Junior, their oldest, was named as Executor. Mom and Papa loved all of their children equally and their intent was to grow their wealth, business, and properties for their children and grandchildren.

Junior was never involved in the family business or farm, opting instead to go into corporate life. Junior is highly intelligent and very capable, but of course, being the oldest of the children he does not always get along very well with his siblings.

Junior is a busy man with a good job, a wife who works, and children of his own to care for. He proceeds to manage Mom and Papa’s Last Will based on what he thinks is best. Funeral and debts are paid-off, insurance monies are collected, annuities and IRA’s are liquidated.

Family members are anxious to get their cut so they are pressuring Junior. The business and farm are sold below market price and at the worst possible time in order to get a quick sale.

The estate is distributed per the Last Will and Testament. Some funds go into savings while some family members go on a spending spree. Family members are angry and hurt… communication between them ceased long ago. Lawyers are hired and a legal battle ensues.

Nine months later the IRS comes calling asking for farm and business appraisals. Oh… sold to another family member below market value? The IRS establishes their own value and determines that estate taxes are due, in cash and payable immediately. IRA’s and annuities… no one told us that these are taxable as current income to the recipients.

Mom and Papa were married for 50 years and worked together as one for the benefit of their family. They toiled long hours and did without their entire lives, but are muted as they can no longer speak… and this is certainly not what they had intended.

There are other similar situations: A child with special needs, children who are not yet adults, family members or their spouses that might be spendthrifts.

How can they speak from the grave? How can they manage and guide the distribution of their life effort when they are no longer here? How are they to continue to be a referee between their children’s strong personalities?

There is a way — a Professional Trustee. Rather than naming a family member as executor, The Last Will or Trust Documents may name a professional fiduciary to manage the estate. A family lawyer may often times be a very good choice.

Your financial advisor can also fill this role. This is a particularly good option since your financial advisor may already have been intimately involved with your investments, taxes, insurance, business, and financial planning. Does your financial advisor have the capabilities to function in this role? Most in this area are not.

Our office has the capabilities and resources to properly serve as your trustee or fiduciary. When we establish a relationship with your family for investment, insurance, and financial planning, we become an integral member of your clan. We know and understand the family personalities and know where you want to go as this is the basis for establishing financial goals. Managing your Last Will or Trust as a fiduciary or trustee is a natural progression in the relationship.

If your investment broker, insurance agent or financial planner is not able to do this for you then maybe you might want to consider a change.

The information presented here is for educational purposes only and shall not be construed or interpreted as a solicitation to sell or offer to sell any specific securities, investments, or investment strategies. The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

John Essigman Wealth Advisors LLC, a Registered Investment Advisor,
offering fee-only financial planning and investment advisory services in the
State of Georgia and where otherwise permitted by law.

www.bluecreek.net (706) 865-0121

141 North Main St Cleveland GA 30528

Why? What do they know that US Regulators are still grappling with? Our friends across the pond seem to think that earning a commission on the sale of a financial product coupled with financial advice may not be good for consumers.

The premise… How can a financial advisor claim to be working only in your best interest then sell you a product with a large commission?

The Fee-Only business model ensures that costs are transparent and that there are no conflicts of interest. Is your investment broker, insurance agent, or financial planner earning a commission on the products they recommend?

As a fee-only Registered Investment Advisor, I am held to a very high fiduciary standard of care to serve only in my clients’ best interest. I do not sell any financial products and I do not earn a commission. I get paid only by you and work solely for you.

The information presented here is for educational purposes only and shall not be construed or interpreted as a solicitation to sell or offer to sell any specific securities, investments, or investment strategies. The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

John Essigman Wealth Advisors LLC, a Registered Investment Advisor, offering fee-only financial planning and investment advisory services in the State of Georgia and where otherwise permitted by law.

www.bluecreek.net
(706) 865-0121

141 North Main St Cleveland GA 30528

Most people seem to know and understand what this is. You work for 4o years, you retire, you get a check for a certain period of time, usually for the rest of your life. Social Security works in a similar fashion.

Now let’s chat about annuities. Annuities have existed in their present form for decades but the concept dates back to the Roman Empire. Yet I mention the word annuity and people get a deer in the headlights look. What they are and how they work does not come up in the daily lives or discussions of average Americans, so the word tends to make people nervous and uncomfortable.

Generally speaking, a pension, social security, and annuities have similarities—money goes in then at a later date you get a check. One big difference between a pension and an annuity is that an annuity is funded entirely by you.

Where does the money come from? In many cases a retirement annuity is funded in one lump-sum, such as from an inheritance or maybe a transfer from your 401(k) or IRA. So you save money in your 401(k), you work for 40 years, money goes into an annuity, you get a check, which can be for the rest of your life.

So why would a person move their hard earned money or inheritance into an annuity? Well, because it may provide peace of mind. One of the problems facing retirees is that they may spend their money too quickly, it may not grow enough during retirement to last, or a crash in the market might decimate their investments when they need it to live.

Pensions, social security, and annuities provide a certain amount of security and peace of mind given that this risk has been transferred to someone else. As you may have guessed, an annuity is an insurance policy.

Generalizing? Yes… There are many different types of annuities and each type has a variety of internal mechanisms that will provide you, your spouse, and your beneficiaries with certain guaranteed results.

Complex? You betcha… A variable annuity is an insurance contract with an investment mechanism and regulations require the person selling it to have an insurance license, a securities license, and a variable contract license.

Costly? Yup, they can be very expensive. Peace of mind is not cheap.

So there are hundreds of different types offering all sorts of bells and whistles, they are complex, and they can be expensive. How are you supposed to make a decision? This is an important question and you should be very careful.

Does the agent offering it to you understand what they are offering and how it works? How did your agent come to choose the particular riders and benefits? What is the surrender period? What is your cost? Can your agent explain, in detail, how you will be taxed on withdrawals? Can they explain how your beneficiaries will be taxed?

How did your agent come to choose this one annuity from the hundreds which are available? Ask specifically… what is your agent’s commission on this product? Be aware of annuities or life insurance contracts that have large commission payouts. Once you sign the contract it can be costly to surrender it. In many cases, an annuitized contract cannot be undone.

So you think you may still need an annuity or maybe you already own one and are not clear how it works. What should you do? Consider a review and/or a second opinion.

I am one of the very few fee-only advisors in this area. There are many good insurance and investment brokers out there calling themselves “financial representatives” or “fee-based advisors”, but ultimately they get paid for the products they sell.

As a fee-only Registered Investment Advisor, I am held to a very high fiduciary standard of care to serve only in my clients’ best interest. I do not sell any financial products and I do not earn a commission. I get paid only by you and work solely for you.

Engage a financial professional who can create a plan that is as unique as you are and is held accountable for the advice they give. Any financial product should be evaluated for suitability and structured to your life objectives. Consult a financial professional if you are in the market for insurance or investments.

The information presented here is for educational purposes only and shall not be construed or interpreted as a solicitation to sell or offer to sell any specific securities, investments, or investment strategies. The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

John Essigman Wealth Advisors LLC, a Registered Investment Advisor, offering fee-only financial planning and investment advisory services in the State of Georgia and where otherwise permitted by law.

www.bluecreek.net
(706) 865-0121

141 North Main St
Cleveland GA 30528

Nonetheless, the law’s provisions have been enacted according to a specified timetable, and after surviving legal and political challenges, the ACA enters a pivotal phase of implementation in 2013. This may be an appropriate time to consider how the ACA could impact your situation as a taxpayer and a consumer.

New Taxes in 2013

Some of the most immediate issues for high-income Americans are two taxes effective this year that are intended to help pay for the expansion of health coverage and other benefits under the law:

• An additional 0.9% Medicare payroll tax on earned income (wages/salaries) exceeding $200,000 ($250,000 for joint filers).
• A 3.8% Medicare unearned income tax on net investment income for people with adjusted gross incomes (AGIs) exceeding $200,000 ($250,000 for joint filers). Unearned income includes capital gains, dividends, interest, royalties, rents, and passive income.

In addition to these Medicare taxes, two potential tax reductions could affect taxpayers regardless of income level:

• The threshold for deducting unreimbursed, qualified medical expenses increases from 7.5% of AGI to 10% in 2013. However, this increase is postponed until 2017 for individuals aged 65 and older.
• Flexible Spending Account (FSA) health-care contributions are capped at $2,500 in 2013, with adjustments for inflation in future years. Previously, FSA contributions were subject only to employer plan maximums.

Employer Coverage

Beginning in 2014, employers with 50 or more full-time employees will be required to provide minimum essential health coverage or face an annual penalty. Not surprisingly, many employers are now assessing their options. In a recent survey, 84% of U.S. employers reported that they are very likely or definitely will continue to provide health insurance to full-time employees in 2014. Only 1% indicate that they will not provide health coverage.¹

A temporary, three-year assessment to help fund the law’s requirements to cover pre-existing conditions may also impact employers. This fee, which will be assessed on all “major medical” insurance policies (employer-based and individual policies), begins at $63 per capita in 2014, drops to about $40 in 2015, and phases out completely by 2017. Because most large employers pay employee health insurance in advance, they are likely to owe this fee directly and could pass all or part of the cost to their employees.²

Insurance Exchanges

In 2014, individuals and small businesses (with up to 100 employees) will be able to purchase health insurance through exchanges. Some large companies that do not want to provide employee health coverage might be willing to pay the required penalties and allow their employees to obtain individual coverage through the exchanges.

As of December 14, 2012 — the deadline for submitting plans for state-based insurance exchanges to the Department of Health and Human Services (HHS) — 18 states and the District of Columbia had declared that they will establish a state-based health exchange.³ Six of these have had their plans conditionally approved.⁴

Of the remaining states, seven plan to participate in federal-state partnership exchanges, and 25 states would default to an exchange administered by the federal government.⁵

HHS regulations for health insurance plans address cost-sharing limits and the valuation of coverage. Plans will be standardized based on the percentage of expected health-care costs they will cover: bronze (which covers 60% of the actuarial value of expenses), silver (70%), gold (80%), and platinum (90%).⁶

Applications for the exchanges will begin in October 2013, with coverage beginning January 2014. If you think you might obtain insurance through an exchange, it might be wise to monitor developments in your state.

Meanwhile, you might continue staying abreast of any developments with your employer coverage and include any additional taxes in your calculations for 2013.

1) Employee Benefit News, December 10, 2012 2) Huffington Post, December 10, 2012 3, 5) Kaiser Family Foundation, 2012 4) HealthCare.gov, December 10, 2012 6) Employee Benefit Adviser, December 7, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2013 Emerald Connect, Inc.

John Essigman Wealth Advisors LLC, a Registered Investment Advisor, offering fee-only financial planning and investment advisory services in the State of Georgia and where otherwise permitted by law.

www.bluecreek.net
(706) 865-0121

141 North Main St Cleveland GA 30528

High winds and widespread flooding also shut down public transportation and left millions of homes and businesses without electricity for days, or for weeks in some cases.

The 12 states affected by Sandy’s destructive path typically account for nearly one-fourth of the nation’s gross domestic product (GDP), or roughly $13 trillion a day in economic output.² Here’s a closer look at the financial toll that this natural disaster could take on the region and the United States as a whole.

Tough Losses

According to preliminary estimates, Sandy was responsible for nearly $50 billion in losses from business interruption and property damage. It is likely to join the list of costliest storms in U.S. history, surpassed only by Hurricane Katrina ($157 billion) in 2005 and possibly Hurricane Andrew ($54 billion) in 1992.³

Economic research firm Moody’s Analytics attributed about $30 billion to physical storm damage, divided somewhat evenly among households, businesses, and public infrastructure. The other $20 billion refers to losses resulting from at least two days of suspended business activity.⁴ Of course, loss estimates could change as the full scope of damage and necessary repair costs come to light.

A portion of lost business output could be made up later, but some types of losses are unlikely to be recouped. The airlines, for example, were forced to cancel more than 20,000 flights, and Wall Street’s two-day closure halted financial market trading at a cost of about $7 billion. Moody’s also reported that New Jersey should account for the lion’s share of lost business output (about 60%), followed by New York City (15%), Philadelphia (14%), and Washington, D.C. (11%).^5–6

Covering the Costs

Insured losses could range from $10 billion to $20 billion. Fortunately, the private insurance industry is believed to have sufficient capital reserves to cover policyholder claims.⁷

The balance (or uninsured costs) will fall on the broader public in the form of flood insurance payouts and disaster assistance provided by FEMA, as well as on the affected businesses and households. The federal government’s National Flood Insurance Program has received more than 115,000 claims for which payouts could reach $7 billion.⁸ Beyond federal assistance, state and local governments and taxpayers may foot much of the bill for repairs and upgrades to public infrastructure such as roads, railways, airports, and water and sewer systems.

Temporary Disruption

Initially, business activity and job growth may take a noticeable hit. Economists have projected that Sandy could cut GDP growth by as much as half a percentage point in the fourth quarter of 2012.⁹ Some of the storm’s more immediate effects were evident in economic data reported in November, including a slowdown in retail sales and manufacturing.

Stalled business conditions in the affected areas were also responsible for a spike in new claims for state unemployment benefits that should be relatively short-lived. An increase of 78,000 initial claims was the biggest weekly jump since Hurricane Katrina in 2005.¹⁰

Rebuilding Boost?

Residents and businesses in some hard-hit areas will likely have to endure a long period of hardship and recovery. Sadly, some uninsured or underinsured small-business owners and households could face serious personal financial losses (including reduced asset values and net worth) and/or diminished income prospects.

It could be several months before large-scale repairs and rebuilding of damaged homes, buildings, roads, and bridges are under way. Government money still needs to be allocated and insurance claims must first be settled.

Because wages for construction jobs are typically higher than the average wage, some economists believe that a ramp-up in construction employment could have a modest beneficial effect on the broader economy.¹¹ As a result, recovery spending could ultimately offset some losses or possibly even contribute to GDP growth in 2013.

1–2) NBCNews.com, October 30, 2012
3–5) CNNMoney, November 2, 2012
6) USA Today, November 1, 2012
7) The Wall Street Journal, November 1, 2012
8) The New York Times, November 12, 2012
9–10) Reuters, November 15, 2012
11) Associated Press, November 4, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2013 Emerald Connect, Inc.

John Essigman Wealth Advisors LLC, a Registered Investment Advisor, offering fee-only financial planning and investment advisory services in the State of Georgia and where otherwise permitted by law.

www.bluecreek.net
(706) 865-0121

141 North Main St
Cleveland GA 30528

Large-scale economic levers can seem abstract, but as a consumer and investor, you may want to consider the potential impact of the Fed’s moves on the U.S. economy and your personal financial situation.

Increasing the Money Supply

Quantitative easing refers to increasing the supply of money in the national economy. Although critics may deride it as “printing money,” the Fed’s QE programs have not actually increased the available currency. Rather, the Fed generates funds electronically and credits the accounts of the banks from which it buys securities, with the goal that banks would use the funds to provide loans to businesses and consumers.

Beyond Short-Term Rates

Historically, the Fed’s primary economic lever has been to lower short-term rates by setting the target for the federal funds rate, which has ranged from 0% to 0.25% since December 2008.² In late November 2008, in an effort to lower longer-term rates and stimulate the housing market, the Fed launched QE1, which grew as the economy continued to struggle and led to the purchase of $1.25 trillion of mortgage-backed securities by March 31, 2010.³ During this period, the average 30-year fixed-rate mortgage fell from 6.33% to 5.0%, but the housing market remained stalled.⁴ Beginning in July 2009, the economy began to grow, but it’s unclear how much of this can be attributed to the Fed’s actions.⁵

In late April 2011, with the economy slowing down, the Fed implemented QE2, purchasing $600 billion of longer-term Treasuries with new money. Operation Twist, launched in September 2011, also targets longer-term rates, but unlike the QE programs it has not added to the money supply.⁶

The effect of these policies has been limited because banks have remained cautious about lending, and businesses have been slow to invest and increase hiring. This hesitation has been driven in part by tighter bank lending standards and by higher productivity and lower payrolls for American businesses.^7–9

An Open-Ended Approach

QE3 differs from previous initiatives in that it has no dollar limit or defined end point. During the first month of the program, the average 30-year fixed-rate mortgage dropped from 3.55% to an all-time low of 3.36%, although it is too early to gauge the full effect.¹⁰

Some analysts believe that mortgage rates may continue to fall, which could stimulate the housing market and have a positive effect on employment.¹¹ Of course, it could also be a good time for homeowners to consider refinancing.

Considering the Risks

The biggest criticism of the QE program is that it may stimulate inflation. However, moderate inflation is necessary for growth, and the 2% annual inflation rate through the end of September 2012 corresponds with the Fed’s target rate.¹² William Dudley, president of the New York Federal Reserve, recently said that the Fed’s ability to adjust short-term rates “means we can keep inflation in check.”¹³

A secondary issue is that the Fed’s holdings are expanding; they reached $2.81 trillion by mid-October.¹⁴ Fed Chairman Ben Bernanke has voiced concern that the central bank is being forced to play too large a role due to a lack of action by Congress, and that the Fed’s large holdings could have unintended consequences — though he has seen “few if any problems” so far.^15–16

One effect is almost certain: Interest rates will probably remain low for the foreseeable future, which aids borrowers but minimizes the return on lower-risk savings vehicles that many retirees rely on for income. In a recent poll, 73% of nonretirees said that low rates are good for consumers and business borrowers and the benefits outweigh the risks, but only 47% of retirees shared this point of view.¹⁷

The next few months may provide a clearer view of whether QE3 is helping to stimulate continued economic growth. Keep in mind, of course, that the economy is just one of many variables to consider when reviewing your personal financial situation.

1–3, 6) Federal Reserve, 2008–2012
4) bankrate.com, September 21, 2011
5) U.S. Bureau of Economic Analysis, 2012
7) Financial Times, October 15, 2012
8, 15) CNNMoney, September 13, 2012
9) Associated Press, September 5, 2012
10–11) barrons.com, October 13, 2012
12) U.S. Bureau of Labor Statistics, 2012
13–14) Reuters, October 16, 2012
16) bloomberg.com, September 18, 2012
17) Gallup, June 7, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

In February, Federal Reserve Board Chairman Ben Bernanke coined the phrase “fiscal cliff” to warn Congress about the potentially harmful combination of nearly $600 billion in federal tax increases and spending cuts that are scheduled to take effect on January 1, 2013, unless lawmakers address the deficit, taxes, and government spending. Economists and government officials have expressed concern that failing to prevent such severe fiscal tightening at the start of the year could cause a recession.¹

The Congressional Budget Office projected that if no action is taken, U.S. gross domestic product (GDP) growth could fall 0.5% (year-over-year) by the fourth quarter of 2013, and unemployment could rise to 9.1%.²

With the national election looming, politicians have largely avoided controversial decisions related to taxes, government spending, and the national debt. However, legislative deadlines may prompt the president and Congress to address a number of important financial issues soon after the election and possibly before the end of 2012.

A Bigger Tax Burden

Many of the tax cuts enacted in 2001 and 2003 — including rates on regular income, capital gains, dividends, and estates — are scheduled to expire on December 31, 2012, and revert to their previously higher levels. The 2% payroll tax reduction for workers, enacted as a temporary stimulus, is also set to expire at the end of the year.

The expiring tax provisions could cause the federal tax bill of the average middle-income household (earning $50,000 annually) to rise by about $1,750, and higher-earning families could owe thousands more in total federal taxes.³

Federal Budget Cuts

The Budget Control Act of 2011 mandated $1.2 trillion in deficit reduction spread over nine years (2013–2021), divided evenly between defense and nondefense programs. About $109 billion in automatic budget cuts are scheduled to go into effect on January 1, 2013 ($54.7 billion a year from U.S. defense spending). Pay for military service members and Social Security and Medicare benefits are exempt.⁴

The blunt cuts were meant to be indiscriminate and painful for both political parties in order to motivate lawmakers to replace them with a more targeted deficit-reduction package. To date, there has been much discussion but little agreement on how to accomplish such a feat.⁵

Debt Disputes

The national debt is also projected to reach its legal limit (the “debt ceiling”) sometime around the end of 2012. Congress must pass legislation to raise the limit, which initiated heated negotiations in the summer of 2011. Standard & Poor’s was the first ratings agency to downgrade the U.S. credit rating after a debt-ceiling standoff that threatened the U.S. Treasury’s ability to make payments to debt holders.⁶

Moody’s Investors Service, which changed its outlook on U.S. government debt to “negative” last year after Congress and the White House finally agreed to an increase in the debt ceiling, has warned that it could lower the U.S. AAA credit rating next year if lawmakers fail to craft a long-term debt-reduction plan.⁷

Deadline-Driven Decisions?

After the November election, sitting lawmakers may have only six or seven weeks to work through a number of complicated tax issues and funding initiatives. Of course, it’s possible that Congress may temporarily extend the current tax provisions and/or delay planned spending cuts until more comprehensive legislation can be enacted.

Even so, the resulting uncertainty may make it difficult for individuals and businesses to move forward on major purchases or investments. Leaving critical issues unresolved for too long could also weaken the U.S. economy, especially if political gridlock continues well into next year.

Because the balance of power in Washington, D.C., could have a major influence on fiscal policies that affect Americans for years to come, the stakes are high for the November election. Contentious disputes or headline surprises may cause an increase in market volatility.

As an investor and taxpayer, you may want to monitor how the U.S. political situation and fiscal decisions unfold in the coming months. Maintaining a steady course could help you weather market changes. Keep in mind that it is important to make investment decisions based on your time horizon, risk tolerance, long-term goals, and personal circumstances.

The corn crop has been hit hardest, with the U.S. Department of Agriculture (USDA) forecasting a drop in production of almost 17% over previous projections.² Soybean production is also projected to decline sharply.³ In addition to its effect on farming, the drought has created dangerous conditions for wildfires, and shipping on the Mississippi River has been disrupted by low water levels.^4–5

Although the severity and full effect of the drought might not become clear for some time, it may be helpful to examine its potential implications for consumers and the U.S. and global economies.

Corn Conditions

For many Americans, corn on the cob is a staple of summer meals, and cornflakes might begin the day. However, corn for human consumption accounted for only about 12% of domestic usage in 2011. The rest was split between livestock feed and ethanol production.⁶

Corn prices have skyrocketed about 60% this summer, forcing some farmers and ranchers to slaughter livestock, which has created a short-term glut of meat products that may briefly lower prices.^7–8 In the longer term, consumers should expect higher prices for meat, poultry, dairy, and corn products beginning this fall and rising further next year.⁹

The USDA currently forecasts a 3% to 4% increase in food costs in 2013, but that may be raised as the severity of the drought becomes clearer.¹⁰ Even so, serious price spikes or shortages are unlikely. The farm price of corn is a relatively small percentage of supermarket prices, and there are sufficient stockpiles of other foods including wheat and rice, the two most important grains for human consumption.^11–12

Global Impact

The United States is the world’s largest supplier of staple grains, and about 20% of its annual corn crop is exported.^13–14 Due in part to the U.S. drought, world food prices rose 6% in July.¹⁵ Hot, dry conditions have damaged crops in Russia, India, and Australia, while heavy rains have reduced sugar output in Brazil, the world’s largest sugar producer.¹⁶

Drought and high food prices have already caused a food crisis in the Sahel region of west and central Africa. Other poor countries, which typically do not produce enough food domestically, face the greatest risk if prices continue to rise.¹⁷

The Ethanol Mandate

In 2007, the federal government mandated that the nation’s total gasoline supplies include an increasing percentage of ethanol over a five-year period (9% in 2012).¹⁸ Since 2010, more corn has been earmarked for ethanol production than for livestock feed, although almost a third of this is recycled as feed-enhancing by-products.¹⁹

The high price of corn could increase gasoline prices, while the diversion of corn to ethanol has contributed to rising global food costs. In August, the UN’s Food and Agricultural Organization asked for an “immediate, temporary suspension” of the ethanol mandate, and there is increasing pressure from within the U.S. as well. However, the mandate also has strong proponents, so timely change seems unlikely.²⁰

Farmers and Ranchers

Although a prolonged drought could devastate the agricultural economy, crop insurance — funded in large part by the federal government — may help mitigate the short-term impact, and high prices could make corn and soybeans more profitable for some farmers.²¹

Ranchers, who do not have crop insurance and are losing grass and hay on top of paying high feed corn prices, face more imminent losses. Federal disaster relief for ranchers has been stalled by the congressional recess and debate over the farm bill.²²

Wildfires and River Levels

Fed by dry vegetation and drought, wildfires burned more than 7 million acres across the country (as of August 21), the most on record at this point in the fire season.²³ In addition to the human cost and loss of timber resources, firefighting expenses are stretching already thin state budgets throughout the West.²⁴

Low water levels on the Mississippi River have narrowed channels and forced shipping companies to run barges with lighter loads. Similar conditions in 1988 cost the inland water transportation industry about $1 billion, with additional costs passed down to consumers.²⁵

The longer the drought lasts, the greater the potential for serious economic consequences. For now, the wisest course may be to monitor continuing developments and hope for more rain.

1) National Oceanic and Atmospheric Administration, 2012
2) The Wall Street Journal, August 10, 2012
3, 6, 9–10, 14, 19) U.S. Dept. of Agriculture, 2012
4, 23) usatoday.com, August 21, 2012
5, 25) time.com, July 30, 2012
7, 11, 13, 21) CNN.com, August 13, 2012
8, 22) businessweek.com, August 19, 2012
12) CNN.com, August 20, 2012
15–17) BBC News, August 9, 2012
18, 20) Reuters, August 10, 2012
24) Associated Press, August 23, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

John Essigman RFC^® CFEd^®

Specializing in Retirement Income Planning

www.bluecreek.net
(706) 865-0121

141 North Main St
Cleveland GA 30528

Financial planning and investment advisory services offered through John Essigman Wealth Advisors LLC, a Registered Investment Advisor

Growing demand from developing economies caused global oil prices to rise 265% in the last 10 years. A decade of rising fuel prices often made life more difficult for many U.S. consumers and businesses, and occasionally put unwelcomed strain on the nation’s economy.¹

High prices and profits, however, helped make it feasible for energy companies to invest in exploration and research. Consequently, new technologies have allowed the energy industry to access game-changing deposits of crude oil and natural gas in the United States.

A domestic fossil fuel boom is also leading to changes in electricity production, manufacturing, transportation, and other domestic industries that could have a positive effect on U.S. economic growth in the years ahead. Here is a closer look at the discoveries and trends that are behind the shale energy boom, and what the shift could possibly mean for consumers, businesses, and the nation.

Domestic Oil Supplies
Using new drilling methods to tap into the Bakken Formation in North Dakota and Montana could possibly provide as much as 10 billion barrels of recoverable oil, some of which the industry has started delivering to the global market. As a result, the United States imported only 42% of the oil it used in the first four months of 2012, the lowest level in two decades.²

To the disappointment of many American consumers, increased oil production has generally not resulted in lower gasoline or heating oil prices. Greater foreign demand has been blamed for high retail prices and has also resulted in a surge in U.S. exports of refined fuels.³

Natural Gas Abundance
Vast reserves of shale natural gas are newly accessible through a process called hydraulic fracturing, or “fracking.” A pressurized mixture of water, sand, and chemicals is used to extract the gas from shale rock layers as deep as a mile or more below the Earth’s surface.

In the last four years, the industry has gained access to enough natural gas to supply U.S. consumers for more than 100 years (at current demand levels).⁴ Before fracking, it was generally assumed that the nation was running out of recoverable natural gas, but it’s now producing more than ever before.

In the United States, a short-term glut and other market forces have caused natural gas prices to fall about 86% from highs hit during the middle of the last decade. Natural gas currently sells for about one-fourth of what it does in Europe and Asia.⁵

Environmental Pressures
If fossil fuel costs stay lower and more stable, it could undercut and slow the growth of renewable energy sources such as solar and wind. Green products such as home solar panels and hybrid and plug-in electric cars might also need to fall in price in order to remain competitive.⁶

Burning natural gas emits much less carbon than burning oil or coal, but fracking methods have raised some safety concerns. The Environmental Protection Agency and other scientific groups are currently studying how drilling and extraction may affect air and water quality. A few states and municipalities have banned hydraulic fracturing due to environmental issues.⁷

An Energy-Driven Recovery?
To help reduce pollution, many utility companies have switched from coal to gas to generate power. Cheaper gas acts as an incentive to convert additional coal-fired plants. In fact, 80% of future electricity generation is expected to come from natural gas.⁸

Chemical companies use fossil fuels as a raw material, and all types of manufacturers need energy to power production plants. It’s possible that a more predictable, affordable fuel supply would make it cost-effective to build or expand production facilities on U.S. soil.

Compressed natural gas (CNG) can be used to power some vehicles. As a result, lower fuel costs could also benefit businesses in any industry for which fuel is a major expense — shipping, trucking, construction, and waste management, to name a few.

Low natural gas prices may contribute to a 10% reduction in consumer electricity costs and a 1.1% increase in the level of gross domestic product for 2012.⁹ Going forward, global forces will continue to affect fuel prices, but becoming more energy independent could help strengthen the U.S. economy.

1–2, 5–6) smartmoney.com, July 9, 2012
3) The Wall Street Journal, December 30, 2011
4, 7, 9) CNBC.com, June 20, 2012
8) CNNMoney, June 27, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

John Essigman RFC^® CFEd^®

Specializing in Retirement Income Planning

www.bluecreek.net
(706) 865-0121

141 North Main St
Cleveland GA 30528

Financial planning and investment advisory services offered through John Essigman Wealth Advisors LLC, a Registered Investment Advisor

On June 28, 2012 — two years and two months after passage of the Patient Protection and Affordable Care Act (ACA) — the U.S. Supreme Court upheld the constitutionality of the law by a vote of five to four.¹ Unless Congress takes further action, the provisions of the act currently in effect will remain so, and most others will become effective as planned in 2013 or 2014. As a consumer, taxpayer, and investor, you may want to consider the potential ramifications of this landmark decision.

The Individual Mandate — Commerce or Tax?

A primary issue under consideration was the individual mandate, which requires that most U.S. citizens have or buy health insurance beginning in 2014 or pay a penalty. The government had argued that the mandate was within Congress’s power to regulate interstate commerce as well as its power to levy taxes.²

The court’s majority opinion, written by Chief Justice John Roberts, rejected the interstate commerce argument on the grounds that failing to buy health insurance is actually a lack of commerce and thus there is nothing to regulate. However, the majority upheld the individual mandate as a tax, pointing out that no one is forced to purchase health insurance under the law; rather, people can choose not to do so and instead pay a penalty (tax).³

The annual penalty is $95 per adult (up to $285 for a family) or 1% of adjusted gross income (AGI), whichever is greater, in 2014; $325 per adult (up to $975 for a family) or 2% of AGI in 2015; and $695 per adult (up to $2,085 for a family) or 2.5% of AGI in 2016. After 2016, there will be annual adjustments for inflation.

The Congressional Budget Office estimated that the law would extend health coverage to an additional 30 million Americans by 2016, leaving about 26 million without insurance.⁴ A private study suggested that about 7.3 million people would have to obtain unsubsidized coverage or pay the penalty.⁵

Benefits, Cost Controls, & Funding

The individual mandate is intended to provide insurance companies with a larger pool of consumers to help reduce individual costs.⁶ The ACA requires insurers to spend at least 80% of annual premiums on health care or activities that could help improve health-care quality.

Other key provisions:

• Individuals with pre-existing medical conditions cannot be rejected or charged higher premiums (currently in effect for children under 19; effective for adults starting in 2014).
• Lifetime benefit limits are prohibited for all new or reissued policies. Annual benefit limits will be prohibited beginning in 2014.
• Young adults up to age 26 can be covered under their parents’ policies.
• State-based insurance exchanges can offer coverage to individuals and small businesses with up to 100 employees beginning in 2014.

To help pay for the law, an additional 0.9% Medicare tax will apply to earned income exceeding $200,000 ($250,000 for joint filers) in 2013, and a 3.8% Medicare tax on net investment income will apply for people with AGIs exceeding $200,000 ($250,000 for joint filers).

Other funding comes from fees and taxes on drug makers, health insurance providers, tanning salons, and certain medical devices.

Investment and Business Impact

After the court’s decision, insurance company stock prices fell and hospital stock prices rose.⁷ Although this is no guarantee of future performance, it probably reflects concern over the cap on insurance company earnings and the potential for more insured consumers of hospital services.

Starting in 2014, employers with 50 or more employees will face a penalty if they don’t offer employee health coverage. Businesses with 25 or fewer employees may be eligible for a tax credit based on the amount they contribute to employee health insurance premiums.

Expansion of States’ Rights

The Supreme Court struck down a provision that requires states to expand their Medicaid programs or lose all existing federal funding. States that choose to opt out of the expansion would lose only the additional federal funding earmarked for the expansion. The ruling, along with the limitation on federal control over interstate commerce, seems to strengthen the states’ autonomy in their relationship with the federal government. Ultimately, this decision could limit the expansion of Medicaid coverage to many low-income families.⁸

The fate of the Affordable Care Act may depend on the outcome of the 2012 elections, and the impact of the law might not come into focus until the individual mandate takes effect in 2014. It’s likely that the debate on health-care reform will continue.

The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.

1–3, 8) U.S. Supreme Court, 2012
4) Congressional Budget Office, 2012
5–6) Urban Institute, 2012
7) Yahoo! Finance, June 28, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

John Essigman RFC^® CFEd^®

Specializing in Retirement Income Planning

www.bluecreek.net
(706) 865-0121

141 North Main St
Cleveland GA 30528

Financial planning and investment advisory services offered through John Essigman Wealth Advisors LLC, a Registered Investment Advisor