NIFE

Do you have Thousands waiting for you?

I did a little research and found this site:  www.unclaimed.org.

It is a national site where I could search for claims by state.  A friend of mine searched his name, and company name and it confirmed that he did in fact have money from a 1999 personal tax refund, and 1998 insurance claim, a 2000 surety bond refund, a 2003 phone bill credit, and other misc.

Good news can be hard to come by these days, if 10 of your 100 clients had a few hundred dollars, or a few thousand, you've got a great story for them to tell about you.

Can we Spend our way to Prosperity?

Coping with Market Volatility: Know What You Own and Why You Own It

When the market goes off the tracks, knowing why you originally made a specific investment can help you evaluate whether those reasons still hold, regardless of what the overall market is doing. Understanding how a specific holding fits into your overall portfolio can also help you consider whether a lower price might actually represent a buying opportunity.

If you're not really sure what role a security plays in your portfolio, it's never too late to find out. That knowledge can be important, especially if you're considering replacing your current holding with another investment. Turbulence in the market can lead to rash decisions that could ultimately undermine your long-term goals.

Think of each investment as a tool in your investing tool kit. Some investments are generally designed to provide long-term growth; others provide income; still others represent stability. Each is valuable in its own way, but it doesn't make sense to use a hammer if what you really need is a screwdriver. Don't randomly abandon one investment for another unless you know its intended role in your portfolio, whether that role is still appropriate, and the pros and cons of any replacement you're considering.

(c) Forefield, Inc. 2008, www.niofe.org

America's Balance Sheet

Household balance sheets are deteriorating. Second quarter data will almost surely show the third consecutive decline in household wealth. Credit conditions are eroding. Mortgage delinquencies and defaults are at record levels, and auto delinquency rates are approaching record highs. Consumers are slowing their borrowing, and some of the borrowing is under distress to meet basic needs. Conditions will improve gradually once the economy regains its footing, but this will develop slowly.

Assets

The net worth of U.S. households fell in the first quarter of 2008 to $56.0 trillion from the record high $58.2 trillion in the third quarter. Wealth declined 11.3% at an annualized rate in the first quarter after declining at a 3.6% rate in the previous quarter. This came from the combination of a decline in household assets and continued, if slower, growth in borrowing.

A large portion of the decline came from the combination of falling house prices and continued mortgage borrowing. In fact, net equity in homes declined on a year-ago basis in the first quarter for the third consecutive quarter and posted the largest decline in the history of the series back to 1952. The decline was augmented by a decline in the value of stock and mutual fund holdings as equity markets fell in the quarter. This combination likely repeated in the second quarter.

The composition of asset growth has changed radically. The decline in the stock market in the fourth and first quarters took a toll on stock and mutual fund holdings and pension and life insurance reserves. In addition, declining house prices, combined with growth in mortgage borrowing led to a decline in housing equity. The only major component of household assets where growth has not faltered was deposits and credit market instruments. Consumers are seeking the safety of cash. This pattern may have changed modestly in the second quarter as stock equity markets fell much less steeply, opening the door to positive net investments boosting holdings of stocks and mutual funds. Housing equity will continue to fall, however.

Further, because the government values the housing stock using the OFHEO house price index, which is presumably overstating house prices since it is missing out on extremely discounted homes being sold in foreclosure, it is possible that these losses are being underreported. If housing wealth were computed using the Case-Shiller house price index. Both the increase in wealth this decade and the recent decline would be substantially larger.

Borrowing

One of the more remarkable features of consumers’ management of their balances sheets is that they are still borrowing. The slowdown in borrowing, though gradual, is clear in the data. The increase in liabilities from the preceding year has declined from $1.3 trillion in 2006 to $870 billion in the first quarter. Year-over-year growth has been in the single digits for five quarters after spending 17 quarters in double digits. The slowdown in growth intensified in the second quarter. Not only did credit standards tighten and housing equity become harder to come by, but rebate checks gave consumers an alternative to borrowing to finance some of their consumption.

As they cut their borrowing, consumers are shifting the nature of their borrowing. Year-over-year growth in mortgage borrowing slowed to 5.5%, barely more than a third of the pace seen about two years earlier, and the slowest pace since 1996. At the same time growth in consumer credit borrowing added over two percentage points from its recent nadir to 6%. Growth in consumer credit borrowing exceeded growth in mortgage borrowing for the first time since 1991 in the first quarter. Dollar borrowing remained heavily skewed toward mortgages, but even that gap is not as large as it has been in recent years. The share of household debt accounted for by mortgages dipped to 73.1% in the first quarter from its record high of 73.7% at the start of last year.

Consumers are also moving powerfully toward fixed rate mortgages. The adjustable rate share of all mortgage originations remains under 10%. Even on a dollar basis, the share is very low, under 20%. In addition to greater awareness of the risks of ARMs, consumers have been avoiding them due to costs. Rates on ARMs have not declined with short-term Treasury yields, while fixed rate mortgages have responded more significantly to movements in longer-term Treasury yields.

There are other sources of increased balance growth, and they have less positive implications for consumer finances. One is that consumers are slowing down their repayment of debt. As finances get stretched, consumers may cut back on prepayment of debts. The second is distress borrowing. Credit card balance growth is fastest in states with the largest declines in house prices and weakest economies. While some of this borrowing may simply be a switch from home equity borrowing, a large portion of it is likely distress borrowing.

Borrowing will fall off more sharply later this year and tax rebates will play a role. The weakening in labor markets will make it more difficult for consumers to qualify for loans under lenders' stricter standards. Falling house prices and high debt burdens will also weigh on consumers' desire for and ability to obtain mortgages and other forms of credit. Slower repayments may also contribute. One minor offset would be increased caps on conforming loans, which would increase the availability of credit, particularly in areas of the country with higher house prices.

Credit conditions

Household credit quality has arguably never been worse. Household liabilities that are in delinquency and default totaled $775 billion at the end of June. This is equal to 7.5% of all liabilities. Just two years ago there were just over $300 billion in delinquent and defaulting loans accounting for only 3% of liabilities. The erosion in household quality is evident across all loan types and in nearly every corner of the country.

At the end of the second quarter, the delinquency rate on household liabilities (30 to 120 days past due on the dollar balances outstanding) increased to 4.6%, nearly double its low of 2.4% at the end of 2005 and well above the peak of just over 3% in the wake of the 2001 downturn. The default rate also rose to a new high of 2.05%, compared to less than 1% when credit conditions were at their best.

The erosion in credit quality is not uniform across the country, although conditions are weakening almost everywhere. Residential mortgage quality is darkening the delinquency rate (30 to 120 days past due) on first mortgage loans set to surpass delinquencies on unsecured credit cards for the first time in history. First mortgage loan defaults, the first step in the lengthy foreclosure process, are surging. At the end of June there were 2.72 million loans in default at an annualized rate. For all of 2008, defaults could very well hit 3 million, up from approximately 1.5 million in 2007, and 1 million in 2006.

Illustrating the extreme stress in the mortgage market is that first mortgage delinquencies are now higher than auto delinquencies even though they too have risen significantly and are now well above their 2001 recession highs. The auto finance companies are having a particularly difficult time with credit quality, although bank lenders are also struggling. The finance companies were more aggressive with lending standards in an effort to prop up flagging vehicle sales.

In fact, it has reached the point where mortgage delinquencies are nearly as high as bank card delinquencies. Of course with weakening labor markets only starting to take their toll on bank card delinquencies, the gap between the two should widen by later in the year.

While credit quality remains better in non-mortgage segments across the 200 metro areas covered by CreditForecast.com, there is a strong relationship between those areas suffering increased mortgage delinquency and increased auto and card delinquency. This seems primarily driven by the impact of housing and mortgage market woes on the local economies. After providing a significant portion of job growth for several years, housing-related industries are now shedding jobs rapidly, impacting labor markets and credit quality in the previously hot housing markets.

Rebate checks took a bite out of bank card balance growth in the second quarter, although they did little to improve delinquency or loss rates. Thirty-day delinquencies in the second quarter dipped slightly from the first quarter, although no other bucket saw a similar reduction. Consumers used the rebate checks to fund purchases. Some may have also used the checks to pay down debt, at least temporarily. The checks were not large enough to remove households deeply in debt from delinquency, but did help those on the edge, contributing to the increase in average delinquent balances.

Household credit quality is sure to get measurably worse into 2009. Nothing seems to be going right. Employment is falling, house and stock prices are evaporating, gasoline prices are at record highs, major financial institutions are teetering, and consumers are as pessimistic as they have been in a quarter century.

Financial burdens

One reason for the deterioration in credit quality is the financial burden of the consumer. Household financial obligations remain burdensome although they dropped to a two-year low in the first quarter and will temporarily decline further in the second and third quarters due to rebate checks. The key driver of the slight decline in burdens seen recently is slower growth in debt payments as income growth has moderated.

Growth in financial obligations slowed again in the first quarter, dropping to a four-year low. Growth in debt payments is very low by historic standards. In fact year-over-year growth was the slowest since the start of 1994. Growth in consumer liabilities is slowing and the reductions in interest rates stimulated by Federal Reserve actions are working to reduce growth in debt payments. Cash-out refinancing is slowing, and tighter lending standards across all forms of consumer lending are having an impact. Growth in nondebt obligations accelerated fractionally in the first quarter. Unlike debt, growth remains strong by historic standards, but it has held about steady for over two years.

A somewhat surprising support to household finances is coming from healthy growth in disposable income. Tax payments hardly grew in the first quarter, providing support to disposable income. In addition, bonuses provided some support to wage income and transfer income growth was strong as the economy faltered. Tax rebates will provide additional support to income growth in the second and third quarters. While the underlying trend is weak, this boost, combined with continued moderation in growth in debt payments and financial obligations will provide support to consumers’ stretched finances despite the weakening labor market and economic recession.

Additional strain on consumer finances has come from high energy prices. Energy spending is absorbing a large share of the increase in wage income. This leaves less money available for saving and debt repayment. The impact on balance sheets is decidedly negative.

Risks

Risks to household balance sheets remain large and heavily skewed to the downside. Financial markets woes remain a major threat. If banks cannot maintain adequate capital levels in the face of massive write-offs, they will be forced to cut back on their lending. Widespread deleveraging of this type could make it difficult or impossible for even well-qualified consumers and business to borrow. Equity markets would suffer impacting upper income households. This will impact consumers directly and through additional lost jobs.

A more serious than anticipated housing downturn remains a threat to the outlook. Larger than expected house price declines would undermine household assets and make it more attractive for consumers to give up on their mortgage payments. Middle income households that stretched to purchase a house or extended themselves borrowing against it would be at particular risk. Both credit quality and spending would suffer.

A sharper than expected decline in energy prices is a noteworthy upside risk. Energy prices still have a considerable risk premium built into them at least in part by speculators. Fundamental factors do not support current prices, but rather support prices closer to $100 per barrel. If prices decline further, the decline could turn into a rout with prices declining faster than expected and dropping below fundamental levels. Consumers would be big winners in such a scenario.

Copyright © 2008 Moody's Analytics, Inc.

Tax Breaks Worth Considering

Tax Breaks Worth Considering

1. Cancellation-of-debt income:  Normally, the tax benefit resulting from a debt cancellation, or forgiveness, is taxable.  But the new law allows a tax-free exclusion of up to $2 million for mortgage forgiveness on a principal residence, with a few minor exceptions.  Example:  The exclusion is not available to individuals in Title 11 bankruptcy.  The tax exclusion applies to discharges for the three-year period after 2006 and before 2010.

2. Mortgage insurance premiums:  For the 2007 tax year only, taxpayers were allowed to deduct mortgage insurance premiums as qualified residence interest.  At least a partial deduction was available for contracts issued after 2006 if the payor’s adjusted gross income (AGI) for the year did not exceed $109,000.  (The threshold for the full deduction was an AGI of $100,000.)  Now the new law extends this tax break for three years for premiums paid or accrued before 2011.

3. Home sale exclusion:  Section 121 - Under the home sale exclusion, a single filer may realize a tax-free gain of up to $250,000 on the sale of a home owned and used as a principal residence for at least two out of the five years before the sale.  The $250,000 exclusion is doubled to $500,000 for joint filers.  Previously, the full $500,000 exclusion could be claimed by a surviving spouse only if the home was sold in the year a joint return was filed.  For sales after 2007, the spouse may exclude tax up to $500,000 if the sale occurs within two years of death.

4. Co-op tax breaks:  If certain requirements are met, the tenant-stockholders of a co-operative (informally referred to as a “co-op”) are entitled to claim allocable deductions for mortgage interest and property taxes.  The new law liberalizes the test used to qualify as a co-op for this purpose.  This change applies to tax years ending after December 20, 2007.

5. Emergency responders:  Finally, the new law creates a new tax exclusion for members of qualified volunteer emergency response organizations, such as firefighters and medical personnel.  For state or local tax benefits or qualified payments received for volunteer services, these individuals can exclude up to $360 annually from tax.  The exclusion applies to amounts paid after 2007 and before 2011.

Get your CLA (Certified Liability Advisor) designation.

Warren Buffet's Sharehold Letter

Download buffettletter2008.pdf

Here are some of my favorite quotes - his letters are always insightful and entertaining.

“It is interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine.”  John Stumpf - CEO of Wells Fargo on the credit Collapse.

"You only learn who has been swimming naked when the tide goes out – and what we are witnessing at some of our largest financial institutions is an ugly sight." - Buffett on the institutional trading that was going on during the mortgage boom.

“If you’ve hit three balls out of bounds to the left, aim a little to the right on the next swing.” - Munger on mistakes people keep making again and again.

“Those who travel the high road in Washington need not fear heavy traffic." - Greenspan on decisions made by most corporate CEOs.

"I’ve reluctantly discarded the notion of my continuing to manage the portfolio after my death – abandoning my hope to give new meaning to the term “thinking outside the box.” - Buffett on his retirement.

“I’ve never gone to bed with an ugly woman, but I’ve sure woke up with a few.” - Buffett talkig about a bad decision he made to buy a company - quoting a Bobby Bare country song.

"Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down." - Buffett on decisions he made and others have made betting on the airline industry.

"It’s better to have a partial interest in the Hope Diamond than to own all of a similar rhinestone.", Buffett on his desire to affiliate and purchase the best.

Keep reading to hear what he says about the stock market returns in the future:

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Real Estate Assets - declining...

I've been interested of late in the Case-Shiller approach to valuing real estate growth in the US.  As opposed to the www.ofheo.gov site where the US Government provides real estate data, the Case-Shiller uses paired sales, meaning they record when a house is purchased, and then when it is sold, divide by the number of years and come up with the real actual rate of growth for those properties.  Most importantly, they do all property sizes, whereas the OFHEO site provides data only on conforming properties, further skewing the real impact of declines in higher property value markets.

In a recent report they shared that residential real estate held by households and non-profits reached $22.4 Trillion, great than the $19.3 Trillion held by the same group in domestic stocks.  This isn't net wealth inside the house, which is now around $13 Trillion after subtracting for mortgage liabilities, but we're seeing how big an impact house wealth and mortgage borrowing has on our U.S. financial and psychological fitness.  The Case-Shiller index is seeking to better compare an investment in your house to other stock, bond and fixed income investments, and they recently put out a detailed report on their Forecast, which is recapped below for your review:

Forecast Summary

The current housing recession is expected to run through early 2009 and will ultimately be severe enough to be characterized as a housing crash. Home sales are exptedted to hit bottom in early 2008, declining by over 40% from their peak, housing starts will reach their nadir in mid-2008, falling by 55%, and house prices are expected to decline by 12% through early 2009. After accounting for the plethora of non-price discounts home sellers are offering to buyers, effective house-price declines peak to trough will total well over 15%.