The stock markets ticked up today on a little bit more good economic news. Following recent good labor market news and the Fed holding interest rates at zero, comes statistics showing last weeks jobless claims were at a 3 1/2 year low.

Also, several large companies reported good results.

Furthermore, two regional business surveys from the Federal Reserve showed better than expected growth for December.

Finally, the general business conditions index for New York was higher again showing an increase in both new orders and hiring. That’s yet more good news for the job market.

We’ll have new articles about end of year tax strategies, financial planning for those in extreme circumstances, and more in the coming days.

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Market Up on Good Economic News originally published at Finance Gourmet

There are several interesting implications for investors and consumers in the Federal Reserve’s actions and statements today. First, as mortgage lending continues to languish and be a rather slow and dour corner of finance, homeowners should take solace in the fact that there is no rush. While there is no guarantee rates will stay exactly as low as they are, the Fed’s continued commitment to low interest rates means that neither new mortgage interest rates or adjustable mortgage rates are going up any time soon.

Second, the Fed announced that it would continue to implements the so-called “twist” in which the Federal Reserve is moving its short-term bond holdings to longer-term bond holdings in an effort to bring down long-term interest rates. Longer term rates are traditionally less influenced by the Fed, which sets only the short-term overnight lending rate that banks use. However, this new wrinkle may prevent longer-term rates from rising, even if they were prone to do so. Again, this is good news for homeowners, though bad news for those trying to get better rates from longer-term bonds like pension funds.

Interest Rates Rising Soon is Myth

Third, the vote to keep interest rates low was 9 to 1, but it’s not what you think. The 1 vote against was not to raise interest rates, but rather a vote against current Fed action being insufficient. In other words, not only has the Fed committed to continuing ultra-low short-term interest rates, it is doing so unanimously with one member wanting low rates and then some. This is important because it shows that there is absolutely no reason to expect interest rates to rise anytime soon.

Fourth, while the Fed is very concerned about the U.S. economy and its lackluster growth, it did note that the economy IS actually growing. This is good news on several levels. It means that things are moving in the right direction, assuming that neither Europe, nor Washington, screws it up. It also means that the Fed is not going to kill off a weak economy by trying to thump it’s “inflation hawk” credentials.

Finally, although the Fed is leaving rates low and pledging to do so for an extended period of time, there is has been absolutely no talk of another round of Federal Reserve led stimulus for the U.S. economy. A third round of quantitative easing, or QE3, is not in the cards for the near future. I guess we don’t have to worry about Rick Perry indicting Federal Reserve Chairmen Ben Bernanke for treason before the U.S. elections.

What Fed News Means for You

What today’s news means for you is that if you are currently doing well enough, there is no reason to think that things will change. If you have been hunkering down, so to speak, fearing the worst, it is probably time to lower your guard a bit.

If you have been narrowly skating by in this long and lingering recession, then things are starting to look up. It looks like the economy is growing, albeit slowly, and that means things like lending, financing, and other money based systems should be getting better over the next year.

The two dark spots in all of this are housing and the job market. The amount of economic growth being seen is not enough to begin generating anywhere near the number of jobs needed to make up for millions of out of work Americans who lost their jobs. However, it does look less likely that solid companies will be dragged far enough down that they must lighten payrolls again.

Housing is still the big concern. Economic growth or no, foreclosure rates are still very high and lots of people are underwater on their mortgages. If you are just a bit underwater and want to stay in your home, riding this out is the way to go. If you are way underwater, it is probably time to look at all your options, including drastic measures. You want to be ready to recover when the economy does. Getting hit now makes you one of millions. Taking a hit a year or two after the economy starts to rebound puts you behind.

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Fed Keeping Interest Rates Low originally published at Finance Gourmet

Update: Consumer sentiment also rose. That is a little bit more good news for the economy.

Unfortunately, the news isn’t anywhere good enough to declare an economic recovery. The “good news” about the labor market we have been getting for the last several months means more about the job market bottoming out than it does about it getting better. Essentially, if you were drawing a graph of the U.S. labor market, these last couple of months of good economic news and indicators means you can stop drawing your line down. It does not mean, however, that you can start drawing that line back up.

There are two major stumbling blocks now to an economic recovery. The first is the very unstable situation in Europe. What once looked like a problem for a couple of the continent’s weakest economies now looks like a full-fledged crisis for the entire European Union. Any collapse, or loss of faith, there and the U.S. economy will be pulled back under. The second issue rearing its head is the expiration of current payroll tax cut.

Established a temporary tax cut (aren’t they all?) the current tax cut reduced the amount workers pay for FICA (Social Security taxes) from 6.2 percent to 4.2 percent.

See information about small business FICA taxes.

That tax cut expires on December 31, 2011 and it means that millions of Americans will be surprised in January by lower take home pay just when they start getting their bills for the holiday shopping season. Nothing slams the breaks on a weak economic recovery like consumers that tighten their wallets and avoid spending.

Pretty much every reputable economist out there agrees that eliminating the payroll tax cut will not only reverse the stimulating economic effect it had, but will also act to slow growth, just when it is getting started.

Of course, like everything in Washington these days, extending the tax cut is caught up in partisan bickering by politicians who grow ever more loyal to their parties while caring less and less about what it good for the country and the U.S. economy. Time will tell if the party bosses can wring enough bragging rights from some sort of agreement to get the extension before it is too late. Even one round of smaller paychecks could have a chilling effect on consumer spending.

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Jobless Claims Continue to Fall originally published at Finance Gourmet

More recently, several regional banks, including SunTrust and Regions, that had already been charging a monthly fee to use a debit card had to abandon the fee once it was popularized by the media in the wake of Bank of America’s decision to implement the fee. One can only wonder how their customers reacted prior to BoA implementing the fee.

The lesson from all of this is that customers need to be very watchful of banking fees and charges. Do not just throw away those notices you get from your bank that are full of fine print, and carefully scrutinize your statements each month to ensure that no new fees are draining money from your accounts.

As a long-term solution, consider switching to a local bank with lower fees or a credit union. Credit unions reap certain tax rewards which allow them to profit without having to gouge deep into their customers to generate revenues.

Beware especially of your free checking account being subtly converted into a non-free checking account, without having the words "free-checking" removes from the name of the account. The current favorite is to implement or raise the minimum balance required for a "free" checking account. Whenever your balance drops below the minimum, you’ll be charged a fee. If you account drops below the minimum on a regular basis, that is the same thing as paying a monthly fee.

Again, watch your bank statements closely. While your bank can’t lie outright to you, they won’t make it easy to spot. Expect something financial sounding to throw you off the trail. Be sure that you know what every charge on your account is and call the bank to ask for an explanation of the ones you don’t understand.

Banks Charge High Fees Because They Can

As a former financial advisor I would review statements that people brought in. Oftentimes, they had no idea what they were paying or being charged. They just made sure that their balance never went negative and that was it. Everything else just slipped under the radar. This happened to both wealthy and lower net worth clients.

One client was paying $35 per month because they never set up a direct deposit that they were supposed to in order to get a free checking account. Turns out they had been paying the bank fee for so long, they thought it was one of their monthly bills!

Banks gouge customers with high fees because they can. When you don’t pay attention, fees slip by without complaint.

When you do pay attention, a cranky phone call is likely to get the fee removed. The bank knows that as long as you don’t close your account they can continue to charge you all the other fees you don’t notice or complain about. In fact, they know the odds are good that if they charge you the same fee in the future, you won’t complain about it.

Banks count on the fact that it can be a pain to transfer accounts. As long as they inflict small enough wounds to keep you from leaving, they win.

Don’t be a sucker. No matter where you bank now, open a second savings and checking account at another bank or credit union. You don’t have to use the accounts, just leave them there. If you ever do have to change banks, your new accounts are already ready and waiting. And, you’ll know if they are really free or not. If a mysterious charge appears, close the account and find a new bank.

Not all banks are terrible, but the ones that are aren’t really afraid of you leaving. Even if YOU leave, there are plenty of lemmings left to be led to the cliff.

New Bank Fees Coming

Make no mistake, Bank of America and other large U.S. banks have made promises and revenue projections that they cannot keep by earning money on banking. Instead, they must find ways to boost traditional revenue streams. Having already raised every fee they have to the maximum amount they think they can get away with, the only course of action is charge new fees, somewhere, somehow.

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Bank of America Cancels Debit Card Fee originally published at Finance Gourmet

The Beige Book is a summary of the current state of the U.S economy across all of the Fed’s districts and for the most part, all reports are of "modest" or even "slight" growth.

Inflation Not Happening

It seems that the highest "street cred" a Fed banker can have is to be an inflation hawk. Since 2008, however, inflation hawks have actually been Chicken Little’s. With the economy growing very slowly and many Americans still out of work, it’s hard to see where inflationary pressure could come from.

The just released Consumer Price Index (CPI) just confirmed that there is no real inflation anywhere to be found in the economy. The index rose just 0.1 percent. Prices excluding food and energy, both traditionally volatile pricing sectors that seem to move of their own accord rather than in step with other prices, actually rose at the slowest rate in six-months, suggesting that retailers have little to no upward pricing power in the months leading up to the holiday season.

In other words, the economy has to get moving again before anyone is going to have luck raising prices and that isn’t going to happen before Christmas. Look for a value priced holiday shopping season, but big discounts might be hard to come by as retailers won’t be reducing prices from higher profitability, growing prices, but rather from low profitability, stable prices.

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Economy Growing Slowly – Inflation Benign originally published at Finance Gourmet

Not long ago, Google offered to buy Groupon for $6 billion. Soon thereafter, Groupon did another round of private equity financing that essentially paid off company founders and early investors such that they have already locked in sizable gains. That might be a very good thing since Groupon seems to be in trouble before it even goes public.

Update: Groupon has updated its IPO filing documents again. Follow the link for the latest.

Groupon’s IPO Filing

Groupon has already had to adjust the documents it originally filed in order to do an initial public offering (IPO) of stock. It de-emphasized a widely mocked financial metric that essentially didn’t count certain expenses. That isn’t a huge thing by itself, although it does potentially show what Groupon thinks of the sophistication level (or lack thereof) of those who would buy Groupon’s IPO.

Groupon’s management took the somewhat controversial step of trying to comment on all the negative publicity its IPO has been getting by sending out a company-wide email to employees saying exactly the kinds of things that you aren’t allowed to say during the SEC mandated “quiet period” before a public offering. Of course, they were shocked, SHOCKED, to find out that the email had been leaked to the media which ensured its wide, very public, dissemination.

No word on whether the SEC will take any action on the matter. (If not, look for plenty of other companies to have “accidental” leaks in the run-up to their IPOs.)

Google Offers vs. Groupon

Next up, Google decided to get into the daily deals / local discount business itself. It started with just a few markets, but recently opened in several others including here in Denver, where Google Offers offered $20 at the popular Tattered Cover bookstore for just $5.

(Disclosure: I bought one of the Tattered Cover Google Offers, although I have no affiliation with Google or the Tattered Cover other than as a customer.)

In other words, the copycats that Groupon has so effectively dismissed in the past are getting bigger and if that IPO doesn’t hurry, there might be some disturbing statistics showing that Groupon is not long for this world as anything other than a takeover target. (Paging Microsoft Bing.) Don’t count on a $6 billion bid, though.

On the other hand, if Google can’t break Groupon’s hold on the market, investors (and retailers) might be convinced no one can, in which case, Groupon stock would be a very good investment.

Which is it? Time will tell, but as I’ve noted before Groupon is too easy to copy. The only real question is has everyone else started worrying about that too, or will Groupon get through its IPO before anyone gets uneasy?

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Is Groupon Public Yet? originally published at Finance Gourmet

I’ve long since stopped trying to add anything to these conversations because Apple stock fanboys are no different than Apple computer fan boys. Everything Apple does is right and great and anyone who thinks differently is a brainwashed slave to the system.

The truth is that Apple stock has done phenomenally well and that it is not now, nor has it ever been a “bad” investment. However, as with all things related to personal finance, there is no such thing as a universally “good” investment. What makes an investment good or bad is how well it is suited to your specific situation and goals.

What Happens To Apple Stock Now That Jobs Has Resigned

The one thought that I had every time someone told me about their Apple investment plans was, “What happens when Steve Jobs leaves?” Much like those who invest in Berkshire Hathaway stock, people who invest in Apple are in some ways investing in Steve Jobs and then, his successor.

As analysts have pointed out, Apple’s product line is likely already very solid for the next few years. It takes time to design and bring a product to market, and many of Apple’s next things are already well down that timeline. However, the one thing that Steve Jobs gives Apple, and its stock, is a Get Out of Jail Free card. If Apple’s next iPhone or iPad dissapoints in any way, it will quickly be excused because everything else the company makes is awesome and because everyone knows that Steve Jobs will make the next one even better.

All of which brings us to the question. How much, if any, of all this carries over to the new CEO? If the iPhone 5 is amazing but the iPhone 6 is even minimally disappointing, does the panic begin? Does the stock crater? Do investors remember that this is still Steve Job’s pipeline for the next few years?

Just like at most times during the past few years, there is a lot of upside in Apple stock, but the downside could be very ugly.

People I discuss these things with point out at how well Apple stock has done over the past decade, and they are not wrong, but that stock price depended at every step of the way on things going as well as they did. A similar stock chart for the future depends on the same level of execution.

Ironically, the answer we get tomorrow when the markets open will only be half an answer. Jobs is staying on as Chairman of the Board, regardless of how little or how much that role involves Jobs in Apple’s products in the future, investors are likely to assume that there will be plenty of Jobs magic in everything Apple makes and that will temper any stock movements. Still, Thursday should be interesting for whatever does or does not happen.

Update: No significant sell-off on new of Steve Jobs stepping down. We’ll see how long the, it’s just as good, feeling lasts. Either way, it seems Apple shareholders are comfortable with things as they are.

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Jobs Resigns Apple’s Stock Price Falls? originally published at Finance Gourmet

Before we get into that, however, it seems that there is a glaring lack of logic in both Mr. Perry’s comments and the media reaction to them. If the Fed can fix the economy to such an extent that the recovery might alter the outcome of the election, whenever it chooses to do so, wouldn’t it be more treasonous to not be doing it right now, or say, six months ago?

In other words, if just turning on the printing presses would make a meaningful improvement to the economy, shouldn’t (wouldn’t) they be doing it right now instead of letting the U.S. economy stall, its citizens suffer and allowing other countries to gain strength at America’s expense?

The Fed’s Real Power

The truth is that "printing money" or other fiscal stimulus can only accomplish so much. The Fed’s target interest rate has essentially been zero percent for a long time now, and the economy is not racing ahead while President Obama builds double-digit leads in the polls.  In other words, the Fed has already tried printing money and while it may have lessened the economy’s slide into a second recession (so far) it has not kicked the economic afterburners in.

Theoretically, the Fed could take the gloves off and pull some massive levers that would provide a short-term, temporary improvement to the economy, but doing so would inevitably cause painful repercussions in the near future. Any trained economist knows this, and that is why Fed actions, are always muted. Things occasionally seem drastic, but only when compared to previous Fed actions.

These small actions are designed to help the economy, or control inflation, by nudging things in one direction or the other. It is a tricky game to play. If the moves are wrong, things can spiral out of control quickly and the actions necessary to bring things back in line become even trickier.

During Greenspan’s Fed years, he repeatedly tried to nudge some wind out of the sails of a stock market that he said was plagued with "irrational exuberance." It didn’t work. Wall Street bankers and Main Street investors continued to pour money into an inflating bubble thanks to cheerleaders like Goldman’s Abbey Joseph Cohen who shot to fame by always being "right" about the direction of the bubble market, at least until it stopped going up, since that is the only prediction she ever made.

When the Fed finally raised interest rates in a significant manner, its goal was to rein in inflation. However, the outcome was a nasty recession and a stock market crash. There is no doubt that neither was intended by the Federal Reserve Board.

At the end of the day, any reasonable use of Fed power, politically motivated or not, is but one of many factors pushing the U.S. economy around.

The Fed and Politics

Historically, the Fed has played politics consistently in one way. The Fed tries to never raise rates going into the Christmas holiday season. Smashing consumer spending before the biggest quarter of the year for any retailer or triggering layoffs during the holidays are the last thing anyone wants.

Understand this, Bernanke has already tried most of the tricks he has. If things start heading from blah to AGGHHHH, chances are he’ll try something again, and when he does, that will be a good thing, no matter who gets to take the credit (or blame) as President in a couple of years.

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Can The Fed Really Be Treasonous? originally published at Finance Gourmet

New home sales statistics are quoted on an annual basis. In other words, if April’s new home sales numbers were what the new home sales numbers would be for every month of the year, how many new homes would be sold. So, the 323,000 new homes sold number means that there would be 323,000 new homes sold for the year.

There are two important things about this latest economic data and how it will affect investors and the economy. First, the number is slightly higher than what economists were expecting. Any time a number surprises to the upside, that is good news, because it means that things were actually better than everyone thought. Second, while the number is higher, it is still very weak, meaning that IF the housing market is recovering, it is doing so very meekly.

The big problem for new home sales is that there are so many existing homes for sale on the market today. Foreclosures and distressed owners continue to flood the housing market, and a weak and inconsistent lending environment has even willing buyers unable to buy. Until the lending market gets better, housing won’t get much better, and the economy will be trying to pull an anchor up the hill.

Too bad Congress is too busy playing politics to take action.

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New Home Sales Rise originally published at Finance Gourmet

Recently, the Federal Reserve left interest rates unchanged. Following the announcement, Fed Chairman Ben Bernanke held the first ever Fed press conference in which he laid out the Fed’s view of the U.S. economy. He suggested that the economic recovery is slowing. He didn’t use the word fragile, but plenty of people heard it anyway. He also suggested that inflation was tame and that any uptick was dwarfed by the greater potential for a slowdown in growth.

Jobs Key to Economic Recovery

Business spending has been measured, despite a tiny boom going on in Silicon Valley. Consumer spending has been whacked by not only by widespread job losses, but also by the housing market crash and subsequent collapse of the mortgage industry.

Many homeowners have no equity left in their homes. Those that do are finding that terms for second mortgages are no better than the difficulties faced by many in getting first mortgages. Refinancers aren’t doing any better regardless of credit score and loan payment history.

In other words, the only source of new money for this economy is new jobs. Without them, the recovery is doomed. With them, what is now a fragile economic recovery could slowly bloom into a full-fledged recovery.

The April jobs report is expected to come in with around 200,000 new private sector jobs. If the actual jobs number is close, expect the usual temporary effect from the jobs report, up if better than 200K or lower if less, either way, faded into market memory by the middle of next week.

If, on the other hand, the jobs number comes in substantially lower, expect some serious fallout. Unless analysts choose to write off April as an anomaly, low job creation suggests the economy may not be recovering, slowly or otherwise. That suggestion could trigger the slow unwinding of the current bets on Wall Street that better numbers and better growth is on the way for stocks and earnings. Without that optimism, nothing is holding this market up.

Low job growth, plus Washington budget cutting that slashes jobs at the Federal Government could be the death blow for an economic recovery that has been slow and unsteady thus far.

If investors start worrying too much about that possible future, the market is due for another downturn that could wipe out all the gains for this year and may even start wiping out last year’s stock market rise.

Related posts:

1. Unemployment Report Bad News for 2011 Economy Recovery
2. Sell Banks Stocks or Buy Bank Stocks

April Jobs Report Could Have Big Impact On Stocks originally published at Finance Gourmet