In the middle of a melt-up

Greed is rising. Fear is falling and all is well within the world of equities. What does that tell you? It tells me that complacency is the order of the day among investors. And that fear of missing out (FOMO) is gathering steam as every minor daily dip is met with buying. Earnings season has started, led off by the multicenter banks. You remember them, the banks that were “too big to fail.” So far, the bottom line earnings per share numbers are coming in ahead of forecasts. Their top line growth, however, in some cases, appears to be disappointing investors. Evidently, when financial markets move in one direction, these financial behemoths can’t make a lot of trading profits. As far as what used to be their bread-and-butter business of loaning money, that largely depends on interest rates. Although rates have been rising on the short end, thanks to the Fed, the overall spread between what banks charge for loans and their cost of money is still anemic. Financials, overall, are important to the stock market because historically, equities have a hard time rallying without bank participation. So far this year, financials are up but still lag the gains of the overall markets. And while our president is continuing to do whatever it takes to destroy the Affordable Care Act, the healthcare sector seems to be taking it in stride. Of course, hospital stocks are getting decimated, since investors realize that the nation’s hospitals will most likely be the victims of the President’s newest executive action. The White House’s latest move would halt all Federal payments to insurance companies...

Two months has just been added to your social security retirement age

  If you are turning age 62 in 2017, I have some bad news. You are no longer eligible for full Social Security benefits at age 66. Instead, your full retirement benefits have shifted to age 66 and two months. By 2022, full retirement age will rise again and again until the age of 67 for everyone born in 1960 or later. “How did this happen?” you might ask. For the answer you have to look back thirty-four years to the Social Security Amendments Act of 1983. Back then, the Social Security Trust fund was running out of money (sound familiar?). The same politicians that were responsible for spending your hard-earned savings came up with a series of adjustments to extend the financial stability of the system for another 50 years. One of the provisions was to increase the Social Security full retirement age from 65 to 67. In order to soften the blow, the increase was to be phased in over time. Some Americans would be grandfathered in, while others would benefit from an eleven-year delay. The end result, after all the foot dragging, was those who happened to be age 22 or younger in early 1983–born in 1960 or later–would get screwed. Welcome to the American political system. The significance of this increase in the full retirement age is that for those thinking of taking benefits at age 66; you will be taking “early” retirement, resulting in a 1.1% reduction for starting payments two months before the new full retirement age. That means that the benefit reduction or penalty for taking early retirement increases from 25% to...

Markets need a time out

The S&P 500 Index has gone up eight straight days. The other averages have done the same thing. That hasn’t happened since 2013. It’s time for a break. It appears that stocks are in “melt-up” mode. That’s a term we financial geeks use to describe an unrelenting rise in equity prices. Consider it an investor stampede where the fear of missing out on even higher prices creates a buying frenzy. There are some fundamental reasons for the market’s rise. The economy appears to be chugging along. Interest rates remain low while inflation continues to bump along the bottom. This Friday’s payroll numbers were a disappointment to most. For the first time since 2010, the U.S. economy lost jobs in September. While the unemployment rate dropped to 4.2%, America also lost 33,000 jobs. It doesn’t take rocket science to figure out why. Remember Hurricanes Harvey and Irma? Of course the nation lost jobs as whole businesses were flooded or blown away in sections of the country. But at the same time, readers know that what I look at in each report is wage growth. That tells me how American workers are doing and where spending is going in the months ahead. And remember, consumer spending, which accounts for 70% of GDP, is key to the future health of the economy. Good news—wages jumped sharply higher last month, rising 0.5% over the August numbers and 2.9% over the prior year. But the real reason investors are celebrating was the Republican-controlled House move to pass its 2018 budget resolution. In a 219-206 vote, the House of Representatives approved a budget resolution that...

Tackling Taxes

President Donald Trump introduced a flurry of tax proposals last week. Tax reform, as well as tax cuts, was included in his plan. Give him an “A” for effort in tackling something that no politician has dared to do since Reagan. Naturally, depending upon your political views, critics will disparage his efforts, claiming it is yet another tax break for the rich. Others will approve of at least some of his suggestions. On the surface, his plan would significantly reduce the marginal tax rates, increase standard deductions, repeal personal exemptions, limit itemized deductions and let corporations and businesses expense new investment, but not deduct interest expense. His proposal would also cut taxes at all income levels. The biggest benefits would accrue to those who make the most money. Analysts estimate that if his proposal were passed as is Federal revenues would drop by $6.2 trillion over ten years. If you include interest costs over that decade, the country’s federal debt will rise by $7.2 trillion. The president originally campaigned on a 15% corporate tax rate, but upped that number to a 20% tax rate. It appeared that dropping it by the original 15% would be a budget buster. Still, that is a hefty reduction from today’s 35% (although few corporations actually pay that rate). One great idea is to allow a 25% tax rate for pass-through businesses. That would allow entrepreneurs that own their own businesses to pay a 25% tax instead of their personal tax rate. There is some controversy over exactly what kind of businesses could benefit from the pass-through rate. But since small businesses account for...

Markets mark time

Some stock indexes made new highs again this week but overall the averages finished where they started on Monday. Next week could be different. Washington politicians will take center stage as investors await further information on the administration’s idea of tax reform. So far, there has been a lot of hyperbole but not much substance. Supposedly, some meat will be added to Trump’s bare bones ideas on Tuesday or Wednesday. And then there is what some call the “Senate’s last gasp” on health care reform. The legislation, authored by two Republicans, Lindsey Graham of South Carolina and Bill Cassidy of Louisiana, would repeal central elements of the Affordable Care Act (ACA). States would get block grants instead. The nation’s governors are divided in their support. If readers are confused on how and why this latest plan has suddenly been scheduled for a vote before October 1, here’s the reason. A few months ago, Republicans successfully labeled the repeal and replacement of the nation’s health care law as a “fiscal” goal. As such, it could then be part of a process known as budget reconciliation. Why is that important? Budget reconciliation allows certain “fiscal” measures to pass with a simple majority (which the Republicans have in the Senate). And not the usual 60 votes required (which they don’t have).  However, the deadline for this budget reconciliation expires September 30. After that, they have little chance without the Democrats’ support to repeal and replace the ACA. The hope that there might be some progress on the president’s campaign promises has buoyed the market in the face of adversity. Next week’s success...