Thursday, August 23, 2012

Questions to Ask Yourself Before Retiring By Jeanine Skowronski

What Kind of Lifestyle Do I Want in Retirement? Several studies have tried to pinpoint how much money people should specifically have on hand before they retire. The truth is, though, that this amount is going to vary dramatically depending on what type of lifestyle you’re looking to lead once you’ve left the workforce. “Your entire financial plan is going to stem from that vision,” says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial. She suggests considering where you see yourself residing, whether or not you plan to get another job during retirement and how you plan on spending your free time. “Free time is very expensive,” agrees Diana Palmer, a certified public accountant with Family Financial Planning. “If you like to travel, your budget needs to be set much higher.” Will My Debts Be Paid Off? Unpaid debts will contribute to your monthly expenses and play a huge part in how much money you will need to have on hand before you go ahead and leave the workforce. This is not to say that your house needs to be paid off in full before you retire. “If you have a low interest rate [on your mortgage], you’ll have to ask, ‘Do I want to pay this off in full?’” Kinsey says. On the other hand, if the mortgage is more substantial, you may want to consider taking money out of your investment portfolio so you don’t have to worry about it moving forward. The point is, whichever option you do chose will have significant impact on your cash flow. If you have other debts on the books, such as high credit card balances, you may want to look into what other factors may be behind the balances so you can get them paid off as much as possible before you abandon a steady paycheck. Retirement Questions Pulling the trigger on retirement can be a costly mistake if your finances aren’t in good shape. “It’s a very uncertain time for people,” says Doug Kinsey, a certified financial planner with Artifex Financial Group. Luckily, there are steps you can take to make yourself feel more secure as you approach retirement age. How can you tell if you’re ready to retire the way you imagined? Here’s a checklist of questions every pre-retiree should examine. less What Kind of Lifestyle Do I Want in Retirement? Several studies have tried to pinpoint how much money people should specifically have on hand before they retire. The truth is, though, that this amount is going to vary dramatically depending on what type of lifestyle you’re looking to lead once you’ve left the workforce. “Your entire financial plan is going to stem from that vision,” says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial. She suggests considering where you see yourself residing, whether or not you plan to get another job during retirement and how you plan on spending your free time. “Free time is very expensive,” agrees Diana Palmer, a certified public accountant with Family Financial Planning. “If you like to travel, your budget needs to be set much higher.” less Will My Debts Be Paid Off? Unpaid debts will contribute to your monthly expenses and play a huge part in how much money you will need to have on hand before you go ahead and leave the workforce. This is not to say that your house needs to be paid off in full before you retire. “If you have a low interest rate [on your mortgage], you’ll have to ask, ‘Do I want to pay this off in full?’” Kinsey says. On the other hand, if the mortgage is more substantial, you may want to consider taking money out of your investment portfolio so you don’t have to worry about it moving forward. The point is, whichever option you do chose will have significant impact on your cash flow. If you have other debts on the books, such as high credit card balances, you may want to look into what other factors may be behind the balances so you can get them paid off as much as possible before you abandon a steady paycheck. less How Will I Pay for Health Care? All of the financial advisers we spoke with reiterated the importance of factoring in health insurance premiums and prescription drug costs when deciphering how much money you will need in retirement. Additionally, under federal law, most Americans are not eligible for Medicare until they are 65 or older, so if you’re looking to retire before then you will need to determine where your health care coverage would be coming from and then factor that plan’s cost into your overall budget. You’ll also need to ask yourself how you plan to address your long-term care expenses, says Joe Alfonso, a certified financial planner with Aegis Financial Advisory. “It’s not just about buying the insurance,” he says. “But you need to ask, ‘Do I plan on moving in with my children? Do I expect my spouse to be able to fulfill that need?’” What Sources of Income Will I Have? Of course, the second part of the equation involves looking at the sources of income you’ll have available upon retiring, Kinsey says. This can include could Social Security benefits, which you are eligible to receive – at least in part – at age 62. It could also include a pension you may have earned, paychecks produced from a potential second career or the revenue generated by your investment portfolio. Retirement Questions Pulling the trigger on retirement can be a costly mistake if your finances aren’t in good shape. “It’s a very uncertain time for people,” says Doug Kinsey, a certified financial planner with Artifex Financial Group. Luckily, there are steps you can take to make yourself feel more secure as you approach retirement age. How can you tell if you’re ready to retire the way you imagined? Here’s a checklist of questions every pre-retiree should examine. less What Kind of Lifestyle Do I Want in Retirement? Several studies have tried to pinpoint how much money people should specifically have on hand before they retire. The truth is, though, that this amount is going to vary dramatically depending on what type of lifestyle you’re looking to lead once you’ve left the workforce. “Your entire financial plan is going to stem from that vision,” says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial. She suggests considering where you see yourself residing, whether or not you plan to get another job during retirement and how you plan on spending your free time. “Free time is very expensive,” agrees Diana Palmer, a certified public accountant with Family Financial Planning. “If you like to travel, your budget needs to be set much higher.” less Will My Debts Be Paid Off? Unpaid debts will contribute to your monthly expenses and play a huge part in how much money you will need to have on hand before you go ahead and leave the workforce. This is not to say that your house needs to be paid off in full before you retire. “If you have a low interest rate [on your mortgage], you’ll have to ask, ‘Do I want to pay this off in full?’” Kinsey says. On the other hand, if the mortgage is more substantial, you may want to consider taking money out of your investment portfolio so you don’t have to worry about it moving forward. The point is, whichever option you do chose will have significant impact on your cash flow. If you have other debts on the books, such as high credit card balances, you may want to look into what other factors may be behind the balances so you can get them paid off as much as possible before you abandon a steady paycheck. less How Will I Pay for Health Care? All of the financial advisers we spoke with reiterated the importance of factoring in health insurance premiums and prescription drug costs when deciphering how much money you will need in retirement. Additionally, under federal law, most Americans are not eligible for Medicare until they are 65 or older, so if you’re looking to retire before then you will need to determine where your health care coverage would be coming from and then factor that plan’s cost into your overall budget. You’ll also need to ask yourself how you plan to address your long-term care expenses, says Joe Alfonso, a certified financial planner with Aegis Financial Advisory. “It’s not just about buying the insurance,” he says. “But you need to ask, ‘Do I plan on moving in with my children? Do I expect my spouse to be able to fulfill that need?’” less What Sources of Income Will I Have? Of course, the second part of the equation involves looking at the sources of income you’ll have available upon retiring, Kinsey says. This can include could Social Security benefits, which you are eligible to receive – at least in part – at age 62. It could also include a pension you may have earned, paychecks produced from a potential second career or the revenue generated by your investment portfolio. less Do I Want to Leave Money to My Loved Ones? “People need to think about legacy planning,” de Baca says, explaining that those looking to leave money or assets to their next of kin end up writing a very different budget than someone who has no plan to do so. As such, you may want to write out a will before formally leaving the workforce since it could actually delay your retirement or affect the lifestyle you adopt after you do so. How Much Cash Flow Do I Need for My Desired Lifestyle? After you’ve considered your vision for retirement and calculated your expenses, you should come up with the ideal amount of money you would need coming in to support that lifestyle. Palmer says every prospective retiree should ask themselves this crucial question: If you were to retire today, what check would you like to see in your mailbox each month? “Once we know that number, we work out if that lifestyle is plausible,” she says. Will My Assets Cover This Lifestyle? After you’ve determined what your ideal retirement paycheck would be, you need to see if you will have enough money on hand to generate it. “Depending on that answer, decisions have to be made,” Alfonso says. “If you don’t have enough money, there needs to be a trade-off.” This could include delaying retirement, spending less, downsizing your home, moving to another state or adjusting your lifestyle requirements. “Saving more isn’t always the best option due to the time constraints,” Alfonso says. Do I Need to Make Changes to My Investment Portfolio? As you near retirement, you may also want to make some adjustments to the investment portfolio you’re hoping will power it. This could involve switching to more conservative stock or bond options, but it doesn’t have to, Kinsey says. “You need to ask yourself: ‘How conservative can I be and still reach my goals?’” he says. “This doesn’t mean you have to run to bonds. You can move to an asset-deduction model that makes sure you have enough [money] to cover the income gap and then invest for growth.”

Wednesday, August 22, 2012

Changes Tough, but Social Security Fixable

Social Security's financial problems could be solved with modest but politically tough changes By Stephen Ohlemacher, Associated Press | Associated Press – Mon, Aug 20, 2012 3:06 AM EDT Despite Social Security's long-term problems, the massive retirement and disability program could be preserved for generations to come with modest but politically difficult changes to benefits or taxes, or a combination of both. Some options could affect people quickly, such as increasing payroll taxes or reducing annual cost-of-living adjustments for those who already get benefits. Others options, such as gradually raising the retirement age, wouldn't be felt for years but would affect millions of younger workers. All of the options carry political risks because they have the potential to affect nearly every U.S. family while raising the ire of powerful interest groups. But the sooner changes are made, the more subtle they can be because they can be phased in slowly. Each year lawmakers wait, Social Security's financial problems loom larger and the need for bigger changes becomes greater, according to an analysis by The Associated Press. "Certainly, in the current environment, it would be very difficult to get changes made," Social Security's commissioner, Michael J. Astrue, said in an interview. "It doesn't mean that we shouldn't try. And sometimes when you try hard things, surprising things happen." Social Security is ensnared in the same debate over taxes and spending that has gripped Washington for years. Liberal advocates and some Democrats say benefit cuts should be off the table. Conservative activists and some Republicans say tax increases are out of the question. Others, including a deficit commission created by President Barack Obama in 2010, have called for a combination of tax increases and cuts to future benefits, including raising the retirement age again. Janice Durflinger of Lincoln, Neb., is still working at age 76, running computer software programs for a bank. Still, she worries that a higher retirement age would be tough on people with more physically demanding jobs. "No matter how much you exercise, age takes its toll," Durflinger said. But at 20, Jared Macher of Manalapan, N.J., worries that Social Security won't be around for his generation without major changes. "My generation sees Social Security as a tax, not an investment," Macher said. Social Security's finances are being hit by a wave of demographics as millions of baby boomers reach retirement, leaving relatively fewer workers behind to pay into the system. About 56 million people get benefits today; that is projected to grow to 91 million in 2035. For nearly three decades Social Security produced big surpluses, collecting more in taxes from workers than it paid in benefits to retirees, disabled workers, spouses and children. But Social Security trustees project that the surplus, now valued at $2.7 trillion, will be gone in 2033. At that point, Social Security would only collect enough tax revenue each year to pay about 75 percent of benefits, unless Congress acts. After the surplus is spent, the gap between scheduled benefits and projected tax revenue is big. Social Security uses a 75-year window to forecast its finances, so the projections cover the life expectancy of every worker paying into the system. Once Social Security's surplus is gone, the program is scheduled to pay out $134 trillion more in benefits than it will collect in taxes over the next 75 years, according to data from the agency. Adjusted for inflation, that's $30.5 trillion in 2012 dollars. The options for closing the gap fall into two broad categories: cutting benefits or raising taxes. There are, however, many options within each category. The AP used data from the Social Security Administration to calculate how much of the shortfall would be eliminated by various options. To illustrate how Social Security's long-term finances have become worse in the past two years, the AP also calculated the share of the shortfall that would have been eliminated, if the options had been adopted in 2010. ___ Taxes Social Security is financed by a 12.4 percent tax on wages. Workers pay half and their employers pay the other half. The tax is applied to the first $110,100 of a worker's wages, a level that increases each year with inflation. For 2011 and 2012, the tax rate for employees was reduced to 4.2 percent, but is scheduled to return to 6.2 percent in January. Options: —Apply the Social Security tax to all wages, including those above $110,100. Workers making $200,000 in wages would get a tax increase of $5,574, an amount their employers would have to match. Their future benefits would increase, too. This option would eliminate 72 percent of the shortfall. Two years ago, it would have wiped out 99 percent. —Increase the payroll tax by 0.1 percentage point a year, until it reaches 14.4 percent in 20 years. At that point, workers making $50,000 a year would get a tax increase of $500 and employers would have to match it. This option would eliminate 53 percent of the shortfall. Two years ago, it would have wiped out 73 percent. ___ Retirement age Workers qualify for full retirement benefits at age 66, a threshold that gradually rises to 67 for people born in 1960 or later. Workers are eligible for early retirement at 62, though monthly benefits are reduced by about 25 percent. The reductions shrink the longer you wait to apply. Options: —Gradually raise the full retirement age to 68 in 2033. This option would eliminate 15 percent of the shortfall. Two years ago, it would have eliminated a little more than 20 percent. —Gradually raise the full retirement age to 69 in 2039 and 70 in 2063. This option would eliminate 37 percent of the shortfall. Two years ago, it would have eliminated about half. ___ Cost-of-living adjustments Each year, if consumer prices increase, Social Security benefits go up as well. By law, the increases are pegged to an inflation index. This year, benefits went up by 3.6 percent, the first increase since 2009. Option: Adopt a new inflation index called the Chained CPI, which assumes that people change their buying habits when prices increase to reduce the impact on their pocketbooks. The new index would reduce the annual COLA by 0.3 percentage point, on average. This option would eliminate 19 percent of the shortfall. Two years ago, it would have eliminated 26 percent. ___ Benefits Initial Social Security benefits are determined by lifetime wages, meaning the more you make, the higher your benefit, to a point. Initial benefits are typically calculated using up to 35 years of wages. Earnings from earlier years, when workers were young, are adjusted to reflect the change in general wage levels that occurred during their years of employment. Tinkering with the benefit formula can save big money, but cuts to initial benefits mean lower monthly payments for the rest of a retiree's life. The average monthly benefit for a new retiree is $1,264. Option: Change the calculation for initial benefits, but only for people with lifetime wages above the national average, which is about $42,000 a year. Workers with higher incomes would still get a bigger monthly benefit than lower paid workers but not as big as under current law. It's a cut they would feel throughout their entire retirement. This option would eliminate 34 percent of the shortfall. Two years ago, it would have eliminated almost half. ___ Associated Press writer Andres Gonzalez contributed to this report. ___ Keep up with the AP Social Security series on Twitter: http://apne.ws/NRmPSQ Follow Stephen Ohlemacher on Twitter: http://twitter.com/stephenatap ___ Online: How would you fix Social Security? http://hosted.ap.org/interactives/2012/social-security/

Gold, Silver & Copper Are All Heading Lower: Elliott Wave Analyst By Jeff Macke |

"I'm bearish across the board in the metals," says Jeff Kennedy, Chief Commodity Analyst at Elliott Wave International. "I'm looking down in gold, down in silver, and down in copper." He lays out his case in the attached video, starting with the precious metals. Gold and Silver Kennedy dismisses the muted efforts of gold and silver to regain last year's momentum as classic corrective wave patterns. "Essentially the moves that we've seen the last few weeks, the last few months, are very indicative of a larger down-trending market," he explains. Once he sees confirming price action, specifically a break below last week's lows in gold, Kennedy wants to get short. The analyst's favorite ways to play the dark side on gold and silver are via the SPDR Gold Trust (GLD) and the iShares Silver Trust (SLV). Copper The news is no better for copper bulls. In fact, it's much worse if you buy into the idea that "Dr. Copper" is a tell for the rest of the economy. Based on his wave work, Kennedy says copper is heading not just lower, but down as much as 55% to $1.50. This would take copper near lows last seen during financial meltdown of 2008, when global growth crumbled. Kennedy's favorite short play off copper is Freeport-McMoRan (FCX). The copper and gold miner has the same chart characteristics as copper as well as a specific trigger point for the short. "Take out $30 a share in Freeport," he says, "and nothing's holding it up until you fall to $10."

Tuesday, August 21, 2012

Why Apple’s Milestone Is “Not That Amazing”

By Stacy Curtin | Daily Ticker Another major milestone for Apple (AAPL) on Monday when it became the most valuable publicly traded company ever (before adjusting for inflation). The tech stock ended the day up 2.63 percent to close at $665.15 a share, giving it a market capitalization of $623.52 billion. The stock is up more than 60 percent in the last year. Its market capitalization has doubled in the last 19 months. In early trading Tuesday the stock was up another 6 percent to $671 a share. Apple surpassed Microsoft's $616.34 billion market capitalization record set in 1999. However, after Apple eclipsed Microsoft's all-time high, many critics pointed out that Apple's blockbuster-figures have not been adjusted for inflation. Its stock price would need to top $900 in order to exceed Microsoft's record market value in real terms, which has been calculated by some analysts to be $850 billion. Apple's achievement is "astounding," says The Daily Ticker's Aaron Task in the accompanying video, noting that Apple is currently worth more than Microsoft, Intel and Google combined while the number two most valuable company, ExxonMobil (XOM), trails Apple's valuation by more than $200 billion. "It is staggering, staggering stuff that I haven't seen in my years covering the market — any single company having this much value relative to the rest of the other major mega-caps out there," he says. But our Henry Blodget is not that surprised by Apple's accomplishment for two key reasons: Inflation increases the value of all companies over time. Apple's mega-earnings support its valuation. "It is actually not amazing that Apple is worth $623 billion," says Blodget, adding the company is reasonably valued because the stock is trading at 13 times earnings. He notes that Apple is delivering on earnings in all major product lines, including the iPhone, iPad and to a lesser extent the Macbook. Apple's recent run-up in stock price — even after its lackluster earnings report last month due to lack of demand for its current iPhone — is largely attributed to the growing anticipation for the iPhone 5, which is rumored to be released Sept. 12. "This quarter is going to be terrible…because we are in the waning days of the iPhone 4S and everybody is focused on the iPhone 5," says Blodget. If the company delivers on the new phone, it is clear sailing ahead for the rest of the year, but if the phone is a disappointment, "look out below," he says as more than half of Apple's revenues come from iPhone sales. But Apple could still have a banner year. Consumers and investors are highly anticipating the company's release of the iPad mini and a new Apple TV. Plus, the last three months of the year include the holiday shopping season, which is always good for the company's bottom line. Tell us what you think! Does Apple's valuation surprise you?

Thursday, August 16, 2012

China's Largest Broker Plunges on Loss Rumor


Shares of Shanghai-listed Citic Securities, China's largest brokerage firm, fell by 9.1 percent on Monday after rumors the company had suffered a large 2.9 billion yuan ($460 million) loss on overseas trading.
But a spokesperson for the company denied the rumors and told CNBC that reports the company's chairman had been arrested by the police were also untrue.
The drop in Citic's shares also affected other brokers on Monday with shares of Haitong Securities falling 8.6 percent. Reuters reported that traders were worried over earnings in the latest quarter.
Citic securities reports results on August 30th and the firm is currently in a quiet period, during which it cannot discuss its financials.
Dickie Wong, Executive Director of research at Kingston Securities said he had not been able to confirm any of the rumors and that investors would have to wait for a filing with the Hong Kong Exchange for more details.
Wong told CNBC that the shares of China's brokerages were no longer that attractive based on price-to-earnings ratios when compared to the major bank stocks. He said mainland-listed bank stocks were trading at valuations of between 5 and 6 times forward earnings. On the other hand, shares of Citic Securities are trading at 21 times forward earnings.
Chinese authorities have been trying to boost confidence in the country's stock market by allowing increased foreign participation. But pessimism over stocks has persisted, hurting brokers. The Shanghai Composite has fallen 13 percent from the year's peak and trades at just over 9 times earnings.
- By CNBC's Deepanshu Bagchee@DeepBagchee

Wednesday, August 15, 2012

America's Energy Seen Adding 3.6 Million Jobs Along With 3% GDP


On the eastern bank of the Mississippi River, about an hour upstream from New Orleans, the outline of Nucor Corp. (NUE)'s new $750 million iron-processing plant is rising between fields of sugar cane and sweet gum trees.
Surveying the facility from the road, Michael Eades, president of Ascension Economic Development Corp., says it's part of a wave of investment lured by low natural gas prices to this stretch of Louisiana's industrial riverfront. Companies such as Westlake Chemical Corp., Potash Corp. of Saskatchewan Inc. and Methanex Corp. (MX) have projects in the works. Ormet (ORMT) Corp. reopened an alumina refinery last year, bringing back 250 jobs.
"We're just seeing an incredible amount of activity," said Eades, who tallied $1.1 billion in new projects last year in Ascension Parish alone, where his private, nonprofit group promotes development. He expects twice that this year.
It's a harbinger of a nationwide investment boom spreading from the oil fields of North Dakota and the Marcellus gas shale in Pennsylvania to power plants in California and chemical refiners in Texas. A surge in U.S. natural gas development has spurred $226 billion in spending plans on pipelines, storage, processing facilities and power plants, most slated for the next five years, according to Industrial Info Resources, a market- intelligence provider in Sugar Land, Texas.
U.S. energy supplies have been transformed in less than a decade, driven by advances in technology, and the economic implications are only beginning to be understood. U.S. natural gas production will expand to a record this year and oil output swelled in July to its highest point since 1999. Citigroup Inc. (C) estimated in a March report that a "reindustrialization" of America could add as many as 3.6 million jobs by 2020 and increase the gross domestic product by as much as 3 percent.
Narrow Gains
So far, the economic benefits have been confined to states such as Louisiana, Texas and North Dakota, while the national jobless rate has stayed above 8 percent for 42 straight months in the wake of the worst recession in seven decades.
"It is definitely a positive for the economy, but one can overstate how much of a positive," saidMichael Feroli, chief U.S. economist for JPMorgan Chase & Co. (JPM) Oil and gas production account for about 1 percent of gross domestic product, and will have a limited impact on the country's unemployment, he said.
Even so, there are signs the economic gains have begun to expand beyond the oil and gas fields and that the promise of abundant, low-cost fuels will give a competitive edge to industries from steel, aluminum and automobiles to fertilizers and chemicals.
Jobs Debate
That would provide a boost to a U.S. manufacturing sector that has lost 5.12 million jobs since 2001 and become the focus of a national debate over how to revive factory employment. Manufacturers have added 532,000 jobs since January 2010 as the economy started to recover, Bureau of Labor Statistics data show.
The expansion of fossil-fuel production -- coupled with a weak economy and increased energy efficiency -- has helped the U.S. pare its crude oil imports by 17 percent since the 2005 peak, Energy Department data show. Imports in 2011 accounted for 45 percent of U.S. consumption of crude and refined products. The department predicts the share will fall to 39 percent next year, which would be the first time since 1991 that imports dropped below 40 percent of demand.
"The impact on the global petroleum market and the natural gas markets is really palpable and wildly underestimated," said Ed Morse, head of commodities research at Citigroup Global Markets Inc. who led the team that wrote the March report. The economic activity that comes with higher energy production will boost incomes, increase consumption and create wealth, he said.
Cheaper Energy
Increased production and swelling domestic stockpiles have helped make U.S. energy cheaper than in other countries. U.S. oil futures have slid to a $20 a barrel discount to London- traded Brent, a benchmark for more than half the world's oil. Natural gas in the U.S. fell to $1.902 per million British thermal units in April, the lowest in a decade. The fuel costs almost three times as much in the U.K. and more than five times as much in Japan.
"This is one of those rare opportunities that every country looks for and few ever get," said Philip Verleger, a former director of the office of energy policy at the U.S. Treasury Department and founder of PKVerleger LLC, a consulting firm in Carbondale, Colorado. "This abundance of energy gives us an opportunity to rebuild our economy."
Cycle of Growth
Verleger envisages a virtuous cycle of economic growth as producers, flush with cash from oil and gas sales, will buy more equipment and put more people to work, while low-cost energy puts cash back in consumers' pockets, stimulating spending.
Companies plan to invest $138 billion in more than 700 natural gas storage, pipeline and processing plants in the U.S., and another $88 billion in more than 500 gas-fired power generation units, according to Joseph Govreau, vice president and editor-in-chief of Industrial Info Resources. The firm tracks projects from planning stages through construction.
The IIR estimates don't include petrochemical and fertilizer projects, which are undergoing a revival because of the low cost of natural gas feedstock.
Cairo-based Orascom Construction Industries (OCIC) is investing $250 million restarting an ammonia and methanol plant in Beaumont, Texas. Another Orascom subsidiary may build a $1.3 billion fertilizer plant in Iowa that would create as many as 2,000 construction jobs and 165 permanent positions, according to Tina Hoffman, a spokeswoman for the Iowa Economic Development Authority.
‘Massive' Investment
"The amount of petrochemical investment that the U.S. will have in the next 10 to 15 years is massive," said Omar Darwazah, head of investor relations for Orascom. "Given the shale gas boom, gas prices in the U.S. are arguably more competitive than the Middle East, because you don't have the political risk."
Increased U.S. production has already wrought significant shifts across the energy industry. Plans for gas-import terminals, thought indispensable five years ago, have been shelved in favor of export facilities such as Cheniere Energy Inc. (LNG)'s $10 billion plant in Louisiana's Sabine Pass.
Enterprise Product Partners LP and Enbridge Inc. this year reversed the Seaway pipeline that once carried oil imports from the Gulf Coast to a storage hub in Oklahoma. Now, it carries crude produced in states such as North Dakota and Colorado to refiners in Texas and Louisiana, which process and, increasingly, export it. East Coast refiners, dependent on more expensive tankers of foreign crude, are working to develop rail links and pipelines to bring oil east.
Environmental Concern
Environmentalists say cheap fossil fuels come with a high price, including air pollution that can cause respiratory difficulties, and drinking water contamination from hydrofracturing, or fracking, in which a high-pressure stream of fluid is shot underground to crack rock and release hydrocarbons. Lower gas and oil costs have also undermined investment in power sources that produce less carbon dioxide, including wind, solar and nuclear, raising concern that climate change will accelerate.
"The state is just overjoyed at all the jobs that will be coming to Louisiana without looking at the health side effects and environmental side effects," said Darryl Malek-Wiley, a community organizer at the Sierra Club in New Orleans.
The report from Citigroup -- "North America, the New Middle East?" -- estimated that the U.S. could become the world's largest producer of crude and natural gas liquids such as propane by 2020, overtaking Russia and Saudi Arabia.
China Consumption
U.S. natural gas prices may eventually rise if planned export terminals increase demand for the fuel, putting domestic consumers in competition with foreign markets willing to pay more. China will drive global gas consumption higher by 2.7 percent a year through 2017, the International Energy Agency said in a June report. The U.S. already competes with global consumers for refined products such as gasoline and diesel.
Still, the promised bounty from lower prices can be seen along the highways and back roads of Ascension Parish, in the heart of Louisiana's plantation country.
In November, cheap natural gas prices convinced Hannibal, Ohio-based Ormet to reopen the refinery that makes alumina, used in aluminum production. The facility was shuttered in 2006, said Chief Financial Officer James Riley.
In nearby St. James Parish, Nucor has begun construction on the plant that will process iron using natural gas. The product will supply its steel mills, said Katherine Miller, a spokeswoman for Charlotte, North Carolina-based Nucor. Five hundred people will be needed to build the plant and 150 will be employed there once completed, she said.
Doubling Workforce
Eades gestures toward construction trailers parked on the site where Vancouver-based Methanex said in July that it will reconstruct a plant moved from Chile, white, football field- sized domes that will store Nucor's iron ore, and chutes that carry bauxite over the Mississippi River levy into Ormet's rust- colored plant.
All this construction means new jobs. MMR Group, a Baton Rouge-based industry contractor, will double its workforce of 2,800 in the next two years, said Grady Saucier, vice president of marketing.
A five-minute drive from MMR's offices in Ascension Parish, Associated Builders & Contractors, a trade group, can't keep up with demand for its training program for would-be electricians, pipefitters and welders. Steven Allen graduated from the school's pipefitting certification program this year. Now, he earns as much as $28 an hour working in petrochemical plants, up from the $9 an hour he made as a construction laborer.
Family Struggle
"Being a laborer and a helper isn't going to cut it when you've got a family to support," said Allen, 30, a father of 6- year-old twins.
Smaller businesses, including valve manufacturers, electric-motor companies and rental lots packed with heavy equipment, also feed off the boom, Eades says. One company, Rain for Rent, provides fake downpours seen on movie sets -- as well as storage tanks and water pumps to the petrochemical industry.
Closer to Interstate 10, which connects New Orleans to Baton Rouge, a TownePlace Suites by Marriott and a Holiday Inn Express have opened in the past year next to an outlet mall and a Cabela's outfitters store, all benefiting from the influx of new workers to the region, Eades said.
"If you have gas prices in the U.S. that are substantially cheaper than Europe or Asia, it has to have a substantial impact," said James Brick, an analyst in Houston with Wood Mackenzie , an energy and metals researcher. "The question we're now asking is, ‘Is this the tip of the iceberg?'"
To contact the reporter on this story: Asjylyn Loder in New York at aloder@bloomberg.net.
To contact the editor responsible for this story: Dan Stets in New York at dstets@bloomberg.net.

Tuesday, August 14, 2012

Ross Stores Second Quarter Earnings Preview


ARTICLE LINK: http://www.investopedia.com/stock-analysis/EarningsPreview/RossStoresSecondQuarterEarningsPreview.aspx?partner=YahooSA#axzz23R6vyaTz


In the lead up to Ross Stores' (Nasdaq:ROST) announcement of its second quarter earnings on Thursday, August 16, 2012, analysts' expectations have improved over the past month from 79 cents per share to the current projection of earnings of 81 cents per share.

Investors care about earnings because they drive stock prices. Strong earnings generally result in the stock price moving up and vice versa. SEE: Can Earnings Guidance Accurately Predict The Future?

What to Expect: The consensus estimate for Ross' earnings is 81 cents per share, up 26.6% from a year ago when the company reported earnings of 64 cents per share.

In the last 90 days, this has risen from 75 cents. Analysts are expecting earnings of $3.45 per share for the fiscal year.

Ross is expected to beat last year's reported revenue of $2.09 billion and come in at $2.32 billion for the quarter. Revenue of $9.59 billion is expected for the fiscal year.

Company Performance: Compared to the industry average of 17.87, ROST's P/E ratio of 22.4 is quite high. Usually, if a stock has a high P/E ratio, it indicates that the market expects the company to grow earnings quickly in the future. There are generally two price/earnings ratios calculated: the first, called the trailing Price/Earnings ratio, is calculated using the previous years actual earnings; the second, called forward Price/Earnings ratio, is calculated using the next year's estimated earnings. High P/E stocks could be "growth" stocks, while low PE stocks may be "value" stocks. SEE: Can Investors Trust the P/E Ratio?
The stock price has increased from $61.18 on May 15, 2012 to $67.16 over the past quarter. The stock saw one of its worst stretches when its price fell $4.57 per share between June 26, 2012 and June 28, 2012.

The Competition: Ross Stores operates two chains of off-price retail apparel and home accessories stores in the United States and Guam. The company's closest competitor in the retail (apparel) industry, Gap (GPS), will report earnings on August 16, 2012. Analysts are expecting earnings of 48 cents per share for Gap, up 37.1% from last year's earnings of 35 cents per share. Analysts are less optimistic about Ross than about Gap. Ten out of 23 analysts rate the latter a buy compared to nine of 21 for the former.


Read more: http://www.investopedia.com/stock-analysis/EarningsPreview/RossStoresSecondQuarterEarningsPreview.aspx?partner=YahooSA#ixzz23R7EumR8

Monday, August 13, 2012

In Superrich, Clues to What Might Be in Romney’s Returns


On the face of it, Senator Harry Reid’s explosive but flimsily sourced claim that Mitt Romney paid no income tax seems preposterous. Mr. Romney has denied it, and without his returns no one can say for sure. But for someone who makes millions of dollars a year, would it even be possible?
Evidently it is.
It so happens that this summer the Internal Revenue Service released data from the 400 individual income tax returns reporting the highest adjusted gross income. This elite ultrarich group earned on average $202 million in 2009, the latest year available. And buried in the data is the startling disclosure that six of the 400 paid no federal income tax.
The I.R.S. has never before disclosed that last fact.
Not even Mr. Romney, with reported 2010 income of $21.7 million, qualifies for membership in this select group of 400. But the data provides a window into the financial lives and tax rates of the superrich. Since the I.R.S. doesn’t release data for the tiny percentage of Americans at Mr. Romney’s income level, the 400 are the closest proxy.
And that data demonstrates that many of the ultrarich can and do reduce their tax liability to very low levels, even zero. Besides the six who paid no federal income tax, the I.R.S. reported that 27 paid from zero to 10 percent of their adjusted gross incomes and another 89 paid between 10 and 15 percent, which is close to the 13.9 percent rate that Mr. Romney disclosed that he paid in 2010. (At the other end of the spectrum, 82 paid 30 to 35 percent. None paid more than 35 percent.) So more than a quarter of the people earning an average of over $200 million in 2009 paid less than 15 percent of their adjusted gross income in taxes.
How do they do it?
The data show that the ultrarich typically pay low tax rates every year, but 2009 was a special case. In 2008, people with large stock portfolios and other less liquid assets were disproportionately hit with large losses on paper. One of the oddities of the tax code is that capital gains taxes are discretionary, since they must be paid only when gains are realized. And they can be offset by losses. The silver lining in a bad year like 2008 for wealthy people is that they can “harvest” losses by selling assets, then use those losses to offset any gains. They can also carry forward the losses to offset gains in future years.
There’s ample evidence that happened in 2009 among the richest taxpayers. Their average income, $202 million, dropped from $270 million in 2008 and was the lowest since 2004. Like Mr. Romney in 2010, for the richest taxpayers most income comes from capital gains and other investment income. Their net capital gains (the data doesn’t include gross gains and losses) dropped by nearly 40 percent, from an average of $154 million in 2008 to $93 million in 2009, which accounts for nearly all of their drop in total income. Even with these lower gains, these 400 taxpayers, a minuscule fraction of the population at large, still managed to account for 16 percent of all capital gains. That is the highest percentage since the data was first released for 1992, when that percentage was less than 6 percent.
Tax experts I consulted said these results almost certainly reflected aggressive use of tax-loss carry-forwards from 2008, since the stock market bottomed in March 2009 and rallied strongly during the rest of the year.
The superrich also accounted for a disproportionate amount of dividend income, which averaged over $26 million for the top 400, or over 6 percent of total dividend income, also a record. Capital gains and dividends are both taxed at a maximum rate of 15 percent, as opposed to the maximum rate on earned income of 35 percent, which helps explain why so many of the superrich pay a relatively low rate. Still, that preferential rate doesn’t get them anywhere near zero, or even 10 percent.
Edward Kleinbard, professor of law at the Gould School of Law at the University of Southern California, explained it this way, “You start with income dominated by tax-preferred income — capital gains and qualified dividends. That gets you to 15 percent. Then you use charitable contributions of appreciated securities to reduce ordinary income. But the charitable contribution deduction is capped at 50 percent of adjusted gross income. Now you’re way down, but you’re not at zero.”
What does it take to get to zero, or close to it? According to Professor Kleinbard, there are only two additional ways: tax loss carry-forwards to offset capital gains, and tax shelters, many of which have been deemed abusive by the I.R.S., to offset any remaining ordinary income after other deductions.
(Other possibilities are the foreign tax credit and general business credit, but total tax credits averaged only $2.4 million for the top 400, and neither would seem to be of much benefit to Mr. Romney.)
Since Mr. Romney seems to have had relatively little ordinary income since leaving Bain Capital, he may have been able to get to a very low rate in 2009 using tax loss carry-forwards from 2008 to offset capital gains and charitable contributions to offset up to 50 percent of his ordinary income. Without access to the returns, it’s impossible to know whether he would also have needed some additional form of tax shelter, aggressive or otherwise, to get even lower, or even to zero.
Mr. Romney has been taken to task for an abusive tax shelter used by Marriott International in 1994 while Mr. Romney was on the board and audit committee there. But there’s been no direct evidence he knew the details, and in any event, the I.R.S. started cracking down on such shelters in 2000, making it highly unlikely Mr. Romney would have embraced the strategy for his own returns within the last decade.
He’s also been faulted for treating a horse partly owned by his wife as a loss-generating passive investment, rather than as a hobby. Even though that had little effect on his overall tax liability, Professor Kleinbard contends that that and other tax avoidance measures demonstrate a propensity to engage in aggressive tax strategies.
But even Professor Kleinbard doubts that Mr. Romney paid no income tax. “It’s possible theoretically that Romney didn’t pay, but improbable,” he said. Far more likely is that he paid a very low rate that would generate renewed criticism.
This may help explain why Mr. Romney is refusing to release more of his own returns, especially those for 2009. On the face of it, his stubbornness is perplexing. The electorate already knows that he’s immensely wealthy and that he pays a very low tax rate compared with many people who make far less.
There’s no reason to fault Mr. Romney for taking advantage of loopholes the tax code offers the superrich, however ill advised they may be as a matter of public policy. Mr. Romney didn’t make the law, and he’s called for broadening the tax base, which presumably means eliminating some of the breaks that benefited him. He could easily speak to that issue, since who would know better than he does which loopholes should be closed?
Senator John McCain, the former Republican presidential candidate who received 23 years of Mr. Romney’s returns as part of the vice-presidential vetting process in 2008, has volunteered that “I can personally vouch for the fact that there was nothing in his tax returns that would in any way be disqualifying for him to be a candidate.” Something that would disqualify, him, as opposed to merely alienating voters, may be a pretty high bar, but presumably it rules out anything illegal or unethical. Senator McCain declined to be more specific.
Which leaves plenty of room for speculation, informed or otherwise. Senator Reid of Nevada, the majority leader, set off a media storm when he told The Huffington Post the week before last that a former Bain Capital investor had told him Mr. Romney “didn’t pay any taxes for 10 years,” adding, “I’m not certain” if that’s true. It can’t be — Mr. Romney must have paid sales, property and other taxes. Presumably Senator Reid’s unnamed source meant that Mr. Romney paid no federal income tax for years.
The candidate promptly denied the claim, saying he had paid taxes every year. Still, he was vague, telling ABC News he “couldn’t remember” whether he paid less than his 2010 federal income tax rate of 13.9 percent in some years and didn’t specify which taxes he meant.
And when Senator McCain said there was nothing “disqualifying” in Mr. Romney’s returns, he would not have seen Mr. Romney’s returns for 2009, which were filed after his vice-presidential vetting.
As long as Mr. Romney withholds his returns, continued speculation, and even outlandish conjecture, will probably flourish. “It’s reinforced my view that he’d be better off just releasing the returns rather than having people blindly speculating,” Leonard E. Burman, a tax specialist and professor of public affairs at the Maxwell School of Syracuse University, told me this week. “It seems like one of those slow-drip water torture things, and eventually he’s going to have to do it.”
For the record, I paid total tax of 37 percent in 2010 and 33 percent in 2011. And should there be a groundswell of interest, I’ll release my results for as many years as anyone wants. I haven’t done the calculations for years before 2010, but I’d be surprised if they’re much different.
What’s abundantly clear, both from Mr. Romney’s 2010 returns and from the returns of the top 400, is that at the very pinnacle of taxpayers, the United States has a regressive tax system. The top 400 earn more than 1 percent of all income in the United States, more than double their share in 1992. These 400 earned a total of $81 billion in 2009 — but paid an average tax rate of just 19.9 percent.
“It’s regressive because capital gains and dividends dominate the top returns and are taxed at a preferential rate,” Professor Kleinbard said.
Professor Burman added: “Our tax code has a number of flaws, one of which is that it doesn’t do a very good job of discriminating based on income. It is progressive over all, but very high-income people can pay very little tax. How they avoid tax is an important and legitimate issue we should be talking about.”