Financial Headline News for Wednesday 1/18

1) Phil's Financial Tip of the Day:
Here is a couple who are a living example of the economic times we are in.

The power of having limited or no debt at all:

'From a $100K-Plus Income to Less Than $35K and Happier Than Ever'-From Financially Fit

Before I was let go two years ago, my husband and I enjoyed a combined income of over $100,000 plus very good benefits. We lived well then and surprisingly, are still managing fairly well. Today, both of us are self-employed with an income of less than $35K. Two years ago, we recognized that my job was not secure and made plans to shore ourselves economically. Fortunately, we had no mortgage or car loans. Before my layoff, we consolidated our credit card debt and opted for a small home equity loan.

Self-Employment and Debt

Because we own several businesses, we like to each have a vehicle, plus a back-up so we don't get stuck and miss opportunities to make money. A few weeks ago, our second work van died and all we had left was a truck. With our consolidated debt, we had a $300 mortgage per month. We had been postponing buying new vehicles for as long as possible to keep our debt minimized.

Emergency Fund and Leveraging Cash in Negotiations

Fortunately, we had saved for a rainy day and tapped into our emergency fund. My husband called me around 3:00 p.m., and asked me what I thought about him buying two vehicles for the price of one.

Our budget was $10,000, and he had found both a mini-van and a pick-up truck that we could negotiate to our budget.

Minimize Costs
An hour later, we chose to finance one of the vehicles to keep some cash for a future rainy day. After giving him my credit information, the sales representative ran us through a credit reporting agency.

Upon seeing the results, he jumped up and slapped my husband a high-five. Our credit was stellar.

Fortunately, bill-paying diligence gave us a lower interest rate. We spent five thousand in cash, reserved five and obtained two new cars for a $100.00 a month payment. Our insurance company modified our auto plan to remove the old vehicles and add the new.

There was no financial adjustment; our rate did not change.

Financially, it would be cheaper to pay cash for both vehicles; however, we would have lost our cash-flow advantage in case of another emergency. There is no prepayment penalty, and we plan to pay the loan off early, but even if we cannot, our long-term debt expenses are still under $500 a month or $6,000 a year. Our super saver mentality includes managing for risks, leveraging cash flow and negotiating better prices with bundling.

Always Ask

If we had accepted the original prices, there's no doubt we'd only have one car now. By simply asking for a better rate, we got it. Many people in our community are small business owners, and we have found that not only does it never hurt to ask, it nearly always yields a positive result.

Trade-Offs

We're big fans of the barter system. Living in a small community, many of our neighbors are in situations similar to ours. We help each other out by trading—when we needed wood for the winter, my husband painted a room for a neighbor who had some.

Buy in Bulk

Especially with non-perishable items, we save a lot of money by buying in bulk. From painting supplies to household items, it means additional organization in the garage, but it's worth it!

Re-Frame Your View

Losing my job was not the heartbreak I thought it would be. Not working in an office environment has lowered my income but also lowered my outlay. I no longer have enormous bills from dry cleaning. I no longer go out to eat because I don't have time to cook. I now employ not one, but two crockpots and have cut our grocery spending by cooking that way.

Being a freelance writer and speaker now, I spend more time at home with my family. We may have lost a lot of income, but we have gained a lot of family togetherness. And that, to us, is priceless.

2) In the Markets today:
The S&P 500 rose more than 1 percent in late trading on Wednesday.

Wall Street gains 1 percent as IMF gives Europe hope-From Reuters

Stocks jumped to their highest since July on Wednesday as the International Monetary Fund sought to help countries hit by the European debt crisis, while forecast-beating earnings from Goldman Sachs dispelled some worries over bank profits.

The stronger-than-expected earnings from Goldman Sachs Group Inc (NYSE:GS - News) followed disappointing results from Citigroup (NYSE:C - News) on Tuesday and JPMorgan Chase & Co (NYSE:JPM - News) last week.

Goldman shares shot up 6.8 percent to $104.31, while the S&P financial sector (:.GSPF) rose 1.7 percent, leading the S&P 500 higher.

The banking sector has outperformed the broader market so far this year, but the financials sector was the S&P 500's weakest-performing one last year.

While the Goldman results supported financial shares, the IMF's willingness to bolster its crisis-fighting resources gave the sector a big push. Financials had suffered throughout 2011 on worries that Europe's debt crisis would hit banks globally.

"Any time liquidity is added to the financial system, it gives financials a little bit of breathing room, and it will result in higher prices for the banks," said Kevin Caron, market strategist at Stifel, Nicolaus & Co, in Florham Park, New Jersey.

Home builders' shares surged after data showed U.S. homebuilder sentiment unexpectedly jumped in January to its highest level in 4-1/2 years. The PHLX housing index (Nasdaq:^HGX - News) climbed 3.1 percent, while the Dow Jones home construction index (DJI:^DJUSHB - News) rose 4.4 percent.

The Dow Jones industrial average (DJI:^DJI - News) rose 96.88 points, or 0.78 percent, to close at 12,578.95. The Standard & Poor's 500 Index (SNP:^GSPC - News) added 14.37 points, or 1.11 percent, to 1,308.04. The Nasdaq Composite Index (Nasdaq:^IXIC - News) climbed 41.63 points, or 1.53 percent, to close at 2,769.71.

XILINX AND ALTERA UP LATE

After the bell, shares of chipmakers Xilinx (NasdaqGS:XLNX - News) and Altera (NasdaqGS:ALTR - News) rose following their earnings reports. Xilinx was up 7 percent from its close of $35.30 and Altera was up 5.1 percent from its close of $40.72.

An index of semiconductor shares (Nasdaq:^SOX - News) climbed 5 percent during the regular session. Intel (NasdaqGS:INTC - News) is expected to report results on Thursday.

Despite the optimism over the IMF, investors watched cautiously as Greece and its creditors resumed negotiations on terms of a planned debt swap, hoping to overcome an impasse in talks and stave off a painful default.

The benchmark S&P 500 closed above 1,300, a key resistance point that analysts said signal more room to rally if the index stays there.

Within the tech sector, Yahoo Inc (NasdaqGS:YHOO - News) jumped 3.2 percent to $15.92 a day after co-founder Jerry Yang said he was severing all formal ties with the company he started in 1995.

Shareholders had blasted Yang for impeding investment deals that could have transformed the Internet media group.

In other bank results, Bank of New York Mellon Corp (NYSE:BK - News) slid 4.6 percent to $20.30 after the world's No. 1 custody bank said fourth-quarter earnings fell.

Another big custody bank, State Street Corp (NYSE:STT - News) slid 6.6 percent to $39.95 after saying it accelerated an expense- control program, a sign it still sees continued weakness in global capital markets.

Financial results will remain in the spotlight, with reports from Bank of America Corp (NYSE:BAC - News) and Morgan Stanley (NYSE:MS - News) later this week. Bank of America's stock gained 4.9 percent to $6.80 and Morgan Stanley's shares were up 6.8 percent at $17.35.

"As we've seen, investment banking revenues have been very weak, and we think that's going to be a trend that continues and (there's) also a lot more exposure to Europe in those banks," said Dan Neuger, portfolio manager, head of U.S. and Europe active equities for PineBridge Investments in New York, which has about $70 billion in assets.

In terms of investing, "we don't like the large money-center banks. That's one area we've been away from," he said. "Where we think there is more value is in the regional, more domestically focused smaller banks."

Volume totaled about 7.3 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, above the daily average of 6.68 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of 4 to 1 while on the Nasdaq, More than three stocks rose for every one that fell.

3) Top financial story of the day:
U.S. factory output surges in December.

Wholesale Prices Decline-From The Wall Street Journal

U.S. wholesale prices fell in December, as food and energy costs declined significantly, but the underlying rate was up as light truck prices rose.

Separately, U.S. industrial production rebounded in December as manufacturing output climbed, an indication that a key sector of the economy regained some momentum at the end of the year.

The producer price index, which measures how much manufacturers and wholesalers pay for goods and materials, fell a seasonally adjusted 0.1% for finished goods in December from November, the
Labor Department said Wednesday.

The slowdown in overall costs may give the Federal Reserve more flexibility to deploy a new round of economic stimulus measures. However, the rise in so-called core wholesale prices will raise some eyebrows at the central bank. Removing volatile energy and food prices, producer prices increased by 0.3%, the largest rise since July 2011. Besides trucks, the cost of drugs, tires and cars also rose.

Economists surveyed by Dow Jones Newswires had forecast overall wholesale prices would be unchanged on a month-to-month basis, while core producer prices were expected to rise by 0.1%.

Wholesale prices were up 0.3% in November from the prior month, after falling by that same amount in October.

Most Fed officials expect that energy and commodity prices will continue to dissipate as the global economy grows slowly in 2012, leading annual inflation to remain at or below 2.0% in 2012 through 2014, within the central bank's comfort zone.

Compared to a year ago, wholesale prices were 4.8% higher in December, Wednesday's report showed. While still high, that's down from the 7.1% annual increase recorded in July. Year-over-year, prices were up 3.0% when removing energy and food costs.

Food prices decreased by 0.8% in December from November, the first decline since May 2011. The drop was due to falling vegetable prices, down 11.1% on a month-to-month basis.

Energy prices also moved down 0.8%, led by declining gasoline prices. Energy prices edged up 0.1% in November.

Prices for intermediate goods--which are semifinished goods like lumber or flour that require further processing--fell by 0.5% last month, after edging up by 0.2% in November. Meanwhile, prices of raw materials, known as crude goods, fell by 1.1% in December.

Richmond Fed President Jeffrey Lacker, who normally worries about inflation, last week said recent trends point to inflation moderating. He's forecasting inflation to remain near 2% on an annual basis in 2012.

"A rate noticeably below 2% is possible, particularly if global growth should soften enough to further ease pressures on commodity prices," he said. This year, Mr. Lacker becomes a voting member on the Federal Open Market Committee, the central bank's body that sets interest rates.

Moderate inflation means the Fed will be under little pressure to raise rates anytime soon. The central bank has said rates will remain near zero at least until the middle of 2013. After its meeting later this month, Fed officials will release their forecast for future interest rates for the first time.

Industrial Output Increases

Overall production increased by 0.4%, the Federal Reserve said Wednesday in its monthly report. The rise followed a 0.3% dip in November--the first fall in seven months.

The Fed data said industries used 78.1% of their capacity last month, compared with 77.8% in November.

Economists surveyed by Dow Jones Newswires had forecast a 0.5% increase in output during December and a capacity utilization rate of 78.1%.

Manufacturing production surged by 0.9% on strong gains for wood products, primary metals and machinery.

Mining production rose 0.3%, while utilities output dropped 2.7% as unseasonably warm weather reduced the demand for heating.

Other recent industrial data has also been broadly positive.

The Institute for Supply Management's manufacturing purchasing managers' index rose to 53.9 last month from 52.7 in November. A reading above 50 indicates expanding activity.

The Labor Department earlier this month reported that manufacturing payrolls rose by 23,000 in December.

And New York manufacturing activity accelerated in January, according to the New York Fed's Empire State Manufacturing Survey released Tuesday. The Empire State's business conditions index rose to 13.48 this month from a revised 8.19 in December.

Still, other indicators have pointed to potential stumbling blocks for the recovery. Commerce Department figures released last week showed that U.S. retail sales almost stalled in December as Americans appeared to tighten their budgets. And the U.S. trade deficit widened in November on slumping exports to the euro area and rising oil prices.

Economists are looking to end-of-year data to help determine the pace of the recovery heading into the new year.

The Fed report Wednesday showed that year over year, industrial production increased by 2.9% from December 2010. For the fourth quarter, industrial production rose at an annual rate of 3.1%, its 10th consecutive quarterly gain, the Fed said.

Output by the service sector, which makes up most of the U.S. economy, isn't reflected in the industrial production data.

4) Quote of the Day from Dave Ramsey.com:
Make every decision as if you owned the whole company. — Charles C. Noble

Financial Headline News for Tuesday 1/17

1) Phil's Financial Tip of the Day:
Organizing your important papers and personal information is a smart move and a great gift to your loved ones.

Great advice for Seniors and all those who want to get organized. Here are some tips to help you get started:

Savvy Senior: Organize your personal, financial information-From The Daily Record of NJ
http://www.dailyrecord.com/apps/pbcs.dll/article?AID=/201201170827/NJLIFE09/301170004

2) In the Markets today:
U.S. stocks advanced after better-than-expected economic data, set for highest close since late July. Financials fell.

Stocks Post Broad Gains; Financials Fall-From The Wall Street Journal

U.S. stocks were ahead but well off session highs late Tuesday as an early rally ran up against technical resistance and weakness in bank stocks after a handful of key earnings reports.

The Dow Jones Industrial Average climbed 46 points, or 0.4%, to 12465 in afternoon trade, though the measure was up by as much as 151 points early in the session. The gains were still enough to push the blue-chip index to what would be a fresh closing high since late July. The Dow already breached five-month highs earlier this month.

The Standard & Poor's 500-stock index was ahead by 2 points, or 0.2%, to 1291 recently and the Nasdaq Composite rose 12 points, or 0.4%, to 2722.

Stocks' early rally on stronger-than-expected economic data in the U.S., China and Germany started to hit headwinds midsession in what traders ascribed to a mix of factors, the most important of them technical in nature.

"We keep bumping up higher, which is good, [but] it gets to this level and peters out," said Alan Valdes, director of floor trading at DME Securities. "There's no volume [and] a lot of guys are just day trading this thing," he added.

Bank stocks, which were weak all session, moved deeper into negative territory. Citigroup set a negative tone in financial stocks early in the session when it posted an 11% drop in fourth-quarter profit and its results fell well short of analysts' expectations. J.P. Morgan Chase was the weakest stock in the Dow, falling 2.7%.

"J.P. Morgan's earnings were mediocre on Friday and Citi was poor today. The banks are dragging the overall market down," said Tom Donino, co-head of trading at First New York Securities.

The earlier gains followed a jump in a gauge of New York manufacturing activity, strength in German economic sentiment and better-than-expected Chinese economic growth figures. European markets gained and the 4.2% rise in the Shanghai Composite was the biggest since October 2009.

In corporate news, cruise-line operator Carnival's stock was one of the worst performers in the S&P 500, slumping 14% after one of the company's cruise ships capsized off the coast of Italy over the weekend. Fellow cruise ship operator Royal Caribbean dropped 5.3%.

3) Top financial story of the day:
Citi's fourth-quarter profit fell from a year earlier as choppy capital markets overshadowed the bank's loan growth globally.

Citigroup profit falls 11 percent, misses Street view-From Reuters

Citigroup Inc's fourth-quarter profit fell 11 percent and missed Wall Street estimates as the European debt crisis battered capital markets, hurting trading revenue and discouraging clients from doing deals.

Citi on Tuesday said the crisis and fears about its impact on other markets and the global economy led to a broad move by clients away from risk and a decline in market volumes around the world. Fixed income, equity markets and investment banking revenues all declined in the quarter.

"The operating environment continues to be extraordinarily challenging in a number of businesses, none more so than securities and banking," Chief Financial Officer John Gerspach said on a conference call with analysts.

Citi's results show how investment banking units are dragging down profits for large Wall Street firms, and portend a tough fourth quarter for others such as Goldman Sachs Group Inc and Morgan Stanley, which report their results later this week.

In contrast, banks that focus more on business and consumer lending are doing better as the U.S. economy shows signs of recovery. Wells Fargo & Co beat analysts' earnings estimates on Tuesday, helped by improving credit quality and loan growth.

This trend was also reflected last week in the results of JPMorgan Chase & Co.

Money manager Jeffrey Sica, president of SICA Wealth Management, an independent wealth manager based in Morristown, New Jersey, which has bet against a basket of bank stocks, said Citi's earnings miss was "horrendous" in light of how much estimates had come down.

"It's a very negative sign for banks in general," said Sica.

Citigroup shares fell 6 percent in midday trading on the New York Stock Exchange, lagging the KBW banks index, which was down 0.2 percent.

"Clearly, the macro environment has impacted the capital markets and we will continue to right-size our businesses to match the environment," Citigroup Chief Executive Vikram Pandit said in a statement.

Pandit said the bank was cutting about 5,000 jobs and had taken a $400 million charge in the fourth quarter for severance payments. The bank, which has about 266,000 employees, said in December that it would cut 4,500 jobs and take that charge.

The world's major banks have announced more than 133,000 layoffs since mid-2011 as euro zone woes take their toll on trading income and investment banking.

Citi, the third-largest U.S. bank by assets, reported net income of $1.16 billion, or 38 cents per share, down from $1.31 billion, or 43 cents per share, a year earlier.

"Citi's number to come in like this, still missing even though estimates were already cut, that's a cause of great concern," said Todd Schoenberger, managing director at LandColt Trading in Wilmington, Delaware.

Citi said securities and banking revenue fell 29 percent from a year earlier, excluding the accounting impact of changes in the value of the bank's debt.

The profit drop came despite a lower provision for bad loans: down 41 percent to $2.9 billion.
Citi Holdings, which holds assets the bank plans to sell, posted a 30 percent decline in revenue to $2.8 billion as it continued to shed assets.

Citi Holdings had $269 billion in assets at the end of the fourth quarter, down about $90 billion from a year earlier.

Citigroup's operating expenses increased 4 percent to $12.9 billion in the fourth quarter. Pandit said the bank expects to reduce expenses by between $2.5 billion and $3 billion in 2012 from the $50.7 billion it posted for all of 2011.

4) Quote of the Day from Dave Ramsey.com:
Whoever wants to reach a distant goal must take small steps. — Helmut Schmidt

Financial Headline News for Friday 1/13

1) Phil's Financial Tip of the Day:
Financial advisers are seeing a trend in older baby boomer parents supporting their adult children, even when it means they are taking away from their own financial security.

Don't Let Your Grown Kids Ruin Your Future-The Wall Street Journal

It's the Boomer Boomerang.

Baby boomers, who were notorious for prolonging their own adolescences well into their 20s and beyond ("Seinfeld," anyone?), are feeling the financial sting now that their own offspring have their hands out.

The problem has only grown since the financial crisis, the official recession and the economic doldrums that have swamped the country.

The crux of the matter: The kids are out of work, out of money and maxed out.

But so are Mom and Dad, who have seen their own retirement nest eggs cracked, their retirement incomes shrunk and even the value of their nests—the family home—fall.

And despite those woes, financial advisers are seeing a trend in boomer parents supporting their children, even when it means they are taking away from their own retirement security.

Will Ellis, a financial adviser in La Grange, Ga., tells the story of a 60-something couple driven to the brink of insolvency by their 30-year-old daughter's profligacy.

A real-estate agent during the housing boom, she racked up $850,000 in debt (including on her house, her car and her second home) before the recession hit and her income was slashed by over 80%.

Lucky for her, Mom and Dad were willing to help out—so much that Mr. Ellis figured they would themselves have gone broke in little more than a decade.

"How much are you willing to sacrifice?" Mr. Ellis recalls asking the retired couple. "Are you willing to give up your own needs?"

Mr. Ellis's clients made the tough, and right, call. They cut off their daughter.

But it's not at all certain that most parents would make similar decisions. A survey released last year by TD Ameritrade found that 57% of boomers said they would be willing to support their adult children even if that means it would take away from their own retirement.

Yet even boomers who aren't financially coddling their children are having a hard time making ends meet in retirement. Fifty-five percent of boomers now plan to retire later than they originally expected, according to the survey. And retirees say their biggest regret is not having saved more money for their golden years, according to a study by Hartford Financial Services, a provider of insurance and wealth-management services.

Financial advisers insist that parents shouldn't jeopardize their own futures for the benefit of their grown children.

Here are some steps to take to avoid facing that problem:

• Don't write a blank check. Even if you are willing to help your children out financially, don't make it a free-for-all. Make sure you can pay your bills before promising to cover your kids' expenses.
• Set limits. Tell children what you feel comfortable providing for them and when you will no longer be able to do it. Be clear about what choices you are willing to make down the road in retirement to be able to give to them. Are you willing to work longer? Take fewer vacations?
• Be the grown-up. Too often parents feel guilty saying no to their child—no matter how old they are. You can be honest with them and explain that you're putting your own retirement savings at risk.
• Reassess your goals.If you have been financially supporting your adult children, develop a new plan to get back on track. Figure out what you will need to live on in retirement and stick to it.
• Insist they grow up. It's OK to make children accountable for themselves. If they aren't held accountable they will repeat the same mistakes over again.

And if your kids aren't grown yet, here are a couple of things you can try to avoid problems later:

• Start young. Educate children about money early, instilling the values of saving and budgeting. The earlier children are involved in making decisions about money the better.
• Don't bankroll everything. The key is to not pick up every tab in their lives or pay every bill. See that they get part-time jobs. It will leave them better suited to go into the work force when they finally do get out on their own.

See that they get part-time jobs. It will leave them better suited to go into the work force when they finally do get out on their own.               

2) In the Markets today:
Stocks tumbled on Friday after news reports that Standard & Poor's would downgrade credit ratings on several euro-zone countries.

Stocks close lower on euro worries, Chase earns-From USA Today

Stocks ended lower Friday after earnings fell at JPMorgan Chase (JPM), the largest U.S bank, and the Standard & Poor's rating agency downgraded France's top-tier AAA credit rating one .

The Dow Jones industrial average lost 49 points to end the day at 12, 422.28, a decline of 0.4%. The broader Standard & Poor's 500 index fell 6 points, or 0.5%, to close 1,289.12. And the Nasdaq composite declined 14 points, or 0.5%, to end the day at 2,710.67.

It was the first earnings miss for JPMorgan since the final quarter of 2007, a period in which a credit crunch began taking a toll on financial markets. The thinking is that if JPMorgan, widely considered one of the best managed big banks, had trouble in the fourth quarter of 2011, the rest of the industry likely had trouble, too.

It's called the "cockroach theory" on trading desks, says Phil Orlando, chief equity strategist at Federated Investors. "You never see just one cockroach. If you see one, you know there's bound to be a lot more."

Surprisingly strong bond auctions in Spain and Italy on Thursday reinforced hopes that policymakers may be getting a grip on Europe's debt crisis after months of indecision. European and Asian markets mostly rose.

However, the euro slipped to its lowest level in 17 months after reports came out that S&P would follow through on its Dec. 5 warning to cut credit ratings for 15 of 17 European governments that use the euro. It cited higher borrowing costs, even for top-rated nations, and ongoing disagreements among European leaders about how to contain the crisis.

By mid-afternoon in New York, S&P announced it was downgrading France's top-tier AAA credit crating a notch to AA. More downgrades were expected after the markets in New York closed for the week.

The euro dropped 1.3% against the dollar to $1.26. Borrowing costs for Italy and Spain, two countries at the center of the region's debt crisis, increased.

The dollar and U.S. Treasury prices rose as investors moved money into lower-risk assets. The yield on the 10-year U.S. Treasury note fell to 1.84% from 1.93% late Thursday.

The weakness at JPMorgan opened the season for bank earnings on a sour note. Though a pickup in the stream of U.S. earnings may help steer markets over the coming days, Europe's debt crisis is likely to remain the focus.

One bright spot in an otherwise down day on Wall Street: The Thomson-Reuters/University of Michigan preliminary index of consumer sentiment for January rose a stronger-than-expected four points to 74.0 from 69.9 at the end of December.

But investors ignored the signal that consumers are feeling pretty good about the economy after the holiday shopping season. The big focus on Wall Street remained Europe.

3) Top financial story of the day:
Talks between Greece and its creditor banks to slash the country's towering debt pile broke down on Friday, with the Greeks warning of "catastrophic" results if a deal to swap bonds is not reached soon.

Debt talks falter, Greeks warn of disaster-From Reuters

Talks between Greece and its creditor banks to slash the country's towering debt pile broke down on Friday, with the Greeks warning of "catastrophic" results if a deal to swap bonds is not reached soon.

The two sides are divided over the interest rate Greece will end up paying, which determines how much of a hit banks take.

Athens needs an agreement, seeing creditors voluntarily giving up a lot of their promised returns, to reduce its debt to more sustainable levels and convince the European Union and International Monetary Fund to keep lending it cash.

Both sides appeared to be digging in their heels in what analysts said looked like a high stakes poker game in a final attempt to convince private bond holders to take some losses to avoid a disorderly default that could threaten the entire euro zone.

It would come via a swap between old bonds teetering on the brink of default and new ones for which banks would take a big write-down. Without a deal, banks could lose even more and Greece would be threatened with default and possibly euro zone ejection.

"Discussions with Greece and the official sector are paused for reflection," said the Institute of International Finance (IIF), which leads talks for private bond holders.

"Unfortunately, despite the efforts of Greece's leadership, the proposal put forward ... has not produced a constructive consolidated response by all parties."

Greek negotiators earlier warned that failure to reach a deal would be disastrous for Europe.

"Yesterday we were cautious and confident. Today we are less optimistic," said a source close to the Greek task force team in charge of negotiations.

"It is important to remind all parties that the consequences of failure would be catastrophic for Greece and the Greek people, Europe and Europeans," the source said.

SEND MORE MONEY

The stumbling block in the negotiations was the low coupon, or interest payment, offered on the new bonds, one source familiar with the matter and one banking source said.

"The main problem was the (European Union and International Monetary Fund's) insistence on a coupon lower than 4 percent on the new bonds," the banking source said.

That could mean an accounting loss of more than 70 percent for banks on their books, far more than the actual 50 percent cut in the original value of the old bonds laid down in the original deal.

Under the terms of the October plan, bondholders would take a 50 percent hit on the notional value of the old bonds. But the actual losses on their books depend on coupon and maturity of the new bonds, and could be far higher.

"When you're dealing with a sovereign, you don't have a huge amount of tricks up your sleeve, because if they choose not to pay you there's not an awful lot you can do," said Gary Jenkins, director of Swordfish Research.

The IIF's Charles Dallara held meetings in Athens on Thursday and Friday and Finance Minister Evangelos Venizelos said talks would most likely resume next Wednesday.

"There is a meeting next week and we'll make every effort to succeed," the source close to the Greek side said.

The IIF said there was a "tentative" plan to meet on Wednesday, but that it depended on events in the next few days.

Time is pressing, as Greece needs a deal to stay afloat when a 14.5 billion euro major bond comes due March 20, and the bond swap paperwork alone will take at least six weeks.

Greek Prime Minister Lucas Papademos said the new aid package and PSI negotiations were interlinked and both needed to succeed for Greece to survive.

"Neither deal can stand on its own. One is a condition for the other," he said in a speech late on Friday. "We are fully aware of how critical the situation is. Until these negotiations are completed, we face dire economic dangers."

EU, IMF and ECB inspectors, who arrive in Athens on Tuesday for talks on a new, 130-billion-euro rescue plan, also want to see a deal on the debt swap before they agree on the bailout.

"We look forward to the resumption of talks between Greece and its creditors. It is important that this lead to a PSI agreement that, together with the efforts of the official sector, ensures debt sustainability," the IMF said in a statement.

Any agreement with private bondholders on debt reduction should be in line with the terms decided by euro zone leaders on October 26, the EU Commission said on Friday.

Under the terms agreed in October, Greek privately held debt would be reduced by half, so that, together with structural reforms, the overall debt to GDP ratio of Greece would fall to a sustainable 120 pct in 2020 from 160 percent now.

A government spokesman said earlier that Greece had not decided yet whether it will submit a law to force creditors into the bond swap, denying a Greek media report that it would do so by Monday.

Three senior euro zone sources told Reuters on Thursday that Athens was mulling such a bill, which would make a debt restructuring binding for all investors once a certain percentage agreed.

Without using so called collective action clauses, the participation rate in any debt swap deal could be smaller than needed because many hedge funds would profit more if Greece defaulted because they would get paid in full from insurance.

"A lot of the (old) bonds have traded and are in the hands of the hedge funds. Do you think the governments are going to (pay out) to hedge funds? No way. So people like us, unless we are forced, we don't have an incentive to accept," said a source at a hedge fund, which owns Greek bonds.

4) Quote of the Day from Dave Ramsey.com:
Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no help at all. — Dale Carnegie

Financial Headline News for Thursday 1/12

1) Phil's Financial Tip of the Day:
With W-2's, 1099's and other tax forms about to be mailed out for tax purposes, it is that time to start thinking about your 2011 year tax preparation.

Tips for Choosing the Right Tax Preparer-From Fox Business

With this year’s tax deadline fast approaching, taxpayers’ mailboxes are getting flooded with tax forms. Thanks to a complicated tax code and tedious forms, the task of calculating and filing taxes is less than appealing for most us and we opt to hire a professional to hit this year’s April 17 deadline.

“For a large majority of people, TurboTax or the Internal Revenue Service’s Free File is more than sufficient,” says Certified Public Accountant Jonathan Horn. “However, the tax code is so complex that you may not properly analyze all the deductions and credits available to you.”

Returns become difficult to complete when a filer has more than a W-2 and deductions for mortgage interest and children, says Larry Campagna, an attorney at firm Chamberlain, Hrdlicka, White, Williams & Aughtry. For those with deductions like extensive stock trades or real estate transactions, he says tax software may not be the best choice. “A lot of issues are subject to interpretation, and TurboTax may not prompt you with the right questions.”

To find a reputable tax preparer, experts recommend asking friends, family or a professional association for referrals.

Everyone’s tax situation is different. “You need to match the level of complexity of your return with the qualifications of the preparer,” says Sherrill Trovato, president of the National Association of Enrolled Agents. When evaluating potential candidates, know what special circumstances (ie: small business owner, trust fund…) you have on your return and make sure they have expertise with these issues.

Before hiring a tax preparer, conduct an interview to see if it’s a good fit, recommends Cindy Hockenberry, Tax Knowledge Center supervisor at the National Association of Tax Professionals.

Consider your comfort level for divulging your finances, says Trovato. If you’re looking to establish a longstanding relationship with a preparer, she advises working with a sole practitioner over a national firm like H&R Block and Jackson Hewitt Tax Service.

The IRS has guidelines in place to help protect consumers from fraudulent preparers. “All paid tax preparers are required to be registered with the IRS,” says Hockenberry. “Ask whether they have a Preparer Tax Identification Number (PTIN).”

The IRS issues PTINs to qualified tax preparers, and only preparers with PTINs can sign a return, according to IRS regulations. If a preparer receives any compensation to complete a return, they must also sign the return. PTINs are issued to enrolled agents (EAs), registered tax return preparers (RTRP), certified public accountants (CPA), and attorneys. “If your preparer doesn’t have a PTIN, walk away,” advises Hockenberry.

Registered tax return preparers (RTRP)

Each type of preparer has a different level of expertise. RTRPs are required to pass an IRS exam and attend 15 hours of continuing education every year, according to newly-established IRS guidelines. They are able to sign and prepare tax returns and represent clients to the IRS in limited circumstances, such as for an audit but not for an appeal. At the moment, there are no RTRPs on the market because the IRS recently created the exam and is in the process of determining a passing score.

Enrolled Agents (EA)

EAs can either sit for an IRS exam or have five years work experience for the IRS, according to IRS guidelines. They are also able to represent an individual to the IRS for any tax matter. EAs must complete 72 hours of continuing education every three years.

Certified Public Accountants (CPA)

CPAs have met state guidelines that include having bachelor’s degree with a designated amount of business and accounting courses, passing the state’s CPA exam, and working for an accounting firm for a certain period of time. Each state sets continuing education requirements for CPAs.

“An accountant has a broader picture of financial matters in that an EA is focused solely on the tax code,” says Horn. CPAs can also advise on retirement planning, estate and gift tax planning, and education expense planning.

Attorneys

“Attorneys can also help prepare taxes when there are more complicated and sensitive issues with a return,” says Campagna. Issues like distributions from foreign trusts or bank accounts, unreported income or overstated deductions in a current or prior years return, or legal fees, could make hiring a lawyer to file your return a good idea.

Because lawyers tend to have high fees, experts advise hiring one only when there are significant tax liabilities or refunds. “The average consumer doesn’t need a lawyer to do tax returns,” says Campagna.

What to Ask

Find out if the preparer is a member of a professional organization. An organization may require their members to adhere to a code of ethics or have more stringent continuing education requirements than what’s required by the IRS, says Trovato. Being a member of a professional organization also shows a level of commitment, adds Hockenberry.

Ask about a tax preparer’s fees. Fees for a national firm may not be cheaper than what a sole practitioner may charge, and sole practitioners generally have lower fees than accounting firms, says Horn.

According to the National Society of Accountants, fees per form can range between $233 for an itemized Form 1040 and Schedule A that’s filed by an individual to $695 for a Form 1120 that’s filed by a corporation.

Ask whether a tax preparer charges by the hour. “If the preparer is not familiar with your tax situation, you don’t want to pay to get them up to speed,” says John Ams

In any case, it’s illegal for a tax preparer to charge a fee equal to a percentage of your refund.

Ask how long the tax preparer has been in business. “Experience equals knowledge because the laws keep changing,” says Hockenberry. Contact your state’s Better Business Bureau or licensing board or the IRS to check for complaints or disciplinary actions against the tax preparer.

Ask whether the preparer works year round. “Since questions arise all the time that affect your return, such as marriage, divorce, death, starting or closing a business, or buying or selling properties, I would rather get a call before someone does something instead of in March, during tax season,” says Trovato. A tax preparer can help prevent unexpected tax liabilities if you seek their advice before making major financial decisions.

Ask whether a preparer has professional liability insurance. If there is an issue with the return, the taxpayer is responsible for any amounts due, but a preparer’s insurance policy may cover any penalties and interest owed because the preparer made a mistake on the return, according to Hockenberry. If the preparer does not have a policy and you owe penalties and interest because of a mistake in your return, you may have to take them to court.

Once you choose your tax preparer, there are a few tips to follow. While the return is being completed, your tax preparer should ask for documentation and receipts, says Hockenberry. Once the return is complete, make sure your tax preparer signs the return and writes their PTIN.

“Never sign a blank return,” says Horn. “You’re responsible for what’s on the return.” Once tax forms are completed, everyone advises that taxpayers spend time reviewing their returns to see that the numbers make sense based on their income and expenses.

2) In the Markets today:
Stocks finished slightly higher as investors shrugged off three tepid readings on the state of the U.S. economy and focused on the coming rush of corporate earnings headlines.

Stocks finish higher after late-day recovery-From USA Today

Stocks rose in trading Thursday as investors balanced news of a spike in jobless claims and tepid retail sales against optimism about strong bond auctions in Italy and Spain.

The Dow Jones industrial average rose 21 points to 12,471. The Dow started the day lower, falling as many as 64 points in the first hour of trading. It recouped those losses shortly after noon and broke through into positive territory late in the session.

Stocks got an added boost from falling oil prices. Oil prices dropped below $100 per barrel for the first time this year on rumors that Europe will delay an embargo of Iranian oil.

Materials and industrial companies led the afternoon recovery. Caterpillar and Alcoa rose the most in the Dow.

Rising stocks outnumbered falling ones 3-to-2 on the New York Stock Exchange. Volume was lighter than average at 3.5 billion shares.

Chevron (CVX) fell 2.6%, the most in the Dow, after the world's second-largest publicly traded oil company said its income will be "significantly" below its fourth-quarter results in the prior quarter because of narrower margins on refining and selling fuels.

The S&P 500 was up 3.5 points to 1,296. The Nasdaq rose 14 points to 2,724.

It was the latest day of quiet trading in the stock market. There have been six consecutive days with moves of less than 1 percent in the S&P 500, the quietest stretch since May.

Ralph Fogel, investment strategist and partner at Fogel Neale Partners in New York, said the moderate moves in the market were a healthy sign following the steep rises and sudden declines that were typical of last summer. "This is a much healthier market than we've seen."

Unemployment benefits spiked last week to the highest level in six weeks, mostly because companies let go of thousands of holiday hires, the government reported. Retail sales barely rose in December and were lower than analysts were expecting.

Despite the mixed news on the economy, investors are starting to focus on the U.S. corporate earnings season, which got under way this week with Alcoa Inc. The aluminum maker predicted stronger demand for its products this year and surprised the market with revenue that was higher than analysts were expecting.

"There's a fair amount of pessimism out there but I also think that investors are slowly becoming immune to the bad news," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

"As long as the stuff you can sink your teeth into, like corporate profit, is improving, I think it bodes well for the markets this year."

European markets mostly rose after Italy and Spain held highly successful bond auctions, easing worries about Europe's debt crisis. Italy's benchmark stock index rose 2%.

In Italy's first bond auction of the new year, the country was able to sell one-year bonds at a rate of just 2.735%, less than half the 5.95% rate it had to pay last month. That's a signal that investors are becoming more confident in Italy's ability to pay its debts.

Spain was able to raise double the amount of money it had sought to raise in its own bond sale as demand for its debt was strong. Both auctions were seen as important tests of investor sentiment.

Investors have been worried that Italy and Spain, the third- and fourth-largest countries in the euro area, might get dragged into the region's debt crisis. Greece, Ireland and Portugal have been forced to get relief from their lenders after their borrowing costs spiked to levels the countries could no longer afford.

The euro rose nearly a penny against the dollar, to $1.28, as worries eased about Europe's financial woes. The currency, which is shared by 17 European countries, fell to a 16-month low against the dollar the day before.

Meanwhile, the two leading European central banks held their interest rates Thursday, with the European Central Bank keeping its rate at 1% and the Bank of England maintaining its lending rate at a record low of 0.5%.

Among stocks making big moves:

— Casino operator Wynn Resorts (WYNN) fell after the company disclosed in a regulatory filing that its vice chairman has filed a lawsuit against the company. Kazuo Okada claims that Wynn has refused to give him access to records relating to a $135 million donation the company made to the University of Macau and other matters.

— CA Inc. (CA) jumped after hedge fund Taconic Capital disclosed in a regulatory filing that it has taken a 5.1% stake in the business software and technology company and is pressing CA to return more cash to shareholders and increase its profit margins.

3) Top financial story of the day:
The number of Americans applying for first-time jobless benefits rose on Thursday, reversing a recent decline and suggesting the labor market remains brittle.

Jobless claims rise sharply to 6-week high-From Reuters

Retail sales rose at the weakest pace in seven months in December and first-time claims for jobless benefits moved higher last week, signs the economic recovery remains shaky despite a pick-up in growth.

Total retail sales increased 0.1 percent after rising by an upwardly revised 0.4 percent in November, the Commerce Department said on Thursday.

"The retail sales (data) suggests that spending isn't really picking up any momentum," said Sean Incremona, economist at 4Cast Ltd in New York.

Economists polled by Reuters had forecast retail sales climbing 0.3 percent last month.

The upward revision for November sales suggests consumers likely frontloaded their holiday shopping before cutting spending at the end of the year at department stores and on electronic gadgets. The government had initially estimated retail sales gained 0.2 percent in November.

In a separate report, the Labor Department said initial unemployment claims jumped to 399,000 in the first week of 2012, the highest in six weeks, from an upwardly revised 375,000 in the prior week.

The four-week average of claims also marched higher to 381,750 from 374,000.

The U.S. unemployment rate has fallen sharply in recent months and was 8.5 percent December, but some economists worry the drop has been due in part to discouraged workers dropping out of the labor force.

U.S. stock index futures pared gains after the data, while U.S. Treasury prices turned positive.

Some Federal Reserve officials earlier this week signaled more help for the U.S. economy may be necessary despite recent data that suggested the recovery was picking up steam going into 2012.

Still, the U.S. central bank is not expected to take any action on its next meeting on January 24-25.

Within the retail report, spending at electronics and appliance stores fell 3.9 percent in December, while shopping at department stores slipped 0.2 percent.

Fueling the overall increase in retail sales during December, receipts for motor vehicles and parts increased 1.5 percent, adding to the prior month's 0.9 percent gain.

Excluding autos, retail sales fell 0.2 percent, the first decline since May 2010.

Sales at food and beverage stores fell 0.2 percent in December. Also holding back the overall gain in sales, receipts at gasoline stations dropped 1.6 percent last month after rising 0.9 percent in November.

Core retail sales, which exclude autos, gasoline and building materials, dropped 0.1 percent in
December after advancing 0.3 percent the prior month.

Core sales correspond most closely with the consumer spending component of the government's gross domestic product report.

4) Quote of the Day from Dave Ramsey.com:
It is hard to fail, but it is worse never to have tried to succeed. — Theodore Roosevelt

Financial Headline News for Wednesday 1/11

1) Phil's Financial Tip of the Day:
They don't necessarily have higher salaries, or the investing IQs of Warren Buffett, advisers say.

Secrets of the 401(k) Millionaires-From Smart Money

Those hoping to occupy Easy Street in retirement may want to follow the lead of the 0.2%: the topmost tiny fraction of savers who've managed to sock away more than $1 million in their 401(k)s.

That figure, based on data from the Employee Benefit Research Institute, may depress those with sums closer to the median 401(k) balance of roughly $60,000 -- and for good reason. Even among employees 55 and up who've been contributing to the same 401(k) plan for more than 20 years, just 2% are estimated to have cracked the $1 million mark, says Jack VanDerhei, EBRI's research director.

To some, the other 98% of savers over 55 who haven't cracked $1 million show that the 401(k), the principal vehicle for American retirement savings, is at best inadequate, and at worst, a colossal failure. Even Ted Benna, the man credited with developing the first 401(k) plans out of an IRS tax loophole in 1981, now concedes that they've grown overly complex, with too many options, too high fees, and too many ways to cash out one's nest egg.

Even some 401(k) providers don't disagree. With traditional pensions, employers hired teams of experts to make the kind of tough investing decisions now entrusted to individual employees, says Catherine Golladay, vice president of participant services for Charles Schwab. "Left to their own devices, most people do not have the knowledge or the discipline to do this themselves," she says.

Schwab, like other 401(k) providers, found efforts to educate employees haven't proven so successful -- and only 10% of workers take advantage of such offerings. So the company just announced a new index-fund-only 401(k), which will keep expenses down, and include mandatory advice on investments. "Many employees don't understand what they are losing to expenses -- sometimes 55 to 110 basis points," says Jim McCool, an executive vice president at Schwab. "They don't realize what a drag it is on their retirement savings."

Target-date funds, which allocate investments based on the saver's age have proven inadequate, McCool says. "It's a cookie-cutter, one-size-fits-all approach. We're hoping that by adding independent, one-on-one advice we can help tailor plans to the needs of individuals and stop them from panicking and making bad decisions when the market gets scary."

So if that's what's wrong with the 401(k), who are these super-rich among retirement savers who've managed to make the system work -- and what are they doing differently? They don't necessarily have higher than average salaries or the investing IQ of Warren Buffett, VanDerhei says. "The one characteristic that differentiates the winners from the non-winners here is contribution rate -- a high percentage of those million-dollar savers had constant participation and high contribution rates," he says.

Though many savers may be scarred by the past decade of lousy returns, getting to $1 million over the course of a 40-year career should be a manageable goal -- even for some lower-income employees, says Greg Burrows, vice president of Principal Financial. Someone who earns $35,000, saves 12 to 13%, including a company match, gets an annual raise of 3.5%, and annual returns of 7% would save a million dollars. And despite the current volatility, many may still do that, he says. "One thing you have to keep in mind, is that the 401(k) hasn't been around long enough for us to see people take full advantage of it over the course of an entire career."

Of course, those who earn big salaries are more likely to have big balances in their 401(k), says Mike Alfred, CEO of Brightscope, which monitors and rates retirement plans. And the recession not only wiped out many 401(k) balances, but its fallout has hampered saving -- particularly among the middle class, he says. "There are a lot of families who have to simply stop saving because of a job loss or major health-care issue," he says.

And top of that, most participants can't -- or don't -- take advantage of their 401(k), says Alfred. Advisers recommend savers max out their 401(k) contributions. But while the IRS raised the cap $500 to $17,000 for 2012, just 9% contribute that much, according to EBRI.

And to put $1 million in perspective: as nest eggs go, it's not exactly Faberge. The rule of thumb, advisers say, is to accumulate enough to be able to replace 75% to 80% of one's income in retirement, without -- ideally -- having to draw down more than 5% of the balance per year. So a $1 million nest egg would give off just $50,000 annually, enough to replace 75% of the income of someone who made $66,666. Even if the retiree collects the current maximum Social Security payment of $30,156 annually for a total income of $80,156, that's still just the recommended replacement for an income of $106,874.

The IRS says it doesn't keep data on the highest 401(k) balances, and providers of the plans refused to disclose the figures. Anecdotally, however, advisers say it's not uncommon for savers to rack up balances in the $3 million to $5 million range.

Bedda D'Angelo, president of Fiduciary Solutions in Durham, N.C., says one of her clients amassed $6 million in her 401(k). An executive at a pharmaceutical company, she maxed out her pre-tax contributions each year, and including after-tax contributions saved close to 30% of her earnings annually. She was the kind of person who never had debt -- not even mortgage debt, D'Angelo says. "She was a disciplined saver, whenever she got a bonus -- she would invest half of it." Her plan had a mix of large cap, small cap, international equities -- and a bit of bonds, and at 56, when she retired, she was earning $450,000.

Another client who saved more than $1 million worked his entire career at General Electric, invested only up to the company match, but entirely in company stock, D'Angelo said. Though such a strategy seemed dangerous -- even before the collapse of Enron, when many employees suddenly found themselves holding worthless shares -- the employee refused to be convinced to diversify, she says. "As soon as I met him, I tried to convince him not to, but he wouldn't hear it," she says.

Other advisers also shared tales of employees making millions with only company stock in their plans. "Those who bet the entire house on a particular stock are always going to have a higher probability of a big win, but they also may end up in big trouble," VanDerhei says.

Kathleen Campbell, an adviser with Campbell Financial Partners in Ft. Myers, Fla., says the handful of her clients who've saved in between $1 and $2 million in their plans all maxed out their contributions, and refrained from jumping in and out of investment selections based on the whims of the market. But she also had clients get rich on company stock, which she also discourages. "Best not to be holding the bag with your retirement savings in another Enron or Bear Stearns," she says.

2) In the Markets today:
Stocks finished the day roughly flat, as concerns over a weakening economy in Europe gave investors pause after the market's recent gains.

Stocks mixed on euro worries-From USA Today

Stock indexes ended mixed as Europe edges closer to a recession that would hurt corporate profits in the U.S.

The Dow Jones industrial average dropped 13.02 points, or 0.1%, to close at 12,449.50.

Germany reported that its economy, the largest in Europe, shrank at the end of last year. The European Union cut its estimate of economic growth to its slowest pace in two years.

The Standard & Poor's 500 added less than a point to 1,292.48. The Nasdaq composite index rose 8.26 points, or 0.3%, to 2,710.76.

Roughly four stocks rose for every three that fell on the New York Stock Exchange. Trading volume was weak at 3.9 billion.

The European Commission also said Hungary has taken "no effective action" to contain its deficit. Stock markets in Germany and France fell slightly, and the euro dropped half a penny against the dollar, to $1.27.

"Europe is still the main risk," said Jeffrey Kleintop, chief market strategist at LPL Financial. "Yes, they've been making progress on their budgets, but they clearly have growth problems."

The United States depends on Europe to buy about 20% of its exports, and concerns about Europe have led analysts to lower their profit estimates for U.S. companies.

Corporate profits are expected to rise 7.2% for the last three months of last year, compared with 17.6% the quarter before, according to Standard & Poor's Capital IQ.

Judging by the S&P 500 index, investors seem to think earnings could fall much further, Kleintop said. The index is trading at about 13 times the past year's earnings of its companies — close to what it was at the end of 1990, when the economy was in recession. Earnings fell 20% during that downturn.

The stock of Supervalu, (SVU) a grocery store operator, plunged after reporting a wider-than-expected quarterly loss Wednesday because of high food prices and costs related to a turnaround plan. The stock lost 12%.

Orange juice prices, which set a record Tuesday after the U.S. government said that a potentially harmful fungicide had been found in Brazilian imports, settled back down Wednesday.

The futures contract for orange juice fell to $1.88 from $2.08 the day before. Futures have been rising since December, largely over concerns that cold weather in Florida could damage the crop there.

Even with Wednesday's decline, OJ was up 14% from its recent low of $1.65 on Dec. 21.

The recent jump in orange juice futures hit Coca-Cola, (KO) owner of Minute Maid, and PepsiCo, (PEP) which has Tropicana. Coca-Cola sank 1.8%, the most in the Dow. PepsiCo fell 1%.

3) Top financial story of the day:
Fed survey shows final 6 weeks of last year were among the best for the US economy in 2011

Fed survey shows economy ended 2011 with strength-From AP

The final weeks of 2011 were among the economy's strongest as Americans shopped and traveled more, ending the year with a shot of optimism for 2012.

That's the bright picture the Federal Reserve sketched in a survey released Wednesday. It said all but one of its 12 banking districts experienced some growth from late November through the end of the year.

Some sectors of the economy, notably housing, remain weak, the Fed said. But consumers spent more freely. Factories made more goods. Americans stepped up travel. And the auto industry enjoyed its best stretch of the year.

Economists noted greater confidence in the tone of the report. For example, the central bank described auto manufacturing as "vibrant" in several districts. Consumer spending was deemed "robust" in the Dallas region.

"It has been quite a while since we have seen the Fed use words like vibrant and robust to describe any part of the economy," said Brian Bethune, an economics professor at Amherst College. "I think one of the things driving the stronger language is that things are better than the Fed had been expecting."

The one district that didn't experience growth was Richmond, Va., although even there, the Fed said economic activity either "flattened or improved slightly."

The report comes just six months after the economy nearly stalled under the weight of high food and gas prices and supply disruptions from Japan that slowed U.S. manufacturing.

The economy and the job market have both improved since then. And December may end up being the strongest month of 2011. Employers added 200,000 jobs. And the unemployment rate fell to 8.5 percent — the lowest rate in nearly three years.

"The Fed's report Wednesday confirms what everyone else has been seeing in the economic data from retail sales to auto sales and manufacturing — activity is improving," said Jennifer Lee, senior economist at BMO Capital Markets.

Most of the Fed's districts reported holiday sales increased over last year. In particular, New York and Dallas' districts reported healthy gains. Boston, New York and Minneapolis reported exceptional growth in online sales.

Consumers are spending more on cars and travel, the survey noted. Auto sales in the Atlanta area were the best sales in more than two years. Boston, New York, Richmond and Atlanta experienced gains in tourism from a year ago. In Boston alone, businesses expect double-digit growth in hotel revenue in 2012.

U.S. manufacturing continued to lift the economy, particularly in industries that make heavy equipment and steel. That has helped boost energy, farming and auto manufacturing sectors, the report said.

The depressed housing market has hurt some manufacturers, and the Fed cited weakness among furniture manufacturers in the Richmond, St. Louis and San Francisco districts.

Inflation remained subdued, largely because high energy prices have eased. That may change in the new year. Oil has climbed above $100 a barrel again, and gas prices are creeping up.

The strength shown in the Fed survey reflected other positive economic reports.

Consumer confidence hit its highest point since the spring. U.S. automakers reported their two best months of sales for 2011 in November and December. And U.S. factories ended the year with their best month of growth since spring.

Most economists predict the economy grew at an annual rate of 3 percent in the final three months of last year. That would be an improvement from the summer, when the economy expanded just 1.8 percent, and much better than the 0.9 percent annual growth rate in the first half of 2011.

Still, the U.S. economic recovery remains vulnerable. Europe's debt crisis could lower demand for U.S. exports. Consumers may pull back on spending, especially if their wages continue to stagnate.

And Congress could decide not to extend a Social Security tax cut or long-term unemployment benefits, leaving many households with less income. Both measures expire at the end of February.

The Fed has been studying the economy's progress but announced no new actions to try to energize it after its Dec. 13 meeting. That was taken as a sign of confidence that the economy was in no immediate danger.

But in the minutes from the meeting released last week, the Fed said it will start this month announcing four times a year how long it plans to keep short-term interest rates at existing levels.

The change is intended to reassure consumers and investors that they will be able to borrow cheaply well into the future. And some economists said it could lead to further Fed action to try to invigorate the economy.

The Fed's next meeting is set for Jan. 24-25.

The Beige Book is released eight times a year. The findings from each of the Fed's regional bank districts are all anecdotal; there are no numbers.

The idea is to detect trends in consumer spending, manufacturing and real estate, among other areas.

Consumer spending is particularly important because it accounts for about 70 percent of gross
domestic product, the value of all goods and services produced in the United States.

4) Quote of the Day from Dave Ramsey.com:
Our greatest glory is not in never failing but in rising up every time we fail. — Ralph Waldo Emerson

Financial Headline News for Tuesday 1/10

1) Phil's Financial Tip of the Day:

The best way to retire without a mortgage is to pay it off in full...before you retire.

6 Ways to Retire Without a Mortgage-From Kiplinger

Admit it: Whether you're 35 or 65, the prospect of retiring without a mortgage is an attractive one. No more monthly checks to your lender means extra money to spend on having fun once you exit the workforce. After years of punctual principal-and-interest payments, it's the least you deserve, right?

There are several smart ways to retire without a mortgage. We've come up with six that fit a variety of retirement scenarios. Some approaches benefit from an early start -- so if you are able, try to plan ahead. Other mortgage-free-retirement options can be put into effect even if you're close to collecting Social Security.

Some retirees don't mind a mortgage, be it for the tax write-off or to prevent too much money being tied up in home equity. But if your goal is the peace of mind that comes with paying off your loan before you reach retirement, check out these six ways to retire without a mortgage.

Make Extra Mortgage Payments

Over time, a few bucks here and there tacked on to your mortgage payment can translate into thousands of dollars saved on interest and years shaved off the repayment period. The trick is to find small ways to cut corners on other household expenses so that you can apply those modest savings toward your mortgage. Simply swapping out traditional incandescent light bulbs for CFLs, for example, can save you $50 a year in energy costs. A programmable thermostat can save you up to $180 annually.

A little extra goes a long way. A $200,000 mortgage at 6% over 30 years works out to a monthly payment of about $1,200 (excluding taxes and insurance). You'll pay just over $231,000 in interest alone. But put an extra $100 a month toward the same mortgage and you'll save nearly $50,000 in interest and retire the loan five and a half years early.

Refinance Your Mortgage

A surefire way to trim the bill for your home loan is to refinance your mortgage to a lower rate for an equal or greater period of time. You'll enjoy reduced payments and less strain on your bank account. Not a bad idea if money is tight. What you won't enjoy is a mortgage-free retirement.

[Also see: Urban Mansions Rich With History]

To pay off your mortgage early via refinancing, you'll need to switch to a shorter-term loan. In 2011, a popular refi option for homeowners who weren't underwater was going from a 30-year mortgage to a 15-year loan. Let's say you have 25 years left on a 30-year mortgage at 6% and still owe $175,000. You'd pay about $163,000 in interest over the remaining quarter century. For just $167 more per month, plus one-time closing costs, you could refinance to a 15-year mortgage at 4% and save $105,000 in interest. And, of course, you'd be mortgage-free a decade earlier.

Downsize Your Home

Think about it: At a time when you're supposed to be enjoying the simple life, do you really need a formal living room, separate dining room and two spare bedrooms that you never set foot in? If your answer is no, think about downsizing your home.

The beauty of downsizing to a smaller home in the same area is that you don't need to say goodbye to your friends, family and community. Of course, beauty can also be found in the fact that you might be able to pay cash for your new abode. That means no mortgage.

And don't limit your notion of downsizing. Just because you spent the past 30 years in a traditional ranch doesn't mean you need to purchase another ranch with less square footage. Check out conventional alternatives (condos, townhouses) as well as unconventional options (houseboats, RVs and even tiny homes).

Relocate to a Cheaper City

Can't find the right place at the right price to retire in your hometown? Move somewhere cheaper. Sure, there will be sacrifices, but what you'll give up in familiarity you'll make up for financially. The best places to retire combine ample activities with affordable real estate. And moving to an affordable locale will boost the odds that you won't have to take out a new mortgage.

Home prices aren't the only factor. Consider property taxes and homeowners insurance premiums as well. Both affect the overall affordability of a home. In New Jersey, for example, property taxes and insurance premiums combined average $7,270. You'd pay just $1,444 in, say, Kentucky, one of the ten most tax-friendly states for retirees. Some state and local governments reduce or even waive property taxes for residents 65 and older.

Feeling adventurous? You might be able to pay even less for a home and enjoy lower living expenses if you retire overseas. Look into bargain-priced and retiree-welcoming countries such as Belize, Mexico, Panama and Vietnam.

Get a Roommate

Don't discount the financial advantages of taking on a roommate. By letting out a spare bedroom and applying the rent you collect to your mortgage, you can knock years off the time it'll take to repay the loan. An extra $250 a month toward a $150,000, 30-year mortgage at 6% will erase the debt more than 13 years early. An extra $100 a month retires the mortgage seven years early.

The benefits to your bottom line extend beyond the mortgage. Rental income can help defray the cost of utilities -- gas, electricity, phone, cable, Internet -- and maintenance. Annual upkeep on a typical three-bedroom, two-bath detached home runs $7,910, on average, according to Homewyse.com, a homeownership Web site. As a bonus, a roommate can help with chores, providing a welcome respite for any homeowner weary of doing dishes and dusting bookshelves alone.

Rent Instead of Owning

A guaranteed way to retire without a mortgage is to sell your current home, pay off the loan in full, pocket the profits, and use the proceeds to rent a place to live instead. Although it might seem as if you'd just be writing a check to a landlord instead of a lender, the differences between renting and owning are considerable.

Among the advantages of renting in retirement: no lawn to mow; no leaky roof to replace; no property taxes to pay; no assets tied up in illiquid real estate; and no residential albatross around your neck preventing you from moving around as you wish. You can even save on little things, such as insurance. The average annual premium for renters insurance is $176, compared with $791 for homeowners insurance. As for losing the ability to deduct the interest you pay on your mortgage -- a popular argument in favor of homeownership -- keep in mind that the amount of interest due declines over time, so later in the life of a mortgage there is less and less interest to write off.

The single biggest risk of renting in retirement instead of owning is that you might run out of money to pay the rent. If you own a home, by contrast, you could probably resort to a reverse mortgage when savings dry up. This is a legitimate concern, and one that you should address with your financial adviser. A well-structured portfolio can provide a reliable income stream deep into retirement. A part-time job can also stretch your nest egg.

2) In the Markets today:
The "buy American stocks" trade is gaining backers by the day as US economic indicators continue to show improvement and investors become less focused on Europe

Wall Street at 5-month high-From Reuters
Stocks climbed to a five-month high on Tuesday, led by materials stocks after an upbeat forecast by aluminum company Alcoa and strong gains in bank shares.

Alcoa Inc (NYSE:AA - News) posted revenue that topped expectations late Monday and gave a bullish outlook for the aluminum industry. The stock gave up early gains to end at $9.44, up 1 cent.
However, data showing strong Chinese imports of copper helped buoy the rest of the sector.

A gauge of materials companies' shares (:.GSPM) was among the leaders of S&P 500 sectors, with a gain of 1.8 percent.

The U.S. equity market continued its recent divergence from the woes of the euro zone. Recent economic reports and optimism about the U.S. earnings season have pushed stocks higher in the start of the new year, with the benchmark S&P 500 rising in five of six sessions.

"Investors are still focusing on Europe but not putting as much weight on Europe as they were in November," said Jonathan Corpina, head of NYSE floor operations for Meridian Equity Partners in New York.

That focus could change quickly. Key bond auctions later this week from Italy and Spain, two countries at the center of the euro zone crisis, could hurt sentiment if they go poorly.

"Historically, earnings season has helped the market shift higher - so let's hang our hats on this for now, but let's not forget about what is going on in Europe," Corpina said.

Industrial and materials stocks, closely tied to economic performance, were the day's biggest gainers. Caterpillar Inc (NYSE:CAT - News) shares were up 3 percent at $99.96, leading the Dow index higher.

U.S. bank stocks continued a rebound that has lifted the KBW banks index (Philadelphia:^BKX - News) nearly 9 percent so far this year. The KBW rose 1.9 percent on Tuesday.

JPMorgan Chase (NYSE:JPM - News) rose 2.1 percent to $36.05.

Easing some concerns about Europe, Fitch said it does not expect to cut France's AAA credit rating this year, but countries under review such as Italy or Spain could be downgraded by one or two notches.

The Dow Jones industrial average (DJI:^DJI - News) gained 69.78 points, or 0.56 percent, to 12,462.47. The Standard & Poor's 500 Index (SNP:^GSPC - News) rose 11.38 points, or 0.89 percent, to 1,292.08. The Nasdaq Composite Index (Nasdaq:^IXIC - News) climbed 25.94 points, or 0.97 percent, to 2,702.50.

The Dow and S&P 500 hit their highest intraday levels in five months. The S&P 500 close above 1,285.09 is the highest since the end of July and marked a breach of technical resistance, which could spur further gains.

Copper prices rose 3.1 percent, the best performance since late November, after China reported copper imports rose to a record high last month.

The CBOE Volatility Index VIX (Chicago Options:^VIX - News), Wall Street's so-called fear gauge, fell 2.9 percent to 20.46, making another test of the psychologically key 20 level, according to WhatsTrading.com options strategist Frederic Ruffy.

The VIX is down 11.6 percent so far in 2012 and falling to levels last seen in late July as the S&P 500 has seen average daily price moves of fewer than 8 points so far this year, he said.

Volume was solid, with about 7.02 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, above the daily average of 6.7 billion.

Advancing stocks outnumbered declining ones on the NYSE by 2,305 to 687, while on the Nasdaq, advancers beat decliners 1,833 to 699.

3) Top financial story of the day:
Italy poses the greatest risk to the euro, Fitch said, citing the country's debt burden and high borrowing costs.

Italy Is Biggest Risk to Euro, Says Fitch-From The Wall Street Journal

Fitch Ratings on Tuesday pointed to Italy as the euro-zone member that poses the greatest threat to the currency bloc's future, as the lack of a regionwide plan to prevent the sovereign-debt crisis from spreading has coupled with the country's large debt burden and high borrowing costs.

Those factors are a major reason Italy's credit rating is likely to be downgraded by the end of January, said David Riley, head of global sovereign ratings at Fitch, speaking at a conference in London. "Italy is the front line of this crisis," Mr. Riley said, adding that the country's elevated government-bond yields have "marked a profound intensification of the crisis."

Italy is planning to sell €440 billion ($561.67 billion) in government bonds and Treasury bills in 2012.

This is a daunting task given its current borrowing costs, Mr. Riley said.

In a blow to Italy's new technocrat government, a cabinet undersecretary resigned Tuesday amid claims in Italian media reports that he accepted a complimentary vacation for his family at a Tuscan resort.

Carlo Malinconico, an undersecretary in charge of the publishing sector, has denied the accusations.

He resigned "to defend himself... and to save the credibility and efficacy of the government's actions," Mr. Monti's office said.

Mr. Monti took the helm in late November after Silvio Berlusconi resigned. The Monti cabinet, given the task of Italy through the debt crisis, doesn't represent Italy's main political parties.

Italy's 10-year government bond was yielding 7.13% on Tuesday, a spread over the German bund of about 5.25 percentage points, according to data provider Tradeweb.

Even an Italian government-bond yield of four percentage points over the German bund, coupled with zero real gross domestic product growth, could prove "explosive" for the country, Mr. Riley said, though a spread of 1.5 percentage points and growth of 1.5% would leave Italy solvent.

However, the current market levels aren't just a potential danger for Italy, but for the euro-zone as a whole, Mr. Riley said. The lack of agreement by European leaders on how to implement a "credible firewall" to prevent contagion puts the region at risk. The financial firewalls currently in place—the temporary European Financial Stability Facility, the longer-term European Stability Mechanism, and support from the International Monetary Fund—are insufficient, he added, and leave Europe at risk of rolling into a self-fulfilling liquidity and solvency crisis.

This is "one of the reasons why we have Italy on watch negative, it's one of the reasons why when we conclude that review, there is a significant chance [Italy's] rating will fall," Mr. Riley said.

German and French leaders met Monday to discuss details of a pact on closer fiscal and economic policy, although reaction in the markets was muted as key questions appeared unanswered.

Fitch is set to conclude its review of six euro-zone countries that are on negative watch by the end of January, the ratings company said. France, which has a negative outlook, won't face a downgrade in 2012, it said.

Fitch rates Italy at A-plus and France at triple-A.

Mr. Riley also noted that a Greek exit from the euro remains a "potential option." Greece still could drag the euro zone into a deeper financial crisis, he said, adding that a private-sector contribution of 60% on Greek government bonds wouldn't lead to a sharp reduction in the country's debt burden. Fitch rates Greece at triple-C.

In other euro-zone government-bond markets, Austria, which has the highest yields among the currency bloc's triple-A-rated issuers, paid higher funding costs to sell four-year bonds at auction than at the previous auction in November. This reflected investors' unease over the country's exposure to Hungary, which started informal talks with the International Monetary Fund Monday over a loan package. Yields on Austria's 10-year bond, however, remained below levels of the previous auction conducted in July.

Austria's Federal Financing Agency sold €1.2 billion of the 4% September 2016 and 3.65% April 2022 bonds, and allocated a further €120 million to the state. Demand for both implied twofold coverage of the amount sold, slightly below previous levels.

Also Tuesday, the Netherlands sold €3.105 billion, closer to the upper end of the €2.5 billion-€3.5 billion target range, of a new three-year government bond at an average yield of 0.853%.

4) Quote of the Day from Dave Ramsey.com:
Ninety-nine percent of failures come from people who have the habit of making excuses. — George W. Carver