Money Matters airs December 1st, 2016 at noon PST.
Thank you to all supporters to our matching funds program Turkey Matters. Participants helped feed many during the upcoming holiday!
Marc’s Notes:
Well it has been a while since I posted a newsletter. I didn’t realize it had been so long until I got a few emails from folks thinking they got kicked off the list serve! No you did not, I just got busier (as in very) and lost track of time.
My apologies. It has been busy with the election and all the new stuff I have been doing to improve our services. Also another new station in New Mexico picked up the news and show. That makes about 40 stations so far. Money Matters is also now being carried in some newpapers around the Roseville/Rocklin area. I am not sure exactly how many as one company handles many papers. If you see a Money Matters article down the hill, email me where and in what paper. That is all for now. Stay tuned for yet another surprise announcement in the weeks to come. Now on to business.
On the markets:
What a wild ride. First looking to open down 900 points on the Dow the day of the election to actually ending up when markets opened. The Dow screamed up about 850 points in the days that followed and gold fell. Other anomalies took place such as technology issues falling hard. Also falling hard was fixed income which are the majority of holdings for the proverbial widows and orphans. We also hold a good amount of fixed income so balances fell uncharacteristically. When fixed income falls their yields go up. The higher yield tends to entice buyers so it can be self-correcting and I was not too concerned. Now that it has been a few days, hopefully markets will stabilize. We took somewhat of a more positive outlook and stance but will not go too far until the Fed meeting in December. Asset rotation (buying of one thing while selling another) was at a very fast clip. This caused balances to bounce all over for many investors. Never sell into a panic it is said. I agree. We will watch the markets and look for clues. I have high hopes for 2017! One number one concern as always is minimize any losses while looking to participate in rallies.
Interest in talking about investing? Email me. We have multiple strategies from principal protection to all growth potential. The combinations are endless and no matter what kind of investor you are, we can help.
New services:
I spent the last 6 weeks obtaining a new California Insurance License (#OL34249) with certifications in:
Life Insurance
Accident and Health
Long Term Care
Annuities
(See the synopsis below for our new services)
It was a whirlwind month with lots of study and lots of tests. One particular California state test was only given in Sacramento the day after Thanksgiving. What the hell?
So the Dept. of Insurance directed me to a Reno test center on November 8th. I had to go the Midwest to look into investments so I detoured to Reno and passed that particular test then moved onward. I previewed two investments for us, one there and one in San Francisco earlier in the month. Nothing like boots on the ground for the best view.
While in open meadow country I got to eat Midwestern BBQ overlooking incredible mountain ranges. It was a brief respite on the deck with new friends then back to California to keep working. Both investments look promising but I am still doing research to see if it might be something we can offer you.
I will be contacting clients in the next few weeks to update on new products and answer any questions. Tune into the show, read the articles and enjoy your Turkey.
Jambo!
Marc
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With the presidential elections now over and at least a partial ending to the circus of the absurd that it was, the economic question now on everyone’s mind is what will happen to the stock market in the coming days, weeks and months ahead.
The markets illustrated their continuing volatility with a wild pre-market indicator on election night showing a drastic start to the next day’s markets as Trump moved ahead during the vote counting only to turn back positive once it was confirmed he had actually won. What a wild ride it was for aftermarket traders!
Markets rocketed higher the next day and continued to do so at least for the first few days and at the time of this writing. Assets that benefitted initially were gold, stocks in general, healthcare, Russian markets and others. Interest rate sensitive issues such as bonds and utilities languished.
The thinking, at least during the first two days, apparently was that interest rates will rise faster under Trump than was initially expected with a Clinton victory and that more money will be spend on infrastructure and rebuilding certain areas of the economy, boosting company profits.
Trump’s talk of an amnesty period for repatriation of corporate overseas assets boosted a few asset classes but technology assets strangely did not exhibit the strength other areas saw.
The markets are likely to do some more digesting of what this all means for at least a few more weeks as upcoming statements from Trump will gradually give investors a window into just exactly what his plans are as far as the economy is concerned.
Tightly tethered to monetary policy as the market has been in the last decade or so since the start of the housing blow up and banking crisis, what the Fed does under a Trump administration will likely cause continuing volatility in the markets as the Trump show continues to unfold.
Since markets never do what anyone expects them to do, trading this market is likely to be next to impossible to accomplish with any sort of certainty at least for a while.
It is probably prudent for the average investor to sit tight and let the markets settle down a bit before committing large sums of money in any one direction or in any one area.
The old adage of keeping a certain amount of one’s portfolio in a cash position to smooth out volatility and retain purchasing power for the possibility of better prices down the road may be the best advice for the average mom and pop investor.
Our customer portfolios as mentioned in our last musing have been neutral to market negative since about June and although we are now moving toward a more positive stance in recent days, we are still cautious about what might be ahead and therefore are not committing too much new money too quickly.
My advice to readers continues to be to consult a qualified financial professional for your investing needs and remember, no one can predict market movements anytime, anywhere. This article is not a recommendation to buy, sell or hold any securities and should not be construed as investment advice.
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Public and large corporate pension plans are widespread, vast in numbers and hold trillions of dollars in the aggregate. They also are the lifeblood of many Americans.
Public plans include coverage for federal employees, state and city employees, public teacher’s pensions, large university systems and many more. Private company plans cover vast numbers of workers. The list is endless and varied and it is estimated over 20 million people depend on or will depend on them for providing income through their golden years.
But a disturbing report out from Moody’s’ Credit reporting agency gives us some eye-popping estimates as to what is promised versus what these plans actually have on their balance sheets. In other words, like so many other balance sheets these days, the shortfalls are becoming ominous.
The problem lies in the zero to near zero interest rate environment that exists in our monetary world today. The Federal Reserve has pegged their target rate close to zilch (that’s zero in laymen terms) for about 7 years now.
That means fixed income investments like bonds and other debt instruments don’t pay not nearly as much as they used to since they have to compete with the Fed rate. Due to their perceived relative safety, pension managers lean toward fixed income products to stack their portfolios so when interest rates drop so does the yield on their portfolios.
The problem is further enhanced by the way pensions figure what they will earn versus the amount of money they have to keep on hand and how they balance their books.
Based on historical interest rates being much higher, their models have gotten ahead of themselves.
Assuming the Feds rates of near zero were going to be temporary emergency measures to address the banking and real estate crisis (the key word here being temporary) many pensions failed to revise their assumed income rates. They failed to do so assuming low rates would give way to higher rates rather quickly.
How did this incorrect assumption hurt balances?
Incredibly, many plans still assume a return rate north of 7%. This is the crux of the problem.
For example, let’s say our local township knows X amount of employees will retire in X amount of years needing X amount of money. Assuming a 7% return compounded, the money the city puts aside will double in about 10 years. Now assume actual rates are at 1%. The money our township set aside now will take 72 years to double. Wham. In ten years’ time, the city’s pension is massively underfunded by about 45%. If more time passes the losses grow exponentially. It adds up quick under the law of compounding.
Now that rates have remained at near zero for so long, if pension managers lower their assumed interest income this late in the game, the amount of cash they will have to commit to meet reserve guidelines would stress their balance sheets to no end not to mention the severe shortage of funds they have to pay off retirees now and in the future.
Put simply, near zero interest rates have decimated assumed returns and therefore liabilities have skyrocketed for many pensions plans.
Business Insider reports Federal pensions are unfunded to the tune of 3.5 trillion (note the T in trillion). Larry Edelson of Money and Markets says state pension plans are looking at another four trillion in unfunded liabilities.
Couple the two together and it equals about 40% of U.S. GDP, a staggering figure to say the least. Zerohedge reports the top 25 U.S. corporation pension plans are also underfunded by at least 225 billion. This figure doesn’t include hundreds of other large corporations that also use the same models and probably have similar shortfalls.
With the stock market reaching new highs and many pension plans also holding equities, the problem may have improved somewhat. But with the majority of pension holdings in conservative fixed income instruments which are not as subject to market movements, the shortfalls will likely remain at ominous levels before they problem is resolved, with many doubting it can be resolved at all, the damage is that bad.
Can you say the mother of all bailouts?
