Archive for September, 2009

WASHINGTON: In his first speech since he was reappointed, Federal Reserve Chairman Ben Bernanke said the recession is “very likely over” but detailed the tough road ahead for the economy.Bernanke also said that despite delays, he is confident that Congress will pass changes to financial rules to ward off future collapses.He hit hard on the “challenges” for the Fed and all policymakers in dealing with a sluggish unemployment rate as the economy recovers from a recession that began in December 2007.”That’s one reason why, even though from a technical perspective, the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Bernanke said. “As many people will still find their job security and employment status is not what they wish it was.”Bernanke’s speech to experts and Washington insiders at the Brooking’s Institution in Washington on Tuesday was a repeat of the one he gave to economists in Jackson Hole, Wyo., last month, when he cautioned the economy would start growing again, although slowly.While answering questions, on Tuesday, Bernanke said the pace of recovery in 2010 would be “moderate” and added that the unemployment rate would come down “quite slowly,” due to “headwinds” on ongoing credit problems and the effort by families to reduce household debt.Stock investors took note of Bernanke’s remarks, and the leading measures moved slightly higher.Bernanke also said he believes Congress will pass changes to the nation’s regulatory structure, while acknowledging that the effort had been slow-going.”While maybe the focus on regulatory reform in the Congress has not yet been as intense as I expect it will be … I feel quite confident that a comprehensive reform will be forthcoming,” he said.Bernanke played down concerns that turf wars between regulatory were getting in the way of legislation. “There are legitimate interests and there are interests that are more self-interested … and that’s just true with everybody, including all the members of Congress involved in the discussion,” he said.He said one proposal that he advocates “has nothing to do with the Fed’s own powers” — that’s the creation of a new type of power, called “resolution authority,” to unwind giant financial firms whose failure puts the economy at stake. Current proposals would give that power to the Federal Deposit Insurance Corp., since it already monitors and unwinds bad banks.The economic downturn and slow recovery were also the subject of remarks Tuesday by President Obama. Obama spoke to employees at an assembly plant in Lordstown, Ohio.”There’s little debate that the decisions we have made and the steps we have taken have helped stop our economic free fall. In some places, they’ve helped us turn the corner,” Obama said. “It’s going to take some time to achieve a complete recovery.”

Source:CNN

NEW YORK: Finally! After nearly two years of declines, the net worth of Americans rose by 2 trillion to an estimated 53.1 trillion in the second quarter compared with the first three months of the year.The soaring stock market accounted for much of the gain. Stock holdings rose by 22% to 6.3 trillion, while mutual funds’ value jumped 15% to 3.7 trillion, according to a Federal Reserve report released Thursday.To be sure, these are not exactly flush times for many people. Unemployment stands at 9.7%, the highest level in 26 years. And many people have yet to see their home values and portfolios recover from their recent trouncing.Since only half of Americans own stocks, with even fewer having significant holdings, only a narrow group of people benefited from Wall Street’s springtime gains. The Dow Jones industrial average and the Nasdaq had their best performances since 2003 and the broader S&P 500 since 1998.Homeowners, who make up about two-thirds of the population, also saw a little relief. Real estate rose in value for the first time since the end of 2006, climbing 2% to 18.3 trillion.Still, Americans have a long way to go before they recover the wealth they once had. U.S. net worth peaked at 65.3 trillion in the third quarter of 2007. That’s 18.7% higher than the current level.Much of the nation’s wealth had been tied to the recent booms in the housing market and on Wall Street. At the end of 2006, Americans’ homes were valued at nearly 22 trillion. And in the following year, their stock holdings topped out at 10.2 trillion and their mutual fund portfolio at 4.9 trillion.Thursday’s report is not likely to prompt consumers to resume spending, said Scott Hoyt, senior director of consumer economics at Moody’s Economy.com. Wealth is still down 12 trillion from its peak and many people may see the recent increase as a blip.”Consumers are still focused on how much wealth they’ve lost,” Hoyt said. “They still likely see themselves in a good-size hole.” Less debtAt the same time, consumers continue to pay off their bills. Household debt shrunk by an annual rate of 1.7% in the second quarter, the fourth consecutive decline. Debt loads had never contracted until the current downturn.Businesses are also pulling back on the debt they carry. Debt contracted at an annual rate of 1.8%, the second decline in a row.Governments, however, are loading up on debt as they try to prop up the economy. Federal government debt ballooned 28.2%, the fourth straight increase, while state and local governments increased their debt levels by 8.3%.

(Fortune Small Business) — Few entrepreneurs plan to shoot their product down. For David Lashmore, it was a necessity. Lashmore’s company, Nanocomp Technologies, is the first in the world to make sheets of carbon nanotubes — microscopic tubes stronger than steel but lighter than plastic. The Pentagon has financed much of the Concord, N.H., firm’s work; stakes include the 500 million U.S. market for body and vehicle armor, which is currently dominated by DuPont’s Kevlar. In April, Lashmore had a mechanical multicaliber gun shoot bullets at different versions of his sheet, each less than a fifth of an inch thick, at a speed of 1,400 feet per second. Four sheets were breached, but three showed no damage. Lashmore and his 35 employees were ecstatic. “We didn’t expect it to work at all,” he admits. Carbon nanotubes are not new. The superstrong molecules have excited scientists since the early 1990s. In theory, they could be used to build superlight cars or aircraft. But it proved difficult to grow nanotubes longer than 20 microns (one-fifth the width of a human hair). You could get the stuff only as a powder that was used to make tennis rackets and bicycles. In 2003, Lashmore started experimenting with carbon nanotubes at a high-tech incubator. A year later he was making nanotubes 1,000 microns long. That got the attention of Peter Antoinette, the former CEO of a high-tech materials company, and the pair founded Nanocomp in 2004. They developed a patent-pending system, controlled by a computer, that could produce large quantities of one-millimeter nanotubes. This was long enough to start making yarn and sheets. More than 80% of Nanocomp’s revenue, at least 10 million this year, comes from the Pentagon. “We’re funding them more than we’ve ever funded any fiber project,” says engineer Philip Cunniff at the Army’s Research, Development and Engineering Center in Natick, Mass. Army tests show the material works as well as Kevlar. The military also hopes to replace copper wiring in planes and satellites with highly conductive nanotubes, saving millions of dollars in fuel costs. Within four years, Antoinette says, he will be producing the nanotube textile for upward of 10 per 35-gram sheet. The price of Kevlar varies wildly depending on the application, but Nanocomp will probably have to reduce costs to roughly 1 a sheet to be competitive. (DuPont makes 50,000 tons of Kevlar a year.) Still, experts are optimistic. “They’ve solved a lot of problems,” says Ray Baughman, director of the NanoTech Institute at the University of Texas at Dallas. “It’s a relatively near-term product.” DuPont may soon have trouble shooting it down.

Source:CNN

NEW YORK: Wow. I just had the strangest dream that I had time warped back to 1992. Shares of General Electric were surging and NBC was enjoying great ratings.But it’s not a dream. GE (GE, Fortune 500) has been on a monstrous tear as of late. With its more than 6% jump Wednesday, the stock has finally entered positive territory for 2009, joining 20 of its fellow Dow Jones industrial average members that are also in the black. It’s even more impressive when you consider that at mid-year, GE was the worst-performing stock in the Dow.And GE-owned NBC has had a nice ratings boost this week thanks to the debut of former “Tonight Show” host Jay Leno’s prime-time program. Whether Leno continues to attract viewers to NBC once curiosity fades about his new show — and the other major networks start to roll out their fall premieres in earnest over the next few weeks — remains to be seen. But for NBC, the once-proud Peacock Network that was home to “The Cosby Show”, “Cheers” and “Seinfeld” but has been mired in fourth place with the advertiser-coveted 18-49 age demographic since the 2004-2005 season, even a temporary ratings boost has to be considered good news.GE’s NBC Universal unit, which also owns a movie studio and several cable networks, has long been viewed by GE shareholders as an irritation, a division that seemed to have little to do with the company’s core industrial, energy and technology businesses. Worse, it has typically been a drag on profits. So any improvement in NBC’s fortunes is likely to be greeted kindly by frustrated investors. It may even lead to a respite from the seemingly endless speculation that GE might be looking to sell its 80% stake in NBC. (French media company Vivendi owns the remaining 20% in NBC Universal and Vivendi’s CEO hinted at an investor conference earlier this week that it could sell its stake through an initial public offering.)But the turnaround in GE’s stock lately has a lot less to do with Jay Leno than it does with renewed optimism about the nation’s financial sector.0:00
/02:24Wall Streeters, a year laterGE isn’t technically a bank. But it might as well be. The company’s massive GE Capital financing arm still accounted for a third of GE’s total sales in the first six months of this year despite having reported the steepest decline in sales of any of GE’s businesses.Some analysts and GE investors have been pushing GE to scale back its GE Capital arm even further and focus it more on vendor financing for corporate customers as opposed to consumer finance and real estate loans. In other words, analysts want to see more deals like the one that American Airlines parent AMR (AMR, Fortune 500) announced Thursday. AMR received 1.6 billion in sales-leaseback financing from GE Capital Aviation Services for planes the airline has already ordered from Boeing (BA, Fortune 500). AMR also said it received an additional 280 million in cash in a loan from GE that used aircraft as collateral.Even though these types of loans might make sense for GE, there are still concerns about the impact on GE if it is forced to register its finance unit as a bank holding company. If that were to happen, it is likely that the company would need to raise more capital to meet regulatory requirements. Yet, GE’s stock has roared back in recent months as investors grow increasingly convinced that the worst is over for the financial sector. The big rebound in GE has mirrored the rise in beaten-down banks like Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500).Industrial businesses are shining brightThat said, there’s more to the changing perception of GE on Wall Street than just the improved sentiment for banks and a possible turnaround at NBC. All the talk of a global economic rebound is also legitimately good news for GE’s non-banking and media divisions.It’s worth noting that GE’s technology division has held up remarkably well this year: first-half sales are only down 6% from a year ago and profits have slipped by just 3%. And GE’s energy business has largely shrugged off the recession: its sales are up 2% from the same period last year while profits have jumped 16%. It stands to reason that if the economic recovery is for real, demand for the company’s aviation, health care and energy equipment should pick up significantly over the next few months. As such, shares of some of GE’s top industrial competitors, such as Honeywell (HON, Fortune 500) and Siemens (SI), have also soared lately.”The company as a whole is healthy. Spending on global infrastructure is alive and well. GE is in a great position to benefit from that,” said Ted Parrish, co-manager of the Henssler Equity fund, which owns shares of GE. “The reason the stock was depressed was because of GE Capital. But it looks like exposure to commercial real estate is contained.”Still, you have to wonder if GE, like the rest of the banking sector and the broader market for that matter, is now more than a bit ahead of itself. The stock is no longer a screaming bargain.Thanks to the recent surge, shares of GE now trade at nearly 19 times 2010 earnings estimates. By way of comparison, the S&P 500 is valued at 15 times profit forecasts for next year — so much for that conglomerate discount GE had been previously trading at on concerns it was too unwieldy and difficult to understand.Parrish isn’t worried. He thinks the stock could hit 20 before year’s end. That’s nearly 20% higher than its current price. But with all that in mind, GE will face a big test next month when it reports its third quarter results. GE will need to show continued strength in its industrial businesses. And it must demonstrate some progress on turning GE Capital around.Parrish said that as long as GE Capital doesn’t get worse, investors should be satisfied. Back in July, all GE would say about the financing unit was that it would remain profitable. GE Capital earned 1.7 billion in the first half of this year, a decrease of 69% from a year ago. Another big decrease like that, while better than a loss, probably won’t make shareholders happy.Talkback: Is GE’s stock overvalued or is it still a good buy? Share your comments below.

NEW YORK (Fortune) — Where are the perp walks for the subprime mortgage executives that dragged us into this mess? Three years after the housing bubble popped, federal prosecutors have yet to bring a case against the executives whose firms took part in some of the worst excesses of the subprime mortgage market. It’s not like there’s a shortage of abuses to investigate. The landscape is littered with the wreckage of financial institutions that crashed under the weight of bad loans, costing shareholders and taxpayers billions of dollars. “Many” lenders that went bust were cooking their books before they collapsed, according to a 2007 FBI report. Meanwhile, top officers at many mortgage shops were pocketing hefty paychecks and stock sale proceeds.And though it may be early to judge the law enforcement response — corporate fraud cases can take a long time to assemble, thanks to their complexity and limited enforcement resources — some observers are nonetheless struck by the lack of high-profile prosecutions. “The perp walk has been remarkably absent during this crisis,” said Steven Ramirez, a law professor at Loyola University Chicago, referring to the practice of parading a criminal defendant before the press on the way to court. “I don’t think it’s because of a lack of criminal activity.” Trivial pursuit?Bank reports of mortgage fraud have quadrupled since 2004, according to FBI data. The agency says 80% of mortgage fraud loss cases involve industry insiders, and the cost of the cases it kept track of last year was well in excess of 1 billion. The Justice Department and the FBI have reported some success in bringing some low-level fraudsters to justice. Prosecutors in California last year indicted six people in a scheme to defraud Long Beach Mortgage, a subprime mortgage shop that was part of Washington Mutual, the giant Seattle-based lender that collapsed last year and was acquired by JPMorgan Chase (JPM, Fortune 500). One defendant was sentenced to 15 months in prison and four others entered guilty pleas, Justice said. One participant in the scheme was a Long Beach employee who received 100,000 for making sure the firm funded fraudulent loans, the Justice Department said.But some students of white collar crime are skeptical of the notion that the big subprime lenders were primarily victims of mortgage fraud.Prosecuting low-level cases without holding highers-up accountable risks “trivializing” white collar crime — and paving the way for the next round of financial shenanigans, said Henry Pontell, a criminology professor at the University of California at Irvine. “We really have learned no lessons from the savings and loan crisis,” he said, referring to the wave of bank failures in the 1980s that led to a number of notable fraud convictions. “The most germane one is that fraud plays a central role in these episodes. It acts as an accelerant for financial bubbles.” The only major criminal prosecution to come out of the financial crisis so far is a case due to go to trial next month against two former Bear Stearns hedge fund managers who are accused of securities fraud.The biggest civil enforcement action is one the SEC filed in June against Angelo Mozilo, the former CEO of mortgage lender Countrywide. The SEC accused him and two other Countrywide executives of insider trading and securities fraud, contending they misled investors by claiming Countrywide was lending prudently when it was making loans Mozilo himself labeled toxic in an internal email. Mozilo’s lawyer called the allegations “demonstrably false.” Mad as hellPontell says proof that fraud was rife at the big subprime mortgage houses resides in the lenders’ files. Questions about borrowers’ income or assets were answered, in some cases, by taping computer-generated figures to blank, pre-signed documents. “These people were so brazen, they never bothered to take the cut-and-paste documents out of the files,” Pontell said. “Arresting those guys is like catching the fish that jump into the boat.” But as shameless as the mortgage fraud might have been, connecting back office corruption with the executive suite isn’t easy. “The problem is finding the executives’ fingerprints on the consumer files,” said Peter Henning, a law professor at Wayne State University. “Angelo Mozilo may have set the tone at Countrywide, but there is no way you’re going to find his fingerprints on any of those mortgages.” 0:00
/3:52Suing a broken bankCountrywide — now owned by Bank of America (BAC, Fortune 500) — and some of its former hard-charging subprime competitors are also dealing with a wave of private civil suits.New Century Financial, once the No. 2 subprime mortgage originator, filed for bankruptcy in April 2007 after admitting that its financial statements weren’t correct. A judge last year allowed a securities fraud class action against it to proceed after noting “a staggering race-to-the-bottom of loan quality and underwriting standards.” Two of the firm’s three co-founders made millions selling shares in the year before the firm’s collapse. A third co-founder, Brad Morrice, who was CEO when it filed for Chapter 11, made 8.3 million in salary and bonuses between 2003 and 2005, the latest years for which data are available.Morrice is now managing partner at consultancy Cypress Strategy Group. The firm’s web site bears the slogan “I’m mad as hell and I’m not going to take it anymore.”No stomachComplicating matters for prosecutors are the rising demands on the Justice Department since the Sept. 11 terror attacks. Corporate fraud prosecutions have fallen by two-thirds since then, according to Justice Department data tracked by the Transactional Records Access Clearinghouse at Syracuse University. “There has not been a lot of stomach for bringing big cases,” said Ramirez. He said he was surprised that the Obama administration hasn’t been more aggressive in prosecuting financial crimes.The Justice Department rejects that critique. A spokesman notes that regulators have successfully prosecuted admitted investment fraudster Bernie Madoff and are pursuing a case against alleged bank swindler Allen Stanford, who was arrested in June. But Pontell notes that unlike the S&L cleanup, which was funded by the passage of the Financial Institutions Reform Recovery and Enforcement Act, this crisis has brought no round of new money for the enforcement agencies from Congress. That means the battle against what he calls the starched white collar criminals is competing for scarce resources with the wars on terror and drugs, among other things. And this battle is taking place while the still powerful banking industry is lobbying to keep regulation and oversight at low ebb. Ramirez said that if Congress doesn’t loosen up the purse strings for stronger enforcement, the bill for the next scandal could be even bigger.”People say bringing these cases is expensive,” said Ramirez. “But when you have laxity in law enforcement, the costs are off the charts.”

NEW YORK: With little on the docket to challenge investor optimism, the defiantly bullish stock market is looking to extend its staggering run in the week ahead.And why not? Wall Street has shaken off pervasive calls for a September selloff and warnings about the still-struggling economy, managing frequent, fresh 2009 highs of late. The Dow Jones industrial average, the S&P 500 index and the Nasdaq composite have all ended higher in 9 of the last 11 sessions.The petering out of certain government programs in the last two months of the year and the possibility that third-quarter financial reports will disappoint are real concerns — so is the reality of a still-brutal job market and change in consumer attitudes toward spending versus saving. But these longer-term worries aren’t likely to dominate in the week ahead.”As long as the economic news keeps pointing up, the market is likely to post more gains in the near-term,” said Michael Sheldon, chief market strategist at RDM Financial Group.”However, given the rate of ascent in recent days, investors should be prepared for a pullback before too long,” he said. “Anything that could disrupt the positive outlook could spell trouble.”Since bottoming at a 12-year low March 9, the S&P 500 has gained 58% and the Dow has gained 50%. Since bottoming at a six-year low, the Nasdaq has gained 68%.0:00
/02:24Wall Streeters, a year laterThe advance has been driven by extraordinary amounts of fiscal and monetary stimulus and a growing sense of optimism about the economy.But that optimism may be misplaced, said Robert Loest, portfolio manager at Integrity Funds, and he said stocks could be in for a bigger selloff a few months out. “I don’t think we’ve seen a rebound of this magnitude following a crash and I’m suspicious.”"This is not the time for investors to be getting into stocks but to be taking profits,” he said. “I think this rally can go another five weeks or so, but not three months or six months.”The week ahead: The Federal Reserve meets Tuesday and Wednesday and is likely to hold interest rates steady. Last week, Fed chief Ben Bernanke said that the recession is “likely over,” although the labor market has a way to go. The Fed’s statement is likely to echo that observation.Several housing market reports and the index of leading economic indicators are also on the docket this week. But the recent momentum is likely to keep nudging stocks higher.EconomyMonday: The Conference Board’s index of leading economic indicators is due in the morning. LEI is expected to have risen 0.7% in August after having risen 0.6% in July, according to a consensus of economists surveyed by Briefing.com.Tuesday: The Federal Housing Finance Agency (FHFA) releases its July home price index after the start of trading. The index is expected to have risen 0.5% after rising 0.5% in June.The Federal Reserve begins its two-day interest rate policy setting meeting with a decision expected Wednesday afternoon.Wednesday: Treasury Secretary Timothy Geithner is set to testify before the House Financial Services committee on regulatory reform, starting at around 9:30 a.m. ET.The Fed is widely expected to hold the fed funds rate, a key short-tem interest rate, at historic lows near zero on Wednesday, with an announcement due at 2:15 p.m. ET. But investors will be more focused on what the bankers say about their “exit strategy” as they seek to wind down programs that pumped trillions into the economy to cushion the blow of the recession.The weekly crude oil inventories report is also due in the morning.Thursday: The existing home sales report from the National Association of Realtors (NAR) is due shortly after the start of trading. August sales are expected to have risen to a 5.33 million unit annual rate from a 5.24 million unit rate in July. July sales were up 7.2% from the previous month, the largest monthly gain on record, going back to 1999.The weekly jobless claims report from the Labor Department is due before the start of trading. 550,000 Americans are expected to have filed new claims for unemployment, versus 545,000 claims the week before. Continuing claims, a measure of people who have received benefits for a year or more, likely fell to 6.188 million from 6.230 million the week before.Also Thursday, the G-20 summit in Pittsburgh gets underway. The Group of 20 leading developed and emerging countries will discuss the ongoing efforts to stabilize economies after the financial market meltdown.Friday: Sales of new homes are expected to rise at a 440,000 unit annualized rate in August, according to forecasts, after rising at a surprisingly robust 433,000 unit annualized rate in July. The government report is due out after the start of trading.The University of Michigan’s September consumer sentiment index is due shortly after the start of trading. Sentiment is expected to have dipped to 70 from an initial read of 70.2.Durable goods orders, or orders for long-lasting manufactured products, are expected to have risen 0.1% in August after rising 5.1% in July. The July jump resulted from a spike in aircraft orders. Orders excluding transportation are expected to have risen 0.8% in August after rising 1.1% in July.

NEW YORK (Money) — Question: My sister and brother-in-law have announced that they are broke, and want to borrow money. They went bankrupt a few years ago, but have since blown two inheritances on high-risk investments. They also borrowed extensively from our parents and never repaid the loans. Although both are college educated, neither has had a regular job for years, and now they say they can’t find work. We turned down their loan request, and now my brother-in-law is threatening to never let us see my sister and nephew again. What are your feelings about loaning money to relatives, particularly when they have a history of not repaying loans? –ElaineAnswer: My feelings about lending money to relatives are similar to my feelings about gambling — generally, you should do it only if you can afford to lose the money. And even then you need to proceed with caution.That may sound cynical, but I think of it more as realistic. After all, if someone has decent prospects for repaying a loan, they go to a bank or some other financial institution. The fact that a relative is approaching a family member instead suggests that he or she wouldn’t qualify for the loan under usual credit standards, hence a greater risk the loan won’t be repaid.And even if you can afford to absorb the loss, lending to relatives still isn’t an activity to engage in lightly, as it can complicate family relationships and lead to bruised feelings and resentment all around, whether or not the debt is repaid.Assuming you’ve accurately described the behavior of your sister and brother-in-law, it’s hard to imagine how you could have reasonably justified giving them a loan. In fact, I’d argue that you didn’t turn them down for a loan so much as you declined to become an enabler in their profligate ways.As for your brother-in-law’s threat of not letting you see your sister and nephew, well, it would be a shame for your family and his if he carries through on it.But aside from maintaining your composure and hoping he comes to his senses, I don’t see that there’s much you can do about that. It’s certainly not a reason to reconsider lending him the money. If anything, his over-the-top reaction shows that you made the right decision in not entrusting this clown with your dough.That said, there may be times in the future when a similar issue comes up again with other relatives you may feel are more deserving of help. Should that happen, here a few guidelines to follow:Document the loan. Basically, you want to establish that this is a bona fide loan. This makes it clear to the borrower that he or she is taking on a real financial obligation and that you expect it to be repaid. It also makes it clear to the IRS that you’re really lending the money, not giving it away. By doing this, you may be able to claim a non-business bad-debt tax deduction if your relative doesn’t pay up.Although it’s possible to draw up your own loan contract specifying the term, payments, interest, etc., it’s probably easier and safer to download a promissory note form from an online supplier of legal documents like Nolo. Or, for 199 plus 9 per payment, you can have Virgin Money create a personal loan agreement and manage the loan, a service that includes transferring payments from the borrower’s bank account to yours and reporting those payments (or lack of them) to a credit bureau.Charge a reasonable rate of interest. You can set a higher loan rate, but you’ll want to charge at least the Applicable Federal Rate, or AFR, which is a minimum mandated for tax purposes. If you charge less than this amount, you may have to pay income tax on “imputed interest” — the difference between any interest income you did receive and what you would have gotten had you charged the AFR.Depending on the size and type of loan, you could also face gift-tax ramifications. (IRS publication 550 addresses these issues.)But such matters aside, I think setting a loan rate equal to or higher than the applicable federal rate makes sense because it’s another way of signaling that you take this loan seriously, and that you expect the borrower to do so as well.Consider consulting a pro. There are other messy details that can arise and cause problems when you lend money to family members. For example, if your relative defaults on the loan and you want to claim a bad-debt deduction, you may have to actually first take legal action to show you tried to collect. That could make family get-togethers a bit awkward to say the least.So if you’re thinking of lending a significant sum of money to a relative, you may want to consult an attorney or tax accountant first, just to be sure you know what you’re getting into. Indeed, doing this ahead of time may very well reduce your chances of having to consult one under worse circumstances later on.Talkback: Have you had experiences lending money to family members? Were you paid back? Post your comments below. Thinking of relocating to get a better job? Tell us your story. Please send an email with a brief description of your situation and a photo to Donna Rosato at donna_rosato@moneymail.com. For the CNNMoney.com Comment Policy, click here.

Source:CNN

(Money Magazine) — The advice rolls off the tongues of financial planners and appears frequently in the pages of financial magazines such as Money: To have any shot at retiring well, you need to invest a good portion of your money in stocks. But mention this to Boston University School of Management professor Zvi Bodie, author of “Worry-Free Investing,” and you’ll get a stern reminder of how equities often betray investors. And you’ll get an earful about how millions of us are taking too much risk with our nest eggs. Bodie, who also co-authored a leading financial economics textbook with Nobel Prizewinner Robert Merton, has been trumpeting this message for decades. Writer Joe Light talked with Bodie about how he thinks savers have been deceived by the conventional advice, and how this decidedly unconventional thinker believes you should invest. Were retirement investors taking on too much risk before the crash? Yes. The standard models that are used to give investment advice to millions of Americans are fundamentally wrong. We’re told that over time, stocks get less risky, but that’s bull. Stocks are always risky — whether in the short or long run. Prices dropped by 37% last year. While improbable, there’s nothing to say they couldn’t drop by that much again next year or the year before you retire. And diversification doesn’t take away that risk. That’s why retirement money belongs in truly safe assets whose value won’t go down — not in stocks. That’s easy to say now — after the market crash. Have you always felt this way? It’s not Zvi Bodie the crackpot saying this. This is actually a standard way financial economists approach life-cycle investing. The starting point in economics is, “Suppose I don’t want to take any risk? How would I allocate my income over my lifetime?” If you want to invest safely, you never invest in equities. But don’t you need the growth that stocks provide to combat the risk of inflation? Inflation is exactly what Treasury Inflation-Protected Securities (TIPS) and I bonds were created to protect against. Even if equities did perform well in periods of inflation, you’re exposing yourself to an even greater risk of a stock market decline. And as it turns out, anytime there’s been significant inflation, equities have been a terrible investment. Just look at the 1970s. So you’d tell an investor to have 100% of his retirement money in TIPS? Yes. In fact, I have 100% of my own retirement money in TIPS. I do have a small account of nonretirement funds in which I invest in bonds, options, and stocks. Currently, long-term TIPS earn just 2% after inflation. How is anyone going to be able to retire on so little growth? If you look at most online retirement calculators, they make two assumptions: one, that you want to retire at age 65, and two, that people will be able to save only a certain amount — say 10%. As a result, they spit out risky portfolios to get a higher return. Well, who says we all want to retire at 65 and can save only 10%? What if I retire at 70 or 75? What if I save 30%? Suddenly, you don’t need to take so much risk in your portfolio. Now, if you put 100% in TIPS, you will have to save upwards of 20% of your annual pay, even if you’re young, to retire at age 65. But I think it would be more reasonable to expect to retire at a later date. Don’t you think some investors would willingly choose to take on more risk in hopes of funding a better retirement? Absolutely! But notice what they’re being told. They’re being told that by investing in equities, they are going to get a higher return without extra risk. That’s the problem. You have to make a sacrifice somewhere — whether that means accepting a lower standard of living now, picking a later retirement date, or taking on risk in your portfolio. Can a worker earning, say, 60,000 a year and living in New York City save 20% to 30%? You’re able to save no matter what income you make, as long as it’s above the subsistence level. You’re just not going to have a very good standard of living. If I were in that situation, I just wouldn’t plan on retiring. I’d work as long as I could. Is it realistic to assume that even if you wanted to work until 80, that you could? What if you run into health problems or get laid off? You’re right. We live in a world of great uncertainty. There are certain kinds of risks we can eliminate, and certain kinds we can’t. You can buy insurance against disability, or invest in yourself — such as by taking classes to build your skill set. But sometimes there are risks we just have to live with. And you can’t solve that by investing in equities. So should no one invest in stocks — not even the very wealthy? You should only invest in equities what you can afford to lose. If you’ve already got a guaranteed level of income beyond what you would need to maintain your current standard of living, I guess you could take on risk with the extra money. What if the market keeps moving up as it has over the past few months? If the market goes up, people will say, “You see, look where you would have been had you listened to that jerk Bodie!” So in two years I could look bad — but investors could also end up losing more than they can afford to lose. Thinking of relocating to get a better job? Tell us your story. Please send an email with a brief description of your situation and a photo to Donna Rosato at donna_rosato@moneymail.com. For the CNNMoney.com Comment Policy, click here.

LONDON (Reuters) — Oil prices slipped toward 72 a barrel Friday as dealers took profits from a 5% rally earlier in the week and the U.S. dollar bounced from a near-one-year low.Crude for October delivery fell 43 cents to settle at 72.04 a barrel.”After being up for much of the week the market took a slight breather today and the dollar was able to show some strength,” said Tom Bentz, analyst at BNP Paribas Commodity Futures Inc.Oil prices started the week below 70 a barrel, then rose on strength in equities markets and heavy losses in the U.S. dollar that boosted the purchasing power of commodities buyers using other currencies.The ICE Futures U.S. dollar index, which tracks the value of the greenback, rose Friday from a near one-year low as investors covered short positions and softer equities in Europe and Asia cooled risk appetite.Oil was also under pressure from a government report this week showing growth in U.S. refined fuel inventories, with distillates at their highest levels since 1983.Oil’s losses were limited somewhat by mild gains on Wall Street, fueled by brokerage stocks upgrades. European and Asian equities slipped earlier Friday as recent hefty gains prompted investors to book profits.Some analysts said oil prices could move higher in coming weeks as some recent positive economic data supported expectations that a global economic revival was under way and energy demand would soon recover.”Momentum is starting to build for a break to the upside as there is mounting evidence of an improving global economy in general,” analysts at Barclay’s Capital wrote in a commodities research note.Another analyst, Tim Evans at Citi Futures Perspective, said that high stockpile levels and increased quota-busting by OPEC producers could produce the same basic conditions that set the stage for a 15 price drop in early July.Crude is up nearly 62% this year, but is still about 51% off its July 2008 record of more than 147.

NEW YORK (Reuters) — Gold ended lower Friday, capping a volatile week in which the metal had risen toward its all-time high 1,030.80 an ounce as a steadily falling dollar boosted investment demand.Yet, traders said that a lack of physical demand outside of the investment sector could trigger further price weakness.Jewelry buying, which typically accounts for more than half of the total gold demand, has been lagging due to near-record-high prices.On Friday, gold was pressured as waning risk appetite cut demand for high-yielding currencies, sending the dollar up sharply against a basket of major currencies. A weakening dollar has been powering gold’s rise this week.”(This) is more a dollar story than anything else,” said Eugen Weinberg, an analyst at Commerzbank. “As long as this negative rally in the dollar continues, we will not see a trend reversal in gold.”December gold futures settled down 3.20 at 1,010.30 an ounce on the COMEX division of the New York Mercantile Exchange.On Thursday, dollar weakness lifted spot bullion to an 18-month high of 1,023.85 an ounce.Saxo Bank senior manager Ole Hansen said given the momentum gold has built up in its run towards record highs, significant dollar strength would be needed to trigger a move lower.”There has been a lot of buying into this — speculative longs are at a record high, ETF investments are at a record high — so we need to see the break above the highs from last year,” he said.Weak physical demandMiguel Perez-Santalla, vice president of sales at Heraeus Precious Metals Management, said that the gold jewelry market was “close to dead” compared with the same time a year ago. Heraeus is also a processor and supplier of precious metals.”There is no real physical buying outside of investment. It’s not a good sign in terms of the actual use of the commodity,” Perez-Santalla said.Physical demand for gold in India, a key jewelry-buying center, should re-emerge as traders stock up for the festival season. Demand has been lackluster this year as high prices put off buyers.Among other precious metals, silver, platinum and palladium also edged lower after hitting multi-month highs on Thursday, tracking gains in gold.The three metals — which unlike gold are largely industrial in use — are also benefiting from an improved outlook for the global economy, which is fueling hopes rising industrial production will cause an uptick in demand.Palladium, which is used as a component in catalytic converters, broke through 300 an ounce for the first time since September 2008 on Thursday and hit a new one year high of 304 an ounce early on Friday.Palladium was last at 299.50 against 301.50 late on Thursday, while platinum was at 1,327 an ounce against 1,335.50. Silver was at 17 an ounce against its previous finish of 17.18.