A plunge in oil prices is feeding consumer pocketbooks and reshuffling the economic and strategic cards across the globe. OPEC’s recent decision to sustain current production levels looks like a high stakes game of chicken.  These countries produce 40% of global oil but failed to anticipate the magnitude of the U.S. production surge – up 80% in six years.  That increase is greater than the output of every OPEC country except Saudi Arabia.  And it has coincided with recovering production in some previous trouble spots just as economic activity appears to have stalled in some key corners of the world. This is a decidedly different dynamic from the well-worn story of tight oil supplies and rising demand from China and other emerging economies.  Now exporters strategize to hold market share and see who’ll be able to keep the crude flowing if prices slip lower.  Current levels may curtail some higher-cost production, but the U.S. surge is proving resilient, and technology moves on.  The International Energy Agency (IEA) estimates that just 4% of U.S. wells need oil above $80 per barrel to be profitable.  Some sources believe most shale oil and Canada’s tar sands can be economic even if oil approaches $50 per barrel. Meanwhile, some key OPEC members – notably Venezuela and Iran – are stressed.  Russia is not in OPEC, but oil generates 40% of its state budget.  The ruble has tumbled along with oil, boosting the cost of Russia’s heavy dependence on imported food and consumer goods. Regions that are heavy oil importers are getting a welcome break.  This includes much of the Eurozone and Japan, both of which have been flirting with recession.  There are a number of beneficiaries across Asia, including China and especially India, which imports about 85% of its oil.  Lower prices are a [...]

Analysis released last year by the Internal Revenue Service shows younger investors are choosing Roth IRAs over the traditional variety in large numbers.  Fund manager T. Rowe Price confirms that as of year-end 2013, investors under 34 have eight times more money in Roth IRAs than in traditional IRAs. There’s logic to that, assuming young investors are looking at currently low marginal tax rates, lots of years to enjoy tax-deferred growth, and easier access to a portion of their Roth assets if a need arises a few years down the road.  But as those same workers edge into higher marginal tax brackets the argument gets a little more nuanced. The main lure of the Roth IRA is the promise of tax-free income in retirement.  But is a young worker’s biggest worry the tax burden she’ll carry in retirement?  Or is it the challenge of saving enough to support a comfortable retirement? There are always plenty of competing demands for the dollars we might otherwise set aside for the future.  One’s tax rate in retirement, 30-35 years down the road, can be a tenuous rationale for forgoing the deduction one might capture with a traditional IRA contribution today.  After all, that deduction lowers the out-of-pocket cost of the IRA contribution which facilitates more savings.  And that’s a certainty now rather than a possibility in the distant future. Even if a young investor has the funds to maximize an IRA contribution – Roth or traditional – there are other tax-deferred vehicles in which to invest the tax savings from a traditional IRA contribution.  And that brings us to one of the most basic financial planning precepts: Try to control as much capital as you can for as long as you can.  Paying income taxes at a high rate in one’s golden years [...]

I recently set up a SIMPLE IRA plan for a business in Corvallis. Their goal was to help their employees save for retirement while not spending a small fortune on administrative costs.  If this is the case for your business, you may want to take a look at a SIMPLE IRA plan. Who is eligible: Businesses with less than 100 employees, tax-exempt organizations, and government entities. Who must be covered:  Any employee earning $5,000 during any two preceding years. Required Employer Contribution: Dollar-for-dollar match up to 3% of pay OR 2% of gross pay up to $245,000 for all eligible participants who earn at least $5,000. Maximum Contribution:  $12,000 deferral plus a $12,000 maximum match.  Those over the age of 50 may make an additional catch-up contribution of $2,500. Advantages: - Minimal paperwork and expense - Minimal tax filing - Participant deferral of current income taxes Note: When participants take before-tax contributions out of their retirement plans, that money is subject to ordinary income tax and, if withdrawn before age 59 ½ , may be subject to an additional 10% federal tax penalty (25% penalty if withdrawn from a SIMPLE IRA within the first two years). Those are the basics, but please give us a call if a SIMPLE plan seems like it may be appropriate for your business.

There's been much debate in investing circles over the last year about whether inflation or deflation represents a more likely threat to the future of the U.S. economy. With a recovery that's still tentative compared to previous recessions, measures designed to stimulate the economy or cut spending to rein in the budget deficit provoke warnings about their potential to create one or the other. The case for inflation As the economy has begun to recover, worries about the potential for future inflation have become widespread. The Fed has undertaken extraordinary measures to make sure there is plenty of money in circulation, but some experts worry that the increased money supply will eventually cut the dollar's purchasing power, especially if interest rates are kept at historically low levels for too long. They cite the easy availability of money as contributing to the late-1990s tech bubble and the mid-2000s housing bubble, and fear that another could be on the way. The Federal Reserve Board's monetary policy committee maintains that inflation currently is too weak to support normal economic growth, let alone launch an inflationary spiral. However, those who see inflation in our future watch for warning signs such as increased Treasury yields, particularly on longer-term bonds. Higher yields when bonds are auctioned suggest that investors are increasingly wary of tying up their money for long periods at a fixed interest rate if they feel that inflation is going to erode the buying power of those fixed payments over time. Wholesale prices also are watched closely; higher prices at the wholesale level can be a precursor of higher prices at retail (that is, if retailers are able to pass those costs along to buyers, which is not always the case). The case for deflation At first blush, the falling prices that characterize deflation [...]