Published February 7, 2020
“It’s very hard to say what is affecting financial markets with any precision or confidence.” – Jerome Powell, U.S. Federal Reserve Board chairman.
Longtime readers of this column will recall that I am fond of quoting Will Rogers, who had rare sagacity. He once said “it is very difficult to make predictions, especially about the future.” Now, our Federal Reserve chairman agrees with him.
As we started the year, rosy optimism prevailed. The equity markets were up. Strength in the markets begat more strength, and it looked like we were off to a good start for the year. A good start to the year usually means a good year; optimism prevailed. The Federal Reserve met and pronounced the economy solid. The Fed declined to move rates, because a cut wasn’t needed, and an increase was not warranted. President Trump did not agree: The Fed should get smart and cut rates, he opined, arguing that high interest rates were putting the U.S. at a competitive disadvantage. (Interest rates are at historically low levels.) The president yearned for the negative interest rates of Europe, but they weren’t forthcoming.
Unemployment remained low. Consumer confidence […]
Published January 10, 2020
Much has been written about the classic financial mistakes that plague investors, family businesses, corporations and charities. Similar financial missteps also plague retirees. The beginning of a new decade is a good time to review these.
Calling them “mistakes” may be a bit harsh, because not all of them represent errors in judgment. Yet whether they result from ignorance or fate, we need to be aware of them as we plan for and enter retirement.
Leaving work too early
Adding years of earnings and savings can add significantly to the investment portfolio one will rely on in retirement. Also, since Social Security benefits rise about 8 percent for every year one delays receiving them, waiting a few years to apply for benefits can provide greater retirement income. Filing for monthly benefits before reaching Social Security’s Full Retirement Age (FRA) can mean comparatively smaller monthly payments. If possible, delay claiming Social Security until one must file for it, and see significantly more monthly benefits.
Underestimating medical bills
According to the latest estimate from the Center for Retirement Research at Boston College, the average retiree will need at least $4,300 per year to pay for […]
Published December 6, 2019
In this column, you have often heard me refer to the market climbing a wall of worry.
Surely, at this time, the market has a lot to worry about. Is that the reason the equity markets have climbed 20-30 percent year-to-date?
The slowing global economy, trade war with China, Brexit missteps, Hong Kong demonstrations and interest rates inverting have all been headline news and negatives for the U.S. economy and the stock market.
“Trade wars are good and easy to win,” opined President Trump, as he began the current dispute with China. With each passing month, we are told we are winning the trade dispute and that an agreement is at hand – even inches away, according to the White House – yet the dispute continues and in some cases worsens.
If you can count the outcome of the demonstrations in Hong Kong as a sign of winning against China’s control, then we should be optimistic. But political unrest in Hong Kong is threatening global stability.
Brexit also threatens disruption of the global economy, with the only solution offered being another general election in Britain; no consolation there.
The U.S. interest rate yield curve […]
Published October 11, 2019
Longtime readers of this column may recall that I often write that the market climbs a wall of worry. This year has been no exception.
In spite of raucous headlines and recurring bad news, the U.S. equity market has increased 18.2 percent this year through September. European and Asian markets (the MSCI EAFE index) are up 13 percent. The U.S. real GDP annualized growth rate is at 2 percent. Consumer confidence has remained strong. Inflation is subdued.
But U.S. economic production is slowing, as is capital spending and investment. Indeed, on the first day of the new quarter, the U.S. manufacturing survey (the ISM index) came in at the lowest level since June 2009; it was the second consecutive month of contraction. While business leaders and economists blame tariff wars, President Trump took Federal Reserve Chairman Jerome Powell to the whipping post, calling the Federal Reserve Board – his appointees – “pathetic.”
Consumer spending is about 70 percent of the U.S. economy, so when the consumer is happy, the economy is strong. The U.S. consumer is important to the world economy too. Right now the consumer confidence level is strong, although […]
Published September 9, 2019
Investors suffered in August from sharp moves in stock prices, as our nation’s trade dispute with China and an inverted yield curve took stocks on a wild ride.
The S&P posted 11 moves of more than 1 percent in only 22 trading sessions for August. The declines included three sessions of at least 2.6 percent as well as the worst day of the year on Aug. 5.
The CBOE Volatility Index, considered to be the best gauge of fear on Wall Street, traded as high as 24.81 in August, before pulling back to around 18.
The increasing volatility was largely due to U.S.- China trade relations and a recession signal being flashed by the bond market.
August began with President Trump tweeting that he would place an additional 10 percent tariff on $300 billion in Chinese imports starting Sept. 1. The announcement wiped out the gain of more than 1 percent on the day, and the S&P finished down 0.9 percent that day.
On Aug. 5, Trump accused China of currency manipulation, and the S&P dropped nearly 3 percent.
Trade tensions escalated when the Chinese announced new tariffs on $75 billion of U.S. products. Trump responded […]
Published August 9, 2019
With the broad stock market up 17 percent year to date, the U.S. would seem to be on strong economic footing. Job growth is robust, profit growth is good enough, unemployment is low and consumer confidence is strong. So what is so wrong that the Federal Reserve was prompted to cut interest rates? Interest rate cuts are usually reserved for a weak economy.
There are numerous reasons. The president mounted a campaign to get the Fed to cut rates, which worked. The Fed was intimidated into cutting rates, because the financial markets came to expect a cut and actually demanded it. How can a market demand anything, let alone a rate cut? Well, when the financial markets bet that interest rates will go down and rate cut expectations go up, the Fed is in the crosshairs. The president’s demand clearly influenced the Fed.
Why did the president want a rate cut? The short answer is that it was good for his reelection prospects. The president has enjoyed the benefit of a strong economy, but with his favorability numbers still weak, he wanted some insurance.
Adding fuel to the fire, the president’s […]