Finance and Economic

A great earthquake has rumbled through the financial markets, and no one knows for certain when the aftershocks will subside. But it’s not too early to check your foundation.

This advice holds especially true for retired investors who have been depending on their portfolios to supplement outside income sources, such as Social Security and/or pensions. If you have been drawing only interest and dividends from your investments, you might be in reasonably good shape, especially if you’ve escaped bond defaults and dividend cuts. But for a much larger, less fortunate group of retirees — those who need to draw from both income and principal to pay the bills — the foundation almost certainly is weaker now, and possibly even crumbling.

Assume, for example, that you retired last year with a nest egg of a million dollars, and that you have been drawing down $50,000 a year to live on. That’s a 5 percent withdrawal rate, slightly higher than what many financial planners consider sustainable, but still reasonable for a balanced, diversified portfolio.

With a new year under way, you still need $50,000 from your investments (perhaps more to keep up with rising costs), but in recalculating your withdrawal rate you make an alarming discovery: The bear market has reduced the value of your balanced, diversified portfolio to $700,000. Now, instead of the original 5 percent, you are consuming more than 7 percent of your life’s savings each year.

The decision you now face is what to do about it. I see at least four options:

Sell out your portfolio: Find a 7 percent investment and lock it in. There are fixed-income investments that pay 7 percent today, but they don’t come with government guarantees. And while (barring default) the income shouldn’t go down, it won’t go up, either. Fixing your retirement income in a world of rising costs can be very problematic depending on your age.

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Invest more aggressively: Taking more risk might lead to higher returns over time, allowing you to sustain a higher withdrawal rate, at least in theory no fax cash advance. But the more risk you take on, the more susceptible you are to the next market downturn. Another year like 2008 could push your withdrawal rate into double digits, turning a difficult situation into one that’s practically impossible.

Annuitize: You can exchange your nest egg with an insurance company for a promise of annual payments for life or a specified time period. This could lessen the risk of running out of income, but it also limits investment and income flexibility.

Stay the course, with adjustments: Depending on how much the current market environment has damaged your financial foundation, you might be able to recover with some less drastic moves. Instead of abandoning a well-constructed investment program, consider rebalancing your portfolio, which at this point probably involves moving assets from the fixed-income side over to the equity side. You also can reduce your withdrawal rate simply by drawing less money from your portfolio, if only temporarily. We all have discretionary expenses that can be reduced, postponed or eliminated. Spending less means preserving capital and purchasing power, the name of the game in retirement.

Desperate times don’t always call for desperate measures, especially when it comes to investing in retirement. But times like these do demand increased vigilance and some creativity. Start with what you know. Do the math. Adapt to new circumstances, and gain wisdom from this experience.

< Mike Brown is a licensed investment broker and a certified financial planner. He is the First Vice President, Investments for UBS Financial Services Inc. He also is the host of "KMOX Money Show" (1120 AM).

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GMAC won Federal Reserve approval to become a bank holding company Wednesday, enabling the auto lender to tap the Treasury’s $700 billion financial bailout fund and help keep General Motors Corp. in business.

To comply with rules about who can own a bank, GMAC’s majority owner, Cerberus Capital Management LP, agreed to distribute its stake to its investors, and minority owner GM will cede all control.

The Fed order said the plan would benefit the public by strengthening GMAC’s ability to fund the purchases of vehicles manufactured by GM.

Saving GMAC may improve the chances of salvaging General Motors, which received $9.4 billion in U.S. loans this month to stave off collapse at least until January. That package didn’t include support for GMAC, which finances about 75 percent of the inventory at GM dealers. The lender also served as a major source of loans to GM car buyers until it was frozen out of credit markets after losses totaling $7.9 billion.

GMAC’s request was approved even though the Detroit-based lender didn’t satisfy the capital requirements laid out when it applied to become a bank in November payday loans.

GMAC said it needed three-quarters of investors that held $38 billion in bonds to exchange the notes as part of a plan to reduce debt. As of Dec. 17, holders of 58 percent of eligible notes had tendered and with two days until the deadline, GMAC hadn’t provided an update. GMAC has been unable to raise cash by selling bonds backed by auto loans since May as concerns mount that cash-strapped households will be unable to pay bills.

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Offshore haven Liechtenstein has agreed a landmark deal with the U.S. to drop bank secrecy in cases of tax evasion and could make similar concessions in the European Union, a diplomat from the Alpine nation said.

Prince Nikolaus, a member of Liechtenstein’s ruling royal family who brokered the deal, told Reuters on Wednesday the tiny principality had agreed a “significant” change to bank secrecy rules that entitles the U.S. to bank account information when probing a tax dodge.

The prince said he was prepared to grant similar concessions within the European Union but wanted double-taxation agreements as well a commitment by countries to deal leniently with citizens that had hidden money from the taxman in Liechtenstein.

“We accept that more cooperation is necessary because there is more acute pressure,” the prince, the brother of Liechtenstein’s ruling monarch and the country’s ambassador to Brussels, told Reuters by phone from Brussels.

“People understand better today than a year ago that this is a hot issue,” said the prince. “It is of high political importance to many countries. Money is a rare species for states — they need every penny.”

Liechtestein is together with Monaco and Andorra one of three countries blacklisted by the Organization for Economic Cooperation and Development and was the target of a German investigation into thousands of citizens suspected of parking untaxed income in the principality.

The deal brokered with Washington, due to be signed this month, means banks in Liechtenstein could be forced to hand over bank account information to the U cash advance.S. authorities should they suspect tax evasion.

Previously, the U.S. had to prove a deliberate tax fraud — a standard so high it made bank accounts in the small country impenetrable to outsiders.

The Swiss banking association denied that the deal could pressure neighboring Switzerland — the world’s biggest offshore center — to take a similar step as it has a long-standing taxation agreement with the United States.

“We are in a different position and we are not under any pressure now and we have not heard any demands from the U.S. govt with regards to renegotiating that agreement,” a spokesman said.

EU DEAL?

Wedged between Austria and Switzerland, Liechtenstein is not an EU member and is under pressure from nearby EU countries to disclose bank data of non-residents.

An EU official confirmed that talks with Liechtenstein were in an advanced stage.

“The European Commission is in the advanced stages of negotiating an agreement with Liechtenstein on cooperation to fight financial fraud, including direct taxation, but so far there is no concrete deal for EU states and Liechtenstein to sign,” the official said.

Germany and France have been pushing for such an agreement to include banking secrecy, which set back the negotiations. 

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JPMorgan Chase & Co., the largest U.S. bank by assets, will cut 9,200 Washington Mutual Inc. jobs nationwide as it acquires the Seattle-based lender, a spokesman said.

The bank will eliminate 4,000 jobs and put 5,200 employees on a transition team. Those employees will help integrate the banks, and some will remain in the positions until the end of next year, JPMorgan spokesman Thomas Kelly said in an e-mail.

JPMorgan paid $1.9 billion in September for most of Washington Mutual, including the branches and deposits, after the thrift was taken over by the Federal Deposit Insurance Corp.

New York-based JPMorgan expects to keep most of the WaMu branch employees and will shutter less than 10 percent of the combined company’s retail outlets free credit reports.

WaMu’s former Seattle headquarters will account for 3,400 of the job cuts, the Seattle Times reported. The bank is also cutting 1,600 jobs in California, mostly in back-office operations.

Washington Mutual had more than 43,000 employees at the end of June.

JPMorgan dropped $5.54, or 18 percent, to $26.12 in New York trading. The shares have fallen 40 percent this year.

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Pakistan must secure a loan from the International Monetary Fund within a week, the German foreign minister said Tuesday, as the country scrambles for aid to avert a run on its currency and a default on its international debt.

Without help, the fight against terrorism in the nuclear-armed nation could be complicated by out-of-control price increases, fewer jobs and rising public anger in the country of 160 million people.

German Foreign Minister Frank-Walter Steinmeier said Tuesday that Pakistan’s problems were so urgent it had no choice but to seek an IMF loan.

"I can only hope that the decision is taken quickly, because a loan in six months or six weeks will not help, but only if it is approved within the next six days," Steinmeier told reporters after talks here with Pakistani officials. "Then one can perhaps avoid the most difficult situation in Pakistan."

While Pakistan has already approached the IMF to help solve its balance of payments crisis, it has held out hope that it can raise about $5 billion from other lenders — avoiding an IMF austerity program.

Steinmeier said Germany, Europe’s biggest economy, and other countries were discussing a separate package of assistance for Pakistan to boost faltering economic growth.

"That is the only way to stabilize the situation," Steinmeier said. Pakistani Foreign Minister Shah Mehmood Qureshi said Steinmeier had been "very supportive" of Pakistan in talks with its foreign backers one hour cash loan. He did not mention the IMF.

High oil prices and dwindling overseas investment have left Pakistan with a yawning balance of payments deficit. The gap is draining its foreign currency reserves and pushing it toward a default on its international debt.

Pakistani officials had hoped to persuade allies such as the United States and Saudi Arabia, as well as institutions including the World Bank, to provide soft loans or accelerate pledged development aid.

But with many governments preoccupied with the global banking crisis, Pakistan has received no firm public commitments of assistance. An IMF program would be politically unpopular in Pakistan because it likely will come with tough conditions.

The government insists it already has taken action to slash unsustainable subsidies on food and fuel — measures that hurt in a country where about three-quarters of the population live on no more than $2 a day.

There is speculation that an IMF loan might come with demands to slash the government’s own budget, including defense spending. In a sign of the times, the army on Tuesday halted work on a new general headquarters in the capital, saying it "shares the nation’s quest for economic stability through a spirit of sacrifice."  

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Asian and European leaders closed ranks on Saturday to try to bolster the confidence of shell-shocked investors fearful that the year-long global credit crunch is mutating into a worldwide recession.

Poor economic data around the world and another international barrage of corporate profit warnings and job cuts triggered a brutal sell-off in stocks from Tokyo to New York.

“The danger of a collapse (on financial markets) is far from over. Any all-clear would be wrong,” German Finance Minister Peer Steinbrueck said in an interview released on Saturday.

“We are still in a dangerous situation. I am not going to mislead anyone and say: we have got everything under control,” he told Bild am Sonntag newspaper.

The worries of political leaders were mirrored in the markets how to get a free credit report.

Seventy-nine years to the day after the 1929 crash that ushered in the Great Depression, currencies experienced extreme volatility, while oil and other commodities tumbled on fears of plummeting demand that would accompany a slowdown.

Many analysts declared that Europe was in recession after private-sector activity in the euro zone’s economy contracted at the fastest pace in at least a decade and Britain’s economy shrank 0.5 percent in the third quarter, much more than expected.

“The euro area has entered a deep recessionary spiral,” said Aurelio Maccario, chief euro zone economist at Italian bank UniCredit. 

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A majority of Americans aren’t happy with the way Treasury Secretary Henry Paulson is handling his job or with the financial rescue package he and Congress created, according to a poll released Wednesday.

Of 1,058 people surveyed in a CNN/Opinion Research Corp. poll, 64% said they disapproved of Paulson’s performance and 28% said they approved. The poll was conducted on Oct. 17-19 and the margin of error was plus or minus 3 percentage points.

The Treasury secretary, however, fared better than the president has recently. In an earlier poll, 72% of Americans said they disapproved of the way President Bush is handling his job.

A majority in the latest poll - 56% - said they also oppose the financial rescue package passed by Congress earlier this month. That package allows Treasury to buy troubled assets to stabilize the financial system.

In particular, 53% of Americans polled said they thought a major action taken as a result of that package - Uncle Sam providing capital to banks and other financial institutions in exchange for an equity stake in those companies - is a bad idea.

Fifty-eight percent also think the idea of the government providing financial assistance to keep a big company in business in exchange for a stake in that company is also a bad idea.

The Treasury has stepped in to help giant insurer American International Group (AIG, Fortune 500), which has received more than $100 billion in government loans check cash advance. It has also taken over and agreed to provide funding for mortgage finance companies Fannie Mae and Freddie Mac.

There is one financial rescue strategy that won support in the poll: 58% of those polled said they favored government assistance to homeowners who can’t pay their mortgages.

The financial rescue package requires the government to encourage lenders to modify mortgages in cases where the government holds at least a partial stake in a mortgage-backed security. And in cases where the government buys loans directly, it may modify the loans on its own.

On Oct. 1, the Federal Housing Administration launched a program to encourage lenders to write down loans to below a home’s appraised value in exchange for refinancing a troubled borrower into an FHA-backed loan.

Early reports on that program, however, suggest that any positive effect on foreclosures may take time.

Meanwhile, FDIC Chairwoman Sheila Bair, who was instrumental in working on the financial rescue package provisions, has said publicly she thinks the government now needs to do more to help struggling homeowners. 

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General Motors Corp is pushing ahead with talks to acquire Chrysler LLC in a deal that the automaker sees as a way to boost its cash position at a time when it has been shut out of debt markets and its own revenues are tumbling, sources said.

The negotiations involving Cerberus Capital Management, Chrysler’s private equity owner, have intensified in recent days and are moving closer toward a conclusion, according to people briefed on the talks who asked not to be identified.

The prospect of merging Chrysler and GM has been viewed as a deal of desperation by most analysts since both automakers are losing money and are saddled with a cash-draining surplus of American dealers, workers and plants.

But GM executives believes the automaker could clinch a deal that would give it a share of Chrysler’s remaining cash while allowing it to cut costs quickly, the sources said no qualifying payday advance.

Although it does not report financial information, Cerberus has said Chrysler ended June with $11.7 billion.

Chrysler has 14 assembly plants and the expectation is that many of those would be in danger of being shut if it merges.

Once the deal closes, GM is only interested in keeping Chrysler plants where the No. 3 U.S. automaker has made significant investments in retooling, the sources said.

That could include Chrysler’s truck plant in Saltillo, Mexico, the Jefferson North Jeep plant in Detroit and its Belvidere, Illinois car assembly plant, one source briefed on the talks said. The sources were not authorized to discuss the talks since the companies are saying nothing on the record. 

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Drugstore chain Walgreen Co. has withdrawn its $2.8 billion bid to acquire Longs Drug Stores, apparently helping to ease the path for Longs’ $2.7 billion acquisition by CVS Caremark Corp.

Longs had already accepted CVS Caremark Corp.’s lower bid of $71.50 per share, a deal already approved by antitrust regulators.

Walgreen Chief Executive Jeffrey Rein sent a letter to Longs’ board of directors informing them of Walgreen’s decision to withdraw its bid. He cited what he called Longs’ board’s refusal to "engage in a constructive dialogue" as well as the broad financial meltdown as reasons for the withdrawal.

Some had questioned whether Walgreen would face antitrust issues because of overlap between its West Coast stores and Longs’. Longs said on Sept. 26 that the Federal Trade Commission was investigating whether a Walgreen acquisition would reduce competition among retail pharmacies in parts of California, Nevada and Hawaii, where Longs has most of its stores.

Some Longs shareholders have criticized the CVS deal, saying it may undervalue Longs’ real estate.

Major shareholder Advisory Research has not decided if it will tender its shares in favor of the CVS bid but has questioned the deal direct faxless payday loans. Another major shareholder, Pershing Square Capital Research, has said it is against the CVS deal. The two firms combined own about 18% of Longs shares, and the deal requires approval from shareholders owning two-thirds of Longs stock.

Longs, based in Walnut Creek, Calif., has more than 500 stores, mostly in California, but also in Hawaii, Nevada and Arizona. The company also owns Rx America, a prescription benefits management program with more than 8 million members.

The deal would give CVS, which already has a large presence in Southern California, a deeper foothold into the northern part of that state.

Messages left with representatives of Longs and CVS were not immediately returned.

Shares of Deerfield, Ill.-based Walgreen (WAG, Fortune 500) rose 7 cents to $26.25 in after-hours trading following the announcement, while Longs (LDG, Fortune 500) shares fell $2.48 to $69.20. Shares of Woonsocket, R.I.-based CVS (CVS, Fortune 500) were unchanged after-hours after rising 71 cents to $29.84 in the regular session. 

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If there’s one bright spot in a bad economy, it’s that gasoline prices have fallen, and they’re expected to drop even further.

As the global economy falters, demand for oil has dropped. And since the price of oil makes up about half of the cost of a gallon of gas, analysts see more relief ahead at the pump.

"We ought to see prices drop pretty quickly," said American Automobile Association spokesman Geoff Sundstrom. "We’re well on our way to $3 gas within the next week or two."

The national average price for a gallon of regular, unleaded gasoline fell 2.4 cents to $3.480 from $3.504, according to a daily survey released Tuesday by AAA. That’s down 18% from an all-time high of $4.114 a gallon hit on July 17.

Gas prices rebounded last month when hurricanes Ike and Gustav passed through the Gulf Coast where the bulk of the nation’s oil refineries are located.

While the damage was not as extensive as some had expected, the storms caused a short-lived spike in oil and gas prices.

On Sept. 17, after Hurricane Ike passed through the Gulf region, the national average gas price was a full 35 cents higher than Monday’s price.

"But now that refineries are back online and more product is available, prices have no where to go but down," Sundstrom said (paydayloans).

"Demand seems to be drying up week by week," he added. And given the challenging economic environment and the strains on household budgets, Sundstrom expects American drivers to remain conservative.

Crude tumbled more than $6 on Monday to close at an 8-month low of $87.81 a barrel. That’s down 40% from its July peak of $147.27 a barrel.

"Since crude makes up about 50% of the price of gas, gas prices should go down," said Ray Carbone, president of New York commodities trading firm Paramount Options.

Carbone added that gas prices have not fallen as dramatically as crude prices because refinery utilization has been low due to last month’s hurricanes.

Still, hurricane season does not end until November and oil prices are notoriously volatile, notes AAA spokesman Troy Green. He cautioned that gas prices will continue to fall "only if conditions continue to improve in refinery capacity and oil continues to retreat." 

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