

Sources: cnbc.com, bigcharts.com, treasury.gov, treasurydirect.gov – 8/17/126,9,10,11

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

 

Please feel free to forward this article to family, friends or colleagues.
If you would like us to add them to our distribution list, please reply with their address.
We will contact them first and request their permission to add them to our list.

 

Allsure Insurance Disclosure

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

 

Citations.

1 – www.reuters.com/article/2012/08/15/usa-economy-idINL2E8JF2C720120815 [8/15/12]

2 – www.chicagotribune.com/business/sns-rt-us-economy-ppibre87d0gq-20120814,0,3794223.story [8/14/12]

3 – articles.marketwatch.com/2012-08-14/economy/33191357_1_sales-at-gasoline-stations-furniture-store-sales-retail-sales [8/17/12]

4 – www.sfgate.com/business/bloomberg/article/Housing-Starts-in-U-S-Decline-as-Permits-Reach-3793297.php [8/16/12]

5 – www.marketwatch.com/story/consumer-sentiment-rises-in-august-2012-08-17-10103922 [8/17/12]

6 – www.cnbc.com/id/48701551 [8/17/12]

7 – money.msn.com/market-news/post.aspx?post=2dab9cc0-86e7-48a1-b678-b50cb7e539d7 [8/17/12]

8 – montoyaregistry.com/Financial-Market.aspx?financial-market=common-financial-mistakes-and-how-to-avoid-them&category=29 [8/17/12]

9 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=8%2F17%2F11&x=0&y=0 [8/17/12]

9 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=8%2F17%2F11&x=0&y=0 [8/17/12]

9 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=8%2F17%2F11&x=0&y=0 [8/17/12]

9 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=8%2F17%2F07&x=0&y=0 [8/17/12]

9 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=8%2F17%2F07&x=0&y=0 [8/17/12]

9 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=8%2F17%2F07&x=0&y=0 [8/17/12]

9 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=8%2F16%2F02&x=0&y=0 [8/17/12]

9 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=8%2F16%2F02&x=0&y=0 [8/17/12]

9 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=8%2F16%2F02&x=0&y=0 [8/17/12]

10 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [8/17/12]

10 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [8/17/12]

11 – treasurydirect.gov/instit/annceresult/press/preanre/2002/ofm71002.pdf [7/10/02]

 

 

 

Posted in Texas Life and Health Insurance | 0 Comment

LOOKING AT THE NEW ESTATE TAX LAWS

Posted on February 20, 2014 by

What has happened since 2010 & what could happen in 2013.

Presented by S. Brett Anderson

 

With 2013 approaching, many families and their financial, tax and legal consultants are weighing major estate planning decisions. A short-term window of opportunity may be closing. The relatively low estate tax rates we have now may soon disappear, along with one of the largest federal tax breaks available in decades.

 

Estate taxes are at 80-year lows. At the end of 2010, Congress reset the estate, gift and generation-skipping tax (GST) rates at 35% and raised the lifetime federal gift, estate and GST tax exemptions to $5,120,000 until January 1, 2013. Some Capitol Hill legislators want to see these rates retained, even made permanent. Two other scenarios may be more likely.1,2

 

In the first scenario, the Bush-era tax cuts expire at the end of 2012 and it becomes 2001 all over again: the lifetime estate and gift tax exemptions fall to $1 million and estate taxes are reset to 55% (60% for some households).3

 

In the second scenario, Congress makes good on President Obama’s request to turn the clock back to 2009: estate taxes reset to a top rate of 45% with a $3.5 million personal exemption. (The lifetime gift tax exemption would still fall to $1 million.)3

 

The current $5.12 million personal exemption is portable between spouses. This represents a major tax break for wealthy families – an opportunity to transfer significantly greater amounts of wealth without triggering transfer taxes.

 

Currently, executors have an option to transfer an unused portion of a deceased spouse’s $5.12 million lifetime unified gift/estate/GST exemption to a surviving spouse. So with this new portability, a married couple can potentially transfer up to $10.24 million of assets without incurring any federal estate tax. In 2013, this portability is scheduled to disappear.3,4

 

Portability is not automatic. When the first spouse passes away, the executor of his or her estate must file a federal estate tax return even if no estate tax is owed. That move formally notifies the IRS that you are transferring the unused or partially used personal exemption to the surviving spouse. This estate tax return is due nine months after the death of the first spouse, with a six-month extension permissible.5,6

 

If some planning needs to be done to bring the value of your taxable estate under $5.12 million (or $10.24 million), your executor could make donations to qualified charities or non-profits on your behalf to lower the taxable value of your estate, although your heirs would consequently be left with less.4

 

You can shrink your taxable estate without reducing the lifetime exemption. In 2012, the annual federal gift tax exclusion is set at $13,000. So you (and your spouse) may gift up to $13,000 each to an unlimited number of individuals in 2012 without reducing your lifetime $5.12 million gift/estate tax exemption. Those gifts can even be made as payments for school expenses (except housing costs) or medical bills.4

 

Keep the $13,000 annual exclusion limit in mind: in 2012, gifts in excess of $13,000 per individual do cut into the $5.12 million lifetime exemption dollar-for-dollar.4

 

Even so, you still might want to make large gifts of appreciating assets this year. Why? Here’s an illustration: if you gift shares valued at $52,000 to a relative, you will draw down your $5.12 million lifetime gift/estate tax exemption by $39,000 ($52,000-$13,000). Yet the future appreciation of these shares will not be included within your taxable estate. This year, you and your spouse can each give away up to $5.12 million worth of appreciating assets without incurring federal gift taxes.4

 

An ILIT may be worth a look. Death benefits from life insurance policies are rarely subject to federal tax. However, if you have any “incidents of ownership” (i.e., have or have had the ability to make beneficiary, payment, loan or cancellation decisions), the policy proceeds may end up in your taxable estate.4

 

This problem tends to affect unmarried taxpayers most, though married couples may also face it. One response is to create an irrevocable life insurance trust (ILIT) – a trust that owns an individual or couple’s life insurance policy/policies. Upon the death of the insured, the policy proceeds go into the trust rather than the insured’s taxable estate. The proceeds can subsequently be directed to the named beneficiaries of the ILIT. Two asterisks here: you have to stay alive for at least three years after moving any existing life insurance policies into the ILIT to keep the insurance proceeds out of your estate, and you don’t want to name the estate as the policy beneficiary as that negates the whole purpose of the ILIT.4

 

It is time to carefully review your estate planning strategy in light of the potential changes ahead and the window of opportunity that may soon close.

 

S. Brett Anderson may be reached at (832) 230-1896 or banderson@allsureinsurance.com.

 

http://www.allsureinsurance.com

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – businessweek.com/investor/content/dec2010/pi20101223_554594.htm [12/23/10]

2 – www.ppglc.com/CYETG11_2B.pdf [2011]

3 – online.wsj.com/article/SB10001424052970204059804577227450551030364.html [2/18/12]

4 – www.smartmoney.com/retirement/estate-planning/estate-tax-tips-for-married-couples-1300466869017/ [1/30/12]

5 – www.fa-mag.com/online-extras/6827-new-estate-tax-law-poses-dilemma-for-the-rich.html [2/14/10]

6 – www.forbes.com/2010/12/23/married-couples-guide-new-estate-tax-personal-finance-deborah-jacobs.html [12/23/10]

Posted in Texas Life and Health Insurance | 0 Comment

What if Greece exits the Euro?

Posted on February 20, 2014 by

WHAT HAPPENS HERE IF GREECE EXITS THE EURO?

 

Another downturn? Or something much less severe?

Presented by S. Brett Anderson

 

If Greece leaves the eurozone in the coming months, what kind of financial ripples could reach America?

 

Nobody can predict the endgame yet; Greece may even stay in the euro, although that is looking less and less likely. The big concern isn’t what happens in Greece – it is about what could happen in Spain or Italy as a result of what happens in Greece.

 

The effects from a Greek default (and eurozone exit) would likely be felt on four fronts in America – but first, an economic chain reaction would almost certainly play out in Europe.

 

A Greek default could imperil Spain & Italy. If Greece leaves the euro, then Greek bondholders lose their money. A crisis of confidence in the euro could prompt institutional investors to either walk away or demand even higher interest rates on Italian and Spanish bonds. The European Central Bank could then step up and provide emergency lending, bond buying and recapitalization efforts. If those efforts were to fall short, the worst-case scenario would be a default in Italy and/or Spain.

 

It could also hurt U.S. banks that aren’t sensibly hedged. If Italy and/or Spain default, a severe downturn could hit EU economies and U.S. lenders would be looking at a huge potential problem. If they are capably hedged against the turmoil in the EU, they could possibly ride through it without a lot of damage. If it turns out they have made foolishly speculative bets (cf. Lehman Brothers, JPMorgan), you could have a big wave of fear, which in the worst scenario would foster a credit freeze reminiscent of 2008. Would the Fed step in again to unfreeze things? Presumably so. Without its intervention, you could have a Darwinian scenario play out in the U.S. banking sector, and few economists and investors would see benefit in that.

 

The good news (relatively speaking) is that U.S. banks have cut their exposure to Greece by more than 40% as that country’s sovereign debt crisis has unfolded. Pension funds and insurers have joined them.1

 

Stocks could fall sharply & the dollar could soar. The greenback would become a premier “safe haven” if foreign investors lose faith in the euro. At the same time, a crisis of confidence would imply big losses for equities (and by extension, the retirement savings accounts and portfolios of retail investors).

U.S. companies could be hurt by fewer exports to Europe. Right now, 19% of U.S. exports are shipped to EU nations. If a deep EU recession occurs, demand presumably lessens for those exports and that would hurt our factories. If institutional investors run from the euro, it would also make U.S. exports more costly for Europeans. Additionally, the EU is the top trading partner to both the U.S. and China; as Deutsche Bank notes, the EU accounts for 25% of global trade.2

Our recovery could be hindered. Picture higher gas prices, a markedly lower Dow, the jobless rate increasing again. In other words: a double dip.

 

In mid-May, economists polled by Reuters forecast 2.3% growth for the U.S. economy in 2012 and 2.4% growth in 2013. These economists also believe that were the fate of Greece not on the table, U.S. GDP might prove to be .1-.5% higher.2

If politicians play their cards right, we may see better outcomes. For example, Greece could elect a new government that decides to abide by the requested austerity cuts linked to EU/IMF bailout money. Greece could remain in the EU and banks in Spain, Italy, Germany and France could ride through the storm thanks to sufficient capital injections. Global stocks would be pressured, but maybe on the level of 2011 rather than 2008. (Maybe the impact wouldn’t even be that bad.)

 

In a rockier storyline, Greece becomes the brat of the EU – a newly radical government rejects the bailout terms set by the EU and IMF, Greece leaves the EU and starts printing drachmas again. The EU, IMF and maybe even the Federal Reserve act rapidly to stabilize the EU banking sector. Early firefighting by central banks results in containment of the crisis after several days of shock, with U.S. markets recovering in decent time (yet with investors still nervous about Italy and Spain).

  

Containment may be the key. If a Greek default can be averted or made orderly by the EU and the IMF, then the impact on Wall Street may not be as major as some analysts fear – and who knows, the U.S. markets might even end up pricing it in. Greece only represents 2% of eurozone GDP; our exports and credit exposure to Greece are minimal at this juncture. Our money market funds have mostly stopped investing in Europe. So with diplomacy and contingency planning afoot, a “Grexit” might do less damage to the world economy than some analysts believe.2

                                                                    

S. Brett Anderson may be reached at (832) 230-1896 or banderson@allsureinsurance.com.

www.allsureinsurance.com

 

Citations.

1 – www.csmonitor.com/USA/Latest-News-Wires/2012/0514/Greece-s-economic-woes-may-hurt-US [5/14/12]

2 – www.cnbc.com/id/47562567 [5/25/12]

Posted in Texas Life and Health Insurance | 0 Comment