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Online Savings & Money Market Account Rates 2019

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Bitcoin and Blockchain: “That’s OK. I Didn’t Really Understand It At First Either”

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I am old enough to have lived through 1999 and 2000.  Actually, I am old enough to say that it is part of my adult experience.  I worked in the internet and telecom sector then.   We were building real things and the world was being transformed by the internet and the new opportunities it was creating.  Was pets.com’s stock worth what it at then?  Or AOL?  Or Akamai?  Or Cisco?  We learned later in 2000 and 2001 that these companies didn’t have the value that the markets ascribed.  But, in many cases there was cash flow and these companies were transformational; they were changing our world.

In 2007 and 2008, the market again became dramatically overheated, largely due to over-lending on the part of the financial institutions.  I personally was fortunate and managed to sidestep the financial damage that many suffered.  I respect those who miscalculated though.  There was cash flow and the prospect of moving our country from one of 62% home ownership to one of 75% home ownership seemed transformational.

Fast forward to today.  With Bitcoin at $17,000 and all sorts “coins” and stocks geared to blockchain spiking in value, there is very little that appears transformational.  There seems to be a whole lot of commotion and a whole lot of opportunity to move money around outside of governmental oversight (with perhaps Russian and North Korean involvement).

But, Bitcoin has brought back out all of the people whom I know and who created late stage businesses in 1999 and 2007, companies that had little economic merit but were designed to piggy-back off of what became a frenzy.  They have again reappeared on CNBC, and by connecting with me on LinkedIn.  This time they aren’t talking about cash flows and economic transformation.  They are talking about Etherium and blockchain and the only thing they are saying is: “That’s OK.  I didn’t really understand it at first either.”

I am not going to get into the credibility or motives of these people.  They may manage to drive Bitcoin and all of its ancillaries a lot higher.  But, I don’t buy it; I do not believe nor understand adequately the hype or the foundational elements underlying the Bitcoin phenomenon.  And, I am not alone.  Consider it safe to say that I am not going to be trying to make my fortune on Bitcoin.  


New Tax "Cut" Not Really A Christmas Gift for America

The details of Donald Trump’s and Congressional Republicans’ tax cut have only just come out.  And, the details tell all.

First, I would not go out and celebrate, unless you:

  1. are in the real estate business
  2. run a large corporation
  3. have millions (many) in the bank and plan to die in the next 8 years
  4. are a wealthy investment manager
  5. are in the liquor business
  6. are a tax accountant

And, even then, those above have only an eight-year window before the new cuts expire for individuals (but not for corporations).  Eight years will go fast, and it could be much faster if the Democrats come into power in 2022 and reverse the tax cuts immediately. 

But, most of all, it is important to understand that this is not a middle class tax “cut” for needy Americans.  In fact, it is just the opposite.  The wealthiest, from extremely wealthy to very wealthy, are clearly those who win here.  And, the rest get a bone here and there, but nothing lasting and nothing that will seed the promise of continued and expansive economic growth.

So, be careful.  Do not listen to those who tell you the good times are here again.  Husband your resources and buy only what you need.  Invest with great caution with every market at exceptionally inflated levels, saving the rest in the highest yielding savings accounts and CD accounts.

And, remember that the best lesson gleaned from all this talk about a tax cut for all Americans is that Congress is out for itself and certainly not acting in the public’s interests.  In fact, all conservative principles about debt and taxes have been thrown out of the window to pass this bill.  


Fed Funds Rate is Raised to 1.25%

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The Federal Reserve, acting today in Janet Yellen’s final meeting as the Chairman, voted to raise the Fed Funds rate by 25 basis points.  The Fed funds target rate is now 1.25% to 1.50%.  The Fed is continuing to guide towards three 25 basis point rate hikes in 2018 which would lead to a Fed Funds rate of 2.00% by December of 2018.  Although there were two dissenters, and although Jerome Powell and an entirely new team of five Federal Reserve governors will be assuming roles in January, most economists agree that there will be three hikes in 2018.

We are slowly but surely seeing a normalization of interest rates in an effort to curb liquidity as the economy has moved over the last eight years from a dramatic recession to fast expansion.  Easy money is no longer required, and it is clear that the Fed, even under Jerome Powell, will raise rates further and in a measured way over the next two years, baring a shock to the economic system.

The pace of rate hikes, nonetheless, will continue to be especially slow for retirees, those who are averse to investments in the stock market, and others who otherwise depend on a risk-free rate of return in order to maintain a certain standard of living.

Savings rates are higher now that they were at the beginning of the year, and may move still higher as we move through 2018.  While the spread between average online savings rates and average online one-year CD rates has widened over the course of 2017 from about 33 basis points to about 45 basis points (see the third graph in our rate analysis), one-year CDs are not particularly compelling if you believe rates will continue to rise.  Rates are rising on longer term CDs as well, but if you expect continued rate moves in 2018, moving to higher yielding online savings accounts seems to be the best bet here.

When the Federal Reserve raises the Fed funds rate, as it did today, you also often see an immediate move in the prime lending rate offered by most major banks.  We expect that most banks will immediately raise their prime lending rate by 25 basis points which will have an equally immediate flow-through to credit card rates and auto loan rates.   If you have been considering locking into a home equity loan or a new fixed rate mortgage, you may want to consider doing so before the Fed’s moves again in a few months.