By Jeff Reeves

The stock market has been choppy since mid-June, thanks in part to tapering talk and even more data that proves China is slowing down.

As the Federal Reserve tightens policy and emerging-market demand cools, we are going to see plenty of unsustainable growth models fail to meet Wall Street expectations and slowly come apart at the seams.

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Or, if you prefer the more panicked parlance of the blogosphere … some bubbles are about to get popped.

Not all of these bubbles will, of course, burst in quick or dramatic fashion. Sometimes bubbles simply deflate, either steadily or slowly, until all the air inside is gone and only the lining remains.

But regardless of the pace, the risk posed by these five bubbles is fairly clear — and investors should start to prepare accordingly.

“If you are on the wrong road, progress means doing an about-turn and walking back to the right road.” #CSLewis

By Russ Britt

Following through on comments publicized earlier this week, House Speaker John Boehner says he’ll call for a vote next week on a prospective delay in requiring individuals to buy insurance under President Obama’s health-care overhaul.

MarketWatch’s Rob Schroeder reports from Washington that Boehner announced plan to reporters on Thursday in the wake of last week’s decision by the president to hold off on requiring that employers of 50 or more full-time workers provide insurance. Boehner rhetorically asked whether it’s fair to offer businesses a waiver for 2014, the first year Obamacare was scheduled to take full effect, but not individuals.

“Hell no, it isn’t,” the speaker said.

Companies had complained the parameters set by the administration were not released until the end of 2012, making it difficult for them to provide a full accounting of what health-care plans are provided for all their workers. The administration also acknowledged that it needed to streamline the rules for companies, particularly when roughly 95% of them already are offering coverage yet still have the same reporting rules as those who don’t.

Smelling blood, Republicans have seized on the delay as a double standard in what they view as a deeply flawed law that they’ve tried to repeal nearly 40 times. Some reports have said Boehner will try to put Congressional Democrats in an awkward position by calling for a vote in support of the employer mandate, then following up with a vote on a similar delay for the individual mandate.

No date has been set for the vote. It is expected to be largely symbolic as the Democratic-controlled Senate is likely to vote down such a measure. The administration and the Senate see the individual mandate as a critical cog in the law.

Follow Russ Britt on Twitter @russbrittmktw

Follow Health Exchange on Twitter @MWHealthBlog

By Darrell Delamaide
O
WASHINGTON (MarketWatch) — The Beltway blogosphere has a new buzzword — “postpolicy nihilism” — to explain why nothing is getting done in Washington.

If you hear echoes of “postapocalyptic” (think “World War Z,” “The Hunger Games,” “The Road”), it’s probably not coincidental because the term implies that the scorched-earth strategy of the Republicans has pushed Congress beyond dysfunctionality to complete breakdown.

Liberal political analysts are brandishing the term because it purports to describe how Republicans have given up even the pretense of pushing policy and are openly and exclusively focused on sabotaging the administration.

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Rachel Maddow coined the phrase “postpolicy nihilism” to describe the Republican Party’s obstructionism.
Whether it is health-care reform, immigration, student loans or deficit cutting, this term suggests the Republicans are not offering alternatives, only obstruction.

They block new bills and prevent laws that have been passed from being implemented by stalling nominations, defunding operations, or simply neglecting congressional oversight when regulators fail to meet deadlines.

Republicans, this line of reasoning goes, are willing to inflict any amount of damage on the economy, any amount of hurt and misery to individuals, or any amount of harm to the environment and atmosphere, in pursuit of a short-term political goal: discrediting and sabotaging this president and his party.

But, liberals argue, this strategy will backfire, because, in their failure to propose any constructive measures, to seek any compromise for the common weal, to willfully alienate whole swaths of the population, Republicans are neglecting their current constituencies and courting demographic doom.

Maybe they’re right and the party is digging its own grave.

But how do you account for the anomaly of a congressional approval rating dipping to 10% and a 90% success rate for incumbents seeking re-election in 2012? It can’t all be due to talk radio or biased television news.

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The liberal blogosphere has been talking for some time about Republican “nihilism.” MSNBC anchor Rachel Maddow is credited with inserting “postpolicy” as a modifier.

As with other “post” things — such as postmodern, postindustrial, postracial — the idea is that the Republican Party has moved on. It has gone beyond policy and operates solely as a partisan political machine.

So liberal bloggers like Steve Benen at the Maddow Blog, Jonathan Bernstein at Salon and Greg Sargent at the Washington Post now routinely refer to this “postpolicy nihilism” as a given in the political debate.

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In his Plum Line blog this week, Sargent even claims that “well-respected Beltway insider” and mainstream political analyst Chuck Todd, chief White House correspondent for NBC, is lining up behind the term.

“What’s the line between fighting for your ideology and ensuring that the government that pays your salaries actually works — or even attempts to work?” Sargent quotes from a blog post co-authored by Todd. “At some point, governing has to take place, but when does that begin?”

But negation can itself be policy. If you believe abortion is murder, restricting abortion is policy. If you believe guns are vital to your safety and your constitutional rights, blocking gun control is policy. If you believe deficits are immoral, reducing government spending is policy.

Nor would true believers perceive any of this as nihilism. Rather, preserving what you see as being of value is the very definition of conservatism.

If the real beef is that lawmakers do not really believe this stuff, but are simply manipulating voters in order to stay in office, then a more accurate label might be “postrational cynicism.”

MORE FROM DARRELL DELAMAIDE | Follow @MKTWDelamaide on Twitter
• Euro crisis has world on brink of depression
• Deconstructing Paul Ryan, ideologue of rich
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• Euro crisis may lead to ‘explosion of violence’
But neither term is really a battle cry that will rally followers for change, because they are, well, fairly negative themselves. “Freedom and Justice for All” or “Liberty, Equality, Fraternity” are much more effective motivators because they appeal to positive values.

And here is where liberals run into trouble. They had a standard-bearer who proclaimed positive values — “hope and change” — but who failed to deliver on them. Why and how will keep historians busy for decades.

Barack Obama, in fact, has managed to combine bold rhetoric and timid policy in a way that achieves the worst political result possible. He alienated the opposition and disappointed his followers.

Congress has indeed gone beyond dysfunctional. It is for all intents and purposes completely broken. But don’t blame just the Republicans.

Darrell Delamaide is a political columnist for MarketWatch in Washington. Follow him on Twitter @MKTWDelamaide.

By Zhang Yuzhe and Huo Kan

BEIJING (Caixin Online) — Along with the sudden emergence of a cash crunch, the somewhat obscure interbank market has never garnered more attention, ranging from that of government leaders to individual investors.

Since late June, there have been dramatic fluctuations in the interbank market, withinterest rates skyrocketing and rumors of financial institutions defaulting. Stocks and bonds prices fell for days. On June 24, the Shanghai Composite IndexCN:SHCOMP +2.17%  fell 5.13%, then hit 1,849 points a day later, the lowest since August 2009.

The storm hasn’t been limited to financial institutions that make transactions on the interbank market. Since the Shanghai Interbank Offered Rate hit a new high of 30%, a so-called cash crunch has become almost a household topic.

Interbank market rates were high, but capital supply froze. Also on June 24, the China Development Bank made a rare, sudden cancellation of a scheduled issuance of floating-rate bonds. The policy bank was not alone. Since mid-June, at least 22 bond issuers have postponed issuance or changed terms.

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The situation continued to escalate and banks scrambled for capital. Around June 25, a number of banks decided to suspend offering loans until July 15, including even the highest quality type of loans — personal mortgages.

Companies began receiving requests from banks to repay loans on a tight schedule, and were told that their loans wouldn’t be renewed for the time being. Through loan-borrowing companies, tight liquidity spread from the financial market to the real economy, hampering China’s already sluggish economic growth.

Many fingers were pointed at the People’s Bank of China (PBOC). At first, the central bank was silent. Then, after the close of the market on June 24, it took to a high-profile position, assuring the market that it would inject liquidity when necessary.

The behemoth, state-owned commercial banks followed its lead. The chairman of Industrial and Commercial Bank of China (ICBC) CN:601398 -0.51% IDCBY -0.49% , Jiang Jianqing, told the media his bank would act as a stabilizer.

Smaller joint-stock banks, such as Industrial Bank CN:601166 +3.50% and Minsheng BankCN:600016 +2.38% CMAKY -1.02% , were in the teeth of the storm and thought to be in more dire situations. They held emergency teleconferences to appease the market.

Caixin Online

The next day, a number of members of the State Council, the country’s cabinet, met with people in the financial sector and discussed responses.

On the same day, the central bank injected liquidity into the interbank market and committed itself to safeguarding the stability of the money market. Although the size of the liquidity was unconfirmed, market insiders speculated that the central bank had carried out a targeted reverse repurchase at a small number of institutions to inject liquidity.

Moreover, that week saw 25 billion yuan ($4.08 billion) USDCNY +0.06% in central bank notes reach maturity, representing a small-scale injection of liquidity. Short-term interbank market interest rates fell significantly in the wake of these moves.

Thus, the market panic gradually ended. But its shadow remains. Via bonds, the tight liquidity caused by short-term factors will last until July 15. Meanwhile, market short-term interest rates have stabilized. But the 14-day and 21-day interbank market repurchase rate is still high, at 8% to 9%.

After years of glorious results, the fragile side of the Chinese banking sector was finally exposed in the unexpected cash crunch. When institutions begin to worry about liquidity and are suspicious of each other’s ability to pay, panic shoots through the market.

The chief strategist of the domestic investment firm China International Capital Corp. (CICC), Huang Haizhou, said that problems in the country’s financial industry are just beginning to appear; a financial crisis within three years is inevitable; and all that China can strive for is a “controlled, minor crisis.”

Behind the crunch

The central bank was severely criticized throughout the episode. The mildest blame is that the PBOC failed to communicate with the market to guide expectations. The harshest criticism is that it was failing to act as a lender of last resort.

 

 

The PBOC is the only player who can see the cards every bank is holding, so unless banking institutions are reporting fraudulent numbers en masse, the central bank’s judgment is the most authoritative.

 

 

At the same time, many people support the central bank for not indulging the high-risk behavior of individual institutions. They say now is the time to sound the alarm regarding banks with weak liquidity positions and poor management of their assets and liabilities.

A source at ICBC said: “Some institutions were excessively risk-taking in the past. The central bank is now using open market mechanisms to punish reckless institutions and using the pricing mechanism to force institutions to be more cautious, to deleverage and to better their risk management.”

However, the central bank said that “so-called stress-tests and punishment of radical institutions” were only the market’s interpretations. There is no shortage in the total amount of liquidity and the recent liquidity crunch is a structural issue, it said.

The PBOC is the only player who can see the cards every bank is holding, so unless banking institutions are reporting fraudulent numbers en masse, the central bank’s judgment is the most authoritative.

While the PBOC stressed that overall the market was balanced, some people are asking whether the central bank also has an obligation to keep a close watch on the money market yield curve and stabilize price fluctuations. Should the central bank have recognized interest rates were soaring in the first weeks of June and intervened?

This isn’t one of the central bank’s responsibilities, said Lu Lei, dean of the Guangdong University of Finance. The prices of funds in the interbank market are formed completely by the market, and the central bank has no obligation to stabilize them, Lu said.

“At this stage, the volume of money supply is the main variable that the central bank needs to keep a close watch on, rather than lending rates in the interbank market.”

However, Zhang Ping, head of the Chinese Academy of Social Sciences’ Institute of Economic Research, said that “financial stability is the primary function of the central bank.”

Whatever the function of the central bank is, at the beginning of the cash crunch, the market misjudged its intentions.

A recent report from Goldman Sachs Gao Hua Securities said that the consensus was that with current low economic growth and low inflation, even if monetary policy weren’t relaxed further, it should remain at a relatively relaxed level.

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After rates soared in early June, the market believed that the central bank would carry out short-term liquidity operations (SLOs), which are commonly known as “directional reverse repurchases” because they are operations targeted at individual banks. SLOs would stabilize fluctuations in interest rates, but the central bank took no such action in the beginning, nor did it publicly respond to the market.

However, after panic began to build, the central bank changed its position.

On June 24 and 25, central bank officials spoke to Caixin and went on CCTV to clarify.

One said: “For institutions with liquidity management problems, we will take appropriate measures according to the circumstances in order to maintain the overall stability of the money market.”

A senior executive at a large bank told Caixin that the key is to stabilize expectations, to strengthen coordination, and to complete daily liquidity management and response plans.

He said that from the perspective of large banks and financial authorities, this round of liquidity tightening is indeed a “pseudo liquidity squeeze.” There is sufficient capital, but many small and medium-sized financial institutions in search of profits invest a large amount of short-term debt into higher-yielding financial assets.

These assets are generally longer-term, leading to a lack of funds that can be liquidated. Once the market shows signs of trouble, it will produce a period of tight capital.

The relaxation may be rather limited as investors remain uncertain about the trends of economic fundamentals and the handling of liquidity in the context of monetary policy tightening. There are also questions as to how the central government’s economic reform efforts will proceed.

When will it end?

A central bank source said that five factors have influenced interbank market liquidity recently.

First, because commercial banks face interim assessments and information disclosure deadlines in June, they often have a “rush time” mentality; loans usually grow rapidly, and notes have increased as a proportion of the loan structure, putting pressure on these banks’ liquidity.

Second, the end of May through early June is an important tax settlement period, and the increase in government fiscal income parked in banks has also led to reduced liquidity.

ShutterstockEnlarge Image

People’s Bank of China

Third, there was an increase in the demand for cash before the Dragon Boat Festival in early June, affecting liquidity in the banking system.

Fourth, recent fluctuations in liquidity in the interbank market are related to changes in the foreign exchange market. After the State Administration of Foreign Exchange introduced a new decree to tighten up the management of foreign exchange flows, banks with higher levels of foreign exchange loans needed to purchase forex, tying up yuan liquidity.

Meanwhile, more forex purchases by banks increased demand. The relative balance of supply and demand in the forex market also reduced the need of the central bank to purchase foreign exchange, which usually injects liquidity to the market.

The fifth factor regarded the handing in of statutory deposit reserves. According to regulations, the fifth of each month is the deadline for financial institutions to turn over sufficient reserves funds according to deposits at the end of the previous month.

Because deposits at financial institutions soared at the end of May, with general deposits increasing by 1.4 trillion yuan from May 20 to May 31, a portion of liquidity was frozen as banks turned over deposit reserve funds.

The factor will continue to affect the market liquidity level, since there have been more credit increases at financial institutions since June, and it is expected that the squeeze will occur again at the end of June. This will further increase capital pressure from turning over reserves.

The market has also made various analyses. For example, a source from Harvest Fund, a mutual fund, said: “The situation this year is different from in the past. We expect banks to turn over a high amount of deposit reserves, 200 billion to 300 billion yuan.”

Dongguan Bank financial markets analyst Chen Long said that in the first half of July many factors would siphon capital from the market. Usually companies start to pay corporate tax in July. Judging from changes in governmental fiscal revenue deposits, the net increase for July since 2009 has been around 400 billion yuan for government coffers, said Chen.

In addition to the tax, listed companies are preparing to pay mid-year dividends. Chen expects funds set aside by public companies for dividends for the first half of July to reach more than 100 billion yuan.

A city commercial bank executive, who previously worked at the central bank said that information asymmetry, coupled with the market panic, to a certain extent made banks suspicious of each other’s capital position and to hedge. Even banks with ample liquidity weren’t willing to lend because they didn’t know their counterparts’ ability to repay.

“Even if it was a transaction with a bank as large as ICBC, they would worry whether they would repay upon maturity,” the source said. “If (ICBC) couldn’t repay right away, the side putting up the money would face new liquidity difficulties. So even banks with money were unwilling to spend it.”

The senior executive at a large bank said government efforts to adjust the structure of the country’s economy played a role.

“At this critical point, the central bank is inclined to maintain existing liquidity,” the executive said. “In the early stages of the cash crunch, it didn’t commit to injecting monetary liquidity into the market when necessary, which to a certain extent led to the suspicion and panic in the market.”

Also important is the outflow of hot money from emerging markets and its return to the United States due to the signs that the Federal Reserve will end its quantitative easing policy.

In order to maintain the stability of the yuan exchange rate, the central bank needs a moderate tightening of the money supply, and in the near-term the central bank will have a difficult time putting too much liquidity into the market. This is another cause of the short-term capital crunch, said a source from a large state bank.

Sources in the market expect that due to the effects of annual dividends to be paid at the five largest banks, a net cut on wealth management products in the middle of the year and turning in reserve prepayments in early July, tight capital condition will continue to July 15.

The possibility of soaring short-term interest rates in the interbank market is small in the near term, but rates will remain high for some time.

Industry estimates show that after the bank rush period at the end of June and other factors, the seven-day repurchase rate will fall to around 3.5%, but won’t return to the 3% level of mid-May. The overall rising cost of financing should lead to slowing liquidity growth.

How are banks coping?

Throughout the episode, the public has suddenly learned that the country’s banking industry isn’t as liquid as imagined. Why?

An executive at a joint-stock bank said the cash crunch exposed poor liquidity management at commercial banks and a lack of coordination. He said regulators failed to compute in various factors tightening liquidity over two months and didn’t coordinate and make arrangements in advance.

Meanwhile, banks scrambling to cover themselves could only compete to raise yields, bringing panic to the market.

Yields on banks’ wealth management products soared for days. Under the influence of multiple factors, including the end of monthly assessments and mid-year net redemptions on the products, a price war among large banks has been intense.

From June 23 to date, nearly each day has seen wealth management products with higher returns offered. Short-term products at many banks have interest rates of at least 6%. Merchants Bank released a wealth management product starting at 1 million yuan with an annual rate of return of 10% and a duration of 30 days.

By Jen Wieczner 

Chicago cardiologist Vincent Bufalino can still recount the details of a few particular patients he saw a decade ago: In the span of a single month, a half-dozen men who arrived at his hospital were having heart attacks—and they were all under the age of 33.

At the time, it seemed like an unfortunate coincidence. But it may in fact have been part of a larger trend. There’s growing concern among national health experts that Americans are getting sicker at a younger age, which could potentially lead to more early deaths. Rising rates of obesity among children and adolescents, in particular, will likely lead to more young people having chronic diseases, strokes or heart attacks, doctors and researchers say.

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Heart disease deaths overall declined 30% between 2000 and 2010, but for young adults, they actually increased: Deaths from the disease rose more than 5% among 25- to 34-year-olds, the only age group to experience an increase that decade, according to the Department of Health and Human Services’ most recent annual report. In 2011, the same 25-to-34 group was the only demographic for which mortality from any cause increased (data on specific causes has not yet been released).

“There should be decreasing mortality rates, but instead it was going in the opposite direction in this younger age group,” says Christopher O’Donnell, a cardiologist atMassachusetts General Hospital who also works on the National Institutes of Health’s Framingham Heart Study, an ongoing research project.

Alse see: 10 things Generation Y won’t tell you

Doctors say cardiovascular deaths are often related to risk factors such as obesity, hypertension, diabetes and high cholesterol—all of which are increasing among younger people under 40.

“I can’t help but imagine when you see the incidence of obesity in teenagers and rates of Type 2 diabetes, there’s no question that this population has the potential to be a time bomb in their 40s and 50s,” says Peter Eckman, a cardiologist at the University of Minnesota who specializes in heart failure and transplants. “I have to admit I do expect to see more of that.”

While the national obesity rate has grown more than 50% since the late ’80s and ’90s, to include more than a third of Americans, the rate among 12- to 19-year-olds has increased 75%: Nearly a fifth of adolescents and teens are obese, according to the Health Department’s annual statistics report—and many of them are also on the path toward developing diabetes, research has shown.

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“If you get diabetes when you’re 15, you’re not going to live til the ripe old age of 80—you’re going to have your first heart attack in your 30s, not in your 50s,” Eckman says.

When risk symptoms show up in young adults, they are powerful predictors for the early onset of Type 2 diabetes and heart disease, says Beth Lewis, principal investigator at Cardia, a study of coronary artery risk development in young adults age 18 to 30, also sponsored by the NIH. Even mildly high blood pressure, common among 20-somethings, along with other early risk factors, forewarns of heart failure 15 years later, the study found. “This spells trouble in my book,” she says.

The trend threatens to reverse generations of national health improvements, such as steady declines in death rates and ever-longer lifespans. The problem also has the potential to cause problems for the health reform model, in which the low cost of caring for healthy young people is supposed to balance out the high cost of caring for the sick. The Affordable Care Act, with wellness incentives and wider access to preventive care, is banking on all Americans becoming relatively healthier over time. But if younger generations end up being sicker than older generations—having heart attacks at younger ages, for instance—health experts say, health reforms might prove unsustainably costly.

Also see: Young Americans may dodge health law

“There’s very likely a silent and growing population of people that are going to have these problems and are going to have them earlier, and earlier might mean in their 40s instead of their 50s,” Eckman says.

Indeed, in analyzing employer health plan costs, ADP, a benefits administration and consulting firm, has found that workers’ medical needs typically increase with age. While those expenses traditionally start ramping up at age 40, it happens a little younger now, says ADP vice president Christopher Ryan.

Research suggests that while heart attacks and strokes are declining for middle-age and older adults, that’s not the case for younger adults, says cardiovascular epidemiologist Kirsten Bibbins-Domingo, who directs the Center for Vulnerable Populations at theUniversity of California, San Francisco’s medical school. Between the late ’90s and 2011, the rate of strokes among adults 25 to 44 rose 75%, though it still happens to less than 1% of the age group, according to the national health report. Over the same time period, the rate of heart disease for men 18 to 44 stayed constant, though cardiologists believe it would have decreased, as it has among other age groups, if not for the counteracting trend of obesity.

“We see an astonishingly high amount of young people come in with heart attacks,” O’Donnell says. Fortunately, he says, those attacks are not usually fatal, and heart disease, attacks and related deaths are still much less common in younger people than in older individuals. Furthermore, thanks to medical advances, people today are also much more likely to survive a heart attack.

Cardiologists attribute the overall decline in deaths to the greater use of cholesterol-lowering drugs and surgical interventions. So even if young people don’t die of heart disease, if more get it, it’s still bad news for the health system, which will end up treating patients for a greater portion of their lives. And those costs are already expected to add up to a substantial sum: The American Heart Association projects that the medical costs of coronary heart disease, which totaled nearly $200 billion in 2009 according to the most recent government calculation, will double between 2013 and 2030.

Also see: 20-somethings decline even cheap insurance

Pediatricians may start screening for disease risk factors earlier than they have traditionally, but they have limited ability to treat what they find because there is little research on the safety of giving children adult heart medications, which can have side-effects, O’Donnell says: “The-risk-to-benefit evidence is sorely needed in the early adults and even adolescents and children. That’s the challenge.” 

By Bill Bischoff

There are still ways to earn tax-free income. With the tax increases that took effect at the beginning of this year, such opportunities are more valuable than ever. This story is the first of our two-part series on some of the best federal-income-tax-free deals. Here goes.

Tax-Free Home Sale Gains

In one of the best tax-saving deals ever, an unmarried seller of a principal residence can exclude (pay no federal income tax on) up to $250,000 of gain, and a married joint-filing couple can exclude up to $500,000 of gain. Naturally, there are some limitations. You must pass the following tests to qualify.

Ownership Test: You must have owned the property for at least two years during the five-year period ending on the sale date.

Use Test: You must have used the property as a principal residence for at least two years during the same five-year period (periods of ownership and use need not overlap).

Joint-Filer $500,000 Exclusion Test: To be eligible for the maximum $500,000 joint-filer exclusion, at least one spouse must pass the ownership test, and both spouses must pass the use test.

Previous Sale Test: If you excluded gain from an earlier principal residence sale, you generally must wait at least two years before taking advantage of the gain exclusion deal again. If you are a married joint filer, the larger $500,000 exclusion is only available if neither you nor your spouse claimed the exclusion privilege for an earlier sale within two years of the later sale.

Prorated Exclusion

If you don’t qualify for the maximum $250,000/$500,000 gain exclusion due to failure to pass all the preceding tests, you may still qualify for a prorated exclusion (reduced) amount if you had to sell your home for job-related or health reasons or for certain other IRS-approved reasons. For instance, say you’re a married joint filer. You and your spouse used a home as your principal residence for only one year before having to move for health reasons. You would qualify for a prorated exclusion of $250,000 (half the $500,000 maximum allowance for a joint-filing couple).

Tax-Free Roth IRAs

Roth IRAs are still a great tax-saving deal. Roth accounts have two big tax advantages.

First Big Advantage: Tax-Free Withdrawals

Unlike traditional IRA withdrawals, qualified Roth IRA withdrawals are federal-income-tax-free (and usually state-income-tax-free too). What is a qualified withdrawal? In general it is one that is taken after the Roth account owner has met both of the following requirements:

You had at least one Roth IRA open for over five years.

You reached age 59 1/2, are disabled, or dead.

Second Big Advantage: Exemption from Required Minimum Distribution Rules

By Bill Bischoff
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Unlike with a traditional IRA, the original owner of a Roth account (the person for whom the account is originally set up) isn’t burdened with the obligation to start taking required minimum distributions (RMDs) after age 70 1/2 or face a stiff 50% penalty. Therefore, you can leave a Roth account untouched for as long you live. This important privilege makes the Roth IRA a great asset to leave to your heirs (to the extent you don’t need the Roth IRA money to help cover your own retirement-age living expenses).

Making Annual Roth Contributions

The idea of making annual Roth IRA contributions makes the most sense for those who believe they will pay the same or higher tax rates during retirement. Higher future taxes can be avoided on Roth account earnings because qualified Roth withdrawals are federal-income-tax-free (and usually state-income-tax-free too).

Robert Pernell / Shutterstock.com
The downside is you get no deductions for Roth contributions.

So if you expect to pay lower tax rates during retirement, you might be better off making deductible traditional IRA contributions (assuming your income is low enough to permit deductible contributions), because the current deductions may be worth more to you than tax-free withdrawals later on.

The absolute maximum amount you can contribute for any tax year to a Roth IRA is the lesser of (1) your earned income for that year or (2) the annual contribution limit for that year.

Basically, earned income means wage and salary income (including bonuses), alimony received (believe it or not), and self-employment income. For 2013, the Roth contribution limit is $5,500 or $6,500 if you’ll be age 50 or older as of year-end. This assumes you’re unaffected by the AGI-based phaseout rule explained immediately below.

For 2013, eligibility to make annual Roth contributions is phased out between modified adjusted gross income (MAGI) of $112,000 and $127,000 for unmarried individuals.

For married joint filers, the 2013 phaseout range is between joint MAGI of $178,000 and $188,000.

Key Point: If your MAGI is too high for annual Roth contributions, consider converting a traditional IRA into a Roth account, as explained below.

Making Roth Conversions

A few years ago, an income restriction made individuals with MAGI above $100,000 ineligible for Roth conversions. The restriction ceased to exist in 2010. Now, even billionaires are eligible for Roth conversions. That is an important break, because conversion contributions are the only way to quickly get large amounts of money into a Roth IRA. However, it is important to keep in mind that a conversion will trigger taxable income. So you need to consider the federal income tax hit that will accompany a conversion. There may be a state income tax hit too. Consult your tax adviser before pulling the trigger on a conversion.

By Myra P. Saefong
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SAN FRANCISCO (MarketWatch) — Oil futures closed higher on Tuesday to mark a 14-month high as political tension in Egypt continued to raise concerns over possible disruptions to oil trade in the region. Expectations for a decline in last week’s U.S. crude inventories also added support. August crude CLQ3 +1.34% rose 39 cents, or 0.4%, to settle at $103.53 a barrel on the New York Mercantile Exchange. That was the highest close for a most-active futures contract since May 2, 2012, according to FactSet. Prices had also closed at a 14-month high on Friday, before falling 8 cents on Monday.

London ranks first for multimillionaires; Singapore, Hong Kong charging fast: report

July 5, 2013, 11:20 AM

London is the home to more multimillionaires, 4,296, than anywhere else in the world, but is facing tough competition from Hong Kong, 2,560, and Singapore, 3,154, to keep that title, according to a new study.

The WealthInsight Intelligence Center Database, which tracks wealth and liquidity events, found Singapore and Hong Kong have the fastest growth rate for multimillionaires and could overtake London by 2020 if the trend continues.

The report defines a multimillionaire as someone with $30 million or more.

London also has the highest concentration of multimillionaires of any city in the U.K., with a total of 38%. Glasgow is next with 170, followed by Manchester with 153 and Leeds, with 144.

“Most multimillionaires in London are entrepreneurs, implying they have started a company of their own and have either sold it or retain a share ownership,” said Oliver Williams, analyst At WealthInsight. “This is why job titles like ‘Chairman’ and ‘Director’ are common among the multimillionaire community than ‘CEO’ or ‘Managing Director’.”

More multimillionaires now work in London’s W1 postcode, which includes Mayfair, Soho and Oxford Street, than in the City, London’s traditional financial center, according to the report.

The average wealth for a London-based multimillionaire is $160 million, according to the report.

A typical London millionaire is male, 57-years old and has a net worth of $186 million. He comes from the financial industry and lives in Belgravia, Victoria or Sloane Square, according to the report.

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New York falls behind London for multimillionaires in fourth place, with 2,929, but beats out Paris, 1,500, and Beijing, 1,318, according to the study. The surprisingly low ranking for New York is explained by many wealthy New Yorkers living outside the city, particularly in places like Greenwich, Conn.

Tokyo is home to the most regular millionaires, defined as someone with $1 million or more not including their primary residents, with 461,000, followed by New York with 389,000. London, Paris and Frankfurt round out the top 5.

New York remains home to the highest concentration of billionaires, with 70 billionaires in the city, followed by Moscow, 64, and London, 54.

According to the study, the country with the most millionaires is the U.S. with more than 5 million, followed by Japan with just over 2 million. Germany, China and the U.K round out the top five.

– Sital S. Patel

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