Tiger Woods did the unthinkable last Sunday.

 He blew the lead on the final day of the PGA Tournament in Chaska, Minnesota.  Previously, Tiger Woods was 14-14 when leading a major championship through 54 holes.

More than a year ago the stock market did the unthinkable losing more than 50% of its value from its October peak.  More and more investors sold their stocks and put more of their money in cash. 

This move forced Congress to pass legislation to increase the FDIC insurance coverage per depositor from $100,000 to $250,000 through December 31, 2009. 

Well, what if the unthinkable happens again?

Believe it or not, the unthinkable is now thinkable.  As a precautionary measure Congress has extended this deadline.  Deposits at FDIC-insured institutions are now insured up to at least $250,000 per depositor through December 31, 2013. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories, except for IRAs and other certain retirement accounts.  IRA’s and other certain retirement accounts will remain at $250,000 per depositor. (This supersedes the October 3, 2008 changes.)

Much like the market, let’s hope Tiger Woods regains his form and stocks continue to stabilize in these uncertain times.

College Planning Seminars

We can all agree that students who pursue a postsecondary education will have more career opportunities and earn much more than those who do not pursue an education beyond high school. According to the U.S. Census Bureau, a person with a bachelor’s degree earns almost twice as much as someone with only a high school diploma. The tricky part, of course, is paying for college. Costs are escalating out of control at an estimated rate of between 5% to 8% annually. Federal Student Aid, an office of the U.S. Department of Education, plays a vital role in the nation’s postsecondary education community through grants, work study, and loans. Understanding how this aid is administered and what you can do to to lower the cost of college is key to giving your child the opportunity he or she so deserves. Starting in September David J. Albahary, CFP(@), who is Director of Ivy Ridge Asset Management, LLC will be holding several free seminars through 123college.com, inc. to help parents of college-bound students navigate through the maze that is the college financial aid system. The seminar is open to parents and grandparents who have children and grandchildren in high school.

Knowledge is power when it comes to unleashing your child’s

potential.

 

College Planning Seminars…

Tuesday, September 15th

 Franklin D. Roosevelt Senior High in Hyde Park, NY at 7pm

Tuesday, October 13th                                                                        

Franklin D. Roosevelt Senior High in Hyde Park, NY at 7pm

Tuesday, November 17th

Franklin D. Roosevelt Senior High in Hyde Park, NY at 7pm

 

Thursday, September 17th

Morton Memorial Library in Rhinecliff, NY at 7pm

Thursady, October 15th

Morton Memorial Library in Rhinecliff, NY at 7pm

Thursday, November 12th

Morton Memorial Library in Rhinecliff, NY at 7pm          

Seating is limited so you’ll need to reserve a spot today

1-866-510-7034.

Backspin

Backspin-a reverse spin placed on the ball to make it stop short on the putting surface.  Much like a ball that is doing a 180-degree turn, the law for Roth income limits for 2010 is changing, but only for tax-year 2010.2010 may seem like a long way off, but something special is going to happen then if you prepare for it.  Recent legislation tucked away in the Bush tax cuts has a unique clause regarding the Roth IRA income limits. Specifically, it contains language that makes the Roth IRA available to anyone regardless of ones income, but only for one year.A Roth IRA is a retirement account that offers a lot of advantages for most people. The primary advantage is that the distributions from the account do not incur any tax. Simply put, they are tax free if a couple of requirements are met. First, the distributions must be made after you pass the age of 59 years and six months. Second, you must have owned the Roth IRA for at least five years. If you meet the criteria the money is yours free of any taxation when you make distributions from the account, thus enabling you to keep all the gains you have made from your investments over the years. The only criticism of Roth IRAs is with caps on income.  In other words, a person with a modified gross adjusted income of $100,000 or more cannot convert an existing IRA to a Roth. While many people fall below this Roth IRA income limits, those that were just over it certainly have been frustrated to say the least. In an effort to extend his tax cuts former President Bush agreed to a number of irregularities in the new tax legislation, including a clause that allows a single year cap exemption. In 2010, the income cap of $100,000 will not apply to the Roth IRA. Therefore, you can convert to a Roth in 2010 regardless of how much you have earned. You can only do it in 2010, not 2009 or 2011. There appears to be no reason why the politicians would create for a one- year exemption to the Roth IRA income limits. It certainly seems a bit odd, but you might as well take advantage of it. While 2010 seems far off in the future, it gives you time to plan any conversion. Remember, if you convert a traditional IRA to a Roth, you must pay taxes on the moved money. If at all possible, you will want to do this with cash you save between now and then. The more money you can jam into a Roth, the better off you will be in the end.  As part of planning for your retirement you can expect to pay higher taxes.  Taxes, ultimately, will cut into your retirement nest egg. Like a tough chip-shot, plan on using some “backspin” to see if it makes sense to convert in 2010 if your AGI is over 100k annually.  It could be the best chip you’ll ever make.

So what does all this spending by the government mean to you?

Double Cross-a shot whereby a player intends for a slice and hits a hook, or conversely, intends to play a draw and hits a slice.  So called because the player has aimed left (in the case of a slice) and compounds this with hitting a hook, which moves left as well.

The Fed is artificially trying to keep interest rates low by continuing to purchase US Treasuries.  The Fed said at a policy meeting several weeks ago that it would purchase up to $300 billion in Treasuries. This week alone, Treasury sold a record $26 billion in seven-year notes, a record $35 billion in five-year notes, and $40 billion of two-year notes. Next week, we’ll get a record $71 billion in longer-term debt issuance.  These actions add up to a total net borrowing for the second quarter alone of up to $361 billion. That’s up 27 times from $13 billion a year earlier.  As a result the US government is going to have to flood the market with a wave of Treasuries like never before.  And just like any other market, the bond market reacts to supply and demand.  We know from Econ 101 that too much supply and not enough demand drives prices lower.  There are talks that the Treasury will start selling 30-year bonds every month, as opposed to eight times a year. All this issuance is needed to fund a federal budget deficit that’s projected to hit at least $1.75 trillion this year and $1.2 trillion in fiscal 2010.

So what does all this spending by the government mean to you?

Long-term interest rates will begin to rise.  In fact, we have already seen some of the results this week in the bond markets.  The yield on the benchmark 10-year Treasury Note has exploded from a fall low of 2.06 percent to 3.11 percent this week — a gain of 51 percent. Key technical levels are giving way all over the place.  If you are looking to refinance your mortgage, now is probably a good time.  Mortgage rates tend to rise with long-term interest rates.

Additionally, we are seeing a shift in the energy markets.  Over the past nine months oil prices have been driven by a lack of demand.  Going forward, though, oil markets will be driven by a lack of supply.  This shift will continue to take place as long as oil prices remain below $USD70 to $USD80 per barrel range.  It is not profitable enough for oil and exploration companies to drill for more oil and natural gas at these rates.  

During its most recent conference call Weatherford International (WFT), an oil service company, had this to say about the potential collapse producers are already seeing in the market.  Weatherford is hearing from some of its big clients in Russia and select markets in Africa and the Middle East that companies have cut back activity too far amid the credit crunch in the fourth quarter and are now having to adjust activity levels.

The Federal Reserve’s beige book, a periodic economic survey put together by 12 Federal Reserve districts, indicates there are pockets of the economy that are improving, especially for petrochemicals.  The petrochemical industry is a key source for both oil and natural gas liquids demand.

And, let us not forget about China.  It is the 400-pound gorilla in the room.  Its growth is critical to world demand.

When you combine artificially keeping interest rates low, the soon-to-be lack of supply in the energy markets, and the continued robust growth in China, there will be some unintended consequences.  Expect inflation, mainly, to be the main recipient of these unintended consequences much like trying to hit the ball right and having it go to the left. 

April 2009 News Letter from David J. Albahary, CFP®

Angle of Approach-The angle at which the club head strikes the ball.  This affects the trajectory the ball will travel and spin.

 

After a lot of squabbling between members of Congress, and President Obama’s failure to foster real cooperation between the Dems and GOP to fix the the bankrupt banking sector, The Fed Reserve announced an unusual step to bolster credit conditions and get banks lending again. The Fed plans to purchase an additional $750 billion of agency mortgage-backed securities, along with $300 billion of longer-term Treasury securities over the next six months. Keep in mind that this is on top of the $1 trillion or so in cash they’ve already pumped into the system. 

 

Buying back mortgage securities and Treasurys is a good thing, but the real significant move outlined in the policy statement is that the Fed is going to buy up the toxic collateralized debt that the market won’t touch by expanding the Term Asset-Backed Securities Loan Facility to include “other financial assets.” This means the banks are going to get a huge capital injection, allowing them to make new loans at lower rates.

 

The Fed’s focus has now shifted from easing interest rates to increasing the money supply, while hoping to engineer an eventual upturn in lending, economic activity and yes, inflation.  What we have now is essentially the Fed creating currency out of thin air to purchase these “toxic” assets.  Inflation over the long run will be quite difficult to contain under these circumstances. 

 

What “Angle of Approach” do investors begin to take now?

 

In the short-term the markets should begin to stabilize and possibly rally.  In the long-term inflation will be the by-product of all this government spending that will be financed through new bond issuance.  And foreign investors will not be too pleased with the devaluing of the US dollar.  To stem off the affects of higher inflation and lower prices for Treasurys investors should continue to allocate portions of their portfolio into tangible assets such as oil, gas, and other commodities like agriculture.  During these uncertain times the global economy is on pace to contract this year for the first time since World War II. Yet despite the worldwide recession, crude oil prices are once again above $50 a barrel, up from a low around $35. Prices for other commodities are also on the upswing. Copper, for instance, is back above $1.80, from a low around $1.25.  The commodities markets are anticipating that the global economy is beginning rev up again. And, if so, fossil fuels will prove to be quite profitable.  There has been an unprecedented level of supply destruction during the last several months.  Remember, oil hit $147/ barrel in July 2008, when the US dollar was at its weakest.  This turnaround in the energy sector is good for investors and bad for consumers.  We will start pay more to heat our homes, drive our cars, and feed our families.

 

Fed policy makers know the risk of their action is a debasement of the U.S. dollar, but they have little choice in the matter. At best, the Chinese (who have been clamoring for guarantees that their U.S. investments are safe) and other foreign investors won’t be too quick to diversify out of dollar-denominated holdings. But the chances that they’ll continue to recycling their export revenue entirely in dollars seem remote. For confirmation of this look no further than the action in gold the last few days.  Looking toward tangible assets might prove to be the best “Angle of Approach” for investors.