B May 28 - June 3, 2009.pmd - San Gabriel Valley Examiner

B4 S.G.V. EXAMINER FINANCIAL/CONSUMER
The Shape Of Things To Come
Signs of improvement in the
economy are everywhere. Business
orders in aggregate are still
falling, but airlines, luxury retailers,
and business equipment
manufactures have reported rising
revenues in their first quarter
results. The economic data
also point to improvement, with
an increase in real consumer
spending in the first quarter, as
well as improvement in most
regional manufacturing surveys.
Real GDP is still likely to fall in
the quarter, but there is a very
real possibility of positive GDP
growth before year end. The
real question on Wall Street's
mind is, is it a sustainable recovery,
or a dead-cat bounce?
What we have seen since the
recession began is an old-fashioned
inventory management
cycle. Most retailers track stock
as it is rung up on their registers
and only order when goods
are almost depleted. Wholesalers
and manufacturers do the
same with even better precision.
But all businesses must carry a
little extra stock to allow for
unexpected surges in sales and
the time it takes for goods to
move through the pipeline. As a
result, in the event of a drop in
sales, inventories will pile up.
That is just what happened in
the fourth quarter of last year.
As a result, much of the weakness
in this year's first half is
coming from an inventory correction.
Because a lot of what wholesalers
and retailers do is based
on pure speculation, there remains
a viable risk that after inventories
rebound, we could see
a double-dip recession; especially
if sales remain tentative.
Since 1970, there are five cases
of positive GDP growth, ranging
from 0.9% to 3.6%, in the
midst of recessions, after which
GDP fell again by as much as
6.2%. In other words, there
were double-dips in five of
seven post-war recessions.
Looking further at history,
the most impressive double-dip
in the post-war era was not in
any one recession, however. It
In In A A Nutshell
Nutshell
What’s up in the Economy?
KEN HERMAN
Economic Analyst
Glendora Councilman
was in two. After the short but
violent 1980 recession, GDP
growth averaged nearly 8% in
the first two full quarters of the
recovery, strong enough to justify
Wall Street calling the end
of the recession. In fact, it was
so vigorous, inflation quickly
jumped to double digits, forcing
the Federal Reserve to aggressively
hike interest rates,
throwing the economy into the
prolonged recession of 1981-
82.
The most important lesson
from the early Eighties was not
that printing too much money
inevitably leads to excessive inflation.
Rather, it was that a Fed
faced with excessive inflation as
a result of printing too much
money will throw the economy
back into recession before it lets
inflation get completely out of
control.
Anyone who thinks this lesson
is lost on Ben Bernanke
should re-read his confirmation
testimony, when he explained
why the Great Inflation of the
Seventies stands on a par with
the Great Depression of the
Thirties at the top of the list of
Federal Reserve policy blunders.
Bernanke understands the
damage high levels of inflation
can do.
So, what is the shape of
things to come recognizing the
complexity and risks in today's
economic uncertainties? GDP
growth is deeply negative now,
but could rise as much as 3%
at an annual rate in the fourth
quarter thanks to the shift from
the horrific inventory correction
to a positive inventory accumu-
lation.
Consider the case of GM,
which was producing cars for
a 15 million-unit market in 2008
and will transition to producing
cars for a 10 million unit market
at the end of this year. In
the interim, they plan to shut
down for almost two thirds of
the third quarter. Even though
GM will be producing at a significantly
reduced rate in the
fourth quarter compared with
last year, its contribution to
fourth quarter GDP will be significant
because production will
more than double between the
third quarter and fourth quarter.
Multiply this out across the
economy and the impact will be
dramatic.
But are we talking a V-shaped
bounce, or a W-shaped one?
That depends on the shape of
the credit cycle. The end of the
inventory correction will give
the economy a nice jump start,
but it cannot carry the economy
indefinitely. For that, we need
consumer spending, or more
specifically, consumer credit
and income to finance consumer
spending. Are we witnessing the
beginning of a false start in the
economy? Watch the consumer
lending numbers through the
second half and you will have
the answer.
A secondary risk for a
double-dip recession in 2010 is
there is so much stimulus in the
system. Even if the Fed times it
just right and reverses its rate
cuts, shuts down its liquidity
programs and starts to draw
down bank reserves, it may find
fiscal policy is still too stimulative.
Congress, after all, is much
better at spending than cutting
back. If the economy gets too
hot, Wall Street is betting on the
Fed tightening the economy into
a recession next year before it
allows inflation to soar.
SHOP GLENDORA FIRST
- OUR MERCHANTS NEED
US
I welcome your questions and
comments:
kenherman46@hotmail.com
The San Gabriel Valley Examiner
May 28 - June 3, 2009
Consumer - Ask Julia
I'm 55 years old. I have a
Roth IRA with one company,
two retirement accounts with
previous employers, and a 401k
with my current employer.
Can I combine all these IRA's?
Not quite. Your Roth IRAs are
funded with after-tax dollars,
with tax-deferred (potentially
never again taxed) growth.
Your retirement accounts and
401k IRA accounts are funded
with pre-tax dollars (tax-deferred
plus tax-deferred
growth). I'd recommend leaving
the Roth IRAs separate because
of Roth IRA rules. The
retirement accounts probably
could be combined without
causing a taxable event. I can
help you find an investment
product that offers a bonus on
your investment dollars (helping
to make up for some of your
recent losses), and which is
suitable for your individual circumstances.
Combining retirement
accounts also helps to simplify
life for your beneficiaries
who might not even know about
your scattered accounts.
We're considering purchasing
a foreclosed, bank-owned
property. What advice can you
offer?
I can help you get started by
working to get you pre-approved
by a lender. Then, as a
Realtor, I can help you find several
properties of interest.
(Some banks will only accept
an offer submitted by a Realtor.)
You might have to finance
your purchase with the same
bank that owns the property.
Get an independent property
inspection, and count the cost
of repairs. Your offer should
reflect your findings. Banks are
taking anywhere from 2 weeks
to 2 months to decide whether
or not to accept an offer. With
this in mind, there are properties
which have already been
through the bank's decision process,
and which can close escrow
much faster. Also, there
are houses - not foreclosures,
or bank-owned - which are
priced right.
Preservation Laws And Economic Vitality: Is
Azusa Willing To Protect Its Own History?
By Paul Naccachian
May is the official month for
national historical preservation.
In the United States, the preservation
movement emerged as
a result of public concern to
preserve resources associated
with significant figures and
events in American history predating
the Civil War.
As a result, Congress passed
a series of important Acts, the
most important of which, the
National Register of Historic
Places Act of 1966 (NHPA),
established the National Register
of Historic Places as a list
of districts, sites, buildings,
structures and objects significant
in American history, architecture,
archaeology and culture.
States and localities follow
similar standards as the
Federal laws.
In most states and localities,
including Azusa, the period
from 1950s through the 1970s,
saw the worst in preservation
history where 2 million Americans
were displaced from their
homes as a result of cities utilizing
an instrument called "urban
renewal" to destroy and cut
through huge numbers of historic
property across America.
On a local level, continuing
at this pace we will lose our
most valued assets: the remaining
historic homes and commercial
sites.
Although we have the Historical
Commission, it does little to
prevent or take citywide active
measures to preserve. To be
fair, with its limited powers
serving as an advisory body, it
has accomplished some goals in
preserving some of the public
buildings such as the Civic Auditorium
and the Women's Club.
Paul Naccachian
It has also created a voluntary
potential list of 142 historical
properties in the mid 1990's that
the City Council casually recognized
but did not give the
green light to take it to the next
level. Currently, the list no
longer exists. There is no formal
record keeping requiring
property owners to abide by any
design guidelines. Thus, the historic
buildings do not have any
protection.
At a minimum, the plastering
of older homes and commercial
building which otherwise would
qualify as historic should stop.
I am troubled to drive, or often
walk, to the post office and look
at the church across the street
that recently burnt down. The
rebuilt structure is made of a
vinyl veneer façade with a plastered
south wall of what use to
be a wooden structure built at
the early part of the turn of the
century. Any reasonable person
with an objective eye can look
at this rebuilt structure and at
best give it an F grade. It is a
failure both on the administrative
level and the property owners.
Drive around Azusa and
you will see similar instances of
historical destruction.
Aside from the nostalgic and
aesthetic value to the community,
preservation is also a means
to maintain architectural design
guidelines and stimulate economic
activity. For example, the
National Trust model examines
preservation from an economic
standpoint evaluating the real
estate element, construction,
and economic activity within a
community. In short, the model
quantifies preservation's economic
contributions to the local
economy.
Based on the model, studies
have shown that building rehabilitation
outperforms new construction
in creating economic
activity, and that "dollar for dollar,
historic preservation is one
of the highest job-generating
economic development options
available." For example, one
study concluded that in California
$1 million of rehabilitation
creates five more jobs than
manufacturing $1 million worth
of electronic equipment. These
are not just temporary construction
jobs, but also permanent
jobs of various types, including
continuing building repair
and maintenance.
One of the basic reasons that
owners resort to plastering of
homes is associated with cost.
It is generally understood that a
paint job on a craftsman home
will last between 7 to 10 years
compared to plastered stucco
that will last close to 30 years.
First, a cost associated with
maintenance is part of our daily
lives; whether routine oil
changes or replacing an aging
roof on a house. Second, there
are various programs to offset
costs associated with historical
structures. The Mills Act, for
example, allows for tax incentives
to owners of historical
buildings on their property
taxes.
The case for the preservation
model can also be extended to
a downtown revitalization effort
with increased economic vitality.
A combination of research
on economics and historic
preservation (Rypkema 2005)
has concluded that "virtually
every example of sustained success
in downtown revitalization-regardless
of the size of the
city-has included historic preservation
as a key component of
the strategy."
Once again, these are not
theoretical explanations, but
Julia Yoder
How do I know when to get
out of the stock market?
A little more than a year ago,
I answered this question.
Those who took action did not
lose a penny in the investments
I advised. If you can afford to
lose money, then invest in the
stock market, or go play the
slots. If you cannot afford to
lose your money, then you need
to invest in products that guarantee
you cannot lose your
money. There are such products,
but there are variables to
consider here, too. Some give
you a bonus on your investment
dollars. Some are taxable, taxdeferred,
or tax-free. Some
give you more choices, more
liquidity, and/or a guaranteed
rate even during the payout
years. Think of "allocation" in
the broader sense: high risk,
medium risk, low risk, and no
risk. Depending on your specific
situation, determine the
percentage of your investment
dollars you should wisely invest
in each "risk" category. Above
all, the worst thing you can do
is nothing. Don't allow the uncertainty
paralyze you. Think
about, analyze, decide, and take
action to make any necessary
changes.
My elderly parents thought
they had saved enough for an
active, fun-filled retirement
when added to their Social Security
benefits and a pension
income. However, the cost of
everything has gone up more
than they expected, so now
they have to watch and worry
about every penny. They've
found ways to have fun, but
on a much scaled-down level.
Now, dad has been diagnosed
with Alzheimer's and mom
doesn't know how long she'll
be able to take care of him. My
husband and I are able to help,
but we don't want to end up in
the same situation when we
retire. Help!
Thank you - many readers
rather actual measured successes
that have been reported
based on years of study on human
behavior, social sciences,
and economics.
While we culturally celebrate
through our innovations, take
pride in building bigger and better,
that does not stop us from
being more preservation minded
especially in smaller, local communities.
The real question is:
whether the property owner of
a historic building is committed
to understanding the preserva-
can learn from your situation.
There's a good possibility that
help is available for your parents.
This help could be uncovered
by taking a good look
at their entire financial picture:
assets, liabilities, insurances,
and legacy plans. To figure how
much you and your husband
might need to be saving in order
to have the retirement
lifestyle you desire, go to my
Wise Investor's Network
website (see below), and use
the calculator(s) you find there.
Inflation (the overall increase in
the prices of goods and services
over time) and taxes are two
major dangers when it comes
to protecting your financial portfolio.
Depending on age, when
you plan to retire, and your risk
tolerance, (as well as other personal
circumstances), there are
steps you should be taking to
offset the effect of inflation on
your retirement cash flow. If
your retirement savings is taxdeferred,
you should plan on the
effect of having to pay taxes as
you draw your income. Planning
ahead with long-term care
insurance is very important,
too, as none of us can predict
our level of health. Family
caregivers often wear their
health down while caring for the
more ill relative. Paying out-ofpocket
for long-term care can
deplete savings rapidly.
Do millionaires use Independent
financial professionals?
According to a Fidelity investments
study resulting from
a survey of more than 1,000
households with $1 million in
investment assets, more millionaires
are using independent advisors
than in previous years.
Get your FREE, life insurance
policy review, beneficiary
review, and/or tax-return
review. Set up your appointment
today! Just call or
email.
Got a question? Ask Julia
by email or phone.
Julia Yoder is a licensed Servicing
Agent for individual,
family, and senior finances and
insurance, a licensed Realtor, a
Sr. Loan Officer, and Notary.
www.WiseInvestorsNetwork.com
and www.YoderKnows.com 1-
877-802-8569 or (626) 625-
5221, or juliayoder
@WiseInvestorsNetwork.com
(CA Insurance Lic.#0C83859)
Member of the National Ethics
Bureau
tion value to a community?
Preservation of our historic
resources is an important starting
point in any given community.
Preservation efforts tell the
story as to where we came
from and what makes our community
distinct from neighboring
communities. Remember,
preservation is economic
growth, increased property
value, and ultimately a pathway
to a healthy dynamic community.