Castle Financial | Financial Planning, Retirement, Investments, Money Management News Feeds http://www.castlefinancial.com/ When appealing to younger workers, plan sponsors may need to frame messages in different ways.Callout:When communicating about retirement savings, frame your message differently for various age groups. Social Media Message:Older workers are less likely than younger workers to be influenced by how a message is presented. Workers under the age of 35 historically have had the lowest level of participation in employer-sponsored retirement plans. When these workers get older, they will have missed opportunities for compounding that could have made it easier to build retirement assets.1"For younger workers ... retirement security lacks the urgency older workers feel," researchers wrote in a brief published recently by the Center for Retirement Research (CRR) at Boston College. "[Younger] people tend to distance themselves from it and think about it abstractly."Appropriate MessagingIn other words, younger workers may have the lowest retirement plan participation and retirement savings rates, at least in part because they are not getting the right messages. To remedy that, CRR researchers designed a study that could help them determine what kind of educational messages would be most likely to have the desired effects. They took a sample population and divided it into four groups, each of which was given a different advertisement about retirement savings, with a different combination of long-term or short-term goals and concrete or abstract framing. Participants in the study were then asked a series of questions about their intended responses to the ad.Here's what they found. When the issue was framed in abstract terms and presented as a long-term goal, the average participant stated an intention to save nearly 18% of salary. However, when saving was presented as a short-term goal, the intended savings rate fell to just more than 9%.On the other hand, when the issue was framed in concrete terms, participants intended to save more than 20% if the effort was presented as a short-term goal; when framed as a long-term goal, the intended savings rate dropped to about 14% of salary.Interestingly, this distinct pattern disappeared when the researchers evaluated the responses of older workers. They found little pattern to the variations among older workers, and savings intentions did not seem to be influenced by the kinds of distinctions that characterized their younger colleagues. "Perhaps," the authors speculated, "because their retirement is more imminent, they have already largely settled on their saving strategy, making them indifferent to the communications approach used."The research brief titled "How Can Employers Encourage Young Workers to Save for Retirement?" can be downloaded from Boston College's Center for Retirement Research at crr.bc.edu. http://www.castlefinancial.com/News-more-454.html The Federal Reserve's policy of low short-term interest rates presents potential plusses and minuses for investors.Callout:Consider your exposure to interest rate risk when evaluating your portfolio. Social Media Message:Excited about two more years of near-zero interest rates? There's also a flip side. The Federal Reserve's recent announcement that it will maintain the federal funds rate in a range between 0.00% and 0.25% through December 2014 has generated the usual analysis about whether Chairman Bernanke and his colleagues are doing the right thing. But the Federal Reserve's policy may be less about right versus wrong than about the trade-offs for investors and consumers.When the Federal Reserve makes a determination about movements in interest rates, it bases its decision on prospects for economic growth and whether existing growth can be sustained. The Federal Reserve considers the outlook for inflation, the federal budget, consumer finances, corporate earnings, and a variety of other factors. Maintaining interest rates at a historically low level, which has been the Federal Reserve's policy since December 2008, is a tool for stimulating economic growth.A Domino EffectThe fallout from the Federal Reserve's actions can be significant. The federal funds rate influences the prime rate, which in turn has a bearing on rates that lenders charge for consumer and corporate borrowing. When the prime rate is relatively low, lenders may offer lower rates for mortgages, credit cards, and other forms of credit than they otherwise would. It is important to remember that consumer demand and a household's creditworthiness are also significant factors in interest rates assessed by lenders.There are other plusses associated with low short-term rates. Borrowing costs are relatively low for corporations, which can impact earnings and escalate stock market returns.1 In addition, with banks offering marginal returns on savings products, investors have a strong incentive to add to equity allocations with the goal of earning higher returns.A Flip SideJust as low short-term interest rates bring certain benefits, there may be drawbacks for investors and also for the broader economy. When short-term rates eventually go up, the situation is likely to be a negative for bondholders because of the inverse relation between interest rates and bond prices.2 Historically, rising interest rates have caused the prices of existing bonds to decline because newly issued bonds carry higher rates, which push down the value of previously issued securities. Holding a bond until maturity, when an investor can recoup principal, can lessen interest rate risk.Low interest rates also are a potential negative for savers, in particular retirees who depend on savings products to finance living expenses. In addition, there remains the question of whether low short-term interest rates encourage certain investors to gravitate to assets that are relatively risky given the investor's tolerance for volatility and time horizon. A recent blog post noted that flows into high-yield bond funds have exceeded those for ultra-short and U.S. government bond funds.3Economic policy frequently presents both plusses and minuses, and low short-term interest rates are no exception. You may want to evaluate your exposure to interest rate risk and think about how you will cope with the situation when Federal Reserve policy changes. http://www.castlefinancial.com/News-more-453.html Creating a business plan forces you to take an objective look at your chances for success.Callout:A business plan communicates credibility to financiers, managers, and potential clients.Social Media Message:Wondering how to create a business plan? Here are some suggestions. Whether you're an entrepreneur who dreams of starting a business or an experienced owner in search of future growth, creating a formal business plan is likely to be a cornerstone of the process.There are three reasons why a business plan is an indispensable part of a new-business proposition:Researching and drafting the plan forces a business person to make an objective assessment of both the business concept and the potential for successful execution.A business plan serves as a guide for ongoing management and work strategies once the business is established.A sound business plan communicates ideas credibly to potential financiers, managers, clients, and employees.The Shape of Things to ComeThere are numerous ways to create a business plan, but many plans include the following elements.Executive Summary: A succinct first impression for readers frequently covers the business, its objectives, legal structure, unique advantages, and the owner's skills and experience. If the business plan includes a proposal for a loan, it is important to mention the amount in question and identify how the money will be used.Business Description: The objective of this section is to answer the following questions: What type of business are you proposing? Are you planning to start a new business, expand your current business, or acquire an existing business? How will the business profit and grow? How will your skills and insights advance the organization's goals? Substance usually is more important than style, so try to bolster the presentation with quantifiable information.Product/Service: It is important to explain why customers would come to you. Why is the product or service special, and how will you differentiate it from similar offerings? If your products or services are not special, are there other reasons why customers would choose your business?Market/Competition: Your success or failure may depend on whether you can find a niche in the right market and grow despite competition. Is your market competitive, and if so, who are potential competitors? What are their strengths and weaknesses? How much market share do you intend to capture?Sales/Marketing: This area outlines your strategy for accessing your marketplace. How will you get the word out, and how much will it cost you? You can't capitalize on a market opportunity when potential customers do not know you exist.Management/Personnel: This section typically identifies the management team's personal history and relevant work history, as well as their responsibilities and expected salaries. You may also want to mention your lawyer, accountant, and consultants at your disposal.Financial Data: The scope of this section will depend on the nature and complexity of your proposal. A plan to create a home-based business from scratch will be less complex than a proposal that relies on financing to expand or purchase an existing business. Try to include a break-even analysis and projections for income and cash flow. Depending on your goals, you may need to discuss sources and applications of anticipated funding, capital equipment, balance sheets, deviation analysis, and historical operating records.Appendices: Complementary information may include market research and any other information that supports your plan.Creating a sound business plan requires an intensive upfront investment of your time and other resources. But these costs may be minor compared with the financial ramifications of starting a business based on little more than guesswork and optimism. http://www.castlefinancial.com/News-more-452.html During the past decade, the returns of investment-grade bonds have exceeded those of stocks.Callout:It is helpful to weigh both the benefits and risks associated with bonds and other investments. Social Media Message:Interest rates, inflation, and federal spending are likely to impact future bond returns.During the past decade, many long-term fundamentals of investing have been turned upside down and one example is the performance of U.S. stocks compared with bonds. Over longer time periods, such as 20 or 30 years, stocks exhibited higher average annual returns along with greater volatility.1 Bonds, in contrast, presented lower long-term returns along with fewer ups and downs.But the 10-year period ending December 31, 2011, has shown the opposite, with the average annual return of investment-grade bonds exceeding stocks by a margin of 5.8% compared with 2.9%.1 No one knows for sure whether the recent outperformance of bonds will continue, but events currently present in the U.S. economy are causing observers to question the outlook in the years ahead.Interest Rates The Federal Reserve has maintained the federal funds rate between 0.0% and 0.25% with the goal of stimulating the economy. Given how low short-term interest rates are, it is likely that they will turn upward at some point, which would present challenges for bondholders. Historically, higher interest rates have caused the prices of existing bonds to fall as investors have pursued newly issued bonds paying higher rates. This scenario presents the potential for losses for existing bondholders.Inflation During 2011, inflation averaged 3.2%, close to the historical average of 2.9%.2 But if inflation were to increase even higher, an investor would lose money on a bond with a yield lower than the rate of inflation. Some observers believe that if the U.S. economy begins generating stronger growth, inflation could once again spike upward.Federal Spending Sizeable federal deficits are almost old news as the government looks for ways to stimulate the country's economic engines. While economic growth is a laudable objective, outsized federal spending may impact the financial markets. If the federal government is forced to pay higher interest rates to entice investors to fund the debt, this action could lead to higher interest rates on other types of bonds as well in response to investor demand.Bonds can help investors balance a portfolio weighted to stock funds or other assets. When making decisions about investments, it is important to weigh both the benefits and the risks associated with bonds and any other assets that you own. http://www.castlefinancial.com/News-more-451.html Stocks fell for a second straight week led lower by the uncertainty surrounding the European political news and the continuing debt woes that have plagued the region for almost two years.  Last week featured little economic data to impact trading and with earnings season winding down, investors didn’t have much conviction to go out and purchase stocks. Initial Jobless Claims fell to 367,000 in the latest week and broke an upward pattern that formed in the past month. The economy needs Jobless Claims to move lower in order to get some stability into the labor markets, which would in turn spur on the economy.  However, the labor market problems may continue. Last week, Minnesota Fed President Kocherlakota said that the unemployment rate may not fall to levels seen before the financial crisis began due to stepped up productivity by the U.S. worker.  Another big problem is that there are too many unfilled jobs due to the lack of skilled workers for those positions.After the close of trading last Thursday, JPMorgan Chase announced that it lost $2B in trading derivatives in the second quarter, which stepped up talk of tougher regulations for the financial sector.  Shares of the bank fell 9% on Friday to $36.96 and caused a ripple effect throughout the sector. Jamie Dimon, CEO of JP Morgan, has been publically deriding the Volcker Rule as being stupid and unnecessary. I wonder how many people now think Jamie Dimon is stupid and unnecessary. . . . The news now gives more ammo to the proposed Volker Rule, which may prohibit banks to take large trading bets or engage in proprietary trading. On a positive note, there was a bright spot last week when the Consumer Sentiment Survey revealed that the index came in at 77.8, the highest reading in four years.  The rise was due in part to lower fuel costs for American households.For the week the Dow lost 1.6%, the S&P 500 fell a little over 1% while the tech heavy NASDAQ dropped .75%.  However, the gains are still frothy for the year with the NASDAQ leading with a 13% rise, the Dow is up 5% and the S&P is higher by 7.62%.  Just remember, on April 2nd, the S&P was up nearly 13% for the year.  Sentiment can quickly change. Oil prices fell last week ending at $96.13/barrel for Lt. Sweet Crude down 2.40%.  The national average price for a regular gallon of gasoline at the pump on Friday was $3.73 down from $3.90 a month ago.  Gold settled at $1,584/oz to its lowest close of the year. The upcoming week’s economic calendar is chock full of reports that will give a broad view of the U.S. economy.  Readings on housing, inflation, manufacturing, weekly claims along with the minutes from the April 25th Fed statement will surely be able to stir up some volatility. Support for the S&P 500 can now be found at 1,340, as it has broken through several key technical areas in a short period.  The markets are fragile right now and any hint of bad news could result in a move below 1,340, which would usher in more sellers. It’s all in the economic data this week and news out of Europe.  Keep in the back of your head that if things do get worse, QE3 may be back in vogue, which would likely help to stem a large correction. As mentioned above, JPMorgan Chase suffered a big loss of $2 billion due to a big loss in derivatives trading.  The news touched off talk of the Volker Rule, which is supposed to be put into force this July.  Below is a brief outline of the Volker Rule from the Securities Industry and Financial Markets Association (SIFMA)The proposals are named after their creator, former Federal Reserve Chairman Paul Volcker.  The original proposals prohibited banks from trading on a proprietary basis – trading using the firm’s own funds – for purposes that are unrelated to serving clients.  It also would have prohibited banks from owning, investing in or sponsoring a hedge fund or private equity fund.  The rule would have also limited the size of financial institutions by market share. The final Volcker Rule included in the Dodd-Frank Act prohibits banks from proprietary trading and restricted investment in hedge funds and private equity by commercial banks and their affiliates.  Further, the Act directed the Federal Reserve to impose enhanced prudential requirements on systemically identified non-bank institutions engaged in such activities.Congress did exempt certain permitted activities of banks, their affiliates, and non-bank institutions identified as systemically important, such as market making, hedging, securitization, and risk management.  The Rule also capped bank ownership in hedge funds and private equity funds at three percent.   Institutions have a seven year timeframe to become compliant with the final regulations.Last Week in ReviewSurvey says? Last week’s economic report calendar may have been light, but some important surveys revealed key data to note. As you can see in the chart, the National Association of Realtors (NAR) said that of the 146 Metro cities surveyed, home prices rose in 74 of them in Q1 2012. This is up from 29 cities that saw an increase in home prices in Q4 2011. In addition, the NAR also said that inventories for existing homes fell 22% since this time last year and are down 41% since the peak in mid-2007. While the housing market has a long way to go, this report was a nice step in the right direction.There was also news from the National Federation of Independent Business, which said that its small business optimism index gained 2% in April as the survey revealed that companies have increased plans for hiring and investing in the future. While companies added new employees at a slower pace in April than in March, the index rose to 94.5 — the highest level since February of 2011. Overall, though, the report showed that our economy is improving but is still fragile. The state of our economy is part of the reason for the improvement in Bonds (and home loan rates, which are tied to Mortgage Bonds) of late.Another big reason that Bond prices have been going up is the fresh round of uncertainty out of Europe. France elected a new president, and this change of the guard represents the ninth EuroZone leader swap since the financial crisis began. Greece is also back in the news and their citizens are not taking to the austerity measures either. The New Democracy government, a pro-bailout party, is having trouble gathering the support to rule the government. This has sparked some safe haven trading into US Bonds, as investors see our Bonds as a safe place for their money.Forecast for the WeekWith earnings season behind us, investors will be deluged with a slew of economic reports that will touch on many segments of the U.S. economy:Retail Sales will be released on Tuesday. This report gives the markets some insight to how consumer spending is holding up.Also on Tuesday, the Consumer Price Index (CPI) will report on inflation at the consumer level. Last week’s Producer Price Index showed that inflation at the wholesale level has moderated, thanks to lower energy prices. Will CPI follow suit?Manufacturing from the New York Empire and Philadelphia Fed Index will also be released Tuesday and Thursday, respectively.Housing Starts and Building Permits data will be delivered on Wednesday.Last — but not least — will be the Weekly Initial Jobless Claims numbers on Thursday. Last week's data was the lowest in a month.In addition to those reports, European headlines will continue to dominate the news as the debt woes in that region plague the global economies. Also, the minutes from the Fed's April meeting of the Federal Open Market Committee will be released and this could move the markets.Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on.  When you see these Bond prices moving higher, it means home loan rates are improving — and when they are moving lower, home loan rates are getting worse.To go one step further — a red “candle” means that MBS worsened during the day, while a green “candle” means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.  As you can see in the chart below, Bonds and home loan rates reached record best levels last week. I’ll be monitoring the markets closely this week to see what happens next.Chart: Fannie Mae 3.5%% Mortgage Bond (Friday May 11, 2012)Economic Calendar for the Week of May 14 - May 18.DateETEconomic ReportForEstimateActualPriorImpactTue. May 1508:30Retail SalesApr0.2% 0.8%HIGHTue. May 1508:30Retail Sales ex-autoApr0.2% 0.8%HIGHTue. May 1508:30Consumer Price Index (CPI)Apr0.0% 0.3%HIGHTue. May 1508:30Core Consumer Price Index (CPI)Apr0.2% 0.2%HIGHTue. May 1508:30Empire State IndexMay8.4 6.6ModerateWed. May 1602:00FOMC Minutes4/25NA NAHIGHWed. May 1609:15Capacity UtilizationApr79.0% 78.6%ModerateWed. May 1609:15Industrial ProductionApr0.5% 0.0%ModerateWed. May 1608:30Building PermitsApr730K 747KModerateWed. May 1608:30Housing StartsApr680K 654KModerateThu. May 1708:30Jobless Claims (Initial)5/12365K 367KModerateThu. May 1710:00Philadelphia Fed IndexMay8.8 8.5HIGHWith most advisors your money is invested to provide a dance floor for hedge fund managers, who trade in and out of the markets, to make money while the typical “buy  and hold” approach to investing in mutual funds or stocks with a broker no longer generates decent returns on your money.At Castle Financial, we employ a conservative, tactical approach to managing client portfolios combining ETF’s (exchange traded funds with low expense ratios), select mutual funds and equities in a “Post” Modern Portfolio Theory market.  Castle also has a proprietary Algorithm to determine equity market trends for potential profits in both up and down markets.  A “snapshot” of the Algorithm can be viewed at www.castlefinancial.com .  This innovative and conservative strategy blends the science of risk management with the fundamentals of traditional asset allocation to manage portfolios for profits in a complex and volatile world and protect and grow our valued clients’ money. Email aap@castlefinancial.com or call 732-888-4994 or 239-947-9255 to schedule a no obligation phone consultation or meeting, we advise clients throughout America.  Also visit www.castlefinancial.com for timely updates in the “Financial Planning Perspectives” library – new articles are added each month and every Friday night we update the “Current News” on the Castle website where you will also note I received an award for Top 10 Investment Advisors in America and I was also selected as 2011 and 2012 Five Star Wealth Manager. What are the advantages to clients?  When you become a valued client of Castle, you can rest assured knowing we are keeping your best interests in mind at all times.  We do not represent any one particular financial institution nor have obligations to anyone other than our clients.  In other words, we work for you. Client accounts are held at Pershing LLC and TD Ameritrade members FINRA/SIPC. Pershing is a Bank of New York Mellon Company.  Pershing offers one billion dollar account protection by Lloyd’s of London and Securities Investors Protection Corporation (SIPC) and TD Ameritrade has total account protection with London Insurers of  250 Million dollars. Let us demonstrate how we can help you develop a conservative and tactical investment strategy to protect and grow your money. http://www.castlefinancial.com/News-more-450.html For the week ended May 18, 2012 and upcoming week of May 21, 2012·         Eurozone uncertainty heightened by Greek government crisis·         Italian, Spanish bank debt downgraded·         Japan rebounds while Chinese activity cools·         Facebook IPO raises $16 billion·         Fallout continues from JPMorgan trading lossA multi-week slide in financial markets continued with widespread and deep losses globally, as uncertainty about Greece's ability to form a government fueled speculation about a Greek exit from the eurozone and its common currency. In line with those concerns, Fitch downgraded Greek sovereign debt, and the European Central Bank halted monetary operations to several Greek banks. Bond yields reflected investor risk aversion. Spanish 10-year bond yields rose to more than 6%, and safe-haven German two-, five-, 10- and 30-year bond yields dropped to all-time lows. US 10-year Treasury yields stood at 1.73% Friday morning, after closing Thursday at an all-time low of 1.702% with bond prices increasing on the week.Broad stock market indices in Europe, Asia, and North America continued to fall, with many major stock indices down more than 3% for the week. The Dow Jones Industrial Average has declined on 11 of the past 12 trading days. The S&P 500 Index is at a four-month low. About $4 trillion has been lost from global equity markets this month, according to Bloomberg News with the Facebook IPO falling flat.  The euro hit a four-month low of $1.264 against the US dollar, and the price of a barrel of crude oil dipped below $93.US and global economic newsGreek drama unfolds with more uncertainty  - Uncertainty persisted around Greece’s government this week, as talks to form a coalition collapsed; Greece’s electorate will vote again next month. Critical questions remained, including whether Greece would honor its debt obligations, whether it would follow austerity measures that its electorate has largely repudiated, and whether Greece would leave the eurozone. Greek bank depositors grew nervous and withdrew €700 million (almost $900 million) from local banks Monday. Fitch downgraded its debt to CCC from B- in recognition of heightened risk that the country would not be able to remain in the eurozone.Italian, Spanish bank debt downgraded - Moody’s lowered debt ratings at 26 Italian banks, as government austerity measures have cut demand for loans, and 16 Spanish banks, as bad debts held by Spanish banks rose to a 17-year high. Moody’s cited concerns about the banks' exposure to Spain's critically weak economy and the ability of the Spanish government to support them in a crisis. The Italian bank downgrades note the banks' vulnerability to mounting loan defaults. Italy and Spain have both entered a double-dip recession.Germany helps eurozone escape recession by a whisker - A strong rebound by Germany helped keep the eurozone from entering a technical recession of two consecutive quarters of contraction. The eurozone gross domestic product for the first quarter this year was unchanged following a 0.3% contraction in the fourth quarter of 2011. Germany’s GDP rose 0.5%, while France’s was unchanged, and Italy and Spain’s economic activity contracted 0.8% and 0.3%, respectively.US economic reports remain largely upbeat - US housing starts rose more than expected in April, by 2.6% to a seasonally adjusted annual rate of 717,000, the US Department of Commerce reported. The percentage of homeowners delinquent on their mortgages in the first quarter fell to the lowest level since 2008, with 11.8% of all mortgages at least 30 days past due or in foreclosure, down from 12.8% a year ago, and 14.7% two years ago, according to the Mortgage Bankers Association. Industrial production in the United States rose 1.1% in April, the most since December 2010, driven largely by motor vehicle sales. The US rate of consumer inflation was unchanged from March to April after increasing for three months. The consumer price index was up 2.3% in April from a year earlier, its smallest annual increase since February 2011. Core inflation (prices excluding food and energy) also rose 2.3% for the year. Weekly initial jobless claims were unchanged at 370,000 for the week ended May 12, the US Department of Labor reported.Chinese foreign investment declines - Foreign direct investment into China receded for the sixth consecutive month in April. For the first four months of 2012, foreign direct investment in China was 2.38% below the year-earlier period, influenced by the sluggish global economy. China’s central bank announced it would cut the reserve-requirement ratio for banks by 0.5 percentage point. The leaders of China, Japan, and South Korea are planning to begin free-trade negotiations this year and could create the world’s third largest free-trade zone after the North American Free Trade Agreement and the European Union.Recovering Japanese GDP rises 4.1% - Japan’s economy rebounded, growing at an annualized rate of 4.1% in the first quarter, fed by government spending and increased domestic demand. Public investment grew 5.4% for the quarter. Although government spending has supported Japan’s post-tsunami recovery, in contrast to Europe’s austerity measures, it is seen as unsustainable, given that Japan’s sovereign debt is twice the size of its economy, the highest level among industrialized countries.US and global corporate newsMuch anticipated Facebook IPO raises $16 billion - Facebook’s initial public offering sold 421.2 million shares at $38 each, raising $16 billion. Facebook’s IPO is the third largest in the history of the United States, behind those of General Motors and Visa. At a valuation of $104 billion, the social network’s market value is greater than that of McDonald’s, Citigroup, and almost all other well-established American companies. There’s wide divergence of opinion on whether Facebook is overhyped and overvalued or whether its base of 900 million users presents tremendous long-term potential. Facebook has been compared to a mining company sitting on valuable deposits that could take time to dig up and mine.JPMorgan Chase trading loss leads to increased scrutiny - Fallout continued after the announcement last week of JPMorgan Chase’s $2 billion-plus derivatives-disaster trading loss, with speculation that it would lead to increasingly stringent financial regulations. JPMorgan CEO Jamie Dimon has been among the most vocal opponents to these regulations. Dimon is scheduled to appear before the Senate Banking Committee sometime in June.Wal-Mart, Home Depot profits top expectations - The world’s largest retailer and the nation’s largest home-improvement retailer posted better than expected first-quarter earnings. Wal-Mart’s quarterly net income rose 10% on an 8.5% increase in revenue. Home Depot had a 27% increase in first-quarter earnings, aided by unseasonably warm weather in much of the United States. Sales rose 5.9% and the firm’s gross margin widened slightly.Japanese banks prosper on heavy bond sales - Japan’s three largest banks posted total profits of almost ¥2 trillion, or $25 billion, their best quarterly performance since before the global financial crisis began in 2008. Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group’s results were all lifted by substantial gains from sales of Japanese government bonds, something that is likely to decline sharply moving forward, according to the banks’ executives.Coty withdraws offer for Avon - After Avon Products took too long to respond, would-be suitor Coty withdrew its offer of $10.7 billion for Avon and said it would explore other opportunities. Avon had rejected an earlier bid from Coty as uncertain and too stingy.Hewlett-Packard plans job cuts - Hewlett-Packard is planning to cut its workforce by 25,000 to 30,000 employees, according to The Wall Street Journal. This would reduce its global employees by 8%. H-P has been struggling with declining revenue and profits for a couple of years.The week ahead·         US existing home sales data is released on Tuesday, May 22.·         Hewlett-Packard announces its quarterly earnings on Wednesday, May 23.·         The European Union releases flash results for its PMI Manufacturing Index on Thursday, May 24.·         Japan releases its Consumer Price Index data on Thursday, May 24.·         The University of Michigan issues its Consumer Sentiment Index on Friday, May 25.With most advisors your money is invested to provide a dance floor for hedge fund managers, who trade in and out of the markets, to make money while the typical “buy  and hold” approach to investing in mutual funds or stocks with a broker no longer generates decent returns on your money.At Castle Financial, we employ a conservative, tactical approach to managing client portfolios combining ETF’s (exchange traded funds with low expense ratios), select mutual funds and equities in a “Post” Modern Portfolio Theory market.  Castle also has a proprietary Algorithm to determine equity market trends for potential profits in both up and down markets.  A “snapshot” of the Algorithm can be viewed at www.castlefinancial.com .  This innovative and conservative strategy blends the science of risk management with the fundamentals of traditional asset allocation to manage portfolios for profits in a complex and volatile world and protect and grow our valued clients’ money. Email aap@castlefinancial.com or call 732-888-4994 or 239-947-9255 to schedule a no obligation phone consultation or meeting, we advise clients throughout America.  Also visit www.castlefinancial.com for timely updates in the “Financial Planning Perspectives” library – new articles are added each month and every Friday night we update the “Current News” on the Castle website where you will also note I received an award for Top 10 Investment Advisors in America and I was also selected as 2011 and 2012 Five Star Wealth Manager. What are the advantages to clients?  When you become a valued client of Castle, you can rest assured knowing we are keeping your best interests in mind at all times.  We do not represent any one particular financial institution nor have obligations to anyone other than our clients.  In other words, we work for you. Client accounts are held at Pershing LLC and TD Ameritrade members FINRA/SIPC. Pershing is a Bank of New York Mellon Company.  Pershing offers one billion dollar account protection by Lloyd’s of London and Securities Investors Protection Corporation (SIPC) and TD Ameritrade has total account protection with London Insurers of  250 Million dollars. Let us demonstrate how we can help you develop a conservative and tactical investment strategy to protect and grow your money. http://www.castlefinancial.com/News-more-449.html Starting back in mid-December, globally coordinated reflation activities contributed to the best first quarter equity performance since 1998. Since the market bottomed in March 2009, reflation sectors have taken the performance lead once again (Figure 1). FIGURE 1. REFLATION CYCLE OF RUSSELL 1000 INDEX SECTORSGROWTH OF $1, MARCH 3, 2009 – MARCH 16, 2012  Source: Capital IQ. The Russell 1000 Index measures the performance of large-capitalization U.S. stocks. Reflation asset sectors include energy, materials, financials, consumer cyclicals, capital goods and informa­tion technology. Defensive sectors include health care, utilities and consumer staples. The developed world has aligned monetary reflation efforts and emerging markets moved from monetary tightening stances to easing. Notably, the ECB (European Central Bank) commenced a round of quantitative easing referred to as LTRO (long-term refinancing operation), injecting $1 trillion since mid-December. The U.S. supported these actions by providing U.S. dollar swaps to the ECB. The value of these swaps stood at $84 billion through December 2011, but essentially, the U.S. has supplied the ECB with an open-ended line of credit, upon which it continues to draw. The recent reflation efforts by the Fed and the ECB have reduced short-term deflation risks, as banks are backstopped and debt on their balance sheets will be protected. China and many emerging markets are no longer fighting the developed world’s monetary trend, as inflation pressures in emerging markets have subsided and growth concerns have taken center stage. Will Gold Continue to Glitter?  The relationship between bank stocks and gold has been highly inversely correlated since the beginning of the crisis (Figure 2).  Will the latest round of quantitative easing by the ECB cause the bank stock/gold relationship to change? I do not think so. The quantitative easing efforts of Europe and the U.S. have been directed at saving the banks from bad loans and ultimate demise. The ECB’s latest round of easing has, at least for the near term, guaranteed the survival of European banks, and in turn, the survival of U.S. banks. FIGURE 2. U.S. BANK STOCKS VS. GOLD PRICESJANUARY 2007 – MARCH 2012, GROWTH OF $1, LOG SCALESource: Bloomberg. The S&P 500 Banking Index tracks the performance of the bank stocks within the S&P 500 Index, an index considered generally representative of the large-cap U.S. stock market. Gold spot price is based on U.S. dollars, per Troy ounce. We own gold as a hedge against weakness (or even a meltdown) in banking and as a hedge against currency debasement resulting from efforts to offset bad debts and gain trade advantages. The banking sector remains very fragile and vulnerable to unresolved global economic debt problems.  Gold holds some appeal against the possibility of a complete fiat money meltdown. When the Liquidity Ends, What’s Next?  As noted earlier, the global markets rallied with central bank balance sheet expansion not unlike what we saw in response to QE1 and QE2 (Quantitative Easing). Coordinated reflation is a powerful force that can alleviate short-term pain in the global economy, but it is not a real solution. Instead, it just buys time for inflation to work its magic on debt while the global political class finds the courage to tackle mountains of debt and face the reality that balance sheets matter. History provides cautionary lessons about reflation. In the past, when liquidity waned, the global equity markets faltered and economies weakened as risk-off market corrections set in (Figure 3). FIGURE 3. EQUITY MARKET SENSITIVITY TO FED INTERVENTION  Source: Bloomberg. The recent equity market advance and better economic data are welcome changes, but we must ask: Is this economic expansion sustainable or is it primarily a liquidity influenced surge, like a caffeine jolt in a spent athlete? As noted in Figure 3, the rally corresponds to the liquidity injection, as past rallies have corresponded with past QE, similar liquidity events and monetary easing. So, there may be reason for skepticism. Let’s take a closer look. Euro Crisis, Part III  The ECB is following the U.S. lead of using reflation to support banks and buy time. But the structural problems associated with the euro have not been solved and further strains are emerging. For example, Greece’s unemployment rate stands at 20%. The pain will not subside quickly for Greece’s citizens, and the pressure will likely lead Greece to abandon the euro in an attempt to ease its pain through devaluation. Meanwhile, the crisis has been delayed but not resolved for teetering Portugal, Spain and Italy; and as matters stand today, I believe the big fish that will get caught in this euro net is France. The monetary union needs a fiscal union, which means all countries in the union would cede fiscal sovereignty to Germany and a broader union. Stay tuned as Europe weighs on global growth and the dysfunctional banking system. The U.S. helped bring down the U.S.S.R. with an economic weapon; this decade, others will do the same to the weaker European economies. Is the U.S. Economy Moving Ahead? Although the ISM Index and PMI Index indicate a mild recovery is underway in the U.S., it is too early to get excited about a new bull market. It’s good news that the ECRI Weekly Leading Index is back into positive territory (Figure 4), having been in negative territory for most of 2011 and for the first two months of this year.  FIGURE 4. ECRI INDEX VS. S&P 500 INDEX TOTAL RETURN, LESS 10-YEAR TREASURY TOTAL RETURNSEPTEMBER 2005 – MARCH 16, 2012Source: Bloomberg. The ECRI Weekly Leading Index is a measure of leading economic indicators. Even so, caution is warranted. The ECRI has an excellent record of predicting a recession when it drops into negative territory, but there have been instances when recessions have come a few months after the index moved back to positive territory. The recent global monetary easing may have delayed weakness from showing up in the index, or the index may be giving a rare false signal. First quarter GDP received a boost from very warm weather (if this is global warming, then sign me up), inventory buildup, and better employment data that may have enticed consumers to spend. Of course, QE in Europe also helped improve asset values and may have contributed to a small spending-wealth effect.The U.S. and European economies may not be strong enough to offset rising oil prices and a fifty-fifty chance of taxes rising in less than a year. Both economies are focused on austerity, but with high taxes, larger government and more regulation instead of pro-growth private sector fiscal policies. As discussed earlier, there’s been no real structural progress in Europe in regard to the euro and fiscal issues, apart from supporting the European banks. Meanwhile, Japan continues to falter and drown in debt and China’s economy is slowing due to too much financial strain and inflation. It is for such reasons that I believe a secular bull market is years off and that the economy will bounce around low growth for the foreseeable future, with good quarters followed by weak ones. I expect real U.S. GDP growth of around 2% until the debt reduction cycle plays out further and fiscal reality occurs. But the underlying U.S. economic engine, excluding the government portion of GDP, is proving to be more resilient, as Figure 5 indicates. FIGURE 5.  REAL GDP GROWTH EX-GOVERNMENT EXPENDITURES Q1 2010 – Q4 2011 Source: BEA. A Problematic Equation: Inflation + QE + Financial Repression  QE (Quantitative Easing) designed to fill the large gap created when the velocity of money collapsed during the financial crisis. The idea is to provide the same amount of money to the country as was being generated prior to the velocity collapse. Irving Fisher’s equation states that MV=PQ, where M, a measure of the money base multiplied by V, the velocity of money is equal to P, the price, multiplied by Q, the quantity of all production. Under this equation, the decline in V would need to be offset with an increase in M to avoid deflation or a fall in P along with a decline in output, or Q.This is a logical mathematical expression in a closed society. In an open society, however, other countries’ trade, interest rate and currency policies influence the price and quantity of output. To complicate matters further, P can represent the price of assets such as gold and government bonds, both of which do little to improve the productive capacity of the nation. The U.S. dollar’s status as the world’s reserve currency also muddies the beauty of the equation, as U.S. monetary policies have a dramatic impact on energy pricing, global trade and global money flows. Finally, the measure of money should include credit created outside the banking system of the host country. In the end, the above factors make it very difficult to measure the correct amount of M to supply. The U.S. Fed is likely to overshoot and create asset bubbles (a form of inflation) or trouble in other countries, due to the dollar’s reserve currency status. In addition, the currency wars have not gone away. Moreover, in periods of financial repression and debt deleveraging, currency devaluation plays a large role as years of slow economic growth and structurally higher unemployment become a recipe for attacks on free trade and for embracing protectionism. The rhetoric of class warfare and paying your fair share is one step away from dividing a nation. It is also one step away from dividing many nations. The global economy is experiencing tremendous changes that drive large income discrepancies that in turn fuel trade and currency wars. Without improvements to developed world growth and debt reduction this year, round two of the currency wars will ignite soon. From an investment standpoint, I see opportunity in the growth of a middle class in emerging markets, a world-changing trend. I am also aware of the strains that this trend will put on the developed world if the same inaction, lack of accountability and fiscal profligacy continues. There is no turning back, because that would lead to global collapse and economic depression. The path forward is to compete globally and grow with the emerging markets’ consumers. The Song Remains the Same  Investment and global financial vodou has remained the same since the early stages of the crisis in 2008 and 2009. The Fed will do anything to avoid debt deflation cycle from taking hold. This means printing money, repurchasing debt and holding government rates below inflation and GDP growth. Any rumors or the actual announcement of QE3 will likely send equities and gold higher. Our strategy going forward is to proceed with extreme caution with the core of client accounts remaining conservatively invested and also investing for growth, if and when we see opportunities with limited risk and good upside potential. Event risk is unfortunately more prevalent than ever before and a flexible and tactical approach to investing is now more important than ever which may include going short equities from time to time. The Castle Algorithm posted on this website will help determine equity market trends. As a Certified Financial Planner, my responsibility is to keep track of client investments and to develop appropriate investment strategies in an ever-changing world and to help you be in a better position to be more successful in reaching your long-term financial goals.  I am focused on preserving principal, providing dividend yields and interest above bank earnings rates while still maintaining the potential for capital appreciation.  When it comes to your investment portfolio, I believe the most prudent strategy is to maintain a long-term perspective, but be flexible and open minded in an ever changing financial environment.  Feel free to contact me if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account. Please contact us if you are not receiving custodial account statements – Pershing, Mutual Fund Companies, etc. I trust my comments, observations and insights have been helpful to you in understanding the current economic and worldwide financial markets.   Al Procaccino II, MBA, CFP®, CFSPresident & CEO  The opinions and forecasts expressed are those of the writer and may not actually come to pass.  These views are not intended to predict or depict performance of any investment and are subject to change based on subsequent developments. This information has been gathered from what we consider to be reliable sources; however, no guarantee is made with respect to accuracy.  This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security.  Past performance does not guarantee future results.  *Please refer to disclosures tab above on this website.  http://www.castlefinancial.com/News-more-446.html Compliance errors within 401(k) plans frequently can be corrected without incurring significant fines.Callout:It is important to conduct an annual review to make sure that your 401(k) plan remains compliant with rules imposed by the Internal Revenue Service and the U.S. Department of Labor.Social Media Message:Is there a compliance error in your 401(k) plan? The IRS has resources that may be able to help.Given the complexity of 401(k) plans, mistakes are made even when plan sponsors try to follow the letter of the law. The Internal Revenue Service (IRS) maintains several correction programs, as well as a 401(k) Plan Fix-It Guide, that can help plan sponsors determine whether their procedures adhere to IRS requirements, and if a sponsor discovers an error, how to amend the situation.During an IRS conference call on March 6, 2012, Director of Employee Plans Examinations Monika Templeman mentioned several mistakes that could disqualify a 401(k) plan.1Failure to amend written documentation when tax laws change.Failure to maintain materials such as the original plan document, IRS opinions, amendments, and others.Failure to document actions taken by the board of directors.Failure to comply with a plan's definition of compensation.Failure to follow laws relating to eligibility and repayment periods for 401(k) plan loans.Failure to make matching contributions to eligible employees or making contributions to employees who are not eligible.Note that this list is not all-inclusive, and it is important to conduct an annual review to ensure that your plan adheres to regulations imposed by the IRS and the U.S. Department of Labor.The 401(k) Plan Fix-It Guide prompts sponsors to ask themselves several questions in an attempt to determine whether their plans are compliant:2Has your plan document been updated within the past few years?Do the plan's operations follow the terms stipulated in the plan document?Is the plan correctly applying the definition of compensation when determining deferrals?Has the plan satisfied nondiscrimination tests?Were all eligible employees given the opportunity to make elective deferrals?Are elective deferrals limited to the amounts stipulated by federal law?Were matching contributions made to the appropriate employees?Does the plan deposit deferrals as soon as they can be segregated from corporate assets?Do participant loans conform to the plan documentation and also to federal laws?Were correct procedures followed for hardship withdrawals?If these or other questions reveal a mistake, you can contact your tax advisor or get in touch with the IRS directly. A mistake does not automatically mean that a severe penalty will be levied. According to the IRS 401(k) Plan Checklist, depending on the situation, many errors can be corrected easily and without notifying the IRS.Source/Disclaimer:1Source: hr.cch.com, "Failure to Amend Among Top Compliance Problems for 401(k) Plans, IRS Reports," March 22, 2012.2Source: U.S. Internal Revenue Service, 401(k) Plan Checklist. http://www.castlefinancial.com/News-more-445.html U.S. investors are riding a wave of mostly good news, but many risks remain.Callout:Consider underweighting stocks with a significant revenue base in economically troubled European countries Social Media Message:Events in the euro zone and trends in oil prices could influence the returns of U.S. stocks.The S&P 500 Index closed at 1402 on March 15, 2012, the first time the index closed above 1400 since June 5, 2008.1 The latest upward progression began in October 2011 when the debt crisis in Europe showed signs of receding and economic reports in the United States began displaying a more positive outlook. Between October 3, 2011, and March 23, 2012, the S&P 500 gained 27%, and U.S. investors have been riding a wave of mostly good news.Economic activity in the manufacturing sector, including new orders and production, expanded in February 2012 for the 31st consecutive month.2Real gross domestic product, a gauge of economic growth, accelerated 3.0% during the fourth quarter of 2011, compared with 1.8% during the third quarter of the year.3Although the unemployment rate remained high at 8.3% for February 2012, the rate declined from 9.0% in February 2011, creating optimism that the worst period of high unemployment may be over.The question on the minds of many investors is: Will this momentum last, or is another crisis waiting in the wings? Risks remain, both within the United States as well as abroad. The European sovereign debt crisis appears to have stabilized, at least temporarily, thanks in part to the recent agreement among Greek private debt holders to accept a proposed restructuring of Greek sovereign bonds. If Europe is plunged into another crisis, Standard & Poor's believes the fallout would affect U.S. business spending and equity prices.4Domestically, the recent escalation in oil prices has the potential to curtail consumer spending, especially if prices rise further. Standard & Poor's estimated that each $10 increase in the price of a barrel of oil subtracts 20 basis points (.20%) from growth in gross domestic product in each of the subsequent two years following the price hike, assuming the cost remains elevated.4What Investors Can DoGiven questions that remain about the long-term health of the global economy, investors may want to consider the following:Consider overweighting equity holdings to U.S. stocks and emerging markets.5 This strategy could potentially avoid problems related to the euro zone. When analyzing potential holdings, review a company's revenue sources to avoid significant exposure to Greece, Portugal, Italy, and other crisis-prone countries. In the United States, recent strong returns may create a scenario where the potential for future short-term gains is likely to be more muted.Keep bond holdings short term.6 Federal Reserve Chairman Ben Bernanke has stated that the Fed will continue to keep the federal funds rate low in an attempt to stimulate economic growth. But interest rates are likely to go up sometime, and when they do, bond prices are likely to fall. Consider keeping the majority of your bond holdings short term so that if interest rates increase unexpectedly, you will not be locked into long-term holdings that decline in value.Investing in both stocks and bonds always involves risks, but avoiding securities associated with the euro zone and keeping bond holdings short term may help you avoid economic problems either in the United States or abroad.Source/Disclaimer:1Source: Standard & Poor's. Investing in stocks involves risks, including loss of principal.2Source: Institute for Supply Management (ISM), Manufacturing ISM Report on Business®, March 1, 2012.3Source: U.S. Bureau of Economic Analysis, February 29, 2012.4Source: Standard & Poor's, U.S. Economic Forecast Monthly Summary, March 2012.5Emerging markets are generally more volatile than the markets of more developed foreign nations, and therefore, you should consider this increased market risk carefully before investing. Investors in international securities may be subject to higher taxation and higher currency risk, as well as less liquidity, compared with investors in domestic securities.6Bonds 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. http://www.castlefinancial.com/News-more-444.html When assessing a potential acquisition, review why the current owner is selling, the history of the firm, and its internal structure.Callout:Don't go it alone. Get help from an accountant, a business valuation expert, and your legal counsel. Social Media Message:If you are thinking of buying a business, read here for tips on how to value it.When purchasing a company, how do you settle on a fair price? There are steps you can take to better ensure a reasonable return on your investment for the amount of business risk undertaken.Due DiligenceFirst, it is important to understand why the business is on the market. Is the owner retiring, selling for personal reasons, or simply lacking the expertise needed to run the business? Is the company profitable or losing money and in need of new management?To answer these questions, review the history of the business and how it functions. You should understand the company's customers and how its different departments work together. Examine the financial statements, including accounts payable and outstanding debt, as well as a list of inventory and equipment.You should also review key employees, suppliers, leases, legal issues (such as zoning, government regulations, and lawsuits), insurance and taxes, notes and mortgages payable, and any proprietary information, including patents.Additionally, ask about the ownership structure. Is it a sole proprietorship? A limited liability company? Are there outside interests involved? Also analyze how the business fits within its industry. Is it a viable competitor? Why, or why not?Evaluating ValueIf the business appears attractive thus far, you are ready to run the numbers. To gauge a rough idea of value, you can use the multiple of earnings approach. This calculation is based on annual actual earnings before interest and taxes (EBIT). Here are some general guidelines:Multiple of 8 to 10 times EBIT: A well-established and stable market leader that is likely to thrive regardless of management.Multiple of 5 to 7 times EBIT: An established company with a respectable market reputation that has inconsistent earnings and will need management guidance.Multiple of 2 to 4 times EBIT: An established company with significant competition and few assets that will need a strong management team.Multiple of 1 times EBIT: A small personal service company where the new owner will likely have few or no employees.Don't Go It AloneObtaining independent opinions can help buyer and seller agree upon a reasonable valuation to help seal the deal. Team members usually include an accountant, a business valuation expert, and an attorney. Ask your professional team for reputable candidates to consider for financing the sale. Begin exploring avenues early in the process as it may take time to find a lender and negotiate terms.Purchasing a business is a tremendous undertaking. Conducting a thorough appraisal to ascertain value and tapping the expertise of competent advisors will hopefully result in a satisfying and rewarding endeavor. http://www.castlefinancial.com/News-more-443.html