B September 3 - 9 09 - San Gabriel Valley Examiner

B4
S.G.V. EXAMINER
We Can See Clearly Now
Recently our Federal Reserve
Chairman, Ben Bernanke, stated
he wanted (through policy
transparency) to achieve three
things as priority items for the
Fed: he wanted to assure investors
the Fed would take inflation
seriously and remove
stimulus in a timely manner, he
wanted to reassure Congress
the Fed would do whatever is
necessary to help the economy
recover, and he wanted to defend
the Fed's independence in
making monetary policy. What
is interesting about his approach
is new to Wall Street - he went
directly to the Wall Street Journal
in the form of an editorial
titled, "The Fed's Exit Strategy."
After Wall Street read this, there
was no guessing where he was
coming from - answers were
provided concerning economic
growth and the Fed's independence.
His strategy was well
received and deemed a success
and will become a precedent for
future communication from the
Fed.
This is a revolutionary step
for the Fed. Recall Alan
Greenspan's first experiment
with transparency at the Fed
was his decision to announce
changes in the fed funds target.
Before that, Wall Street had to
guess. For the first five years
of Greenspan's tenure, the
FOMC never explicitly stated it
was targeting the fed funds rate.
Through the recent efforts of
Bernanke, he achieved three
things: 1/ Wall Street's first impression
was the direct approach
of the piece. It cut
through all the guessing and
averted the half-informed investor
from speculating on the direction
of the Fed's future monetary
policy. 2/ By using the
message in the Wall Street Journal,
he did not have to use the
FOMC minutes to communicate
the exit strategy, which
might have been a mistake because
the appearance of a policy
change in the minutes usually
means the policy change is imminent.
3/ He diverted any surprises
not only to Wall Street,
but also to Congress prior to his
periodic Humphrey-Hawkins
testimony.
In past articles I have discussed
the Fed's monetary
policy now that the fed funds
target is zero - after all, where
are interest rate to go when at
zero? Quantitative easing is the
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In A Nutshell
What’s up in the Economy?
KEN HERMAN
Economic Analyst
Glendora Councilman
answer when the Fed is still trying
to be in an accommodative
mode in their approach to monetary
policy. The Fed's focus is
to put money into circulation
through the direct purchase of
Treasury and Federal Agency
purchases, thus keeping interest
rates low. But, what is their
exit strategy from this technique?
Wall Street has yet to see
any motion and they worry
about the remarkable expansion
of reserves on the Fed's balance
sheet in the past year, assuming
reserve growth translates
into money supply growth and
inflation.
But surprisingly Federal Reserve
data shows money supply
growth has slowed considerably
since the start of the year
and the rate at which money
turns over has also slowed dramatically.
As a result, monetary
policy is already far less accommodative
than it was at the end
of last year.
Still, the argument on Wall
Street remains - at some point
the economy will recover (and
it probably already has), and
when it officially does, the Fed
must tighten through raising interest
rates. Based on what we
already know from Bernanke's
testimony, here is what we can
expect: 1/ The first step is job
growth. This is at the top of the
Fed's list of priorities. One that
starts, we will see a change in
direct monetary policy. 2/ The
Fed is waiting for sustainable
growth and job growth before
raising interest rates. The Fed
was originally fearful that they
perhaps eased too aggressively
and we would be faced with a
very rapid recovery; this fear
could translate into inflationary
concerns, this has not happened,
yet. 3/ As the Fed raises
the funds rate, they will monitor
the level of bank reserves.
Reserves should fall naturally as
banks no longer need the Fed's
liquidity programs and as the
Fed's investment portfolio matures.
The effect Bernanke had on
the capital markets is no surprise
- interest rates throughout
the curve dropped. One reason
for the yield drop is the sensibility
of the plan. Fed officials
spent a great deal of time thinking
about how to unwind their
aggressive 2008 easing. Perhaps
the most important was the
FINANCIAL/CONSUMER
Fed's intention to hold the mortgages,
agencies and Treasuries
purchased this year and last until
they mature. This takes a substantial
debt supply that would
normally need to be financed
from coming to market.
For now, Wall Street expects
the first tightening to begin next
June, at which time job growth
should be positive again. Interest
rates should remain low as
the Fed continues their asset
purchases through the end of
the year and perhaps through the
first quarter 2010. Perhaps the
best news is the forecast for the
inflationary outlook - concerns
have clearly subsided on Wall
Street which insures Fed policy
will remain unchanged for the
foreseeable future.
IN THE NEWS -
BERNANKE REAPPOINTED:
President Obama has reappointed
Ben Bernanke as Fed
Chairman, citing "his background,
his temperament, his
courage, and his creativity."
Bernanke's term ends in February,
so the President has saved
us from half a year of needless
speculation by making the announcement.
The most important positive
for investors is that Bernanke
is a known entity. The Fed must
raise rates and shrink reserves
at some point, and the process
is much easier to predict with a
familiar Fed Chairman than it
would be with someone new at
the helm. Predictability of Fed
policy will promote market stability.
Bernanke made a few mistakes
in his first term, but he
learned from them, getting better
as he went along. In the process
he grew confident and
strong. In his first year,
Bernanke was nervous and uninformed
during testimony. He
looked weak as regional Fed
Presidents undercut him in the
press. In early testimony he
proved woefully uninformed
about the extent of the mortgage
crisis and the regulatory needs
of the financial system as a
whole.
But it was Bernanke who figured
out how to contain the fallout
from the collapse of Bear
Stearns. Bernanke also recognized
the need for liquidity in the
banking system and found a legal
way to get it done. He saved
large non bank lenders like GE
from being pulled down by the
credit crisis and he became a
voice of calm and reason in the
financial storm. By October of
last year he had become the vital
center of the policy response
to the global credit crunch.
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We missed the Cash-for-
Clunkers program. Will there
be another one?
I don't know, but it there is,
please think twice before taking
advantage of this government
offer. Sure it's nice to
have a new car, but the new
payments and higher automobile
premiums are not so nice.
Often times the folks who
qualify for the cash for clunkers
program don't qualify for a
low-interest auto loan. So, just
like the sub-prime mortgage
loans, this government program
encourages folks to buy a car
that they really cannot afford.
Temporarily, this program
helped the auto industry by creating
a demand for vehicles.
However, what happens to the
lenders and dealers who end up
repossessing thousands of
cars? Hey, if you wait a year
or two, you might be able to
pick one up at auction!
We overspent during the
summer - mini-vacations,
movies - enjoying summer
with the kids. Now all the
back-to-school expenses are
hitting us: new clothes, new
shoes, new backpacks, pens,
pencils, paper, books, gym
uniform, band uniform, instruments,
school photos, etc.
How can we regain control?
As I've said before, ask
yourself whether this purchase
is a NEED, or a WANT. Start
with a budget and a list. Set
limits, and prepare to say, "No."
If your children are still growing,
don't buy a whole year's
wardrobe. And, while you're
making a budget and a list, start
saving for Halloween and
Christmas.
We want to 'count the cost'
before jumping into buying
our first home. We have
enough saved up for a 10 percent
down payment on a house
as long as the price is $250,000
or less. We have great credit,
too. What else should we plan
for?
What an exciting, yet scary,
event - buying your first home!
You've done well to have saved
and have great credit, too. Initially,
additional expenses can
include the 'good faith deposit'
and a home inspection. A good
realtor will guide you with the
wording in the contract so that
you don't risk losing your good
faith deposit. The home inspection
can run around $400 and
up, depending on the size of the
house, but it's well worth it!
You'll have closing costs, and
the expenses to move in, and
any decorating/refurbishing
costs. Often, especially for first-
Haircuts
Flat Tops $2.00 extra
Razor Fades $2.00 extra
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STRAIGHT RAZOR
AND
WARM LATHER AND
FINISH WITH A
REFRESHING TONIC!
Azusa/Glendora
1159 E. Alosta Ave.,
Azusa, CA 91702
(Inside Stater Bros.
Shopping Center
at Barranca and Alosta)
(626) 335-5593
Monday-Thursday 9:00am - 6:00pm
Friday 8:00am - 6:00pm
Saturday 8:00am-4pm Closed Sunday
The San Gabriel Valley Examiner
Julia Yoder
time home buyers, the property
tax and insurance are added to
your monthly mortgage payment.
It's important to include
the expense of utilities - gas,
electric, water, and trash. Ask
for the seller or the Realtor to
gift you with a 1-year homewarranty
insurance policy, too.
How do I figure how much
life insurance to get, and
should I get term, or wholelife?
To calculate how much insurance
you'll need, estimate
how much your heirs will need
to maintain their lifestyle without
you. Don't forget to include
additional costs they may face
in your absence. If you've got
young children, for example,
include rising costs for
childcare and higher education.
Add up all other sources of income:
spouse's salary, pension,
Social Security, or, if eligible,
any other government benefits.
Check out
www.WiseInvestorsNetwork.com,
for helpful insurance and financial
planning calculators. In
general, if you currently earn
$50,000 annually and purchase
5 times your annual income
with a $250,000 policy, your
heirs should be able to safely
withdraw 5% annually from the
earnings, or $12,500 per year.
Is that going to be enough?
When it comes to deciding what
type of life insurance to get,
you need to look at the advantages
and disadvantages of
each. Although term insurance
is typically less expensive than
whole-life insurance, it's best to
get quotes for both. The drawback
of term life insurance is
that it expires at the end of the
term selected. However, nowadays
there are 'return-of-premium'
term life insurance policies.
Although these cost
roughly one-third more than
plain term life insurance, when
you're still alive at the end of
the term, you get a refund of
almost all the premiums you've
paid. Whole-life insurance, on
the other hand, might cost a little
more than term life insurance,
but it does not expire as long as
September 3 - 9, 2009
you continue to pay your premiums.
And, if you want to be
covered for life, but don't want
to pay premiums for life, you
can obtain a quote which calculates
the premiums to a certain
age. Whole life insurance
can build up a cash value, accessible
during your lifetime.
There are several types of life
insurance policies that potentially
build up a cash value. My
clients really like Equity Indexed
Universal Life insurance because
of it's potential for greater
growth, and ease of access to
funds.
I've always paid my mortgage
on time. I just received a
Notice of Default and the letter
from the bank sounds like
they are about to take my
house! I've faithfully paid my
mortgage payment, but I
haven't paid this year's property
tax yet. Don't I have 3
years to pay my property tax
before they take my home?
The County Tax Assessor
gives you several years to be in
arrears on your property taxes
before they sell your home in a
tax sale. However, the mortgage
loan company is different.
Look carefully at your copy of
your loan documents, and you'll
probably find a section that talks
about the various circumstances
the lender will start
making demands. One of those
circumstances is typically unpaid
property tax. First, communicate
with your lender, but
don't expect them to be very
understanding. Don't wait; take
action today -- put the money
together and pay your property
taxes.
Got any other money-making
ideas, or saving money
ideas?
Go online to:
www.deals.zurvita.biz. Watch
the videos, decide whether you
want to be a representative, or
just take advantage of the
money-saving offers (land and
cell phone plans, discount shopping,
legal services, home warranty,
and more).
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
An Interview With Assemblyman Adams
During a recent guest appearance
on "Jeff & Virginia
in the Morning,"
KSGVRadio.com's morning
show, Assemblyman Anthony
Adams answered questions on
a variety of topics.
The show began with Assemblyman
Adam's explaining
the duties of an assemblyman
and the diversity of the 59th
Jeff of the Morning Show, Assemblyman Adams & Virginia of the
Morning Show and Bob Kuhn, former Mayor of Glendora and President
of the Board of Directors of the Three Valley Water District.
District, which he represents.
The show then covered an array
of topics including prisons,
the State budget crisis, water
issues, gun control and, most
importantly, the reasons he
thought voting for the last budget
was the only way to "keep
California alive."
Bob Kuhn, President of the
Board of Directors for Three
Valley's Water District participated
in the interview at every
stage, and was especially helpful
with regard to water issues.
The overall tone of the show
was non-threatening and positive.
Assemblyman Adams is
anxious to be a guest on future
shows and welcomes every
opportunity to keep his constituents
informed.
Jeff of "Jeff & Virginia in
the Morning" stated, "It was a
great show. I found Assemblyman
Adams to be not only
friendly and knowledgeable,
but extremely genuine.
If you would like to hear a
replay of the show you can log
on to KSGVRADIO.com and
push play on the media player
on the home page where it
says Anthony Adams interview.