Everything You Need to Know About the Fed's Policy Meeting

Today's FOMC meeting will kick off a two-day discussion of economic policy - and will leave unprepared investors confused...

Both the FOMC policy statement and its economic and market projections will be released on Wednesday at 2 p.m. EDT and will be followed by U.S. Federal Reserve Chairman Ben Bernanke's press conference at 2:30 p.m.

[Editor's Note: Stay tuned to Money Morning for a Wednesday FOMC Meeting roundup.]

The question hot on everyone's tongue is what the FOMC will decide to do about the $85 billion in monthly bond buying - will the inevitable quantitative easing (QE) taper finally begin?

Every time the Fed has stopped a QE program, the markets tumbled:



Almost three-quarters of the 69 economists polled after August's jobs data was released anticipated the FOMC would vote to taper its bond-buying program, according to Reuters. The central bank is projected to trim its monthly spending on QE asset purchases by $10 billion.
Conversely, rumor has it the FOMC may, for a third consecutive time, lower growth forecasts for 2013.

That's because annual inflation is about half a percentage point below the goal the Fed set in December. Plus, although unemployment was lowered to 7.3% in August, that's mainly because so many Americans are dropping out of the labor force:

More than 4 million people have been out of work for more than six months, and a doleful 11.5 million are looking for work in total. In the first seven months of 2013, 953,000 jobs have been created; a full 731,000 of those, or 77%, have been part-time.

In sum, 22.1 million Americans are either unemployed or underemployed.

Even if the Fed doesn't announce a taper, it will be deciding on growth forecasts through 2016. Yes, that seems like a far-away number - but markets will react immediately.

What investors need to be ready for is the Fed to possibly announce a taper and also lower growth forecasts - two clashing moves.

So why would the FOMC do both?

"It wouldn't surprise me if the FOMC lowers growth forecasts for strategic reasons," says Money Morning's Capital Wave Strategist Shah Gilani. "If they lower them and then the numbers come in better than expected, they have room to start tapering and the market won't freak out as much."

On the other hand, if the FOMC meeting today raises the growth forecast or leaves it as is, and growth numbers come in lower, the market will rally on the belief that the Fed will not taper at all.

"The FOMC is inclined to move toward winding down their balance sheet and is counting on doing that if doing so won't freak out the markets and ruin the wealth effect triage triangle: pump up the banks, pump up the markets, pump up consumer confidence to pump up consumer spending," Gilani explains.

When Bernanke speaks on Wednesday after the Fed meeting concludes, he's anticipated to discuss the decline in unemployment, in addition to other jobs data like the drop in labor participation. Plus, he should discuss interest rates and issues stemming from the Syrian crisis and comment on the debt-ceiling debate.

The central bank will not release the minutes of the two-day meeting until Oct. 9, so you'll have to tune in Wednesday for Money Morning's FOMC Meeting Roundup.

It turns out the FOMC meeting today isn't the only hot Fed news swirling this week...

Today's "End of Summers" Announcement

Speaking of Bernanke, you may have heard the announcement Sunday evening that Larry Summers is withdrawing from the running to become the next Federal Reserve Chairman.

I hope you could hear the collective sigh being released by us Money Morning folk.

"Summers bowing out is a reflection of the vote counting the Administration did; they knew Obama didn't have the political clout to shove Summers through," Gilani weighs in. "So, why not make nice and bow out so as not to embarrass the president and take up even more of his dwindling political poker chips."

This move makes Fed Vice Chairwoman Janet Yellen a likely shoo-in.

On Yellen, Gilani says:

"Janet is considered next up and a consensus builder. But, anyone the president puts up better be ready for bruising confirmation hearings. The markets are eating all this up because Janet is a dove and never met a printing press she didn't know how to operate."

Yellen, Summers, or whomever, for now investors are left to deal with the aftermath of Bernanke's QE policy. It's placed all Americans at great financial risk.

Right now, his printing presses are still running... but by Friday, who knows?

We figure you've got very little time before he pulls the plug for good, and the markets go on a death spiral. Money Morning's top experts put together a "safety plan" you can use to protect your wealth right away.

Related Articles:

Money Morning:
QE Taper Talk and the Stock Market Money Morning:
Brace Yourself: This Is What the Fed's QE Has Done for Our Economy Money Morning:
What a QE Taper Means for Markets and the Next Fed Chair

Men's Wearhouse: Yet Another Specialty Retailer Being A Victim Of A Poor Retail Environment

Shares of The Men's Wearhouse (MW) sold of aggressively in Thursday's trading session. A disappointing set of second quarter results, accompanied by a reduced full year outlook, put short-term pressure on the shares.

While a transformed business model could create long-term value, or a take-out could create instant value, I remain on the sidelines. I don't see these materializing with a great probability, or in the short term.

Second Quarter Results

The Men's Wearhouse generated second quarter revenues of $647.3 million, down 2.3% on the year before. Revenues came in short of consensus estimates of $670 million.

GAAP earnings fell by 27.8% to $43.0 million. As the company has repurchased almost 2% of its shares outstanding over the past year, earnings per share fell from $1.15 to $0.85 per share.

Non-GAAP earnings came in at $1.01 per share, severely missing estimates of $1.14 per share.

Looking Into The Results..

The main Men's Wearhouse division reported a modest 0.9% decline in revenues which came in at $426.6 million, supported by 0.7% growth in comparable sales.

The smaller Moores and K&G unit reported sales declines of 4.9% and 5.7%, respectively.

Gross margins fell by 65 basis points to 47.7% of total revenues. Solid margin growth in retail clothing products was made undone by lower tuxedo rental and alteration margins, and higher occupancy costs.

The goodwill impairment charge related to the K&G business of $9.5 million cost a 150 basis point of revenues, while selling, general and administrative expenses rose by 140 basis points to 35.9% on the back of negative sales leverage.

Adjusted earnings came in at $1.01, down 14 cents compared to a year earlier. The company ironically thinks this is mainly caused by a shift in the tux business, as it sees fewer weddings in 2013 as couples think this might be an "unlucky" year.

..And Looking Into The Remainder Of The Year

Just like many other clothing retail! ers, the company is concerned about macro trends in the apparel industry.

For this reason, the company sees a 2% reduction in comparable store growth rates compared to the guidance from June of this year. This means that comparable sales at the main division are still expected to grow by 2% to 3%. Adjusted full year earnings are now seen between $2.40 and $2.50 per share. Previously, the company saw earnings some 30 cents higher than this range.

Note that this excludes integration costs from the acquisition of JA Holding and goodwill impairment charges related to K&G.

While the company is cautious, it remains upbeat about store openings, the expansion of brands and marketing initiatives, which combined should result in a higher market share.

Valuation

The Men's Wearhouse ended its second quarter with $32.5 million in cash and equivalents. The company operates without the assumption of debt, for a modest net cash position. Inventories stood at $600 million in the past quarter.

For the first six months of the year, The Men's Wearhouse generated sales of $1.26 billion, up little over a percent. Net earnings fell by 12% to $76.0 million in the meantime.

At this pace, full year revenues could come in around $2.5 billion, with adjusted earnings of around $2.50 per share.

Factoring in losses of some 12% following the report, with shares exchanging hands at $34 per share, the market values the company at $1.7 billion. This values assets of the firm at 0.7 times annual revenues and 13-14 times annual earnings.

The Men's Wearhouse pays a quarterly dividend of $0.18 per share, for an annual dividend yield of 2.1%.

Some Historical perspective

Shares of the company peaked around $55 in the summer of 2007. In tandem with the rest of the market, shares had fallen to lows of $10 in 2009 amidst the financial crisis.

Shares have steadily gained ground from that point in time and reached highs of $40 in August of this year. From that point in time! shares h! ave given up some 15%, trading at $34. Shares are still trading with year to date gains of around 10%.

Between the fiscal year of 2009 and 2012, the company has increased its annual revenues by a cumulative 30% to almost $2.5 billion. Net earnings tripled to $132 million in the meantime.

Investment Thesis

There has been a lot of turmoil surrounding Men's Wearhouse this year. Back in June it fired its co-founder and then Chairman George Zimmer. The executive and the board were disagreeing over the direction of the company. Zimmer wanted to focus on shareholder interest and consider strategic alternatives, including the option of taking the company private.

Following the departure of Zimmer the company bought JA Holding in a $97.5 million deal, thereby acquiring clothing brand Joseph Abboud. With the acquisition of the wholesale company, the company is aiming to create a full vertical retail model from factory to stores, thereby reshaping the entire business model.

The company furthermore used $100 million to engage in an accelerated share repurchase, thereby reducing the outstanding share base by almost 7% at current levels.

Shareholders are not impressed with the performance and management's direction so far. The business is attempting to redefine its business model by creating an integrated business model, which will take some time and involve some risks.

Some investors will undoubtedly be mad at this moment, as they hoped for a take-private deal somewhere in the forties or low fifties. Instead they are now stuck with the shares at levels around $34 per share.

For now the lower share price gives the company better value for the money, as it can repurchase more shares at current levels. With a resurgence in weddings planned for 2014, the business should relatively be able to stabilize or grow revenues at a modest pace next year. On top of that comes the increased possibility of a deal led by Zimmer as shares trade at current lower levels.

Back in Sep! tember of! last year, I took a look as The Men's Wearhouse prospects. I concluded that I found it hard to judge the sustainability of 5-6% net profit margins going forward, given that they were historically high.

Shares have been dead money over the past year. A successful integration of Joseph Abboud and transformed business model or a take-out could create decent value for shareholders. Yet I'm not overly optimistic of any of these occurring in the short term.

Therefore I remain on the sidelines.

Source: Men's Wearhouse: Yet Another Specialty Retailer Being A Victim Of A Poor Retail Environment

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

Nike’s Earnings Win Bodes Well For Sporting Goods

Is Nike's (NKE) good fortune rubbing off on others? Perhaps.

The athletic footwear and apparel giant knocked it out of the park in its earnings debut as a Dow component; with both its fiscal first-quarter revenue and earnings per share beating expectations. Granted, China remained a drag. But there was strong sales growth in North America and Western Europe amid rising demand for athletic apparel. Also impressive was an 8% gain in Nike brand future orders — an indicator of future sales.

And in a note published today, Sterne Agee analyst Sam Poser argues that those results – particularly Nike's gains in Europe — bode well for Foot Locker (FL). He writes:

Nike reported a double digit increase in European future orders which bodes well for FL. Nike called out specific strength in the UK, Germany, Austria, and Switzerland. The UK is the 2nd largest market for FL in Europe. Germany is also very important, given the recent acquisition of the German based Runners Point Group. Our checks indicate that FL is taking share in Italy from many smaller retailers who have gone out of business due to the poor economy. Nike noted that futures in Italy were down MSD, an improvement from down double digits in recent quarters. Nike’s 12% increase in NA futures also bodes well for FL.

At $33.84, shares of Foot Locker rose 3.3% in morning market action and Dick's Sporting Goods (DKS) rose almost 2% to $53.33.

Investors also bid up shares of Under Armour (UA) to $80.31, a 1.5% rise. And athletic-gear retailer Finish Line (FINL) jumped 7.3% to $24.02 following their own earnings homerun.

Best Undervalued Stocks For 2014

Nokia (NOK) jumped 4% in heavy volume after-hours trading on Wednesday night (6/19/13) after the Wall Street Journal reported that Microsoft (MSFT) had been in talks to acquire Nokia's phone business as recently as this month. Coming the day after Huawei's reported interest in Nokia (later half-heartedly retracted), I believe this represents fantastic news for Nokia shareholders and here's why. Just by these reports circulating, the market will start waking up to the true underlying value of Nokia's assets and start to re-adjust its valuation upwards accordingly. In this article, I give a review of Nokia's assets and just what may have happened between Nokia, Microsoft and Huawei in the past month.

Nokia Is Undervalued

Most Seeking Alpha readers I believe recognize that Nokia is significantly undervalued with strong potential for upside. It is this which attracted me and I believe many others to Nokia over the last year. However with EPS hovering a few cents either side of zero for the last two quarters, it is difficult to come up with a standard P/E ratio estimate for Nokia. Instead of that, I have done a sum-of-parts valuation for the company starting with NSN.

Best Undervalued Stocks For 2014: Tupperware Corporation(TUP)

Tupperware Brands Corporation operates as a direct seller of various products across a range of brands and categories through an independent sales force. The company engages in the manufacture and sale of kitchen and home products, and beauty and personal care products. It offers preparation, storage, and serving solutions for the kitchen and home, as well as kitchen cookware and tools, children?s educational toys, microwave products, and gifts under the Tupperware brand name primarily in Europe, Africa, the Middle East, the Asia Pacific, and North America. The company provides beauty and personal care products, which include skin care products, cosmetics, bath and body care, toiletries, fragrances, nutritional products, apparel, and related products principally in Mexico, South Africa, the Philippines, Australia, and Uruguay. It offers beauty and personal care products under the Armand Dupree, Avroy Shlain, BeautiControl, Fuller, NaturCare, Nutrimetics, Nuvo, and Swissgar de brand names. The company sells its Tupperware products directly to distributors, directors, managers, and dealers; and beauty products primarily through consultants and directors. As of December 26, 2009, the Tupperware distribution system had approximately 1,800 distributors, 61,300 managers, and 1.3 million dealers; and the sales force representing the Beauty businesses approximately 1.1 million. The company was formerly known as Tupperware Corporation and changed its name to Tupperware Brands Corporation in December 2005. The company was founded in 1996 and is headquartered in Orlando, Florida.

Best Undervalued Stocks For 2014: Dollar Tree Inc.(DLTR)

Dollar Tree, Inc. operates discount variety stores in the United States and Canada. Its stores offer merchandise primarily at the fixed price of $1.00. The company operates its stores under the names of Dollar Tree, Deal$, Dollar Tree Deal$, Dollar Giant, and Dollar Bills. Its stores offer consumable merchandise, including candy and food, and health and beauty care, as well as household consumables, such as paper, plastics, household chemicals, in select stores, and frozen and refrigerated food; variety merchandise, which includes toys, durable housewares, gifts, party goods, greeting cards, softlines, and other items; and seasonal goods, such as Easter, Halloween, and Christmas merchandise. As of April 30, 2011, it operated 4,089 stores in 48 states and the District of Columbia, as well as 88 stores in Canada. The company was founded in 1986 and is based in Chesapeake, Virginia.

10 Best Casino Stocks To Buy Right Now: Caterpillar Inc.(CAT)

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. It operates through three lines of businesses: Machinery, Engines, and Financial Products. The Machinery business offers construction, mining, and forestry machinery, including track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, skid steer loaders, underground mining equipment, tunnel boring equipment, and related parts. It also manufactures diesel-electric locomotives; and manufactures and services rail-related products and logistics services for other companies. The Engines business provides diesel, heavy fuel, and natural gas reciprocating engines for Caterpillar machinery, electric power generation systems, marine, petrol eum, construction, industrial, agricultural, and other applications. It offers industrial turbines and turbine-related services for oil and gas, and power generation applications. This business also remanufactures Caterpillar engines, machines, and engine components; and offers remanufacturing services for other companies. The Financial Products business provides retail and wholesale financing alternatives for Caterpillar machinery and engines, solar gas turbines, and other equipment and marine vessels, as well as offers loans and various forms of insurance to customers and dealers. It also offers financing for vehicles, power generation facilities, and marine vessels. The company markets its products directly, as well as through its distribution centers, dealers, and distributors. It was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc. in 1986. Caterpillar Inc. was founded in 1925 and is headquartered in Peoria, Illinois.

Advisors' Opinion:

• [By Shauna O'Brien]

  Bank of America/Merrill Lynch reported on Tuesday that it has cut its estimates on Caterpillar Inc. (CAT).

  The firm, which currently has a “Neutral” rating on CAT, has lowered estimates on the company through 2015. Analysts currently have a $88 price target on CAT, suggesting a 1% increase from the stock’s current price of $86.88.

  Caterpillar shares were mostly flat during Tuesday morning trading. The stock has been mostly flat YTD.

• [By Rebecca McClay]

  Building roads and bridges takes a lot of heavy equipment, and that's exactly what Caterpillar (CAT) makes. Whether a project needs backhoes, excavators, pavers or the articulated trucks to get asphalt and other building materials from one location to another, the Peoria, Ill., manufacturer is the industry leader both in the U.S. and abroad.

Best Undervalued Stocks For 2014: Schlumberger N.V.(SLB)

Schlumberger Limited, together with its subsidiaries, supplies technology, integrated project management, and information solutions to the oil and gas exploration and production industries worldwide. The company?s Oilfield Services segment provides exploration and production services; wireline technology that offers open-hole and cased-hole services; supplies engineering support, directional-drilling, measurement-while-drilling, and logging-while-drilling services; and testing services. This segment also offers well services; supplies well completion services and equipment; artificial lift; data and consulting services; geo services; and information solutions, such as consulting, software, information management system, and IT infrastructure services that support oil and gas industry. Its WesternGeco segment provides reservoir imaging, monitoring, and development services; and operates data processing centers and multiclient seismic library. This segment also offers variou s services include 3D and time-lapse (4D) seismic surveys to multi-component surveys for delineating prospects and reservoir management. The company?s M-I SWACO segment supplies drilling fluid systems to improve drilling performance; fluid systems and specialty tools to optimize wellbore productivity; production technology solutions to maximize production rates; and environmental solutions that manages waste volumes generated in drilling and production operations. Its Smith Oilfield segment designs, manufactures, and markets drill bits and borehole enlargement tools; and supplies drilling tools and services, tubular, completion services, and other related downhole solutions. The company?s Distribution segment markets pipes, valves, and fittings, as well as mill, safety, and other maintenance products. This segment also provides warehouse management, vendor integration, and inventory management services. Schlumberger Limited was founded in 1927 and is based in Houston, Texas.

3 Reasons Twitter's IPO Shouldn't Thrill Average Investors

Bloomberg via Getty Images Ever since Facebook (FB) went public last year, investors have expected Twitter to follow suit. Last week, would-be Twitter buyers got their wish, as the company announced it was going public. The company's method of making the announcement wasn't all that surprising -- Twitter tweeted it. Yet one key fact marked a big change to the IPO process: Investors didn't get access to the IPO filing that companies have to submit to the SEC to get approval to go public. Instead, Twitter took advantage of new legal provisions allowing it to keep its IPO filing on Form S-1 confidential. This less-public method for launching a public offering came from the Jumpstart Our Business Startups Act. Many of the provisions of the JOBS Act allow would-be public companies to prepare for their IPOs differently from how they have in the past -- differences that have major implications for IPO investors seeking to make informed decisions about whether to buy shares of companies that are coming public. 1. Institutional Investors Will Get a New Edge Ordinary investors already suffer from substantial disadvantages in the IPO process. Many underwriting brokers reserve shares of the most-popular IPOs for their select customers, locking out many small investors entirely. As a result, ordinary investors often have to resort to buying shares on the open market after the initial offering, which can involve paying a big premium to the IPO price. Under the JOBS Act, institutional and other preferred customers will get another advantage. Companies considering an IPO will be able to meet with what the law calls qualified institutional buyers to get a sense of their interest in buying shares. That will give those accredited investors and institutions more potential advance notice of a coming IPO, giving them more time to research and investigate the company before the general public even knows an IPO is coming. 2. Expect More Speculation Based on Fewer Facts High-profile IPOs create a lot of hype, especially when the companies involved are in hot sectors of the market. Now that Facebook has finally recovered from its post-IPO collapse and climbed comfortably above its offering price, social-media stocks are hot again. Twitter couldn't have timed its IPO better to get maximum attention from investors. But, without access to Twitter's SEC filing, the professional analysts, journalists, and other commentators whose job it is to help educate investors about the coming initial public offering will have far fewer hard facts at their disposal. Instead, they'll have to turn to less reliable information about the company and its business prospects, potentially creating misleading impressions about the company that will only be rebutted once the SEC filing is made public. Moreover, they'll have less time to critique and challenge Twitter's filing after the confidentiality period ends. In addition, the quality of information won't be as good even once it becomes public. For instance, the JOBS Act allows companies to go public with just two years of financial data, rather than the three to five years of information previously required. In addition, companies are allowed to offer streamlined disclosures about executive compensation and can use an extended phase-in period to start following guidelines on internal controls. All told, the changes will leave you needing to be even more careful to avoid letting hype affect your judgment. 3. Many Companies Will Use IPO Alternatives to Raise Capital One revolutionary move the JOBS Act made was to remove a ban on advertising offerings of private securities. As long as a company can demonstrate that all of its purchasers qualify as accredited investors -- people with high incomes or net worth, as well as certain institutions -- it can solicit and advertise to such purchasers. Moreover, under what's known as the crowdfunding exemption, companies can solicit investment from non-accredited investors. Companies can raise up to $1 million annually, with limits on the amount that any one person can invest based on income and net worth figures. Although companies using the crowdfunding exemption have to file information with the SEC, it's much less extensive than what a full IPO filing would require. Be Careful Out There The JOBS Act made it a lot easier for companies from Twitter to tiny local businesses to raise capital. But the new rules also come with traps for unwary investors. Only by exercising caution can you avoid investing in problematic businesses and make smart moves with your money.

Is India’s New Central Banker Already Fixing the Nation?

India has been in trouble, it currency and financial markets have been roiled and its inflation is among the worst we have measured. It seems as though that all times of trouble have a recovery, and that may be happening in India. Raghuram Rajan has taken over as the head of India’s central bank this week and the market is reacting as though his entrance will immediately help to foster a much-needed recovery.

Stocks have magically had a good week in India after a continuous slide, and the rupee currency even hit what appears to be 10-day high after recently settling in at all-time lows. Rajan already has released some initiatives to drive the rupee back up. His aim is to make it cheaper for India’s banking sector to keep dollars with some foreign currency bank deposits. Another step is an increased swap line with Japan for trade.

India, and much of the emerging economic market world, is somewhat at the mercy of the Federal Reserve. A sudden and abrupt end to quantitative easing is of severe concern to the international markets because it could further weaken other currencies against the dollar and drive up the cost of goods even more in these local economies.

The Bombay Stock Exchange closed up over 1.5% at 19,270.06 on Friday, making for what was a 7.2% gain from the lowest closing price of the prior week. We already are seeing some gains take place in the key ETFs and funds as well.

WisdomTree India Earnings (NYSEMKT: EPI) is up 2.2% at $14.89, against a 52-week range of $12.99 to $20.50. This translates to a gain of 14% from the very recent lows.

PowerShares India (NYSEMKT: PIN) is up 1.8% at $15.49, and its 52-week range is $13.50 to $19.66. That is a gain of almost 15% off the recent lows.

The India Fund Inc. (NYSE: IFN) is a closed-end fund that trades often at severe discounts or premiums to the net asset value. Its gain is only 0.9% to $18.03, and the 52-week trading range of $16.88 to $24.10 implies that it has recovered only 7% off of its recent lows. It currently trades at a discount of 11% to its NAV according to CEFA.com.

The small-cap ETF for India is the Market Vectors India Small-Cap ETF (NYSEMKT: SCIF), and its gain is only 0.5% to $24.48, against a 52-week range of $22.25 to $46.60. The recovery here is only almost 9% when it is still trading at about half the price of its 52-week high.

Who Gets the Beach House?: A How-To for Advisors on Helping a Family Decide

Beach houses are often perceived as the pinnacle of achievement for a high-net-worth family. Like the Bush or Kennedy family compounds in New England, they evoke thoughts of multigenerational ties and shared values, songs by the campfire and touch football on the lawn.

And then there’s the reality.

When Stacy Allred, a director in the wealth structuring unit of Merrill Lynch’s Private Banking and Investment Group, sat down to work with a West Coast family on preserving their cherished gathering spot along with a sense of multigenerational harmony, she quickly found herself dealing with a challenge that has cropped up for many baby boomers and their children. While a beach house, mountain retreat or European villa may be just a vacation home, it is also charged with emotions and family history that must be considered when the time comes for the next generation to take possession of that beloved second home.

A Small Cabin Becomes a Large House

In the case of Allred’s clients, a young couple living in San Francisco back in the 1960s bought a small cabin on a large piece of land on the coast, two hours from the city. What was at first a getaway for the young couple and their four small children became a place that the whole extended family enjoyed, including aunts, uncles and cousins. A series of renovations and additions turned the small cabin into a large house, and those four children now have adult children of their own.

“The original matriarch and patriarch have died, and the trust they left for upkeep and maintenance is dwindling,” recounts a Merrill viewpoint, “Who Gets the Beach House?,” published this August, just as many families were enjoying their final summer days on the shore. “After years of exposure to the elements, the home needs a new roof, new siding and other major repairs. Yet those physical upgrades, while significant, are merely symbolic of much larger challenges facing a family that longed for the home to be as meaningful for subsequent generations as it had been for them. Who pays the bills? Who oversees the upkeep? Who gets to use the house, and when?”

For the Northern California family, one son had done particularly well financially. While it might seem that his good fortune solved the family’s beach house preservation issues, it was only the beginning of a process that involved a meeting of siblings and their spouses plus nieces and nephews, featuring Allred as mediator.

“They didn’t want to come in as ‘deep pockets,’” Allred recalls of the son and his wife, who had asked her to help organize and run the meeting. “They wanted it to be collaborative. The biggest priority was maintaining family unity. They didn’t expect preferential weeks in the home, or an extra vote on matters pertaining to the house.”

For advisors who need to help their own clients resolve beach house estate planning issues, read on for a how-to from Merrill Lynch’s Private Banking and Investment Group.

Working with the northern California couple’s certified public accountant and estate attorney, Stacy Allred of Merrill Lynch’s Private Banking and Investment Group helped coordinate a strategy to create a trust to cover major capital improvements, ongoing maintenance and taxes for the family beach house.

The technicalities of the transaction look like this: The trust was structured to receive gifts as “current” gifts, meaning that the recipients had the right to withdraw the gifts from the trust within a limited window and use them for their own purposes. Thus, the couple was able to use their annual gift tax exclusion to fund the trust without having to cut into their lifetime gift tax exemption limit. This is because the government allows each spouse annual tax-exempt gifts of up to $14,000 per individual recipient, so the brother and his wife together were able to give a total of $28,000 to each of 18 relatives, for a total of $500,000. The couple can repeat this process each year until the trust has reached a level capable of maintaining the home for decades to come.

While every family situation is unique, the case of the California compound highlights “a universal point about the intergenerational issues surrounding the family vacation home,” according to the Merrill publication. “They should be handled with the same attention to detail you’d bestow on the succession of a family business.”

The Essential Master Plan

Michael Liersch, director of behavioral finance for Bank of America Merrill Lynch, acknowledges that such a view may seem counterintuitive, since a family retreat is supposed to be about feeling good and letting go. “People tend to think that a place of relaxation and fun is a place without rules,” Liersch says. “But a place of anxiety and uncertainty isn’t fun, and that’s what having no rules creates.”

Liersch advises creating a “master plan” that includes an online calendar that extended family members spread across the country or around the world can access through a file-sharing application. “That way people can request times for the home, and everyone knows who’s using the place and when,” he says. “The calendar can include maintenance schedules and track routine expenses.”

Wendy Goffe, a Seattle-based estate attorney, lays out the concept of the master plan in “From NASCAR Condominiums to Private Mausoleums: Keeping the Home in the Family,” noting that the first step in creating a master plan is to have a facilitator interview each family member.

To be sure, the master plan’s arguably most vital function is a clear directive on how the property will transfer from one generation to the next.

“The facilitator’s report provides sufficient information so that family members can make meaningful decisions with respect to the property jointly,” Goffe writes. “If the family is unable to reach an agreement, one or more family meetings guided by the facilitator could follow to resolve areas of dispute, further define areas of agreement, and continue building a consensus.  The development of a master plan with the assistance of a trained neutral third party is especially useful when the senior generation has already ceded control of the property to the next generation and questions and issues concerning actual management have arisen.”

How to Hand a House Down

The most efficient way to hand the house down is through an outright gift while the owners are still alive, according to Merrill Lynch’s Private Banking and Investment Group. “It’s relatively easy, inexpensive and can require minimal paperwork,” the viewpoint asserts.

Potential tax benefits also make this an attractive option. While 22 states impose estate and/or inheritance taxes, only Connecticut and Minnesota have a gift tax. At the federal level, gift and estate taxes stand at 40% for amounts greater than $5.25 million as of 2013, adjusted annually for inflation.

“There is, however, an advantage to giving the gift during your lifetime,” the viewpoint adds. “It’s analogous to being able to invest pre-tax versus post-tax dollars into a retirement account: When you write a check to cover gift taxes, you can simply pay the amount out of whatever available resources you have. But if you leave the home in your estate and wish to have your estate cover the tax bill, you may be drawing on funds that have already been nearly halved by the wealth-transfer rate as part of your taxable estate.”

Ways to ease the tax burden of a vacation house include:

1) A qualified personal residence trust (QPRT). A QPRT with a term of 10 years, for example, the house is given to the trust, thus removing it from a taxable estate. During the term of the trust, the original owner continues to use the home and pay taxes and other regular expenses. Once the 10-year term expires, the beneficiaries become the owners of the property, and from then on, whenever the original owner uses the property, he or she must pay fair market rent.

There are drawbacks to a QPRT, however. If the grantor dies before the trust term expires, the home reverts to his or her taxable estate. And then, says the Merrill viewpoint, there’s the potential emotional drawback: “The former owner may find it irksome to pay fair market rent topping $15,000 a week for a Martha’s Vineyard or Sun Valley retreat that still psychologically feels like home.”

2) To retain greater control and protect against hurt feelings, families can instead transfer ownership of the home to a family limited liability company. The grantors then gift shares in the LLC to transfer ownership. There is a tax benefit to this method, as well. While distributed shares are subject to gift taxes, because multiple people have shares, individual recipients don’t control the property and can’t sell it, so the value of their gifts can be discounted for tax purposes.

“Unlike a QPRT, an LLC offers the flexibility to maintain or share decision-making responsibility as you see fit,” the viewpoint notes. “As with a family-owned business, you might, for example, decide to distribute nonvoting shares to the kids, giving them a financial stake in the house while withholding their vote in major decisions until you feel the time is right.”

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Read Americans, and Their Money, Flee High-Tax States at ThinkAdvisor.

Obamacare Has Made It Harder to Get a Decent Job

Oct. 1 marks the start of Obamacare for millions of Americans. That's when the Obamacare health insurance exchanges (HIX) go live and open enrollment begins.

Today (Friday) marks another key Obamacare moment. The August unemployment report released today gave us a clearer look at the Obamacare effect on U.S. jobs.

The August jobs report showed unemployment at 7.3% - a tenth of a percent down from July's 7.4% rate. Although August's 7.3% was the lowest rate since December 2008, U.S. joblessness hasn't improved - with a big reason stemming from the effects of Obamacare.

The key number is the underemployment rate, which remains very high at 13.7%, only a slight drop from July's 14%. This number includes part-time/temporary workers who want full-time jobs, plus those who are unemployed.

This trend of part-time workers is linked to how companies are prepping for Obamacare.

The Affordable Care Act's mandate that companies with 50 or more full-time workers must provide health insurance to all full-time employees, those working 30 or more hours per week, triggered the "part time-ification" of America. Employers have been staffing part-time workers to avoid providing them with health benefits.

That's why Ed Haislmaier, a senior research fellow at the Heritage Foundation, told FOX News earlier this year of Obamacare, "If you want to have reduced work, lower wages and economic stagnation, this is a great way to do it."

And even with the administration's recent one-year extension of implementing the employer mandate until 2015, most small companies are getting ready now.

The chilling results of a July U.S. Chamber of Commerce survey showed 74% of small businesses are positioning themselves to slash hours, lay off workers, or both.

Indeed, the survey results - shown in the accompanying chart - showed that small business owners feel their biggest challenge is Obamacare.

CHALLENGES FACING SMALL BUSINESS OWNERS today | Infographics

And as we learned last week, not everyone saw this Obamacare effect coming...

The Obamacare Effect on Union Members

Union members have joined in the outrage against Obamacare, as they see their medical plans and benefits taxed for the legislation.

During a Christian Science Monitor breakfast last week at the St. Regis Hotel in Washington, D.C., AFL-CIO President Richard Trumka admitted his organization "made some mistakes" in supporting Obamacare.

The AFL-CIO is the umbrella federation for unions in the United States. It houses 57 unions and represents more than 12 million individuals.

Trumka said he was surprised that employers have reduced workers' hours below the 30-per-week mark to avoid an employer penalty associated with Obamacare.

"That is obviously something that no one intended," said Trumka. "No one intended the act to result in people working fewer hours just so [employers] don't have to pay for healthcare."

Then this past Monday, 40,000 members of the International Longshore and Warehouse Union (ILWU) announced they are formally dissociating from the AFL-CIO.

Why?

In an Aug. 28 letter to Trumka, the ILWU cited AFL-CIO's support of passing the Obamacare legislation, and particularly the "Cadillac healthcare tax" component of it, as the main cause of terminating their relationship:

"We feel the Federation has done a great disservice to the labor movement and all working people by going along to get along," the letter read.

It went on to slam President Obama and Trumka for going back on their promise that Obamacare would not tax medical plans and benefits. Regardless of that promise, President Obama subsequently pushed for such a tax, and Trumka fell in line behind him.

Why Is Obamacare Hitting Our Job Market so Hard?

One of the major problems with Obamacare is that it was completely rushed in order to be passed; a ridiculous consequence of how things "work" in today's Washington.

It should then come as no surprise that Obamacare lacks the degree of forethought and diligence that should necessarily go into a law that substantially affects the lives of every American.

But before you get completely steamed, keep in mind our ultimate goal at Money Morning is to figure out ways our readers can turn a profit, even from something like Obamacare. Remember the old adage, "Buy when there's blood in the streets, even if the blood is your own."

That's why we've found a way to turn the Obamacare mess into a winning profit play.

Take a look at this video to find out how you can not only profit from Obamacare, but you can also protect yourself from it, starting today.

OBAMACARE takes effect in... | Infographics

Get caught up on all the Obamacare facts you need to know:

Our New Healthcare Has Created Hundreds of Jobs...For Lobbyists Is Obamacare Creating a Part-Time America? Obamacare's War on Full-Time Jobs Will Sucker Punch Economy This Doctor Tells Why He Might End Up Jobless January 1st

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Google Exec Flees to China Phone Maker Xiaomi

Little-known Chinese smartphone maker Xiaomi has just scored a major coup. The sixth largest smartphone maker has just announced that it has hired Google Inc. (NASDAQ: GOOG) Android vice president Hugo Barra to be its vice-president of Xiaomi Global. Until today, Xiaomi did not have a global division.

We noted last Friday that Xiaomi's sales in China topped those of Apple Inc. (NASDAQ: AAPL) and that the privately held company's market cap surpassed that of BlackBerry Ltd. (NASDAQ: BBRY). The company sells Android-based phones for as little as $80 in China, and if it succeeds in its international aspirations, Xiaomi could threaten the Apple-Samsung hegemony in the global market.

There isn't an industry analyst breathing who does not believe that the low-end smartphone market is going to experience explosive growth going forward while high-end phone makers' growth will slow down. Even in developed markets a low-cost smartphone will find plenty of takers as consumers come to view smartphones as commodity items in much the same fashion as PCs and laptops.

A Chinese research firm noted earlier in August that Xiaomi's Mi 2S smartphone was the most popular phone in China, selling more units than Samsung's Galaxy 4. The Mi 2S sells for less than $300 compared with a list price of around $600 for the Galaxy 4.

While it is too early to declare that there is a new sheriff in town, Xiaomi has made a lot of the right moves so far, and its hiring of the Google executive responsible for Android is certainly another one.

Will Boeing Soar to New Heights in 2013?

Boeing (NYSE:BA) announced strong first quarter earnings this April; however, Boeing's shiny new fleet of 787 Dreamliners has been under media scrutiny after several recent glitches. Will this turbulent debut keep Boeing from a huge 2013? Let's use our CHEAT SHEET investment framework to see whether Boeing is an OUTPERFORM, WAIT AND SEE, or STAY AWAY?

C = Catalysts for the Stock's Movement

Boeing's profit rose 20 percent in the first quarter of 2013. The aircraft manufacturer attributed its success to profitable deliveries of its hallmark 737 and 777 jet models. While battery problems in its new 787 Dreamliner reduced Boeing's potential profitability, the company still reported a 13 percent increase in year-over-year earnings from its commercial airline division. Additionally, Boeing suppressed worries that the reduction to the U.S. defense budget would hurt earnings, reporting a 12 percent year-over-year increase for its defense, space, and security division. Boeing has set impressive guidance for 2013, expecting revenue to reach up to $85 million over the coming year.

Boeing had a strong showing at the Paris Air Show last week, announcing orders of $66 billion, slightly less than that of its French rival, Airbus. Its 737 MAX, scheduled for delivery in Q3 2017, stole the show; CIT placed 30 orders for the new plane at a value of around $3 billion and Ryanair inked a deal for 175 new 737s at a value of around $15.6 billion. Boeing's backlog is currently worth around $392 billion, and shareholders all stand to get a piece of it in the coming years.

T = Trends Support the Industry in which the Company Operates

The aerospace industry is growing rapidly in developing markets, specifically China and India. The growth rate in emerging markets is in the double digits, which has helped push the global aerospace growth rate up to 5 percent—nearly double the growth rate of global GDP. Currently, orders from developing markets comprise around half of Boeing's backlog. Boeing estimates that aircraft sales will total around $4.5 trillion over the next 20 years; with a virtual duopoly it shares with Airbus, investors can expect that Boeing will earn about half of that. 

E = Earnings Growth is Mixed

As you can see from the chart below, quarterly earnings have increased year-over-year in three of the last five quarters. The most recent quarterly EPS of 1.44 was a significant improvement from Q1 2012, increasing 18.03%. Because of Boeing's impressive backlog and recent success in generating new business, in addition to their cost-cutting initiative in their defense, space, and security division, we expect that year-over-year earnings growth will increase moving forward.

	2013 Q1	2012 Q4	2012 Q3	2012 Q2	2012 Q1
Qtrly. EPS	1.44	1.28	1.35	1.27	1.22
YoY Growth	18.03%	-30.91%	-7.53%	1.6%	56.41%

T = Technicals are Strong 

Boeing is currently trading at around $102.90, well above both its 50-day moving average of $99.59 and its 200-day moving average of $85.50. Boeing has experienced a strong uptrend over the past six months, trading right around its 52-week high of $104.15. Boeing's RSI is around 50 suggesting that the stock is not overbought at this time, despite returning 46.6% over the past year.

Conclusion

With $392 billion in backlog, Boeing's future profitability is all but guaranteed. The aircraft manufacturer has an impressive new fleet of vehicles with the 737 MAX and the 787 Dreamliner that are formidable opponents to its rival, Airbus. The company's dividend yields 1.9 percent going forward, and with a payout ratio of 34 percent, the company has the ability to increase that dividend in the future. The company has an impressive cash balance of $11.8 billion and a moderate amount of debt of $36.4 billion relative to the industry. Boeing, however, does have a lot of inventory on its balance sheet at around $40 billion, but this is mostly due to delayed rollouts of the Dreamliner. Boeing's management says that the plane's earlier mechanical issues are resolved.  The company trades at a slightly higher trailing price to earnings ratio than the S&P 500—19.28 versus 18.59—but with the Boeing positioned to capitalize on the rapidly growing aerospace industry, the higher price is justified. Boeing is an OUTPERFORM.

Back To School: Teacher & Educator Expenses

It's Back To School Week on the blog!

I have always loved school – especially math. As far back as I can remember, I was scribbling math problems on paper, adding numbers in my head and trying to figure out complex formulas. It was great fun. But it was also tough being the geeky girl in my small town.

My seventh grade year did not start out well. Whereas my friends had been willing to accept my quirks in elementary school – heck, it was what set me apart – junior high wasn't so kind. It was all about blending in. I was supposed to care about Jordache jeans, jelly shoes, boys and big hair. But really, I just wanted to learn absolutely everything I could about everything.

I had a new teacher that year. His name was Col. Maus and he was a former Green Beret (U.S. Army Special Forces). He was scary. And he was loud. And he refused to let me sink into the oblivion of junior high foolishness. He figured out pretty early on that I was good at math. He would write the most difficult problems on the chalkboard and bang on it if I didn't answer, yelling, "You know the answer, KP!" (he got a kick out of the fact that my initials also signaled Kitchen Patrol). He wouldn't let me pretend that I didn't know what I was doing. He encouraged me to be proud of earning an A and then told me to go after the extra credit. He shamed me into trying out for the math team and then reminded me that I was capable of besting my boyfriend on the test to make the team (he was right).

Col. Maus was also my math team coach. When we were training for competition, he took us to his home and served us a proper lunch. He never talked down to us, he expected us to rise up to him. He wouldn't accept "I can't" as an answer. He would say, when we were struggling, "Press on." And we did.

I know that not everyone was a fan of Col. Maus. Some parents (and students) felt that he was too hard, too strict, too loud. But I loved him for it. It was exactly what I needed. I had big dreams of leaving my hometown and doing something different with my life; that was difficult to reconcile when I had folks close to me that constantly talked down the idea of girls getting a basic education or (horrors) going on to college. But with Col. Maus, I had a cheering section, I had a friend and I had a hero.

Teachers make a difference. They affect lives in ways that might not be apparent when kids are young and still searching for who they are. Teachers do far more than just relay facts and figures – heck, anyone can get that on the internet these days. Teachers help us become our best selves.

And Lord knows they don't do it for the money. You don't get rich being a teacher. Fortunately, however, the IRS offers teachers and other eligible educators a little bit of a break. Under the rules, if you are an eligible educator, you can deduct up to $250 of any unreimbursed expenses paid or incurred for books, supplies, computer equipment, other equipment, and supplementary materials used in the classroom; these expenses must be paid or incurred during the tax year. If your spouse has qualified out of pocket educator expenses and you file jointly, you can claim up to $500.

The best part? This is an above-the-line deduction, meaning that you can take the deduction even if you do not itemize. The deduction is claimed on either line 23 of your federal form 1040 or line 16 of federal form 1040A.

To qualify, expenses must exceed the interest on qualified U.S. savings bonds that you excluded from income because you paid qualified higher education expenses; any distribution from a qualified tuition program that you excluded from income, or any tax-free withdrawals from your Coverdell Education Savings Account.

Of course, if you itemize, you can also claim job-related expenses above the $250 limit on a Schedule A, subject to the 2% rule (the 2% rule means that you can only deduct expenses which are in excess of 2% of your adjusted gross income). But no double dipping – you can't claim the same expense at both places. The same rules for record-keeping apply to educator expenses as with most deductions so keep excellent receipts.

Eligible educators are defined as teachers, instructors, counselors, principals or aides for kindergarten through grade 12. To be eligible, you must work at least 900 hours a school year in a school that provides elementary or secondary education, as determined under state law.

This particular tax break expired in 2011 but was revived as part of the fiscal cliff deal passed at the beginning of this year, which means you can claim it for the 2013 tax year. $250 isn't huge but every dollar helps.

And that brings us to today's giveaway: a $50 gift card from Jo-Ann Fabric and Craft Stores – perfect for teachers who are already dipping into their pockets to buy supplies for their classrooms. You don't have to be a teacher to enter to win (anyone can enter). However, Jo-Ann does offer some specific teacher-only benefits: check out http://www.joann.com/teacherrewards/ to learn more about the Jo-Ann rewards program, product offering, classroom inspiration and new lesson planner.

To enter to win, just post a comment below telling me the name of your favorite teacher. I'll go first to get you started: You already know: Col. Maus

Entries must be posted in the comments section for this blog post in the space below by 5:00 p.m. EST on September 6, 2013. It's just that easy. I'll choose the winner randomly (using a number generator) out of all of the qualifying entries.

Be sure and read the fine print for more rules because, as you know, I'm a lawyer and I like rules:

Edward Jones ‘Not Altering Direction of Ship’ With Proprietary Fund, Says Exec

Edward Jones said Wednesday that it was introducing its own fixed-income mutual fund to clients using its fee-based platform, a move that the St. Louis-based broker-dealer says represents a course correction rather than a radical shift in corporate strategy.

“We are not altering the direction of the ship and are putting the needs of our clients first,” said Steve Seifert (left), principal with the firm’s investment-advisory operations, in an interview with ThinkAdvisor. “As we continue to grow and look for the best ways to perform for our clients, this is an important step forward for Edward Jones.”

Olive Street Investment Advisers, a unit of the St. Louis-based broker-dealer, filed a prospectus for the Bridge Builder Bond Fund on Aug. 6. The fund’s subadvisors are Robert W. Baird, J.P. Morgan Investment Management and Prudential Investment Management.

Today, the average expense ratio for funds on Edward Jones’ fee-based platform, known as Edward Jones Advisory Solutions, is more than 50 basis points. The prospectus states that the proposed fixed-income fund would have an initial fee of 38 basis points.

“This is not a for-profit initiative,” Seifert said, “so the opportunity is there to realize lower expenses for clients relative to the average core bond fund in the program today.”

The platform currently has about $100 billion in client assets out of total client assets of roughly $700 billion, or about 14% of total client assets. Edward Jones Advisory Solutions, introduced in 2008, is now the fourth-largest mutual funds advisory program in the country, according to the firm, and has close to 500,000 accounts.

“A basic tenet of our program is that we do not want our research department to be encumbered by competitive issues,” Seifert said. “It works on what makes most sense for our clients.”

The new bond fund will be available only to the firms' fee-based clients, according to the privately owned Edward Jones, which has about 12,000 advisors. Plus, its structure means that research staff can look more critically at money managers working on the fund and choose from a wider variety of managers to contribute to the fund, the broker-dealer says.

Also, the new fund should “alleviate some challenges for clients,” he notes, “especially when we have to remove or replace a money manager.” Typically, these shifts would set off a taxable event, for instance.

“With the subadvisor structure, we can make changes in the core-bond space, in terms of managers, without this being a taxable event or saleable event for the client,” added Seifert. “At the end of the day, it gives us access to those managers that our research department has the most conviction in, without being constrained by capacity limitations.”

Culture Shock?

Still, Edward Jones' move into the world of proprietary products is causing some experts to scratch their heads.

Hussman: Gonna Party Like It’s 1929

Worries about the Federal Reserve retreating from monetary stimulus make little sense as a cause of the market’s recent slide, suggesting other factors are at play, according to John Hussman in his current comment to Hussman Funds shareholders.

Rather, the portfolio manager and former finance manager suggests that sentiment has shifted from risk seeking to risk aversion and reiterates his long-held view that current market conditions match those that have preceded panics and crashes of the past.

Hussman (left) ridicules the view that a hawkish Fed is the cause of the market’s doldrums, saying the Fed actually confirmed its dovishness and that investors “just got a handwritten, perfumed note from Bernanke to keeping buying.”

All the Fed chairman actually said was that, despite a balance sheet that is leveraged nearly 60 to 1 against its capital, “the Fed might possibly reduce the rate at which it expands that position…There was no talk of risks. Not a whisper about diminishing benefits….While QEternity will become QEventualTaper, the Bernanke Fed does not actually contemplate stopping until the unemployment rate comes down.”

Consequently, Hussman argues that other factors—such as credit strains in China or expectations of disappointing earnings—may be spooking investors. “But whatever the reason, investors appear to be shifting from risk seeking to risk aversion,” he says.

And that new mood is consonant with Hussman’s longstanding warning that market history is not on the side of stock market buyers today.

Besides today, Hussman sees just four other times—1929, 1987, 2000 and 2007, none joyous for investors—marked by a combination of deterioration in interest-rate securities, “overvalued, overbought, overbullish conditions” and a broad deterioration in market internals.

Indeed, the former finance professor and fund manager’s reputation got a boost from just such a warning in his July 30, 2007, market comment.

“To believe that the present instance is a good time to accept significant market risk, one has to rely on the premise that this time is different,” Hussman says in his current note, adding that valuations today are “near or above every historic bull market peak except 1929, 2000 and 2007.”

A difference between those crashes and today, however, is that the Fed was tightening whereas today it merely hints of tapering.

Hussman is unimpressed with this distinction:

“The Fed is unlikely to raise its policy rates (Fed funds, discount rate) for years, but it seems unlikely that this will be sufficient to forestall the course of normal bull-bear market cycles. Ask Japan.”

Despite the vulnerability he sees for stocks, the portfolio manager actually put in a good word for bonds, saying their recent sell-off may make them a reasonable investment, “particularly if yields rise further.”

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Check out 4 Ways to Hedge Against a Stock Market Correction on AdvisorOne.