Business and Finance - by Howard Rothman

A select collection of articles on business and finance by a long-time journalist and the author of "Companies With A Conscience" and "50 Companies That Changed the World," among other books. He has no position in any stocks mentioned. See more here: http://linkedin.com/in/howardrothman

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This Rule Change Could Crush Ethanol Demand

When it comes to the domestic ethanol industry, there are two keys to profitability. One is demand, which is determined by just how much of this alternative corn-based fuel is being mixed with the nation's gasoline supply. The other is the so-called "crush spread," which is the difference between the value of ethanol that can be extracted from a bushel of corn and the cost of that bushel.

While these yardsticks have been generally positive for much of the year, a recent proposal by the Environmental Protection Agency could have a major negative impact on both measures and the companies that depend on them.

If approved, shares of leading ethanol pure-plays like Green Plains Renewable Energy (NASDAQ: GPRE) , Pacific Ethanol, and REX American Resources (NYSE: REX) could be in for a significant hit. Additionally, a few conglomerates that have increasingly focused on ethanol to boost their overall performance -- notably Archer Daniels Midland (NYSE: ADM) and Valero Energy  (NYSE: VLO)  -- could also see their profitability tumble.

Let's take a look at the proposed rule change, where these producers stand right now, and how the former might impact the latter.

Demand and the government's proposal In mid-November, the EPA announced that it was considering a reduction in the amount of ethanol it requires in the gasoline supply. It said most auto fuel systems and service stations are not designed to handle more than a 10% mix, called E10, and the public has not been clamoring for more.

Many vehicles on the road today can actually use blends up to E85, but very few owners are interested and only a tiny fraction of service stations offer it. A compromise push to allow the sale of E15 blends has similarly gained virtually no traction.

Compounding the issue, oil imports have declined and domestic production has mushroomed. At the same time, drivers have cut back on their driving and are using less fuel. This combination has led officials to reconsider the gradually escalating ethanol usage levels called for in the Renewable Fuels Standard, or RFS, that Congress created in 2005 and expanded in 2007 to help decrease America's dependence on foreign supplies.

One unintended result of all this is that the increasing mandates have caused ethanol to grow to an unintentionally large percentage of the total fuel supply. This has pushed it closer to the so-called "blend wall," which is the point where fuel marketers must move to higher-percentage ethanol blends than the public, and suppliers have shown their support. Calls for changes, particularly from the big oil companies, ultimately led to the recent proposal.

The EPA is now in the midst of a 60-day public comment period and a decision should be finalized by early next year. Ethanol producers and other proponents who don't want the mandates reduced are justifiably worried that it will not go their way.

Crush and its impact on producers All this comes at a time when the beleaguered ethanol industry finally began to see a marked upturn in its fortunes, which I chronicled last May. While Pacific Ethanol has continued to struggle compared to its peers for a variety of unique reasons, the positive momentum has continued and shares in these companies have shown excellent year-to-date results: Green Plains is up 80%, REX is up nearly 60%, ADM is up more than 50%, and Valero is up 25%.

The reason, largely, has been the crush spread. Ethanol margins had become negative in 2012, when the severe Midwest drought pushed corn prices sky-high just as gasoline prices were stabilizing. But from the start of 2013, expectations of an adequate corn supply reversed all that. And analysts said the crush spread improvement helped Green Plains, for one example, report a 47% year-over-year boost in third-quarter gross profit despite a 20% drop in revenue.

And Green Plains was hardly alone. REX's most recent earnings came in 15% above analyst estimates, the company's second consecutive strong quarter attributed to the crush spread's recovery from 2012 lows. ADM's third-quarter earnings more than doubled year over year, partly on increased profit margins on ethanol. 

Valero officials said higher gross margins (and higher production volumes) were primarily responsible for the company's ethanol segment reporting a $186 million increase in operating income during the period. And even laggard Pacific Ethanol saw gross profit rise during the most recent quarter to $3.5 million from a gross loss of $2.4 million a year ago.

But just as the EPA was proposing a reduction in the ethanol mandate beginning as soon as next year, ethanol's price relative to gasoline -- and, with it, the crush spread -- started to collapse. Many observers believe the EPA's proposed changes would push this down even more dramatically because it would result in unprecedented overproduction of the fuel. Profits would accordingly suffer badly.

The Foolish bottom line Under the EPA's proposed changes, the mandated use of ethanol next year would be 16% less than the government currently requires. This and similar future declines that would be driven by continually falling gasoline consumption have shaken analysts, and rightly so. The related beginnings of a deteriorating crush spread are already being seen, and will only get worse if a drop in demand leads to overproduction and drives ethanol prices lower.

The industry can partially counter this by idling some of its plants, an action it has taken in the past. Corn and gasoline prices remain the wildcards, though. Keeping an eye on these three things -- as well as the EPA's proposed rule changes -- could help Foolish investors plot a sensible course as the ethanol industry tries to weather yet another storm.

(This article originally appeared November 23, 2013, on The Motley Fool.)

[howardrothman]

Time to Give Up on Crocs?

Although I've never personally worn a pair, I've been a fan of Crocs for quite some time. I first started paying attention to the maker of colorful injection-molded clogs produced not far from my home in Colorado in the early 2000s, when my kids and their friends all clamored for them. I enthusiastically followed the company's rise through the autumn of 2007, when its post-IPO stock price shot up 400%. I watched somewhat less enthusiastically while Crocs collapsed over the next 13 months, and shares fell by more than 98%.

Since then, though, I've been generally impressed by the company's attempts to diversify its footwear offerings and expand overseas. As recently as last March, I predicted that Crocs might have finally regained its mojo by leveraging a solid brand image and popular kids' shoes with a slew of new products, new markets, and new outlets.

However, now I'm throwing in the towel. Here are three reasons why.

1. Crocs is badly underperforming its peers. In its third-quarter earnings report issued in late October, Crocs missed analyst expectations for revenue and earnings per share. Both measures also fell short of the year-earlier period.Following a similarly disappointing performance in the prior quarter, Crocs' stock collapsed 11% and remained around its 52-week low until mid-November. (More about that in Point No. 3.)

Even with the climb, though, shares are still down about 3.5% year to date. This looks even worse when you compare the company to some of its peers. Deckers Outdoor, for example, is up nearly 91% this year, while Skechers USA is up more than 73% and Wolverine Worldwide is up nearly 50%.

More telling, perhaps, are the details behind these numbers. Crocs attributed the latest quarterly disappointment largely to poor performance in its dominant domestic market, where revenue fell nearly 12% year over year because of major declines in wholesale and Internet sales.  

Company officials blamed this on "decreased consumer optimism" and said the "challenging back-to-school season, soft holiday indications, weaker employment growth numbers for the upcoming holiday season and the toll that ongoing battles over U.S. fiscal policy take on our consumers" led them to project that these slower trends would continue into the fourth quarter. 

All of this is in sharp contrast to Crocs' peers, which reported positive quarters that mostly exceeded expectations. Skechers, for instance, reported third-quarter revenue that was the second highest in its history, and attributed 20% quarter-over-quarter growth to a double-digit improvement in domestic sales. Deckers reported that retail sales during the period were up more than 34% year over year, and said it expected fourth-quarter revenue to be up over 14% from 2012 levels. Wolverine said fiscal third-quarter net income rose 66% on single-digit growth in North America, and it raised its full-year adjusted earnings forecast based on year-to-date performance. 

2. New products are just more of the same. Crocs has tried to branch out from its initial clog styles over the years, but acceptance has been slow. New models have included slip-on flats for women, canvas loafers for men, and enclosed workplace shoes for both sexes. The company also introduced a line of golf shoes last year and a Huarache sandal last spring. 

While some of these new products have reportedly fared well in growing markets like Russia, Austria, and the Nordics, they apparently haven't caught on as much among key North American consumers. Neither have the company's ongoing efforts to improve consumer awareness that it offers more than just clogs. 

So what does Crocs do? In early November the company boasted that its 2014 introductions would be led by licensed footwear bearing Duck Dynasty and Star Wars designs. Frankly, that doesn't give me much confidence.

3. A failed buyout signals major worries. Perhaps the most disconcerting news of all, though, came on Nov. 11 when it was revealed that the company had been secretly attempting to go private -- and that the move had fallen flat. Media outlets such as Bloomberg News reported that Crocs had been in discussions with private-equity firms including Blackstone Group and KKR & Co., but that those talks had broken down over price expectations. (Bloomberg also estimated the company would earn just $65 million this year, compared with $131 million in 2012 and $168 million at its peak in 2007.) 

Although news of the talks initially sparked a brief boost in its stock price, their failure, according to media speculation, took the air out of the rally and left Crocs "considering its strategic options." To me and many others, not many of the options available look very promising.

The Foolish bottom line To steal a phrase from NPR, all things considered, it is probably time to slip Crocs off for good. The fact that it is losing ground on its home turf is most troubling, especially in light of its peers' recent positive performances in the U.S. The failed move to go private -- and what that failure might portend -- further shakes my confidence.

Combined with ongoing challenges in Japan, another important market, these issues will continue to overhang the company's attempts to grow in Europe and the Asia-Pacific region. That, simply put, does not bode well for a turnaround in the foreseeable future.

(This article originally appeared November 18, 2013, on The Motley Fool.)

[howardrothman]

Why You Should Talk Money with Your Spouse-To-Be

NEW YORK — As long as there has been money and marriage, financial discord has been a leading cause of marital conflict. These days — with student debt and a tight job market challenging younger couples, while later marriages must make room for long-established spending and saving habits — the potential for a battle over economic issues is even greater.

The problem has its root in the fact that most people fail to lay their full financial lives out to their future spouses before they tie the knot. A study of engaged couples released this past May by the National Foundation for Credit Counseling (NFCC) found 68% of respondents held negative attitudes about discussing money with their intended and 5% indicated such a conversation would cause them to call off the wedding.

"It's telling that two people who intend to spend the rest of their lives together would see a conversation about money as so disconcerting," says NFCC vice president Gail Cunningham. "But the ability to have open and honest discussions about money is key to a successful marriage. And the discussions should take place before the 'I do,' not after."

Make time to talk, and come clean

Robert Stammers, director of investor education at the global CFA Institute for chartered financial analysts, says it's critical that both individuals be totally open with their future spouse. That means coming completely clean about your current situation, warts and all, and describing what you think the financial picture will look like for the two of you over the long-term — and how you hope to get there. "Be honest with your partner and make sure each of you understands what the other's goals are," he says.

Cunningham notes it's relatively easy for people to talk about the good stuff, like how much money they make, but much more difficult to discuss negative issues like poor credit ratings, significant debt and even a lack of personal money-management experience. Yet these are the very topics that must be addressed.

"The fact of the matter is that people bring financial baggage into a relationship, but often don't deal with it until problems arise," Cunningham says. "Regardless of the issue, the time to address money differences is up front, before the financial bottom falls out."

To do so, Cunningham advises setting up a convenient time to talk well before the stresses of the wedding become too consuming. For that meeting, she suggests both parties come fully prepared to discuss their income and debt situations along with other critical matters like how they would construct a mutually agreeable budget that includes savings and offers each a degree of financial independence.

"Court records show that financial stress is one of the main causes of divorce," she says. "Taking action now could prevent a disaster later."

To help ward off these potential problems, Cunningham and Stammers recommend focusing on three important fiscal considerations:

1. Combine our finances or keep them separate?

Although pooling income and expenditures has been the traditional route for many marriages in the past, it is less the case today, and there is no evidence that it works better — or is easier — than keeping them independent. The key is staying organized and disciplined in how money is collected and bills are paid.

"Whether you co-mingle funds or keep finances separate," Cunningham says, "there needs to be a structure to it."

Stammers recommends creating a comprehensive budget that spells out who is responsible for paying what bills, as well as how you are going to meet goals for savings that will cover emergencies along with future financial needs like retirement. Cunningham advises meeting at least once every year after the wedding to thoroughly review your goals and determine where you stand.

2. What, exactly, is our credit and debt situation?

Debts that each partner brings into the relationship — such as student loans, which can easily reach six figures — could impose a significant burden on a new marriage. High levels drain incomes as well as impede future borrowing power, which could impact joint dreams like buying a home or a car. Before beginning married life together, both of you need to know where you stand — and where it will lead.

"You must have an explicit plan for when and how debt will be paid so that it doesn't spiral out of control," Stammers says. "If the plan isn't explicit, it's likely that each of you will create your own, which may not be appropriate for both of you or help you reach your financial objectives."

Likewise, each of you should know if one party's credit rating will be an asset or a liability going forward. This knowledge can also help you structure your future accounts.

3. Exactly what are our savings (and investment) goals?

It's admittedly difficult to think about the distant future when you're head-over-heels in love and about to get hitched, but that's actually what you need to do in order to lay the groundwork for a successful financial married life. Each person may be coming into the relationship with existing assets and goals, and the new joint household may present opportunities to expand them. But just like deciding how your day-to-day expenses will be covered, it's important to determine what your joint long-term financial goals are in advance, as well as how you are going to get there and who will be responsible for managing the process. Without such a discussion the two of you can unintentionally work at cross-purposes, and without a plan you can easily miss new opportunities.

Money and marital friction go together like arsenic and old lace. The resultant spark has ignited arguments — and worse — for generations.

But it doesn't have to be that way.

"Finances are one of the main reasons that couples split up," Stammers says, "so if you can do something about that on the front end, you're in better shape right from the start."

(This article originally appeared November 12, 2013, on TheStreet.com.)

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The Waste Industry Is Filling up With Gas

Natural gas continues to be the buzz of the transportation industry, with its attractive price, ample supply, and environmental benefits continuing to attract more and more interest among those who build and operate heavy-duty trucks, trains, and other methods of transport. One of the most eager adopters, though, has been the waste service industry — where natural gas now fuels one-half of all trash trucks, and has become a growing and increasingly profitable by-product.

As the three biggest firms in this space — Waste Management NYSE: WM), Republic Services (NYSE: RSG) and Waste Connections NYSE: WCN) — move into third-quarter earnings season, here's a look at how each is confronting the transformation from diesel to compressed natural gas, or CNG.

Waste Management The biggest player in the category, Waste Management, is also the leader in the move to CNG. The company has been driving steadily in this direction since the 1990s, and already claims the largest fleet of natural gas fueled collection trucks in North America with 2,200 such vehicles. To support these, it has also developed a string of 50 fueling stations in 22 states and Canadian provinces -- 18 of which are open to the public.

Taking its commitment one step further, Waste Management is serious about turning the waste it collects into fuel and announced in mid-October that it was building another facility to capture, filter, and compress pipeline-ready natural gas at one of its landfills. The company expects that by late next summer the CNG produced at its site in Fairmont City, Ill., will be distributed to Waste Management facilities and other locations on the U.S. gas distribution grid. It projects that the facility would process approximately 3,500 standard cubic feet per minute of incoming landfill gas, which is equal to the gas it takes to fuel about 400 trash collection trucks each day. The total also represents more than 10% of the natural gas Waste Management currently uses in its entire CNG fleet. In addition, the company already operates another such facility to power its trucks in four California counties.

Republic Services A solid No. 2 performer in the overall waste sector, Republic Services has also been aggressively turning toward natural gas powered collection trucks. The company now operates more than 1,400 of these around the U.S., and in mid-October announced that it was adding another 53 to replace aging diesel-powered vehicles in Charleston, S.C. It also operates 26 fueling stations nationwide, and is running nearly 70 active landfill gas-to-energy projects.

Republic Services also says about one-half of all the vehicles it is purchasing in 2013 are CNG-powered, and at its current rate of conversion it plans to be running more than 3,100 of these trucks nationwide by the end of 2015.

Waste Connections The smallest of the big three, Waste Connections, is dipping into natural gas as well through several promising projects, usually in partnership with other firms. For example, it is teaming with Integrys Energy Group's (NYSE: TEG) Trillium CNG operating unit as it constructs high-volume public access CNG stations in Wisconsin, New York, and other locales.

The most recent of these collaborations went on line in late summer. It is a CNG fueling station in San Jose, Calif., built by Trillium and a subsidiary of Waste Connections called GreenTeam. This is now fueling the company's 18 new natural gas trucks serving the area, a fleet it expects to double over the next year as its spends $15 million to convert its trucks and infrastructure.

The Foolish bottom line As I've written about many times in the past (most recently in August) natural gas is rapidly gaining more than just a foothold in the transportation world. The waste collection industry has been leading the way as a user as well as a supplier and a distributor. As the national waste services market becomes increasingly competitive, cutting costs and building revenue through CNG becomes increasingly important to the bottom line of these companies. Smart investors who pay attention to what these companies say about it in their third-quarter reports -- which are being delivered through Oct. 31 -- just might gain an edge in understanding their performances going forward.

(This article originally appeared October 18, 2013, on The Motley Fool.)

[howardrothman]

More Mining Pain Before Significant Mining Gain

In recent history, mining has been the epitome of a cyclical industry. It's up; it's down; there's a boom, there's a bust. A lot of people get rich, and a lot lose their shirts.

That's one reason some of the most profitable ventures associated with the industry have been those that sell the tools that make it happen. From shovels and picks to articulated trucks and draglines, equipment makers have profited handsomely in good times and bad from our seemingly endless demand for metals and minerals -- until the last couple of years. 

Although the rest of the world is slowly emerging from the doldrums of the Great Recession, the mining industry is still scraping along the bottom. And the two biggest players on the usually reliable equipment-making side, Caterpillar and Joy Global, are signaling that there is still no end in sight for the industry's current plight.

Caterpillar's results showed how slow things have been

Caterpillar kicked off the recent bad news barrage when it released second-quarter results in late July. Many observers had been hoping for good news -- after all, things were beginning to look up elsewhere, and they expected something positive from this company's performance.

But no such luck: Caterpillars' revenue fell 16% from the year before and earnings per share were down an even more disappointing 43%,missing estimates and driving the stock down 4% over the next three days near its 52-week low.

Additionally, Caterpillar said its 2013 sales and revenue outlook was 12%-15% lower than its final (and disappointing) 2012 results. It attributed about half of this decrease to lower end-user demand in the mining sector. 

Company officials also predicted that the rest of the year would remain challenging as dealers continued to lower their inventories in the wake of declining sales caused by mining company production cutbacks. And they noted that while it was still too early to forecast next year's performance, surveys have been released suggesting capital expenditures by mining companies could drop another 20% in 2014.

No wonder investors started to bail, especially considering that the company's mining segment delivered only 26% of its machinery and power systems profit during the quarter, compared with 43% in the year-ago period, as sales dropped 34%.

Joy Global's results showed the slowdown hasn't let up 

Joy Global continued the downbeat assessment when it released third-quarter results in late August. Like Caterpillar's outlook, the news was bleak: Orders tumbled 36% year over year, and earnings fell 6%. Most mined commodities remained "in or near supply surplus," said president and CEO Mike Sutherlin, with prices down 20%-40% over the past 18 months. 

Sutherlin was no more optimistic at an analyst conference in September. He said conditions are now as bad as they've been in at least a decade, the result of a much longer and steadier decline than anyone had anticipated. And he added that he believed the industry will bounce along the bottom for a time before it begins a slow, steady recovery.

While Joy's most recent results slightly beat expectations, the prospect of a continually challenging period has driven its share price down 15% this year. And despite the company's attempts to slash costs to battle the downturn, even its supporters see little reason for short-term optimism.

The bottom line

Caterpillar's third-quarter earnings release is scheduled for Oct. 23. Analysts do not expect improvement until commodity prices start to firm, which will prompt mining companies to expand and upgrade their fleets.

When might that happen? Coal supply and demand is probably the biggest indicator. Consumption of the mineral rose 2% globally last year, but even with mining cutbacks, production was up 3% -- leading to an even bigger surplus and a further drop in price. This should force coal miners to cut back more on short-term spending and long-term development plans. 

On the positive side, the International Energy Agency projects global coal demand will likely rise for the next several years. Increases are even expected in the U.S., where cheaper natural gas and political pressure have curtailed use in recent years. Despite that, coal burn for power generation here was up more than 10% during the first half of the year while stockpiles were reduced to near their five-year average. 

But that news alone isn't enough to instill much optimism. And that's because much of the decline in coal usage has been in China, which is another big key to the performance of the mining industry. There, annual growth in coal consumption dropped from 10% in 2011 to 4% in 2012. While many see the slow down in that country as temporary, the level and speed of any upturn is unknown.

In late September, for example, The Wall Street Journal reported that China's economic growth target is the lowest it has been in 25 years and coal is falling out of favor as public opposition to air pollution drives utilities from coal-burning plants to nuclear power and natural gas. So while China's demand for coal and other commodities will continue to play an important role for the industry, the country will not likely be the gravy train it has been for mining companies and mining equipment manufacturers.

In short, when weighing the few pros and many cons, it seems logical to expect that mining will face many more challenges before a real improvement takes hold.

(This article originally appeared October 4, 2013, on The Motley Fool.)

[howardrothman]

Peer-to-Peer Lending Attracts Savvy Investors

The "Aha!" moment came for Simon Cunningham in 2011, not long after he landed his first real job and was looking for a way to start socking money away for retirement. Proficient in technology, literate in financial matters and committed to social responsibility, Cunningham was hooked the moment he came across an article about a new way to loan money called peer-to-peer lending.

The article described a quickly emerging industry that used online platforms to match individual borrowers with private lenders. People with less than stellar credit were able to obtain loans, usually at lower than standard rates. Those with money to invest were able to help people in need and realize returns often higher than they could get elsewhere.

It was a win-win, says Cunningham, who began investing almost immediately through the two primary P2P lending sites and now edits a blog called LendingMemo.com that advocates for the practice and helps others navigate its intricacies.

In the two years since he became involved, P2P lending has exploded. The largest player, Lending Club, crossed $1 billion in issued loans last November after five years in operation and hit $2 billion just eight months later. Shortly after, it attracted a $125 million investment from Google. Its rival, Prosper, has issued only about one-third as much but reports volume growth of 10% monthly. It also just picked up new venture funding and boasts of a board that includes former U.S. Treasury Secretary Lawrence Summers.

What's this mean to investors? "I've been one for more than a year," says Kimberly Foss, founder of Empyrion Wealth Management and author of the new book Wealthy by Design (Greenleaf, 2013). "This is the epitome of the free market. I'm a big fan."

A boom in less than a decade

The concept took root in 2001 when a startup called Circle Lending was formed to facilitate loans between relatives and friends. Prosper launched in 2005, pitching the idea that unconnected individuals — credit-challenged borrowers and investors with money to lend — could be brought together online. Lending Club followed two years later and now has 85% of the market. (A few other companies like National Family Mortgage, which formalizes home mortgages between friends and family members, and Common Bond, which specializes in student loans, serve other niche sectors.)

Getting underway just as the Great Recession was gaining steam, however, the industry initially struggled as a number of early borrowers defaulted. This caught the eye of the U.S. Securities and Exchange Commission, which determined that the loan notes being funded were in fact securities and initiated oversight in 2009. Fine-tuned underwriting and tighter controls followed, as did increased liquidity from the secondary market that developed for buying and selling these SEC-regulated notes. And while some risk definitely remains, the stability has steadily improved and continued to win over investors like Cunningham and Foss.

It has also attracted a growing stream of would-be borrowers, most of whom are consolidating debt from revolving credit lines and looking for $10,000-$25,000 to pay it off at lower rates over three to five years. Many observers believe it will only become more attractive as traditional financial institutions remain restrictive in their lending policies. Some predict it will have the same disruptive impact on the loan process that MP3s had on music purchases.

There are, of course, some caveats. The primary caution stems from the fact that these loans are unsecured, meaning lenders lose their investment when borrowers default — and default rates still range from about 3% to more than 10%. But proponents note both platforms have improved their vetting processes significantly; Lending Club, for example, approves fewer than 10% of its applicants. And investors can soften potential blows by diversifying with a large number of loans and limit their risk by choosing borrowers carefully. "The more you put into it, the more you can get out of it," says Cunningham.

How the process works

The amount people invest in P2P lending ranges from as little as $25 to more than $1 million. At any given time they can choose from among hundreds of active loan requests, for which they can examine each anonymous applicant's income, occupation, credit score and other relevant information like past defaults. They can then purchase fractional parts of as many of these loans as desired for a minimum investment of $25 in each.

Once a loan is fully funded, the portion that each lender has committed is deducted from his holding account, and he's assigned a pro-rated share of the interest during repayment. For example, $50 invested in a $15,000 loan would return 0.3% of the interest paid every month until the loan is paid off; at that point, the lenders get their principal back minus a servicing fee.

Most experts suggest starting with at least $1,000 and spreading this out as much as possible to reduce variance in returns and achieve platform averages. For example, Cunningham says, a $1,000 investment could be used to purchase 40 $25 notes. But he and others suggest you're more apt to see higher returns if you invest in at least 100 to 200 loans, and note some big lenders have thousands. The companies themselves claim no one with at least 800 has ever lost money, and industry statistics indicate a well-diversified portfolio can bring returns of 7 percent to 10%.

Choosing borrowers is the most time-intensive part of the process, but key. Both platforms offer many ways to filter applicants, such as by income or credit score or how many times they've been late on bills. This allows lenders to mix high-quality loans that carry low interest rates and lower default potential with riskier loans featuring much higher interest rates and more default possibility. Third-party sites like LendAcademy.com and NickelSteamroller.com offer an astounding array of tools and information to help in these decisions.

Along with diversifying, Foss says it's smart to also "ladder" your notes as you would with bonds or certificates of deposit. "That way they'll come due in successive periods, like every six months or one year," she says.

Drawbacks aside, P2P remains appealing

The biggest drawback remains default, but the P2P companies have been aggressive in weeding out poor risks as well as initiating collection procedures when necessary. Another new issue has developed with the increasing participation of institutional investors, who have been attracted by the improved stability and high returns but drawn criticism for siphoning off many of the best notes before individual investors can bid on them.

Additionally, several states ban borrowers and lenders from participating. A few others require investors have a minimum net worth or annual income. The list is available here.

According to a growing number of converts, however, the bottom line is positive if the process is approached with knowledge and care. "You don't want to dip into your emergency money, because there is risk associated with this. But that's why returns are better than they are with less risky investments," says Foss, who proudly notes that her return was 9% last year and she has not had any notes default.

(This article originally appeared October 3, 2013, on TheStreet.com)

[howardrothman]

Reverse Mortgages Allow You to Tap Home Equity

If you watch much cable, you’ve certainly seen the ads. A familiar television presence who is getting on in years, like Fred Thompson or Henry Winkler, appears on screen to earnestly explain how you can tap your home’s equity — right now — with something called a reverse mortgage. By taking out one of these government-insured loans, they say, you get instant access to the value of your home. You also remain the owner and can continue to live there.

While hundreds of thousands have signed up during the five decades that reverse mortgages have been around, the program has not been free of criticism. A variety of misconceptions have also been spawned by the offer’s almost too-good-to-be-true premise. As a result, many who might benefit have shied away.

To make matters more confusing, the Department of Housing and Urban Development, which oversees the whole thing, recently announced new rules for the program that will go into effect on Sept. 30.

With the housing market easing out of its doldrums, the disapproval, misunderstandings and imminent changes have made more and more people wonder whether reverse mortgages are indeed a viable option in tight economic circumstances. Sources inside and outside the industry insist they are, noting that while not for everyone they can still be of critical assistance to those in need.

From Portland to Reagan to Thompson

To help the widow of his high school football coach keep the home she was in danger of losing, a banker in Portland, Maine, created the first reverse mortgage in 1961. A few banks around the country followed suit and began offering loans with a similar aim by the 1970s.

But the concept — then, as now — was confusing and the product slow to catch on.

Its unprotected and wildly variable nature did catch the eye of Congress, which recognized the need for such loans as well as for government-backed insurance and uniform lending practices. In 1988 President Reagan signed the resultant FHA Reverse Mortgage bill into law and the first loans were issued a year later.

These new reverse mortgages attracted increasing attention throughout the 1990s and have continued to grow in appeal, albeit slowly. Tightening financial times since the onset of the Great Recession, the weak housing market that accompanied it, and the rapidly growing retirement-age population hurt most by it have once again put them in the spotlight — and led to Thompson and Winkler edging their way into the national conversation.

How the loans work — and what’s changing

The new rules cut back somewhat on the amount of a home’s value that can be accessed, and set new limits on the amount that can be withdrawn in the first year. And while practically anyone who is at least 62 and owns their home can still qualify, that too is set to change next year when borrowers will need to prove they can pay property taxes and insurance for the life of the loan. Those that can’t will have to earmark some of their reverse mortgage proceeds for that purpose.

Joe Lewis, a Denver-area reverse mortgage consultant, says the changes were driven by a need to strengthen the program and stem the trend (that’s accelerated since the onset of the economic crisis) to look to at it as a short-term financial fix rather than a long-term financial tool.

Under the new rules, the two types of loans currently available — one known as a “Standard,” the other a “Saver” — are being consolidated. Depending on a borrower’s needs, however, they can still choose an adjustable or fixed interest rate and a payout taken in one lump sum, in varying lengths of monthly allotments, or as a line of credit to be accessed only when needed.

Fees will now be based partly on the amount withdrawn, but Lewis says they can still be added back into the loan so there are no direct cash outlays except for a property appraisal and possibly for pre-loan counseling required by the government. This is designed to ensure applicants understand the loan’s implications, he says, and is offered by some local governments for free and by private companies for around $90-$135.

The amount reverse mortgage applicants obtain is determined by age, home value, and the prevailing interest rate. (The older you are, the more your home is worth and the lower the rate, the more you can withdraw.) In contrast to traditional mortgages or home equity loans, borrowers make no loan payments while they live in the house. However, their equity decreases over time as interest costs build. When they die or decide to sell, the loan, plus interest, must be repaid immediately. Any equity that remains is passed on to the customer or their heirs.

Who should apply, and who shouldn’t

Critics contend many applicants don’t fully understand the implication of those last points, and are shocked to learn their descendants must pay out huge sums in order to take over the property. They also argue high fees draw off significant portions of equity, the rules are confusing and full of hidden land mines, and too many people have been using the proceeds for immediate spending needs — rendering them financially disabled later when their home’s value really could be of assistance.

Lewis agrees that great care should be taken when applying for a reverse mortgage, just as with any loan, and like others suggests using the services of a third party to help navigate the rules and regulations. But he also believes these loans are being underutilized by people who could benefit from them, a contention underscored in a recent report by the federal Consumer Financial Protection Bureau which said only 2%-3% of eligible U.S. citizens are signing up.

Lewis says these loans may be appropriate “for anybody who has a better use for their money than having it sit as debt equity in their house.” This includes people who cannot make it financially without additional funds, such as a client who received $1,100 in monthly retirement benefits and had a $1,300 monthly mortgage. “With the reverse mortgage, she no longer had to make those payments and she started receiving additional monthly income,” he says.

Lewis does agree that some use the program inappropriately, like those who turn their homes into ATMs so they can live larger than they should. “If you don’t really need it, don’t do it,” he says.

Congress will determine the program future

As a result of the housing crash and subsequent market changes, reverse mortgages look a lot different than they did just a couple of years ago. Before 2007 nearly all borrowers chose adjustable rate loans and extended payouts, for example, while today 70% select fixed rates and lump sum disbursements. Additionally, nearly 10% of current reverse mortgage borrowers — an all-time high — are in default because they failed to pay their property taxes and homeowners insurance.

Since most of these loans are made by Department of Housing and Urban Development and insured by the Federal Housing Administration, this has hit the government hard and driven it to implement the changes about to go into effect. It previously raised fees, reduced the amount that can be borrowed, and eliminated one of the costlier loan types. But this proved insufficient, and so it has announced these even bigger steps before the start of the new fiscal year in October.

Proponents hope these changes don’t hurt the most vulnerable, since by definition most who consider reverse mortgages are already in financial distress. Given the growth in retirees and their dearth of pensions and savings, more and more are going to need additional sources of income in coming years. And like Fred Thompson and Henry Winkler say endlessly on TV, their homes may just be their best option. 

(This article originally appeared September 9, 2013, on TheStreet.com)

[howardrothman]

The Secrets of P2P Borrowing

Banks have grown more cautious about making loans to individuals for debt consolidation, small business development, home remodeling and other big-ticket expenses like car purchases and wedding bills. As a result, prospective borrowers who are less-than-model financial citizens often find themselves struggling to get such cash.

Piling on more credit card debt or hitting a money store should never be the preferred alternative, and thankfully these are no longer the only ways a credit-challenged borrower can go. A relatively new SEC-regulated online loan system known as Peer-to-Peer or P2P lending has recently gained a lot of steam and attention. And most experts agree it's become a legitimate option for many of those who, for one reason or another, are just not attractive loan customers for traditional banks.

"It fills a really big need, which has grown since the recession as traditional financial institutions have been increasingly reluctant to make these kinds of loans," says Kimberly Foss, founder of Empyrion Wealth Management and author of the new book Wealthy by Design (Greenleaf, 2013). Foss says this is a huge development for borrowers so much so, that she's become a lender with one of the industry leaders.

Building on a concept pioneered about a dozen years ago to bring individual borrowers and lenders directly together online, it is now being used for business loans, mortgages, student loans and short-term notes for a variety of purposes. Those who want to borrow are matched with those who want to lend; P2P companies serve as underwriters and facilitate the loan and repayment. Even with the fees they take off the top, borrowers obtain loans at less than credit card rates while lenders regularly receive better returns than they could realize otherwise.

The first dedicated P2P to focus on the U.S. loan market was Prosper, which launched in 2005. Lending Club opened for business in 2007 and is now by far the larger of the two, which combined last year to issue nearly $900 million in loans for a wide array of purposes. Other firms concentrate on specific niches, such as National Family Mortgage, which facilitates home loans between family and friends, and Common Bond, which specializes in student loans.

All Prosper and Lending Club operations have been overseen by the Securities and Exchange Commission since 2009, and the industry gained even more credibility in recent months as Google invested $125 million in Lending Club and Prosper picked up additional venture funding.

Most customers of the two P2P companies want to consolidate debt from revolving credit lines and are looking for $10,000-$25,000 at a lower rate. The majority of these loans are for three years, although many are for five and some can be for even longer. Rates depend on credit scores, but can be as low 10% to 12% versus 15% at a bank — if the borrower could get such a loan in the first place.

Both companies say new loan requests are snapped up by lenders within hours of being approved and posted on their sites. Simon Cunningham, editor of a comprehensive industry-monitoring site called LendingMemo.com, says loans can land in a borrower's bank account as soon as three days after they apply. "The rates are lower, it's all done online and it's quick," he says of the growing appeal.

Borrowers initiate the quick and relatively simple process by completing an application on a P2P company's website.

According to NickelSteamroller.com, which provides online tools that help P2P lenders sort through funding requests, all Lending Club and Prosper applications are screened with proprietary underwriting software, and approvals can be granted for borrowers with FICO credit scores as low as 600, although both companies usually seek at least 660.

Once approved, interest rates are set according to the loan's perceived default risk and the application is posted anonymously on the company's website for lenders to bid on. When lenders agree to fund a loan, the borrower signs a promissory note, and the funds are deposited directly in his bank account. The P2P company also tacks on an origination fee of 1% to 5% and services the loan repayment via automatic monthly withdrawals.

As with traditional loans, says industry watcher Cunningham, late payments draw penalty fees and defaults can be passed along to credit-reporting agencies, sold to collection agencies or referred for court judgment.

Some critics complain the process could encourage irresponsible borrowing, but proponents say it is preferable to increasing even higher-rate debt. Others caution that P2P lending is not yet approved in all states, and restricted in some. (Lend Academy, the premier blog on the topic, offers a full state-by-state rundown here.)

But proponents downplay these downsides. Money manager Foss tells of a young man she knows who needed $5,000 to buy a used car but couldn't get a traditional loan even though the amount was small and he had a job. He was stymied because he was just out of college. He eventually got a P2P loan at 19%, she says, which was costly but allowed him to purchase the car.

Because he needed the money and couldn't get a loan from anywhere else, she adds, the rate didn't seem so bad at all. 

(This article originally appeared August 28, 2013, on TheStreet.com)

[howardrothman]

Natural Gas Transportation Building Speed

Hydraulic fracturing, or fracking, doesn't have the best public image these days. But love it or loath it, the fruit of this increasingly employed drilling technology — natural gas — has upended the traditional fuel business.

In the process, natural gas is also radically transforming the transportation industry. As it does, a number of companies that have moved in early, both large and emerging, are poised to reap significant benefits.

There are many reasons companies across the U.S. that focus on heavy-duty trucks, trains, and other methods of transport are displaying a healthy appetite for natural gas. One is the price, which has been nearly $2 a gallon (equivalent) cheaper than diesel. Another is the ample supply, stoked by a 25% boost in domestic production since 2007.

The appeal worldwide is real and growing as well. The Natural Gas Vehicles for America trade group says there some 15 million vehicles powered by this fuel currently in use outside the U.S. And a company called Navigant Research estimates 30,000 natural gas-refueling stations will pop around the globe by 2020, mostly outside North America, to serve these customers.

Some oil companies recognize potential

Seeing the writing on the wall, a couple of oil majors amped up their efforts in the space. Of them, Royal Dutch Shell (NYSE: RDS-A  ) is making the most noise.

Under the command of CEO Peter Voser, who is set to depart in 2014, Shell expanded its footprint in liquefied natural gas (LNG) rapidly, and related businesses now represent nearly half of its total exploration and production earnings. The company spent more than $45 billion on production facilities, storage terminals and acquisitions and now sells 40% more natural gas than it did just a couple of years ago. It currently has about 7% of the global market and plans to double that through additional investment.

ExxonMobil is another major acting like a true believer. Its $41 billion acquisition of XTO Energy in 2010 made it the largest gas producer in the U.S., and it has built a large global position through ventures in Indonesia and Qatar.

Unlike competitors like BP, ExxonMobil and Shell have shown they expect natural gas to become a much bigger part of the transportation picture over the next few years. Here's a breakdown by sector of how that industry has reacted in recent months.

Heavy-duty trucks off the starting blocks

The main draw for this segment is the low cost of natural gas compared to oil products. A typical heavy-duty truck burns more than 10,000 gallons of fuel every year, so saving a couple of dollars per gallon across a fleet is huge. The main drawback is the upfront cost, as new LNG trucks run $50,000-$75,000 more than diesel models. Accordingly, natural gas trucks still represent just a tiny fraction of overall sales — although Citigroup projects that 25% of the market could convert by 2020.

Things started changing more rapidly once truck makers developed engines that met customers' needs. The leader is PACCAR (NASDAQ: PCAR  ) , whose Kenworth and Peterbilt lines have offered trucks powered by LNG and compressed natural gas (CNG) since 1996. Last year it produced over 1,400 of these with 9-liter, 12-liter or 15-liter engines, and its broad range of products in the over-the-road, regional and vocational categories have captured around 40% of the North American market.

While demand for these 18-wheelers is growing, the vehicle types that have moved furthest toward adoption are trash trucks and buses. Natural gas now fuels half of all new trash trucks sold, for example. And Clean Energy Fuels (NASDAQ: CLNE  ) , the largest direct supplier of natural gas to the transportation industry, continues a push into public transport and recently expanded its operational authority for the Los Angeles Metro Transportation Authority's CNG fueling stations.

Clean Energy has taken several other steps to cement its position in the transportation industry. These include expanding its network of natural gas fueling stations along major North American trucking corridors to 360 from 70, working with trucking company YRC Worldwide to study LNG vehicle maintenance and operational challenges, and building a facility in New Hampshire to supply the fuel to customers throughout the Northeast.

Railroads moving ahead aggressively

Freight railroads have faced mounting challenges in recent years: Coal shipments — traditionally representing as much as a third of their revenue — collapsed as electric utilities moved increasingly toward abundant, lower-cost natural gas. Some rail operators benefited by transporting the fuel. Others are looking at it as a way to make their trains run more economically.

GE Transportation, a unit of GE (NYSE: GE  ) that builds mobile equipment for the rail, mining and marine industries, is in the forefront. Just how far was confirmed this summer when the company began building LNG conversion kits to modify its existing Evolution locomotives. One of the workhorses of the industry, the Evolution promised a 3% cut in fuel consumption when introduced almost a decade ago; according to GE, these kits could reduce fuel costs another 50%.

Also in this space, Westport Innovations  (NASDAQ: WPRT  ) announced in June that it signed a deal with Canadian National Railway, the largest railroad in that country, to build LNG-powered locomotives. Westport, which designs highly acclaimed high-pressure direct-injection natural gas engines, has also been working with Shell to market the fuel to the transportation industry and partnered with Caterpillar to incorporate its technology into that company's LNG products.

The bottom line

Operators of buses and trash trucks have already seen the light. It's not surprising that those charged with running trucks and trains now see it too. There are obstacles, and it's still early — according to Citigroup, only 3% of all natural gas globally is used in transportation. But the potential is enormous.

Proponents remind us that it took more than four decades before heavy-duty truck operators replaced gasoline with diesel. They insist this transformation will take place, and much faster.

(This article originally appeared August 21, 2013, on The Motley Fool.)

[howardrothman]

Is the Agriculture Boom Over?

For the last few years, farm equipment has been selling faster than cold beer in a hot ballpark. Record commodity prices, driven partly by emerging market demand, brought record income to farmers worldwide. They've continually upgraded and expanded their fleets with the profits, pushing machinery makers to their own record levels. From 2009 to 2012, for example, sales at Deere (NYSE: DE) grew 60%, while EPS mushroomed by 270%.

The upbeat news continued in recent earnings announcements from Deere and its two primary competitors, CNH Global (NYSE: CNH) and AGCO (NYSE: AGCO). Like a small but growing number of observers, however, I believe the most recent results represent a peak, and we could now start seeing fundamentals weaken.

  Good news so far this year, but…

Recent earnings from the Big Three seem to contradict that call. Since the end of July, in fact, all reported profits and sales that beat expectations. And all boosted 2013 outlooks.

But headwinds have been building. Deere initially warned of a weak spring after questions about future corn prices and a cool planting season stalled North American sales. As a result its stock has fallen about 3% this year, while the S&P 500 gained 16%.

Market tightening has also resulted in a glut of used equipment in the U.S. and Europe, causing additional slowdowns as dealers push old machinery over new. The overall decline sparked rumors that Deere is cutting production of it combines by 20%, pulling a significant portion of the industry's most expensive — and highest margin — piece off the market.

Despite the glowing recent quarter Deere hints at things to come on its website, where it projects total cash receipts will decline through the rest of the year and into 2014 as corn, wheat and soybean prices drop. Deere further says it expects equipment sales in its current quarter to fall about 5% below last year.

But some still insist “the bloom isn’t off Deere & Co. or American agriculture for that matter,” as Forbes opined after the company's Aug. 14 report. The publication said it believes the recent strong period, especially in North America, lays earlier concerns to rest and suggests the boom has yet to end.

I think they're wrong. Here’s how these manufacturers fared over the last few months, and what I expect we'll see over the next few.

Deere

The world’s largest farm equipment maker’s fiscal third-quarter profit rose almost 30% year-over-year and easily topped analyst estimates. The company also raised full-year earnings forecasts. Chairman and CEO Samuel Allen said its Agriculture and Turf sales rose 8% in the period, outpacing overall equipment sales (which also include construction machinery). 

Allen attributed the growth to “considerable strength... in North and South America" and noted a significant boost came from Brazilian farmers buying more tractors because of record soybean production and a government-backed financing program. The region’s sales are now expected to outpace those in the U.S. and Canada, which comprise almost two-thirds of Deere's revenue.

Allen also said strong quarterly results were aided by the company's ability to pass along higher prices, resulting in better than expected margins. And he noted that Deere was "keeping a close watch on costs and assets" going forward.

AGCO

This manufacturer and distributor of a range of agricultural equipment and related replacement parts in more than 140 countries, under brands such as Challenger, Fendt, Massey Ferguson and Valtra, also had a strong showing in its most recent quarter. Net income smashed expectations and was up nearly 3.5% year-over-year despite strong 2012 comparisons. The period's sales were up 13%, also beating expectations.

AGCO attributed gains to growth in all regions, led by South America (responsible for 21% of its sales) and Asia/Pacific (less than 5%). It also noted “low levels of material cost inflation coupled with our marginal improvement initiatives” contributed to strong results.

CNH Global

A full-line dealer of agricultural and construction equipment that operates in about 170 countries, CNH's farm machinery is sold primarily under the Case and New Holland brands and represents about three-quarters of total revenue. For the second quarter, it reported net sales up 9% year-over-year and projected full-year revenue growth of 5%.

CNH generates the biggest chunk of its sales in North America (44%) and benefited from strength there as well as the Asia/Pacific region (10% of sales). But it has a relatively weak presence in South America (15%), and about one-third of its sales come from the long-spotty markets of Western Europe and the constantly challenging ones in Eastern Europe.

The bottom line

Despite some denial, it seems as if the so-called Agricultural Supercycle is coming to an end, and the farm equipment segment is heading down the same slower path that’s stymied Caterpillar and competing heavy equipment manufacturers.

Deere has the broadest product selection, including a construction line that should produce additional profits as that sector improves. It also has the most innovative technology and is strongest in overall global positioning, which gives it an edge as various regions ebb and flow. However, its huge reliance on North America could prove problematic if a significant downturn does come. CNH is less dependent on North America but also has less of a presence in South America — a detriment should that boom continue — and is probably too reliant on Europe. AGCO is also heavily invested in Europe, but has a big footprint in South America and is less dependent on North America than either of its competitors.

Investors should be cautious about this sector going forward. But if considering one player for the mid-term, focus on AGCO.

(This article originally appeared August 16, 2013, on The Motley Fool.)

[howardrothman]

Will Long-Term Care Insurance Screw Your Aging Parents?

NEW YORK (MainStreet)—Most of us have heard horror stories about older folks whose savings were drained by a stay in a nursing home. A lot of us also know people who have tried to stave off such devastation by purchasing long-term care insurance.

Recent stories on the shaky state of that coverage, though, have raised questions about whether these policies are a good idea. And even whether those already issued will return the benefits holders are paying for.

Experts are divided, but generally answer both questions the same way: it depends.

It looked good at the time

For many years, private long-term care insurance was seen as affordable protection from the financial ravages that often accompany even a short-term nursing home stay. "It made sense, but only for a limited number of people," says Robert Stammers, director of investor education at the global CFA Institute for chartered financial analysts.

Critics complain the coverage has proven expensive for the benefits it provides, returning only 68 cents for every $1 paid in premiums to typical 65-year-old buyers. A life annuity, by comparison, returns 75 cents to 85 cents.

And they note that it was never really appropriate for people with few assets — and little income to pay for the policies — because Medicaid would cover their costs.

In fact, some experts believe there are so many drawbacks they warn away any potential buyers. "I wrote five years ago that private long-term care insurance can never possibly protect families from the disaster of long-term care expenses," says Joseph M. Belth, editor of the Insurance Forum newsletter and professor emeritus of insurance at Indiana University. "It violates too many principles of insurance to work."

The need is there, but the die was cast

Because Medicare pays only for short stays in nursing homes or in-home care under limited conditions, a number of insurers began selling long-term care policies to fill the gap in the 1980s and 1990s. But they sold these policies for far too little in order to gain market share, Belth and others say, while greatly underestimating just how much health care costs would rise.

The industry also never understood how desperate Americans would become to protect themselves from ruinous nursing home costs. They predicted 5% to 7% of policyholders would cancel each year without drawing benefits, while this "lapse rate" actually turned out to be less than 2%.

The result was a massive shortfall in premiums and a huge escalation in claims that ultimately drove top-flight providers like Metlife and Prudential from the business. A much smaller group of secondary providers took over, managing existing policies and selling new ones while trying to stem their own growing losses by raising premiums and cutting benefits.

This in turn has led more and more policyholders to trim voluntarily their coverage to keep payments manageable. Even worse, it has driven an increasing number of those who need to draw benefits — or, more likely, their family members — to fight their providers for coverage they thought they had. "You pay for the insurance, but come time to pay the claim, these companies will go to any length to avoid it," Belth says.

Problems increasing as solutions remain elusive

Even as these problems multiply, nearly a quarter of a million new long-term care policies are being issued every year. Some providers like Genworth Financial (which holds about one-third of all policies sold to individuals) have tried to steady the ship by requiring blood tests and other medical screening, halting the sale of lifetime benefit policies and charging women who apply individually more than men because they tend to live longer and require more years of care.

Genworth is also seeking premium increases of 25% to 50%, although some customers have reported hikes from other carriers as high as 77%.

Some states responded by adopting "rate stabilization" laws to tighten oversight, which had been sadly lacking. Additionally, Congress created a commission to develop ideas for affordable long-term insurance after President Obama's health-care overhaul dropped the coverage because it was too expensive.

But with any reforms from these and other initiatives still years away, the American Association for Long-Term Care Insurance says a 55-year-old single person buying such protection today should expect to pay about $2,065 a year for $162,000 in benefits, which include a 3% inflation-protection rider. This represents a 20% increase from last year, the trade group adds.

So what should you do?

With pressure to cover potentially debilitating costs colliding with the reality of long-term coverage, what is the best option? Some insurance agents and financial planners have begun directing clients to a type of hybrid coverage that combines life insurance with a rider that provides long-term benefits. This appeals to some, because they can leave something to their heirs if benefits go untapped, but not to others, because the benefits are generally less generous than conventional long-term policies and usually must be secured with a large single upfront payment rather than annual premiums.

For those still considering long-term policies, here are some things to think about:

A report from the Society of Actuaries suggests this coverage is most appropriate for people with savings between $250,000 and $2 million. Research indicates that only 5% of those 65 and older incur long-term care costs that exceed the lower level, the group says, while those whose resources top the upper limit will usually be able to pay such costs on their own.

Stammers of the CFA Institute says long-term coverage could be appropriate for anyone with a family history of serious ailments, as well as those who don't want to worry about potential problems or have other family members deal with them. "It could make sense for the really risk-averse," he says.

Long-term coverage is also a much better deal for women than men, experts say. They get back 87 cents on average for every dollar paid in premiums, while men see returns as low as 45 cents.

If you do decide to buy, Stammers and others suggest seeking help from a knowledgeable advisor before signing on the dotted line. "This coverage is complex and highly customizable. I don't think anyone should get a policy without first getting the advice of a professional," he says.

Some industry watchers like the Insurance Forum's Belth, however, remain unequivocally opposed to anything in the private long-term care arena. "I'm not going to advise anyone to walk away from a policy, because they may need the benefits a week later and then where will they be?" he says.

But if you haven't bought one, he adds, don't. Instead, determine what a good policy would cost and put that money into earmarked savings. "If you start in your 50s or 60s, you could have a bundle built up there by the time you need it," he says.

(This article originally appeared August 2, 2013, on TheStreet.com)

[howardrothman]

10 Tips for Talking to Your Aging Parents About Money

NEW YORK (MainStreet)—Are you thinking that it's time to talk with your aging parents about their financial situation? If you aren't, you should be.

More and more Baby Boomers and older Gen Xers are hearing about friends who have suddenly discovered their parents no longer have the resources or wherewithal to meet their fiscal obligations. Or about someone's parent dying or becoming incapacitated before sitting down to discuss money matters — forcing the adult children to shoulder a slew of emotional and financial burdens as they attempt to track down key financial documents and other personal data.

But experts say it doesn't have to be this way, even though family discussions about money are never easy.

Increasingly, older Americans face financial strains as they confront growing health care expenses with diminishing resources. As a result their grown children are often required to step in, even as they're providing financial assistance to their own offspring and preparing for their own retirement. "This is genuinely unprecedented in the U.S. and around the world," says Paula Span, a contributor to the New York Times' "The New Old Age" blog.

Even worse, many seniors have never discussed such matters with their kids — who have no real idea what resources exist, or where relevant paperwork can be found.

So, if you haven't had "the talk" yet, do it. This will help you care for your parents in the way they desire, ease your own worries, and allow you to continue working toward your own financial goals. But it must be done with sensitivity, cautions Nicole Francis, a financial adviser at Hudson Advisory Group in New York. Controlling one's money is a major aspect of adult independence and no one wants to willingly give it up.

Here are 10 tips for doing it right:

1-Don't wait for a crisis to begin

Don't delay, especially if you already have questions about your parents' finances or their ability to handle them. Span cites research indicating one early sign of dementia is financial — "falling prey to scams, making bad investments, not paying bills or paying them twice." But even in the absence of such missteps, it's important to open the conversation while you still can. "Have these discussions when they are still able to tell you what they have and what they want," Span says.

2-Determine what you know, and need to know

Francis advises clients to prepare a list of resources and documents they're aware of, and those they need to track down. This might include bank accounts, deeds and wills, along with medical, disability and long-term care policies. It should also specify where the relevant paperwork is stored, along with the location of any safe deposit box keys. For a list of materials your parents should ideally share with you, she recommends the aptly named Get Your Shit Together.

3-Don't think you have to do it alone

Even if you're initiating this on your own, it's a good idea to talk with siblings and other close family members as you prepare. They may know things you don't, and can certainly be supportive in other ways before the conversation takes place and while formulating and implementing long-term plans. Span says bringing in a trusted neutral third party, like a family law attorney, financial planner or geriatric care manager can help smooth the way.

4-Recognize the conversation will likely be awkward

Whether you've previously spoken with your parents about money or not, this particular talk will be sensitive. Accept this and prepare accordingly. Francis says you can take much of the pressure off by making sure your parents see themselves maintaining a sense of control. This means establishing yourself as a helper, not the authority. Drop the I-know-best attitude, don't introduce ideas with "you should," and never be condescending.

5-Plan ahead to give everyone time to prepare

Easing into the conversation with advance notice is often helpful. Francis suggests starting with a non-threatening question that can get the ball rolling: "You might say, 'I started making a will; have you guys done that?' Or, 'My financial planner is recommending I get long-term care insurance; do you have that?'" Offer to research the issue and set a date to discuss the options. "For families that have never talked about money, it starts by just trying to get the door open a little bit," Francis says.

6-Set the right tone from the start

When you do talk, Span suggests framing everything "as a way of giving decision-making power to the older person, not taking it away." Ask how they want a bill paid, or how they want some investment handled. Explain that to feel truly comfortable, you need to know what they want done and what they've assembled to do so. In this manner you can sensitively address the resources and responsibilities that you need to know about.

7- Suggest a concrete place to start

During the first meeting, propose a specific action with potential benefits that everyone will see. For example, tell them you might be able to save them some money on their cable bill and offer to take a look at it. Immediately cutting out some overhead like this could be a good start, because it establishes the process while addressing a common concern. (A recent Allianz survey found 61% of older Americans worry about outliving their money.) Then set regular times to continue the dialogue.

8-Fill out your list of contacts and resources

Once you've established a rapport and begun developing long-term plans, plug the gaps in your information while making sure what you do have is current. Besides financial advisors and lawyers they work with, gather names and numbers of doctors, other professionals and even neighbors. In addition to bank account numbers and insurance policy details, get all computer logins and passwords. Draw up a list of all bills that need to be paid, and any money that regularly (or irregularly) comes in.

9-Become familiar with assistance programs

Span notes that even people who believe they have resources to meet their needs can be laid financially low by the "dauntingly expensive" cost of long-term health care. Medicare doesn't cover nursing care, she says, and Medicaid doesn't kick in for everyone. There are, however, other programs that might help. For more information she suggests the federal government's official benefits website, as well as anything your state, city or county has to offer.

10-Keep your own financial condition in mind

Last but not least, don't destroy your own financial situation as you try to solve that of your parents. "If you want to help out, do so within your means and without sacrificing your own future," Francis says. Proper planning, setting the right tone, and truly working with your parents can go a long way toward alleviating many potentially devastating problems before they crop up — but it all starts with having "the talk." Don't wait until there's a crisis before you begin.

(This article originally appeared July 5, 2013, on TheStreet.com)

[howardrothman]

‘Trash Talk’ Now Mostly Positive

Talking trash might get you into trouble on the basketball court, but in investment circles it might make you some money. That’s because the Big 3 waste service firms — Waste Management (NYSE: WM), Republic Services (NYSE: RSG) and Waste Connections (NYSE: WCN) — are all riding a positive wave that I expect to continue.

As the trio prepares to announce second quarter results at the end of July, the segment continues outperforming the market on both improving numbers and higher expectations going forward. Because of that, market sentiment has accelerated during the last three months and shares of all three are up between 15%-21% this year.

Waste Connections has been the biggest gainer since first-quarter results were released. This continues a string of wins over its peers during the last several quarters, despite its lack of presence in the increasingly important energy-conversion space. A concentration on second-tier cities instead of the major metropolitan areas served by its chief competitors, and last fall’s acquisition of a company that serves the potentially huge oil-and-gas waste-disposal market, have definitely struck a chord with investors.

Waste Management and Republic continue to be the industry’s top dogs, fielding impressive networks of collection, disposal and recycling operations along with their own landfills and aggressive energy-conversion programs. The combination has proven a winner despite lackluster volume growth and soft pricing for recyclable commodities.

Before second-quarter performance is reported, here’s a reminder of just where each of these companies has been heading.

Waste Management

The biggest in the business, Waste Management also remains the most appealing of the segment to me. Recent revenue gains have been negligible, rising just 1.2% year over year in the first quarter after a 0.8% increase in the fourth quarter of 2012. And earnings actually fell 1.8% during the first three months of the year, after missing estimates in the previous quarter. But these shortfalls come from restructuring charges designed to achieve savings and increase yield, and so aren’t as bad as they look.

In fact, the company says these restructurings are starting to bear fruit, and it is on target to achieve the savings expected from them. Additionally, it has raised landfill prices by an average of 5%-7% and implemented new rebate structures in its recycling operations. The result led to core price increases during the first three months of the year that were about double what management had projected earlier for the full year, keeping Waste Management on track to meet the positive 2013 outlook it issued in January.

Waste Connections

I’ve been somewhat skeptical of this company’s plans in the past, but must admit that its recent performance has turned me around. The smallest of the Big 3, it has taken its own route and is definitely making it work. In the first quarter revenue rose 20%, profits jumped 26% over the previous year, and both beat analyst estimates. Waste Connections was accordingly the sector’s best performer over the past three months, with its stock up 13% while its peers (as well as the S&P) were up less than 3%.

The company has benefited from improving fundamentals, which are still getting a boost from Hurricane Sandy demolition and renovation activity. An even bigger upside — along with an immediate revenue boost — has come from an acquisition last fall that gave Waste Connections a major position in the newly permitted business of waste servicing for oil and gas exploration and production firms.

Republic Services

This company remains a solid performer with a terrific underlying infrastructure. Revenue has been stagnant, rising just 0.8% year over year in the first quarter after being flat during the prior period. But net income during the first quarter was up 19% ex-items on internal growth and sequential improvement in core pricing and volume. And the results led the company to state in April that it remains on track to achieve its previously issued full-year guidance.

But this remains a long-term play because, like Waste Management, Republic recognizes that its trash can ultimately be turned into treasure. It is accordingly laying the groundwork to stake a major claim in the business of converting waste into energy through incineration and tapping gases produced by landfills — a business that will only grow as technology and demand improve.

Two others to watch

Because the segment is looking so positive, two related firms should also be on investors’ radar. Each fulfills a slightly different need and does it well.

Stericycle (NASDAQ: SRCL) is a leader in specialty disposals, particularly medical waste. Coming off a strong 2012 it reported first quarter revenues rose nearly 12% year over year — partly through acquisitions — while gross profit was up 13% and margins improved. Its stock has done as well as the Big 3 so far this year and may do even better now that Waste Management has announced it will no longer process medical waste itself and instead outsource that service to others like Stericycle.

Clean Harbors (NYSE: CLH) services disposal needs of several specialty industries, the most important being oil and gas. It, too, has been growing by acquisition and in the first quarter its revenue jumped 51% year over year thanks to its December purchase of a leading oil collection and environmental services firm. Income dropped because of the $1.25 billion deal, but the company says resultant synergies will provide a better than expected $70-$75 million in savings by the end of this year. A backlog of ongoing and upcoming projects also adds to optimism for the second half of 2013 and beyond.

The bottom line

Assuming the economic recovery continues and prices for recyclable commodities rebound somewhat, observers expect a return to double-digit volume growth for all players by next year. Pricing continues to improve and business direction appears to be solid.

My conclusion: the long-term outlook remains positive for this segment.

(This article originally appeared July 1, 2013, on The Motley Fool.)

[howardrothman]

Think Twice About Social Security for Early Retirement

NEW YORK (MainStreet)--While all of us have different ideas about what we're going to do when we retire, it's a safe bet that none of us is planning to struggle financially. Yet that is precisely what could happen despite our best intentions, especially if we're forced to exit the working world earlier than we anticipated.

Some serious thought about Social Security and the time and manner that we start our benefits, though, could make things easier down the road.

Alarmingly, two in three Millennials expect to retire by the age of 65, but almost 70% of them have yet to take any steps in planning or saving for it, according to a GfK survey conducted on behalf of MainStreet. Social Security, often viewed as an increasingly antiquated and insecure font of retirement income, has more Baby Boomers (85%) expecting it as a top source of planned retirement income than any other source. Even 54% of Millennials count SS as a top source of retirement income. Whereas Millennials more commonly cite employee-sponsored retirement savings plans (64%) and bank savings accounts, money markets and CD plans (63%) as a top source of retirement income, 65% and 61% of Boomers cited those sources, respectively, far below the expectations for Social Security.

The SS popularity may not fully come as a surprise. The decision on when to retire is based on many factors, but some of the most pivotal, particularly health issues and the loss of a job or job opportunities, are out of our control. Considering recent economic events, it's not surprising to learn recent studies by the Stanford Center of Longevity and Metlife Mature Marketing Institute indicate that the number of those who leave work involuntarily is growing. Or that this group now comprises the majority of all retirees.

One result has been more of us electing to take Social Security payments earlier than we should, with those out of the workforce routinely filing as soon as they can. Experts, though, insist this may be the wrong course of action. "As long as they are eligible, many Americans equate the date they retire with the date they file for Social Security," says Bill Meyer, co-founder of a private research and counseling firm called Social Security Solutions. "Instead, retirees should separate those decisions and look at Social Security as if it's another asset in their portfolio."

Most economists agree that delaying these payments, especially in the current era of low interest rates, may produce the most positive financial outcome. One reason is that applying for benefits before "full retirement age" -- which varies by birth year but is around 66 for most Baby Boomers -- will trigger early-filing benefit reductions that significantly cut available resources down the road when they might be more critical.

Because of these deductions, anyone in this group filing for Social Security at age 62 instead of 66 will receive only 75% of his potential maximum. If a person holds off, though, the government adds 8% to his monthly benefits every year he delays up to age 70 -- a healthy boost that also compounds significantly over time with the program's annual cost-of-living adjustments. "Where else are you going to get a guaranteed 8% gain every year?" Meyer asks.

If you are among those facing unexpected early retirement -- or those who have already left the workforce and perhaps started off on the wrong foot -- there are still remedies you can take that may aid your situation in the future. Here are four things you can you do if something unexpected happens and you find yourself retiring before you planned.

1. If you haven't yet filed for Social Security, find a way to delay at least until your full retirement age.

As noted above, if you hold off you get your full benefit amount and gain "delayed retirement credits." For those born in 1943 or later this amounts to an annual 8% gain until age 70, when the increases cease even if you continue to delay your benefits. So, in lieu of filing, try covering your expenses with other sources like part-time work, a spouse's income, or even by making withdrawals from your savings.

Many erroneously assume this latter tactic is always a wrong-headed move, but it might actually make the most financial sense even if you have just a modest nest egg. For example, Meyer says retirees with between $200,000 and $700,000 in tax-deferred retirement accounts could extend their portfolio's life by as much as a decade if they don't file until age 70. "People who have little savings tend to be the ones who take Social Security earlier," he says, "but they're often the ones who could benefit the most by a delay."

2. If you've already filed and the alternatives mentioned here sound feasible, consider suspending your benefits.

Even if you've started the ship sailing too soon, it might not be too late to reverse course. That's because Social Security offers an option called "voluntary suspension" that could give you a second chance.

Say you retired at 63 and filed immediately, but have recently been offered a good job and would like to go back to work. Or you've considered the above advice and feel that tapping into your savings makes more sense than losing out on that annual benefit increase. If you've reached full retirement age but are not yet 70, you can go back to Social Security and tell them you want to suspend your payments. From that point, you'll begin earning those yearly increases as if you never filed.

3. Go back to work and use the infamous "earnings test" to your advantage.

The Social Security retirement "earnings test" is applied to anyone below full retirement age who is collecting benefits and also earning a paycheck. If your earnings exceed a specific annually adjusted level, known as the "retirement earnings test exempt amount," the government withholds $1 of your benefits for every $2 to $3 you've earned. But it's important to recognize that these benefits are only held temporarily, and will be added back into your monthly benefit checks once you reach full retirement age.

Many see this as a penalty for working. But for those who have retired unexpectedly and started collecting early, it could actually provide a long-term advantage. How? By getting a part-time job that purposely exceeds the exempt amount, which is currently around $15,000, you can effectively trade benefits in the short-term for those in the future.

4. Absorb everything, run the numbers, and seek professional guidance.

Because it can have such a lasting and ultimately irreversible impact on our financial futures, the way we choose to handle Social Security may just be the most important decision we ever make. Nonetheless, it's believed fewer than 10% of all Americans have such a plan. Not a smart idea, Meyer says: "The difference between a good strategy and a bad strategy can mean hundreds of thousands of dollars."

Fortunately, all is not lost even if you've already retired before you planned -- or believe such a move may be in your future. Consider your situation carefully and run the numbers with help from one of the many websites or software programs available, both free and paid. Make sure you're using a credible source, and always follow up with independent professional advice if you have any questions.

(This article originally appeared July 1, 2013 on TheStreet.com)

[howardrothman]

CAT on a Hot Tin Roof

Much like Maggie in Tennessee Williams’ classic stage play, Caterpillar (NYSE: CAT) has been trying to keep its footing on a foundation that's become increasingly precarious. As the company heads into earnings season, investors are accordingly more skeptical of its ability to remain upright than at any other time in its history.

Before second-quarter results are announced July 24, a SWOT analysis — examining the company's strengths, weaknesses, opportunities and threats — helps paint a clearer picture of how CAT performed during the first half of 2013 and where it might be headed going forward.

Strengths

Dominance in the marketplace — It’s difficult to remember a time when Caterpillar wasn't the global leader in overall heavy equipment sales and a top player in most critical categories. From bulldozers to excavators to mining trucks, CAT literally covers construction and mining industry needs from top to bottom. Komatsu (NASDAQOTH: KMTUY) is its main competitor in the excavation space, while Joy Global (NYSE: JOY) plays a similar role in mining. But neither equals CAT’s appeal worldwide, built by delivering top-notch products and unequaled service over the years.

Forward-looking technology — Among other things, CAT has been particularly aggressive in the nascent move toward liquid natural gas-powered heavy equipment. Last fall it displayed three upcoming LNG off-highway mining trucks and announced full-scale development of other new gas products ranging from giant haul trucks to railroad locomotive engines. It is also developing engine retrofit kits for the conversion of existing diesel-powered oil rigs.

Weaknesses

Troubles in Europe  — Ongoing economic problems in the Eurozone have increasingly weighed on CAT’s overall performance. During the first half of 2013 sales in Europe, Africa and the Middle East fell behind comparable periods last year, with a low point being March’s 8% year-over-year decline. While the rate slowed to 2% in May, hopes remain dim for a real construction turnaround or renewed commodities demand. This continues to hurt the two largest segments of CAT’s business. Joy Global has also been hit hard because the commodity issues impact mining activity worldwide, but Komatsu hasn't suffered as much because it has less exposure to the region.

Dealers cutting inventory — For several quarters, CAT dealers worldwide have responded to softening conditions by cutting orders below end user demand in an attempt to reduce inventory. While expected to continue, the company said this practice has in fact accelerated — with inventories decreasing by about $700 million in the first quarter of 2013 alone. (By comparison, inventories increased by $875 million in the first quarter of 2012.) More than one-third of CAT’s $2.8 billion year over year first quarter machinery sales decline was attributed to this de-stocking.

Opportunities

Latin American strength — Geographically, this region is topping everything for CAT right now. Aided in part by construction activity in Brazil ahead of the 2014 World Cup and 2016 Summer Olympics, sales have actually picked up here this year after a strong 2012 and were up 22% in May after increases of 28% in April and 12% in March.

Rising construction activity — If there is any product segment offering the potential for good news, it is construction. Although still pressured globally by European problems, sales in this category are continuing to grow in Latin America, improving in China, and accelerating in North America after a dip earlier in the year. And while CAT construction sales did record a 17% year-over-year decline in the first quarter of 2013, the segment was still the company’s best performing. Competitor Komatsu similarly cited construction strength, particularly in the U.S., in projecting a significant rise in profits for 2013. 

Threats

Mining malaise continues — Mining comprises about one-third of CAT’s total sales, and the industry’s retrenchment in the face of falling commodity prices has taken a big toll. In its first quarter earnings call the company said it expects 2013 mining machinery sales to decline about 50% year-over-year, and it revised this year’s overall sales and profit guidance downward because of it. Further, recent news from Joy Global offers no reason to expect a quick rebound. That company’s second-quarter results, released in late May, noted mining sales dropped more than 8% over the same period in 2012 — marking their fifth straight quarterly decline — and Joy subsequently cut its earnings outlook for 2013 because it saw the decline continuing.

Slowdown in China — Weaker than expected economic news out of China has hit CAT in several ways. The country eased up on coal mining operations, which hurt sales of the company’s branded products as well as those it produces in several domestic joint ventures. Joy Global is also suffering, as demand for Chinese imports of commodities such as copper and iron ore weakened and impacted global production. And with construction slowing here as well, Komatsu — China’s heavy equipment sales leader — has been hurt even more than other international players and earlier this year reduced its 2013 revenue and profit guidance largely because of it.

The bottom line

Caterpillar remains the world leader in heavy equipment sales and is working hard to position itself for recovery in key industries. This includes cutting costs and adjusting production to meet demand, as evidenced on June 23 when it announced a layoff of unknown length for approximately 260 workers and other measures at its Milwaukee-area plants.

Overall sales have been weak since late last year, though, and through May show no signs of significant recovery. Until such evidence emerges, we remain bearish on CAT and its peers.

(This article originally appeared June 26, 2013, on The Motley Fool.)

[howardrothman]

Can Exports Save U.S. Coal?

Although it remains the country’s largest private sector provider of jobs, the U.S. coal industry is hurting. Domestic utilities are turning to lower-priced natural gas. Environmental opponents are working hard to keep the mineral in the ground. Coal companies have attempted to compensate by reining in costs and ramping up exports. Will it work?

Cheaper and cleaner natural gas has cut coal’s share of U.S. electricity generation from 50% to less than 40% over the past decade. Outside pressures have mounted at the same time, making hopes of a domestic recovery a pipe dream.

In response, top tier coal producers such as  Peabody Energy (NYSE: BTU), Alpha Natural Resources (NYSE: ANR) and Arch Coal (NYSE: ACI) trimmed capital expenses and sliced production — which dropped 7% year over year in 2012 to the lowest level in two decades.

With U.S. consumption expected to rise only modestly over the next few years, exports are the only growth engine available to the beleaguered industry.

Coal companies work to increase their opportunities

Peabody, the top U.S. producer by revenue, is already the most global of its peers with an operation in Australia that allows it to easily ship coal to Asian markets. It has also been securing additional shipping capacity at home, such as the deal it signed last year with Kinder Morgan Partners (NYSE: KMP) to boost its presence at their Houston terminal. All of this paid off with record export volumes in 2012.

Number-three producer Alpha has become the largest U.S. exporter of metallurgical coal, a primary component in steel making, by expanding access to shipping points. Last year it exported 20% of its production, representing 40% of total revenue.

Number-four producer Arch also has deals with several terminal operators, including Kinder Morgan, which is spending $400 million to expand the facilities it operates along the Gulf of Mexico and the East Coast. Additionally, Arch opened an office in Beijing, and last year its exports rose 30% over 2011.

Another producer not to be dismissed is CONSOL Energy (NYSE: CNX). While smaller than those mentioned above, it has set itself apart with notable operations in the natural gas space, increasing its appeal to anyone looking to hedge their bets. While CONSOL has essentially abandoned any efforts to grow coal production, it is increasing capacity at its 100%-owned storage and shipping terminal in Baltimore. In 2012, exports from this facility rose 50% year over year and the expansion could increase that another 30%.

Exports strong, but facing headwinds going forward

The idea of expanding exports to the world’s biggest customers — currently China, the Netherlands (a large transshipment point), the U.K., South Korea and Brazil — sounds good. And the U.S. Energy Information Administration (EIA) reports shipments of 6.3 million short tons of steam coal and 7.4 million short tons of metallurgical coal in March set a monthly record. Increased Asian demand contributed to the standout month.

But with China’s economy slowing, exports of metallurgical coal are taking a hit. According to the U.S. Census Bureau, they dropped 25% in May from April as demand for steel in China fell. And while some observers expect steel manufacturing to increase in the second half of 2013, no evidence has been seen as the first half draws to a close.

Future export projections offer another reason for caution. The EIA expects 2013 to be the third straight year that more than 100 million short tons of U.S. coal will be shipped overseas. But it sees a drop to 110 million from last year’s 126 — and a further decline to 107 in 2014. Continuing economic weakness in Europe, slowing Asian demand, increasing supply in other coal-exporting nations and falling international coal prices are the reasons for this.

West Coast terminals may be the key

Not willing to give up without a fight, the industry is working to expand its export opportunities by building terminals in the Pacific Northwest. Such facilities are essential to moving coal from rich deposits in Wyoming and Montana to Asia. Without them, only about 3% of the coal produced in that so-called Powder River Basin — responsible for nearly half the nation’s total — can be exported cost-effectively.

The industry says exports from the PRB could increase ten-fold with new facilities in Oregon and Washington. But fierce opposition from environmental groups, who say the negative effects of burning coal should not be expanded overseas, has resulted in lengthy delays.

The pitched battle has included lawsuits against railroads as well as coal companies and costly public and private lobbying efforts. The combination has raised serious concerns about the potential for the terminals and several investors, including Kinder Morgan, have already dropped out of three of the six initially planned.

The industry still has hope, however. Environmental groups and supportive lawmakers have pushed the Army Corps of Engineers to review the remaining three terminals together, looking at their cumulative impact on burning coal overseas. But on June 18 the Corps announced it would not consider any climate change impacts in its environmental review.

The bottom line

No one knows whether these West Coast terminals will be built, or whether there will be enough demand going forward to allow producers to materially increase their exports using them. But those with significant positions in the PRB, including Peabody, Alpha and Arch, are banking heavily on it.

Most of these producers reported a substantial drop in profits in 2012. With domestic demand stagnant, their stock prices remain mired near 52-week lows. Increasing exports seems the only solution. Keeping an eye on the Pacific Northwest will offer a big clue on whether that will happen.

(This article originally appeared June 20, 2013, on The Motley Fool)

[howardrothman]

How to Loan Money to Friends and Family Without Getting Burned

NEW YORK (MainStreet)—In a 1998 episode of the classic sitcom that bears his name, Dr. Frasier Crane offers to loan Roz Doyle $1,500 to help her through what they both hope will be a period of brief unemployment. "You can just pay me back whenever you'd like," he says, handing her a check. "This is your money to do with as you see fit."

Fans of the show won't be surprised to learn that Frasier later becomes agitated when he feels that Roz is spending the money frivolously on spa treatments, fancy clothing and expensive perfume. Against everyone's advice, he eventually confronts her about it. She immediately grows angry and combative. He gets embarrassed and defensive. They have a big fight, but — because this is TV — everything is resolved before the 22 minutes of airtime plays out.

In the years since that episode first aired, rising unemployment and tightening credit have made real-life loans between friends and family members increasingly common. And they're not always used solely to navigate a rough personal patch. One recent study found at least 7% of all homebuyers now rely on such assistance, while another found 14% of all business owners are turning to those they know to cover costs.

When handled as poorly from start to finish as Frasier's loan to Roz, these transactions rarely end on such an amicable note. But it doesn't have to be that way, experts say. You can actually lend money to someone who is dear to you, help them out of a jam, get repaid and remain close.

The key is handling the situation just like any other business transaction: don't loan blindly, lay out the specifics so there are no misunderstandings, and put it all on paper.

If you do it, do it right.

Recent tough times may have aimed a spotlight on such loans, but they are hardly a new phenomenon. "People have been borrowing from, and lending money to, family members and friends for centuries," says Tim Burke, founder and CEO of National Family Mortgage. His company, launched in 2010, helps those who want to finance private home mortgages for friends and family.

One thing that is different today, he says, is the need to formalize the process in order to satisfy stringent legal and tax requirements. One thing that isn't, is the stressful nature of discussing money problems with those close to us — something fraught with potential pitfalls that few fully anticipate. "Money is a polarizing subject from the outset, and circumstances surrounding these requests often make that worse," Burke says.

The first step in making these kinds of loans work for everyone, therefore, is putting the emotional component on the shelf. "You have to make this decision with your head, and not your heart," says Gail Cunningham, a vice president at the National Foundation for Credit Counseling.

Some of that may make both parties uncomfortable, she adds, but it's the key to ensuring such loans will be made and repaid successfully — and the relationships involved won't fall apart over them.

Foremost, Cunningham says, "is treating this like any business decision." This means preparing for an open discussion and giving yourself time to consider your answer. Getting details on what the money will be used for — this adds a measure of accountability and can assist you as you weigh your options — and why you are being approached rather than a bank. Thinking about ways you might help the recipient help themselves in the future, like guiding them toward financial or budget counseling.

And never consider anything other than a cash loan. Opening a credit card account in your name is often a recipe for disaster.

Put it on paper, and get it signed.

Before any money changes hands, put everything in writing and have the document signed by all parties. This can be accomplished with something as simple as a state-specific promissory note, available online for free, or as formalized as the officially registered paperwork prepared by facilitators like National Family Mortgage. Even the most rudimentary document should also be notarized, which may give more legal standing in cases of default.

The document itself should emphasize that this is a loan, not a gift. It should outline all terms, including how and in what timeframe it will be repaid, and what will happen in the case of default — late fees, collection process, legal action, etc.

It should also note what interest rate will be charged, which is essential in order to avoid gift taxes on the lender. "You don't necessarily have to collect the interest," Burke notes, "but you have to prove on your income tax return that you are earning it." Such interest, he adds, must be at least the "applicable federal rate" set each month by the Treasury.

Finally, remember that you can always say no. Most experts advise never lending more than you can afford to lose, and they say not to conclude a deal if you're not totally comfortable with the proposal or the lender-borrower relationship. Don't let guilt guide you to the wrong decision, they add.

If you do decide to go ahead, stay in communication but distance yourself from the transaction once all of the i's are dotted and t's are crossed. Suggest the recipient contact you immediately if they run into trouble, but recognize the money is no longer under your control and resist the urge to micromanage how it's spent.

Unlike Frasier and Roz, we don't have scriptwriters and a 22-minute limit to make all hard feelings go away.

(This article originally appeared June 18, 2013, on TheStreet.com)