North America seeing oil production renaissance

By Phil Flynn

We're Number One, Were' Number One!

The United States is the world's largest oil producer! Ok not yet, but we will be! In fact it may happen sooner than people think. What am I talking about? People probably do not know that the United States is the world's third largest producer behind Russia and those pesky Saudi Arabians. In fact according to Houston Chronicle, "North America appears headed for an oil renaissance, with crude production expected to hit an all-time high by 2016, given the current pace of drilling in the U.S. and Canada, according to a study released by an energy research firm this week. U.S. oil production in areas including West Texas' Permian Basin, South Texas' Eagle Ford shale, and North Dakota's Bakken shale will record a rise of a little over 2 million barrels per day from 2010 to 2016, according to data compiled by Bentek Energy, a Colorado firm that tracks energy infrastructure and production projects. Canadian crude production is expected to grow by 971,000 barrels per day during the same period, with much of the oil headed for the U.S. Combined, the U.S. and Canadian oil output will top 11.5 million barrels per day, which is even more than their combined peak in 1972.Goldman Sachs has estimated the U.S. could move from being the No. 3 oil producer behind Saudi Arabia and Russia to the No. 1 spot by 2017." Take that Saudi Arabia!

Some savvy year-end tax moves

From: Fidelity Viewpoints

Although it’s been a volatile year for stock markets, it doesn’t mean your tax picture has to suffer. By taking advantage of some strategies before the end of the year, you could potentially find yourself with a smaller tax bill next April.

Here are some strategies that may potentially lower your tax bill and help improve your tax picture for future years.

1. Consider tax-loss harvesting

Tax-loss harvesting is the process of selling investments that have lost value in order to offset any capital gains you realized during the year. This may be a strategy to consider using this year due to the stock market’s turbulent performance. If you end up with more losses than gains, you can use the remaining losses to offset ordinary income up to $3,000. If you still have excess losses, you can carry them over to offset capital gains and ordinary income in future years.

2. Max out your tax-advantaged retirement accounts

A simple yet potentially powerful way to lower your tax bill and save for retirement is to max out your tax-advantaged retirement accounts—such as a 401(k) plan, 403(b) plan, or IRA. Contributions generally are not included in your taxable income for the year, meaning that your tax liability could be reduced by your marginal tax rate, multiplied by the amount of your contributions—for example, 28 cents on the dollar if you’re in the 28% tax bracket.

The 401(k) plan contribution limit for 2011 is $16,500, which could translate into a $4,620 current-year tax savings if you’re in the 28% bracket. And, if you reach age 50 before the end of the year, you can kick in another $5,500 as a “catch-up” contribution. The ability to contribute at this level depends on your income and plan contribution rules.

For IRAs, the contribution limit for the year is $5,000, or $6,000 if you’re 50 or older in 2011. You don’t have to make a contribution before the end of the calendar year, as you do with a workplace savings plan. You can contribute to an IRA for 2011 right up until the tax-filing deadline of Monday, April 16, 2012. Remember, there are income restrictions for deductible contributions into an IRA. The deduction phaseout starts at $90,000 of modified adjusted gross income (MAGI) for couples filing jointly and $56,000 for single filers. And don’t forget about low-cost, tax-deferred annuities as another option because, unlike an IRA or 401(k) plan, there are no annual contribution limits.

3. Consider itemizing deductions and delaying income

By bunching deductions in the current year and pushing income into next year, you may be able to lower your 2011 tax bill. Among the candidates for deduction bunching are charitable contributions, elective surgery, and unreimbursed work expenses, such as travel, professional education, or uniforms. Keep in mind that you can only deduct medical expenses that exceed 7.5% of your adjusted gross income (AGI), and miscellaneous expenses, as defined by the IRS in Publication 529, above 2% of AGI.

On the income side, you could consider delaying payment for freelance or self-employment work, or asking your company to defer any year-end bonus, until the new year begins.

To make this strategy work, you will need to itemize your deductions when filing taxes rather than take the standard deduction ($11,600 for joint filers and $5,800 for single filers).

4. Consider contributing to charity

Contributions to public charities can be an attractive strategy for reducing taxes. The amount of your deduction for charitable contributions is limited to 50% of your AGI, and may be limited to 30% or 20% of your AGI, depending on the type of property you give and the type of organization you give it to.

5. Consider opening a 529 college savings plan

A 529 College Savings Plan is a tax-advantaged vehicle for putting aside money for the education of a child, grandchild, or loved one.

You can contribute up to $13,000 ($26,000 per married couple) per beneficiary, per year, without incurring federal gift tax, and the contributions are generally considered to be removed from your estate, even though you retain control over the distribution of the funds. For an accelerated transfer, you can contribute up to $65,000 ($130,000 per married couple).

Any earnings are tax deferred, and withdrawals are tax free if they’re used to pay for qualified higher education expenses of the beneficiary.

Taking a tax-efficient approach to investing can be a smart move, but the real keys to potential success are staying disciplined and having a big-picture perspective. These are just some potential tax strategies to help you manage your financial life more efficiently. Depending on your individual situation, there may be other strategies to help provide even greater tax savings. Be sure to ask your tax professional for more information.

Stocks Disappoint on Presidential Cycle

By Tom Lydon

If the S&P 500 ends 2011 in negative territory, it would be only the third time in over 80 years that the U.S. stock benchmark lost ground in the third year of the presidential cycle. The other two instances took place in the 1930s.

Many analysts and observers have tried to link politics with market movements, but the unusually weak market performance this year, during President Barack Obama’s third year in office, does not bode well for equities and stock exchange traded funds next year, according to an S&P strategist.

Looking solely on the correlation of the market with that of a President’s term in office, 2012, the fourth year of President Obama’s term may disappoint investors, Sam Stovall, Chief Equity Strategist at Standard & Poor’s, said in a research note.

The S&P 500 has historically advanced in the third year of a President’s term, advancing on average 15.9% per year since 1945, compared to average gains of around 5% to 6% for the first two and fourth year.

“The political party in power wants to remain in power. Therefore, it will do all it can to push through economically stimulative legislation that will benefit the economy before the following year’s presidential election,” Stovall said. “Since investors are no better than hyperactive first-graders playing musical chairs, they won’t wait until year four to see if the stimulus has worked.”

The weak performance in the third year of a President’s term may portend disappointment for the next year. After each time the S&P 500 posted a third-year price less than 10%, the index dropped an average 10% in the following year.

“If investors believe they have nothing to look forward to, it shows up first in a sub-par third year performance and is then confirmed in a fourth year decline,” Stovall added.

Is The Lottery Ever Worth Your Money?

The lottery is just one of those fun things that we do as a way to try and beat the odds and strike it rich, right? For some that is true, but for others, often those with the least amount of money to spare, the lottery is a serious income drainer. Is it really as detrimental to some people's household budgets as some people say?

The Facts
Many consumer finance gurus espouse negative views regarding the lottery. This is because the odds of winning the lottery are so remote that statistically speaking, there is, realistically and practically, no chance of hitting the big jackpot. According to author and financial talk show host Dave Ramsey, the odds of winning the big jackpot are 1 in 125 million, but numbers like that are hard for us to comprehend in a real way, so we'll try to break it down with the following example.

Let's assume that you went to the largest stadium in the world which happens to be in North Korea. The stadium was filled to capacity. As part of the price of your ticket, you were entered into a lottery where you could win a new car. In that case, your odds of winning are 1 in 150,000.

Would you be sitting on the edge of your seat in that stadium as they're reading the ticket number or would you believe that, realistically, you're not going to win? In order to equal the odds of winning the lottery you would have to fill that same stadium to capacity 833 more times and put all of those people together and have the same drawing for the one car. Would anybody believe that they could actually win in a crowd of people that large?

Still not convinced? If they were giving away a new home to just one person and everybody in the six most populated states in the United States entered, that would equal your chances of winning the lottery jackpot.

Your chances of winning the lottery are exceedingly remote, but that doesn't stop people from playing. In California, a study found that 40% of those who played the lottery were unemployed; in Maryland the poorest one-third of its population buys 60% of all lottery tickets; and in Michigan, people without a high school diploma spent five times more on the lottery than those with a college education. Finally, in numerous states, when the lottery was introduced, the number of adults who gambled increased 40%.

Play the Lottery for Retirement?
A curious headline was placed on the home page of the Mega Millions website on March 25, 2011 on a day when the odds of winning had gone up to 1 in 175 million. The headline read, "Save for Retirement." Anti-gambling groups cried foul at this apparent attempt to spin the lottery as a means to fund a person's retirement and lottery officials quickly issued a statement saying that they were running a campaign that was encouraging people to dream about how they would use their winnings if they won.

With this in mind, is there a way to use the lottery as a retirement vehicle? Yes! One study in Texas found that a person without a college degree spent an average of $250 per year purchasing lottery tickets. If that same person were to start an IRA or other retirement vehicle that earned a conservative average 4% annual return and they contributed $250 per year for 30 years, they would have $15,392 once they reached retirement age. If they did the same thing for 40 years, that number would jump to more than $25,000. If it were possible to know the rate of future inflation, the number would be much higher.

Although some would argue that in today's economy there is no way to guarantee that the money would earn 4%, there's also no guarantee that it wouldn't earn far more than 4%, but all of that aside, the odds of having $15,000 after 30 years are largely in the person's favor. If that same person is betting their money on something with the odds of getting that money back at 125 million to 1, wouldn't they be ecstatic to know that they can nearly guarantee that they will make money by investing?

The Bottom Line
Much is said about how the lottery is essentially an extra tax on the poor and since statistics appear to show that an overwhelming amount of lottery participants reside in the lower economic classes, that may be true. Save your money or even better, invest it something safe. Even a close to zero interest savings account is better than the lottery.

Read more: http://financialedge.investopedia.com/financial-edge/1011/Is-The-Lottery-Ever-Worth-Your-Money.aspx#ixzz1giuBoi6R

Explaining High Oil Prices

By Christian Berthelsen, Wall Street Journal

The U.S. economy is limping along, unemployment is still high, and gasoline demand for this time of year is at its lowest since the 1990s.

So why does a barrel of domestic crude cost around $100?

Oil prices have been on a tear lately, soaring 35% from the beginning of October to their recent peak in mid-November, and have crossed the $100-a-barrel threshold a handful of times. Various causes have been cited, including optimism that Europe's debt crisis would be resolved soon and a tightening supply picture. Fears have also surfaced that global supplies could be disrupted because of geopolitical fallout over Iran's alleged nuclear ambitions.

The big-picture is that despite weakness in the U.S., economic growth and energy demand are strong enough in the rest of the world, particularly in emerging markets.

Growth in demand in emerging markets as a whole is expected to slow from the torrid pace seen in recent years. But forecasts say it will still outpace demand in the U.S. and Europe and will still be strong enough to push oil prices higher. In the major emerging markets that oil investors focus on, such as China, India and Brazil, demand is still expected to grow 4.6% this year and 4.4% in 2012.

Tight global supplies are expected to keep prices high as well, even with the resumption of flows from Libya, where for months the revolution halted prewar exports of 1.6 million barrels a day. As much as one-half of Libya's former oil exports are expected to be restored by year-end, but there is still little slack in the global system.

Rising prices are leading to changes in the direction of flows in the global marketplace for oil products. One big example: Surging foreign demand for fuel products refined from crude—particularly for distillates such as diesel—has turned the U.S. into a net exporter of fuels.

Those Over 50 Targeted in Investment Scams

By Kelly Greene, Wall Street Journal

Securities regulators and prosecutors are battling what they say is a nationwide surge in investment fraud against baby boomers.

In many cases, the victims pursued risky bets to overcome losses suffered during the financial crisis—a trend that regulators say is worsening.

State securities officials say they expect the number of enforcement actions involving investors age 50 or older to hit a record this year.

Last year, there were 1,241 criminal complaints, cease-and-desist orders and other regulatory actions launched at the state level involving investors age 50 or older, according to the North American Securities Administrators Association, a group of state regulators. That was more than double the 506 cases in 2009.

There are about 77 million baby boomers in the U.S., or 25% of the nation's population, and the oldest began turning 65 this year. Many of their retirement portfolios were ravaged by the financial crisis, erasing billions of dollars in assets.

Despite a steep rebound since March 2009, the Dow Jones Industrial Average is down 15% from its peak in October 2007, causing many baby boomers on the cusp of retirement to stretch for higher returns. That makes those investors especially vulnerable to fraud, securities regulators and prosecutors contend.

Exotic unregistered securities such as promissory notes, private placements and investment contracts have emerged as the main vehicles for fraud involving older investors. Of the enforcements in 2010 involving investors age 50 or older, cases involving unregistered securities outnumbered those related to ordinary stocks and bonds by a ratio of five to one, according to the securities administrators' association.

Older investors often buy such securities through self-directed individual retirement accounts, which allow people to plow their money into investments beyond traditional stocks, bonds and mutual funds, such as real estate, gold and oil wells.

The number of Ponzi schemes also has surged, regulators and prosecutors say, as has real-estate fraud and the number of cases in which investments are pitched at "free-lunch" seminars run by investment promoters.

The increase comes amid widespread efforts to deter wrongdoing. Since 2007, at least 19 states have toughened their laws, usually by increasing the penalties for financial crimes or securities violations against people who are at least 60 years old.

The number of enforcement actions at the state level vastly underestimates the extent of the fraud, regulators say.

About 14,000 investigations were undertaken by state regulators in 2009 and 2010, according to the securities association, many of which could take years to complete.

Money Mistakes Couples Need To Watch Out For

Nearly a quarter of married Americans would hide affairs from their spouse, a recent study suggests.

OK, they’re talking about financial affairs – but those can lead to divorce just like the sexual kind.

A recent press release from the National Foundation for Credit Counseling points to court records showing financial stress as a primary reason for divorce.

A 2009 study called “Bank on It: Thrifty Couples are the Happiest” backs that up, saying money problems are the third strongest predictor of divorce, following drug abuse and sexcapades.

There are obvious financial perks to marriage – like splitting the bills. But a poorly managed partnership can easily wipe out any advantages, if not lead to outright disaster and divorce. Here are some of the big mistakes that can take the money out of matrimony…

1. Poor communication.

It's important to talk about money early and often with any significant other. If marital harmony isn’t reason enough, consider that in a divorce you could also end up being responsible for your ex’s debts. So it’s important to regularly set aside time for a financial discussion to prevent problems The NFCC says you can “make it a casual conversation about a serious subject,” but “don’t point the finger of blame.” Maybe make it a part of date night, or breakfast in bed. But talking early and often about spending, concerns, and progress toward your goals is important for any relationship.

2. Keeping secrets.

Many spouses hide purchases from each other. Some are small, some are big, but any of them can be an unpleasant surprise on the bank statement. This Marketplace segment interviews a psychologist who explains: “Part of the reason we don’t want to tell our spouse about spending is that we don’t want to feel like a child again.”

The obvious solution for that is to treat each other like independent adults. For some couples this means separate bank accounts, or setting limits on what each can spend without asking the other. But being less judgmental of each other’s purchases goes a long way too.

3. No budget.

It’s hard enough keeping track of our own spending without a budget, but virtually impossible when there’s another spender whose actions you don’t know about. A budget has advantages beyond pinpointing where we overspend – it keeps both parties on the same page, can be used to start and maintain discussions about money, and provides a reality-based foundation for those talks where emotions (and accusations) can otherwise run rampant.

As we mentioned in 5 Steps to Building a Budget That Works, creating a specific goal – like saving a certain amount for a home, a car, retirement, or a baby – is an important first step in creating the motivation to stick to a budget. Whether you use a free budget spreadsheet or an online solution like Mint.com, come up with a good goal together.

4. No will.

Another document people put off too long or altogether: a will. It’s not a fun subject, but people die, sometimes unexpectedly. Whose name is on retirement accounts and insurance policies, and what should couples expect if the worst happens?

Missing or forgetting to update documents could mean legal battles with an ex or in-laws, so it’s best to spell everything out. In How to Get a Will on the Cheap, Stacy highlights options ranging from free or cheap – doing it yourself with online software – to hundreds of dollars, done through a lawyer.

5. Ignoring differences.

As the saying goes, opposites attract. This can be true with spending styles too: Some people are successful savers while others rack up debt and don’t worry about the consequences until it’s too late. Some are terrified of investments, while others are willing to take big risks for potentially big rewards. The easiest thing to do is simply let your partner spend the way he or she wants, but it’s not the smartest.

Marriage has implications for your taxes, your credit score, your bank balance, and almost every other aspect of your financial life. Discuss spending scenarios and uncover expectations are for investments, savings, and spending – along with why you each feel that way. Then work out a compromise.

6. Sharing the wrong things at the wrong time.

It’s romantic but not always pragmatic to say “we’ll share everything,” especially early in a relationship. Whose name goes on a lease or title? What happens if you break up – who keeps what, and who pays for it? Are pre-marriage assets shared or kept separate? If one person has more debt, does the other co-sign a loan or credit card, help pay it down, or just stay out of it?

Being in love doesn’t mean you’re insensitive for asking these questions. They’re all things to discuss relatively early in a relationship, even if they aren’t decided until later.

Bottom line? There’s no one right way to approach money and marriage. But there’s definitely a wrong one: not talking about it.

Read more: http://www.moneytalksnews.com/2011/12/12/6-top-money-mistakes-couples-make/#ixzz1gLsIn7oF

The Stock Market and the Media: Part 2

The Media Spin

What makes the impact of news even more nebulous is this: There is almost always both good news and bad news about a stock. In addition, the news story itself almost always has both a positive and negative aspect.

Let’s say a company reports another in a string of quarterly losses. If the stock goes down, it’s due to disappointment that the company still hasn’t been able to climb into the black. If the stock goes up, it’s because the loss was less than the previous quarter. The action of the stock comes first. Then the news on the stock is tailored to fit the move by accentuating either the positive or negative aspect of the story.

The truth is that, except in cases of obvious causality (when the news triggers an immediate and decisive reaction), we never know for sure why the market or a stock does what it does. Since a stock is bought and sold by thousands of individuals every day, it’s reasonable to assume there is more than one reason causing its behavior. In fact, there can be a myriad of reasons, some knowable, others not knowable. Buy and sell decisions are often motivated by a host of non-news-related, silent triggers that are rarely cited by the media.

However, over the years we have been conditioned by Wall Street and the financial media to believe that stocks move up and down for identifiable reasons. This is the way the stock market has been covered by the media forever: Tie the event to whatever news makes it plausible. Completely ignored is the independent force that controls everything: The market itself and the emotions of those who respond to it. This media treatment of the stock market is so routine, so accepted, and so entrenched, that its validity is never questioned. Millions ask “What happened in the market today?” and millions respond with what they hear/read in the media, as if it were fact.

Stock market news is reported by news organizations, not by behavioral scientists, psychologists, or students of the subtleties of the market. The business of news organizations is to report news. They are trained to answer the “why” of things with logical explanations that make for neatly packaged, complete stories. They are well-intentioned, with little awareness that their market stories are misguided. There is far less excuse for advisors and brokers in the securities business who often give the same vapid explanations. They should know better, but most don’t.

The Media Wears No Clothes

I feel very alone in discussing this subject. The emperor has worn no clothes for such a long time, no one seems to care. But this is important. We’re talking about people’s money. If our net worth suddenly drops sharply, aren’t we entitled to an honest, knowledgeable explanation of what is known and, more importantly, what isn’t known? Why is truth in advertising more important than truth about our money?

It is a myth that what’s reported on market behavior by the media is fact.

It’s a myth that such behavior can be explained by knowable, identifiable reasons (surprises like invasions, tsunamis, and assassinations are exceptions).

Correcting such long-entrenched, widely held misconceptions is difficult. It’s unlikely to happen. I’m hoping those media sources with the most air-time and print space will try. Here are my suggestions.

In my view, every discussion on TV, radio, newspaper, magazine or the Internet that gives reasons for a big move in the market is unbalanced, incomplete, and misleading—unless it alludes to these six points:

1. The stock market itself is the all-powerful final arbiter. The day, hour, or minute it feels the rubber band has been stretched too far, it’ll do something about it, not before.
2. Human emotions, responding to the markets’ gyrations and triggered by fear and greed, likely play a key role.
3. Worries over a wide range of overlapping factors, both fundamental and technical, may or may not be additional influences. (Future market historians may well cite long-standing housing and credit worries as major factors in shaping the market’s trend. The significance of their role on the particular day of July 26, however, is unknowable.)
4. A market that acts randomly and irrationally cannot be explained logically.
5. Except in cases of surprise, most news is irrelevant in explaining the market’s action on a particular day. The stock market leads; the news follows.
6. The answer to the question, “Why today?,” is: “I don’t know—nor does anyone else.” The markets are complex and perverse. They defy definitive answers.

They Report, You Decide

In all likelihood, things will stay as they are. So it is up to you, the informed individual investor, to rise above the misinformed media.

If you are looking to the stock market to grow your net worth, you should be aware of the enigmatic nature of the phenomenon you’re dealing with—even if your news provider is not. When you’re watching or reading the whys of what happened in the market that day, know that the reporter is innocent and well-intentioned but clueless. What he presents as facts are guesses that may or may not be pertinent.

I know this sounds terribly arrogant. I don’t mean to be. On the contrary, if there ever were a situation that calls for humility, it’s dealing with the stock market. I hope investors develop a respect for the perplexity and primacy of the market itself and remember it is autocratic, not democratic. When it acts as you predicted, it is mostly coincidence.

Fortunately, the media’s daily ineptness is of less concern to someone who is truly a long-term investor—and maintains that long-term focus even when listening to the daily news. Big market moves may be inexplicable, but a long-term or dollar-cost-averaging approach precludes the need for explanations.

What can be said with confidence is that the one thing that is not random and irrational about the market’s performance is its basic, underlying, 100-year entrenched uptrend.

Focus on the long term and you can ignore the media’s distortions.

This article is excerpted from “The Dick Davis Dividend: Straight Talk on Making Money From 40 Years on Wall Street,” Copyright 2008 by Dick Davis.

Pitfalls of Inherited IRAs

By Kelly Greene, Wall Street Journal

(For) parents who have stashed most of their savings in retirement accounts—and the guardians of children who inherit them— they should take special precautions to make sure those children get the most from their inheritance.

If you are the guardian of a child who inherits such an account, you should consider moving the assets into an inherited IRA for the child rather than simply withdrawing the money and paying a sizable chunk of the inheritance in taxes upfront.

Even if you don't expect anyone in your family to tamper with your plans, inheriting an IRA is much more complicated than you might expect. Here are some ways to handle it smoothly.

Think before you liquidate. Leo Casper, a certified public accountant in Moorestown, N.J., meets with his clients' adult children to show them how much more valuable an inherited IRA could be by leaving it intact and taking annual withdrawals, rather than liquidating it and paying taxes right away.

If you inherit a $100,000 IRA at age 40, "it can easily grow into three, four, five times the amount that was inherited," he says. By contrast, opting for the cash could leave you with only a $60,000 inheritance after taxes.

Move, and retitle, the account correctly. If you inherit an IRA from anyone other than your husband or wife, you can't roll it over into your own IRA. Instead, you have to retitle the IRA so it is clear the owner died and you are the beneficiary. Mr. Casper suggests using this format: "Robert Jones, Deceased (date of death), IRA F/B/O (for benefit of) William Jones, Beneficiary."

If you are moving the account to a new IRA custodian, make sure you do a direct "trustee to trustee" transfer. If the check is made out to you, and you are anyone other than the surviving spouse, the IRS will consider it a "total distribution" subject to tax, effectively ending the IRA.

Meet the deadlines. If the IRA owner dies after 70½, when required withdrawals start, and didn't yet take a withdrawal for that year, the heir must do so by Dec. 31 of the same year, Mr. Casper says. Those who miss the deadline are subject to a 50% penalty on the amount that should have been withdrawn.

The deadline for taking the first required withdrawal from the inherited account is Dec. 31 of the year following the year of the owner's death.

Do the right math. With an inherited IRA, you have the chance to spread distributions across your life expectancy—a big advantage if you have decades left to live. That way, the bulk of the account can increase in value while taxes are deferred.

But you might not realize that the way you have to calculate the minimum IRA withdrawal amount is different from the way retirees calculate required distributions from their own accounts.

First, look up your life expectancy on the table in IRS Publication 590 at www.irs.gov. Each year, subtract a year from your initial life expectancy to figure out how much to withdraw. Most IRA custodians will calculate it for you—but you need to make sure they are doing the right math for an inherited account.

Check the code. When you get your 1099 form, which reports distributions you receive, make sure that it includes "Code 4," — the code used to show that it is a distribution on account of death.

Keep your own copy of the beneficiary form.

Know the Roth rules. Yes, there are no required minimum distributions for owners of Roth IRAs. But heirs to such accounts are required every year to withdraw a minimum amount specified by the IRS or pay a 50% penalty. Still, there is some good news: No tax is due on those required withdrawals.

The Stock Market and the Media: Part 1

Investors are faced with a daily barrage of business news. There's keen competition over who can break the story first. The clear inference is that the news matters—that keeping abreast of the news, especially as it relates to one’s holdings, is one of the keys to investment success.

One of the worst things that can happen to a long-term investor is to be instantly and totally informed about his stock. In most cases, spot news fades into irrelevance over time.

What’s relevant is what the market decides to do. The news follows the market, not the other way around.

The Media's Mis-Focus

One big challenge faced by individual investors is dealing with misleading information. The financial media’s inept handling of news is a constant irritant to me. Perhaps I’m overly sensitive because, unlike most business reporters, my background is in stocks, not news.

The media’s lack of insight in reporting financial news is on display 24/7, but it is most glaring on big move days. On Thursday, July 26, 2007, the Dow Jones industrial average fell 450 points. It had been on a tear most of the prior year, climbing over 3,000 points from mid-July of 2006 to mid-July of 2007. During that steady rise, stocks climbed the typical “wall of worry”—growing weakness in the sub-prime lending and housing markets, worsening borrowing conditions, slowing economic growth, and so on. The Dow reached a historic high of 14,000 on July 16, 2007, but in the following week reversed itself with a vengeance. It suffered one-day losses of 149, 226 and 208 points. But the big hit came on July 26, when the Dow plunged 450 points to its low, closing down 311 on huge volume.

On that evening’s news, the media struggled with explanations. The News Hour with Jim Lehrer on PBS is among the most prestigious, reliable news sources on the air. I rarely miss it. Jim Lehrer, Gwen Ifill, Ray Suarez, Margaret Warner, Judy Woodruff, and Jeffrey Brown are all consummate professionals. On the night of July 26, award-winning 30-year veteran reporter Ray Suarez asked his two guest experts to explain why the stock market plummeted that day.

The choice of guests—two economists—negated from the get-go any insightful answers. It reflected the misguided thinking of all media everywhere: That a meltdown in the market must be tied to the news of the day. Interviewed were Thomas Lawler, a housing market consultant, and Diane Swonk, chief economist for a financial services firm.

Since the news that day revolved around housing and credit problems, these were logical choices—except for the fact that the market is illogical. For a full 10 minutes, both guests spoke eloquently about what they know, which is not the stock market.

However, nothing that they said could not have been said the day before, the week before, or the month before. They were never asked, “But why today?”

This same inadequate explanation was repeated by media outlets throughout the country. Reasons were given by everyone except those who have insight into investor behavior, the complexities and randomness of the stock market, and the futility of trying to reduce explanations for the market’s actions to one or two factors. Reporters who didn’t know were asking analysts who didn’t know. The result was a public that didn’t know. But none of the parties knew that they didn’t know.

But Why Today?

So, why was it that by 2:40 p.m. on Thursday, July 26, the Dow had lost 450 points—when the news background was exactly the same as it had been a week earlier when the Dow topped 14,000? In fact, the same bad news on the credit and housing markets had been dogging the market not for days or weeks, but for months.

What was there about this particular hot summer day in July that suddenly caused frenzied selling with news that had been ignored for so long?

The answer, of course, is that no one knows. But since the news that day was “old hat,” it’s reasonable to assume something else was going on. Based on behavioral studies, if not just plain common sense, it’s likely that investor emotions played a role—probably a dominant one. Fear and greed are highly contagious. Both are quickly activated by sudden, extreme price moves. The intensity of the selling and the steepness of the decline make investors believe that their worst fears are about to become a reality. As prices plunge and momentum accelerates, their instinct is to sell to protect profits and limit losses.

In other words, a major catalyst for the carnage is the unnerving action of the market itself.

Non-News News

Part of the problem is that, while some news does involve sharp and sudden stock reactions (only when it involves surprise), most of the never-ending flood of daily news is routine, insignificant and meaningless in terms of durable impact. It is important to PR firms, journalists, TV reporters and traders because it gives them a means of making a living.

But to the long-term investor, it is little more than filler and noise.

I’m talking about news of quarterly earnings, most acquisitions, litigation, layoffs, product recalls, strikes, management changes, broker buy and sell recommendations and upgrades and downgrades, short interest, insider selling and so on. Then there’s the non-stop stream of statistics on the economy.

These news topics are all important—they are what shape the underlying direction of a stock and the overall market. But there are few news stories that, standing alone, have long-term significance. What’s important is repetition or the lack of it. The long term is made up of a lot of short terms. When one news story, let’s say a report of higher earnings or a decline in the trade deficit, is confirmed or negated by the next news release and then the one after that, we begin to get a trend with some possible long-term consequence. Sometimes it takes years for such a trend to develop.

This article is excerpted from “The Dick Davis Dividend: Straight Talk on Making Money From 40 Years on Wall Street,” Copyright 2008 by Dick Davis.

Selling Your Life Policy?

By Rachel Ensign, Wall Street Journal

More companies are trying to buy people's life-insurance policies. But are these so-called life settlements worth it?

With life settlements, a company buys your whole-life insurance policy for more than an insurer would pay you if you canceled the policy, but less than what your death benefit would be. The buyer then continues paying the premiums and eventually receives your death benefit.

But insurance experts say these deals aren't for everyone and can be prone to fraud.

A settlement may be a good idea if your policy's beneficiary has died and you have no one to replace him or her, or if you no longer need insurance. How much you'll be offered depends on your life expectancy, premiums and death benefit.

I want to get my older teenagers involved in handling their finances?

The challenge is to develop a series of cumulative steps that will make the world of personal finance visible, credible, and appealing to young adults. What follows is a collection of various steps to consider for creating financial coming-of-age traditions tailored to your family's values and circumstances. They are offered as a way to jumpstart brainstorming. Specific traditions will obviously vary for each family according to family values and family wealth.

Once a child turns 16, consider getting a credit card in the child's name, with the parent as the guarantor. At age 18, consider a low-limit card for which the child is responsible, in addition to a card in the parents' name to use in case of emergency and/or for purchases that in your family are paid for by the parent. Help your older college student to order a credit report from one of the national reporting agencies. Throughout the college years, and especially early on, keep the communication about credit card use ongoing.

In families where inheritances in the form of trust funds are part of the picture, consider working with your attorney to develop a series of steps designed to draw your child gradually into trust management while educating them about the world of personal finance. For example, trust documents can specify that young adult heirs become co-trustees with limited responsibility and authority before assuming full responsibility at a later age.

At age 18 a child can open his or her own checking and savings account. Consider making a parent/child visit to the bank to open these accounts an honored coming-of-age ritual in your family. During the visit with the bank officer, review how to track deposits and withdrawals, arrange for an ATM debit card and a first PIN number. Review safe ATM machine habits. Help your child think through what percentage of earned income, and of gifted monies, will go to checking versus to savings. Use this opportunity to promote the notion that "in our family"—or at least in smart circles—people save 10% to 20% of every dollar they earn, starting with the first dollar.

Once a child has earned income—income reported on a W2 form at year-end—consider opening a Roth IRA account. When the child turns 18, she can directly open an IRA account herself. Explain that Roth IRAs are one of the most powerful personal financial savings vehicles available, and a potentially important source of long-term wealth. Contributions are made with aftertax dollars, but then grow tax-sheltered and (with reasonable planning and under current law) also escape taxation at withdrawal.

To fund a Roth IRA for a young adult, it is necessary for that young adult to have earned income. However, there is no IRS prohibition preventing parents or grandparents from funding all or a part of the contribution, if they choose to do so. Some families offer a parental (or grandparental) matching contribution, some families fund the entire contribution, while other families make up the difference between an agreed upon child's contribution and the IRS maximum allowed contribution—or between an agreed upon child's contribution and the minimum amount required by the IRA company to open an IRA.

Children grow up with an intuitive notion of their family's standard of living—but no dollar amount to associate with that standard of living unless parents share that information with them. At some point it becomes appropriate and helpful for parents to share information about their income and wealth with their children, a process that is perhaps the most profound financial coming-of-age ritual of all. There are few higher honors for a child than when a parent trusts the child with family's personal financial information. For this reason, coming to know one's own family net worth and income level, as well as the financial history and philosophy of one's parents, can be a fruitfully maturing experience in itself.

From: American Association of Individual Investors

Facts About The Coming Baby Boomer Retirement

#1 According to the Employee Benefit Research Institute, 46 percent of all American workers have less than $10,000 saved for retirement, and 29 percent of all American workers have less than $1,000 saved for retirement.

#2 According to a recent poll conducted by Americans for Secure Retirement, 88 percent of all Americans are worried about "maintaining a comfortable standard of living in retirement". Last year, that figure was at 73 percent.

#3 A study conducted by Boston College's Center for Retirement Research has found that American workers are $6.6 trillion short of what they need to retire comfortably.

#4 Today, one out of every six elderly Americans lives below the federal poverty line.

#5 On January 1st, 2011 the very first Baby Boomers started to retire. For almost the next 20 years, more than 10,000 Baby Boomerswill be retiring every single day.

#6 At the moment, only about 13 percent of all Americans are 65 years of age or older. By 2030, that number will soar to 18 percent.

#7 Right now, there are somewhere around 40 million senior citizens. By 2050 that number is projected to increase to 89 million.

#8 Back in 1991, half of all American workers planned to retire before they reached the age of 65. Today, that number has declined to 23 percent.

#9 According to one recent survey, 74 percent of American workers expect to continue working once they are "retired".

#10 According to a recent AARP survey of Baby Boomers, 40 percent of them plan to work "until they drop".

#11 A poll conducted by CESI Debt Solutions found that 56 percent of American retirees still had outstanding debts when they retired.

#12 A study by a law professor at the University of Michigan found that Americans that are 55 years of age or older now account for 20 percent of all bankruptcies in the United States. Back in 2001, they only accounted for 12 percent of all bankruptcies.

#13 Between 1991 and 2007 the number of Americans between the ages of 65 and 74 that filed for bankruptcy rose by a staggering 178 percent.

#14 What is causing most of these bankruptcies among the elderly? The number one cause is medical bills. According to a report published in The American Journal of Medicine, medical bills are a major factor in more than 60 percent of the personal bankruptcies in the United States. Of those bankruptcies that were caused by medical bills, approximately 75 percent of them involved individuals that actually did have health insurance.

#15 Public retirement funds all over the United States are woefully underfunded. For example, it has been reported that the $33.7 billion Illinois Teachers Retirement System is 61% underfunded and is on the verge of complete collapse.

#16 Most U.S. states have huge pension obligations which threaten to bankrupt them. For example, pension consultant Girard Miller told California's Little Hoover Commission that state and local government bodies in the state of California have $325 billion in combined unfunded pension liabilities. When you break that down, it comes to $22,000 for every single working adult in the state of California.

#17 Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern's Kellogg School of Management have calculated the combined pension liability for all 50 U.S. states. What they found was that the 50 states are collectively facing $5.17 trillion in pension obligations, but they only have $1.94 trillion set aside in state pension funds. That is a difference of $3.2 trillion. So where in the world is all of that extra money going to come from?

#18 According to the Congressional Budget Office, the Social Security system paid out more in benefits than it received in payroll taxes in 2010. That was not supposed to happen until at least 2016. Sadly, in the years ahead these "Social Security deficits" are scheduled to become absolutely nightmarish as hordes of Baby Boomers retire.

#19 In 1950, each retiree's Social Security benefit was paid for by 16 U.S. workers. According to new data from the U.S. Bureau of Labor Statistics, there are now only 1.75 private sector workers for each person that is receiving Social Security benefits in the United States.

#20 The U.S. government now says that the Medicare trust fund will run out five years faster than they were projecting just last year.

#21 The total cost of just three federal government programs - the Department of Defense, Social Security and Medicare - exceeded the total amount of taxes brought in during fiscal 2010 by $10 million. In the years ahead expenses related to Social Security and Medicare are projected to skyrocket dramatically.

#22 The Pension Benefit Guaranty Corporation is the agency of the federal government that pays monthly retirement benefits to hundreds of thousands of retirees that were covered under defined benefit pension plans that failed. The retirement crisis has barely even begun and the PBGC is already dead broke. The PBGC says that it ran a deficit of $26 billion during the fiscal year that just ended and that it will probably need a huge bailout from the federal government.

#23 According to a survey by Careerbuilder.com, 36 percent of all Americans say that they don't contribute anything at all to retirement savings.

#24 More than 30 percent of all investors in the United States that are currently in their sixties have more than 80 percent of their 401k plans invested in equities. So what is going to happen to them if the stock market crashes?

#25 A survey taken earlier this year found that 20 percent of all U.S. workers admitted that they had postponed their planned retirement age at least once during the last 12 months. Back in 2008, that number was only at 14 percent.

Excerpted from: Michael Snyder

Lower your 2011 tax bill - Part 2

Consider contributing to charity

Contributions to public charities can be an attractive strategy for reducing taxes. The amount of your deduction for charitable contributions is limited to 50% of your AGI, and may be limited to 30% or 20% of your AGI, depending on the type of property you give and the type of organization you give it to.

Long-term appreciated securities that have been held for more than one year and have increased in value may also be donated to any charity, whether a public charity or a private foundation. In this case, you are typically able to deduct the fair market value, and potentially eliminate capital gains tax on the appreciated value of the contribution.

Lower your 2011 tax bill - Part 1

Max out your tax-advantaged retirement accounts

A simple yet potentially powerful way to lower your tax bill and save for retirement is to max out your tax-advantaged retirement accounts—such as a 401(k) plan, 403(b) plan, or IRA. Contributions generally are not included in your taxable income for the year, meaning that your tax liability could be reduced by your marginal tax rate, multiplied by the amount of your contributions—for example, 28 cents on the dollar if you’re in the 28% tax bracket.

The 401(k) plan contribution limit for 2011 is $16,500, which could translate into a $4,620 current-year tax savings if you’re in the 28% bracket. And, if you reach age 50 before the end of the year, you can kick in another $5,500 as a “catch-up” contribution. The ability to contribute at this level depends on your income and plan contribution rules.

For IRAs, the contribution limit for the year is $5,000, or $6,000 if you’re 50 or older in 2011. You don’t have to make a contribution before the end of the calendar year, as you do with a workplace savings plan. You can contribute to an IRA for 2011 right up until the tax-filing deadline of Monday, April 16, 2012. Remember, there are income restrictions for deductible contributions into an IRA. The deduction phaseout starts at $90,000 of modified adjusted gross income for couples filing jointly and $56,000 for single filers. And don’t forget about low-cost, tax-deferred annuities as another option because, unlike an IRA or 401(k) plan, there are no annual contribution limits.

Although you’ll have to pay taxes on your workplace savings plan, IRA, and annuity savings when you withdraw them, you’ll potentially have benefited from years of compounded growth.

Some more year-end tax moves

Although it’s been a volatile year for stock markets, it doesn’t mean your tax picture has to suffer. By taking advantage of some strategies before the end of the year, you could potentially find yourself with a smaller tax bill next April.

Consider tax-loss harvesting

Tax-loss harvesting is the process of selling investments that have lost value in order to offset any capital gains you realized during the year. This may be a strategy to consider using this year due to the stock market’s turbulent performance. If you end up with more losses than gains, you can use the remaining losses to offset ordinary income up to $3,000. If you still have excess losses, you can carry them over to offset capital gains and ordinary income in future years.

Itemizing deductions and delaying income

By bunching deductions in the current year and pushing income into next year, you may be able to lower your 2011 tax bill. Among the candidates for deduction bunching are charitable contributions, elective surgery, and unreimbursed work expenses, such as travel, professional education, or uniforms. Keep in mind that you can only deduct medical expenses that exceed 7.5% of your adjusted gross income (AGI), and miscellaneous expenses, as defined by the IRS in Publication 529, above 2% of AGI.

On the income side, you could consider delaying payment for freelance or self-employment work, or asking your company to defer any year-end bonus, until the new year begins.

To make this strategy work, you will need to itemize your deductions when filing taxes rather than take the standard deduction ($11,600 for joint filers and $5,800 for single filers). Keep in mind that this strategy may not be effective if you’re subject to the alternative minimum tax (AMT). And you may not want to pursue it if you expect Congress to increase tax rates for 2012, or if you think the additional income could push you into a higher tax bracket next year.

Consider opening a 529 college savings plan

A 529 College Savings Plan is a tax-advantaged vehicle for putting aside money for the education of a child, grandchild, or loved one.

You can contribute up to $13,000 ($26,000 per married couple) per beneficiary, per year, without incurring federal gift tax, and the contributions are generally considered to be removed from your estate, even though you retain control over the distribution of the funds. For an accelerated transfer, you can contribute up to $65,000 ($130,000 per married couple).⁴

Any earnings are tax deferred, and withdrawals are tax free if they’re used to pay for qualified higher education expenses of the beneficiary.

Will the roller-coaster ride ever end?

By Jurrien Timmer, Manager of Fidelity Global Strategies

It is not a stretch to liken the stock market action of the past decade to a roller coaster. There seems to be no flat ground. It has been all up or all down.

We have seen this cycle play out twice since 1998: first among corporations in the early 2000s and more recently among consumers. Soon it will be governments. In fact, this is happening in Europe, as well as in the United States at the state and local government level.

The Internet bubble ride

First we had the Internet bubble during the late 1990s. This so-called tech bubble was fueled in part by the era of “creative” accounting, which eventually brought the price to earnings ratio on the S&P 500 up to 48 (which was three times the historical norm). Then the bubble burst and the S&P 500 declined some 53% from March 2000 to October 2002 as corporate valuations plummeted back down to earth. This decline was further compounded by 9/11, as well as several major accounting scandals (Enron, WorldCom).

The Fed responded to this downturn with aggressive monetary easing. Then-Fed-Chairman Alan Greenspan lowered short rates to 1%, and brought real (inflation-adjusted) rates below zero. Then, in 2003, the globalization boom took off, lifting emerging market stocks and commodities, as well as almost all U.S. stocks (especially small caps). In fact, by in 2003 an incredible 98% of all stocks went up. And so another thrill ride was under way, from late 2002 to late 2007, driven by global growth and ample liquidity.

This liquidity surge was the result not only of an easy Fed but also of a significant relaxation of bank lending standards. This was, after all, the era of “no-doc” lending. The result of easy credit and rising home prices was a housing bubble in the United States.

The housing bubble ride

By 2005, the market’s volatility had plummeted, creating a sense of complacency among investors, and with it a great buildup of debt among banks and consumers. But then the music stopped and the housing bubble burst, and down went the roller coaster, again. The S&P 500 lost some 57% from October 2007 to March 2009, as a massive deleveraging took hold among banks and households, which nearly brought the financial system to its knees.

But then, in 2009, the Fed and the rest of the world’s central banks responded once again, only this time not just with lower rates but also with quantitative easing. As a result, liquidity soared and growth came back, thanks also in no small part to a massive fiscal stimulus by China. Once again the roller coaster went up, with the S&P 500 rallying some 100% from March 2009 to May 2011.

Then, six months ago the roller coaster turned down once again, on weaker growth, a retreat of the liquidity wave, and a debt crisis in Europe. The S&P 500 declined some 20% in the span of only a few weeks. Global markets declined even more.

Will the ride stop?

The irony is that investors have had to endure these massive swings in stock prices for over 10 years, and right now have little to show for it. Today the stock market is more or less where it stood a decade ago, and almost any other asset class has beaten stocks over this time frame, from bonds to gold to cash. The action is frustrating enough to make even the most seasoned investor consider giving up on investing in stocks.

Why are we stuck in this deflation-reflation spiral? In my opinion, the past decade or so has been part of a major unwinding of debt, first among corporate balance sheets, then among households, and now among governments. Whenever deleveraging takes place, it is by definition deflationary. Balance sheets are literally being deflated, either through liquidation or an erosion of value. Stocks and other risk assets don’t like deflation (but Treasuries do). Earnings go down during deflation, along with stock prices. But then the central banks have responded when the pain gets to be too much to bear, and balance sheets and asset prices eventually get reflated again. It’s the cycle of reflation and re-leverage (eventually) leading to bubbles, which then burst, leading to a spiral of deleveraging and deflation. Deflation-reflation: That is what this cycle is all about.

Which begs the question: When can we finally get off this roller coaster and go back to the good old days of investing, when a well diversified portfolio could achieve reasonable returns in up markets, while helping to protect downside risk in down markets?

I think it won’t likely happen until all this debt has been purged from the system. The corporate sector has already done this, and today companies are lean and mean and flush with cash. Since 2008 it has been consumers who have been purging themselves of debt, either by choice through higher savings or by force through layoffs and foreclosures. Some progress has been made, but in all likelihood more time will be needed for the cycle to fully run its course.

This leaves the government. Since 2010, it has been the state and local governments that have been going through fiscal austerity, driven by the unwinding of fiscal stimulus and a reduction in tax revenues. Now with the Super Committee trying to come up with a deficit reduction plan, chances are that we will have some form of fiscal austerity at the federal level as well.

And, of course, we all know about the debt deleveraging in Europe.

The combination of a still-retrenching consumer and now potentially a retrenching government suggests that the forces of deflation and deleveraging are going to be with us for some time to come. This suggests further downside pressure on risk assets. However, offsetting these deflationary forces are more and more hints from the Fed that some sort of renewed reflation effort may be coming, most likely in the form of a QE3 consisting of large-scale asset purchases of mortgage-backed securities.

And it’s not just the Fed. The Bank of Japan has committed to more asset purchases, as has the Bank of England. And even the historically hawkish-sounding European Central Bank (ECB) has been buying Italian debt and has been expanding its balance sheet. On top of that, Brazil has been cutting rates, along with Australia, and now even Indonesia.

So it is entirely possible, if not likely, that a new reflation ride is starting, which could lift stock prices all over again. In fact, I suspect that the sharp rally in the stock market since October 4 is due to this renewed perception that the Fed is about to become proactive again with its monetary policy.

So the deflation-reflation cycle continues. Hopefully, we are embarking on another reflationary wave now, but until imbalances have been worked off, the cycle will likely continue. Some day it will come to an end and markets will become stable again. But my guess is that it won’t be anytime soon. In the meantime, the roller-coaster ride continues. Right now there are few good options, and you need to have realistic expectations regarding returns and volatility. In these times it makes sense to have a diversified portfolio and an investment plan that you are comfortable with and can stay with throughout the roller-coaster ride.

No budget deal: Now what?

A Deadline with no consequences - Until 2013

By Shihira Knight, VP Government Relations & Public Policy at Fidelity Investments

Many people expected an 11th hour deal, much as we saw with the debt limit last summer. I think the big difference was that the debt limit was viewed by most lawmakers as a real deadline with a major consequence: a potential U.S. government default. By contrast, November 23 was a legislatively fabricated deadline with no real consequences until 2013, when the spending cuts are supposed to take effect. One year is an eternity in politics.

So what happens now? Immediately, nothing. But starting in 2013, $1.2 trillion of spending cuts will begin to take effect, unless Congress rescinds them. The spending reductions will be spread out over 10 years. Half of those cuts will affect defense spending and the other half will affect domestic programs, including Medicare provider benefits. However, a host of programs are not affected by the cuts, including Social Security and Medicaid.

In the coming weeks and months, there are two questions to monitor. First, will these spending cuts actually happen, or will Congress intervene to reverse or modify them? Making any changes would require a new law, which may be challenging to enact in 2012, but it’s another story in 2013 or beyond, when a new Congress will be in place. Some lawmakers have already started talking about changing the mix of spending cuts.

The second question is, what happens to the temporary payroll tax relief and extended unemployment insurance benefits that are set to expire at the end of this year? It was assumed these items would be extended in the Super Committee bill. Now that there is no bill, their fate is less clear.

The risk of living too long

Older Americans must address the very real risk of living too long, of outliving their assets. Consider: In 2005, a 65-year-old male in 2005 could expect to live on average another 16 to 18 years, while a 65-year-old woman could expect to live on average another 19 to 21 years.

What’s even worse, though, is that most Americans are not factoring in the odds that they may live past life expectancy. For instance, a 65-year-old man has a 41% chance of living to age 85 and a 20% chance of living to age 90, according to published reports. A 65-year-old woman has a 53% chance of living to age 85 and a 32% chance of living to age 90. And, when it comes to a married couple, there’s a 72% chance that one of them will live to age 85 and a 45% chance that one will live to age 90. And if that wasn’t bad enough, there’s an 18% chance that one of them will live to age 95.

Sadly, however, most Americans — two in three — underestimate the possibility that they will live to average life expectancy. And that suggests that many Americans are likely unprepared not only for living to life expectancy, but into their 80s or 90s.

Those folks will learn, perhaps too late to do anything about it, that they have not saved enough money. Or perhaps, they will have to return to work or stay in the workforce to maintain their standard of living. Or perhaps, they will be forced to reduce their standard of living as they live past average life expectancy or whatever age they planned on living to in retirement.

To be sure, planning for the possibility that you might outlive your assets might seem like a difficult task. After all, you really don’t know how long you’ll live in retirement. It could be 20 or 30 years. Or it could be much less.

Excerpted from Robert Powell, MarketWatch

4 Addictive Brands Consumers Crave

Brand addiction is a subject that can generate tons of debate, because brand loyalty is personal and your list can reflect your preferences and be influenced by where you live. This makes the level of addiction highly subjective and difficult to measure. With those qualifiers in mind, here are four brands that have crossed the threshold into iconic brand-land.

Coca-Cola

By almost any measure, this carbonated beverage is king of the hill of brand loyalty. What separates Coca-Cola (from most other companies is that it has proven its durability through the passage of time. It was 125 years ago, when pharmacist John Pemberton mixed his syrup with carbonated water at Jacob's pharmacy in Atlanta, Ga. That original concoction sold for a nickel a glass, and sales averaged nine per day for the first year.

The company now sells over 500 brands in more than 200 countries, making it the first truly global brand. It's now the most recognized trademark in the world and the flagship product is still based off the same carbonated drink created in Atlanta, Ga.

Daily sales volume now numbers 1.7 billion, and the brand has evolved into a generic name, used around the world. When many people order a cola drink, they simply ask for Coke, whether it's available or not. Coke is a cultural phenomenon that has spawned hit songs and a treasure trove of old signs, coolers and other marketing items hunted by avid collectors.

Google

The reach of Google may now surpass even that of Coke, but who knows what this company will look like in over a hundred years. In the meantime, Google has become synonymous with internet search engines, gobbling up 65.6% of the U.S. search market. It's clearly the gorilla in the room, leaving second-place Yahoo far behind at 15.2%.

During the month, Google accounted for 11.9 billion of the roughly 18 billion searches that were conducted. Again, it crushed the competition, with Yahoo and Bing logging 2.7 billion searches each.

When the first plain paper photocopier was introduced by Xerox in 1959, the xerographic process invented by Chester Carlson became the standard of a dynamic new industry. "Xerox" became a verb, even if you were making a copy with another company's machine. Google now finds itself in the same position, as "Google it" has become the go-to method for searching the internet. Xerox lost its luster, so it remains to be seen how long Google can maintain its current dominance.

Disney

It's hard to imagine a world without Mickey Mouse, Donald Duck, Snow White, Tinker Bell, Bambi, Winnie the Pooh and hundreds of other memorable characters. What started as a small cartoon studio in the 1920s, has grown into a sprawling entertainment and merchandising empire that circles the globe. Disney now has a giant presence in film making, television, hotel resorts, vacation clubs and cruise ships. Besides its two major theme parks in California and Florida, it has opened parks in Tokyo, Paris and Hong Kong.

Disney is a classic American brand, recognized and admired almost everywhere on the planet. The vision of founder Walt Disney permeates the company and everything it produces. No child will ever forget their first visit to Disneyland or Disney World; mere mention of the name will bring a smile to the face of a child touched by a Disney experience. With annual revenues of $40 billion and net income of almost $5 billion, no other company in this industry even comes close.

Apple

It's not an overstatement to say that owners of Apple products are passionate and can be borderline obsessive. Many of them won't even consider buying an electronic device that doesn't have the famous bitten apple logo, and they don't seem to mind that Apple products usually cost more than the competition. This is just the way Steve Jobs wanted it, and it's no accident. Subscribing to the "less is more" theory of product marketing, he created and designed products that people wanted, before they knew they needed them. His products defined the consumer, not the other way around.

All you have to do is review the statistics to see how powerful this brand is. In the company's last quarter, Apple sold 17.1 million iPhones, 11.1 million iPads and 4.9 million Macintosh computers. That was the best quarter ever for the venerable Mac. The new iPhone 4S sold more than 4 million units during the first weekend on the market, the most ever for any phone. Those are impressive statistics, for a company that was given up for dead just 15 years ago, and ample proof that design purity and magic can work wonders in the marketplace.

The Bottom Line

There are many other companies that could easily make this list. Coffee drinkers love their Starbucks, a company that started a coffeehouse revolution and made the beverage a branded fashion statement. The Nike swoosh seems to appear on sportswear everywhere, and you don't need to see the name of the company to know who made it. Then there are the Bimmer (or Beemer) devotees, who wouldn't own another car under any circumstances. Why should they settle for anything less than the performance and aggressive styling of the "ultimate driving machine?"

Addictive brands are more than just wildly popular; they turn industries and traditions on their heads. They innovate and reinvent the wheel. They don't react to cultural shifts; they cause them. Among their competitors, they stand out in a crowd and make us gasp at their creative spirit. Anyone care for a grande, extra-hot, triple nonfat, decaf, two-pump vanilla, no-foam latte, with cinnamon and chocolate sprinkles in a double cup?

Read more: http://financialedge.investopedia.com/financial-edge/1111/4-Addictive-Brands-Consumers-Crave.aspx#ixzz1eSlWowHC

How Europe’s debt crisis hits your wallet

By Jennifer Openshaw, Marketwatch

Everyday newspapers and news programs are headlining about the events in Greece, France, Italy, you name it.

Debt gone bad. Two prime ministers kicked out of office. Countries coming to the rescue. It’s the European crisis soap opera that makes “All My Children” look tame by comparison.

Mom sees all the scary headlines every day, and doesn’t understand what it means, nor do most people. All she knows is that she’s worried and wants her money safe.

So what does it mean to you and me as consumers? Well, there are actually three ways the European crisis can and will have a huge impact.

Volatility: If you’ve watched the news, you’ve seen how volatile the stock market has been since the Greek crisis began to unfold last year, and particularly since this past August when S&P downgraded our nation’s credit rating. Up 200 points one day, down 200 the next.

If you’ve got money in a college savings plan or are nearing retirement, more pronounced swings in prices of all assets means you need to think differently about your portfolio. Are you too heavily weighted toward stocks? Should you devote a greater portion to fixed-income alternatives? Perhaps you’d be better off following many affluent Americans and staying in cash or Treasuries.

Sovereign debt and your bank: Major U.S. banks, according to a report by the Congressional Research Services, are exposed to some $641 billion in debt from Greece, Ireland, Italy and other hard-hit European economies. Depending on the outcome of this euro zone crisis, that debt could be worth significantly less than expected. Significant write-offs will impact investors around the world.

Say, for example, your bank held $1 billion in Greek debt. Europe’s current proposal is to reduce the burden of debt to that nation by forcing a 50% “haircut” on all holders of that debt. Your bank would then have to write down the value of the debt by $500 million. The effect of that write-down means the bank would have to reserve against the 50% of value it has lost, which would hurt the bank’s future earnings, and certainly negatively impact its stock price.

Remember what happened during our own financial crisis? Banks had to write down their holdings in billions of dollars of subprime home mortgages, blowing huge holes in their balance sheets. That put a real damper on lending activity to consumers and small businesses. We could see a repeat of that scenario if the European debt crisis spreads beyond Greece (Italy could be the next casualty), further impairing our recovery and hurting job creation.

Think of it this way: Let’s say one of the stocks you own a big position in loses half its value. Your personal net worth (at least on paper) takes a real hit. You may now think twice before co-signing your cousin’s truck loan, regardless of what a great guy he is and how much you want to help him.

Sale of U.S products and jobs: Whether it’s cars, computers or corn, we manufacture and export products to Europe. According to the U.S. Census, six of our top export partners, including Britain, France and Germany, account for nearly 16% of total U.S. exports. The European Commission for Trade says “total U.S. investment in the European Union (EU) is three times higher than in all of Asia and EU investment in the U.S. is around eight times the amount of EU investment in India and China together.”

What does this mean? If, thanks to the spreading sovereign debt problem, our European partners face a growing economic slowdown, we’re likely to see fewer U.S. products purchased overseas. That will certainly hurt our jobs outlook next year.

Take General Motors Co., which 17 percent of sales from Europe. Chief Executive Dan Akerson is now looking for ways to reduce its exposure to the euro zone, saying that slower sales “is a manifestation of Europe’s economic morass.”

Teen retailer Abercrombie & Fitch Co. is also feeling the squeeze on sales; maybe the chances of your own teen getting hired there would dwindle.

Even McDonald’s Corp.’s Europe division, which is the Golden Arches’ second largest region (by revenue), employing more than 400,000 people in Europe with more than 700 restaurants, could see fewer Big Macs gobbled down despite the attraction of cheap eats in a recession.

Don’t forget that many Americans are employed here and abroad by European companies. BNP Paribas, France’s largest bank, has thousands of US workers and just announced cuts of 10,000 employees worldwide.

There’s no question that the steady drumbeat of negative economic news coming from Europe has had an unnerving effect on business and political leaders around the world. The failure of those leaders to provide effective solutions, despite years of warning signs, has severely limited the options nations in that region now have.

Crooks find new ways to prey on home woes

By Amy Hoak, MarketWatch

Fraudsters find a way to scam lenders and homeowners out of money no matter how the housing market is faring, but in recent years they’ve shifted their tactics to profit from the market’s downturn.

Today, there’s less identity fraud and misrepresentation of income or employment to obtain a mortgage, mainly because stricter validation criteria when a borrower applies for a loan makes that strategy much less successful.

But other types of fraud are replacing those scams. Some schemes target distressed homeowners who are looking for a way to save their home from foreclosure. Another tactic: Profiting off of short sales at the expense of the lender.

Foreclosure rescue

Schemes that prey on struggling homeowners heading toward foreclosure are still prevalent, even years into the foreclosure crisis.

It’s a crime of opportunity. There is an enormous pool of distressed homeowners.

Scammers use various pitches. Some say they can prepare your documents for you as you try for a loan modification; others claim to be an attorney or say they are working with an attorney. Often, these offers sound legitimate, echoing some of the same language used by big government programs and lenders to gain a homeowner’s trust.

They offer a service, take the homeowner’s money, then disappear.

But the Mortgage Assistance Relief Services Rule, in effect since January, prohibits firms offering mortgage-modification or mortgage-relief assistance to accept up-front fees, so homeowners should never pay before services are rendered. There’s an exception for attorneys, causing some scammers to pose as representatives of law offices, she said.

Other fraudsters get homeowners to sign a quit-claim deed, which transfers ownership of the home to the scammer, who promises the homeowner a situation where he or she will be able to remain in the house. In a newer scam, those who have already lost their homes are being approached to pay money to get the home back, she said.

Don’t give anyone money to help you with this. Instead, seek out a U.S. Department of Housing and Urban Development-approved housing counselor and your servicer.

Short-sale fraud

A short sale can be a lifeline for a distressed homeowner heading for foreclosure. That’s because in a short sale the lender accepts a lower mortgage payoff when the homeowner owes more than the home is currently worth.

But fraudsters have found ways to make a profit off these deals.

One of the most common forms of short-sale fraud happens when a seller or someone representing a seller doesn’t submit the best offer to the lender. A middleman purchases the short-sale property at the lower price, then turns around and resells the property to a legitimate buyer at a higher price — often on the same day, according to a recent Federal Bureau of Investigation report on mortgage fraud.

The middleman pockets the difference, sometimes sharing it with an accomplice.

It does require a pretty sound knowledge of how a conventional loan is closed and how a short sale is negotiated and approved. Some fraudsters are real-estate agents marketing themselves as “short-sale specialists.” Title companies and settlement agents may be in on the scam too, he said.

Sometimes fraudsters try to manipulate the price lower by encouraging the owner to make the house look worse than it is, referred to in the industry as “reverse staging.”

That means you don’t weed the yard, don’t shovel the sidewalks, don’t do any continued maintenance of the property, don’t worry about putting a fresh coat of paint on it, or even keep it neat and clean. That reduces the value of the property when the appraiser or broker comes to evaluate it.

Often, short-sale fraud and flips are between real-estate agents. But homeowners can get entangled in the mess as well. If you get wind of a fishy scheme — or if an agent offers a way for you to profit from the deal — run the other way.

Other schemes

Another scam is when the title or closing agent doesn’t remit payoffs as he should. An example: You refi your mortgage, the refi closes, you go on your way and make payments to the mortgage company, but your title company hasn’t remitted payoffs to the old company. Fraudsters take funds for their own use, and it can be a month or two before evidence of the scam is found in the public record.

There surely will be more scams emerging as fraudsters find other system weaknesses to exploit.