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Tough federal bank regulator calls it quits

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What does a Trump presidency mean for the Fed?
What does a Trump presidency mean for the Fed?

Tough federal bank regulator calls it quits

  @mattmegan5

President Trump’s efforts to unshackle America’s banks just got easier.

Daniel Tarullo, the point man on bank regulation at the Federal Reserve, announced on Friday he’s stepping down in April, more than four years ahead of schedule.

Tarullo spearheaded the Fed’s efforts to put banks under tighter scrutiny following the 2008 financial meltdown.

The departure will give Trump, who has promised to deregulate banks, a third vacant seat at the Fed to fill. The appointments will allow the new president to reshape the most powerful central bank in the world in his mold.

Tarullo, 64, did not explain why he’s resigning but noted that he’s served as a Fed governor for more than eight years. In a very brief letter addressed to the president, Tarullo said it’s been a “great privilege” to serve “during such a challenging period.”

Appointed by President Obama in 2009, Tarullo has emerged as one of the most powerful figures in the banking industry.

He served as chairman of the Fed’s committee on bank supervision, putting him in charge of enforcement and the stress tests that examine if lenders are prepared to weather the next economic storm.

News of Tarullo’s early resignation seemed to lift Wall Street’s spirits. Shares of big banks like Goldman Sachs (GS) and Citigroup (C) rose modestly following the announcement. The gains extend a post-election rally that’s been driven in part by Trump’s promises to roll back bank regulation.

But Jaret Seiberg, an analyst at Cowen & Co., wrote in a report that Tarullo’s departure is unlikely to spark “radical change in regulatory policy” and wasn’t a “political comment on Trump.”

It’s important to remember that Tarullo’s role as the Fed’s point man on bank regulation was expected to wane anyway. That’s because one of the vacancies Trump gets to fill is the position of vice chairman for supervision. That position was created by the 2010 Dodd-Frank Wall Street reform law but was never filled by Obama.

Big banks are obviously hoping Trump taps someone who shares his pro-business philosophy of lighter regulation. Trump has promised to “do a big number” on Dodd-Frank. Last week, he signed an executive order that sets the stage for rolling back parts of the law.

Press reports indicate Trump could fill the supervision role with David Nason, an executive at General Electric (GE)who served in the Treasury Department during the financial crisis.

Nason could appeal to the pro-business faction of the Trump administration, including the handful of Goldman Sachs veterans like top economic adviser Gary Cohn.

But Seiberg warned that the strong “populist forces” within the White House could encourage Trump to tap a vice chairman of supervision who wants to crack down on big banks. One idea is to encourage these mega banks to shrink themselves by imposing higher capital requirements.

During the campaign, Trump supported breaking up big banks, a sentiment that top White House strategist Steve Bannon may share.

“There is a risk that the replacement could be tougher on the biggest banks than Tarullo,” Seiberg wrote.

Fed chief Janet Yellen, whose term doesn’t expire until February 2018, has warned against gutting Dodd-Frank. After Trump’s election, Yellen credited financial regulation with making the system “safer and sounder” and said she doesn’t “want to see the clock turned back.”

Published at Fri, 10 Feb 2017 21:18:53 +0000

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Repubican Hensarling plans to ease Wall Street rules: memo

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Repubican Hensarling plans to ease Wall Street rules: memo

| WASHINGTON

The Republican leader of the House Financial Services Committee plans to scale back banking reforms, curb the consumer finance agency and ease regulations on financial institutions and companies looking to raise capital, according to a proposal seen by Reuters on Thursday.

In a four-page memo on the legislation he intends to introduce, Texas Representative Jeb Hensarling made a slew of proposals, including one that Wall Street banks’ “stress tests” be performed every two years instead of annually as is done now.

He also said he would have the position of director of the controversial Consumer Financial Protection Bureau changed from its current protected status to a political appointment removable “at will” by the president under another change.

The memo, seen by Reuters, outlined dozens of changes to the Financial Choice Act that Hensarling introduced last year and plans to reintroduce. His new bill is expected to pass the House of Representatives, but faces an uncertain fate in the Senate, where it will require 60 votes to pass.

The memo does not mention the Volcker rule, which limits bank’s ability to make speculative investments in banks’ own accounts.

His original bill would have killed the Volcker rule. Its absence in the memo, which details his changes to the original bill, suggests he will again propose to eliminate that rule.

 

“It’s very aggressive and a very good starting point to rolling back a lot of the rules and regulations,” said Paul Merski of the Independent Community Bankers of America.

Besides rewriting lending rules, Hensarling’s Choice Act would add more hurdles to the U.S. Securities and Exchange Commission enforcement program.

The bill would also scale back a variety of rules for public companies, including some accounting and capital raising rules. It would also reduce regulations for credit rating agencies.

(Additional reporting by Amanda Becker and Sarah Lynch. Editing by Cynthia Osterman)
Published at Thu, 09 Feb 2017 20:08:32 +0000

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The world’s largest money manager warns of ‘dark shadows’

The BlackRock sign is pictured in the Manhattan borough of New York, in this October 11, 2015 file photo. REUTERS/Eduardo Munoz/Files

The world’s largest money manager warns of ‘dark shadows’

Donald Trump recently lavished praise on Larry Fink for growing the president’s fortune. But the BlackRock boss isn’t exactly returning the compliment.

Fink warned on Wednesday he sees “a lot of dark shadows” that could rattle global markets in the coming months. That’s quite a warning, coming from the CEO of the world’s largest money manager BlackRock (BLK), which controls more than $5 trillion in assets.

Fink joins a growing list of corporate leaders and Wall Street analysts to raise concerns about the timing of Trump’s agenda and the markets’ overly-optimistic expectations for it.

This week, Irene Rosenfeld, the CEO of Oreo maker Mondelez (MDLZ) expressed worry about “significant disruption and uncertainty” from the “backlash against globalization,” and Goldman Sachs warned about the potential negative effects of restrictions on trade and immigration.

Speaking at the Yahoo Finance All Markets Summit, Fink also specifically cited the “breakdown of globalization” signaled by Brexit and Trump’s election.

Fink is concerned about businesses putting major decisions on hold as they seek more clarity on the timing and details of Trump’s plan to stimulate the American economy through tax cuts, infrastructure spending and regulation-busting.

“Most business people are not investing today. They’re waiting to see what may happen. I believe we’re in the midst of a slowdown as we speak because of all the uncertainty,” Fink said.

Fink has supported Democrats and donated money to Hillary Clinton in the 2016 presidential race. The BlackRock boss was even mentioned as a leading contender to be treasury secretary if Clinton had defeated Trump in November.

Still, Fink was named to Trump’s all-star team of CEOs and the president praised him at the group’s first meeting at the White House last week.

“Larry did a great job for me. He managed a lot of my money. I have to tell you, he got me great returns,” Trump said.

Fink’s words of caution come as U.S. markets are sitting near all-time highs. The Dow has surged more than 1,700 points since Trump’s election and recently crossed the 20,000 milestone for the first time ever.

But markets have priced in little risk of a setback. The S&P 500 has gone 81 days without a 1% selloff, the longest period without a big drop since 2006.

“I think markets are ahead of themselves,” Fink warned.

While Trump has slammed trade deals for shipping jobs overseas, the BlackRock CEO forcefully defended globalization, saying, “I believe the world is better…because of global trade.”

Fink admitted that some people are being “left behind,” but suggested much of that is driven by the powerful force of “technology transformation.”

Recent research supports that point that Americans should be more concerned about robots than Mexico. One study by professors at Ball State University found that between 2000 and 2010 about 87% of the manufacturing job losses were caused by factories becoming more efficient through automation and better technology. Just 13% of the lost jobs were because of trade.

Fink warned that a breakdown in global trade and globalization — Trump has pulled out of the Trans-Pacific Partnership and wants to renegotiate NAFTA — is deflationary.

That’s why Fink said there’s a good chance the 10-year Treasury rate could plunge back below 2%. The closely-watched rate is currently sitting at 2.35%.

Yet Fink hedged a bit, explaining he could also make a case for the 10-year Treasury yield continuing its post-election climb to 4%, especially given the low unemployment rate and promises for more stimulus.

“Obviously you’re hearing from me that I’m pretty confused. We’re living in a bipolar world right now,” Fink said.

Asked for the last time he felt like he was living in a “bipolar” world, Fink responded: 2008.

Andy Serwer, Yahoo Finance’s editor-in-chief, joked that the comparison isn’t all that comforting.

“I’m not relaxed. Sorry,” Fink said.

–CNNMoney’s Patrick Gillespie contributed to this report.

CNNMoney (New York)First published February 8, 2017: 4:20 PM ET

Published at Wed, 08 Feb 2017 21:21:08 +0000

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How to raise financially savvy kids

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How to raise financially savvy kids

By Chris Taylor
| NEW YORK

Wondering why our kids are not so great with money? Just look in the mirror; it’s because adults are often financial train wrecks themselves.

Even so, all is not lost. You can still try to instill your children with the right lessons about spending, saving and investing, to prime them for a more secure financial future.

That is the cause of personal finance guru Beth Kobliner, whose new book “Make Your Kid a Money Genius (Even if You’re Not)” has just been released.

She spoke with Reuters about how to equip kids with money smarts.

Q: Is there a time in a child’s life that is best for giving them money lessons?

A: Start earlier than you think, because by age three they start getting money concepts.

Keep your lessons age appropriate. Using anecdotes is helpful, because we all like stories. Show them the numbers with online calculators, and how savings and interest could one day get them to a million dollars.

Q: You say that chores should not be tied to money and allowances are not a great teaching tool. Why?

A: Tying things like making their bed to monetary rewards is a problem. You are paying a child to do things they should be doing anyways, and then they will start negotiating with you all the time. It can end up backfiring for parents.

 

Allowances start with good intentions, but then people tend to get busy and forget about them. I looked into the research, which is all over the map – sometimes allowances help kids with financial decision-making, and sometimes they don’t.

What is very clear is that, whatever you choose, you need to be consistent about it. Otherwise it sends the wrong money message.

Q: No one is perfect with money; is that why we are so afraid to teach our kids about it?

A: It is a terrifying topic. That is essentially why I wrote the book. It is a primer for parents as well, about basic things like debt and delayed gratification and compound interest, so they don’t feel like they are giving kids the wrong information.

 

Q: What are the money topics we should not be discussing about with our kids?

A: I don’t think you need to talk about your salary, because kids don’t have any context for it, and won’t really understand it. They also might gossip about it at school.

You also don’t need to point out who is the bigger breadwinner, by saying things like ‘Mommy makes twice as much as Daddy.’

And don’t disclose how much is in your 401(k); either they will think you are rich and can buy anything you want, or they will worry that you are totally broke.

 

Q: Is social media putting added financial pressure on families, by pretending that we all lead lives of luxury?

A: Absolutely. There is a constant barrage of Instagram photos, seemingly saying: ‘Look at the beautiful place I am, look at the wonderful food I’m eating.’ All of those things cost money. That is why you need to start early by teaching them about wants versus needs, and get into the habit of saying ‘No.’

Q: How did your own parents shape the way you understand money?

A: My dad is 87 now, and growing up in the Bronx, his family was in pretty bad shape. His father drank and couldn’t hold a job, his mother was overwhelmed, and he had siblings who slept in drawers. So he used to go outside of his tenement building, hang out by the pay phone, and answer the phone for people who lived there. They would give him a nickel, and then he would give it to his parents, so they would fight less. Because of that, he always got how important money was.

Q: You have three kids of your own, so how is their financial behavior shaping up?

A: Pretty good, because they have heard me talk about this stuff their whole lives. What I tell other moms is: Make your financial priorities clear, and your kids will pick up on it. Just giving them more stuff is not going to make them any happier. That is something I know for sure.

 

(Editing by Beth Pinsker and Bernadette Baum)
Published at Tue, 07 Feb 2017 15:55:44 +0000

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Affirm, Inc.

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Affirm, Inc.

By Barbara A. Friedberg | February 7, 2017 — 7:00 AM EST

Estimated valuation: $800 million

Product: Consumer Loans

IPO Timeline: TBD

Date Founded: 2012

Affirm is committed to improving the financial industry and add transparency and accountability to the banking experience. Founded in 2012 by former PayPal principal, Max Levchin, the company has received $520 million in four funding rounds. In October 2016, Affirm received its most recent round of funding, $100 million debt financing from lead investor Morgan Stanley, according to CrunchBase. This follows an April 2016 round of $100 million from lead investor Founders Fund and others.

Affirm’s initial product is a lending solution that can be used to pay for purchases at a variety of online or bricks and mortar retail stores. The Silicon Valley company prides itself in transparency and explains that there are no hidden fees so that the total you see at checkout is the amount you pay.

Here’s How Affirm Works

There are two ways to sign up for Affirm. You can sign up for an account on the Affirm website or app. Or, you can select Affirm as the payment method when checking out with an online merchant partner. Users must be at least 18 years old in most states, have a U.S. home address (not available in West Virginia), and have a U.S. mobile or VoIP number registered in their names. Finally, you must provide your full name, email address, birth date, and full or last 4 digits of your social security number.

If it sounds too easy, as with any loan product, there are interest charges. Affirm loans charge between 10% and 30% APR simple interest. This is the only fee. In comparison, creditcards.com states that the current national average credit card interest rate is approximately 15%.

The Affirm payment options are also transparent. If you use Affirm to purchase an item for $100 or more, you can repay the loan over 3, 6 or 12 months. For smaller purchases between $50.00 and $99.99, you can pay over 3 or 5 months. Merchants may offer different options.

Affirm explains that it is not like a credit card with an upper limit. Consumers may take out several Affirm loans simultaneously and each will be evaluated on its own merit. Although, consumers might get approved for one loan and denied for another.

In April 2016, Bloomberg’s Gjorgievska wrote about the firm and stated that Affirm gives shoppers the opportunity to finance their purchases at checkout in over 700 online and brick-and-mortar stores. Retailers that accept Affirm include Casper Sleep Inc., Wayfair, Motorola and BCBG Max Azria. The company has plans for other services including loyalty rewards programs and financial management tools, and strives to expand its market presence. Additional growth plans include a possible move into the mortgage and auto financing areas, according to a VentureBeat conversation with founder Max Levchin.

The Affirm Nay Sayers

VentureBeat, among others, isn’t a fan of Affirm. In a recent article, Robert Harrow states several problems with Affirm. The underlying critique of Affirm is that just because you can finance a purchase, doesn’t mean that you should. The article continues by explaining the disadvantage of financing purchases at 10% to 30% interest and paying off these items during periods that could stretch out to a year. VentureBeat claims that this type of credit is promoting irresponsible borrowing for wants and luxuries that the consumer can’t afford. In a comparison between buying a Casper mattress on a credit card and paying it off over 12 months with an Affirm loan, the total credit card loan carried lower interest rates and netted a lower total interest payment than the Affirm loan.

The Bottom Line

Affirm clearly fills a market need in a crowded lending sphere. Along with its fintech peers, the online lending industry is exploding. As more retailers accept Affirm, the opportunities for consumers to pay with credit will accelerate. Yet, to reiterate the VentureBeat critique, just because you can pay with credit, doesn’t mean that it’s necessarily a good idea
Published at Tue, 07 Feb 2017 12:00:00 +0000

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Premarket: 4 things to know before the bell

 

premarket stocks trading futuresClick chart for in-depth premarket data.

Premarket: 4 things to know before the bell

  @AlannaPetroff

Published at Tue, 07 Feb 2017 09:51:59 +0000

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Trading Psychology Workshop on February 26th

 

Trading Psychology Workshop on February 26th

How can we identify the strengths that can bring us to the next level of trading success?

How can we effectively work on the weaknesses that undermine our current trading?

What specific psychological techniques, proven in research, can help us not just make changes but sustain them?

At the upcoming Traders Expo in New York, Sunday February 26th at 8 AM, I’ll be conducting a four hour workshop that will really be a group coaching where we learn about strengths, weaknesses, and change techniques.  The longer workshop format will ensure that we address your specific challenges and goals.  Please note that the basic Expo event is free; the workshop sessions do have a fee and registration is on a first-come basis.

There will be some good speakers and topics; hope to see you there!

Brett 

Published at Mon, 06 Feb 2017 15:01:00 +0000

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US Index Open Interest Put / Call Ratio Analysis

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US Index Open Interest Put / Call Ratio Analysis

By: Captain Hook | Mon, Feb 6, 2017


The following is an excerpt of commentary that originally appeared at Treasure Chests for the benefit of subscribers on Wednesday, January 25, 2017.


Not long now. Not long to month end. Not long until we see what the (fake?) January Barometer signal tells us to expect this year. There’s only one problem – this signal has been rendered redundant by speculator betting practices and the machines. Case in point – last year. Last year stocks were hammered in January. But how did stocks end the year? Answer: Higher – much higher. They were higher not because of ‘fundamentals’. But because the consensus of speculators were (are) still betting on lower prices, where ‘bad news’, like a Trump victory was supposed to be, triggers another short covering rally. Thing is, the entire ‘reflation rally’ from 2009 has been one short covering rally after another because of this ruse – conceivably the best ‘con job’ to date pulled off by status quo price managers.

And as you can see in the attached, true sentiment conditions have changed little post expiry this month, yet again, with continued slow motion erosion in both broad market bears and precious metals bulls alike (but going in different directions.). Certainly if the OEX ratio is any indication of true pro-trading stock jockey sentiment, this group is now broken, which in and of itself should bring trouble for stocks all on its own. These are the guys who control the big positions across the spectrum, which could spark movement in other trend following markets, not the least of which being QQQ put buyers. Therein, if trend following ratios like QQQ join the others, which have already collapsed into downtrends (SPY, IYT, MNX), the machines would have nobody remaining to squeeze, and stocks would go down.

In the meantime however, and despite this developing condition, because of the ratios trending higher (QQQ, DIA, RUT), higher to sideways prices in the broads remains a distinct possibility. The ‘trick’ will be if a positive January Barometer signal will affect speculator betting practices the same way as last year, where the consensus wagered on lower stock prices for the remainder of the year, which again, is why they finished 2016 higher. This year things should turn out to be the opposite, especially with Trump so loud about how great things will be under his administration. Everyday it’s another opportunity to grandstand for The Donald – and eventually this noise, and the gains in stocks, will exhaust the bears (put buyers), bringing all broad market put / call ratios down in the process.

And of course it’s just the opposite for precious metals. Speculators remain stubbornly (stupidly?) bullish on these markets (understandably), which should continue to affect North American (Western) paper pricing mechanisms negatively; however, the hope is just as bearish broad market speculators become exhausted for reasons discussed above (continued and intensifying Trump hype), bullish precious metals speculators will do the same. Again, timing this transition is difficult, however as mentioned previously, where if this does not take hold in the first quarter, the second appears probable at the outside. It could be the broads rolling over need to lead in terms of sequencing, however this will not matter in the full measure of time (years).

Talking specifics about the precious metals ratios (see here), when posting them yesterday morning I actually got excited when the big spikes higher in AGQ and GDX came up, however this euphoria was quickly replaced by very mixed feelings in seeing the rest of the ratios (except ABX and GG), which are rising, however it’s a start. Again, slowly but surely, the bulls are capitulating, meaning more of the key open interest put / call ratios we follow are rising for real (over unity like GDX), which will turn the machines in the bull’s favor. So with any luck a very insistent (on success) Trump will cave paper market speculators heads in to the point they finally capitulate on a lasting basis. Again, the barrage of news should be like a machine gun until the speculators give up.

This was the reason for the S&P 500 (SPX) to go up and test key resistance at 2280 today, where you will remember, if this mark is breached on a closing basis, no discernable resistance is encountered until it gets up into the 2400-plus area (never mind Dow 20k), the bottom side of the long-term channel (see Figure 3). You may have noticed the CBOE Volatility Index (VIX) closed right on important support at 11 yesterday, where any breach now would propel the SPX / VIX Ratio above long-term sinusoidal resistance on a sustained basis (see Figure 1). What does this mean? It means the market is a ‘run away’, where although further strength will likely prove temporal, still, a move to 2400-plus SPX is definitely possible running into February in blow-off fashion.

For precious metals, this might be enough to kill the rally for a bit. Who needs gold when you have Trump and rising stocks – right? Watch gold at $1180. A breach would not be good.

No ‘rope-a-dope’ for Trump. He’s come out of the corner swinging. The only problem with fighters like this is they burn out fast. That’s what happened to him with his Atlantic City Casinos. One casino wasn’t enough. Then they all got in trouble because of his huge ego.

Looks like a repeat here style wise, with the big question how long it lasts.

So while there’s no telling how long it will take Trump to punch himself out, if the 1928 / 1929 analog is any indication, summer is quite possible.

See you next time.


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Captain Hook

Captain Hook
TreasureChests.info

Treasure Chests is a market timing service specializing in value-based position trading in the precious metals and equity markets with an orientation geared to identifying intermediate-term swing trading opportunities. Specific opportunities are identified utilizing a combination of fundamental, technical, and inter-market analysis. This style of investing has proven very successful for wealthy and sophisticated investors, as it reduces risk and enhances returns when the methodology is applied effectively. Those interested in discovering more about how the strategies described above can enhance your wealth should visit our web site at Treasure Chests.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. We are not registered brokers or advisors. Certain statements included herein may constitute “forward-looking statements” with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Do your own due diligence.

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Published at Mon, 06 Feb 2017 10:52:10 +0000

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Trump begins dismantling Obama financial regulations

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Trump signs plan to roll back financial regulations
Trump signs plan to roll back financial regulations

Trump begins dismantling Obama financial regulations

  @mattmegan5

With the stroke of a pen, President Trump has begun the push to dismantle the sweeping Dodd-Frank reform of Wall Street.

Published at Fri, 03 Feb 2017 18:47:59 +0000

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Your Money: Three big ideas to make it easier to save for college

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Your Money: Three big ideas to make it easier to save for college

By Beth Pinsker| NEW YORK

Surveys regularly find that Americans have no idea what a 529 college savings plan is, so a little tinkering under the hood is definitely needed.

For more than 20 years, families have been able to save in these dedicated investment accounts, with the funds accumulating tax free, as long as the money is used for higher education.

Changing the system even in the smallest way requires Congressional legislation, a tough sell in any given year, and even tougher in the current political climate.

“There aren’t enough hours in the day,” said Republican Representative Lynn Jenkins of Kansas, who just co-sponsored a bill with Democrat Ron Kind of Wisconsin to improve 529 and ABLE accounts, which are similar educational savings plans for disabled individuals.

Jenkins has introduced legislation over the years to tweak educational savings plans. She had success with provisions that took effect in 2015 to make computers a qualified expense and change redeposit rules if a student withdraws mid-year.

But there is more on her wish list, which she has been gathering since she was a state treasurer in charge of running the Kansas 529 plan.

Others in the college savings industry also have thoughts on what could make such savings easier for families.

Here are what insiders say needs the most attention:

1. Encourage employers to get in the game

One of the key drivers of the new House bill, H.R. 529 (bit.ly/2kwe8Da), is to treat educational savings plans more like 401(k)s and connect to families at the workplace, where they have become comfortable doing financial planning.

“There are more employers that offer pet insurance than college savings opportunities,” said Marcos Cardero, chief executive at Gradvisor, a 529 benefit consultant.

If companies are enticed through tax incentives to set up automatic payroll deductions and matching funds similar to retirement plans, it would be a great next step, said George Makras, director of institutional relationship management at Ascensus College Savings, an administrator of 529 plans.

“People are always telling me they wish they heard about 529s earlier,” Makras said. “Those dollars on the table will help encourage people to start earlier.”

 

2. Free up the investments

Current law limits families to two changes in their 529 investment options per year. While many 529 savers put their dollars into age-based funds that are calibrated behind the scenes over time, there are those who chafe at the portfolio restrictions.

“In the 401(k) space, you can rebalance as often as you want,” said Rich Polimeni, chair of the College Savings Foundation, a not-for-profit advocacy group sponsored by the financial industry.

 

3. Allow greater access to the stash

Another reason families shy away from 529 plans is that they worry they will pay penalties on any extra money they save. Even though this is rare, and money can be easily shifted to other family members, it still is a mental obstacle to many.

One way Jenkins’ 2017 bill addresses that concern is by proposing to allow 529 monies to be used to pay off the student loans of a designated beneficiary.

“It sure beats the heck of some sort of [student loan] bail-out program,” said Jenkins.

While the goal of educational savings plans is to save ahead of time so you do not have to borrow, families often do both.

For instance, a family may have needed to borrow for an older child to attend an expensive school, but they may have saved more by the time a younger child comes along, who ends up with a lower tuition bill. Under the proposed changes, the family could help pay off the older child’s loans without incurring penalties and taxes on the growth of the account.

“The thing we’re trying to encourage is to save for college rather than borrow. But people do need to borrow, so why penalize them for trying to save?” said CSF’s Polimeni.

Another proposal in the pipeline: Allow families to roll over excess 529 money into Roth IRAs, since both have similar tax treatments. (They are both seeded with after-tax dollars but do not incur taxes on the growth of the accounts.) Jenkins’ office said this may make it into an upcoming bill.

“You’re looking at a life spectrum from birth to the end,” said Young Boozer, treasurer for the state of Alabama and chair of the College Saving Plan Network. “It seems to make some sense to have a well-structured continuum.”

(Editing by Lauren Young and Bernadette Baum)
Published at Fri, 03 Feb 2017 14:09:11 +0000

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40-Year Mortgages: Do They Exist?

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40-Year Mortgages: Do They Exist?

By Jim Probasco | February 3, 2017 — 11:36 AM EST

Is there such a thing as a 40-year mortgage? Most people think of a home mortgage as a loan for 30 years or less. However, longer mortgages, although less common, do happen. In fact, mortgages lasting 40, 50 and even 60 years have been around for a number of years. If you are thinking about a mortgage with an extended amortization or payback period, you should consider both the pros and cons of such an arrangement.

Pros of a 40-Year Mortgage

There are a number of reasons why a 40-year mortgage might make sense.

  • Lower Payment A 40-year mortgage will give you 10 more years to pay off your loan, resulting in a lower payment. From a cash-flow perspective, this could be helpful.
  • Bail-Out Option – Many people move long before they have paid off their 30-year loan. If you expect to sell your home in less than 40 years, the lower payment may outweigh the disadvantage of paying interest over a longer period.
  • Qualifying for a Larger Mortgage – If high interest rates keep you from qualifying for a loan on the house you want, a longer mortgage may lower the payment and put you in the house of your dreams.
  • Tax Advantage – High earners may see a 40-year mortgage as a way to write off more interest over a longer time period. If mortgage interest remains tax deductible, this could prove to be a real advantage for some people.
  • Fixed Rate – For those who plan to stay put for a number of years, a fixed interest rate over decades may be a real hedge against interest fluctuation.
  • Flexibility You’ll have a lower payment when household income is low, but as your income rises you can switch to biweekly payments, an extra payment a year or even a total refinance for a shorter term of 30, 20 or even 15 years.

Cons

There are, of course, arguments against paying for borrowed money over an extended period.

  • Higher Interest Rate – Many people don’t realize it, but a 40-year mortgage for the same amount will likely carry a slightly higher (typically 0.25%) interest rate than one for 30 years. Over time, higher interest expenses add up. This is not always true, so research rates extra carefully.
  • Paying Out More in Interest If you live in the house until the end of your mortgage, you will have paid out 10 years more in interest. That also adds up.
  • Slow Equity Buildup – When you pay off a loan over 40 years versus 30, the balance owed goes down more slowly. This means that when you do sell, you will realize less home equity.
  • Danger of Overextending Using a 40-year loan to buy a more expensive house could mean you’re buying more home than you can afford to keep up. This could be a real problem in the event of a loss of income or major emergency.
  • Lack of Availability Just because you want a 40-year mortgage doesn’t mean one will be available. Not all lenders offer them, so it’s best to check well in advance before making an offer on a house that depends on a lengthy loan.
  • Infinite Payments If you take out a 40-year mortgage and stay in the house, there’s a good chance you’ll be making house payments for the rest of your life. It will be similar to renting but with a tax deduction, albeit one that fades over time.

Alternatives

Instead of a 40-year mortgage, ask about an interest-only loan. Depending on your long-term goals and credit score, an interest-only loan might be a better deal. (For more, see How Interest-Only Mortgages Work.) Remember, though, that after the interest-only period you will start paying back both interest and principal and your monthly payments will jump considerably. Of course, if you’re planning to resell the house quite soon and housing values hold up, this could work well for you.

You can also consider making a larger down payment and financing for a shorter term, or you could look for a less expensive house. If a 40-year loan you are contemplating stretches your budget too much, it is financially wiser to cut back at the beginning. (For more, see Top 6 Mortgage Mistakes.)

The Bottom Line

Whether a 40-year mortgage makes sense for you depends on a variety of factors, not just how much you will pay out over the life of the loan. It’s important to consider all factors, including your best estimate of how long you plan to stay in the house, before deciding to seek an extended mortgage. The negatives were strong enough to include them in Investopedia’s 5 Risky Mortgage Types to Avoid.

But if you do go ahead anyway, don’t assume the interest rate on a 40-year loan will be higher. While that is typical, local competition and your credit worthiness can make a difference. Finally, before signing on the dotted line, be sure to consider the above alternatives to make sure one of them isn’t a better fit for your situation.
Published at Fri, 03 Feb 2017 16:36:00 +0000

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Why Stock Market Analysts Will be Wrong About 2017

 

Why Stock Market Analysts Will be Wrong About 2017

By: Clif Droke | Thu, Feb 2, 2017


We’re already a month into New Year and there has been an ample amount of sentiment data to suggest that investors, both retail and institutional, aren’t terribly enthusiastic on the stock market outlook for 2017. Granted that institutional analysts are still bullish, as per usual, but in the round table type opinion polls I’ve seen they’ve apparently lowered their expectations. Everyone seems to be preparing for a somewhat disappointing year based largely on the assumption that after eight years of a bull market, surely another major rally is out of the question.

The decennial rhythm we discussed in an earlier commentary argues against these diminished expectations. Indeed, seventh year of the decade tends to be one of unusual volatility for stock prices. While it’s true crashes, corrections and panics are quite common in the seventh year (e.g. September 1987, October 1997, February/August 2007), the seventh year also sees a pronounced tendency for sustained rallies in the first seven months of the year. Accordingly, 2017 could be a year filled with tremendous opportunity for making money in the stock market – in both directions.

For 2017, the 10-year rhythm equates to 2007. As you recall, 2007 was a momentous year characterized at once by great volatility alternating between great fear and euphoria. It was the year that saw the last major stock market top and also the onset of the credit tsunami which overwhelmed the market the following year. If the decennial pattern holds true, 2017 should witness both a meaningful rally to new all-time highs as well as a decline of potentially major proportions.  In short, it could turn out to be a big year for the bulls as well as the bears.

As for the idea that the bull market is getting “long in the tooth” and has therefore exhausted its upside potential, consider that the previous two years could well be characterized as a stealth bear market. The major large cap indices essentially went nowhere in 2015-2016 while the Russell Small Cap Index (RUT) experienced a 25% decline. That’s a bear market by anyone’s definition.

Retail investors have also been quite pessimistic since 2015 in the overall scheme of things. From the start of 2015 up until the election, more than $200 billion was pulled out of U.S. equity funds and ETFs, while a bit more than that was funneled into bond funds and ETFs. That two-year stretch of risk aversion, however, is apparently ending as investors have gradually embraced more risk tolerance since the election. Since the election nearly $46 billion has flowed into U.S. equity funds, while nearly $3 billion has left bond funds, according to money flow statistics.

The evidence strongly suggests that the past two years served the purpose of clearing out the excesses generated by the long-term bull market which began in 2009. In other words, the market is rested and ready to resume its potential as we head further into 2017.

Another concern among investors is that the rise in interest rates since last year could stifle the stock market’s upside potential. While it’s true that sustained periods or rising Treasury yields have often proved a hindrance to higher stock prices, there is an exception to that rule. According to LPL Research, there have been 11 periods of rising interest rates (at least a 1% rise in the 10-year Treasury note) since 1996, each lasting an average of six months. During those times, the S&P 500 rose an average of 5.44%, thus proving that in the early stages of rising interest rates stocks and yields often rise simultaneously.

We’re at a point in the long-wave credit cycle where interest rates are ready to rise after being depressed for years. According to K-Wave theory, after the 60-year economic cycle bottomed in 2014 we should see a gradual increase in rates as the economy recovers its former vigor. Of course this process will take a long time to complete – possibly decades – but we’re likely at a point in the newly formed 60-year cycle where even a temporarily sharp run-up in rates won’t damage the economy or even necessarily hinder the stock market.  In fact, rising rates at this point indicates increasing demand for credit and a corresponding improvement in the economy.

Following is a 10-year chart of the 10-year Treasury Yield Index (TNX). The double-bottom in the interest rate is clearly visible between the years 2012 and 2016. I believe this marks the long-term low in interest rates for the previous long-term cycle.

TNX Weekly Chart

As long as rates don’t rise too high, too fast it’s very possible that stock prices will rise along with Treasury yields without much interference along the way. An added bonus to the rally in T-bond yields is that bond prices are now in a downward trend. This should serve to discourage investors who piled heavily into the bond market in the last few years. It should also cause them to look more closely at stocks as a long-term investment once again, especially as painful memories from the 2008 crash gradually wear off. The underperformance of corporate debt vis-à-vis equities should also encourage investors to take a second look at the stock market. Below is the 1-year graph of the Dow Jones Corporate Bond Index.

Dow Corporate Bond Index

The bottom line is that 2017 should see an increase in business activity across the board as the U.S. returns to a normal business cycle after being artificially suppressed by the actions of central banks for years. Moreover, the decennial rhythm suggests that except for a period of potential weakness in the August-October time frame, year 2017 will likely prove to be a memorable one especially from the standpoint of the upside potential in both the equity market and the U.S. economy.


Mastering Moving Averages

The moving average is one of the most versatile of all trading tools and should be a part of every investor’s arsenal. Far more than a simple trend line, it’s a dynamic momentum indicator as well as a means of identifying support and resistance across variable time frames. It can also be used in place of an overbought/oversold oscillator when used in relationship to the price of the stock or ETF you’re trading in.

In my latest book, Mastering Moving Averages, I remove the mystique behind stock and ETF trading and reveal a completely simple and reliable system that allows retail traders to profit from both up and down moves in the market.  The trading techniques discussed in the book have been carefully calibrated to match today’s fast-moving and sometimes volatile market environment. If you’re interested in moving average trading techniques, you’ll want to read this book.

Order today and receive an autographed copy along with a copy of the book, The Best Strategies For Momentum Traders. Your order also includes a FREE 1-month trial subscription to the Momentum Strategies Report newsletter: http://www.clifdroke.com/books/masteringma.html


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Clif Droke

Clif Droke
ClifDroke.com

Clif Droke is a recognized authority on moving averages and internal momentum. He is the editor of the Momentum Strategies Report newsletter, published since 1997. He has also authored numerous books covering the fields of economics and financial market analysis. His latest book is Mastering Moving Averages. For more information visit www.clifdroke.com

Copyright © 2003-2017 Clif Droke

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Published at Thu, 02 Feb 2017 14:59:08 +0000

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Dan Loeb: Trump will make hedge funds great again

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Hedge fund manager Daniel Loeb speaks during a Reuters Newsmaker event in Manhattan, New York, U.S., September 21, 2016. REUTERS/Andrew Kelly

Hedge fund manager Daniel Loeb speaks during a Reuters Newsmaker event in Manhattan, New York, U.S., September 21, 2016.REUTERS/Andrew Kelly

By Lawrence Delevingne
| NEW YORK

U.S. hedge fund manager Dan Loeb is betting President Donald Trump will be good for investments thanks to his planned mix of tax cuts, reduced regulation and infrastructure spending.

“This environment is undoubtedly better for active investing – just as active investing was considered to be on its deathbed,” Loeb wrote in a letter to clients of his $15 billion Third Point LLC Wednesday.

A shift from government monetary stimulus to measures that will increase personal and corporate spending will create lower correlations between various types of securities and greater dispersion of results within them, such as stocks, Loeb said.

Higher interest rates will also create investment opportunities, Loeb added.

Third Point’s main hedge fund lost 1.1 percent in the fourth quarter, wrapping up a year that Loeb said was “disappointing”. The fund gained only 6.1 percent in 2016, below its 15.7 percent average annual return since 1996 and less than an approximately 12 percent gain for the S&P 500 Index, with dividends.

Loeb wrote he had made changes to New York-based Third Point’s investment holdings immediately after Trump’s election win, shifting to stocks and away from corporate and structured credit. Third Point now has similar-sized holdings in the healthcare, technology, industrial and financial sectors, according to the letter.

One large change was in securities of financial companies. The sector now represents 11.8 percent of the fund, up from 4.4 percent on Nov. 8, according to the letter. Loeb’s focus is now on banks and brokers and includes exposure to Japan.

 

“The pendulum in monetary policy has begun to shift away from the past decade of extraordinary easing just as the pendulum in fiscal policy has begun to shift away from austerity and its limiting factors,” Loeb wrote. “The U.S. elections served as a marker for these policy shifts which, in our view, are bullish for rate‐sensitive financials.”

Loeb did urge some caution on investment during the Trump presidency, noting hedges on Third Point’s portfolio. But he said that even volatility could be a boon.

“While America may or may not be made great again, there is no question that the rules are literally being rewritten,” Loeb wrote. “We do not plan to trade the tweets but we expect an increasing number of real and, even better, fake dislocations to create some extremely rewarding investing opportunities.”

Third Point’s offshore hedge fund rose 2.6 percent in January, according to a person familiar with the situation who requested anonymity because the information is private.

 

(Reporting by Lawrence Delevingne; Editing by Lauren Tara LaCapra and Himani Sarkar)

 
Published at Thu, 02 Feb 2017 06:21:08 +0000

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Premarket: 6 things to know before the bell

 

Premarket: 6 things to know before the bell

  @AlannaPetroff

premarket stocks trading futures
Click chart for in-depth premarket data.

1. Earnings deluge: There are so many earnings coming out on Thursday that you probably won’t be able to say them all in one breath.

Here we go: AstraZeneca (AZN), ConocoPhillips (COP), Estee Lauder (EL), Merck (MRK), New York Times (NYT), Nokia (NOK), Ralph Lauren (RL), Royal Dutch Shell (RDSA), Sony (SNE), Deutsche Bank (DB) and Vodafone (VOD) are all reporting earnings ahead of the open.

Shares in Germany’s Deutsche Bank were sharply lower following the release of its earning report.

More major firms will report results after the close, including Amazon (AMZN, Tech30), Chipotle(CMG), GoPro (GPRO, Tech30) and Visa (V).

2. Australia and Iran in focus: President Trump’s comments on Iran and Australia have put the two countries in the spotlight. Trump specifically said he would study a “dumb deal” that that U.S. had made to take in refugees detained by Australia.

“The Trump twitter feed overnight included some strong language about Iran, and that most diplomatic of phrases ‘a dumb deal’ in reference to relations with Australia,” said Paul Donovan, global chief economist at UBS Wealth Management.

“Both areas may have market importance — the former given Middle Eastern investors’ apprehensions about the U.S., and the latter given shifting dynamics in Asia-Pacific leadership,” he said.

3. Let’s do a deal, okay?: Shares in Mead Johnson Nutrition (MJN) are poised to surge at the open after the infant formula maker said it’s in talks to be acquired by the British conglomerate Reckitt Benckiser (RBGLY), which owns a range of consumer brands, including Lysol, Clearasil and Durex.

The two companies said they’re in talks about doing a $16.7 billion deal, though nothing has been finalized.

Meanwhile, shares in Macy’s (M) are edging up premarket based on rumors that the company may be open to being acquired. The New York Post said the firm’s CEO “has recently become open to offers from potential friendly buyers.”

Macy’s did not immediately respond to a request for comment.

4. Super Thursday in London: The Bank of England is scheduled to announce its latest interest rate decision, quarterly inflation report and meeting minutes on Thursday. Central banker Mark Carney will also hold a press conference where he’ll discuss his expectations for Brexit and how it will impact the economy.

This comes as the British government is set to release a document on Thursday outlining its formal negotiation plans for the U.K. to leave the European Union.

5. Global stock market overview: U.S. stock futures are looking a bit weak right now.

European markets are mixed in early trading. Most Asian markets ended the day with negative results.

6. Coming this week:

Thursday – Amazon (AMZN, Tech30) and Chipotle (CMG) earnings
Friday – U.S. jobs report for January

Published at Thu, 02 Feb 2017 10:05:38 +0000

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Apple iPhone sales beat estimates

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Apple sold 78.29 million iPhones in the first quarter ended Dec. 31, up from 74.78 million last year, marking the first quarterly growth in iPhone sales in a year.

Analysts on average had estimated iPhone sales of 77.42 million, according to research firm FactSet StreetAccount.

The results, which reflected the first full quarter of iPhone 7 sales, come at a time when global demand for smartphones is slowing and cheaper Android alternatives are flooding the market.

 

Apple’s services business, which includes the App Store, Apple Pay and iCloud, recorded an 18.4 percent growth in revenue, helped by the popularity of games such as Pokemon Go and Super Mario Run and higher revenue from subscriptions.

The company forecast total revenue of between $51.5 billion and $53.5 billion for the current quarter. Analysts, on average, had expected revenue of $53.79 billion, according to Thomson Reuters I/B/E/S.

The company’s net income fell to $17.89 billion, or $3.36 per share, in the quarter from $18.36 billion, or $3.28 per share a year earlier. Analysts on average had expected $3.21 per share, according to Thomson Reuters I/B/E/S.

Revenue rose 3.3 percent to $78.35 billion in the quarter, compared with the average estimate of $77.25 billion.

(Reporting by Narottam Medhora in Bengaluru; Editing by Saumyadeb Chakrabarty)
Published at Tue, 31 Jan 2017 21:35:58 +0000

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U.S. funds recommend cutting equity allocations in January

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U.S. funds recommend cutting equity allocations in January

By Krishna Eluri

U.S. funds recommended trimming equity allocations in January as they wait for President Donald Trump to announce the infrastructure spending and tax cuts he promised during his election campaign.

Following Trump’s shock victory in the race for the White House in November, U.S. stock markets have hit record highs on expectations he would cut taxes and regulation.

But major U.S. stock indexes posted their largest daily drop this year on Monday as a curb on immigration ordered by Trump reminded investors that some of the U.S. president’s promised policies are not market-friendly.

The Dow Jones Industrial Average .DJI closed 0.6 percent lower on Monday, its largest one-day percentage drop since October.

Recommended equity allocations were cut to a three-month low of 52.2 percent from 52.7 percent in December, the survey of 13 fund managers conducted from Jan. 17 to 30 showed.

 

Funds left allocations to bonds and property largely unchanged, while a search for yield led to a slight increase in alternative investments such as hedge funds and commodities.

Recommended cash allocations were cut to 3.9 percent from 4.3 percent in December.

Funds increased bets in favor of high-yield securities at the expense of government and investment-grade bonds.

 

“The ‘animal spirits’ dynamic coming out of the Trump victory continues to be flagged as a big tailwind for equities,” wrote Alan Gayle, director of asset allocation at RidgeWorth Investments.

“But while confidence can be a powerful tailwind, it ultimately must be validated by results. The early focus on ACA could delay potential positives from tax reform and infrastructure spending.”

Since taking office, the president’s focus has been on immigration and weakening the Affordable Care Act, the health insurance program also known as Obamacare.

 

Markets have priced in only a 4 percent chance the U.S. Federal Reserve raises interest rates this week, its first meeting since Trump took office on Jan. 20. All 106 economists in a Reuters poll were unanimous in not expecting any hike. (reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?RIC=USFOMC%3DECI)

“We believe that Federal Reserve monetary policy will err on the side of accommodation while potentially supportive fiscal and regulatory proposals are discussed and possibly implemented by the new Congress and Administration,” Gayle said.

 

(Polling by Sarmista Sen and Purnita Deb; Editing by Catherine Evans)
Published at Tue, 31 Jan 2017 12:20:47 +0000

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Seeing Markets Better by Trading With Vision

 

Seeing Markets Better by Trading With Vision

As the saying goes, the risk is not in setting your sights too high and falling short.  The risk is setting your sights too low and succeeding.

In this post, Bella makes the important point that failure is an essential part of success.  When we discover the trading that works for us, we’ll discover many approaches to trading that don’t work for us.  Those will be “failures”, but there will be important information in those failures.  The key is to fail in planned ways, with modest risk taking.  You can’t find your success if you blow through your trading capital.  Developing as a trader is all about controlled failure and learning from what works and doesn’t work.

This applies to life overall.  What in your life, right here and now, are you trying to accomplish that is truly remarkable?  What are you undertaking that is so important to you–so meaningful–that you’re willing to try, fail, and keep trying?  Learning by trial and error and deliberate practice can be a tiring slog…it’s the remarkable aspect of what we undertake that inspires us and gives us a sense of drive and purpose.  Few of us will push ourselves on the nitty gritty of day to day goals if we’re not pulled by an exciting vision.  What keeps the athlete in the gym each day is the quest for the Olympics; what keeps the entrepreneur working 15+ hours a day is the vision of seeing a great idea come to life.

Daily goals channel our efforts.  Life goals inspire our efforts.

We best navigate the path to success if we travel it with vision.

Further Reading:  Boosting Our Energy Level

Published at Tue, 31 Jan 2017 11:47:00 +0000

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Walgreens/Rite Aid Deal Gets Price Cut, Extension

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Walgreens/Rite Aid Deal Gets Price Cut, Extension

The price of the long-simmering buyout of Rite Aid (NYSE: RAD) by fellow pharmacy giant Walgreens Boots Alliance (NASDAQ: WBA) has dropped. In a joint press release the two companies announced a modification of their merger agreement that will see the price fall to between $6.50 and $7.00 per Rite Aid share.

Additionally, the end date of the merger agreement has been extended to July 31 of this year. Originally, they had targeted Jan. 27.

The exact buyout price will depend on the extent of the store divestments. The amended agreement stipulates that Rite Aid will be required to sell up to 1,200 of its stores, plus “certain additional related assets” if such sales are required to obtain regulatory approval. The more outlets that are sold, the lower the theoretical value of Rite Aid, hence the lower the sale price.

Walgreens and Rite Aid originally agreed to a price of $9.00 per share in a deal valued at over $17 billion, including debt. That agreement was signed in October 2015.

Last month, the two companies agreed to sell 865 Rite Aid locations to regional pharmacy operator Fred’s (NASDAQ: FRED) for $950 million. This was done to appease the Federal Trade Commission, which had previously mandated the sale of between 500 and 1,000 Rite Aids in order to win its approval for the merger. However, the FTC indicated that deal was not sufficient to ease its concerns about the anticompetitive nature of the merger.

If it ever goes through, the Walgreens/Rite Aid deal will create the largest pharmacy chain by far in the U.S. As of late last year, Walgreens was already the largest such company in the country, while Rite Aid was No. 4.

Understandably, Rite Aid’s shares fell significantly on news of the modifications; they closed 17% down on Monday. Walgreens’ stock essentially traded flat.

10 stocks we like better than Walgreens Boots Alliance
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David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now… and Walgreens Boots Alliance wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

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*Stock Advisor returns as of January 4, 2017

Eric Volkman has no position in any stocks mentioned
Published at Mon, 30 Jan 2017 23:10:03 +0000

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How to Make the Changes That Will Change Your Trading

 

How to Make the Changes That Will Change Your Trading

I strongly encourage you to check out this month’s Forbes article and its links, which show how much change we’re capable of and how we can make those changes.

The change process is remarkably similar, regardless of the specific approaches being used.  We first identify the recurring patterns in our lives that account for our success; then we engage in emotionally impactful experiences that change the old patterns and introduce new, positive ones; then we find repeated and creative ways to build those new patterns until they fully become a part of us.

The research summarized in the article strongly suggests that structuring this process in a helping relationship accelerates change and increases the probability of sustaining changes.  That helping relationship can be a coaching one, as in sports.  It can be a counseling relationship in a school setting, or it can be a therapeutic relationship for life and relationship changes.  It can be a mentoring relationship at work.

Think of a personal trainer in a gym.  They will correct the exercises you are doing and introduce new ones.  They will help you sustain effort even when you lose momentum.  Over the course of your gym work you don’t just improve your exercising.  You become a stronger person, someone more fit, someone who feels better about themselves.

This is the big takeaway:  In changing our patterns, we open the door to more profound changes.  You don’t necessarily need a dedicated trading coach, but you also don’t have to go it on your own.  The right counselor, therapist, or mentor acts as a catalyst for change.  As the research linked below suggests, having someone as a change agent enables us to make many years’ worth of changes in a matter of months.

We make the changes that will change our trading by finding the people who see the best in us and help us realize that potential.

Published at Mon, 30 Jan 2017 10:12:00 +0000

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Pentagon Reviewing Boeing, Lockheed Contracts

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Pentagon Reviewing Boeing, Lockheed Contracts

Apparently taking his cue from on President Donald Trump’s recent tweet storm, Defense Secretary James Mattis has ordered reviews of Boeing‘s (NYSE: BA) contract to build new aircraft that will serve as Air Force One and Lockheed Martin‘s (NYSE: LMT) contract to build F-35 fighter jets.

In early December, Trump tweeted: “Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4 billion. Cancel order!”

The technologically advanced military-class aircraft is designed to be a fortress that can serve as a flying White House and keep the president safe even in the event of a nuclear war. A plane with those unique features is naturally going to be expensive, but Trump issued a follow-up statement to the media saying, “The plane is totally out of control … I think Boeing is doing a little bit of a number. We want Boeing to make a lot of money but not that much money.”

A short time later, Trump sent out a separate tweet taking aim at Lockeheed’s fifth-generation fighter jet program: “The F-35 program and cost is out of control. Billions of dollars can and will be saved on military (and other) purchases after January 20th.” The defense contract features some $7.2 billion worth of contracts to build 90 of the fighter jets, about $80 million per plane.

Although both companies publicly pledged to work with the president on controlling costs, Trump is apparently holding their feet to the fire to ensure they make good on their promises. A Pentagon spokesman said Mattis issued the reviews in order to “inform programmatic and budgetary decisions, recognizing the critical importance of each of these acquisition programs…This action is also consistent with the president’s guidance to provide the strongest and most efficient military possible for our nation’s defense.”

According to Bloomberg, Mattis is also giving Boeing an opportunity to get the fighter jet contract by reviewing whether a version of its F-18 jet could make a viable substitute. That seems to be in line with yet another Trump tweet: “Based on the tremendous cost and cost overruns of the Lockheed Martin F-35, I have asked Boeing to price-out a comparable F-18 Super Hornet!”

Mattis’s directive calls for the deputy defense secretary to “oversee a review that compares F-35C and F/A-18E/F operational capabilities and assesses the extent that F/A-18E/F improvements (an advanced Super Hornet) can be made in order to provide a competitive, cost effective, fighter aircraft alternative.”

Experts have been clear that there is no way to build an F-18 model that could supplant the F-35 for a host of reasons; among the biggest is that the older plane can’t be given the stealth of the new one. However, it seems this latest move from the new administration is a strong signal that Trump’s tweets aren’t necessarily empty words.

10 stocks we like better than Boeing
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now… and Boeing wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of January 4, 2017

Rich Duprey has no position in any stocks mentioned.
Published at Mon, 30 Jan 2017 15:05:05 +0000

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