Taking Away Benefits

I never believed I would say it, but the Republican majority in the House has not served the new President well.  They have produced a pathetic and wholly inadequate replacement for Obamacare.  If it goes through, their hastiness and their stupidity will come to haunt them down the road.

So, why are they so eager to pass this dumb bill?  Is it only the pressure they are getting from Trump who wants the bill for his own purposes, the people be damned?

Or, does their eagerness have more to do with a fire in their belly to kill Obamacare, regardless of what the replacement may look like, than worry about the details of a new healthcare bill, ostensibly designed to serve the people?

Indeed, they have been intensely committed to killing Obamacare for almost a decade.   The speed they are applying now has far less to do with delivering on a commitment they made to their constituents than accomplishing something very very personal and about which they are passionate.

And, that passion has nothing to do with the good of the people.  In this instance, certainly, they care not a whit about the people.  They care about, and only about, themselves. And this obsessive drive to get rid of Obamacare for them trumps the possibility of turning off constituents. 

And the reason dates back precisely to the passage of Obamacare itself.  Republicans were in the minority at the time.  And, their colleagues on the other side were playing to their constituents by insisting that all those in Congress should join the same healthcare program as the people.  Thus, it was written into Obamacare that all federal employees, including those in Congress, would move immediately from the healthcare program they enjoyed to the new Obamacare. 

And so, the Republicans and Democrats alike were forced to give up the expansive, cadillac program they enjoyed under the Federal Employees Health Benefits Program and to come under the far less attractive people’s program – Obamacare.

Thus, the Republicans' passionate desire to kill Obamacare has far more to do with recovering fat benefits they enjoyed in the past than delivering a better and new healthcare program for the country.

Message to all Congresspeople: Don’t take away important benefits from your colleagues.  It will haunt you later.


Reading the Federal Reserve's Tea Leaves

Rate information contained on this page may have changed. Please find latest savings rates.

BestCashCow provides the most comprehensive list of US savings accounts and CDs from online banks as well as from branch-based banks and credit unions.  As such, we tend to get a lot of queries when the Fed raises interest rates, as it did yesterday for only the third time in the last decade.  These queries usually end with something like “why did my bank not raise my rate?”

My response is as follows: Your rate was not raised yesterday, last night or this morning because the rates that banks offer depositors on certificates of deposit, savings accounts and checking accounts are more a function of what the banks are willing to pay.  As the Fed funds rate increase was well projected for months by Janet Yellen – and therefore highly anticipated - the most competitive savings, CD, and checking rates had already risen.  In fact, the best savings and CD rates have actually gone up by more than 25 basis points since the Fed’s last action early last year. 

See the best savings rates here and the best CD rates here.

The Fed funds target rate, set by Janet Yellen and the rest of the Fed’s board of governors is now 0.75% to 1.00%.  Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, dissented on the Fed’s decision to raise the Fed funds rate by 25 basis points, which leads us to believe that there will be only three quarter-point hikes this year, instead of 4.  The pace of rate hikes will be especially slow for retirees, those who are averse to investments in the stock market, and those who otherwise depend on a risk-free rate of return in order to maintain a certain standard of living.

Nevertheless, it is clear that rates will continue to rise significantly, albeit gradually over the next two years.  The Fed is now indicating that the Fed funds rate will be over 3% by 2019, in which case savings and short term CD rates will be at or over that level by then.  The Fed is also projecting that US GDP will flatline at 1.90% in 2018 and 2019; should it move at the 4% pace that Wilbur Ross, the U.S. Secretary of Commerce, desires, the Fed funds rate may actually be much higher.   It will therefore be important over the next two years to track your savings accounts carefully to make sure that you are earning one of the most competitive savings rates.

We should also note that where you will see change right away when the Fed raises short-term interest rates, as it did Wednesday, is in banks' prime lending rates.  Most major banks yesterday evening responded by increasing their prime lending rates to 4.00%, which has an immediate flow-through to credit card rates and auto loan rates.   If you have been considering locking into a HELOC or a new mortgage, you may want to consider doing so before the Fed’s next raise in the summer or fall.

See HELOC rates where you live here.

Compare the best mortgage rates here.


A Moment in Time - Kumbaya

America is in a moment unlike any before.  And it is fueling a strange, albeit fleeting period of emphatically enthusiastic sentiments, simultaneously, in two major and almost always opposing segments of society.

It is hard to think back to a time when most successful white collar and a majority of employed and unemployed blue collar folk were equally excited about the direction of the country.  But, that is exactly what is happening now.

The stock market and the investor class are ecstatic over promised slashing of tax, corporate and market constraints and blue collar workers are mesmerized by promises to bring back 20th century manufacturing jobs and, generally, the good life.  

Both groups are singing Kumbaya in tune.

There is one sector, however, that is not, a combination of government and non-profit workers.  They are traditionally the manpower fueling political and social fabric infrastructure.  But these folks are both powerless and without the volume of white and blue collar Americans.

The singing cannot last. The interests of white and blue are too different.  Much more likely is that neither group will be singing much longer, both shattered by the impossibility that America’s much weakened social fabric – social, political and economic, can sustain current, clashing directions.   As one group begins to see more clearly through the heavy mist of promises, the other will wobble and both will come tumbling down.

Rather than bask in the moment, we all need to come to terms with reality, possibilities and solutions for the larger good.    


Not A Single American Hero

Throughout the long, ugly election campaign, no one stood up, save Mitt Romney who after the election seriously undercut the singular role he had fashioned.  One can make the case that no one expected Trump to win, including most Republicans.  Why take the risk, turn off your constituency, and diminish yourself before your peers if Trump was going to loose anyway?

But no one realized how much support Trump had from the white working class and from Russia.  And, now we are living the nightmare.  Every day, we are moving closer and closer to a catastrophic failure of our 200 + year experiment with democracy and world leadership.  And, no one has the courage to stand out. 

Yes, the Democrats are out there criticizing everything Trump does.  But that is not courage; that is the role of a powerless congressional minority.  It takes no courage to criticize when you are out of power and when your constituency is demanding that you do so.

Where courage is needed – where true American heroes are needed – is from Trump’s own party and from other respected voices.  And, the silence is deafening.  There is nothing, no one.  A few like Lindsey Graham and John McCain are making occasional noises, but they are posturing far more than standing up and leading. 

And the few others out there, like George W. Bush or Colin Powell or others, are eerily quiet.   Failing a single voice, we need a group, like a Council of US Presidents.  It is almost too late – almost too late to save America and its people from calamity.  I am not someone who generally says the sky is falling and I do not believe that I exaggerate.  But, as a country, we are at a precipice without a strong voice and sage leadership.  We desperately need an American Hero.


It is Going to End Badly

Alan Greenspan called it Irrational Exuberance.  Others have called it heady or intentional blindness.  But however you look at the stock market’s performance since Donald Trump was elected, it is clear that reason is not operating and that exuberance in winning.

It is going to come to an end, and pretty soon regardless of whether you are enthusiastic or not about the Trump presidency.  That is what is so distressing now – people have put aside rational thinking and have climbed aboard a train that will go over the edge, and soon.

When it all does come to an end, reason will return and folks will be kicking themselves for being suckered into a moment of exuberance.

It always happens that way.  But, never has the rise been quite so dramatic and the fall so likely to be equally steep.

Scratch any investor and they will agree that the precipice is there and that a major drop soon is very likely.

But scratch them again, and they will tell you it is just too good now and they just can’t stop.

So, it will be the few (and it always is) who will step out now and reap the benefits tomorrow, a week from tomorrow, a couple of weeks from tomorrow.

Timing is not perfect, but reason is rational.  It is going to end badly and we all know it.


Why Interest Rates May Not Rise Quickly, or Much at All

In response to this article cautioning against buying long-term municipal bonds, I wanted to outline some reasons that interest rates may rise slowly, or not much at all. Here are some items that also need to be considered when factoring in whether to invest in municipal bonds:

Global interest rates are incredibly low.  The market for securities becomes more global every day and investors worldwide have a choice between buying bonds almost anywhere in the world with low transaction costs.  So if interest rates in Germany and Japan stay minuscule, it is unlikely that Uncle Sam is going to pay so much more.

Economic growth is likely to remain subdued.  Demographics are destiny, and we have an aging workforce and are pretty close to full employment.  Economic growth is largely based on two factors – size of the workforce and productivity growth.  The workforce can get a little bigger, but if GDP growth was under 3% when unemployment went from 10% to 5%, how is it going to rise above 3% going forward?  Also, in a service oriented economy there are limits to how productive we can become.  What tools are making us more efficient at our jobs that don’t eliminate workers and reduce the size of the workforce?

An aging population means people need investment income.  Ten thousand baby boomers turn 65 every day, and they will need income in retirement beyond what they are receiving from Social Security and pension.  Bonds provide a more reliable source of income than stocks, and despite low rates they also offer a higher rate of income.

The stock market is incredibly expensive.  Using long-term valuation measures such as Shiller - PE and stock market capitalization to GDP, investors are paying a very high price for stocks.  If earnings disappoint, some money will come out of stocks and likely into bonds, keeping a lid on rates.

The budget deficit is going to rise, limiting fiscal stimulus.  The Federal Reserve already has a massive balance sheet of bonds and the interest they earn gets paid to the Treasury Department.  As those bonds mature the Treasury gets less income, increasing the deficit.  Then consider increased Social Security and Medicare benefits, and the impact of rates that have already risen nearly 1%, and the ability of our government to lower taxes or increase spending to stimulate economic growth become severely compromised.

Short-term rates may stay fairly low.  The Fed has been extremely cautious in raising rates, largely because they don’t see much inflation or wage growth.  Even if they do raise rates 4 times or 1% over the next 2 years, the longer end of the yield curve may not move up nearly as much as short-term rates, as has been the history during periods of Fed tightening.

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