Thread: Greg's Stack-of-Stuff

Mike Causey's Federal Report

Front Loading Your TSP
Sep. 20, 2005

Next year federal investors will be able to "front-load" their Thrift Savings Plan accounts, if they can afford it, by putting all of their after-tax paycheck into the federal 401(k) plan each pay period.
This is the ideal situation for someone who wants to retire early or in mid-2006 but who also wants to invest the maximum amount ($20,000 in the case of 50-plus feds or military people) in the TSP as quickly as possible.

It would help to have a spouse or significant other who is employed and will help you with odds and ends, like rent and food, so you can channel all of your net paycheck into the TSP. The current percentage limits on employee contributions will not apply in 2006.

Front-loading would be ideal for individuals who want to retire earlier in the year while also getting the maximum tax break by putting the maximum allowed in their TSP. This year that maximum is $14,000 plus an additional $4,000 for people who are 50 or older. Next year that limit goes to $15,000, with an additional $5,000 tax-deferred catch up contribution allowed for people 50 and older.

Recently, reader Carlos from the NRC, asked about the possibility of front-loading. I told him it sounded too good to be true, but that I would check. I did. Guess what! Carlos was right on the money. And this could be a very helpful tip whether you plan to retire next year or five years from now.

Starting in 2006, some feds can cram the entire amount of their after-deductions biweekly check into their tax-deferred Thrift Savings Plan. That would enable some people to retire early or mid-2006 but still have taken advantage of the maximums allowed by the IRS for the TSP.

The source for all this is Tammy Flanagan, top benefits expert for the National Institute of Transition Planning.

This is part of what she wrote:

Yes. Carlos is correct. Next year employees will be able to "front-load" their TSP account (as they say in the financial planning world!). There will no longer be percentage limits on employee contributions (currently FERS employees are limited to no more than 15% of their biweekly salary and CSRS employees are currently limited to 10% of their biweekly salary). 2006 and beyond...no limit!

So, what Carlos is explaining can start happening next year. I recently prepared an article that talks about this as a potential benefit for someone who wants to take advantage of one last big boost to their TSP account before they retire. This is an employee (who) is not as concerned about cashing out 448 hours of annual leave, but is more interested in sheltering up to $20,000 of tax-deferred income to their TSP account.

For information on NITP, check out: http://www.nitpinc.com/main/

Four Day Week

Earlier this year the government of the Republic of the Philippines put most of its civil servants on a mandatory 10 hour day, 4-day week. That was an energy conservation move during the especially hot months of April and May.

Now some American civil servants, specifically postal clerks, will try out the 4-day week. As part of the extended contract with the Postal Service and the American Postal Workers Union, the 4-day week, 10-hour day will be tested in 18 sites. Stay tuned...

Greg wrote:

Mike Causey's Federal Report

Front Loading Your TSP
Sep. 20, 2005

Now some American civil servants, specifically postal clerks, will try out the 4-day week. As part of the extended contract with the Postal Service and the American Postal Workers Union, the 4-day week, 10-hour day will be tested in 18 sites. Stay tuned...

Bring it on!

Thanks Greg, I didn't even think about front loading my tsp... This will require additional planning...

Greg, does this mean that I can put in 5k per month for the first three months and be done with it for the year?

Dollar up after suggested rate rises

Tuesday September 20, 8:54 PM EDT

TOKYO (Reuters) - The dollar held near a seven-week high against the euro and a six-week peak versus the yen on Wednesday after the Federal Reserve raised interest rates and appeared to leave the door open for even higher rates.

In its post-meeting policy statement, the U.S. central bank repeated a "measured" pace of rate rises was likely, saying that economic disruptions triggered by Hurricane Katrina did not pose a persistent threat.

"The Fed's statement confirmed the strength of the U.S. economy, which improved dollar sentiment," said Takehiko Jimbo, forex manager at Mitsubishi Trust and Banking.

The dollar rose as far as 112.03 yen -- its highest level in six weeks -- in early Asian trade, before easing to around 111.90 yen , little changed from the level in late New York trade.

Traders said the dollar's advance would likely slow with selling from Japanese exporters seen lined up above 112 yen.

The British pound also hit a three-week low of $1.7961

The euro hovered around $1.2125 , near the seven-week low of $1.21 hit on Monday in the wake of indecisive German election results.

Traders expect the dollar to keep the upper hand in the near term as the Fed did not suggest it would pause the gradual tightening it started back in June 2004.

Rising short-term interest rates in the United States have been one of the main drivers of the dollar's rise this year, as higher rates are thought to attract more funds.

The Fed raised its fund rate by 0.25 percentage point to 3.75 percent on Tuesday, improving the dollar's rate advantage over the euro and the yen.

The comparable rate in the euro zone is 2.0 percent, and near zero percent in Japan.

Allstate says it won't pay for Katrina flood damage

Insurer's operating chief responds to Mississippi suit

Sep 20, 2005
SAN FRANCISCO (MarketWatch) -- Allstate Corp. won't pay flooding claims stemming from Hurricane Katrina, Chief Operating Officer Tom Wilson said on Tuesday, in a direct challenge to a lawsuit filed last week by Mississippi Attorney General Jim Hood.

Katrina, a Category 4 storm that hit Louisiana, Mississippi and Alabama on Aug. 29, may end up being the most expensive catastrophe in U.S. history, costing insurers as much as $60 billion, according to one estimate.

Controversy has emerged surrounding the devastating flooding that followed the storm. Standard homeowners' insurance policies typically exclude flooding, partly because a national, government-run program covers those risks. However, many homeowners hit by Katrina may not have bought this extra coverage.

Mississippi's Hood sued Allstate and four other leading insurers in the state on Sept. 16, arguing that their flood exclusions should be voided and that they should pay flood claims.

"The Mississippi attorney general's view [is] that we should pay for claims -- flood claims even though we never insured those," Allstate's Wilson said during a speech at a Banc of America Securities conference in San Francisco. "We do not intend to do that."

Allstate has contracts that specifically exclude flooding that were enforced and approved by regulators in all the states affected by Katrina, Wilson added.

Allstate hasn't had problems with customers not knowing that their policies excluded flood damage, partly because the government flood-insurance program advertises heavily in flood-prone areas every year, Wilson continued.

"Exhibit one for us will be just the national flood-insurance programs -- advertising programs, which they put on very aggressively every year," he said. "People know this is a separate coverage, so we're not having many issues with our customers."

Analysts have been concerned that the insurance industry may be vulnerable to political pressure to cover some of the costs of flood damage, especially in New Orleans, where it's been estimated that about a quarter of the city's inhabitants didn't have flood insurance.

This problem is accentuated because the industry has more than $400 billion in capital after several years of rising premiums.

"The nature of the industry's 'deep-pocket' risks are especially acute in the case of Hurricane Katrina, since only a fourth of policyholders are reported to have purchased flood insurance, which could severely raise the cost, and limit the availability, of funding for rebuilding efforts," Ken Reed, an analyst at rating agency Fitch, wrote in a note to clients on Monday.

Allstate's Wilson did concede that there will be "issues" when assessing what damage was caused by wind and what was the result of flooding.

Wilson also said that Allstate hasn't finalized an estimate of its Katrina-related losses yet.

Allstate shares fell 31 cents to $53.11 on Tuesday. The stock has dropped more than 8% since Katrina hit on Aug. 29.

Consumers' gloomy mood gets worse

Sep 20, 2005

WASHINGTON (MarketWatch) -- U.S. consumer confidence dropped again this week, according to a weekly survey released Tuesday by ABC and the Washington Post.

The ABC/Post consumer-comfort index fell to negative 23 this week from negative 20 last week. It's the lowest since May 2003.

With 60% saying the economy is worsening and 11% saying it's getting better, pessimism about the near-term future was at its highest level since December 1991.

Consumer attitudes have plunged since Aug. 29, when Hurricane Katrina devastated New Orleans and other Gulf Coast regions. The slide in consumer sentiment began before the storm hit, as gasoline prices crept higher.

The retreat in gasoline prices from $3.07 to $2.79 over the past two weeks has little impact on consumer's psyches.

The index is down 16 points in the past five weeks and down 11 points since Katrina.

Despite the gloomy assessment by consumers, the Federal Reserve boosted its short-term interest rate target on Tuesday to 3.75%, saying the dislocations caused Hurricane Katrina won't pose a "persistent threat" to the economy in the long run, while higher energy prices could fuel a new wave of inflation.

In the ABC/Post survey, fewer than a third of consumers said that it's a good time to buy things, the lowest since November 1993.

Consumers aren't buying as much, according to a separate index that tracks retail chain-store sales. Same-store sales fell 2.1% last week, the International Council of Shopping Centers reported Tuesday. The shopping industry group is forecasting a 3% year-over-year increase in September sales.

Personal finances remain in good shape, with 55% expressing comfort in their own pocketbooks.

The ABC/Post index is a four-week moving average of the responses to its weekly polls. The average this year is negative 12, while the average over the past 19 years is negative 9.

A separate daily tracking poll of consumer attitudes shows a similar trend, according to Scott Rasmussen of Rasmussen Reports. The Rasmussen Consumer Index fell to 98.9 on Tuesday from 102.6 on Monday.

The index was established in October 2001 at 100.

"Today's reading means that the nation's level of economic confidence is slightly lower than it was in the aftermath of the Sept. 11, 2001 terrorist attacks," Rasmussen said.

FEMA OKs Mobile Homes for Katrina Evacuees

Tuesday September 20

CHATTANOOGA, Tenn. (AP) — The Federal Emergency Management Agency ordered tens of thousands of mobile homes and travel trailers on Tuesday to accommodate Katrina evacuees, approving manufacturer bids totaling at least hundreds of millions of dollars, an agency spokesman said.

FEMA spokesman Butch Kinerney said the specific number of units and dollar totals were not immediately available Tuesday evening.

The nation's largest mobile home manufacturer, Clayton Homes Inc. of Maryville, received a government order Tuesday to build 2,000 single-wide models, company spokesman Chris Nicely said, with delivery requested by Dec. 1.

"That won't be a problem," Nicely said.

But some manufacturers have complained that FEMA's pace of responding to bids they submitted by Sept. 9 could mean production delays. FEMA officials earlier said they did not want to make spending decisions too hastily.

Riverside, Calif.-based Fleetwood Enterprises Inc. received orders for 7,500 travel trailers and 3,000 single-section mobile homes, Elden L. Smith, the company's president and chief executive, said in a statement Tuesday. Smith said the "total value of the order to our company is upwards of $170 million."

FEMA spokeswoman Nicol Andrews said Monday that at least 30,000 travel trailers would be ready in Louisiana by Oct. 18, with another 170,000 to be installed soon after.

State officials were working to identify plots of land where the trailers could be placed and outfitted with plumbing and electricity, Andrews said.

Andrews said FEMA awarded another contract to Fluor Corp. of Aliso Viejo, Calif., to build temporary housing units and that other contracts were pending.

Clayton — which had already shipped 1,800 homes from retail lots as far away as Delaware and Wyoming to a FEMA staging area at Texarkana, Texas — submitted a bid to build 3,000 units, but FEMA ordered only 2,000.

"I think they are trying to spread it around, to keep everybody happy and so they don't get delayed by a bottleneck in one operation," Nicely said.

Nicely declined to provide his company's price information but said the single-wide units typically range in cost from $25,000 to $35,000. He said the mobile homes would likely be built at Clayton plants "closest to the Gulf," including some in Texas, Georgia and Tennessee.

FEMA estimates Katrina displaced 200,000 households, far more than the 15,000 households that needed shelter last year after the Florida hurricanes last year.

Mike Causey's Federal Report

Sep. 21, 2005

FrontLoading Your TSP

Yesterday's column about front-loading your TSP prompted a number of readers to warn of the downside (loss of matching contributions) of front-loading for workers under the FERS retirement system.

As Mary Johnson of Clifton, Va., writes:

Please let your readers know that making all of their TSP contributions in the first few weeks or months of the year will greatly reduce their TSP benefits. While this approach will allow an employee to have more money in the fund for a longer period, it will reduce the matching funds from their employer - losing up to 5% of matching contributions.

The key to ensuring matching funds for the entire year is to make sure you contribute in every pay period for the year. If the employee does not contribute in a given pay period, the government doesn¹t contribute either.

The key to maximizing contributions AND earnings is to contribute a higher amount during the first part of the year and then a reduced amount during the back end."

The vast majority of the people retiring next year, and over the next couple of years, will be under the CSRS system which has no government match. But for FERS employees front-loading does have its downside.

Good point!

Oil prices may be threat to growth - IMF

Wednesday September 21, 6:32 PM EDT

WASHINGTON (Reuters) - Surging oil prices are becoming a much greater threat to world economic growth, the IMF warned on Wednesday, as a second hurricane threatened the big oil producing and refining areas of the United States.

In its twice-annual World Economic Outlook, the International Monetary Fund said global growth was set to grow a swift 4.3 percent this year and next -- above the 3.9 percent average of the past decade, despite the higher oil prices.

It downgraded its forecast for global growth in 2006 from the 4.4 percent expected in April but retained this year's projection.

But IMF chief economist Raghuram Rajan told Reuters oil prices are surging increasingly because of supply disruptions.

Before Hurricane Katrina battered the Gulf of Mexico, a major oil producing and refining area, in late August oil prices had risen mostly on demand from China and the United States, he said.

"We are getting more and more into supply-driven price increases which are going to be more constraining for growth going forward," Rajan said. "We are at a point where further substantial increases will start mattering far more."

He said when oil prices are driven by demand, it indicates strong economic growth. Supply-fueled increases, in contrast, are caused by fundamental factors such as constraints in production or fears of shortages.

Rajan said consumers would start to get nervous as oil prices rose further and would hurt confidence.

As he spoke, Hurricane Rita headed toward Texas, threatening to disrupt 18 oil refineries, which have a combined capacity of 4 million barrels of a day, or 23 percent of U.S.'s total refining capacity.

U.S. crude oil futures jumped sharply then pared to settle up 60 cents at $66.80 a barrel. Last month, crude prices hit record levels above $70 a barrel, more than double the levels at the start of last year.

LURKING THREATS

Earlier, the IMF also warned that other risks to global growth loomed large, including a lack of government savings, widening current account imbalances and regional growth distortions.

However, global financial market conditions remained benign amid low borrowing costs, high equity prices and strong corporate balance sheets, it said.

Emerging markets' financing conditions were also favorable, it said, reflecting strong economic fundamentals and an increased presence of long-term investors.

The IMF shaved its 2005 forecast for the world's largest economy, the United States, to 3.5 percent from 3.6 percent it envisioned in April, due to the impact from Hurricane Katrina, lower consumer confidence and rising interest rates slowing house price growth.

It also trimmed the U.S. outlook for 2006 to 3.3 percent from 3.6 percent.

Rajan said Katrina would reduce U.S. growth this year, but it would regain its footing next year because of the post-hurricane reconstruction.

He said the U.S. should not add to its already hefty budget deficit to pay for the reconstruction, but should find funds elsewhere.

"The right thing to do is if your spending priorities are altered to find savings elsewhere and hopefully that is the process that will take place now," he said.

In the World Economic Outlook, the IMF criticized Washington's "unambitious" plan to cut the U.S. budget gap in half by the time President George W. Bush leaves office in early 2009.

The U.S. budget deficit hit a record $412 billion last year. While recent tax receipt data suggest the shortfall has been narrowing, the potential cost of reconstruction after Katrina -- which some lawmakers say could hit $200 billion -- has led analysts to raise their deficit forecasts.

Elsewhere, the IMF said Japan's economy looked poised for a recovery and would grow 2 percent this year and next.

It said the growth outlook for the euro area remained somber amid weak domestic demand, with projections drifting down to 1.2 percent for 2005 and 1.8 percent next year.

"Europe's citizens do not seem convinced that the bitter medicine of continued structural reforms will cure the stasis that afflicts much of the continent," Rajan said. "Of course economists can only prescribe but it takes politicians to persuade," he added.

The IMF said the European Central Bank should be ready to cut interest rates if the economy falters again.

On China, it cautioned that the country may need to tighten monetary policy if investment growth intensifies.

The fund said 2005 Chinese growth was now poised to reach 9 percent, up from 8.5 percent predicted in April. In 2006, Chinese growth was likely to ease to 8.2 percent.

©2005 Reuters Limited

Stocks due for an upswing post-Rita

12:01 AM ET Sep 24, 2005

SAN FRANCISCO (MarketWatch) - Stocks are expected to rise next week, boosted by tame energy prices and renewed buying interest in the aftermath of what looked likely to be a slightly weaker-than-expected Hurricane Rita, analysts predicted on Friday.

While analysts conceded that a last-minute shift in the storm's direction or a sudden strengthening of its winds could change their outlook, they said the refinery-rich Texas/Louisiana coast was likely to weather the storm, keeping energy prices stable and allowing stocks to move ahead.

Early last week, the major indexes dropped to their lowest levels in three months as traders unloaded stocks amid fears that Hurricane Rita would paralyze the other half of the energy sector off the coast of Texas and Southwest Louisiana that Hurricane Katrina missed three weeks earlier.

The Dow Jones Industrial Average fell Friday 2.46 points 10,419.59, wrapping up a week in which the benchmark index fell 2.1%, while the S&P 500 Indexclosed 0.67 point higher at 1,215.29; the broad gauge booked a weekly loss of 1.8%.

"Stocks are already discounted," said Al Goldman, chief market strategist at AG Edwards. "If Rita is horrible, they are already discounted. If it's less than horrible, they are over discounted," he said.

While a host of economic data highlighting consumer confidence is scheduled for release next week, the main force driving stock movement will be oil prices, say analysts.

Oil prices on the mind

Though some analysts differed on whether stocks would improve next week, all agreed that investors would take their cues from oil prices.

"Anyway you slice it, if energy is high, stocks are low," said Art Hogan, chief market strategist at Jefferies & Co.

Crude prices drifted lower at the end of the week as forecasters lifted their doomsday scenario for the oil industry that many had feared earlier in the week as Rita was gathering strength.

Crude for November delivery closed at $64.19 a barrel, down 3.5%, or $2.31, for the session, but up 1.3% from the week-ago close on the New York Mercantile Exchange.

Some analysts say that even if the Gulf of Mexico's refining complex takes another major hit, the market knows that President Bush is willing to tap the strategic petroleum reserves to relieve refiners in distress, as occurred after Hurricane Katrina paralyzed oil and gas operations.

Furthermore, global demand for crude is falling, while the U.S.'s need for gasoline eases after Labor Day, which should keep crude prices from creeping back above $70 a barrel, said Goldman.

"It would take a truly catastrophic event to top out already high [oil] prices," he said.

Hurricane redux

Other analysts note that the major indexes are sitting at levels similar to where they were in late August, just prior to Katrina, and that stocks are due to bounce if investors react the same as they did then during the aftermath of Rita.

"If looking at some of the major indices we're at or near the short-term bottom end of the range," said Joe Sunderman, director of research at Schaeffer Research. "If we have a similar reaction [post-Rita] this could be a bullish development," he said. "There might be a bounce or consolidation of recent volatility."

However, it could take months to fully evaluate whether the Gulf Coast's one-two hurricane hit seriously damaged the economy, which could result in lower stock prices in the months ahead, even if stocks bounce next week.

"Clearly stocks were to some degree discounted [last week], but the hurricanes' impacts aren't immediate, it will take months to digest their effects," said Stephen Sachs, head of trading at Rydex Investments.

Pre-earnings season

This week is also the unofficial start of the "pre-earnings" season, offering a glimpse of what is to come during earnings season, which kicks off the second week of October.

"My only real bet [for this week] is on single-stock volatility on pre-earnings announcements," said Sachs.

Companies are starting to update their guidance from earlier announcements to include the potential impacts from the storms, which threw much of the southeastern U.S into disarray, and hopefully mitigate reactions against their stocks whey the do start reporting, said Sachs.

Several economic indicators are scheduled for release this week that should shed further light on how consumers are reacting to the vagaries of energy prices and Mother Nature.

Beginning Monday, existing home sales statistics are scheduled for release, followed by new home sales data and the consumer confidence index on Tuesday. Consumer spending and consumer sentiment surveys are due out on Friday, as well as the second quarter GDP update.

Copyright © 2005 MarketWatch, Inc

Dollar near peaks as higher rates seen

Tuesday September 27, 11:37 PM EDT

TOKYO (Reuters) - The dollar stayed near two-month highs against the yen and the euro on Wednesday as a swelling chorus of comments from Federal Reserve officials suggested the currency's interest rate advantage would keep strengthening.

Kansas City Fed President Thomas Hoenig said late on Tuesday that the central bank must ensure price stability after the damage wrought by hurricanes Katrina and Rita.

That echoed comments he made earlier in the week and San Francisco Fed President Janet Yellen's remarks on Tuesday that an unacceptable rise in inflation was not an option, signaling the Fed's 15-month streak of rate rises would not end soon.

"The market is saying what we're not going to get is a surprise in terms of rates -- we're not going to get some cuts because of storm-damage problems," said Luke Waddington, head of forex trading at Royal Bank of Scotland in Tokyo.

Market worries about higher costs for consumers intensified in the wake of Katrina as oil prices soared on the hit to production in the U.S. Gulf Coast, and stayed on the back burner as Rita made its run at the region.

Some in the market were cautious about getting carried away over Fed officials' playing down concerns about the bruising of the U.S. economy after the hurricanes.

"That's how they have to act," said the chief trader at a European brokerage in Tokyo. "They cannot show weakness."

The dollar's rise to fresh two-month highs against the euro and the yen on Tuesday was tempered by data showing a steep fall in U.S. consumer confidence in September -- one of the first monthly reflections of how the economy was faring after Katrina.

The dollar was also capped by disappointment that Fed chief Alan Greenspan's speech on Tuesday had little bearing on the interest rate outlook.

YEN PINNED

The dollar was little changed on the day at 113.30 yen , near the two-month high of 113.52 yen struck in the previous session.

Some traders said the dollar had consolidated somewhat after it failed to breach the year's high just above 113.70 yen, while the Japanese currency was supported by rising Tokyo stock prices.

Japanese exporters' selling of the dollar against the yen was seen offset by investors buying U.S. bonds as they adjust portfolios before the fiscal half year ends on September 30.

The euro was a tad higher at $1.2025 , after hitting a two-month low around $1.1980 a day earlier.

Sterling and the Swiss franc were also mired in sight of two-month lows against the dollar.

After three lean years, the dollar has risen this year on its widening rate advantage over the yen and the euro.

The Fed raised overnight rates last week for an 11th straight time to 3.75 percent. That compares with 2.0 percent in the euro zone and near zero percent in Japan.

The U.S. central bank said in its latest policy statement that Katrina's blow to the economy would not pose a "persistent threat," and it repeated that more "measured" monetary tightening was needed.

©2005 Reuters Limited.