Archive for January, 2008

First Baby Boomers To Retire Are Doing Well

Kurt Brouwer January 11th, 2008

We have seen many stories about the dire straits baby boomers will enter when they retire, but all is not lost in my opinion. For example, this post demonstrates how much Americans have socked away for retirement, $16.4 Trillion in Retirement Accounts. Now, from Bankrate.com we have more indications that at least the first generation of boomers are in good shape for retirement [emphasis added]:

The Oldest Boomers Are More Set For Retirement Than Thought (Bankrate.com / Yahoo, January , 2008, Robert Powell)

‘ Breathe a sigh of relief. The nation’s leading-edge baby boomers — about 3 million strong — are turning 62 this year and, contrary to popular opinion, they are not in desperate straits.

In fact, Americans born in 1946 are in relatively good financial shape and seemingly entirely different from other boomers. Maybe that’s because only 2% of them report that they attended Woodstock.

Consider, for instance, some highlights from MetLife’s Mature Market Institute just-released study of boomers turning 62. The majority are in good health; 77% report being in good to excellent health. They have relatively good income, $71,400, which is a tad more than the average household income in America.

They have a decent net worth; $550,000 including the value of their homes. (The average retiree, by the way, has just about $254,000, excluding the net present value of Social Security, in net worth, according to a Boston College Center for Retirement Research study.)

Nearly half have a traditional pension plan, 50% have a 401(k) and 50% have an IRA. Nearly 70% have employee or retiree health insurance. And about a third have long-term-care insurance.

But what’s especially telling about this group’s financial health is this: While roughly 80% of Americans take Social Security at age 62, this group — which includes such well -known Americans as Jimmy Buffet, President George W. Bush, former President Clinton, Sally Field and Diane Keaton — will not. Just one-third said they plan to take Social Security when they turn 62; the rest plan to take Social Security at age 65 or later…

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Bank of America Snaps Up Countrywide

Kurt Brouwer January 11th, 2008

Bank of America already had a significant investment in Countrywide and now it has agreed to buy the whole thing. Previously, we have seen other investors buying up stakes in depressed financial services companies (see Bill Miller of Legg Mason Value Trust: Buy Battered Financial & Housing Stocks and Investors Buying The Dogs of 2007).

This Bloomberg article spells out why BA is eager to buy Countrywide [emphasis added]:

Bank of America To Acquire Countrywide For $4 Billion (Bloomberg, January 11, 2008, David Mildenburg)

Bank of America Corp., the biggest U.S. bank by market value, agreed to buy Countrywide Financial Corp. for about $4 billion, taking over the largest mortgage lender during the worst housing slump in more than two decades…

…“There are near-term challenges, but where there are challenges, there are always opportunities,” Lewis said during a conference call today. “We view this as a one-time opportunity.”

Countrywide’s market value plummeted 85 percent to $4.5 billion during the past 12 months as the lender reported its first quarterly loss in 25 years. Lewis has said the U.S. housing slump probably won’t bottom until mid-2008.

Adding Countrywide’s $209 billion in assets to Bank of America’s $1.6 trillion would leave the combined companies second in size to Citigroup Inc., which had $2.35 trillion in assets as of Sept. 30. Bank of America’s market value is 20 percent greater than New York-based Citigroup’s.

…The purchase, expected to close in the third quarter, will add to earnings beginning in 2009, Bank of America said. Savings resulting from the combination will be about $670 million, with about a third of that coming next year, the bank said. Credit Review

Bank of America’s financial strength rating is under review for a possible downgrade because of integration, litigation and mortgage value challenges, Moody’s Investors Service said today. Moody’s affirmed the bank’s short-term ratings….

…Countrywide may represent the opportunistic deal-making that turned regional bank NCNB Corp., which Lewis joined as a credit analyst in 1969, into the most valuable U.S. bank. He was former Bank of America Corp. CEO Hugh McColl Jr.’s Texas point man in 1988 after the government-assisted rescue of failing First Republic Bank, the largest bank in the Lone Star State…

…`Great Technology’

“It is an absolute opportunity for Bank of America to acquire an infrastructure they admire, including Countrywide’s great technology, and, at these levels, it’s mitigating most of the asset issues,” he said…’

For BA this represents a golden opportunity to buy a market leader in mortgages at a very attractive prices. Smart move in my opinion. Some recent buyers of Countrywide stock may have actually made a profit too as the stock ran up quite a bit on the announcement of the deal.

Is There A Cure For Alzheimer’s Disease?

Kurt Brouwer January 10th, 2008

Alzheimer’s Disease is one of the most troubling and debilitating maladies we face because once vibrant people lose their memory, but also in many ways their personality. They just are not the same people we used to know and love. I have family members and friends who suffer from this disease and I’m sure you do too. Now, from Science Daily comes an announcement of a study that has discovered a form of treatment that sounds very exciting. Obviously, this is a study and, as such, denotes that the treatment is in an early stage of development [emphasis added]:

Reversal of Alzheimer’s Symptions In Minutes In Human Study (Science Daily, January 3, 2008)

‘An extraordinary new scientific study, which for the first time documents marked improvement in Alzheimer’s disease within minutes of administration of a therapeutic molecule, has just been published in the Journal of Neuroinflammation…

…The new study documents a dramatic and unprecedented therapeutic effect in an Alzheimer’s patient: improvement within minutes following delivery of perispinal etanercept, which is etanercept given by injection in the spine. Etanercept (trade name Enbrel) binds and inactivates excess TNF. Etanercept is FDA approved to treat a number of immune-mediated disorders and is used off label in the study.

The use of anti-TNF therapeutics as a new treatment choice for many diseases, such as rheumatoid arthritis and potentially even Alzheimer’s, was recently chosen as one of the top 10 health stories of 2007 by the Harvard Health Letter.

Similarly, the Neurotechnology Industry Organization has recently selected new treatment targets revealed by neuroimmunology (such as excess TNF) as one of the top 10 Neuroscience Trends of 2007. And the Dana Alliance for Brain Initiatives has chosen the pilot study using perispinal etanercept for Alzheimer’s for inclusion and discussion in their 2007 Progress Report on Brain Research…

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Fed Chairman Opens Door To Lower Interest Rates

Kurt Brouwer January 10th, 2008

Federal Reserve Chairman Ben Bernanke is coming around to the prospect of aggressive cuts in short-term interest rates. In the first line of the piece below [emphasis added], Bernanke is quoted as saying substantive cuts are a possibility. In this case, substantive means big:

Bernanke Opens Door to Steep Cuts Amid Increased Risks to Economy (Wall Street Journal, January 10, 2008, Greg Ip)

Federal Reserve Chairman Ben Bernanke, acknowledging the growing threat from fragile financial markets and weakening employment, opened the door to “substantive” cuts in interest rates.

The “outlook for real activity in 2008 has worsened and the downside risks to growth have become more pronounced,” Mr. Bernanke said in a speech. “In light of recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary.” (Read the full speech.)

He added, “We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.”

Mr. Bernanke’s speech in Washington suggests the Fed will give strong consideration to cutting its short-term interest rate target by a half-percentage point from its current 4.25% when policy makers meet on Jan. 29 and Jan. 30. The Fed could move before then, but it prefers not to change rates between meetings…

…Nonetheless, his speech suggests he now considers weak economic growth a bigger threat than inflation, and the Fed may say so explicitly at its next meeting. That would be an important shift. In the prior five months the Fed has either called those risks balanced or refused to say which is more worrisome. That equivocation reflected the fact that inflation by most measures remains above policy makers’ preferred range of 1.5% to 2%, and the economy is less able to grow rapidly without inflation than it was seven years ago.

But the rise in the unemployment rate to 5% in December from 4.7% in November, which Mr. Bernanke called “disappointing,” suggests one source of inflation risk — tight labor markets — is rapidly receding. “Pressures on resource utilization have diminished a bit,” Mr. Bernanke said…’

This is a good move on Bernanke’s part. I have felt for some time that big cuts were necessary, see PIMCO & Bill Gross Call For 3% Fed Funds Rate.

Gallup — Most Americans Very Satisfied With Their Lives

Kurt Brouwer January 10th, 2008

Contrary to what you might think if you watch the nightly news, most Americans are very satisfied with their lives. In fact, the percentage that is very happy is the highest it has ever been in the survey [emphasis added]:

Most Americans “Very Satisfied” With Their Personal Lives (Gallup, December 31, 2007, Joseph Carroll)

‘As Americans look ahead to the new year and reflect on the year past, a recent Gallup Poll finds the public generally content with their own lives. Most Americans say they are generally happy, with a slim majority saying they are “very happy.” More than 8 in 10 Americans say they are satisfied with their personal lives at this time, including a solid majority who say they are “very satisfied.” This personal satisfaction level contrasts sharply with the low level of satisfaction Americans express with the way things are going “in the United States at this time.” Republicans, married adults, those residing in higher income households, parents of young children, those attending church weekly, and whites are most likely to say they are satisfied and happy at this time.

Personal Satisfaction

According to the Dec. 6-9, 2007, poll, 84% of Americans say they are satisfied with the way things are going in their personal life at this time, while 14% are dissatisfied. These results have been fairly stable since Gallup first started tracking Americans’ personal life satisfaction in 1979. The percentage of Americans who say they are satisfied with their personal life has averaged 82% over this period, with a low of 73% in July 1979 and a high of 88% in December 2004. (It is worth noting that in the same Dec. 6-9 survey only 27% of Americans said they were satisfied with the way things are going in the United States at this time, providing a vivid contrast between Americans’ view of things “out there” across the country and their view of their own personal lives.)…

Of the 84% of Americans who are satisfied with their personal life, 59% say they are “very” satisfied, while 25% say they are “somewhat” satisfied. The percentage of Americans who are very satisfied is up slightly from 55% last year, and while similar to other ratings going back to 2001 (when Gallup began asking this question annually), this 2007 percentage is the highest since that time. In December 2002, just 50% were very satisfied, the lowest in the past seven years…’

We have made this point before that Americans tend to be happy with their lives, but they also tend to think other people are less happy. We covered this in The Happiness Gap — Economy, Jobs Money & Government.

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