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Our Predictions for 2018

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It is that time of year – the end of one and the beginning of another.   Every pundit is adding their economic predictions, so we’ll add ours.

We’ll begin with one caveat.  We had not seen the S&P going to 2600 in 2017.   We had believed that a President acting only in his own interests would cause a recession.  We were wrong.

Where we were correct was in our estimation that interest rates would rise, giving some relief to those seeking or needing to grow some of their nest egg in a risk-free manner.   That will continue in 2018 with the Fed under Jay Powell moving to raise rates at least three times between January and December.

As a result, we will see online savings rates cross over 2% before October.   1-year CD rates will offer around 2.50%.  With the leading money center banks continuing to offer next to nothing, online banks and their offerings will become more interesting than they have been at any time since 2007.  Local banks and credit unions will compete importantly thanks to aggressive roll-back of Obama era regulation after a lengthy and extensive debate on the matter between Elizabeth Warren and Paul Ryan.

Strong US growth will continue, mostly attributed to give-aways to some of corporate America through tax and other legislation.  Therefore, the yield curve will normalize with the 10-Year US Treasury getting close to 4%.  While 2018 will be a bad year for bonds, we’ll see 5-year CD offerings at 3.50%, with the occasional local promotional rate even higher.  This will be an opportunity for those with cash to put money safely away for a few years.

The rise in interest rates will cause those who have put off remortgaging their homes  or taking out a home equity loan to regret not having locked in at the beginning of the year.   Housing prices – especially in New York, California, New Jersey, Connecticut and Illinois – will fall quite dramatically due to changes in state and local taxation deductions.   Those purchasing at prices more than 20% below 2017 prices will be happy to pay slightly higher mortgages rates on their new properties.

The stock market will reach new highs in the Spring, immediately after Congress invokes the 25th Amendment – perhaps twice - and makes Paul Ryan the President.    Amazon and Apple will become the first US companies to have valuations over $1 trillion.  Chip stocks will also explode the upside as it becomes apparent that AI presents a greater tech opportunity than anything we have seen in technology in over 25 years.

The stock market then begins to fall.  Some people will attribute it to an implosion in Bitcoin, but new regulations concerning social media cause advertisers finally to realize how much of the activity is bots creating nonsense.  Health care holds the market together, performing well after the mid-term elections deliver a Congress that begins to pass legislation recognizing the importance of continued innovation in this sector.    Nevertheless, the S&P ends the year at 2300.

Oil prices will begin to climb, even briefly hitting $90 a barrel as a result of continued instability in the Korean Peninsula and Saudi Arabia.  The dollar strengthens due to higher interest rates.  Gold also strengthens after bitcoin’s collapse.  As a result, emerging markets and global markets sell off even more than the US markets.  We see dramatic falls even in those markets that are oil and gas-based after Russia experiences deep political instability around the World Cup. 

And, here is the most important prediction.  When we reach the end of 2018, Americans will look back at the beginning of 2018 and be pleased that our democracy is still intact and that our country remains based on a law-based state.   The assault on America’s foundations will seem like a distant memory.

So, there are our predictions.  Like in years past, a lot of this is probably going to be wrong so it should all be taken with a grain of salt.  Under any circumstance, you shouldn’t trade on it.


What Jerome Powell’s Confirmation Means for You

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Like any American who has one iota of intelligence or historical perspective, I am outraged by our country’s loss of civility and direction at the hands of the Republican (now Trumpian) Party.  The tax bill, in particular, is an assault on all Americans outside the billionaire class.  The country feels like France circa 1788 and our least desirable elements are turning us into a banana republic.

However, Jerome Powell’s appointment is not an assault on Americans.  Rather, it is a benefit to consumers.  Powell is clearly intent on pairing back post-2008 legislation that was well intentioned but which has had adverse consequences.  Rules applied to the banking system through Dodd Frank and other legislation were designed to protect the financial system from “too big to fail”, but have ironically created a situation where the 8,000 commercial banks that aren’t Chase, Citibank, Wells Fargo and Bank of America have been unable to be competitive for over a decade.  Instead, they have been busy paying Accenture, Deloitte and Price Waterhouse fortunes to ensure compliance with obscure rules.

As these rules are paired back, Americans will find increasingly competitive savings rates and CD rates from banks geographically near them.  Credit unions also will be able to compete.

And, these same institutions will be able to offer more competitive rates on their mortgage, home equity and auto loan products.

In the end game, Americans will win from increasing competition, at least in the short term.

There is competition for your money.  Take advantage of it by exploring a map of banks near you.


10 Money Saving Tips for Seniors

Life as a senior brings all sorts of new challenges – good and bad.  It can be a wonderful time, if you stay positive and healthy, enjoying new and old friends and doing the things you’ve always wanted to do.  The key challenges one faces at this age are staying healthy and not blowing retirement resources carefully accumulated for this period.  As studies show that Americans and living longer and more fruitful lives in retirement, you want to be sure that you have the maximum resources to take advantage of it.

Below, are my top ten tips for staying smart and financially comfortable as you age.

1. Move to savings and CDs

The stock market has been appreciating for a long time.  We know for a fact – based on our experiences from 2000 to 2002 and through in 2008 and 2009 – that markets do not only go up.  They also go down.   If you participated in the market and made money, count yourself lucky.  If you didn’t, the last thing you should do is get in heavily now.  As an absolute rule, retirement is not a time to play the market; we seniors do not have the time to recover from the serious falls in the market that inevitably come and come frequently.  The smart and only thing you should do is keep most of your assets out of the market and to invest in savings and CDs, up to the federally insured limit of $250,000 per bank.  Succumbing to market temptation is the kiss of death for seniors.

2. Downsize.

As you organize your financial life going forward, you should consider downsizing your home and property.  There is a weight taken off when you no longer pay a mortgage, large property tax bills, and outsized utility bills.  And, I promise, you will feel light footed knowing you are no longer, nor will your heirs be, shackled with the heavy burdens of large homes and related property.  And, you will also pocket the difference and that will almost certainly will put an extra step in your stride.

3. Consider moving to a lower tax state.

While you are getting rid of your old homestead, be extra smart and relocated to a warm climate and a tax-free state. There are some really good ones now where climate and costs will both be welcomed changes in your years ahead.

4. Question your purchases.

It is always easy to buy new things and to give in to the temptation of the moment.  But, as we get older, we also get wiser.  Giving in to temptations of the moment are things we do less and less as we age.  We have been there too many times – buying something expensive that catches the eye only to get it home and wonder why we bought it in the first place.  So, my recommendation is to get even more serious about momentary urges to buy and to establish a program whereby you wait at least a couple of days before making any purchase, especially large purchases.  Use those days to ask yourself several times whether that particular purchase makes sense. 

5. Budget.

I personally hate the idea and have never been good at it, but friends tell me that making and sticking to a monthly budget saves a whole lot of money.  What they do, and I seem unable to do, is set a hard line on how much they are both able and willing to spend for each month (obviously based on their projections of expected income and desired savings).  They then literally stop spending money when they reach their limits – actually slowing down and holding expenditures to a necessary minimum as they get to the end of the month.  While, as I said, I cannot do it, the logic makes all the sense in the world and holding to a budget you have set for yourself will undoubtedly serve you well.

6.  Be Careful with your gifting.

One thing we are always tempted to do, and it’s a good thing in moderation, is to offer financial assistance to our children and grandchildren. It’s great for them, sometimes even necessary for them, but it is also a slippery slope.  Many friends of mine have found themselves dangerously short of resources in their later years because they were too generous to their children.  Often those very same children are so mired in their own expenses that they cannot return the generosity and help their parents later down the road.  The obvious lesson here is to gift what you can while living, especially if your kids really need it, but to be always tough with and for yourself by making certain that you don’t leave yourself in jeopardy in your last years.

7.  Travel, but do it wisely.

Travel is often a defining set of experiences in retirement that contribute to making life at this stage so rich.  It can be done near home or as far around the globe as you desire.  But doing it is great for your mind and body and allows you to grow and learn while feasting on rich and new experiences.  All that said, however, the travel industry is just waiting for you, and usually not in a good sense.  Cruise and travel packages abound designed to capture your imagination and to separate you from your money.  It makes all the sense in the world to take advantage of the time you have and travel, but it is equally true that you can travel much more frugally by making your own plans and reservations and staying clear of the slick and far too expensive offerings of those who prey on older folks.

8.  Hang up on con artists.

Among the best pieces of advice I can offer those of us who are retired is not to answer your phone.  Nine out of ten times, there is someone on the other end who has bought a list of retired people from a third party and who is trying to sell you one or another useless, expensive and, most often, fake product or service.  You know better; just hang up.

9.   Be creative.

Few people believe that older, retired people have much of anything to offer the larger population.  The truth couldn’t be further from reality.  Older people have been around and if they have done stuff of interest, there is no reason they couldn’t continue as consultants or new business owners.  My point here is that many older people have well honed skills and, even more important, insights and creativity that could allow them to continue, albeit not necessarily 9 to 5, to engage in new activities, even ones for handsome remuneration.  In other words, don’t count yourself out because others think you are old.  Instead, prove that you can be as good as if not better than others and that you can continue to make money from your own efforts and imagination.

10. Exercise often.

And, finally, the best thing you can do for yourself, and at very low cost, is the exercise often and regularly.  Keeping in good shape and good health will save you more money than anything else, especially as it will free you of ever more expensive medical and hospital bills.  And, equally, staying healthy keeps mind and body in shape to enjoy and take advantage of the rich array of experiences that only those of us in retirement can enjoy.