Hey guys! The Love Drop team is at it again! They just came back from the Boston area where they dropped $5,000 worth of appliances and gifts to a woman who recently got hit by a car and is recovering in a wheelchair, and THIS month they’re trying to round up the love for precious newborn triplets!

We want to help Jeff and Becca (the parents) prepare to bring them home from the hospital, as all three were born very underweight and are currently in the Neonatal ICU (they’re doing great though! And will be coming home soon). With four children already, adding a surprise batch of triplets is going to put considerable financial strain on the family, and that’s where we come in!

Let’s help give them everything they need to welcome the triplets home, including diapers, food, furniture, gift cards – any cool baby stuff you can think of. We’re shooting for at least $3,000 in cash, plus gifts.

Want to help?

Here are three ways you can participate:

You can reach the Love Drop team here anytime with questions: team (at) love drop (dot) us., or by checking them out at LoveDrop.us. Thanks everyone! We’ll let you know how it goes!

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

Unless you use a local bank, your bank probably creates all sorts of unfair bank charges and other policies like excessive overdraft fees. And this is just one reason that your bank’s policies stink.

Here are five bank policies that should be changed, and changed immediately.

#1: They Intentionally Keep You in the Dark about Credit

You would think that bankers would be trained to tell their clients everything about credit scores, how to build credit, and how to bounce back from bankruptcy. After all, wouldn’t banks want to help their customers secure the best interest rates?

Hah!

Banks intentionally keep customers in the dark. In my opinion, they do this so your interest rates will remain high and they can keep pocketing money (as if the unfair bank charges aren’t enough). When I went into bank with a SpyCam to ask how to improve my credit score, the banker gave me incorrect, misleading, and incomplete information.

To be fair, I do not think it was the banker’s fault. The bank failed to train him.

So not only do the banks levy unfair bank charges and refuse to provide loans to qualified taxpayers, they also charge high interest rates and keep silent about how you can improve your credit score and lower your interest rates.

Unfair? I think so

#2: Banks Regularly Report Inaccurate Information

Your credit score is determined by information banks and other creditors report to the credit bureaus. But according to a United States Public Interest Research Group study, 80 percent of you have errors on your credit reports, 25 percent of which are so bad that you would be turned down for a loan or a job.

Let me repeat that. You might be denied a job because the banks report inaccurate or false information to the credit bureaus. With a 9.1 percent unemployment rate, the banks should be a little more concerned for your welfare.

But your bank does not take the time to make sure the information it reports is accurate—the burden is on you. Unfortunately, most people do not know about the mistakes until they have been denied a job or a loan.

And here is the kicker: If you have an artificially low credit score due to bank error, the bank will charge higher interest rates if you apply for a loan.

Why would the bank bother checking to make sure information is accurate when they benefit from these unfair bank charges? Basically, they get to legally rob you of your hard-earned money!

#3: Stingy Guidelines, Loose Morals

In days past, the banks lent money to everyone, even if they were unqualified; nowadays the banks won’t give anyone a loan, even if they are qualified.

A client of mine is looking for a $300,000 loan on a $2 million piece of property. Her loan-to-value ratio is 15 percent, a figure that offers almost no risk.

So why are the banks refusing to give her a loan?

They say that because she is self-employed, she is a risk.

But she is clearly a picture-perfect borrower. She would never default on a $300,000 loan when she has $1.7 million invested in the property. She has enough money currently in reserves to pay the loan for five years. She has a crystal-clean credit report.

The banks were more than happy to take hundreds of millions in bailout money (a.k.a., taxpayer dollars), but now they are stingy when it comes to providing these very same taxpayers with loans.

And I think this sucks.

#4: Unfair Bank Charges in the Form of Overdraft Fees

One of my colleagues, a sole proprietor, told me this story about unfair bank charges that happened a couple of years ago.

The day after my colleague deposited a large check from a client, the full amount of the deposit was reflected in her business account. Per her normal routine, she completed her budget that night, cut checks to cover business expenses, and transferred extra money into her personal account.

A few days later, she logged onto her account and was shocked. The account was overdrawn substantially, and she had incurred nine—nine!—overdraft fees over the course of three days. The overdraft fees alone were $315.

So what happened?

The client’s check bounced.

Okay, to be fair, she should have overdraft protection. She should have paid a little closer attention.

But the bank has her email address. They have her phone number. They could have simply alerted her after the first bounced check so that she could transfer money from her personal account. Banks have all sorts of systems in place to contact their clients with promotions. If they put their heads together, I feel certain they could create a system to alert customers the minute their accounts become negative.

This would be basic customer service, in my opinion, but banks fail to do this. After all, all those unfair bank charges put money in their coffers.

#5: They give loan modifications to people who break the rules and refuse to modify loans for those who follow the rules.

Now does this make sense at all? To qualify for a loan modification, you have to be behind on your payments. If you are responsible, cut corners, and take a second job so you can make your loan payments, the bank probably will not give you a loan modification but they’ll definitely charge you ATM fees.

This irks me more than all those unfair bank charges. In fact, this is a moral outcry. If you play by the rules, you receive harsher treatment than those who cannot fulfill their obligations. And I think this stinks to high heaven.

Philip Tirone is a credit-scoring expert and author of 7 Steps to a 720 Credit Score.

Related Posts by Philip Tirone

A Bank Insider’s Shocking Spycam Confession—Click here to read

The Big Lie Your Bank Is Telling You—Click here to read

How to Fix Credit Report Errors—Click here to read

A Banking Insider’s Shocking Spycam Confession—Click here to read the Dirty little secret

This guest post was submitted by Philip Tirone who is a credit expert and teaches consumers about credit.

photo credit: Ryan01

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

If you own or are getting ready to start your own business you should highly consider setting your company up as an LLC. When you set up an LLC it allows you to legally keep your personal assets separate from your business assets. Forming an LLC gives you personal liability protection and allows you to more easily segregate your financial assets and financial responsibilities. In most cases you are not personally liable for your LLC’s debts.

The good news is setting up an LLC is a simple process and there are few requirements to get started and maintain your company status. LLC’s also offer a very flexible ownership structure that is easy to understand and follow.

Note:  Read my previous post that discusses the differences between a LLC and a C Corporation.

Filing For An LLC In The State Of Illinois

It has never been easier for Illinois residents to file for and become an LLC. As long as you have an internet connection you can file for LLC status right on line. If you do not have an internet connection or just prefer to do things the old fashioned way you can also print out the forms, fill them out and mail them.

Steps To Take When Filing For An LLC In The State Of Illinois

Creating a LLC in Illinois

When you are getting ready to file for an LLC in the state of Illinois you will need to do the following:

• Decide on a name for your LLC. Once you have selected a name you will need to make sure that it is not already being used and meets all name requirements. For example, LLC or L.L.C. or the words Limited Liability Company must be included in the company name.
• Next you will need to visit the Illinois Secretary Of State web site. Once on the site you will either need to fill out form LLC – 5.5 and submit it on line or you can print it, fill it out and mail it in to the state.
• When filling out the form you will be asked pertinent information like what is your company’s name, what is the address of the company and more. Keep in mind that your company’s address cannot be a PO box or a c/o address and if you submit your application as such it will be rejected.
• You will be asked to submit your payment right on line while you are applying. Acceptable forms of payment include major credit cards (Visa, Discover, American Express or MasterCard) or an electronic funds transfer. If mailing your application you can also pay via check.
• The cost of forming an LLC in Illinois is just $500.00. When submitting your application on line you will also need to include an additional $100.00 in your total payment to cover an expedited service fee.
• Once you have submitted your application via the internet you will usually hear within 24 hours whether or not your application has been accepted. If you submit your form on a weekend or a holiday you can expect it to take a bit longer to process.

Do I Have To File On My Own Or Can I Get Help?

While most people find the process of applying for an LLC in Illinois pretty simple and straightforward, if you are feeling overwhelmed or unsure of what to do, you do have other options. There are a variety of companies that you can use to file your application for you. Some of the more popular choices are Legal Zoom and Rocket Lawyer.

How It Works When Using A Company Like Legal Zoom or Rocket Lawyer

Online Solutions for LLC Setup

If you decide to have someone else do the work for you instead of filing on your own you can usually expect the following:

• You will still need to come up with a company name or a potential name. The company you decide to work with will take it from there and make sure that the name you have selected is a legal name and available.
• It is very easy to work with these companies and an internet connection is all you will need.
• You will be asked to fill out a brief questionnaire so that the company has all of your personal information that is needed for them to file the paperwork for you.
• The company will then do all the leg work for you. They will fill out the required paperwork and submit all of the forms needed.
• The company will collect fees from you to cover the cost of filing and depending on what additional services you opt for, you may be charged additional fees.
• Once the paperwork has gone through and been accepted you will receive your LLC documents.
• Most companies offer a 100% satisfaction guarantee.
• There are usually other perks for using these companies to file including data bases to help you find a lawyer, access to legal documents you can use, access to accounting software and more.
• You may also be entitled to extra tips and information for starting your company, customized membership certificates and more.

So Should I File On My Own Or Get Help

The question then remains should I file for an LLC on my own or get help. Either way will accomplish the same goal, so really it is a personal preference. Many people find it easier and faster to do it on their own. Especially with the simple on line application this is the option chosen by many.

On the other hand, if you are nervous about filing on your own getting help may ease your mind. It takes the worry away that you might mess up on your application. Additionally, you very often are entitled to other great services when using a company like Rocket Lawyer and going that route may have added benefits that you won’t receive when filing on your own.

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

It’s time for a quick blog update.    Check out the video above to hear the latest and greatest going on.  Items mentioned in the above video include:

1. New contributor to the blog: Laura Adams, The Money Girl
2. Joining the Yakezie Challenge
3. New firm started, Alliance Wealth Management, LLC
4. I’m getting baptized….again!

Check it out!

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

Retirement is approaching and soon you’ll be faced with the decision when is the right time to take your social security benefits.  You then talk to a few others that are faced with the same decision and find out that your social security benefits could be taxable.  Say what!?   Yes, it’s true.

Some people are quite surprised when they learn that their social security income can be taxed. Not knowing this in some instances people may have not factored that into their retirement planning. This can make a substantial difference. Often enough as well people may continue working not realizing they are able to collect social security benefits. Generally speaking, yet there are always exceptions to every rule, if your only income is from social security chances are your benefits will not be taxed and you may not need to file a tax return. If you do have other sources of income in addition to your social security then you may be required to pay taxes on your benefits. Certainly an area that requires looking at closer.

IRS Guidance on Taxation of Social Security Benefits

Fortunately, the IRS has provided some guidance so you can answer the question, are social security benefits taxable? Each January you should receive a Form SSA-1099 if you were on Social Security. This form will explain the benefits you received and you will need this to complete your taxes. The IRS has provided 7 factors that will help you determine whether your benefits are taxable or not. The IRS website has this list, but let’s review it here.

1. The taxation of your social security benefits will depend on your total income for the year as well as your marital status
2. As mentioned previously if your only income were from your social security, chances are it won’t be taxable.
3. If you have additional income you still may not be taxed. There is a base amount before you are taxed, if you fall under this amount chances are you will not be taxed.
4. Form 1040 or Form 1040 A is a worksheet that will help you figure out your taxable amounts and your modified gross income.
5. You can check quickly to see if some of your benefits may be taxable. Add one-half of the total Social Security benefits you received to all your other income including any tax exempt interest and any other income deductions. Once you have your total take this amount and compare it to the base amount. If you are over that base amount you may be taxed on that amount.
6. There are certain base amounts depending on your income and your marital status of the previous year. See which category you belong to and use this in your calculations.
The 2010 base amounts are:
• $32,000 for married couples filing jointly.
• $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year.
• $0 for married persons filing separately who lived together during the year.
7. Lastly if you have any questions at all or are uncertain about whether you should or should not file a return you can easily reach the IRS. This can be done through their website or call 1-800-TAX FORM.

Social Security and the IRS

There is no getting around the IRS. If you have to pay them then you have to pay them. Yet good advice is to be prepared and to have all the knowledge you need to determine this. There are options you have as well if you find you have to pay taxes. Talking to the IRS if you have questions, or discussing it with someone who has financial savvy in this area is always a wise idea as well. It is in your best interest to find out if social security benefits are taxable for you.

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

In a tight economy like we are all dealing with today, managing your money appropriately and efficiently are arguably the most important things you will be dealing with on a day to day basis. There are varieties of different tools out there that will keep track of your expenses, as well as let you input a little bit of debt information. The majority of these sites or applications just organize your information in a user friendly type interface with a couple of graphs or charts that separate your expenses by category. Many will also allow you to put your salary information into the program to help you come up with a budget for each paycheck, and allocate some of the extra to savings.

Do any of the programs or apps actually define “savings” any farther than just the simple word? Saving means a lot more than just throwing your money into a local bank savings account which earns a quarter percent interest and feeling like you are doing the right thing. There is a place and a time to use a local bank savings account which is for money that you  think you will need to access to within the next 6-12 months. For all of the “real” savings out there such as retirement, savings for large expenses such as houses or children’s college, the local bank savings account may not be sufficient. You should consider a real interest bearing type investment that will have your money appreciate over time so that you will be able to meet your overall goals laid out above. Now that we have further defined the term “savings”, does your app or current program help you with this “real” savings we have just laid out? If you are like most people who bought the 5$ app on their mobile phone then the answer is likely no. So what is there to do then? Clariity could be the answer for you.

What Does Clariity Do?

Clariity does all of the same stuff as your normal saving app or budget app which will allow you to enter in all of your debt as well as income information. You will also be able to enter in checking accounts, savings accounts and credit card balances. Where Clariity begins to separate itself is by allowing you to add in your personal investments as well as different types of car loans or any other loans you currently have. After you have entered in all of the listed information the real abilities of Clariity start to show through. You now will be able to start different plans or goals of yours to begin working towards. Like the goals we listed above such as paying for your children’s college. In this plan that you set up, you will have the ability to enter in the amount you will be saving per month, the number of years in the future you will need to money, and the best part of all is Clariity will recommend options to help you with college savings.

Clariity’s Marketplace

This is what Clariity will do for you that other applications will not. Clariity will give you a list of different college savings plans such as the popular 529. Clariity will help you sort through the maze of all the options that are available to you based on the state you reside. There will be some quick information about the specifics of each plan such as the initial investment requirement, the fee you will be charged to manage the account, as well as tax deduction information.  The other plus side is that previous users can leave their comments and remarks based on any experiences (good or bad) on the plan that they chose.  Think of it as an “Amazon” like shopping experience.

With this revolutionary type of thinking, you will now not only be able to use this free application to manage your budget and see where your money is allocated to, but to actually set up the different types of savings plans you will need to be able to meet your long term goals. Along with the Marketplace feature where you are able to pick different types of investments to invest in, Clariity also has a blog tab. This blog tab will allow you to talk to all the other Clariity users out there about what type of investment decisions they are making, or which plan they feel is best when trying to send a kid through college. This sense of community can be very helpful when you are trying to make big decisions in life such as how to save for your children’s future college expenses.

Clariity is not only a budget tool, it’s also a life reform tool because it will help you not only to spend your money more efficiently and with a more clear focus, but to actually save for those big expenses you will encounter in your lifetime.

The Clariity Gift Card

A person looking for a meaningful gift for that special family member or friend can quickly and easily send a gift card with a few clicks. The gift giver selects a financial dream or leaves it to the recipient to choose a dream, specifies a gift card amount, and enters the receiver’s email address. Within minutes, the e-gift card is sent to the recipient that then s/he can then use to kickstart his or her financial dream. It’s that easy.

If you are still living paycheck to paycheck, or shoving money into your local bank savings account planning on that savings putting your children through college or helping you retire, then you need to start putting some Clariity into your financial future.

Clarity is not endorsed by or affiliated with LPL Financial.

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

The other day I had a chance to sit in on a social security benefits seminar.  Part of the seminar was geared toward social security benefits and trying to help our clients decide when is the right time to take their benefits or if they should maybe wait at a later date to take them and also address whether the spouse should potentially draw that social security benefit as well.

One of the take-aways I actually got from the seminar was regarding your social security statement, which they refer to as “The Statement”.  How often do you receive your statement?  More importantly, what I want to talk about today is what happens if you want to request a new statement, how you actually do so.  This is actually one of the little flyers they gave us showing how you can request your social security statement on line.  Miss Patty Duke here (on the SSA.gov site) claims how easy it is, how you can do it in less than 10 minutes.  I want to put that to the test almost, but also to show you how you would request your social security statement if you are wanting to get a new, updated one.

Getting  Your Statement Online

First and foremost, you actually don’t have to go on line to do it.  You can call your local social security office to do so.  One thing I will say, and this is what the social security individual employee that gave the seminar told us yesterday was, their office lines are just terribly busy.  They are constantly either processing claims, doing new paper work, taking phone calls, etc.  It is, she admitted, incredibly difficult to actually get through to the office.  Most times you call and you’ll get a busy signal.  Just FYI, I am not sure if that applies to all social security offices, but if you are having trouble trying to request it via the phone, that is potentially why.

The other option you have is actually going into the office there, filling out the necessary form, etc. and doing it that way.  Once again, they said they are always busy and you might be waiting in a long line, so if you have access to a computer and you feel comfortable going on line doing it, that is how I want to show you today.

SSA.gov site

Social Security Website

Without further ado, let’s actually head on line to take a look at where you go to get your social security statement on line.  The first step if you guessed it is the social security administration website.  The web address there  www.ssa.gov, and you can actually see that highlighted here.  Type that into your web browser, hit enter, and this will come up.  From here it is actually a breeze.  You’ll see here in the left hand side bar, look for request a social security statement.  All you need to do is click that button.  They give you some information about what a statement is, why automatic statements, need to request a statement, etc.  You’ll actually want to click on “need to request a statement” and that will prompt you to this page here.  As you will soon see, before you actually go through the process, you’re going to want to get this information handy if you don’t have it already, the name on your social security card, your full legal name.  You’ll want to know your social security number.  It is also important to have your date of birth, your place of birth, and your mother’s maiden name.  These are key pieces of information that are essential to requesting your social security statement on line.  The other thing that they will also suggest you have is a record of your earnings history.  I think as we will soon see, it is optional, but if you have your record earnings for the last two years, it just makes it that much more helpful for them to retrieve your statement.  Let’s go ahead and scroll down once you get to this page here.

Social Security Office Closes

The other thing also you will want to notice here, even though it is on line and you would think it would be open 24/7, there are actually only certain times you can do it.  That is on top here.  Monday-Friday is all day except from 2 a.m. to 3 a.m.  For some of you late birds that might be requesting your social security statement on line at 2:00 in the morning, more power to you, but you are going to have to wait until 3 a.m.  Saturday is 5 a.m. to 11 p.m.  Sunday is 8 a.m. to 10 p.m.  Holidays are 5 a.m. to 11 p.m.  You can see all those times here as well.

Form SSA-7004

The other option I have not mentioned yet is if you want to do it by mail you would request this form here.  This is a social security statement request form SSA-7004.  I am going to pull that up real quick just so you can see it.  This is a PDF that should pull up.  Here is the actual social security statement if you want to do it via the mail.  I want to say that I read somewhere- let’s see if I can confirm that- it is going to take about 4-6 weeks to get it back by doing it this method, just FYI.  This is the form you would need to do if you wanted to do it through snail mail.

Request a Statement

Requesting Your Social Security Statement

Let’s go back to the on-line version.  If you want to do the on-line version, scroll down here and you want to click the “request a social security statement” button at the bottom of that.  That will get you to this page.  Here is where you actually start entering all the information in, basic information (what language do you speak, social security number, first name, middle initial, last name, your date of birth, place of birth, gender, mother’s maiden name, telephone number, address.)  This is where you start seeing some of the optional information (if you have a different name, mailing address, city, state, if you have another social security number you have used.)  All basic information.  Here is the earnings portion I was mentioning, last year’s earnings, this year’s earnings.  If you have that information, it is just helpful, not required to get your statement.  As I mentioned, any more information you can give them is that much more helpful.  Basically all you do is fill this in.  Then, you just click on continue.  That will bring you up to a confirmation page where you confirm all the information and submit and you’re good to go.

It's That Easy!

That is how simple it is to request your social security statement on line.  Very, very simple.  I want to say as well, even on line it is going to take almost the same turnaround time it would via snail mail, by doing that form 7004.  Either way it is going to take you about a month to a month and a half to get it, but it is super easy.  There is no cost; this is free.  If you need to get that information or just trying to figure out what your benefit is or your trying to do some retirement planning and you don’t have the most current statement handy, this is the sure fire way to do it.

I hope that was helpful.  If you have any more questions regarding social security or anything financial planning related, head over to the blog, goodfinancialcents.com, and I have tons of information over there to help you out.  Until next time, we’ll see you soon.

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

Heroes

By Jared Jenkins

In war, there are lives risked and lives taken

Men and women giving their best to defend what they love

They defend their country

Their honor

Their people

Some call them soldiers

Others call them heroes

Our veterans have risked their lives for us

They have lived through hell and fought with honor

Many have killed

And regret doing so

For every life, there is a soul

For every soul, there is a life

For those who have died, we show great appreciation and remembrance

For those who live, along with them live the horrific memories of battle

Some, memories of defeat

Some, memories of victory

Our veterans were more than soldiers

They were, and still are heroes

Josh, you will always be my hero.

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

When you’re starting a business or trying to expand an existing business, often there is a need for additional funding. The Small Business Administration has a number of programs available for small businesses to borrow money. Are you an entrepreneur in the making? If so, here’s some good information to know.

7(a) Loan Guaranty Program

For loans up to $2,000,000 – the 7(a) program includes several different types of loans and are SBA’s primary program. The loans are very flexible since they can be used for starting a business or expanding an existing business and are funded by commercial lenders. Possible uses for a 7(a) Loan might include working capital, new furniture or fixtures, renovation or improvements to business building, machinery or equipment, land and building purchase or lease, and sometimes refinancing of business debt.

Some of the loans under this program include Express Programs, Rural Lender Advantage Program, Export Loan Programs and Special Purpose Loan Programs.

Loan maturity for 7(a) loan programs is up to 10 years if used as working capital for the business or up to 25 years if used for fixed assets.

Microloans

For qualified new businesses needing start up capital, or an existing business needing funds to grow, the SBA Microloan Program provides loans up to $35,000 through nonprofit lenders in the community the business is located in. Microloans are short-term, and are usually used for not-for-profit child care centers or to finance small business concerns such as inventory, training or necessary equipment expenses. The average amount of SBA microloans is around $13,000. Microloans cannot be used to pay off other business debts or to buy business real estate.

America’s Recovery Capital Loan (ARC)

Another program through the SBA offering up to $35,000 for small business owners was started as a result of the struggling economy. Because small businesses contribute to the economy, the government decided to create America’s Recovery Capital Loan program. The loans are meant to help a struggling business get back in the “green” and turn a profit. ARC loans are only available until September 30, 2010 (or until the program funding runs out).

Disaster Recovery Loan Program

If your business is located in an area declared as a “disaster area”, you could be eligible for a Disaster Recovery Loan. These programs are sometimes offered by the SBA even to people who don’t own businesses if a homeowner, renter or personal property owner experienced losses due to natural disasters.

Homeowner and Renter Disaster Loans – there are personal property loans up to $40,000 to help repair or replace damaged personal property such as clothing, cars, furniture or electronics. Homeowners may also apply for loans up to $200,000 to replace or repair the home itself.

Business Disaster Loans – up to $2 million can be used to repair or replace any real property owned by the business. There are also Economic Injury Disaster Loan programs for businesses up to $2 million to help if the business suffers economic injury, even if no physical damage has been caused.

The information presented in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.

This article has been prepared from date believed to be reliable, but no representation is being made as to its accuracy or completeness. The information provided should be used only as a general guide.

photo credit: bisgovuk

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

Dear Clients and Friends:

After starting the third quarter with near double-digit gains, the market, as measured by the S&P 500 Index, has given up almost half its returns as optimism around strong earnings has faded into concerns that recent data points are pointing towards an economic slowdown. While it is normal at this stage of the recovery for the rate of improvement in economic conditions to decelerate, the market has become increasingly worried that the global growth story is losing traction and may push the U.S. economy into double-dip recession territory. The consequence has been increased volatility and a virtual investment-return whiplash as investors seek to determine the market’s direction in an economy that appears increasingly directionless.

The catalyst for the recent pullback was the developing weak employment picture, which subsequently prompted the Federal Reserve Bank (the Fed) to outline a no-win scenario in the Federal Open Market Committee (FOMC) statement on August 10. The interesting part of this unfolding economic puzzle is that it is largely a “chicken or the egg” scenario where the potential for a self-fulfilling prophecy is materializing. After all, if we all fear the economy may get worse, our behavior is affected and we may stop spending or sell stocks, which actually increases the odds that it will happen.

Take a Picture

Take the employment picture, initial jobless claims (unemployment insurance) increased for the week ending August 7 to 484,000, the highest level of new unemployment claims for any week since February 2010. While that is still a huge improvement from the worst levels seen during the depths of the recession, the concern is that the improvement in the level of unemployed is stalling and may even begin getting worse. A simple explanation for this level is that companies, which do the hiring, have become more hesitant to add to payrolls because they are now questioning the strength, and maybe even the validity, of this recovery.

But the real paradox comes when we try to figure out why companies feel this way. The likely answer is that because consumer spending has decelerated somewhat, businesses fear the recovery is at risk and thus are not hiring new employees. However, the reason consumer spending is decelerating is because hiring has stalled. Thus, we have a chicken or the egg standoff where businesses want to see spending accelerate before hiring, but consumers do not have the disposable income to spend because of the weak employment situation. The result is an economic stalemate. Investors are rooting for either side—the consumer or business—to gain an edge and be declared the victor as the market needs a winner to fuel the continuation of this economic recovery and avoid a double-dip recession.

Fed’s Latest Announcement

Largely as a result of the decelerating rate of economic improvement, the Fed announced in its latest FOMC statement on August 10 that it was downgrading its view of the economy and announced that for the first time in over a year it would put its foot back on the economic accelerator in an attempt to spur economic growth. The plan of action is to buy Treasury Bonds which will serve as an easing monetary policy move that will place additional dollars into the economy, keep mortgage rates low, and drive the yields of conservative Treasury investments to lower levels in an attempt to persuade risk taking by income-seeking investors. Sounds good, right? Well, the market promptly dropped almost 5% in the days following the news.

Not unlike a chicken or the egg dilemma, the Fed was caught in a catch-22. If the Fed elected to do nothing, the market would take the lack of proactive action as a negative. But if the Fed actually did re-engage to offer monetary stimulus, which it did, then the market had to face the reality that this economy still needs the Fed to continue to prop up growth. Ultimately, the market viewed either scenario as a negative which prompted the downside selling pressure we have experienced over the last couple of weeks.

The bottom line is that the market is at a crucial crossroads.

Despite the recent move by the Fed, the economy is attempting to transition from one of stimulus-led growth to one of sustainable growth. But to make this transition a success, the next catalyst for growth needs to materialize. If the consumer and business continue to play the chicken or the egg game, the likely scenario is decreased growth and an increased chance for a double-dip recession. However, I expect businesses to end the game and to reaccelerate spending in the weeks and months ahead to be the catalyst this market has been waiting for. Evidence is growing that businesses are starting to increase spending on key initiatives like capital expenditures and advertising—and modest gains in employment will likely be the next area of spending to reemerge.

There is no doubt that economic growth is decelerating, but that is common at this stage of the recovery. After such a remarkable climb from the depths of the worst recession since the Great Depression to a robust recovery in just one year’s time, the pace of improvement had to slow down. But I believe that this is merely a soft spot in the midst of what will continue to be a slow, but nonetheless advancing economic recovery. While volatile economic data will bring volatile market returns, there are several factors I believe will convert today’s market pessimism into tomorrow’s potential investment opportunities, such as the Fed’s foot firmly on the economic accelerator, record corporate profits, and a consumer that has proven resilient even in the face of adversity. As always, please contact me with any questions.

Best Regards,

Jeff

IMPORTANT DISCLOSURES

• This research material has been prepared by LPL Financial.
• The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
• Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of a fund shares is not guaranteed and will fluctuate.
• Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.
• The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual. To determine which investments may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
• The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

photo credit: rex dart: eskimo spy

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.