Knowing Whether or Not You Are Prey for Loan Sharks is Your Job No One Elses

Payday loan lenders probably don't have very many friends, similar to their common maritime metaphor the shark. Calling them predators is a little presumptuous though. Think about it: is a shark hunting if the fish swim right into its jaws? While those who provide payday loans typically target low income wage earners through their marketing and rely on these folks to make a profit, it's not like they jump out of the water and snatch innocents to carry back down into the depths with them. In nature, if an animal is eaten, part of it is the animal's fault. Predators, after all, are only doing what they're programmed to do. And somebody has to do it.

If you're the kind of person these places like to see walk into their lobbies, then you need to understand a few things about payday loans. Number one, their entire existence, from formation of the contract to disbursement of the funds, is designed by the lender to make it hard to pay it back unless it's paid in full. They want that high interest. Why? Partly because interest is where money is made when lending, but also because the people they target tend to be those with bad credit and excessively high interest is the only way, allegedly, that lenders can borrow to people with such risky credit histories without losing money. Either way, it's fundamental that you understand that from the very beginning, the cards are stacked against you if you don't have a responsible well-thought way to pay back the loan within a week or less.

Finding the right payday loan lender is less about seeking out shreds of kindness in the varying terms and conditions of multiple lenders – because underneath nice language none of them are particular nice – and more about focusing on whether or not they provide enough information openly about their different loans and how they're repaid and what your options are. CashNetUSA Payday Loan for example has an FAQ page that's actually quite useful compared to similar online payday lender websites that seem to only want to "ask" questions that nobody particular wants answered. While I can't say their interest rates are any lower than the competition, at least they let you know what the process is like if you're unable to pay. The penalties might seem outrageous, but there's something to respect in a lender at least letting you know in advance.

It takes a dedicated sense of personal responsibility to avoid getting yourself into a payday payback mess in the first place. Never borrow such a loan without making sure there's a way to pay it back immediately. Understand when an emergency calls for such a loan and when you're just looking for an easy way out. Payday loans are not an easy way out. They're a way to acquire a large sum of money quickly if timing demands it and you're virtually unable to find another source of money in the time it takes to fix the emergency. In any other case, do everything you can to secure another source of emergency income. If you choose to swim with sharks, don't say nobody ever warned you about getting eaten alive.

Young Realtors: Be Free Tonight, Buyers Are on Your Side

It's counterintuitive but the current changes in the way the American housing market functions can actually mean increased advantages for those just starting out in the real estate business. There's no denying that home buying is way down and foreclosures are way up. Home ownership is once again an exceptional undertaking. But agents who have built their entire careers and livelihoods on a now obsolete model of real estate are the ones who are in the fight of their lives. Rookie real estate agents with a knack for adaptability have been observing the recent events of the last few years and stand a far better chance in today's real estate marketing arena than those who are in some ways forced to cling onto a dying strategy.

Conventional real estate agents used to be able to rely on the endless number of new buyers on the market. It's not often that a realtor gets a return customer and so reputable success was based on who could get homes sold, not find the right one for a potential buyer. In fact much of the pseudo-fraud committed inside the real state arena was based on the fact that nobody made money anymore from helping people buy homes and instead the money was in getting homes bought. This caused realtors to maximize moneymaking efficiency by caring less about whether their clients found a right home and more about how many homes could be sold in a the shortest amount of time possible. In the wake of the housing bubble this tactic is dead, and realtors are now more reliant on finding the right home for the right person in order to maintain their reputation but more importantly maintain their survival.

So, in a sense, the playing field has been leveled. Prove you're a savvy realtor by getting a reputation early on as someone who doesn't try to push a homestead lemon and who does the extra legwork to find the best fits for you. Another way to bank off the errors of your elders is to seek out expired leads. If you know what properties are about to be taken off the market, introduce yourself to the seller as a better agent who will get the mission accomplished. This is a great way to build the reputation of being a great seller as well as a great finder.

The real estate market is probably the hardest field to get into right now when you consider how just a few years ago it was one of the easiest. But that right there is the key to your success. If you can thrive as a start up realtor in as unforgiving a market as this one, what won't you be able to do once the market improves? You're young. Time is on your side.

The Ugly (Financial) Side of Retirement

Retirement. The very word conjures up images of lying around the house, dozing in the hammock, sipping iced tea. Or maybe you prefer a more active dream of daily golf or fishing. Whatever you imagine, it's unlikely you'll consider the ugly side of retirement that few people mention. This is the side that anyone who hasn't prepared financially for retirement can tell you about.

Instead of those lazy, relaxing, enjoyable days, or even the more active ones where you get to do what you choose, this side of retirement is a different picture altogether. It's one of limited income, financial stress, the worry over paying for your medicine or buying groceries. This side of retirement is not only ugly, it's frightening as well. The good news is, with some simple planning, you never have to encounter this unwelcome guest as you age.

Retirement is a part of life, but because age seems so far down the road, too few of us plan for it properly. We may start a 401K, but then we change jobs and cash it out. Or we may start a CD, but when it matures, we use the money for something else. We have good intentions to plan for this inevitable day, but too often we only aim and never shoot where our financial future is concerned.

One way to overcome this demoralizing time in life is to begin now, today, to plan. Even if you can only put away $50 a month, or $25 a month, put something away right now for your retirement. Don't count on the government to support you. They can't even support themselves. Instead, take action on your own behalf and start a separate account, then begin to stash a little money away every month, or ever week. This will become your small retirement fund when the day arrives.

Another way to plan for your retirement is to do your level best to get out of debt completely. If you must maintain a mortgage payment, try to get it as low as possible, but if there is anyway to pay off even the mortgage do so. It will be worth the sacrifice when the day of your retirement comes and you don't have to worry about a place to live.

Financial Expert, Dave Ramsey, says you have to live like no one else now, so that you can live like no one else later. In the world of retirement planning, that means cutting corners, saving money and living more frugally now so you can enjoy your retirement years later without a heavy financial burden hanging over your head.

Retirement is often called the "golden years." And that can be true. But only if you plan for it and do your utmost to ensure you are financially stable by the time that day arrives. Who knows... if you plan well enough, you might even be able to squeeze in a few golf games now and then if you've a mind to.

Supplementing The Cost of Education: How To Find Ways to Pay For Your Schooling

The biggest cost of education is the tuition, plain and simple. Some universities charge an average of 40 thousand dollars a year, and that's on the low end. Just because a person can take out tens of thousands of dollars doesn't necessarily mean that they should. There are a lot of ways to build up your income and save money for school without going into debt for decades to come. There are jobs and programs that are designed to help with this burden. So in order to invest in your future, consider one of the following options to build up your resources.

Many programs offer assistantships. These are usually designed for people looking to get their master's degree. A person usually applies for this. It's like a job where a person, while going to school, works as a professors' assistant and helps them with a wide variety of things anywhere from, making copies to managing email databases. It's usually not very taxing work but it depends on the department as well as the professor you're working for. The job is often located in the same department you're trying to get your master's degree in. In return for your services, you're tuition is paid for the duration of your degree.

For those who have yet to get their bachelor's degree, there's a government assistant program called a Federal Pell Grant. These are usually designed for students whose collective family income is below 20 thousand dollars. This means your mother and father's combined income. It's important to note that many families with incomes below 50 thousand are often eligible as well. The award varies but it usually ranges anywhere from 4 hundred to 4 thousand. This is all depending on your level of need. Though this won't pay for your entire tuition costs, it's free government money that can go a long way.

Some more industrious youths might consider investing in the stock market. The operation of the stock market is basic but the details aren't. It's usually best to consult investment web sites, like TimothySykes.com, to glean professional information on the different kinds of stocks that are out there. From short-term speculative stocks to more long-term investment opportunities, the stock market might be the perfect place for you to build up your resources and pay down or pay off burdensome tuition costs.

With the cost of tuition raising every year and incomes and job levels staying stagnant, it's up to every individual to make their way but it's important to realize that there is help out there. Some approaches are more proactive than others but one of these options might work for you. The Internet is always a wealth of information and there are many other possibilities and avenues out there for people willing to put in the effort and time to get the necessary funds.

Renewable Energy Always A Safe Bet, Especially with the Government Helping Out

In late 2009 the United States Treasury Department set aside $2.2 billion dollars for Clean Renewable Energy Bonds. These bonds were meant only for 805 different entities; none even remotely close to what you would consider your humble level of power brokering. But this kind of massive investment with government technology does show that the Feds are serious about clean energy. Since most any expert will tell you that climate change isn't going away anytime soon, keep your entrepreneurial ears perked for future federal action regarding clean and renewable energy investment.

If there is any industry that will be receiving massive boosts in their technological prowess at the hands of the U.S. government, it will be any industry that commits to alternative sources of fuel. This isn't just exclusive to already established energy powerhouses like Edison or super researchers like DuPont. While now in the midst of a global economic recovery we may see only the head honchos get the big bucks to invest in energy innovation, there will be plenty of demand for small business ventures to pick up the slack in the years ahead.

But why? New companies are more likely to hire people than institutions that already have an established staff and the means to lower personnel costs. With unemployment at a virtual standstill and that number likely to rise as much as it does fall over the next several years, the government is going to be very concerned with the amount of job creation entities promise to commit to in return for the ability to utilize government assets. The off-chance that your little company might figure out a way to drive a car on water faster than Ford is worth giving the funds to you as long as you're hiring.

If you're in no position to be starting your own energy research business, which is pretty understandable, then look into investing into these companies yourself, for the reasons just mentioned. A company in your hometown might just be a few years off from being in the position to receive these kinds of funds. If you can help them get there then figuring out the impossible task of carrying your investment yourself from start to finish is no longer an issue.

Good investments are made on things that can be foreseen for years to be necessary and also in fixing things that are clearly going to be problems. By this definition there is no investment more secure than one made into the pursuit for clean and renewable energy. Consider it the World War Two to our Great Depression...the War on Fossil Fuels will be what brings our nation out from the Great Recession. In fact, the investments made into renewable energy may be what brings the whole world out from the ongoing wars and depressions that have plagued humankind since, well, ever.

That sounds like one heck of a place to put my money. You bet?

Use Equity or Downsize Your Home?

Many retirees have felt the effects of the recent recession during their retirement. Cash seems to be harder to come by as many have their funds tied up in their home, which forces them to adhere to a strict, and often small monthly income.

With medical bills or the interest to restart old hobbies overhead, many New York retirees consider cashing in on their home’s equity to gain some extra cash. However, this may not be the most cost-effective choice for asset rich and cash poor retirees.

Cashing out, or taking out an equity loan, is often costly and can leave little in the form of an inheritance for family left behind. These types of loans must be repaid plus interest once the home is sold. The longer a retiree lives, the more interest they will have to pay once the home is sold, which can double the amount borrowed in as little as 15 years.

A more cost-effective option to obtaining more on hand cash may be for retirees to simply downsize. Retirees may sell their home, and then purchase a smaller home or condo for less to gain extra cash. If they are worried about not having enough room for all of their additional furniture, retirees can rent a storage unit. Storage units are safe and inexpensive ,and some are even climate-controlled, making them idehttp://www.blogger.com/img/blank.gifal storage facilities for family heirlooms or extra furniture.

There are plenty of less expensive real estate options for retirees in New York, and they should consider downsizing their home before entering into an equity loan program. Though these types of loan programs may be ideal for those without family members, for those with family they anticipate leaving behind, an equity loan may significantly decrease the inheritance amount needed to cover unpaid medical or funeral expenses.

Note: Some government pensions can help pay for accrued medical expenses such as in home care. Take for example, the Aid and Attendance pension for veterans.

Getting the Most Out of Your Emergency Fund

Having an emergency fund is important. You probably already know this. However, one of the most depressing things about an emergency fund is the slow rate at which your interest earnings build up. Emergency funds are often kept more traditional savings accounts, since they are easy to access. This is one of the reasons the yield is so low. Because of the safety of cash savings (if kept in a FDIC-insured bank or NCUA-insured credit union), and because of their liquidity, it is difficult to get a good yield on your emergency fund savings. You can, however, get a little more out of your emergency fund with a little rate shopping and some planning.

Looking for Better Interest Rates

Different cash products are offered by a variety of banks and credit unions, and the competition for your deposit might help you find some better savings account rates than what you would get on a more traditional savings account. Look online for rates in other states, as well as consider the offerings from online banks. You can find a number of options if you are looking for a better yield.

Be warned, though: You might have to maintain a minimum balance in order to qualify for the best savings account rate. Additionally, you have to be aware of the restrictions on the number of withdrawal transactions you can engage in when a savings account is involved. Another issue is that the remote (or online) nature of your bank or credit union might mean that you have to wait a few days to access your money.

You can ensure access to your money by linking your high yield savings account to a checking account at the same bank. Then, you can do an instant transfer to your checking account when you need the money and use the debit card to access the money. Another possibility is keeping a small amount in the local brick and mortar bank, and using that until you can get money from your main emergency fund sent in.

Creating a CD Ladder

In many cases, the idea of a CD ladder is confined to long-term savings schemes. However, it is possible to set up a CD ladder as an emergency fund, allowing you to take advantage of higher interest rates in your emergency savings, while still accessing your money regularly. You can set up a ladder that matures every three months – or even every month – based on a 12-month or 18-month maturity for your longest CD. You follow the basic rules of setting up a CD ladder by dividing up your emergency fund money. You can then roll CDs into longer maturity accounts as each term ends, adding money you have saved up, and taking advantage of better CD rates. You do need planning, though, since you will only be able to access your money penalty-free once a month or once every three months.

With some planning and shopping around, it is possible to earn more interest on your emergency fund, making it work a little hard for you.

Trade Schools For Investing in Your Future

After an economic downturn, it can be tough looking for employment. Right now the job market is starting to bounce back, but only after years of continuous job loss. The market is growing, and jobs are becoming available. However, in some areas the unemployed still outnumbers the job market needs. Trade school is a good options for those trying to increase there job qualifications, and also fill a need that may open on the market. Trades also offer an alternative to traditional universities where student have to invest years of work and thousands of dollars to attain a degree.

Massage therapy is one of the fastest growing niche fields with a continued outlook of expected job growth, According to the Bureau of Labor Statistics. Do research on the requirements to practice massage therapy in your state and research massage schools online.

Due to the aging population and increased interest in preventative care, the health care industry is another field that has seen growth. It can hardly get people into the field quick enough to fill all the available positions. With competitive pay rates and benefits, working as a health care professional could be the best move for you. Consider the average medical clinical assistant, according to the BLS, you can gain a degree in as little as 1 to 2 years with an annual average income of 25 - 30K.

According to Technical Schools Career Guide, traditional trades, such as plumbing, are still one of the best jobs for financial stability. With projected annual earnings above 40K and a projected 10 percent job growth, plumbing is still a lucrative trade. The same goes for electricians. With a 12 percent growth rate over the next decade, electricians make on an average of 24 dollars an hour according to bls.org.

Consider some of these in demand jobs, if you want to secure your future and create better opportunities for you and your loved ones.

Forecast: The State of Student Loans and Financial Aid

My focus has always been on the markets and more macro areas of finance. But I’m working on a new series featuring the “ins and outs” of student loans. My daughter is currently applying to colleges, and as a father I wanted to learn more about the state of student loans from the perspective of a seasoned financial consultant.

So here’s part 1 of that series.

Online Programs, Student Financing
Continuing your education is a critical part of financial success in today’s economic climate. Jobs are competitive and often, applicants with a college degree and little experience have a definitive edge over experienced, seasoned potential job candidates with no degree. Obtaining a college education, however, can be expensive, and many students turn to a variety of cost saving measures to get them on the path to their degree.

Quite often, online programs and trade-oriented colleges can be the best choices for the non-traditional student because of the flexibility they can offer as well as the focus on career-oriented training and education. While many online programs tend to be profit driven and cannot offer all the amenities of traditional degree coursework, there are stalwart programs out there that can provide excellent educational opportunities. Sanford-Brown, for example, has long been a useful resource for workers who want to further their education, and the school offers many practical, career driven degree programs (like pharmacy technician and nursing, two careers in high demand), that can give students the edge they’re seeking in their current jobs, or the ability to switch career paths.

Funding Your Education in 2011

Student loans have long been the first line of defense for those who need a little help funding secondary education. While federal loan programs have been the primary source of borrowed funds for many years, private loan companies do exist and have become more prevalent in recent years as more and more people are looking for loan options due to the economy. Most financial experts (including two I talked to last week), however, still recommend using federal loan programs whenever possible due to the program’s commitment to offering low interest rates and flexible repayment options.

While qualification through a private company may be a slightly easier process (because there are not as many income guidelines and regulations), the federal student loan program offers clear advantages over the private loan market. Federal student loans typically do not begin to accumulate interest charges until the student has graduates or leaves school.

What’s more, federal student loan programs have deferral programs if a borrower meets with unexpected financial hardship during the loan repayment term. Private loan companies tend to be slightly more rigid about repayment and typically cannot offer financing terms and interest rates to rival the federal student aid program.

Stay tuned for more on the world of student loans. It’s an interesting realm ☺.

2011 Forecast: Rates on Insurance

Caught up in the holiday spirit, it’s easy to spend hundreds of dollars on gifts. But amid the spending frenzy is easy to overlook future costs, including those unassociated with shopping, such as insurance costs. Predictions for next year’s insurance costs forecast what insurance rates are likely to do. Consumers can use these forecasts to get an idea of what they’ll be spending next year on insurance.

Car Insurance
With the advent of pay-as-you go plans in California coming next February, intermittent car drivers will save tons. So far, AAA and State Farm introduced the plans for customers who seldom get behind the wheel.

The concept is simple. Drivers report their mileage to the insurance company and agents check how far drivers actually drove. AAA plans to implement a device that will report the mileage, thus speeding up the process.

Calculations for car insurance aren’t simple. Consumers that shop hard online at aggregators touting a free insurance quote or similar comparison offerings can find differences in ultimate costs due to things as specific as ZIP code.

The rates are also based on driver age, history and region. Frequency of use (mileage) does not have an affect, as some consumers have questioned recently. Drivers who don’t often use their cars pay the same rate as somebody who commutes daily. The pay-as-you-go plan will lower rates for some drivers, and if the plans go nationwide rates will fall even more.

Homeowner’s Insurance
Chances are these rates will rise in 2011. In fact, property insurance rates in general are expected to spike. A report from Moody’s last month indicated that little demand caused insurance providers to increase rates. Some states already saw rates increase from different insurers. All State and State Farm announced rate increases.

Life Insurance
Moody’s report drew similar conclusions about all casualty insurance. Back in April, Conning Research and Consulting completed a Property-Casualty Industry Forecast, which anticipated a spike in property and casualty insurance rates in 2011. Moody and Conning noted that a number of catastrophes contributed to expected rate hikes next year.

Overall, 2011 could be a revolutionary year for the car insurance industry, but a pricier year for homeowners and customers with life insurance plans.

USDA Loan Funding

USDA loans have had a rollercoaster year in 2010 with a resurgence in interest for the program, followed by an abrupt lack of funding that halted the loan program for the better part of the spring and summer. It appears, however, that USDA loans are about to receive additional funding, making it possible for more potential homebuyers to take advantage of the helpful program.

USDA home loans have long been a boon to lower and middle income homebuyers, and the program’s main goal is to ensure that even buyers who may not otherwise qualify for a traditional home loan have an opportunity for homeownership. USDA loans feature extended loan terms, an option that brings with it lower monthly payments than a traditional 30-year mortgage, and several flexible down payment and financing options.

In fact, the USDA is one of the only loan programs currently offering a zero down payment option. Borrowers who qualify for the program can choose to pay nothing down and roll closing costs into the loan, making the process very appealing to those who are unable to save up several thousand dollars for a home purchase but who do have the means to make a monthly payment. Additionally, in some cases, the USDA program allows borrowers to finance up to 103% of the purchase price of their new home in order to make repairs or upgrades to their property, making the purchase and renovation of an older home a viable economic option for buyers.

However, in early 2010, funding was quickly exhausted for this government sponsored loan program. While the USDA typically does not have the funds it needs to sustain it through the entire year, the speed at which funds were drained this year caught the attention of mortgage lenders and government officials alike. What’s more, many borrowers were left holding the bill for loans in process when funding ran out, having paid for appraisals, inspections, and surveys but being unable to actually follow through on their loans due to lack of funding. On March 21, 2010 House Representative David Obey (D-WI) introduced HR 4899 to the House of Representatives in order to help remedy this issue.

As of right now, HR 4899 has been passed. It was passed by the House of Representatives on March 24, by the Senate on May 27, and then signed by the President on July 29. Funds will be disbursed to the affected agencies as soon as the usual administrative actions have been completed. The passage of this bill could not come as more of a relief to those eager to use the USDA Direct and Guaranteed loan programs to purchase a home or other property, and lenders are beginning to take applications for the program once again.

The Correlation of Real Estate Markets and the Foreign-Exchange Market

Many new investors may be surprised to hear that an incredibly strong correlation exists between real estate markets and the foreign-exchange (FX) market. The primary driver of both real estate markets and the FX Market is risk. When investors are willing to take risk the real estate market appreciates a swarm of buyers enter the market. In the FX Market, when risk is present, investors will buy currencies that carry a high yield and sell currencies that have a low yield.

But as we all know very well from the Global Credit Crisis of 2008, when risk exits the market, and risk aversion, or an unwillingness to take risk, enters the market, then real estate values fall as there are more sellers than buyers, and currencies that have a high yield are sold and, generally, the U.S. Dollar is bought, since it is seen as the safest place to place capital during times of economic uncertainty.

Let’s take a look at a chart that depicts the movement of the U.S. Dollar before and during the Global Credit Crisis.



As you can see in this chart, the U.S. Dollar holds an inverse correlation with the Real Estate Markets. As the real estate market was booming throughout 2005-2007, due to low interest rates encouraging property speculators, the U.S. Dollar fell consistently. However, when Crisis hit in 2008 and the Sub-Prime Mortgage Crisis unfolded, the U.S. Dollar staged a remarkable bull rally as investors all over the world liquidated risky assets and put their capital in the low-yielding, but safe U.S. Dollar.

No as the economic recovery continues in the United States and around the world, it is becoming very apparent that the recovery is going to take longer than initially expected. Several months ago, in the beginning of 2010, the Federal Reserve actually began raising the discount rate in order to return to somewhat normal monetary policy. But as the recovery has continued, it is beginning to hit major roadblocks. Therefore, during the Federal Open Market Committee Notes that were released during the 2nd week of July, the Fed downgraded growth prospects in the United States, and instead of talking about when to enter a monetary tightening cycle, they actually began talking about when they may have to loosen policy again.

Much of this lagging growth in the U.S. recovery is to due to the housing sector, or the real estate market. Home values are still far off their HI’s. The housing sector did actually rebound quite nicely after the economy bottomed out in March of 2009, but the rebound was due in very large part to the economic stimulus the government had injected in the form of the $8,000 tax credit for first-time home buyers.

That tax credit was extended during the fall of 2009, but it was finally removed permanently in the Spring of 2010. Since the stimulus has been removed from the housing sector, economic figures are beginning to strongly disappoint the market. New housing starts are falling dramatically without the stimulus. This is causing the economic growth to lag in the U.S. and it is actually beginning to bring a bit of strength to the U.S. Dollar. This correlation is not perfect, and sometimes it is difficult to time the movement perfectly, but as a generality, when the housing market declines, on forex charts, the U.S. Dollar will be rising. If we continue to see a falling U.S. housing market, look for the U.S. Dollar to continue rising in the coming months.

Are you aware that Roth IRA conversion could put you into a deadly trap?

The IRS has introduced Roth conversions to the people but does not target any specific income group and also given an option for three years in 2010 to pay taxes on the conversion.
The investors or hoarders are showing a lot of interest of transferring traditional individual retirement account into Roth IRA. But they should be cautious and smart before converting their account, as there are many traps associated with it. So the investors should update him regarding Roth IRA conversion before applying for it.

But the media is not highlighting the flaws of Roth IRA conversion like the involuntary tax traps and the monetary problem that an individual might come across.

This article would shed some light on the snares laid down for you by the IRA conversion plan. And it would also help you to reconsider whether you should convert, how much to convert, or if you should convert at all. For best results consult a financial advisor.

Beware of the IRA pitfalls:

•Tax is not split but the income:
The taxpayer does not have to incorporate any conversion income on the tax return of 2010 if he converts in the same year. He can split his income into two parts one conversion can be included in 2011return and another in 2012 return. The income can be split over two years but the tax can not be split evenly as it is beyond your control as it depends on the tax rates and over all income of a person.

•Failing to meet 60 days rollover:
Trustee to trustee transfer of account is the best way to shift money from an IRA to a Roth IRA. But many companies do not support the idea of direct rollover rather they straight away address the account owner and hand over a check to him.
In this case you have to shift the fund within 60days into another retirement account that also includes a Roth IRA. But if you fail to roll over into another account within the time limit of 2 months then you are penalized. The amount becomes a taxable fund but it would not be eligible for a rollover program.

PLR as per the retirement expert have termed the private letter ruling can only settle this problem. This is an expensive and time consuming method but it does not guarantee that the Internal Revenue Service would work in your favor.

•Higher Medicare cost and Social security taxation:
If you do a Roth IRA conversion then you might have to pay higher Medicare premiums or social security payment comes under the tax. The benefits of social security are not included in the net income of a tax payer so it does not come under tax. The social security income can be included in gross income if it starts from 50% all the way up to 85% compared to other incomes then it would fall under tax.

•Fail to get a college financial aid:
While granting a financial aid for a student, the college does not keep in account a retired parent’s assets.

Income is one of the crucial areas schools keep a vigil on and if your income includes the Roth IRA conversion then it might trudge your income. But this kind of income is irregular and does not signify your typical income level. And in this way you can lose a valuable financial aid as they would find that you fall under a stable income group.

•A new beneficiary form with each new account:
It is very important to plan your savings properly so that the inheritor of the account does not face a problem after you die. When it comes to IRA and Roth IRA estate planning becomes vital as it ultimately decides who gets the account after the death of the account holder. With every new account you open you have to submit a beneficiary form absolute completed and presented. This task is quite tedious as you have to follow it with every change in the account.

•Avoid the trap of rolling to an IRA in midway:
If you decide to convert as well as roll your 401(k) plan into IRA in the same year then try to avoid this trap. If you are converting IRA, other than IRA assets no additional assets are taken into account for a pro-rata rule.

•Only eligible funds are converted into Roth IRA:
If you take Roth IRA for granted and think that anything can be converted into it then you are wrong. According to the tax code only eligible distribution can be shifted to Roth IRA.
Things that cannot be converted are as follows: hardship distribution, 72t payment, deemed distribution and so on.

•An account that can not be converted:
If you do not have a spouse and you are a beneficiary of a certified plan then you are eligible for an inherited Roth IRA conversion. This transfer must be done directly as 60 days roll over is not possible by a non spouse beneficiary. But if you have a certified plan then you can roll into an inherited Roth IRA. But if you have an IRA plan then you cannot transfer it into a Roth IRA.

•25% penalty charge:
All kinds of IRAs like SEP IRAs and SIMPLE IRAs are qualified to be converted into Roth IRAs. The traditional IRA can be converted any time and that too without the penalty charge but SIMPLE IRA comes with trap.

The SIMPLE IRAs has a catch as there is a holding period for two years and this time frame varies for each individual. The time is counted once the person makes his first contribution. The fund over here cannot be rolled into Roth IRA other than into a SIMPLE IRA for at least two years. And it also falls under taxable distribution for two long years.

So these are the traps that a person needs to be aware before conversion. If you shield yourself then you won't ensnared in this program.

Rate Increase Risk for Jumbo Loan Borrowers

The following is a guest post by Jeff Bowman of TheGreatLoanBlog. If you like the following post, show your appreciation with comments.

Ten's of millions of luxury homeowners have adjusted from an ARM with a fixed rate period into a fully adjustable jumbo loan. Following the large drop in LIBOR rates since 2007, floating with the 6-month or 1 year LIBOR index has been an excellent risk homeowners took the last few years. Even if they were not aware of the relationship of their mortgage payment and the workings of the global short-term money market.

In the last few weeks it has become crystal clear that Europe is having a massive government debt crisis which started in Greece and is spreading throughout the European Union. This crisis is causing major moves in all the various LIBOR indexes and the action in Europe will translate into higher mortgage payments in the US whenever someone reaches their semi-annual adjustment period.


The underlying rate trend in these indexes in the last few weeks is a steady march higher as governments, banks and corporations are going to market to borrow hundred of billions of Euros. This is pushing LIBOR rates up for the 6- month and 1 year about .25% within the last two weeks. All the LIBOR indexes are at the highest levels in over a year despite massive liquidity being pumped into the system by the EU Central Bank and the FED.


Now we aren’t in the danger zone yet for US based jumbo mortgage loans that are floating considering that the average margin to the 1Y LIBOR is 2.50% arriving at a current floating rate of 3.25%. But a plausible scenario of a consistent flow of gov/corp borrowers, an improving global economy over the next year could push LIBOR rates consistently higher. Any real growth in the economy will be meet with higher interest rates and this will be reflected on the hundreds of billions of dollars worth of jumbo loan mortgages that are sitting with rates of about 3.25-4% now.

We think homeowners that are floating against the LIBOR indexes without a plan to sell soon or get another ARM this year or a fixed jumbo mortgage are gambling with their mortgage payment. Not having a solid plan is a very dangerous proposition given the huge debt crisis that continues to unfold around the world. I am a firm believer in having full coverage auto insurance given the cost of coverage vs the financial risk of an accident. Millions of American’s are just waiting for a financial accident when they get their new rate increase notice. Most ARMs adjust every six months with a 30-60 day notice of the new interest rate and payment. The jumbo loan trend has only been down for the last few years as the world almost fell into a financial black hole during the 07-08 meltdown.

I think with the economic recovery gaining speed that it is only prudent to lock in another ARM or a fixed jumbo mortgage while we are at the lowest rates in history. Avoiding an interest rate increase that for millions would come as a nasty surprise. If you need to refinance your jumbo mortgage within the next few years it’s prudent to explore your jumbo loan options now.

Seeking Contributors

OK, so when I said "this coming Friday," I actually meant "a couple Mondays from now." Instead of a roundup, though, I wanted to start with something a little different: A request for help.

The days of going it alone are over. While the mission and scope of AI isn’t changing, it’s time to add some new voices. The goal is to find a few people who would be willing to contribute ongoing pieces to keep the site afloat.

This is one of the strongest and smartest readership bases in the finance world. It’s also a great platform for weekly or even on-the-spot commentary and insight. If you’re interested in contributing, send an email to accruedint at gmail.com.

Accrued Interest is Back - with Roundups

I'm bringing back the Accrued Interest blog this coming Friday, when we'll start a weekly feature of the best articles/discussions from the bond market, mortgage world, and financial industry.

With a strong readership built over the years, this can be a weekly jumping off point for thoughtful discussion of developments in these markets. (Pending Financial Regulatory overhaul anyone?)

If you have any tips for articles to feature, send them my way at accruedint on Gmail.

See you Friday!

Well, don't get all mushy on me. So long, Princess.

This may not come as a surprise to many of you since I haven't written anything in a month, but this will be my last post on Accrued Interest.

The reasons why I'm shutting it down are several. First, I have taken a much more expanded role at TheStreet.com. This is taking up some of the time and mental energy I had been using on Accrued Interest. Second, I will be starting a completely new professional endeavour within my firm. I expect this to take up vast amounts of my time in the next couple years.

The bottom line is that I don't want to be doing anything that doesn't live up to my own standards of quality. I have come to the conclusion that if I kept this blog going I'd only be writing once a week, if that, and I'm not sure the quality of even infrequent posts would be at the level I've achieved in the past.

I'd like to thank every one who ever read the blog, particularly those that I've corresponded with and gotten to know a bit. The blog covered one of the most wild times in my career, where at times I wasn't sure what the finance world would look like. I was very glad to have the outlet to express my thoughts on the direction banking and finance should take, even getting invited to the Treasury Department to discuss it with people who were shaping that direction.

I was also humbled by the level of discourse that often accompanied my own posts. While I think I'm a pretty smart guy and a half-way decent writer, nothing pleased me more than that the blog attracted people who were just as intelligent and well-spoken and who were willing to marshall a logical argument. If I could change one thing about the world, it would be to temper the hyperbole-laden and sound byte driven debate that persists in this world. To get to a place where a guy like Russ Roberts gets more attention than a guy like Marc Faber. A world where people are willing to acknowledge the opposition's argument and where we're open minded to new evidence that contrasts our own thinking. Instead we live in a world of instant analysis and where fame is equated with legitimacy.

If you'd like to keep in touch with me, please e-mail me sometime in the next few weeks and I'll give you a new e-mail address to use. After about a month I'll stop checking the accruedint e-mail.

Thanks again to all those that have supported the blog over the years.

Oh, and I just can't resist. One last surge of Star Wars geekery.


"Master Yoda, you can't die."

"Strong am I with the Force, but not that strong."

"Guards, leave us."

"Afraid I was going to leave without giving you a goodbye kiss?"

"So...you got your reward and you're just leaving then?"

"All right. Well, take care of yourself, Han. I guess that's what you're best at, isn't it?"

"What are you looking at? I know what I'm doing."

"I can't believe he's gone."

2010 Forecast: No, no different

Is it really different this time? In other words, is this recession really different from past recessions? I argue only in terms of magnitude. It was a bad recession, but it ultimately wasn't any fundamentally different. Will the recovery be muted? I actually don't think so. I just think we went down so hard that it will take a long time to recover. Unemployment, for example, will be relatively high through 2010, but mainly because it got so high in the first place. I expect fairly consistent improvement in all economic indicators through the year.

If you disagree with the above, fair enough. Clearly the Fed should accommodate if the economy isn't growing. But what if we are recovering? Even if its a slow recovery? What should the Fed do? If this time really is no different, then they should do what they always do after a recession. Tighten policy.

Milton Friedman argued, quite convincingly I think, that the perfect monetary policy was to have relatively small and stable growth in money supply year after year. He actually argued that this could be done robotically, and that actual human judgement was a detractor to the process rather than additive. While I'm very sympathetic to this view, its clear that given today's banking system, we can't measure the de facto money supply accurately enough to implement the computerized Federal Reserve that Friedman envisioned.

John Taylor then argued an alternative in the 1980's. If we can't measure money directly, let's measure its impact and try to target that. He said we could measure the output gap (difference between real GDP and potential GDP) and the difference between actual inflation and ideal inflation, then set monetary policy to push these numbers back toward the goal. This is the genesis of the Taylor Rule.

Now let's back up for a moment. Look at the history of the Taylor Rule vs. actual policy during the so-called Great Moderation.

Taylor has argued that if we look at most of this period, actual policy seems to follow the Taylor Rule quite nicely. He argues that the Great Moderation occurred because of this enlightened policy.

Then we get the 1999-2006 period.

Policy was consistently off, mostly being too low from 2001-2004. What did we get? A pretty poor decade of economic performance.

Where are we now based on the Taylor Rule? Right this minute my estimate is that its calling for Fed Funds to be -2%! Hence why I thought QE made sense. We can't get traditional monetary policy easy enough. But if GDP growth is just 2% in 1Q and 2Q and CPI hangs around 1.5, the Taylor Rule suggested Fed Funds rates jumps to 0.75%. If inflation accelerates to just 2%, the recommendation is 2% by the end of the second quarter.

Realistically, the Fed can't (or won't) hike 200bps in just a few months. They are more likely to move in 25bps or 50bps clips lest they spook the market too much. Given that they meet every six weeks, it would take them 10 months to get from 0.25% to 2% at 25bps per-meeting hikes. If we throw a couple 50bps moves in there, it still takes them 7-8 months. This is why they need to start removing extraordinary accommodation now.

Remember, that monetary policy isn't really about interest rates. Fed funds is just the tool the Fed uses to alter the money growth rate. As such, we could say that the Fed's extraordinary liquidity measures are creating a de facto funds rate well below zero. The flip side of this is that with the economy improving, the effective funds rate is even further from its proper spot. So even if the Taylor Rule suggested rate is zero, the Fed would need to slow the money growth from its current pace considerably.

Ben Bernanke is currently talking about the lessons of 1938. I say learn the lessons of the Great Moderation and stick with a stable monetary policy.

Next up... what happens if the Fed keeps rates low? (I'll tell you what, we'll all end up working for this guy or spending more time designing Facebook layouts. Scary :) )

2010 Forecast: How's the gas mine? Is it paying off for you?

Well, its forecast time. I'm going to do this over the course of four posts, I think. Maybe more. This first post is going to focus on what I see for general economic growth in 2010 assuming basic conditions that exist today persist into the new year. The next post will discuss what I expect the Fed to do in response and why that might cause some problems for risk assets. The third post will look at what happens if the Fed doesn't do what they are supposed to do (a real risk to be sure) and what the consequences will be of that. The fourth post will answer whatever questions I get on the first three.


First I'd like to say that the economy is recovering, but not in quite the same way we've seen in the past. I know its become cliche to talk about a moderate recovery, so here is some nuance you aren't reading every where.


First, the industrial sector is enjoying a strong recovery. The ISM manufacturing survey and Fed's industrial production figures show above-average activity.










Other series confirm the same ideas. Durable goods orders are strong. Capacity utilization has risen from 68.3% to 71.3% in just 5 months. After the 2001 recession, it took over 2 years for capacity utilization to recover 3 percentage points.


It isn't terribly hard to see why industrial production has recovered so much. Look at inventories.

Knowing that demand was as low as it was in 4Q '08 and 1Q '09, the severe drop off in inventories points to virtually no actual production. Thus production has recently increased in a big way mainly as catch-up. For 6-months every one was so scared they did nothing. All that while inventories dwindled. Now in order to sell anything producers need to produce.


This is, of course, one of the textbook reasons why there is typically a boom period after a recession. Inventory rebuilding. That part of the cycle is hardly over. I went back and looked at inventory levels from 1960 to today and divided it by the current dollar PCE index. Basically its an economy-wide inventory to sales ratio.




At first glance this looks like a persistent decline over time. This can be explained by everything you were taught in business school about improvements in inventory management over time.

But take a second look. Basically the ratio is oscillating in a range from 1960-1980. Then there is persistent decline until about 2001, when the ratio gets stuck in the 14-15% range until 2008. Below I've zoomed in to the recent period.



You worry about those fighters! I'll worry about the tower! If firms were to increase inventories from 12.8% of sales to 14.5% of sales, holding PCE constant, it would require a 13.4% increase in inventory levels. That could add considerably to GDP in 2010.


So that's what's booming. You can guess what's mediocre. Consumers. Here's personal income growth.


Somewhat below average. And certainly far below average if we took out recessionary periods. Then consumer spending.






Same story. Below average and a good bit below average for non-recessionary periods.

What does this point to? A business-lead recovery. Its not impossible. Business spending can and does occur in the absence of strong consumer demand. We know that businesses have spent very little on capital replenishment. Below is non-residential private investment courtesy of the BEA.

You can see that the drop off is much more severe this recession than in 2001 or 1991. In fact, fixed investment as a percentage of GDP (9.5%) is at its lowest point since the early 1960s (although about the same as the 1990-1991 recession.) Since 1960, the average capital spending level as percentage of GDP is 11%. In order to get capital spending up to 11%, businesses would have to increase capex by 16%! Again, this could add considerably to GDP without a serious ramp-up in consumer spending. In fact, I'm modeling that fixed investment adds something like 1.1% to GDP in 2010.

Bottom line: I think GDP grows above 4% on average in 1Q and 2Q 2010, then drops off a bit into the mid 3's for the second half.

Next, we'll look at why a second recession is highly likely (but its 2-3 years out) if the Fed does its job right. Then we'll look at what happens if the Fed doesn't do its job right. Hint: think bell bottoms and burnt sienna couches.

Debt Wars Episode II: Attack of the Traders

My post from last week on debt generated some conversation about leverage and the value of arbitrage-free prices. Basically I'm arguing that if leverage (a.k.a. trading debt) is exceedingly expensive, then arbitragers won't be able to perform their essential function.

I wanted to illustrate this in a bit more detail by giving a admittedly stylized example. As you are reading this, bear in mind that I'm merely explaining why some degree of leverage is needed to produce efficient markets. This shouldn't be taken as an endorsement of any particular level of leverage, simply as an argument that Wall Street leverage is basically good.

Let's pretend we live in a world where there is a discrete amount of "real" money that is investable in the short-run. That is to say that all long-term investors have fully allocated their investments and any change in their demand for investments only occurs in the long-run. We can imagine this sort of like a world of dollar cost averagers who put some set amount of money aside for investment at the end of each year. However during the course of the year, the level of investable capital is constant.

Now let's assume we're at equilibrium and the market is perfectly efficient. Suddenly a new bond issue comes to market. Who is going to buy it? Given that investors don't have any uninvested assets, the only way an investor could buy this new asset is if they sell other assets. This can't work, of course, because if one investor sells another investor has to buy. There isn't any available net capital in the system.

Now many readers are thinking to themselves that this is a dumb example, since obviously my initial assumption doesn't hold. We see capital flowing back and forth all the time. Investable assets obviously aren't fixed.

Or are they? Consider who makes up real money investors. Individuals? They might have some assets sitting in their checking account which could in theory be invested, but its clearly limited. They have bills to pay with their liquid money. Corporations? Similar to individuals. Mutual funds? On any given day, they only have what they have.

Maybe we can't say that investable assets are literally fixed, but I argue that in the short run its damn close.

Furthermore, real money isn't going to react to relatively small arbitrage opportunities. Let's assume the yield curve is dead flat at 5%. Let's further assume that ABC Corp has bonds outstanding due in 2018 currently trading with a 6% yield. Now ABC wants to sell new bonds which will have a maturity in 2019. What should the yield be? With a flat yield curve, the yield should be extremely close to the 2018 bonds.

But if real money has limited excess capital, there will be a supply/demand imbalance here. Real money will have to be enticed to bring in new capital, and therefore the absolute yield will have to be large enough to do the enticing. Relative yield doesn't apply.

Put yourself in this situation. You wake up one morning comfortable with your investments when some poor bond salesman calls you up and asks about these new ABC Corp bonds. You admit that you have some money in your checking account, but are you going to tie up your liquidity for a 6% yield? Or 6.5%? Or 7%? Depends on your own situation. Might have to be 9% or 10%.

Now let's introduce the possibility of fast money. They also have limited capital, but we'll assume they also have access to leverage.

So back to ABC Corp. They look to sell new bonds. Real money is strapped and wouldn't be enticed unless the yield is 8%. But fast money can afford to go long new bonds vs. a short of the 2018 bonds with a yield differential that is much smaller. If fast money can get 10/1 leverage, a 1% differential earns them a 10% IRR. Or even better, fast money can speculate that once ABC Corp has sold their large bond issue, the supply/demand picture will improve. That is to say, if ABC Corp wants to sell $1 billion in bonds, real money can't take it down. But once the deal clears, fast money can sell the $1 billion bonds in smaller chunks at a tighter spread. Maybe fast money would therefore take the bonds at 6.25% and try to sell them off at 6%. That would be about a 2% price gain. At 10/1 leverage, that's a 20% IRR.

Why do we care about ABC Corp's cost of funding? Because the markets are supposed to be an arbiter of capital. If the cost of capital is distorted by technicals, the market can't function in this manner.

This problem is most glaring when the market is in panic mode. Last fall, real money almost universally wanted to sell at the same time that fast money had no access to capital. Efficient markets completely broke down.

Again, it isn't that unlimited leverage is a good thing. But without leverage, markets can't work.