Caught Between a Euro and a Hard Place

Jay Gershman MBA, AIF®

I realize that I am expected to communicate nuggets of economic thoughts on a regular basis. However, I also remember the words of my mother who instructed me that "when you can't say something nice, don't say anything at all".

What can I say nice about a year that after all the violent market gyrations has delivered a scant .50% return on the S&P 500, as of 11/11/11? Should I be happy that despite the turmoil in Europe that has led to riots in Greece and a change in leadership in Italy, that U.S. corporations have seen continued strong profits? Would it be fair to say that 2011 has been troubling? The strong Corporate profits have led to Occupy Wall Street demonstrations which have spread to cities across the country, as angry citizens feel that corporations have trampled their hopes and dreams.

Unemployment has improved but remained too high for an economy to get too far from treading water. Even as the U.S. bond rating was lowered and rates fell, stricter rules prevented few from taking advantage by refinancing to lower mortgage payments. Meanwhile, millions continue to wade through a long and tedious foreclosure process that will likely lead to losing their homes. While the unemployed struggle without unemployment benefits, workers with 401(k)s struggle to stay positive watching their retirement nest egg soar one day and plummet the next based upon rumors of new trouble in Europe.

Luckily, there is hope of political change on the horizon for those Americans who believe a new President will make a difference. A recent Republican debate saw three definite front runners; Mitt Romney, Herman Cain, and uh.............oops, I forgot the third one! Speaking of politics, next week marks the deadline for the bipartisan super committee to put forth $1.2 trillion in deficit cuts. Another futile effort would lead to automatic spending cuts beginning in 2012.

Back to Europe. The European Central Bank has been unwilling to print Euros in order to save countries or banks saddled with government debt that have declined in value. As the months pass, attempts by governments to decrease their deficits leads to civil unrest and nervous investors dump government bonds leading to even higher interest rates and borrowing costs for the governments already in trouble. As one country threatens default, others wait in the wings teetering on the edge.

What will stop the death spiral? Certainly not optimism or false hopes. I'm not sure anyone has a single, explainable answer. However, it does involve more than a few Euros here and a few Euros there. For sure, it involves pain and prolonged healing. Pain, in terms of reduced spending and higher taxes. Meanwhile, markets will fear losing money one day and losing out the next. Sound familiar?

10 Ways to Simplify Your Financial Life

Jay Gershman MBA, AIF®

1. Eliminate balances of credit cards with the highest interest rate and try to use one that provides reward points.
2. Eliminate all store credit cards in order to avoid late charges and additional interest.
3. Apply for a Home Equity Line of Credit (HELOC) to secure credit up to 80% of your home's value.
4. Attach a checking and savings account to the HELOC and eliminate duplicate bank accounts.
5. Reduce your savings/checking balance by transferring savings online to HELOC to reduce reserve balances. The interest expense on the loan will be higher than the interest earned on the savings. If your reserves drop too far you can transfer funds back from your HELOC to your savings.
6. Make all purchases on a credit card and pay all utilities on credit card. Be sure that your card provides points that can be used for rebates, travel or gifts. Be sure to pay the card balance in full at the end of each month.
7. Set up the online username and password for each credit card. Sign up for auto pay to be sure payments are made on time and automatically from your bank account.
8. Have all income (employment/social security/retirement) paid directly to a bank account.
   Sign up for auto pay of mortgage payments. If Bi-monthly payment plans are offered they should be considered depending on fees to enroll.
9. Bi-monthly plans reduce the term of mortgages by paying more often.
10. Sign up for credit monitoring to notify you of any issues with your credit.

Three more thoughts:

• Be careful of no interest deals. If you are one day late paying the final balance, the entire accrued interest will be due. You will still owe the minimum each month.
• Consolidate Debt - Cards that offer transfers in order to lower interest often charge a fee as high as 3% upfront. Be sure to factor that into the time that the rate is guaranteed.
• Don't borrow from your 401(k) unless you have an emergency. - Most loans have to be paid over five years and if you leave your job the balance is due or you will be taxed in full plus penalty if you are less than 59 ½.

The information contained herein is solely the opinion of the author and not guaranteed as to the completeness or accuracy provided. Please consult your advisors before making any investment or financial decisions.