Monday, November 30, 2009
Obama's new term: 'Insurance reform'
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If you haven't been paying attention, you might have missed it. But with the substitution of one word, President Barack Obama was able to redirect his health care message from uninsured Americans to those who already have insurance.
In his Wednesday night address, Obama talked about "health insurance reform" a noticeable shift from the "health care reform" he had been talking up until late last week.
With support for reform softening, Obama attempted to move the conversation away from the talk of taxes, public plans and the other divisive issues dominating Congress and the headlines back to how his reforms would help the 160 million Americans who already have insurance. The pivot was an attempt to reframe the bill as something that directly benefits most Americans, instead of a subsidy for the uninsured.
"I realize that with all the charges and criticisms being thrown around in Washington, many Americans may be wondering, 'What's in this for me? How does my family stand to benefit from health insurance reform?" Obama asked. "This is not just about the 47 million Americans who have no health insurance. Reform is about every American who has ever feared that they may lose their coverage if they become too sick, or lose their job, or change their job."
Obama used the term 'health insurance reform" in his Saturday radio address and repeated it again on Monday when he jabbed the insurance industry, saying: "Even as America's families have been battered by spiraling health care costs, health insurance companies and their executives have reaped windfall profits from a broken system."
Linda Douglass, a spokeswoman for the White House Office of Health Reform, explained the shift saying, "Much of health reform is health insurance reform: getting rid of pre-existing conditions, discrimination based on age or gender, rescissions, in which insurance companies suddenly withdraw coverage when you get sick."
But the term also has distinctive political advantages. Insurance reform, insiders say, likely polls better than a more general reform message because it targets something voters know, understand and don't particularly like. And, it has the added bonus of setting up the insurance industry as a political punching bag.
'I think they're pivoting because they're looking at cratering poll numbers that people are seriously concerned about too much government, too much spending and turning health care over to Washington. And they're trying to change that story and looking for a boogeyman," said a health care insider. "People aren't buying what they're selling so they're trying to change the subject."
Emphasizing insurance reform also allows Obama to begin highlighting insurance market changes as a principal part of reform, and not as an also-ran to its glitzier partner, the government-run health insurance option.
"If Obama's unable to reach a consensus, a bipartisan package on a public plan and financing, then this may be opening the door to a fallback position of insurance market reform," said health care consultant Phil Blando. "That may be wishful thinking on my part, but it's possible."
Perhaps a bit ironically, Obama's recent message dovetails with the industry. America's Health Insurance Plans began airing a national television ad this week that promotes providing affordable coverage for everybody that doesn't deny insurance to those with pre-existing health conditions.
"We agree that health insurance reform is a critical part of health care reform and health insurance reform means getting everyone in, making sure that pre-existing conditions are a thing of the past and that people have a guaranteed source of affordable coverage," said AHIP spokesman Mike Tuffin.
Chris Frates
Labels: finance course online, health care, health insurance, reform
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Friday, November 27, 2009
Meltdown jolts consumers from financial fairyland
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CHICAGO - The stock market bounced back, just as it has for nearly three decades. It just doesn't feel that way.
Last year's financial meltdown knocked the swagger out of Americans' views toward investing. The baby boomers who forged the Reagan bull market; survived the 1987 crash; bought Amazon.com at $2 a share and sold at $100; brushed off the collapse of the dot-com bubble and kept plowing money into their 401(k)s are reassessing what they once believed.
It's hard, after all, to keep the faith in buy-and-hold after the market crashed harder than at any time since the Great Depression. It's hard to trust your financial adviser after Bernard Madoff stole billions from his clients. Most of all, it's hard for a generation that equated personal finance with investing in stocks to accept that the rules have changed.
People are still investing. The Standard & Poor's 500 index is up 58 percent since hitting a 12-year low on March 9. 401(k) participation rates have held steady.
But financial planners around the country say there is a sense that people are returning to basic principles that were shunted aside: Maximize your savings; limit your use of credit cards; keep a substantial emergency fund; know how much risk you can tolerate; diversify your investments; don't try to short-cut your way to wealth.
"Before the market chaos, there was a very low savings rate, inappropriate use of credit cards, too much risk in investments, excessive spending on residences," says Tom Warschauer, a finance professor at San Diego State University. "Virtually every type of financial decision was being made in a kind of fairyland atmosphere, thinking 'This will lead me to be better off' when in fact that was never the case."
Warschauer, who also sees clients as a certified financial planner, predicts the new behavior could last for a decade. Others financial planners say people still believe in the market; they're just more realistic.
"People were in shock for a while. Now they're reassessing their situation and being very pragmatic, especially about their retirement," says Mark Jamison, a vice president at financial services firm Charles Schwab Corp. "They are learning that if you're willing to work a little more, spend a little less, take Social Security later, things can still work out all right."
___
The jolt to investors hurt so much because it hurt so many.
A generation ago, most people had no direct stake in the daily dealings on Wall Street. Fewer than 6 percent of households owned mutual funds in 1980. Four years later that number had more than doubled, thanks to the birth of the modern-day 401(k) and an economic boom that followed the severe recession of 1981-82. It nearly doubled again, to more than 24 percent, in 1988. By the turn of the century about half of all households owned them.
Wall Street can thank the baby boomers for that. They bought the idea that stocks would always go up - or if they fell, that they would rebound quickly. The Dow Jones industrial average fell 23 percent on Black Monday in October 1987 - its largest one-day percentage drop. But it took just 15 months to make that up. And a decade later the Dow had nearly quadrupled from there.
Boomers piled their money into the latest market fad - whether it was biotechnology stocks, the Internet or exchange-traded funds. They put the money for their children's college education in 529 plans and saved for retirement by investing in 401(k)s and IRAs.
Then came the crash. The Standard & Poor's 500 lost 55 percent of its value from October 2007 to last March. Even with the recent bounce back, it remains 32 percent below its peak.
And with three-plus months to go, it has been a lost decade. The S&P began 2000 at 1,469 and is now 27 percent lower at 1,068. This decade trails only the 1930s as the worst in the modern investing era, and not by that much. Losses this decade have averaged 3.2 percent annually, compared with 5.3 percent a year in the '30s.
The market turmoil has lengthened careers and delayed retirements.
David Sinclair, 62, of Rio Rancho, N.M., retired in 2007 from his job as budget officer for a federal agency. He was confident his savings of more than $500,000, bolstered by a government pension, would be enough to support him and wife, Debra. He had spent 20 years playing by the rules and carefully planning for retirement.
But then the value of his portfolio fell 33 percent, and he ended up back at work at his old desk.
"One of my goals when I retired was to do a lot of traveling," he says. "With the way things were going, it became pretty apparent that I'd be lucky to take a trip every three years."
___
It might seem we've been here before — in this decade.
The collapse of the dot-com bubble, the terror attacks on Sept. 11 and a recession sent the stock market reeling to three years of double-digit losses from 2000-02.
Then it was over. As in the past, the consumer helped the economy roar out of recession with a surge in spending. Stocks rebounded 26 percent in 2003 to start a five-year run that lasted through 2007.
Why can't it happen like that again?
Consider:
• The tech crash was different. The stability of the entire financial system was never in jeopardy, as it was with the collapse of Lehman Brothers, and the tech crash didn't affect all investors.
"It was sobering, but if you held (mostly) non-tech stocks you did well," says Austin Frye, a certified financial planner in Aventura, Fla. "The lesson from that was you need to spread your money around a little."
• The first baby boomers turn 65 in just two years. When that happens, the 78-million-strong group will begin the long process of removing its wealth from the market.
There is evidence that the nation's love affair with stocks is already ebbing. Just 45 percent of U.S. households owned stocks or mutual funds by 2008, down from 53 percent in 2001, according to the Investment Company Institute, a mutual fund industry trade group. That number is unlikely to increase as the biggest, richest and most invested generation starts to cash out.
• The consumer is tapped out. Even as their stock portfolios begin to recover, consumers are left with deflated home values and debts piled up during the boom years. If they spend less and save more for years, as many predict, corporate profits may be sluggish and stock gains muted.
• The U.S. economy will be wrestling for years with the effects of the Great Recession and the record amount of government debt it spawned. That could lead to higher taxes. At the same time, a share of global wealth is gradually shifting to markets in developing countries, especially China and India.
• For many, cash and bonds have become the new stocks, reflecting investors' desire for safety and security.
About two-thirds of the money flowing into the $11 trillion U.S. mutual fund industry in the second quarter went into bond funds and one-third went into stock funds, according to the research firm Strategic Insight. That's roughly the reverse of the pre-crash ratio.
Bonds have far outperformed stocks this decade. While the S&P has been taking a beating, a benchmark bond index has posted 6 percent annualized returns and an 83 percent cumulative return since the start of 2000, according to Morningstar, an investment research firm.
Typical of many financial advisers, Joy Slabaugh of EST Financial Group in Delmar, Del., says liquidity is a priority of her clients.
"People are leaving tons of their money in cash and not wanting to move it," she says. "They want it to be cash, they want it to be FDIC-insured, and that's that."
And it's not just the little guy who is cooling on stocks. Some financial professionals have questioned the buy-and-hold approach to stocks, along with the strategy of putting 60 percent of a portfolio in stocks and 40 percent in bonds.
Money manager Rob Arnott says the past year has challenged some basic premises behind what he calls the "cult of equities."
"There's nothing wrong with stocks if you buy them at sensible prices," says Arnott, chairman of Research Affiliates in Newport Beach, Calif. "There's something very wrong with buying stocks when they're terribly expensive, and assuming that time will heal all.
"The notion that stocks will always help us if we're patient - well, how patient do you have to be?"
By DAVE CARPENTER, AP Personal Finance
Labels: finance course online, financial market, financial planners
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Wednesday, November 25, 2009
'Greatest Trade': How You Can Make $20 Billion
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Even as the financial system collapsed last year, and millions of investors lost billions of dollars, one unlikely investor was racking up historic profits: John Paulson, a hedge-fund manager in New York.
His firm made $20 billion between 2007 and early 2009 by betting against the housing market and big financial companies. Mr. Paulson's personal cut would amount to nearly $4 billion, or more than $10 million a day. That was more than the 2007 earnings of J.K. Rowling, Oprah Winfrey and Tiger Woods combined.
How did he do it? Believing that a housing-market collapse was coming, Mr. Paulson spent over $1 billion in 2006 to buy insurance on what he then saw as risky mortgage investments. When the housing market cracked and the mortgages tumbled, the value of Mr. Paulson's insurance soared. One of his funds rose more than 500% that year. Then in 2008, he shorted financial shares, or wagered that they would fall in price, profiting again when these companies collapsed.
And are there any investing skills that average investors can learn from his success? Yes. There are no guarantees, of course, but the success of Mr. Paulson and a few other underdog investors lends encouragement to individuals trying to compete with Wall Street's pros.
Adapted from "The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History," by Gregory Zuckerman. Broadway Books. Copyright © 2009 by Gregory Zuckerman.
Here are eight investing lessons of Mr. Paulson's $20 billion gamble, the greatest trade in financial history:
1. Don't Rely on the Experts
Many investors lost big in 2007 and 2008 as housing crumbled and the stock market tumbled. But no one lost more than commercial and investment banks caught with toxic mortgage-related securities. These bankers were the very same ones who created these investments, and Wall Street's top analysts had vouched for their safety, even as Mr. Paulson and others bet against the investments.
Lesson: When Wall Street is wheeling out its latest can't-miss product, be skeptical.
2. Bubble Trouble
Some academics argue that financial markets have become more efficient. But a rash of financial bubbles in recent years -- including housing, energy, technology and Asian currencies -- suggests that markets are becoming harder to navigate, and are more prone to overshooting. Today, investors of all sizes read the same articles, watch the same business-television programs and chase the same hot tips. They invariably head for the exits at the same time.
Lesson: Have an exit strategy -- and cash to cushion any tumble.
3. Focus on Debt Markets
Most investors track the ups and downs of the stock market but have only a vague sense of moves in debt markets. That's a mistake. Early signs of trouble were seen in sophisticated markets that don't get much limelight, like the subprime-mortgage bond market. These problems eventually felled the housing and stock markets, and the overall economy, a set of falling dominos that Mr. Paulson and his team correctly anticipated.
Lesson: Debt markets can do a better job predicting problems than stock markets.
4. Master New Investments
Mr. Paulson scored huge profits by buying credit-default swaps, a derivative investment that serves as insurance on debt. When risky mortgage bonds tumbled in value, Mr. Paulson's insurance soared. But many experts were flummoxed by CDS contracts or shied away from educating themselves about these relatively new investments.
Mr. Paulson and his team had no experience with CDS contracts. But they put the time into learning about them.
Lesson: Educate yourself about the range of exchange-traded funds being introduced, some of which can play a valuable role in a portfolio.
5. Insurance Pays
A number of investors worried about a bursting of the housing market, but few did much about it, even though insurance, such as CDS contracts, at the time were selling at dirt-cheap prices. Out-of-the-money put contracts -- options that pay off only if the market tumbles -- also were trading at reasonable levels. As cheap as this insurance was, many pros ignored it.
Lesson: Don't underestimate the value of a safety net, such as put options.
6. Experience Counts
Some of the biggest winners in the meltdown were middle-aged investors dismissed by some as past their prime. But they had experienced past market downturns, while some of the bankers and analysts caught flat-footed knew only good times.
Lesson: A historical perspective can be a valuable tool.
7. Don't Fall in Love
With an Investment. In early 2009, Mr. Paulson became more bullish about the banks and financial companies that he had wagered against in 2008, after determining that these companies had improved their balance sheets. The moves resulted in profits this year.
Lesson: Even the greatest trade doesn't last forever.
8. Luck Helps
In early 2006, Mr. Paulson determined that housing was in trouble and set out to profit from the impending fall. But some housing experts already had determined that real estate was overpriced; others had wagered against housing but could no longer stomach their losses. Just months after Mr. Paulson placed his historic trade, U.S. housing prices began to fall.
Lesson: Don't risk too much in any one trade, even one that seems like a sure thing.
Write to Gregory Zuckerman at gregory.zuckerman@wsj.com
Labels: finance course online, hedge-fund, John Paulson
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Monday, November 23, 2009
Billions in unclaimed bonds date to World War II
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HELENA, Mont. - The federal government is facing a lawsuit over billions in unclaimed bonds that date back to the patriotic fundraising efforts of World War II, leading to a showdown between states who say they should be given the money and a Treasury Department that claims ownership.
World War II sparked an unprecedented bond buying campaign, spurred on by one of the largest advertising campaigns ever seen - a drive wrapped in dutiful pleas from celebrities, politicians and cartoon characters alike.
Most American families bought at least one bond at the time and many never cashed them in - thanks in part to a 40-year maturity in the bonds. And those same "Series E" war bonds continued to be sold by the federal government until 1980.
More than $16 billion worth of the bonds are unclaimed, either lost or forgotten about with the death of the original purchasers.
The state attorneys general suing the Treasury Department charge that the federal government made no effort to find those people. They want the money given to the states, who have a legal system in place for finding the owners of unclaimed funds.
"It's better for the millions of American who are the rightful owners to have it returned to the states, because the states will make a real effort to find them," said David Bishop, a partner at Kirby McInerney who is representing the states in the suit. "And if after searching for them they can't find them, the money can go to work in the communities where the bonds were purchased."
The Treasury Department counters that it indeed tries to find owners of the unclaimed bonds, and says it has a Web site where people cam simply type in their Social Security number to see if they have one. And it points out that the money is not just laying around somewhere.
"One of the misunderstandings out there is that there is a lot of cash sitting somewhere in a drawer. Money from savings bonds was used to run the daily operating expenses of the government," said Joyce Harris, with the Bureau of the Public Debt. "These are obligations of the federal government, not the states. There is no pot of gold out there just waiting for someone to grab it."
The Treasury also points out that most of the unclaimed bonds are far more recent than the original World War II era bonds. And overall, 99 percent of people claim their bonds.
And those who don't cash them often choose to do so for tax reasons, or perhaps out of a sense of patriotism, Harris said.
"Quite frankly, people are aware of the bonds," she said. "A majority, when you contact them, are aware of the bonds."
It's not like the states will get the money free of obligation, about $55 million in the case of Montana. The states would be obligated to pay bondholders no matter if it takes them decades - or longer - to show up. In the meantime, though, states usually earmark the interest earned on such unclaimed money for schools or other purposes.
Steve Bullock, the attorney general for Montana, said states - not the federal government - have legally been granted the right to deal with unclaimed money.
"First and foremost I think it is the right thing to do. I think it is money that should be with Montanans," Bullock said. "It's an important action to bring just to protect the state's interest.
The complaint was first filed in Federal court in New Jersey in 2004 with New Jersey and North Carolina as the plaintiffs. Montana, Kentucky, Oklahoma and Missouri later joined the case. All states would benefit if the lawsuit is successful.
The case will come down to constitutional arguments. Attorneys for the federal government are arguing the states don't have standing on what they see as a contract issue between the original purchasers and the Treasury Department.
The states expect arguments in the case to be made later this year on a motion from the federal government to dismiss the case.
By MATT GOURAS, Associated Press Writer
Labels: bonds, finance course online, unclaimed WWII
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Thursday, November 19, 2009
A Source of Cash: Those Old Savings Bonds
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It Might Be Time to Redeem Matured Savings Bonds, But Getting Cash Can Be Tricky
Remember those savings bonds your grandparents gave you for your second birthday?
Now might be a good time to dust them off and see how much they're worth, especially if decades have passed since you received them.
"There are $16.7 billion of matured savings bonds out there that people have not redeemed," says Joyce Harris, a spokeswoman for the Treasury Department's Bureau of the Public Debt. "It's money that can be used in tough times."
Savings bonds are sold by the U.S. Treasury to raise money for the U.S. government and can't be sold to other investors. In other words, you can only redeem them; you cannot trade or sell them.
The bonds never expire, but they do reach maturity and stop accruing interest. Savings bonds that are no longer earning interest include Series E bonds issued from May 1941 through September 1979, Series H bonds issues from June 1952 through September 1979, and Series HH bonds issued from January 1980 through September 1989, according to the Treasury Department's financial-services Web site, TreasuryDirect.gov.
There are several ways to redeem savings bonds. Newer electronic bonds can be redeemed through TreasuryDirect.gov. For older bonds, call the Treasury's Savings Bonds Direct customer-service department at 1-800-245-2804 to find out how to proceed.
The fastest way to redeem Series E, Series EE and Series I paper bonds, says Ms. Harris, is to go to your local bank. But first check with a bank to make sure it redeems bonds. She also suggests calling ahead to see what is required for redemption. Some banks may only redeem bonds for customers with longstanding active accounts.
Also, be sure to check the value of your bonds before heading to the bank branch. You can use the savings-bond calculator found in the tools section of TreasuryDirect.gov. If a bank teller informs you the bonds are worth less than the calculation you received online, call Savings Bonds Direct before authorizing redemption.
If you need cash, you also may want to redeem some of your bonds that are still earning interest. First check their current value and their earnings rate. If you're thinking of redeeming relatively new bonds, know that you can't redeem a bond for at least a year after purchase, and you'll forfeit three months' interest if you redeem the bond in its first five years.
The features of savings bonds have changed considerably over the years. Currently, the U.S. sells Series EE bonds that earn interest at a fixed 0.7% rate. The fixed rate for new EE bonds is set each May 1 and Nov. 1.
Meanwhile, the earnings rate for Series I bonds is a combination of a fixed rate, which applies for the life of the bond, and a semiannual inflation rate. The initial combined rate for bonds purchased from May through October of this year: 0%, reflecting the fact that consumer prices have actually declined.
by Anna Prior, Wall Street Journal
Labels: finance course online, savings bond
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