A Better Deal for Delaware

SLOPPY FOURTH QUARTER; According to Morningstar, the average returns by mutual fund category for the fourth quarter of 2007 were:
taxable bonds: +1.3%
municipal bonds: +0.5%
international stocks: -0.8%
U. S. stocks: -2.8%
SLOPPY WEEK: For the week, the Dow declined -1.5%, the S&P 500 -0.75%, Nasdaq -2.6%, and the Russell 2000 -2.4%. Year-to-date, the Dow is now down -4.9%, the S&P 500 -4.6%, Nasdaq -8.0%, and the Russell 2000 -8.0%.

GROWING RETIREMENT ASSETS: According to a recent study by the Investment Company Institute, total U.S. retirement assets climbed to $17.4 trillion at the end of the second quarter of 2007, up from $16.7 trillion at the end of the first quarter of 2007. Retirement savings account for almost 40 percent of all household financial assets in the U.S.. IRAs held $4.6 trillion at the end of the second quarter of this year, up from $4.4 trillion at the end of the first quarter. Mutual funds manage 47 percent of IRA assets. Americans held $4.4 trillion in all employer-based defined contribution retirement plans, of which $3.0 trillion was held in 401(k) plans. Those figures are up from $4.2 trillion and $2.8 trillion, respectively.

LONG TERM CARE COSTS: If you wonder what the costs of long term care are in your area (they vary wildly), check this website: https://www.ltcfeds.com/ltcWeb/do/assessing_your_needs/costofcare?action=costofcare. Some of the findings (still using 2006 figures):
United States: $194 per day
Greater Philadelphia: $227 per day
Stamford, Connecticut: $341 per day
Wilmington, Delaware: $208 per day
Bridgewater, New Jersey: $253 per day
Wyoming: $157 per day
CREDIT CARD DEBT ON THE RISE: The Federal Reserve reported this week that outstanding revolving consumer credit hit $937.5 billion in November, up 7.4 percent from a year earlier. The annual growth rate has now been above 7 percent for three months running, the first such stretch since 2001. The surge in credit card may reflect the fact that it has gotten harder for consumers to borrow against the value of their homes, both because home values have fallen in many markets and because mortgage lending standards have tightened.

NICE SEVERANCE DEAL: According to the LA Times, Countrywide CEO, Angelo Mozillo, is going to walk away with a severance package of $110 million after the sale of his company to Bank of America for $4 billion. At it’s peak in February 2007, Countrywide had a market value of nearly $26 billion.

Have a great week.

Doug

Douglas R. MacGray, J.D, C.F.P.®, C.E.A.®
Senior Vice President, Financial Planning
EGE Advisors, Ltd.

A BAD START: The year has started off on a bad note. (I am watching Chariots of Fire on ESPN Classic as I write this. The Scottish runner, Eric Liddel slipped and fell but finished his race in first—I hope the markets mirror this performance in 2008). After only three trading days, the S&P 500 is down 3.86% (2nd worst start ever), the Dow is down 3.5% (4th worst ever), and the Nasdaq is down 5.57% (worst ever).
JOBS: This past week’s bad news that was a bit of a surprise came in the form of the jobs report from the U. S. Commerce Department. Expectations weren’t particularly high. Analysts had estimated that we’d see about 70,000 new jobs in December. The gain was only 18,000. Also, the nation’s unemployment rate jumped to 5%.
HOME VALUES: The value of the average home in the USA has doubled in the last 10 years. Over the course of the past year, median sales prices have dropped from $217,300 to $210,200.
MOST AMERICANS PESSIMISTIC ABOUT RETIREMENT: Only 37% of Americans believe their standard of living during retirement will be equal to or greater than the lifestyle they maintained during their working years (source: Mercer Workplace Survey). 55% of working Americans are either somewhat or very concerned that they might deplete their entire life savings during their retirement years (source: Society of Actuaries).
CHANGE IN THE LAW, A TAX INCREASE OF SORTS: Children under the age of 18 with unearned income greater than $1,700 in 2007 are subject to the “kiddie tax.” The child’s unearned income (e.g., taxable income from investments) above the $1,700 threshold is taxed at the parent’s marginal tax rate instead of the child’s marginal rate. In 2008 the dollar threshold increases to $1,800 and the law is changed to affect all children under the age of 19 as well as all children under the age of 24 who are full-time students.
HEALTH CARE COSTS: The cost per employee for an employer to provide health care in 2007 was $7,983, an increase of +6.1% from a year earlier.
Have a great week.
Doug

Douglas R. MacGray, J.D, C.F.P.®, C.E.A.®
Senior Vice President, Financial Planning
EGE Advisors, Ltd.

RECESSION?: The question I get asked quite often these days is whether we will have a rescession, and what impact that has on how we manage portfolios or give investment advice. I am not an economist, but I do sit with them, hear them on conference calls and read what they have to say often these days. The weight of opinon seems to be on extended sluggish growth, but probably not a recession. However, the opinions have changed enough recently to make me conerrned that many of these economists are easily swayed by the most recent of news.
BusinessWeek recently asked 54 forecasters for their views on everything from housing and the credit crunch to Fed policy and global growth. The economists project, on average, that the economy will grow 2.1% from the fourth quarter of 2007 to the end of 2008 (compared to 2.6% in 2007). Only two of the forecasters expect a recession. The vast majority think the risk of a downturn has risen substantially in recent months. The jobless rate will increase from 4.7% in November to 5.1%. The yearly growth in consumer prices will slide from 4.3% in November to 2.4%, while core inflation, which excludes energy and food, will hold steady at 2.2%. Home prices will fall about 7%. A big reason for the confidence in no recession is the overwhelming consensus of predictions for further rate cuts by the Fed (something with which I am less confident). The target rate is expected to drop from 4.25% to between 2.5% and 4%. Amost half of the analysts project it to fall below 4%.
The Conference Board (www.conference-board.org) publishes the Leading Economic Indicators (”LEI”) and the Consumer Confidence Index. Last week, the Conference Board published its report for November. The LEI fell 0.4% in November vs. -0.5% in October and +0.1% in September. From the report: “After having been essentially flat since early 2006, the leading index has weakened sharply in recent months, and it has declined to its lowest level since the middle of 2005. In addition, real GDP has continued to expand, growing at an average annual rate of 3.1 percent through the third quarter of the year (including a 4.9 percent annual rate growth in the third quarter). The recent behavior of the composite indexes suggest that while slow economic growth is likely in the near term, risks for further economic weakness have increased.”
Do you have a good fix on what your portfolio might do if we have a bad year or two in the markets. If we had a “one in twenty” negative year next year, is your portfolio strategy sound enough that you will hang in there? If not, or if you don’t know, I recommend a check up during the first quarter of 2008 as one of your new year’s resolutions.
MORTGAGE RATES: The average U.S. 30-year fixed-rate mortgage for the week of Dec. 20 moved up to 6.14%, with an average 0.4 point, from 6.11% in the prior week — one year ago the 30-year fixed rate averaged 6.13%. The average for the 15-year fixed-rate mortgage for this week increased to 5.79%, with an average 0.4 point, compared to 5.78% last week — this week’s rate compared to 5.89% a year ago.
RETIRING ON SOCIAL SECURITY: The US government projects that 37% of American workers reach the end of their working years with nothing saved for retirement.
FREE TRADE: It is estimated by the Peterson Institute that Americans save $1 trillion a year as a result of our nation’s free trade policy. The savings to US consumers from the less expensive foreign products are 19 times larger than the estimated 225,000 jobs — and $54 billion in lost lifetime wages — eliminated annually as a result of our free trade policy.
Well, I am off to do some last minute shopping. Have a wonderful week.

Doug

Douglas R. MacGray, J.D, C.F.P.®, C.E.A.®
Senior Vice President, Financial Planning
EGE Advisors, Ltd.

“Plans fail for lack of counsel, but with many advisers they succeed.” Proverbs 15:22
[If you no longer wish to receive these e mails, just hit reply and let me know.]

The nation’s median household income increased for the second straight year in 2006, but it still has not rebounded to the level at the start of the decade. Incomes for 1999 have been adjusted for inflation.

Delaware Income 1996 per household. 57,334
Delaware Income 2006 per household 52,833 A drop of 7.8%

The key to making Delaware the First State in this Great Nation is to increase economic growth and restrict runaway government spending.

We need to pursue a Taxpayer’s Bill of Rights which keeps budget increases to a maximum of inflation plus population growth and have a top down independent review of all state agencies for efficiency, purpose and value to the taxpayer.

To increase economic growth we must tackle the issue of health care, offer large tax incentives for start up and small businesses and look for a replacement for the Chrysler Plant in Newark, De.