Archives For Todd Burkhalter

Weekly Maket Update for July 23, 2012

Markets shook off a raft of disappointing economic data and feeble earnings reports to remain in positive
territory this week: The S&P gained 0.43%, the Dow edged up 0.36%, and the Nasdaq rose 0.58%. Persistent speculation that the Fed will step in to boost the economy seems to be bolstering markets.[i]

During his speeches before the House and Senate last week, Bernanke outlined some of the Fed’s options to help boost the economy if it is required. Easing tools could potentially include further purchases of Treasury and mortgage-backed securities, or even using the Fed’s discount window for direct lending to banks; although many critics question the ability of such actions to do lasting good.[ii]

Highlighting just how fickle stocks can be, equities initially fell as Fed Chairman Bernanke’s Wednesday testimony provided no specific plans for boosting growth, then recovered when he later signaled during Q&A that he’s concerned about the economic recovery.[iii] It’s hard not to be dumbfounded when markets move based on mere words and not on the underlying strength of companies.

Analysts believe that although the Fed has not settled on a course of intervention, either a further
decline in the job market or an increase in deflation risk will trigger action.[iv] Bernanke and his colleagues have two weeks until the next scheduled FOMC meeting in which to review economic data and make a policy decision.

Concerns about Europe dominated the second half of the week and pushed down stocks on
Friday. Ratings firm Egan Jones downgraded Spain’s sovereign debt rating from CCC+ to CC+ (closer to junk territory) following news that the Spanish region of Valencia would need government help to meet debt obligations. Egan Jones has been aggressive in its downgrading of Spanish debt, and now rates the
probability of default at 35%. Despite the recent bailout agreement, analysts worry that Spain may be hiding additional debt obligations owed by its regions.[v]

One bright spot closer to home: U.S. Housing starts increased 6.9% in June to beat consensus expectations,
and are up 23.6% versus a year ago – the highest level since October 2008. This marks the fifth straight quarter that home building is boosting the economy, and there’s still plenty of room to grow. Digging deeper into the data, both single-family and multi-family housing starts are on the rise, and the total
homes under construction (started but not yet completed) rose for the tenth straight month. Essentially, this shows that builders are breaking ground on more homes than they are completing. So while the housing market is still far from healthy, this is a sign that stabilizing prices and low interest rates are giving some Americans the confidence to trade up to new homes.[vi]


Audit, Embrace It!

July 18, 2012 — Leave a comment

An audit is typically a word that makes most cringe, maybe not so different than when a person hears about a root canal. Dictionary.com refers to an audit as an official examination of an account, building etc. that evaluates or improves its appropriateness, safety or efficiency.  So why is it that most fear this process that can create good results? I would suggest that it is most often done to someone instead of being chosen by them, follow that logic? For example if the IRS contacts you and says, “Congratulations your tax returns are being audited”; not such a good  feeling right? I wanted to suggest that we shift the dynamic of the audit so that we choose it, instead of it choosing us.

 

Our firm routinely audits all different types of financial documents for our clients. In most cases we find numerous inefficiencies and errors. This process gives us alongside of our client an opportunity to address
the particular situation in a controlled environment where we can improve or fix the problems. One of the most common areas that we see results is when performing Life Insurance Audits. Face it, most feel similar to the root canal example above when it comes to discussing their life insurance. So that mentality often allows for years to pass without reviewing and updating these policies. In fact, 65% of Life Insurance Audits performed by Ash Brokerage reveal the potential for improvement. Catalyst Wealth Management advisor, Christopher D. Pullaro, CPA, CFP recognizes the following as the most common areas that can be improved:

  • * Underwriting Class or your health rating from when the policy was issued
  • * Overall performance of the policy
  • * Beneficiaries are not coordinated with Wills or Trusts
  • * No Disability provisions
  • * No Long Term Care Provisions

 

Most clients, and even advisors, unfortunately treat life insurance as a Buy and Hold strategy. I would suggest that it should be a Buy and Monitor part of a portfolio. With medical advances and greater longevity, new policy pricing is improving rapidly. Insurance carrier profit margins, however, are being squeezed because of historically low bond portfolio yields. This is creating different levels of pressure for insurance company’s ratings and performance. So with all of these ever changing variables when should this audit process take place? Here are some guidelines to follow:

Every Year

  • * Review coverage amounts to determine if the coverage amounts are at maximum levels as it relates  to the insured economic value.
  • * Review in-force illustrations (re-projections) under various interest rate assumptions.
  • * Review all carrier ratings and financials.

 

Every three to five years:

  • * Conduct a full portfolio audit.
  • * Collect in-force illustrations and compare them to the products and pricing currently being offered.
  • * Compare new products to those held in trust, evaluating performance and guarantees.
  • * Scrutinize the design, including the tax and legal structure, and the premium payment method.
  • * Estimate the value of contracts in the secondary market and factor those results into decisions.

 

So what’s stopping you from doing the right thing? Make financial and insurance audits are part of your process!

Digging Deeper

July 9, 2012 — Leave a comment

Weekly Update – July 9, 2012

The major indices closed mixed last Friday as a week of slow trading was capped by
a market-wide selloff on Friday. The retreat was driven by a mediocre June jobs report and fears about a jobless recovery. The S&P closed down only 0.55%, the Dow gained 1.35%, and the Nasdaq rose 0.08%.[i]

 

The U.S. suffered its third month of sub-100,000 jobs growth in June, adding just
80,000 new jobs. The economy needs an average growth of at least 125,000 new jobs per month in order to be considered healthy.[ii] However, let’s take a moment to dig a little deeper and consider what lies
behind the jobs numbers each month. One of the complications of calculating jobs growth is seasonality, which economists have to estimate based on their knowledge of annual trends. Currently, we’re in one of the slow periods of the year, when factories slow production and retailers see fewer sales. Economists
only expected to see 90,000 new jobs; although we missed that number, the situation is not as grim as it appears.

 

A more positive indicator that we saw in the jobs report is that the number of temporary workers grew by 25,000, accounting for nearly one-third of the new jobs last month. [iii] This is good news because the hiring of temporary workers historically presages that of permanent employees. Hiring full-time employees is a significant investment that businesses may be reluctant to take on in a shaky economy. Temporary employees can fill the gap without a significant investment. As employers become more confident of their own needs and the economy, they often convert temporary employees into permanent staff.[iv]

Two more positive indicators could mean that the jobs market is emerging from a
spring slump. The number of Americans applying for jobless benefits fell to a three-month low in June, and the number of layoffs announced in June fell to a 13-month low – about 40% less than May’s number of layoffs. Both of these reports indicate that employers are becoming motivated to keep existing
employees and reduce layoffs. That plus the increase in temp worker hiring could mean there’s hope for a rosier employment picture later this year.[v]

 

While the job market and economy are far from healthy and we are unlikely to see the
robust employment numbers of earlier this year, we can hope to see moderate employment growth ahead. Falling gasoline prices may increase consumer spending and businesses will see their prospects improve, improving the overall employment outlook. Keep in mind while reading the media’s spin on economic reports that they often tell a small part of the picture. Headlines tend to focus on the worst-case scenario without taking the time to explain the data that can be understood by digging deeper.