Credit Rating Quake

This week’s CBTV show is entitled, “S&P Aftershock: Reacting to the Tremors Following the U.S. Credit Rating Downgrade.”

As we all know our economy is in a mess! What further compounded a bad situation into a potential disaster for our country and our money in the stock market, was the downgrade of our country’s credit rating by S&P. Here is a portion of what I talked about on the show, and what was happening behind the scenes:

Standard & Poor’s downgraded the credit rating of long-term United States debt from AAA to AA+ on Friday, August 5^th.  The S&P assigned a “negative” outlook on the U.S. economy back on April 18^th, and WARNED that a credit downgrade would happen, if the federal government did not map out a clear and comprehensive plan to reduce the U.S. deficit by $4 trillion dollars over the next 10 years. Unfortunately, Congress fell short of those cuts when it passed the new debt-ceiling deal on August 2nd.  What Congress did agree to and pass, was $2.4 trillion dollars in cuts from the federal budget over the next 10 years.  As a result of this smaller then “hoped” for debt reduction deal, Standard and Poor’s triggered this historical U.S. downgrade, and the reaction felt across the country has been swift.

S&P’s downgrade should really be no surprise to those who follow the agency’s reports.  The U.S. was previously assigned a “negative” outlook on April 18^th by S&P, and placed on “CreditWatch” July 14^th, with negative implications.  CreditWatch is used by S&P to offer guidance on whether or not credit worthiness is likely to be upgraded, downgraded or remain neutral in the near future.  Both of these moves by S&P were warning signs that a “downgrade” could be coming, if the federal government did not take appropriate action in regards to our growing debt.  Other independent rating agencies like Egan-Jones had already downgraded the U.S. to AA last month.  Only 18 countries in the world now have an AAA credit rating, including Canada, Germany and the United Kingdom, and every one of them currently has a “stable” economic outlook. 

So, what does this all mean to the average American? Read on…

Interest rates are typically impacted when a credit rating goes down.  Fortunately, the Federal Reserve has decided against raising interest rates through mid-2013. However, many economists expect major consumer lending institutions to raise their interest rates because of the downgrade, including mortgage rates, as well as auto and student loan rates. In addition, of the 10 other countries that have been downgraded in the past, eight have experienced further downgrades.  Deeper downgrades have been linked to further interest rate hikes in the past, and the fact that both S&P and Moody’s have given the U.S. a “negative” outlook, means there could be further downgrades in the near future.

In the meantime, American investors are left to deal with an extremely volatile stock market!  On the Monday following the downgrade, the Dow Jones Industrial Average Index suffered its 6^th biggest fall in history, a decline of 635 points! What will happen to our fickle stock market if S&P further “downgrades” our country’s credit rating? Only time will tell…

So, what’s the bottom line for any of us who have money in the stock market? Simply this - With many Americans caught up in the day-to-day volatility of the financial markets, it’s important to step back, and be sure you’re comfortable with how much money you have “at risk” in the stock market. If you can’t stomach the severe ups and downs of a bull or bear market, consider more “safe” alternatives! 

I would very much like to read your opinion of where our country is currently, and what you think will correct our financial problems going forward. Everyone’s voice MUST be heard! Until next week, Dump Debt, Invest Wisely, Believe in Yourself and Make it Happen!

 - Matt

http://www.ChecksandBalances.TV

http://www.twitter.com/matthewjrettick

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Beat The Heat

This week’s CBTV show is entitled, “Beat the Heat – When That ‘Hot’ Investment Deal Leaves You Burned!”

I really believe the following information can help you avoid frauds and Ponzi schemes, and become a wiser investor:

The Dodd-Frank Wall Street Reform and Consumer Protection Act celebrated its one-year anniversary on July 21^st, corresponding with the recent passage of “whistleblower” protection and a “bounty-hunter” reward program. Each of these bills are designed to incentivize anyone who has inside information about a publicly traded company who is violating securities laws. Without fear of retaliation, they can now report such violations to management, and the Securities and Exchange Commission.  As a financial incentive, if a whistleblower provides a high-quality tip that leads to a successful enforcement action, they will be awarded 10 to 30% of any amount over $1 million dollars recovered, from a judicial or administrative action against the accuser. 

While millions of Americans are looking for that next hot investment in an otherwise cold economy, it has become increasingly important to resist the temptation to make a quick buck, so you will avoid getting burned.  While the Dodd-Frank Wall Street Reform and Consumer Protection Act attempts to further protect consumer’s rights, the full effect may not be felt by consumers for years to come. Some of the provisions however, have already taken effect, including the passage of the Durbin Amendment, which capped fees charged on debit card transactions.

While whistleblower protection and bounty hunter reward programs appear to be a step in the right direction, they have been around in some form for many years.  Bernie Madoff had a whistleblower turn him in nearly 10 years before his arrest, when financial analyst Harry Markopolos informed the SEC that it was mathematically impossible to achieve the gains that Madoff was claiming to deliver.  Unfortunately for many of his investors, the SEC ignored Harry in 2000, 2001, 2005, and again in 2007, even though he presented further evidence each time! 

Before investing any of your hard earned money always do your homework, and if it sounds too good to be true, it probably is! And unfortunately, according to the Financial Industry Regulatory Authority (FINRA), only 15% of investors have checked their financial advisor’s background with state or federal regulators. That’s a surprising statistic considering the country’s current economic climate, which is loaded with Ponzi schemes and other types of financial fraud.

So, be vigilant and proactive. Failing to take responsibility for your financial decisions and leaning too heavily on your advisor or the government, is a mistake that could eventually leave you, financially burned!

I’d like to hear from many of you. Have you ever been a victim of a fraud or con-artist? If so, tell me how it happened. Until next week, Dump Debt, Invest Wisely, Believe in Yourself and Make it Happen!

 - Matt

http://www.ChecksandBalances.TV

http://www.twitter.com/matthewjrettick

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Social In-Security

This week’s CBTV show is entitled, “Running on Empty: Social Security’s Deficit and the Impact of your Future Benefits.”

Let me share with you some interesting history, current reality and future prospects on this important government program:

The Social Security Act was signed into law 76 years ago this week, by President Franklin D. Roosevelt, however no one is celebrating its anniversary in Washington.  That’s because last year the cost of Social Security exceeded the program’s income tax revenue for the first time since 1983, running at a deficit of nearly $49 billion dollars.  This year’s deficit is projected to be $46 billion dollars, and under current estimates, the program will continue to run at a permanent deficit, until all funds are exhausted in 2036.

FDR’s goal for Social Security, under the “New Deal” in 1935, was to create a social insurance program that provides Americans with a guaranteed income in retirement.  It also set up a system of unemployment benefits, as well as providing income for disabled Americans. Funding for Social Security comes from the “Federal Insurance Contributions Act” tax, also known as FICA, which was established by FDR, as part of the “New Deal,” and collected through an employer’s payroll accounting process. The FICA collected tax is paid into the “Federal Old-Age and Survivors Insurance Trust Fund,” often referred to as the “Social Security Trust Fund.” 

If the amount contributed into the fund is greater than the amount needed to pay out benefits, the excess is invested in U.S. government bonds and used for deficit spending. The U.S. Department of Treasury exchanges securities for the surplus funds, which can be redeemed at a later time if Social Security runs at a deficit.  Social Security had built up a surplus of $2.5 trillion dollars in the 1980s, but much of that money has since been borrowed by the federal government.

In reality, the U.S. Treasury is the culprit who put Social Security into this predicament, by borrowing the excess revenues to pay for other less-funded government programs, or to reduce the national deficit.  Making cuts in Social Security is not really solving the problem, because the government still needs to pay back what it borrowed from the fund!

The current Social Security system is clearly broken and needs a major overhaul.  Of course many Americans could argue that the economy needs more help first. However, Social Security remains a major component of the current budget, accounting for nearly a quarter of federal spending. Not to mention that 78 million baby boomers will be tapping into this program over the next 20 years. Most Americans are wondering, “Will Social Security be there for me?” No one really knows for certain, or to what degree it will payout in the future. All you need to know and plan for is to not become too dependent on it, if you can.

My suggestion for you if you’re 50 years of age or younger, is to work hard, save more, spend less, invest 10% to 15% of your income every month into a retirement plan like a 401(k), or IRA, and live under your means. You can do it! Your retirement years depend on it!

I’d love to hear your thoughts on this important financial topic. Please send me your views about whether or not you think Social Security will be there for you. And why you feel that way. Until next week, Dump Debt, Invest Wisely, Believe in Yourself and Make it Happen!

- Matt

http://www.ChecksandBalances.TV

http://www.twitter.com/matthewjrettick

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Be Prepared

This week’s show is entitled, “Protecting Yourself and Your Assets Against Life’s Unexpected Events”

In my weekly Financial Tip, Tool, or Technique segment of the show I mentioned that, as we all know, life is full of bumpy roads. The unexpected events of life happen a little more often than most people would hope for. Some of those unexpected events can wipe out an estate, if you’re not properly covered with insurance.

I then reviewed 4 different types of insurance that most people should not leave home without:

1)     Auto Insurance – Auto insurance is not ONLY essential, but also required by law, in most states. Optional coverage, in addition to standard liability, include uninsured motorist coverage, which protects you if the other driver in an accident does NOT have insurance. Some policies even offer discounts for having an alarm system or driving an eco-safe vehicle.

2)     Homeowners Insurance – According to the FBI, most home robberies take place during the months of July and August, when people are away on vacation.  Homeowners insurance is ONE way to protect yourself against theft and damages, so make sure your current policy covers these four major areas: your dwelling, other structures like a detached garage, personal property, and loss of use that may occur during repairs.  Another means of protection is a home security system, which may also REDUCE the cost of your homeowner’s premium.  And if you’re a renter, be sure to purchase rental insurance to insure all of your personal property.

3)     Disaster Insurance – If you live in an area that could be hit by severe weather or natural disasters, we HIGHLY recommend you cover yourself against those events.  Floods, hurricanes and earthquakes have ALL been in the news recently. To be fully covered, each of these natural disasters requires an additional property/casualty insurance policy. Contact your agent to learn more above the coverage and cost of each.

4)     Umbrella Insurance – This liability coverage protects you above and beyond the standard limits of your auto and homeowners policy.  Umbrella policies offer additional coverage of $1 to $5 million dollars. This is GREAT protection and peace of mind, if you’re ever sued because of an auto accident or someone becomes injured on your property.

Insurance exists to PROTECT you against life’s unexpected events. Of course, there is obviously no way of knowing WHEN you will need it.  But by planning ahead and purchasing one or all 4 of these insurance policies, you will have peace of mind in knowing that you’re WELL protected against a few of life’s unexpected surprises!

- Matt

http://www.ChecksandBalances.TV

http://www.twitter.com/matthewjrettick

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