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Five Things You Need to Know: Tea With Greenspan Plunges 65%


It's the latest sign that the weakening U.S. economy is beginning to affect even the most insulated Americans.


Kevin Depew's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Tea With Greenspan Plunges 65%

In the latest sign that the weakening U.S. economy is beginning to affect even the most insulated Americans, the auction price of tea with Alan Greenspan and his wife, NBC correspondent Andrea Mitchell, plummeted 65% year-over-year to $16,000.

The tea with Greenspan and his wife is part of a charity auction to benefit the Robert F. Kennedy Memorial human rights advocacy group. Last year, tea with Greenspan and his wife sold for $45,000.

2. Why the Lack of Bidders?

What really accounts for the lack of bidders for the Greenspan tea auction? Can it be that the former Federal Reserve Chairman's reputation has faltered so badly in the wake of the housing collapse that no one these days wants to sit down for a cuppa with the maestro? No, it cannot be. Rather, people are increasingly just flat-out broke.

An interesting Wall Street Journal article details the increasing number of hardship loans being taken out against 401k savings. At the end of 2007, 18% of employees with 401k plans had loan balances outstanding from their plans, up from 11% in 2006, the Journal reported citing a survey by the Transamerica Center for Retirement Studies, a nonprofit corporation funded by Aegon NV's Transamerica Life Insurance Co.

Fidelity Investments and T. Rowe Price Group (TROW) both reported increases of 17% and 10%, respectively, from 2006 in 401(k) "hardship withdrawals," the Journal reported.

The good news is that, overall, 401(k) participation rates rose by 2% in 2007, with 74% of employees who have access to plans investing in them, the Journal said. The bad news, however, is employers are reporting that workers are beginning to reduce allocations of pretax income to their 401(k)s, another sign of possible consumer balance sheet problems.

According to the article, a recent survey by the National Association of Government Defined Contribution Administrators shows nearly 25% of 170 local governments that sponsor 401(k) plans report participants lowering contributions because of economic stress.

3. Consumer Balance Sheet Repair

From the same Wall Street Journal article noted above, we also ran across another interesting tidbit, yet another sign of the shift in consumer time preferences and risk tolerance toward savings and debt reduction.

According to that same Transamerica survey cited above, 37% of those with an income between $50,000 and $100,000 said their biggest priority is paying off consumer and credit-card debt, up from 20% a year ago. Meanwhile, saving for retirement was cited by only 23% of those surveyed.

4. Can It Really Be All That Bad?

Come on, can it really be all that bad out there? Yes, actually, it can. We ran across an article on the Reuters wire noting that consumer bankruptcy filings jumped 47% year-over-year, according to the American Bankruptcy Institute. Filings were up 7% in April alone.

The 47% year-over-year increase has bankruptcy filings on track to pass 1 million this year. In 2007 there were 850,000 filings, up 38% from 2006.

On the bright side, bankruptcy filings are well below the 2 million high-water mark reached in 2005, the year federal bankruptcy law was reformed to make it more difficult for consumers to discharge their debt under Chapter 7.

Under current Chapter 13 bankruptcy law, a judge may restructure most of a consumer's loans ranging from credit cards to car payments, but may not modify a secured debt such as a home mortgage, the Reuters article noted.

5. Buffett Says Worst is Behind Us

Speaking to reporters yesterday following Berkshire Hathaway Inc.'s (BRK-A) annual meeting for shareholders in Omaha, Neb., Warren Buffett said that while bank losses aren't over, the worst is likely behind us. "The idea of financial panic -- that has been pretty much taken care of," Buffett told reporters.

Of course, that doesn't mean stocks are necessarily a good bet. While Buffett said he does see opportunities, mainly in companies that do business in the euro or pound. Berkshire is reportedly buying a U.K. company and Buffett will begin a five-city European tour later this month looking for more investment opportunities.

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No positions in stocks mentioned.

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