Articles tagged with: business owners

China’s Stock Market Turmoil

Can U.S. shares hold up in the wake of January’s shocks?

On January 7, China halted stock trading for the second time in four days. The benchmark Shanghai Composite sank 7.0% on January 4 and dropped 7.3% three days later, both times activating a new circuit-breaker rule that stopped the trading session.1

Markets worldwide fell in reaction to these dramatic plunges. On January 7 alone, Japan’s Nikkei 225 and Germany’s DAX both suffered selloffs of 2.3%. On the same day, the Dow Jones Industrial Average dropped below the 17,000 level and the S&P 500 closed below 2,000.1,2,3

While the Dow and S&P respectively lost 2.3% and 2.4% Thursday, the Nasdaq Composite lost 3% and actually corrected from its July record settlement of 5,218.86.3

Why is China’s stock market slipping? You can cite several reasons. You have the well-noted slowdown of the country’s manufacturing sector, its rocky credit markets, and the instability in its exchange rate. You have Chinese concerns about the slide in oil prices, heightened at the beginning of January by the erosion of diplomatic ties between Iran and Saudi Arabia. You have China’s neighbor, North Korea, proclaiming that its arsenal now includes the hydrogen bomb. Finally, you have a wave of small investors caught up in margin trading and playing the market “like visitors to the dog track,” as reporter Evan Osnos wrote in the New Yorker. More than 38 million new retail brokerage accounts opened in China in a three-month period in 2015, shortly after the Communist Party spurred households to invest in stocks. Less than 10 million new brokerage accounts had opened in China in all of 2014.1,4

In trying to calm its markets, China may have done more harm than good. Chinese officials spent more than $1 trillion in 2015 to try and reassure investors, and right now they have little to show for it. Interest rates have been lowered; the yuan has been devalued again and again. The government has also made two abrupt (and to some observers, questionable) moves.2

Last July, they barred all shareholders owning 5% or more of a company from selling their stock for six months. That ban was set to expire on January 8, and that deadline stirred up bearish sentiment in the market this week. The prohibition was just renewed, with modifications, for three more months.4

On January 4, the China Securities Regulatory Commission instituted a circuit-breaker rule that would pause trading for 15 minutes upon a 5% market dive and end the trading day when stocks slumped 7% or more. On January 7, the CSRC scrapped the rule amid criticism that it was being triggered too easily; Thursday ended up being the shortest trading day in the history of China’s stock market. In the view of Hao Hong, chief China strategist at Bocom International Holdings, the circuit-breaker rule clearly backfired: it produced a “magnet effect,” with selloffs accelerating and liquidity evaporating as prices approached the breaker.1,2

As Peking University HSBC Business School economics professor Christopher Balding commented to Quartz, the CSRC seems to lack sufficient understanding of “what markets are, how they work or how they are going to react.” Quite possibly, China will make further dramatic moves to try and reduce stock market volatility this month. Will U.S. stocks rally upon such measures? Possibly, possibly not.2

Wall Street is contending with other headwinds. The oversupply of oil continues: according to Yardeni Research, world crude oil output rose 2.4% in the 12 months ending in November to a new record of 95.2 million barrels a day.1

Additionally, the pace of American manufacturing is a worldwide concern. In December, the Institute for Supply Management’s manufacturing PMI showed sector contraction (a reading under 50) for a second straight month. Factory orders were down for a thirteenth consecutive month in November (the first time a streak of declines that long has occurred outside of a recession) and the November durable goods orders report also disappointed investors.1,5

Citigroup maintains an Economic Surprise Index – a measure of the distance between analyst forecasts and actual numbers for various economic indicators. It just touched lows unseen since early last year, which is not a good sign as equities tend to react the most to surprises.1

If the Labor Department’s December employment report and the upcoming earnings season live up to expectations, stocks might recover from this descent even if China does little to stem the volatility in its market. The greater probability is that more market turmoil lies ahead. That short-term probability should not dissuade an investor from the long-run potential of stocks.

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com
Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – cbsnews.com/news/7-reasons-the-dow-lost-17000/ [1/7/16]
2 – qz.com/588386/chinas-new-stock-market-circuit-breaker-is-broken-and-it-is-panicking-investors/ [1/7/16]
3 – usatoday.com/story/money/markets/2016/01/06/china-stocks/78390650/ [1/7/16]
4 – latimes.com/business/hiltzik/la-fi-mh-a-reminder-china-s-stock-market-is-a-clown-show-20160107-column.html# [1/7/16]
5 – briefing.com/investor/calendars/economic/2016/01/04-08 [1/7/16]

The Ransomware Threat

Cybercrime has reached a new level.

Imagine cybercriminals holding your files for ransom. It sounds like something out of a movie set in the distant future, but business owners and households are facing such a threat today.

Hackers are now using ransomware to hijack computers and hold files hostage in exchange for payment. Malware programs like CryptoWall, CryptoLocker and CoinVault spring into action when you unsuspectingly click on a link in an email, encrypting all of the data on your hard drive in seconds. A “ransom note” appears telling you that you need to pay $500 (or more) to access your files again. If you fail to pay soon, they will be destroyed.1

Worldwide, more than a million computer users have been threatened by ransomware – individuals, small business, even a county sheriff’s department in Tennessee. The initial version of CryptoLocker alone victimized 500,000 users, generating more than $3 million in payments along the way.2,3

The earliest ransomware demanded payments via prepaid debit cards, but hackers now prefer payment in bitcoin, even though few households or businesses have bitcoin wallets. (The emergence of bitcoin effectively aided the rise of ransomware; keeping the payment in virtual currency is a hacker’s dream.)2,3

If your files are held hostage, should you pay the ransom? The Department of Homeland Security and most computer security analysts say no, because it may be pointless. By the time you get the note, your files may already be destroyed – that is, encrypted so deeply that you will never be able to read them again.

Some people do pay a ransom and get their data back. As for prosecuting the crooks, that is a tall order. Much of this malware is launched overseas using Tor, an anonymous online network. That makes it difficult to discern who the victim is as well as the attacker – if one of your workers thoughtlessly clicks on a ransomware link, you cannot find, scold or even help that employee any more than you could locate the hacker behind the extortion.3

How do you guard against a ransomware attack? No one is absolutely immune from this, but there are some precautions you should take.

First, back up your data frequently – and make sure that the storage volumes are not connected to your computer(s). Cloud storage or a flash drive that always stays in one of your computer’s USB ports is inadequate. If you back up your files regularly enough, weathering a ransomware attack becomes easier.3
Keep your anti-virus software renewed and up to date. Those alerts you receive about the latest updates? Heed them.

Never click on a mysterious link or attachment. This is common knowledge, but bears repeating – because even after years of warnings, enough people still click on mysterious links and attachments to keep malware profitable.

Ransomware is a kind of cyberterrorism. This is why the Department of Homeland Security issues warnings about it. When you deal with terrorists, playing hardball has its virtues. As Symantec Security Response director Kevin Haley told NBC News: “If none of us paid the ransom, these guys would go out of business.”2

Mike Moffitt may be reached at phone# 641-782-5577 or email: mikem@cfgiowa.com
website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – rackspace.com/blog/dont-be-held-hostage-by-ransomware-hackers/ [1/15/15]
2 – nbcnews.com/nightly-news/security-experts-you-should-never-pay-ransomware-hackers-n299511 [2/4/15]
3 – tinyurl.com/n3rcrsm [12/8/14]

Using CRUTs & CRATs to Sell Your Business Interest

These estate planning tools may also help in exit planning.

Discover a pair of underappreciated exit planning vehicles. Charitable remainder unit trusts (CRUTs) and charitable remainder annuity trusts (CRATs) are commonly seen as estate planning tools. What frequently goes unseen is their value in exit planning for business owners.

Does it look like you will sell your company to a third party? Do your “second act” or “third act” goals include financial independence, philanthropy and leaving significant wealth for your heirs? If you find yourself answering “yes” to these questions, a CRUT or CRAT may help you address those objectives and potentially enhance your outcome.

CRUTs & CRATs are variations of charitable remainder trusts (CRTs). A CRT is an irrevocable tax-exempt trust that you can fund with highly appreciated C corporation stock (or optionally, other types of highly appreciated assets). Since CRTs are irrevocable, they are difficult to undo.

How do you sell your ownership interest through a CRUT or CRAT? As the trust creator (or grantor), you donate said C corp stock to the CRUT or CRAT. Because the trust is tax-exempt, it can sell those highly appreciated C corp shares without triggering immediate capital gains tax.1

The CRUT or CRAT sells your ownership shares to the outside buyer of your company, and it becomes your tax-exempt retirement fund. It invests the cash realized from the sale of your ownership shares in either fixed-income or growth securities; it provides you with recurring payments out of the trust principal, which occur for X number of years or for the duration of your life (or even longer). Payout is mostly fixed – once determined, the percentage of the trust which the annuity is tied cannot be changed and you cannot access the principal. The payments can even go to people other than yourself – they can optionally go to your parents, they could go to your grandkids.1,2

You are offered another tax break as well. You can take a one-time charitable income tax deduction for the value of the donation used to fund the trust (i.e., a tax deduction applicable in the current tax year). This demands an appraisal of the highly appreciated assets being donated to the CRUT or CRAT, obviously. The deduction amount also depends on calculations using IRS life expectancy tables, the term of the trust, interest rates, and payout schedules and amounts.1,3

On one level, a CRUT or CRAT is an agreement you make with the IRS. In exchange for all these tax perks, you agree to give 10% or more of the initial value of the CRUT or CRAT to a qualified charity or non-profit organization. Many CRUT or CRAT grantors intend to leave no more than that to charity.2

When the grantor passes away, a last tax break occurs. While 100% of the trust assets now become part of his or her taxable estate, the estate may take a deduction for the remainder interest that goes to the qualified charity or non-profit.3

Some CRUT and CRAT grantors strategize to offset the eventual gifting of 10% (or more) of trust assets. They have the beneficiaries of the CRUT or CRAT fund an irrevocable life insurance trust (ILIT). When the grantor passes away, they receive insurance proceeds sufficient to replace the “lost” wealth. Since the ILIT owns the life insurance policy, the life insurance payout isn’t included in the taxable estate of the deceased and it isn’t subject to transfer taxes.3

What’s the fundamental difference between a CRUT & a CRAT? The difference concerns the recurring payments out of the trust to the grantor. In a CRUT, those payments represent a percentage of the fair market value of the principal of the trust (and that principal is revalued annually). There is investment risk involved in CRUTs. Should the value of the underlying investment go down significantly, your annuity income can go down as well. In a CRAT, they represent a fixed percentage of the initial value of the principal.1

Older business owners may find the CRAT is a more appealing choice, while younger business owners may be more attracted to the CRUT. Yearly distributions from a CRUT must amount to at least 5% and no more than 50% of the trust principal revalued annually. Yearly distributions from a CRAT must come to at least 5% but no more than 50% of the initial value of the donated assets.1,3

Can an owner fund a CRUT or CRAT with S corp shares? No. A charitable remainder trust can’t serve as a shareholder in an S corp, so if you donate S corp stock to a CRT, there goes your S corp status. It should also be noted that C corp stock subject to recourse debt can’t go into a CRT.1

Are you interested in learning more? Establishing a trust can be complicated. It is important to talk to a legal, financial, or tax professional about the potential of CRUTs and CRATs. What you learn may lead you toward a better outcome for your business.

Mike Moffitt may be reached at ph. 641-782-5577 or email: mikem@cfgiowa.com.

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – arne-co.com/selling-business-using-crt/ [11/18/14]

2 – forbes.com/sites/ashleaebeling/2013/08/14/charitable-shelter-how-cruts-cut-capital-gains-tax/ [8/14/13]

3 – bbt.com/bbtdotcom/wealth/retirement-and-planning/trusts-and-estates/charitable-remainder-trusts.page [11/18/14]