Retirement Capped!

Caps are now set. It's official. You can only retire with 3 million in total IRA's. This includes 401k, 403b, etc. The payout can be 205,000 maximum during your retirement. 10% of citizens will hit the mark. 95% of companies that offer retirement plans match employee contributions.

What does it all mean? The savers have one less spot to save and matching only gets you to the mark quicker. Earlier this year, many Swiss banks were sued for offshoring accounts, denying yet another haven. There are still several worthy places where your wealth will be safe, including but absolutely not limited to:

• Life Insurance
• Closely held Corporations (mitigate tax)
• Real estate and land investments
• Trusts (mitigate tax)
• Securities (maximize return)
• Gifts ($14,000 per year to anyone you choose)
• Private equity/venture capitalism (for the aggressive)

Those are simply a few ways that can save you from worrying about your potential risks, tax bracket, excess money, or guaranteed return. Leave me a comment!

Losing a Key person

Losing a key person can affect a company in at least the following ways

• Loss of focus
• Loss of time from morale adjustment
• Loss of money from morale adjustment
• Loss of time and money completing administrative adjustment
• Loss of time training replacement
• Loss of time finding replacement
• Loss of money training replacement
• Loss of money due to a lesser earning power of a replacement (marginal, over time)
• Loss of money on taxes of new key person
• Loss of money exercising stock options and buy-backs for decedent's family
• Loss of credibility from lenders
• Loss of market share to competitions

When you think about the loss of someone irreplaceable, consider the above problems that can all be covered from your present income instead of liquidated principal if that key person shouldn't show to work tomorrow. Will all of these costs sink your business? Would you rather pay for them out of pocket in full overnight or would you want to pay over years and for pennies on the dollar?

Stay focused on what matters

Stay focused and be more successful. Perhaps the greatest business advice that anyone can offer. Realistically, the two thoughts, focus and success, are interchangeable. How do you stay focused, On what do you focus, and what resources can help you stay focused? Countless speakers and studies have shown that focus can get you exactly what you want, but the discipline that strong focus requires is a skill that is difficult to cultivate.

First, staying focused will require tremendous mental ability and is attainable, but many of us are discouraged by several attributes. Most important are the opportunity costs. Cut out drinking, socializing, reading unnecessary articles, watching television, and basically all forms of play. This discipline is the hardest part of focus. Next, you will want to find a task worthwhile to focus upon. The task should be long-term, massive, and should reflect your strengths, values/virtues, and interests. This will take time to develop, as personal reflection sometimes only comes in moments of clarity. Find a way to combine the task into a career, or create a way to establish a new career doing the task. Make sure you absolutely believe in it, and that you establish broad objectives (streamlined), or constraints to strengthen your focus. Become an expert in the idea and have your life be a reflection of the idea.

You may be distracted, so make sure you realize the opportunity costs associated with each distraction. Many times, distractions can be opportunities. Think about your values and decide if you can convert a distraction into an objective. Again, make sure your objectives are synergized and streamlined. Whether the distraction is a girlfriend, a work opportunity, children, volunteering, a new hobby, or an asset investment, make sure you identify all pros and cons. Have a solid base of peers who want to accomplish the task with you, and bounce ideas off of them. They should reflect your values as well. Protect your interest with insurance policies. Worker's Compensation for personal injuries, health insurance for personal sickness and of course Life insurance for financial or key man loss. Having insurance takes the burden from your thoughts associated with threats that you can control so you can defend against threats that you can't control, like competition, rising costs, changing markets, and other barriers to entry.

In a short glimpse, this is how to set your self up to focus, give yourself something to focus upon, and maintain the focus using tried and true techniques. Focus is a learned skill and this will all become easier and easier to you over many years of development. Make sure you tackle each new obstacle right away, or you can get buried quickly. Discipline will be the most determining factor of whether you achieve excellent focus or you are stuck where you always have been and feeling like you have always felt.

What is LIBOR?

London Inte Bank Offered Rate. This is the rate at which banks charge interest if a consumer borrows money for short term. Calculations are based on 10 currencies and 15 different intervals of time, of at least 30 days. This rating is very nearly 0% always, but has been manipulated in a way similar to collusion.

LIBOR is completely unregulated, no authorities outside the British Banking Authority can manipulate or constrain it. That means that traders arbitrarily have the ability to manipulate it. A higher libor will cost borrowers more for things like car loans or mortgages, while other consumers earn more money if they have pension or a 401K. The most important ramification is that loans are influenced by LIBOR, which is why higher libor means less home sales.

Your financial health

Your financial health is gauged by a few measures; cash flow, balance sheet, and credit rating. In my opinion, these are the most important measures, and these are often misunderstood by the average consumer.
Cash flow is a very strong indicator of health because it shows where your money is earned and spent. Operating, investing, and financing activities are all covered.

• Operations (think primary income and bills)
• Sales revenues
• Equity/debt sales as derivatives
• Loan interest
• Vendor and employee payments
• Investing (think savings and passive interest)
• Asset purchases (buildings, securities, land, etc.)
• Loans received from customers
• Merger payments
• Financing (generally only for business purposes)
• Proceeds from issuance of short/long debt
• Dividend payments
• Stock buybacks
• Principal repayments (debt)
• Sale of company shares of stock

It's clear that without a strong balance sheet, your cash flow would be misguiding, since the balance sheet shows the historical totals of each asset as opposed to the changes made this year alone. The balance sheet shows the total number of assets equaling the combination of liability and equity. Assets make the money for your company, so they should outweigh liabilities alone, and the difference is the profit the company realizes (retained earnings). The balance sheet describes how liquid or indebted a company is, giving year over year comparisons also.

If both of these are in tune, you should have a strong credit rating. Every entity and person in America and throughout the world is required to have a credit rating. Entities are rated by such agencies as Moody's and Standard and Poor's, while consumers are rated by Equifax, Experian, and Trans Union. The score is scaled from 150-900 and spans 7 years. The factors representing your score are difficult to enumerate, but in general they are employment, credit and payment history, outstanding debt, and amount of Credit inquiries. Bankruptcies and foreclosures take 10 years to come off. Maintain a balance of credit that is less than 30% of your total limit. Higher than 30% may incur a penalty.Every 12 months, you can request a copy of your report under the FCRA.

So you see how important staying organized can be when you decide to become financially competent. You may find these boring, overwhelming or both, but your cash flow statement, blanace sheet, and credit rating can dramatically change your habits and improve your savvy, making them investments in themselves.

The future of Freddie Mac/Fannie Mae and CDO's

Hard to imagine how far the world of finance has come. 150 years ago, we had just established a national currency, and now we have thousands of securities and derivatives to select from. In particular, CDO's catch my eye and though they were at the helm of the most recent recession, the fall of Lehman Brothers and A.I.G., these mortgage backed securities can teach us where finance is heading next. The hardest part of the equation is factoring out Freddie Mac and Fannie Mae, who package the CDOs and sell to investors.

CDO's are investment vehicles that begin with banks, which encompass many asset-backed securities, but predominately Mortgage Backed securities (MBS). Banks provide a loan for the amount of a mortgage, and place an account receivable on the books. Fannie Mae and Freddie Mac buy the loans (including principal and interest) from the banks and package them to be sold to investment banks, typically to be pooled in a mutual fund. Now, the cash that the homeowner pays flows through to the investment bank and it's mutual fund owners. Additionally, credit default swaps, a derivative, were created as a way for speculators to bet against CDO's they didn't own (which defaulted AIG).

The problems occur where banks write the loan and also where the investment banks buy the MBS. Banks should ultimately review a credit score and only loan money if their risk is mitigated. Since they are immediately guaranteed a sale of the loan, no matter what quality, subprime lending can occur. After packaging, little controls are in place with ratings agencies like Moody's and S&P. Ideally, the ratings agencies will look at each case specifically and classify into multiple categories. This did not happen during our most recent recession and many investors were fooled into thinking they had quality investments. Another problem was the lack of regulation on derivatives, which meant that no reserves were required to back credit default swaps, and proceeds were taken as bonuses.

Recently, each bank has been sued and the government (i.e. taxpayers) bailed out Freddie Mac and Fannie Mae. Fannie and Freddie, like each and every other financial institution of the time, leveraged in excess of 20 times their capital, courtesy of the SEC's April 28, 2004 vote to lift leverage limits. If they lost capital, the entire portfolio of obligations would be lost (i.e. investors lose money). 60% of the money lost came from risky investments, the remaining losses were mostly due to the lull in residential mortgages. Since many pensions and investments worldwide depend on Fannie Mae and Freddie Mac, their failure would paralyze much of the global economy.

Incredibly, Fannie and Freddie have come back in conservatorship from Sept. 2008 to now. Obama thinks the reliance on taxpayers has empowered these two to make poor judgments and have little consequence. These are For-Profit companies whose losses are repaid by the government. If backed privately, the mortgage industry would have free enterprise companies scrutinizing activities, making for an honest financial environment. In agreement with Obama, I believe more controls need to be in place. $10 Trillion in mortgages will take time to ease away from these two companies.

Currently, bi-partisan bills are being drawn for the 5 year depletion of Freddie and Fannie. Bank of America settled to pay Freddie 2.6 Billion, Citigroup settled at 400 Million, Suntrust settled at 65 Million, and Wells Fargo settled at 0.87 Billion. In any event, Dodd-Frank will keep the companies from walking the plank yet again.

The future of monetary policy

Interesting enough, as I study more and more of the economy, the only thing I seem to learn is how little I know. After the documentary, "Inequality for All" by Robert Reich, I realized a few striking phenomenons in the economy and politics. In short, our country is becoming too disconnected.

The creation of paper money occurred during the Civil War and followed the Panic of 1857. When Europe enlisted farmers for wartime just 5 years prior to our widespread cash printing, two significant changes took place. Europeans imported agricultural products from American farmers which caused a boom, and when war subsided there, their workers went back and our products took a massive hit in value. The Ohio Life Insurance and Mutual company, at the time a huge investor in agriculture, failed and caused thousands to lose the money they had invested. This caused the panic of 1857 where citizens did not trust spending on items that would lose value, so they saved their gold and silver coins. Commerce was halted even though the country continued to grow.

Thus, many banks began issuing their own currencies, but made loans in good faith. Banks went broke in hard times because of defaulted loans. Fundamentally, there was no central bank; each bank had its own currency, and many consumers lost money because of the same substandard risks. Just prior to the Civil War, circulation of the gold and silver was paltry, so the government saw national currency was needed. July 17, 1861: paper was printed to pay the military, purchase supplies, and to altogether stimulate the economy. With little precious metals, the government circulated paper purely on faith that it would be good, giving the paper very little value. National income taxes, national debt, and this new money all were remedies to our lack of economy, but inflation gave another hurdle. Any denomination under $5 was useless. Central Banks were created in 1863 (Lincoln) to give more substance to the national currency, which had high default risks through private banks. Inflation gave the dollar less value and continues to weaken purchasing power by 2% on average each year, with the strength of the economy to counter. Today, $541 million is printed daily (95% goes to replace money already in circulation).

Keynes said that when people hoard, terrible things happen, including depressions and wars. The Great Depression stemmed largely from an outdated inflexible currency. Hoarding also took place, since while investing was highest in the roaring 20s, consumption was low. Loans were taken out to invest in businesses at 10% down. Soon the banks ran out of money and normal accounts could not be withdrawn from. Panic ensues and everyone simultaneously makes a bank run to get cash out. Banks subsequently defaulted and spending was nonexistent. Deflation occurred because the economy suffered, which led to a higher need to save, since money was appreciating by being kept under the bed. GDP fell. Disparity of wealth is also believed to have caused the Great Depression, which is seen on a larger magnitude today.

Never a democracy before, people are in it for themselves, that's our gift and curse
Lobbyists
Internet causes laziness and disconnect
Inflation is increasing, but wages aren't
Human nature to hoard
Value is worthless and they should give back
Pay taxes on all money, not 11% on investments.