Stock exodus continues as investors yank $5.1 billion out

The stock market keeps going up, and investors keep cashing out. Mutual fund investors pulled $5.1 billion out of U.S. stock mutual funds for the week ended Sept. 26. The prior week, investors removed $4.8 billion from these funds, according to data from the Investment Company Institute.

The exodus from the stock market has picked up speed since the Federal Reserve announced another round of quantitative easing, or QE3. By buying more bonds, the Federal Reserve is hoping to push investors into riskier investments like stocks. This has succeeded on one front by boosting stock prices, but investors continue to flee the stock market.

All three major stock indexes have seen double-digit growth this year, and the S&P 500 (SPX) has gained 16%. The total 2012 outflow from U.S. mutual funds is roughly $93 billion. By comparison, those funds lost around $67 billion during the first nine months of 2010, and $83 billion during the first nine months of 2011. Read more >>

Investors pull another $2.7 billion out of stocks

The flight out of U.S. stocks continued last week, with investors yanking $2.7 billion of domestic stock mutual funds.

The retreat from the U.S. stock market continued last week, as investors refrained from making any big bets amid the market's summer doldrums.

Another $2.7 billion was pulled from U.S. stock market mutual funds during the week ended Aug. 15, according to the Investment Company Institute, bringing the 2012 outflow total to more than $69 billion.  By comparison, those funds lost in the neighborhood of $40 billion during the first seven months of 2010 and 2011.

While stock mutual funds have been bleeding money, investors have shown a voracious appetite for bonds, which are considered safe haven investments. In fact, bond funds raked in $7.2 billion last week, the most since early April, according to ICI data. Read more >>

Half of Americans Have Less Than $2,000 Banked for Their Golden Years

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Scott Thill
With declining earnings and a culture of borrow-and-consume, America's workers face a future of uncertainty and little money to pay for their retirement.

The days of quietly retiring with a nest egg built up from years of savings from a long career on the verge of disappearing. For tens of millions of Americans, facing rising costs, shrinking incomes and growing debts they already have disappeared.

"One out of three working Americans does not have retirement savings beyond Social Security, and about 35% of those over 65 rely almost totally on Social Security alone," Dallas Salisbury, president of the Alliance for Investor Education and the Employee Benefit Research Institute (EBRI) , explained to AlterNet. "Of the remaining two-thirds of working Americans that have some retirement savings, 27 percent report less than $1,000, 16 percent between $1,000 and $9,999, 11 percent between $10,000 and $24,999, 12 percent between $25,000-$49,999, and 36 percent $50,000 or more." Perhaps the most shocking number is that half of Americans have $2,000 or less saved for retirement.

Crunch the numbers and you end up with a retirement myth, rather than a money-maker. We face a colder economic reality: Not only are there no astronomical retirement returns coming down the financial pike, but what nuts and nest-eggs families have set aside for their futures have been mostly sucked dry.

"Individuals need to follow the advice of the ages," said Salisbury. "Spend less than you earn by 25 percent, and save for your future. This keeps your lifestyle from getting ahead of your income."

While saving 1/4 of our shrinking incomes sounds nigh on impossible in this economic climate, many are watching their savings getting squandered by bad fund managers. One retirement Ponzi scheme starting to worry the Senate Special Committee on Aging, according to an aide who asked not to be named, are target-date funds, a financial instrument . They're basically mutual funds that try to play equities and stocks in their early years before settling into more conservative investments like cash and fixed-income before maturing, so as not to give their investors heart attacks on the date of their retirement. More...

Recession as big as Texas pummels rural America

Image by Amy V. Miller via Flickr

RICHARD PARKER
Texas was slow to be swept up by the Great Recession. But now its pain has come home to big cities and small towns, as the lagging effects of the recession batter the ranchers, storekeepers and families who all withstood — until now.

While Washington's fury is directed toward the Gulf oil pill, it has largely lost sight of the recession. Yet Congress continues to weigh financial reform, and it would do well to remember the human cost of the Great Recession, triggered by the titans of Wall Street but borne heavily by everyday people.

Since the crisis began and through the first quarter of this year, more than $2 trillion in mutual funds have been wiped out, 4.5 million homes have gone into foreclosure and 6.8 million jobs have been lost.

With its art, eclectic character and natural beauty ours is one of the best little towns in the nation to visit; it says so right in the pages of The New York Times and Travel Holiday Magazine.

But for those of us who live here, a quiet crisis whispers of impending poverty. A merchant confides he can't take another year like the last two. A Mexican stonemason tells me that a single project tided his family through winter. A Realtor relays that all over town, people who never took a mortgage they couldn't afford are looking to give up, sell out and move on.

Today in Texas, one in five people struggle to feed themselves and one in five children live in poverty, according to the Center for Public Policy Priorities in Austin, founded by Benedictine nuns. Perhaps Perry's economic prowess will trail him out of the state like a coyote when he seeks the presidency.

However, this is not a Texas story but an American one, told in fiscal crises that stretch from California to Illinois, from Alabama to New York. It is in Washington where the Great Recession will be justly dealt with — or not. Realistically, after all, Congress and the regulators have assiduously polished their reputations as hand-maidens of the banks at least since the repeal of Glass-Steagall in 1999.

It doesn't take an expert to understand that much of the legislation in Congress is mere cover for the politicians and the big banks. It isn't designed to redress the latest crisis or stop the next one. It puts matters in the hands of regulators who consistently failed, to, well, regulate. Regardless of party, the politicians will let the big banks go on gambling with other people's money. The only real solution is to reinstate Glass-Steagall and break up the big banks. Only one senator, Democrat Ted Kaufman of Delaware, railed for that and against something dressed up in the Orwellian costume of "reform." More... loader.js" defer="defer">

Obama Wants Your Retirement Account

Obama to meddle with your retirement account?
Administration considers forcing investors into Treasury debt
Jerome R. Corsi
The Obama administration appears to have come up with a novel way of financing trillion-dollar budget deficits – demanding IRA and 401(k) holders buy trillions of dollars in Treasury bonds.

With the Treasury needing this year to see another $1 trillion in debt to finance the anticipated federal budget deficit, and the Federal Reserve about to discontinue its 2009 program of buying Treasury bonds for the Fed's asset portfolio, the Obama administration is scrambling to find ways to sell government debt without having to raise interest rates.

Bloomberg reported Friday that Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Mark Iwry are planning to stage a public comment period before implementing regulations that would require private investors to structure IRA and 401(k) accounts into what could amount to a U.S. Treasury debt-backed government annuity.

CNBC's Rick Santelli broadcast the rumor the same day from the trading floor during CNBC's "Power Lunch" show.

Spokesmen from both the U.S. Treasury and Department of Labor confirmed to WND that the federal agencies about to enter a pre-regulation public comment phase on the proposed rule change.

But the agencies are getting serious pushback from the mutual fund industry, objecting to what some financial planners see as a government attempt to divert hundreds of billions of dollars of private retirement accounts
into federal government debt, regardless whether the investment in Treasury bonds is in the best interest of the retirement-oriented investor.

On the Department of Labor website, the transcript of a Dec. 9 webchat with Borzi confirms the Employee Benefits Security Administration is about to issue a Request for Information on how annuity lifetime options should be structured into a wide range of defined contribution retirement plans, including 401(k)s.

Under ERISA, the Department of Labor regulates approximately 700,000 private pension plans, with approximately $4.7 trillion in assets.

"Lifetime Income Options," code words for annuities, are also listed in the Department of Labor's regulatory agenda for the Employee Benefits Security Administration, issued Dec. 7 and filed in the Federal Register.

The government's argument is that IRA and 401(k) investors lost principle in the stock market when the Dow Jones Industrial Average plummeted from a closing of 14,164.53 on Oct. 9, 2007, to 6,547.05 on March 9, 2009.

For instance, Fidelity Investments reported the average fund balance on the approximately 11 million accounts Fidelity manages dropped 31 percent to $47,500 at the end of March, from $69,200 at the end of 2007.

With the stock market rally since March, Fidelity further reports 401(k) account balances increased 128 percent by the end of the third quarter 2009, to an average of $60,700, from the low at the end of the first quarter 2009 of $47,500.

While U.S. Treasury bonds have had historically lower yields than equity returns, government proponents of the idea argue Treasury bonds are safer, guaranteed by the federal government to pay principal and interest regardless of market conditions.

Furthermore, annuities as life insurance contracts have a unique investment advantage of being able to pay a specified lifetime income, regardless how long the annuitant lives.

The Investment Company Institute, a national trade organization representing the mutual fund industry, argues that the distinction of the Obama administration proposal would be to require annuities funded with Treasuries to be embedded within IRAs and 401(k) programs, using the fear of loss as a reason to demand retirement investors own Treasuries.

Right now, IRA holders and investors in 401(k) plans are free to invest in Treasury bonds, if they choose.

Also, annuities are a popular settlement option for IRAs and 401(k) plans that transition from the accumulation phase to the payout phase.

Annuities are an attractive payout instrument, because annuities offer the part of lifetime income and only a portion of each payout installment is considered taxable as return of investment principle.

Interest or investment earnings in annuities accumulate income tax-deferred until the annuitant takes out money, either in an unscheduled withdrawal, or in a payout option extending over a specified number of years in retirement, or for the lifetime of the annuitant.

The unusual nature of the Obama administration's proposal would be to place as an investment a tax-deferred instrument like an annuity within a tax-deferred retirement program. Investment advisers typically use annuities as an investment option for after-tax dollars, not as a required investment option within a retirement program like an IRA or 401(k) that is already income-tax deferred.

A survey conducted by the Investment Company Institute showed more than 70 percent of all households disagreed with the idea of requiring retirees to buy annuities with a portion of their assets, whether the annuity is offered by an insurance company or by the government.

Moreover, 96 percent of households in the survey responded that retirees rejected the idea that the government should mandate turning IRA or 401(k) assets into annuities, asserting instead that retirees should make their own decisions about managing retirement assets and income.

The Investment Company Institute member companies manage some $11.62 trillion in mutual fund assets for some 90 million mutual fund shareholders, including retirement-oriented investors participating in defined contribution plans such as employer-sponsored 401(k) accounts.

Govt wants to protect you by making annuities mandatory for 401(k)s

Sara Hansard
Should annuities be mandatory for 401(k)s? Fund companies go on the offensive
Participants in 401(k) plans do not want the government to require them to convert a portion of their 401(k) assets to annuities, according to the results of a survey of about 3,000 households released today by the Investment Company Institute.

The results of the survey aren't surprising, given that the IC I represents mutual fund companies. Some $7.5 trillion is invested in 401(k) plans and individual retirement accounts, about half of which is invested in mutual funds.

The release of the research indicates that the mutual fund industry intends to resist proposals discussed in Washington to reduce tax breaks for 401(k)s and to impose more government controls on the plans, such as mandating investment options.

“Government should not be making those decisions for them,” ICI president and chief executive Paul Schott Stevens said in summarizing the ICI survey of 401(k) participants, which was conducted in November and December. “They really value the independent control that they have over the way they invest and manage those accounts. They don't like mandates. They don't like government micromanagement.”

Mr. Stevens, speaking at a press conference in Washington on Friday, also opposed a plan being considered by the Treasury and Labor departments to require that a portion of 401(k) balances be converted to annuities to guarantee lifetime income for retiring workers. About 96% of the respondents in the ICI survey said retirees should make their own decisions about managing retirement assets and income, while more than 70% disagreed that the government should require retirees to trade a portion of their retirement plan accounts for a contract that promises to pay them income for life.

“They want the maximum amount of choice, so if you want to take an annuity, great,” said Jack Brennan, chairman emeritus of The Vanguard Group Inc., who also spoke at the press conference. “But don't force it, because it's not for everyone.”

J. Mark Iwry, senior adviser to Treasury Secretary Timothy Geithner and deputy assistant secretary for retirement and health policy, co-authored a paper before joining the Obama administration that recommended having a portion of a retiring worker's 401(k) assets automatically invested in an annuity — unless the employee opts out of the program.

The Treasury and Labor departments are likely to issue regulations this year to make it easier for companies to offer “automatic annuities” in 401(k) plans, Mr. Iwry said last September. More...

401k Confiscation Dead Ahead

Americans Oppose Initiatives Limiting 401(k) Choices, ICI Says
Jeff Plungis
U.S. investors oppose federal initiatives that would force them to give up control over their 401(k) accounts, the Investment Company Institute said.

Seven in 10 U.S. households object to the idea of the government requiring retirees to convert part of their savings into annuities guaranteeing a steady payment for life, according to an institute-funded report today.

“Households’ views on policy changes revealed a preference to preserve retirement account features and flexibility,” the institute, which represents the mutual-fund industry, said in the report.

The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort.

The institute’s member companies manage $11.6 trillion of assets in mutual funds, including employer-sponsored 401(k) accounts. Some lawmakers have questioned the public-policy value of the tax benefits for people investing in retirement accounts, the ICI said in a report today.

The average 401(k) fund balance dropped 31 percent to $47,500 at the end of March 2009 from $69,200 at the end of 2007, according to a Fidelity Investments review of 11 million accounts it manages. The Standard & Poor’s 500 Index tumbled 46 percent in that period. The average balance of the Fidelity accounts recovered to $60,700 as of last Sept. 30 as the stock market rebounded.

Senator Herb Kohl, chairman of the Senate Special Committee on Aging, proposed legislation on Dec. 16 to require fund companies to do more to ensure 401(k) options are appropriate for workers. The Wisconsin Democrat cited reports that target- date funds designed for people retiring in 2010 invested in high-yield, high-risk corporate bonds.

Representative George Miller, a California Democrat, is advocating legislation to require more disclosure about 401(k) fees paid by investors. The Education and Labor Committee, which Miller leads, approved a bill requiring more disclosure about fees in June.

The ICI survey was based on a telephone survey of 3,000 households from Nov. 20 to Dec. 20 and had a sampling error of plus or minus 1.8 percent.