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January 28, 2009

New doubts about a once sure bet

Filed under: term — Tags: , , — Snowman @ 4:09 am

Retirement investors have long viewed annuities as an effective way to protect their nest egg. But the recent financial crisis has highlighted an inherent paradox: While annuities offer safety and guarantees, their benefits are tied to the financial strength of an insurer. If the company fails, you could be looking at a loss in the very part of your portfolio that you were counting on to be rock solid.

So at a time when one of the world’s largest insurers, AIG, has needed government help to stay solvent and other insurers have seen their stocks drop 70% or more in just a few months, should you still consider putting a portion of your retirement assets in an annuity?

I believe the answer is yes. With their unique features - in particular an immediate or income annuity’s ability to turn your savings into lifetime payments - annuities can play a valuable role in your retirement. But given the heightened level of risk today, it’s more important than ever to follow a few crucial steps when you shop for an annuity. Otherwise, you may be buying only the illusion of security.

Understand what you’re buying

I get lots of e-mails about annuities. And what’s strikingly clear is that the majority of annuity holders have a pretty vague notion of what they own.

For example, you may know that a return or monthly payment is guaranteed, but do you know how that promise works? Many variable annuities tout guaranteed growth rates of 5% or more a year. What you may not realize is that this return typically applies not to your account value but to the annuity’s "benefit base," a hypothetical value the insurer uses to calculate how much income you can draw from your annuity. If the market drops and you want to cash out, you’d get your actual account value, which could be down right along with the market.

Before you commit to an annuity, demand that the salesperson explain what you’re buying in terms you comprehend.

Know the cost of getting in - and out

Few investments can match annuities when it comes to confusing fees. Variable annuities, for example, have three layers of annual costs - insurance charges, investment fees and the cost of guarantees and riders - that can easily total 2% to 3% payday loans. Surrender fees - what you may owe when you exit the annuity - can range as high as 15%.

These fees are buried in pages of bewildering prose in the prospectus or contract. A consortium of insurance groups is working on ways to simplify fee disclosure. Until that becomes a reality, ask your adviser to break down each fee separately in writing and total them. Better yet, have the adviser fill out the simplified disclosure checklist I proposed last year.

Go for quality, then diversify

To date, no major insurer has failed in this crisis. But when you see firms like Lehman Brothers bite the dust, it’s clear that anyone can go down if a meltdown is severe enough.

To reduce your odds of getting swept up in a failure, stick to insurers that get grades of A or better from ratings firms like Standard & Poor’s and A.M. Best. That may mean accepting a lower yield or payout, but you’re not looking to take chances with this money.

For an additional measure of safety, divvy up your money among two or three insurers. All states have guaranty associations that provide coverage of $100,000 or more per insurer (find your state’s limit at By keeping your exposure to any single firm below your state’s coverage ceiling, you ensure you’ll be fully covered even in a worst-case scenario.

Have you found a way to pay for your child’s college education without taking on too much debt? Did you choose a university based on its lower cost or loan programs, research scholarships, or just save up and pay in full? We want to hear from you. Send your stories to and you could be featured in an upcoming story.

For more retirement and investment advice from Updegrave, including videos and his twice-weekly Ask the Expert column, go to E-mail him at 


January 22, 2009

Fiat and Chrysler to form global alliance

Filed under: finance — Tags: , , — Snowman @ 3:48 am

Italy’s Fiat will take a 35 percent stake in U.S. car maker Chrysler LLC — valued at zero by its part-owner — in a deal aimed at helping the pair survive the worst crisis to hit their industry in decades.

Fiat is not paying cash for the stake but in return will share products and platforms for small cars with Chrysler, which has already grasped billions of dollars from the U.S. government to avoid bankruptcy. It will also share its green technologies.

Chrysler, which makes gas-guzzling Jeep and Dodge, is 80.1 percent owned by Cerberus Capital Management, which paid $7.2 billion for that stake in 2007. The rest is held by German car maker Daimler, which considers the 19.9 percent holding to have no value.

Fiat, worth about $7.5 billion, has said it needs a partner to make it big enough to survive. Chief Executive Sergio Marchionne said in a joint statement the deal was designed to help Fiat boost its volumes. It will also help Fiat return to the U.S. market where it has long been absent.

Chrysler is the No. 3 U.S. car maker by sales. In a letter to employees, Chrysler Chief Executive Bob Nardelli said the deal would “significantly enhance the long-term viability” of the company.

The deal will allow Chrysler to sell in more foreign markets, give it access to fuel-efficient technology and expand its product portfolio with small cars, a Fiat specialty faxless payday advance.

The agreement would also help the two cut costs.

Speaking to reporters at an event in Milan, Fiat Vice Chairman John Elkann said Fiat could raise its stake.

Fiat shares jumped 4.46 percent to 4.68 euros after being halted from trade ahead of the news.

Italian Economy Minister Giulio Tremonti said the alliance was “good news,” and a sign of vitality.


Analysts said the outlined deal looked mostly positive for Fiat because they saw it as a cheap way for it to enter the U.S. market — still huge despite falling sales, especially for gas-guzzling vehicles.

Some of them had doubts about its success in helping Chrysler, the weakest of Detroit’s three car makers.

“What Daimler or private equity could not fix is not likely to be fixed by Fiat,” Harald Hendrikse at Bank of America Merrill Lynch said in a note.

Nardelli said he expected the deal to be closed as early as April. 

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January 17, 2009

European November Exports Drop Most in Eight Years

Filed under: term — Tags: , , — Snowman @ 2:39 am

European exports declined at the fastest pace in more than eight years in November as the global economic downturn throttled demand for the region’s cars, trucks and planes.

The euro area exported 123 billion euros ($162.7 billion) of goods and services, compared with 129.1 billion euros in October, the European Union’s statistics office in Luxembourg said today, citing seasonally adjusted data. That 4.7 percent drop was the biggest since June 2000. The trade deficit widened for the first time in four months to 4.9 billion euros as imports fell 2.5 percent.

The collapse of foreign demand helped persuade the European Central Bank to reduce interest rates yesterday after earlier signaling it was more likely to leave borrowing costs unchanged. The central bank will have to cut its forecast for a 0.5 percent contraction in the euro-area economy this year at its March meeting, ECB President Jean-Claude Trichet said.

“The export-dependent euro-area members are taking a hit,” Gabriel Stein, an economist at Lombard Street Research in London, said in a research note yesterday. “The rapid deterioration in the euro-area outlook has taken the ECB by surprise.”

The economy of Germany, the world’s largest exporter, may have contracted as much as 2 percent in the fourth quarter as the credit crisis hurt shipments abroad, the Federal Statistics Office said this week. That would be the biggest slump in more than two decades.

German Manufacturers

German manufacturers are suffering as the global financial turmoil sucks in the economies of eastern Europe. MAN AG, the Munich-based truckmaker that generates almost three-quarters of its sales through exports, saw orders decline last year, Chief Executive Officer Hakan Samuelsson told investors this week faxless payday loans.

The euro region’s energy trade deficit jumped to 260.5 billion euros in the first 10 months of 2008, compared with 185.5 billion euros in the year-earlier period. The overall deficit with Russia, the world’s second-biggest oil producer, reached 32.8 billion euros in the January-October period, after 24.5 billion euros as imports surged 24 percent. Imports from China rose 7 percent to 151.6 billion euros.

Renault SA, France’s second-biggest carmaker, reported a 29 percent drop in December sales, while Louis Gallois, chief executive officer of Airbus SAS’s parent company European Aeronautic, Defence & Space, said Europe’s biggest planemaker will miss its target to deliver 21 A380 planes this year.

Economic Crisis

“The economic crisis is catching up with us and we will have to draw conclusions for our own production,” Gallois told Radio Classique this week.

Unemployment in the single-currency area rose in November to 7.8 percent, the most in almost two years, while confidence among manufacturers plunged to the lowest on record in December. The series dates back to 1985.

“The euro area is experiencing a significant slowdown largely related to the effect of the intensification of financial turmoil,” Trichet said after ECB policy makers reduced the bank’s benchmark rate to 2 percent, matching its lowest ever.


January 15, 2009

The new 50 mpg Prius

Filed under: term — Tags: , — Snowman @ 4:54 am

Toyota Motor Corp on Monday unveiled its third-generation Prius hybrid, the world’s top-selling "green" car, targeting U.S. sales of 180,000 units in the first 12 months and 400,000 globally in 2010.

Introducing the mid-sized sedan at the Detroit auto show, Toyota said the new Prius achieved a combined city/highway mileage of 50 miles per gallon, an improvement over the 46 mpg for the current model and 41 mpg for the first version.

The car will hit showrooms in Japan and the United States in late spring, followed by other markets around the world.

"We’re very bullish about the new Prius," Bob Carter, group vice president of Toyota Motor Sales, told Reuters in an interview this week.

He said internal research showed that 93% of Prius owners plan to stay with the Prius when they buy their next car, making the model the industry leader in owner satisfaction.

Taking a major step towards its goal of selling 1 million hybrid vehicles a year soon after 2010, Carter said Toyota would sell the new Prius in 80 countries, nearly double the number of markets where the current version is available.

Toyota (TM) has sold 1.7 million hybrid vehicles globally since it blazed the trail with the first Prius in late 1997.

Honda Motor Co (HMC), which introduced its first hybrid, the Insight, two years behind Toyota, has sold just under 300,000 hybrids total.

More power, high-tech features

Toyota did not announce pricing on the 2010 model year Prius, which it said was roomier, quieter and packed more advanced features such as an optional moonroof with solar panels, four driving modes, and a monitor-guided parking assist system, among others.

The Prius will be driven by a more powerful 1.8-liter, four-cylinder engine.

True to its name, the newest Prius, which means "to go before" in Latin, holds 1,000 patents - a jump from the combined 670 filed for the first two generations, Carter said fast payday loan no faxing.

In the latest innovation, the car will be available with a sliding glass moonroof packaged with solar panels that power a ventilation system to circulate air in the car’s interior. By doing so, the system lowers the temperature inside the car on a hot day when it is parked, reducing the use of air-conditioning.

Still, fuel-efficient cars are facing headwinds after gasoline prices fell by more than half their peak last July. Worried about job security amid a faltering economy, many U.S. consumers have also held off from purchasing any type of car in recent months.

Prius sales in the United States, its biggest market, plunged 45% last month, bringing the model’s total 2008 sales to fewer than 160,000 units, down 13%.

With its bottom line hit from plunging sales and a stronger yen, Toyota has suspended work on its new plant in the state of Mississippi which was slated to begin production of the Prius beginning in late 2010.

But Toyota executives said they expected gasoline prices to climb back up once the economy recovers, making the case for hybrids and other fuel-sipping cars.

A day earlier, Toyota launched the HS250h, its luxury Lexus brand’s first dedicated hybrid car, due for sale this summer in the United States.

"Our first full calendar year we’ll (sell) about 30,000 units," Mark Templin, group vice president of the Lexus division for North America, told Reuters on Monday.

"But I will tell you, our dealers really like the car and they think it’s going to be very successful. So they think we’re conservative, and I hope that’s the case." 


January 9, 2009

Pricing in a jobs apocalypse

Filed under: legal — Tags: , , — Snowman @ 9:20 am

There is no way around it. This is the worst job market in years and it’s going to get even tougher.

Alcoa (AA, Fortune 500) announced Tuesday it was eliminating 13% of its global workforce. Payroll-processor ADP (ADP, Fortune 500) said Wednesday morning that 693,000 private-sector jobs were lost in December, raising fears of an equally bleak, if not even more grim, employment report from the government on Friday morning.

And to cap that all off, the Federal Reserve revealed Tuesday in the minutes from its last meeting that many Fed members expect unemployment to rise "significantly" into 2010.

With this in mind, it’s not surprising that stocks fell hard Wednesday morning. But the initial sell-off — about 2% — was tamer than might have been expected. It wasn’t one of those Acapulco cliff-dive drops that were routine back in September and October.

"It’s hysterical that a 2% down day seems pretty good. But we’ve been immunized because some of the bigger moves in the past few months," said Paul Nolte, director of investments for Hinsdale Associates, a money-management firm based in Hinsdale, Ill.

Stocks took a turn for the worse as the day progressed though. The Dow finished Wednesday down 2.7% and the S&P 500 and Nasdaq each gave up about 3%.

Still, other market experts suggested Wednesday that the lack of a truly bloodcurdling plunge could be a sign that investors are finally getting used to the fact that this is going to be a long, painful recession.

"My guess is that most people who were going to sell have already done so. I don’t see a lot more en masse selling," said Phil Dow, director of equity strategy for RBC Capital Markets in Minneapolis.

This doesn’t mean that the stage is set for a major rally anytime soon. Dow said that many average investors he talks to are still "scared to death" and looking to avoid risk.

But he said there does seem to be a growing sense that stock prices now adequately reflect the gloom-and-doom to come.

"Within the framework of 2008’s huge decline, stocks are still trading in the deep end of despair. When we look back, we will view this as a historical buying opportunity," he said.

Jason Tyler, director of research operations for Ariel Investments, a money-management firm based in Chicago, agreed that investors are slowly but surely coming to grips with the weak economy. For this reason, he doesn’t expect stocks to get whipsawed around as sharply as they did last year.

"Volatility is down dramatically and coming back to normal levels," Tyler said 500 fast cash. "People had no idea how to price anything in the fourth quarter. But emotional uncertainty leading to dramatic price changes has mostly abated."

In fact, Tyler said he thinks that the market is already factoring in the likelihood of the unemployment rate rising above 8% in the next few months. The unemployment rate was 6.7% in November and economist expect that it hit 7% in December.

"The market has priced in a pretty bearish employment picture," he said. "As companies look at what the holiday season was like, there is not a case to invest and hire and spend. Businesses are still looking heavily at layoffs and managing to reduce expenses."

Along those lines, Nolte said fourth-quarter earnings for many companies will probably be terrible as well. Businesses have already been preparing investors for bad results.

According to several reports, Bank of America (BAC, Fortune 500) CEO Ken Lewis said in an internal memo Tuesday that the bank’s results for 2008 would be worse than expected. And on Wednesday, semiconductor giant Intel (INTC, Fortune 500) and media firm Time Warner (TWX, Fortune 500), the parent company of, both lowered fourth-quarter forecasts.

Nolte predicts that the combination of more bad economic news and weak corporate profits will probably lead to a rough start for stocks this year. But he thinks that investors will eventually look past the unrelenting tide of negative headlines and prepare for the possibility of a rebound.

"There will be impatience about the economy turning around but what’s going to happen over the course of the year is there will be a divergence between the markets and economy," he said. "The economy probably won’t recover until early 2010 but stocks could start to rally as investors anticipate the recovery."

And one market strategist said that while it’s probably premature to say the worst is definitely over for stocks, the economic news will have to be truly scary to justify another major plunge.

"The market is prepared for trillion dollar deficits, a Hail Mary stimulus package and rising unemployment. It will take some pretty grim data to send stocks back to the lows from last October," said Chip Hanlon, president of Delta Global Advisors, an investment advisory firm in Huntington Beach, Calif.  


January 6, 2009

Oil jumps 3.9% on supply worries

Filed under: finance — Tags: , , — Snowman @ 1:14 am

Oil prices rose nearly 4% on the first trading day of 2009, as fighting in the Middle East and Russia’s energy dispute with Ukraine raised concerns about future supply disruptions.

U.S. crude for February delivery settled up $1.74, or 3.9%, to settle at $46.34 a barrel. The market was closed Thursday in observance of the New Year holiday.

Over the past week, Israel has been striking targets in the Gaza Strip, saying that it was retaliating for Hamas rocket attacks. Some analysts worry that the Gaza conflict could widen, disrupting production in the Middle East.

The fighting could represent a real threat to supply "if the conflict were to escalate to a ground assault," and if oil-producing neighbors such as Iran got involved, said Rachel Ziemba, energy analyst with research firm RGE Monitor.

And in a dispute with neighboring Ukraine, Russia’s state-owned energy company, Gazprom, began halting exports of natural gas to the country after the two failed to agree on a price increase. The supply disruption could affect energy prices in western European markets.

There has also been concern that Russia, a major oil producer, may try to follow in the footsteps of OPEC and cut production or take some other coordinated action in an effort to boost prices.

OPEC, whose members produce about 40% of the world’s oil, agreed in December to slash oil production by 2.2 million barrels a day beginning this month. The cuts were aimed at bolstering crude prices, which plummeted more than 60% in 2008.

"Russia and OPEC have now joined together," said Bob van der Valk, independent petroleum industry analyst. "Who can predict what Russia will do next?" he added.

The Russia-Ukraine dispute is definitely something to watch, according to Ziemba.

However, as demand for crude oil has fallen through 2008, threats to supply have been having less of an effect on prices cash advance no faxing.

"We’re in an environment now where countries are sitting on a lot of inventory," said Ziemba. As demand falls, stockpiles build, she explained

For example, the Russia-Ukraine dispute was "having less effect on even the natural gas markets than some people feared," she said.

Natural gas prices rose 35 cents to $5.971 per 1,000 cubic feet Friday.

In the U.S., which is the world’s largest oil consumer, stockpiles of crude oil rose by 500,000 barrels last week. Supplies in the U.S. have been building as the economy slows, and consumers and businesses use less petroleum-based fuel.

Oil prices tumbled 61% last year. And on Friday, that decline was partly behind the government’s move to resume filling the Strategic Petroleum Reserve, a series of government-controlled oil reservoirs designed for use in emergencies.

The new crude supply will replenish SPR supplies sold following hurricanes Katrina and Rita in 2005.

There had been a moratorium on purchasing oil for the SPR from May through December 2008.

The government also said that "acquisitions in 2009 will fill the SPR to its current storage capacity of 727 million barrels and provide the U.S. with approximately 70 days of net import protection."

"Because of the President’s decision to fill the SPR to unprecedented levels, we are now better prepared than ever before to deal with [supply] disruptions from hurricanes or other potential threats," said Energy Department spokeswoman Healy Baumgardner. 


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