Europe

Europe is potentially entering a recession as a result of its sovereign debt crisis. The continent is our largest trading partner, which means less potential demand for U.S. goods and services to help our own recovery. U.S. companies with businesses in Europe may see a downturn;
U.S. banks and investment portfolios likely face losses from European debt and equities. Most analysts, however, think that markets and companies have already factored in a European recession.

Emerging Markets

China’s expansion is slowing, but whether it will have a hard landing in 2012 remains to be seen. A Chinese downturn would mean lower demand for U.S. commodities, which means lower sales for companies like General Motors, for which China is a growing market. It’s important to remember, however, that emerging market countries have old-fashioned tools like capital controls, regulations and state ownership to help them avoid recession.

Employment

Employment is a bright spot for U.S. recovery. Weekly initial jobless claims are now at a rate consistent with ongoing employment growth. Layoff announcements are down sharply, and hiring intentions and online job advertising are back to 2008 levels. Hiring intentions of small business recently matched levels from before the 2008 recession; this is important because firms with fewer than 500 employees account for about half of private sector employment and non-farm private sector GDP.

Election

Markets hate elections because they’re unpredictable.  This being an election year, investors looking for clarity on policies, regulations, and key issues like debt reduction will have to wait until 2013. But history points out the S&P 500 has gone down in only three of the 21 presidential election years since 1928.

Net of the 4Es: uncertainty. There’s also, however, unquestionably more optimism in the country than there was six months ago. We advocate staying invested in a broadly diversified portfolio for the long term; we’ll be watching and evaluating opportunities to manage for both return and risk as the year progresses.

 James Copenhaver, Director of Investment Management

In my opinion, making financial resolutions doesn’t have to be painful. If you follow some simple guidelines, financial and other resolutions don’t have to be overwhelming. Remember that the key to reaching any goal is to make it specific, achievable and measurable. Celebrate and reward yourself once you get there. And realize that it’s perfectly acceptable – and smart – to ask for a little help when needed.

Be it resolved: Health first
Before getting into financial resolutions, I want to mention how important it is to consider your health and make it a priority. This is a great place to start with resolutions because there are so many ways to improve health without spending much money. You can go for more walks, which are absolutely free. Or take an exercise class or buy (and use!) a cookbook that focuses on healthy foods. Try a healthy new activity and see if it gives you some extra energy and enthusiasm for your financial resolutions.

Be it resolved: Save and invest more
Based on my conversations with clients, family members and friends, saving more and spending less always seem to be the most popular financial resolutions. The two things go hand in hand and may sound simple, but many people find it difficult to build their savings to the level they desire. You need the right perspective and a specific, achievable savings goal in order to succeed.

Saving really boils down to paying yourself first. For most people, a realistic goal is to save 10 percent of your income. If your employer offers a retirement savings plan with matching contributions, resolve to make the most of it and contribute as much as you can. It is one of the best ways of boosting your savings. You may also want to open and begin making regular contributions to a Roth IRA, which allows you to make tax-free withdrawals of your direct contributions at any time.

Be it resolved: Pay off inefficient debt
If you are one of the many people who want to dump a debt burden this year, you need to know that not all debt is created equal.

Efficient debt isn’t so bad, but you will want to get rid of inefficient debt as soon as possible. Efficient debt works for you because it is tax-deductible and/or appreciates in value. Examples include a home mortgage or an investment in education that can increase your earning power. Inefficient debt includes high-interest credit card debt and debt used to buy things that depreciate and are not deductible, like automobiles and many other consumer goods. Resolve to pay off inefficient debt first.

Be it resolved: Consult a financial advisor
If you feel overwhelmed just thinking about financial resolutions, it’s the perfect time to consult with a financial advisor. A professional can help you get organized, identify goals, save time and find ways for you to maximize your financial efficiency this year.

Best wishes for a healthy and prosperous 2012!

Wealth Enhancement Group

Medicare
For example, take your health. Will you stay healthy in the future or have to deal with an injury or illness? You can hope for the best but should plan for the alternative. No one knows what kind of health they will have during their retirement. And just because you are entitled to Medicare, it doesn’t mean you won’t end up paying out of pocket for care and medications. On top of that, Medicare as we know it today may be very different in years to come. The key to health care in retirement is being able to afford medical coverage and remain physically independent as long as possible.　 Whatever happens, you need to plan for health care uncertainties. That could be with extra insurance, it might be through extra savings or just by signing up to the right program.　 Whatever it is, you need to be ready.　

Taxes
Taxes are another uncertainty. Current talk of deficits and the national debt, in the midst of shifting political winds, means that taxes will likely change over the coming years. Your being in retirement is no guarantee that you will be immune to this uncertainty.

Depending on how much of your retirement income you take out and when, you may still face substantial tax bills through your retirement. Also, if your retirement income is large enough, you can be taxed on social security income. So just because you stop working, it doesn’t mean you stop being affected by tax hikes and cuts.　 You should include tax uncertainties on your list of retirement considerations or you might have some nasty surprises during tax time in your retirement years.

Markets
We’ve just been through one of the worst recessions in our country’s history. It was a recession few of us could have predicted and one that made many people reassess what they can rely on in terms of investment and growth. We don’t know what the stock market is going to do over the next 5, 30 or even 50 years – but, whatever the market does, you need to be certain that your retirement income can sustain your lifestyle.　

That means diversifying your investments and having a long-term plan. By planning ahead you can be prepared for either a bull or a bear market. And, you can protect your assets against uncertainty.　

Be ready for the future
The problem is, too many people are putting off their retirement plans until tomorrow. And, no one has a crystal ball. To protect yourself from the uncertainties that may face all of us in retirement, you should plan sooner rather than later.

When asked about financial priorities in today’s changing environment, people are almost seven times as likely to say their core goal is “achieving financial peace of mind” versus “accumulating as much wealth as possible.” And that’s obvious, because the confidence that comes with knowing that you are prepared for the uncertainties of the future is, as the commercial says, priceless.

 Wealth Enhancement Group

So why was the S&P 500, the broad measure of market performance, down 4.8% for the week after being down 3.5% the previous week?

One reason is questions about the long-term sustainability of the recovery. Roughly 70% of GDP is consumer spending. And consumer spending is dependent on people having jobs. The economy added 80,000 jobs in October, down from 158,000 in September and 104,000 in August. It needs to do much better, at least 200,000 per month in order to reduce the current 9.0% unemployment rate. The growth in retail sales can’t continue unless hiring increases and wages rise. Neither of those things is happening at a self-sustaining rate.

The other reason is Europe, which promises to be a source of financial instability for the foreseeable future, and a drag on the confidence of American markets and businesses.　

In the short term the cascading series of potential failures, Greece to Italy to Spain to France, has financial markets unsettled; banks on both sides of the Atlantic own trillions in European sovereign debt.

In the medium term Europe faces the likelihood of recession, in large part due to the failed policy of budget cutting to trim deficits instead of spending to create job growth. That means decreased demand for American goods from our biggest trading partner and fewer American jobs created.

The net: uncertainty continues to reign on Wall Street, on Main Street, and across Europe, so it is important to keep your portfolio diversified. We’re watching the markets and keeping our options open to make prudent investment shifts as necessary.

James Copenhaver, Director of Investment Management

Unemployment is stuck at 9% and has been since spring. Job growth is stuck at an average of 72,000 per month and has been since spring also. The economy is creeping along just fast enough to employ new workers entering the labor market, but not fast enough to budge unemployment. We’re not in a recession, but we haven’t recovered from the last one either.

That’s the stability part, and it isn’t a good stability.

The economist didn’t talk much about the shaky part, but it’s pretty clear. The U.S. political process is shaky, with the two parties unable to agree on measures that would lead to economic recovery and growth. Europe is shaky, with the countries of the Euro Zone unable to agree on measures that would save their banks from the cascading failures resulting from a Greek default. Even China, the engine of global growth, is shaking a little as its furious rate of modernization inevitably slows.

The Greek default situation right now is the event most likely to shake the stability. A solution to the Greek debt crisis, or measures that would spur U.S. job growth, could inspire business and consumer confidence that would lead to long-term, self-sustaining economic growth.

The future is uncertain. Stay tuned.

James Copenhaver, Director of Investment Management

FOOTNOTE:

Economist Jared Bernstein:  http://jaredbernsteinblog.com/jobs-report-second-impression-shaky-stability/

The Committee intends, by the end of June 2012, to purchase $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative.

Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated.

The markets appear to have focused on the pessimistic view of slow growth and have turned attention to the continuing uncertainty of the outcome of the European debt crisis and the impact on the U.S. and world economies. This uncertainty will continue the pattern of risk-on risk-off trading that has contributed to the recent volatility.

Most of what Bernanke said, he’s said before. After all, American business is sitting on huge amounts of cash that it isn’t investing. It isn’t borrowing to grow either. The Fed has done everything non-inflationary that it can to send interest rates to historic lows to encourage spending. Spending isn’t happening, so what more can the Fed chairman say?

Something interesting.

Bernanke said he thought Americans were overly pessimistic about the economy. Given the numbers on wages, debt, loan rates and housing prices, consumers should be spending more, creating demand and growing the economy. Instead, they’re doing exactly what business is doing: not spending. The cycle of pessimism feeds on itself, stifling demand, which in turn stifles growth.

Perhaps the main cause of that pessimism is unemployment and the lack of job growth. That’s where President Obama’s speech comes in. The American Jobs Act that he proposed has $240 billion in employee payroll tax cuts through 2012, tax cuts for small businesses, and a small business tax holiday for hiring new employees. It has $140 billion for modernizing schools and for repairing roads and bridges. It has $35 billion for saving teacher jobs and hiring new teachers.

Moody’s Analytics’ chief economist Mark Zandi says the president’s jobs package would likely create 1.9 million payroll jobs, grow the economy by 2%, and cut unemployment by 1%.

Is it big enough? Maybe. It needs to go beyond staving off another recession to jumpstart self-sustaining growth for the economy. Is it apportioned right? Maybe. Direct spending is historically more effective than tax cuts, but tax cuts work.

And can it be passed by the most bitterly divided Congress since the 1850s? We’ll see.

James Copenhaver, Director of Investments

Every time we’re confronted with a new set of problems, that sinking feeling returns and people may wonder “Am I doing the right thing?” or “Should I change course?”

While Standard & Poor’s downgraded the long-term U.S. debt, the other two credit rating agencies, Moody’s Investors Service and Fitch Ratings, reaffirmed the AAA rating.  In the midst of more economic problems in Europe, a stock market correction and indications that the growth of the U.S. economy is slowing, investors sought U.S. Treasuries as a safe haven.  Our conclusion is that regardless of S&P’s comments, the rest of the world sees the United States as one of the best and safest places to hold assets. S&P indicates that the dysfunctional state of U.S. politics was as big a factor as the debt issues in imposing the downgrade.

We’re not here to convince you that we as a country don’t have issues or that it will be a smooth ride to recovery, but rather, that we wouldn’t count out the resolve of the U.S. investor and the ingenuity of U.S. companies to continue to find value and provide products and services to the global market.

This is the third time this year we have experienced significant downturns in the U.S. markets and have seen the resiliency of the stock markets, investors and the U.S. economy.  Many people may feel this is 2008 all over again.  We don’t share that opinion for several reasons.  The banks are in a much better position than they were then, U.S. companies are well positioned with cash to take advantage of opportunities, and even when it seemed the darkest in March 2009, the U.S. economy and its citizens were able to meet the challenges.

Today, as countries continue to struggle through tough economic choices, we’ll continue to look at the long-term picture and opportunities these uncertain times present to position investments.

At Wealth Enhancement Group we believe in planning for the certainty of uncertainty; no one can predict with accuracy what will happen in the short term.  For this reason, we work as your advocate to structure your financial plan so that if you need money, you have a smart place to get it from. Please do not hesitate to contact your advisor team with questions.

Sincerely,

James Copenhaver, Director of Investments

Wealth Enhancement Group

Husbands and wives increasingly are switching the traditional roles of breadwinner and household manager. But many of them haven’t followed through with an appropriate financial tune-up.

In recent decades, women have outpaced men in education and earnings growth. According to the U.S. Census Bureau, some 29% of wives in dual-earner couples brought home more pay than their husbands in 2009, the most recent data available. That’s almost double the 16% figure in 1988, when many of today’s 40-year-olds were finishing high school.

With that shift in income, financial planners say they see more husbands supervising the home front. It’s part of a long-term trend that appears to have been hastened by the recession. Although there is less social stigma than there once was—with “daddy play groups” proliferating—it is triggering money problems for some couples.

Given that employers in recent years have shifted management of most benefits—from retirement savings to health insurance—onto workers’ shoulders, it is critical that couples recognize areas where adjustments might be needed. Among the most important:

• Life insurance. Even in families where the husband is no longer the top earner, or where both spouses have similar incomes, the husband often carries more life insurance.

The wife probably needs just as much.

Michael Terrio, an investment adviser in Port St. Lucie, Fla., recently worked with a retired couple whose pensions and Social Security benefits were nearly the same. But the husband had $250,000 in term-life insurance, which is coverage at a fixed premium for a set time period, while the wife had only $75,000 in coverage.

“If she were to die, he’d be in trouble,” Mr. Terrio says.

To fix the problem, he had the couple shop for a new life-insurance policy that also could be used to pay for long-term care for either spouse. He also helped the wife select a fixed annuity that would replenish most of the husband’s income if he were to die first. The husband, not a fan of annuities, invested in a portfolio composed of exchange-traded funds and, to limit downside risk, options.

Couples who are still working should consider term-life insurance—typically the cheapest type available, says Emily Sanders, a CPA and chief executive of Sanders Financial Management in Norcross, Ga.

Ideally, a couple should buy enough coverage to replace their income until their youngest child is out of college—and to pay off a mortgage and any other loans. That way, “someone struggling to raise young children by themselves isn’t strangled by debt,” she says.

Even if the father is earning nothing while raising children or starting a business, “he should be insured so Mom could continue working and afford a nanny,” Ms. Sanders says.

If you get life insurance through your employer, consider buying additional coverage elsewhere instead of getting it at work. “If you leave the company or are terminated, and something happens in the interim that makes you uninsurable, your family is in a hole,” she says.

• Retirement savings. A husband without a regular paycheck may be tempted to tap his retirement account early in order to continue to contribute to the household kitty. Try to avoid the temptation, even if it means swallowing your pride.

Ryan McKeown, a certified financial planner in Mankato, Minn., cites one couple he worked with recently in which the husband has retired, but the wife is still employed. The couple are in their 50s and have no mortgage or debt, and can live on the wife’s paycheck alone. She also has $92,000 in her savings account.

Despite this, the husband started taking early withdrawals from one of his retirement accounts, triggering taxes, because he felt he should still be contributing to the household’s income, Mr. McKeown says. To talk him out of it, Mr. McKeown says he put everything on one piece of paper so the husband could see how it was hurting them.

Another hazard: When a husband becomes the lower earner in his late 50s or early 60s, he may reflexively rebalance his retirement investments more conservatively—bulking up on bonds and selling off stocks, say—even if his wife is earning enough to meet the couple’s needs. “I warn them away from that as much as possible,” Mr. McKeown says. “You hate to give up growth potential too early on.”

• Child care. As obvious as it may seem, some families with out-of-work or underemployed fathers need to reassess their child-care needs and scale back.

If a mother quits work or shifts to a part-time job, the family typically sheds whatever child-care costs it can, Ms. Sanders says. But if a father is home, even if he isn’t working, the family tends to keep some—or all—of its child care in place. The same goes for housekeepers and other domestic help.

“If someone feels like they have to have a nanny, we aren’t going to tell them they can’t,” Ms. Sanders says. She tries to make her clients aware of the expense, which in many households rivals the mortgage payment. She suggests considering less-costly arrangements, such as sharing part-time care with a neighbor.

Ryan McKeown is a Registered Representative with and securities offered through LPL Financial, member FINRA/SIPC.

An investment in Exchange Traded Funds (EFT) structured as a mutual fund or unit investment trust involves the risk of losing money and should be considered as part of an overall program, not a complete investment program.  An investment in ETFs involves additional risks such as not diversified, price volatility, competitive industry pressure, international political and economic developments, possible trading halts, and index tracking errors.

Options are not suitable for all investors and certain options strategies may expose investors to significant potential losses such as losing entire amount paid for the option.

2011 –New Taxes
• Medicare tax rate increases 0.9% for higher-income taxpayers
• New 3.8% tax on unearned income for higher-income taxpayers

2011 –Medicare Changes
• Part D
• Medicare Supplement
• Medicare Advantage

2014–Exchanges and Subsidies
• State Health Insurance Exchanges
• Premium subsidies for individuals with incomes below $47K (based on CBO estimate for 2016)

2014–Individual and Employer Coverage Requirements
• Employers with more than 50 employees
• Individuals who can find workplace, exchange, or other policies that cost less than 8% of their income

With the recent elections, we’ll have to watch and see what happens in the meantime, there is new legislation, which goes by the name Patient Protection and Affordable Care Act.

There are two main pieces of Health Care Reform
• One piece aims to make health coverage nearly universal by requiring employers to provide insurance and requiring individuals to buy it (tax credits & subsidies help pay for it).

• Part two tries to make Medicare, a popular and effective, but expensive, program that serving people 65 and older, more efficient.