Jasele Oita's Blog A weblog about everything

President Obama on October 9, 2013 announced that he is nominating the current Vice Chairman Janet Yellen of the Federal Reserve to replace the outgoing Chairman Ben Bernanke. Dr. Yellen’s nomination will go to the Senate for a confirmation hearing at a pivotal time when the whole country especially the Congress is embroiled in a crisis. The U.S. Federal government has been shut down for several days and the U.S. is expected to default on its debt if the debt ceiling is not raised by October 17, 2013. A resolution for both issues is not in sight since Democrats and Republicans are at odds with each other. The President is refusing to negotiate with the Republicans until a clean Continuation Resolution to fund and reopen the government and raised the debt ceiling.

If confirmed Janet Yellen will be the nation’s first female Federal Reserve Chairman in its more than 100 year old history. She has been the Fed’s Vice Chair for last three years. Prior to that, she has been the President and CEO of the Federal Reserve Bank of San Francisco. She has been married to Nobel Prize-winning economist George Ekerlof since 1978 and their only son is a Professor of Economics.

TIPS provide protection against inflation. The inflation-indexed bonds, TIPS, are issued by the U.S. Treasury. The principal is adjusted to the CPI (Consumer Price Index) so that the principal investment is protected. Therefore, it provides a constant coupon rate but generates a different amount of interest when multiplied by the inflation adjusted principal. This is a great way to protect the investor from inflation. They are currently comes in 5-, 10- and 20-year maturities. When matured the investor receives the adjusted principal or the original principal, whichever is greater.

TIPS pay interest twice a year but holds until maturity. The interest payment rises with the inflation and falls with the deflation. Therefore, most people hold TIPS in mutual funds or tax-differed retirement accounts. TIPS are also exempt from local and state income tax. TIPS can be bought by individuals as well as corporations, trusts, estates, and partnerships etc. They can be purchased directly from the US Treasury (TreasuryDirect) as well as banks and brokers with a $100 minimum investment and in $100 increments. Purchasing TIPS directly from the Treasury may avoid paying fees to brokers.

TIPS are considered as extremely low-risk investments because they are backed by the U.S. government and the par value rises with inflation.

Crude oil prices worldwide have dropped 25 percent Since April 30, 2012. Reasons behind the drop include leveling or slowing of worldwide demand for oil due to continued economic slowdown, excess supply in North America and the dimmed expectation for another round of Federal Reserve monetary injections in the U.S. Dropping crude prices lower the price of gallon of gas at the pump.

The U.S. consumers are embracing the drop in gas prices at the pump as the summer driving season begins. The Automobile Association of America (AAA) expects a record number of drivers to be on the road for the 4th of July holiday weekend due to lower fuel prices. The national average for a gallon of gas stands at $3.39, a 10 cent drop from the previous week and 25 cents drop from month ago. The drop in gas prices can be attributed to falling demand, falling price of a barrel of oil, more efficient vehicles on the road and increased refining capacity in the U.S.

It is not just the travelling consumer who will be benefitting from lower gas prices. Auto parts stores, heavy equipment part suppliers, trucking industry and eventually retail stores will benefit from lower gas prices.

Ever since Facebook announced that it will be going public, investors were speculating on its Initial Public Offering (IPO). It is expected to set a price on Thursday, May 17, 2012. Published reports indicate that Facebook share will be $34 to $38. According to the Securities and Exchange Commission (SEC) regulations, it may not exceed $45 per share. The offering will put Facebook’s market capitalization at $93 – $104 billion and the IPO will generate over $18.4 billion, ranking the offering as the second largest in the U.S. history.

Facebook has two classes of shares. The Class A shares will be the shares that will be offered for trading while Class B shares will be limited to insiders. According to developing stories about the IPO, over 421 million Class A shares will be offered at the IPO. Early investors in Facebook including Goldman Sachs, Accel Partners (a venture capital firm), Tiger Global Management (a hedge fund), Peter Thiel (PayPal co-founder) and companies tied to Russian tycoon Yuri Milner are expected to cash out some of their stocks.

Trading of the stock will start on Friday, May 18, 2012. There will be a 3-6 month “lockup” period for insiders to sell their stock.

On March 9, 2012, the Greece took action to subdue speculation of a sovereign debt default. They successfully negotiated $130 billion debt forgiveness with all private bondholders on CDS (Credit Default Swaps). The private bond holders of the Greek sovereign debt agreed to 75 percent loss of their holdings. The outcome of this swap is that Greece managed to restructure its sovereign debt without a theoretical default. The buyer of the CDS will get paid by the insurance that they carry on the swap. Some trade groups such as the International Swaps and Derivatives Association call it a “credit event”. However, the event didn’t create a panic event and the financial markets are at ease at the moment.

CDS is a financial agreement between the seller and the buyer. In the event of a loan default the seller agrees to compensate the buyer usually the face value of the loan in installments. CDS were invented by the Wall Street in 1990s as a form of insurance. Banks and financial institutions use CDS to hedge against losses. It is a low cost way of taking on credit exposure.

The CDS were not regulated until the Dodd-Frank financial regulatory reforms which now include CDS.

When times are tough, people must turn to bankruptcy as the only way out. With our economy and unemployment numbers not getting any better, more people than ever will be filing. The problem comes when you must find a bankruptcy lawyer for help. When you are in a desperate financial situation the last thing you can afford to do is pay an attorney. Some attorneys ask for a huge fee to provide you with these services. This means you may have to file on your own. This can easily be done with a little research and some work.

There are two types of bankruptcy chapters that you can file. They are Chapter 7 and Chapter 13. Chapter7 is typically filed to remove all debt, while Chapter 13 is set up to negotiate payment plans. The first thing you will need to do is gather all your personal financial information. This includes your mortgage papers, car payments, and credit card debts. Make sure that all this information includes, names, addresses, and phone numbers so that you have everyone’s contact information. You should also have information about school loans and any back taxes or child support payments that you make. These are not items that you will be able to get cleared but it will be important that you have the information.

Next, you want to make sure that you have all the proper bankruptcy forms you need to file. Sometimes you can find these at a government office or courthouse. If this is not possible, you can download these forms online. These forms will provide you with all the information you need on filling them out and how to file. Make sure you pay close attention to what you are doing so that you don’t waste any time. They will also tell you what can be included in the bankruptcy and any other information that you may need to provide. Before you send in your paperwork, make a copy and be sure you have signed all the documents.

There is still a cost to file for bankruptcy even when you do it on your own. It will still be significantly lower than hiring a professional. If you feel that you cannot do this yourself you should be able to find a bankruptcy attorney in Encino or a bankruptcy attorney in Woodland Hills that can provide you with affordable help. Don’t let your financial situation ruin your life. Take action and you will see your life become a lot easier.

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If you are a private sector employee or you a small business owner, chances are you most probably participating in a 401(k) plan. The plan number refers to the Internal Revenue Code Section that created the plan. New changes are in the horizon for 401(k) plans.

Two of the most important changes that may go into effect in April 2012 are requirement to disclose 401(k) plan expenses and comparison of the plan performance to an appropriate bench mark. There has been one extension of the implementation of these rules and this time it may go into effect in April.

Based on your quarterly statement, you may think that your plan doesn’t charge any fees. But all plans include charges for managing the investments, recordkeeping fees, and other fees such as interest charges for obtaining a loan or hardship withdrawal. The Labor Department regulation now requires 401(k) plans to provide a detail report of fees to employers as well as participants.

The requirement to provide benchmarking information will assist the participant to compare investment strategy against popular bench marks such as 91-day T-Bills, S&P 500 Index, MSCI EAFE Index, BarCap Aggregate Bond and others.

Imagine trusting your hard-earned money—such as your retirement savings—to a financial adviser only to lose it all in a fraudulent scheme. Obsessing about whether your money manager could be the next Bernard Madoff, the alleged mastermind of a $50 billion Ponzi scheme, isn’t going to do much good, but some healthy skepticism won’t hurt. Here are five tips for investors so they can avoid getting taken to the cleaners:

Make sure your adviser is legit. If you’re looking for an adviser, ask friends and relatives for recommendations—but don’t stop there. A scary truth is that anyone can call himself or herself a financial planner or adviser, so it pays to check with national organizations that issue credentials. They include the National Association of Personal Financial Advisers, the Financial Planning Association, and the Certified Financial Board of Standards. Each offers a searchable database with contact information for planners in each state. The American Institute of Certified Public Accountants has a list of CPAs who’ve earned the personal financial specialist designation.

Dig deep. Put on your gumshoes and find out how long the adviser has been in the business. Ask to see his or her ADV Form, Part II, which a planner files with the Securities and Exchange Commission. It contains information about the adviser’s background, services, and fees. Check for complaints filed though your state’s securities regulator (contact information is available here). A site visit might also be helpful, says Tim Kochis, chief executive of Aspiriant, a wealth management firm with offices in San Francisco and Los Angeles that caters to high-net-worth clients. "Reputation and apparent track record are not enough," he says. "You have to go way beyond that to really investigate the operations of the org and find out if what is claimed is real."

Understand the difference between a manager and a custodian. A custodian, which would include the Fidelitys and Charles Schwabs of the world, is in possession of your investment account and issues periodic statements of transactions. The manager of assets executes those transactions. "A lot of people fail to understand why it’s important to separate these functions," says Kochis. "Frauds almost always occur when those two things are put together." In other words, look out for an investment manager who wants complete control of your money and asks that checks be made out to him or her. You can sleep tight if your funds are in the custody of a broker-dealer firm regulated by the Financial Industry Regulatory Authority and backed by the Securities Investor Protection Corp. But make sure you receive at least quarterly statements, says Mickey Cargile, founder and managing partner WNB Private Client Services, which is based in Midland, Texas. "The key is that you get it directly from the custodian and not from the adviser."

Be skeptical of pitches for exotic or obscure products. Banks, brokerages, and planners offer a wide range of financial products, including exotic investments that incorporate leverage and complex derivatives. If you get a pitch for an asset class you’re not familiar with, make sure you understand the process by which it achieves returns. Jim Wiandt, editor and publisher of the Journal of Indexes and publisher of IndexUniverse.com, puts it like this: "If you don’t understand it, you shouldn’t be in it." Cargile takes it a step further: "Only invest in transparent assets. We don’t invest in anything we can’t turn to cash in three days or less, which limits us to stocks, bonds, mutual funds, and exchange-traded funds." A hedge fund, which isn’t required to disclose its holdings, is an example of a nontransparent investment. Also, be especially wary if your adviser downplays or denies risk.

Be especially vigilant if you’re nearing or in retirement. According to a recent study by the North American Securities Administrators Association, nearly half of all investor complaints submitted to state securities agencies came from the senior set. According to the association, bogus operators sometimes con older investors through free-lunch seminars that are followed by calls from salespeople a few days later (a common recommendation is to liquidate securities and use the proceeds to buy indexed or variable annuities).

Financial pressures during the recent downward turn in the economy have made downsizing a necessity for almost everyone. Although people are resistant to change, the following common sense tips can save the average consumer a few hundred dollars a month.

Cancel the hundred plus cable or satellite channels no one, even the unemployed, will ever have time to watch, and switch to free broadcast television. Newer model TV’s are already equipped for this type of reception, but older models require a converter box. A one-time outlay of forty dollars is less than the cost of one month of expensive pay TV. An antenna will give better reception, but rabbit ears work just fine. 

Disconnect the landline phone. With the advent of cell phones, home phones are becoming obsolete anyway. Then, turn that high-priced cell in for a prepaid phone. A little under fifty dollars a month buys unlimited calls, texting, and internet. Set it up on automatic refill and call friends to tell them what a sweet deal it is. 

Finally, a money saver that is good for the heart, as well as the pocketbook. A couple can save fifty percent if they order one meal and split it. Many of the medium priced restaurants put too much on the plate, so two can eat as cheaply as one in the right places. Another thing to consider when dining out, do lunch instead of dinner. Lunch prices are several dollars less. Becoming financially savvy is a game anyone can play.