Category Archives: Economy

10 Steps to a DIY Financial Plan | Charles Schwab

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  • Key Points
      • A financial plan isn’t only for the wealthy and it doesn’t have to cost a penny.
      No matter how much money you have, you can start with a DIY financial plan that will set you up for future success.
      With a good foundation in place, you can feel more confident about your finances and, when the time comes that you might need the help of a professional, you’ll be that much farther ahead.

    Did you know that 78 percent of people with a financial plan pay their bills on time and save each month vs. only 38 percent of people who don’t have a plan? That’s a pretty powerful statistic if you ask me. Or would it surprise you to learn that 68 percent of planners have an emergency fund while only 26 percent of non-planners are financially prepared to cover an unexpected cost?

    When I hear stats like these that were recently reported in a Schwab survey, it just reinforces my belief that everyone—no matter their financial situation—can benefit from a financial plan. So why aren’t more people planners? Usually it’s because either they don’t think they have enough money or they think a financial plan costs too much. But, as I’ve said many times, neither is the case.

    In fact, you can map out your own financial plan. That way, not only won’t it cost you a penny, but you stand to reap the long-term benefits. Here’s how to get started mapping out your financial future with a DIY plan.
    — Read on www.schwab.com/resource-center/insights/content/10-steps-to-diy-financial-plan

    Democratic Socialism on the Rise in America

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    “The strongest argument for socialism is that it sounds good. The strongest argument against socialism is that it doesn’t work. But those who live by words will always have a soft spot in their hearts for socialism because it sounds so good.” Thomas Sowell

    Despite winning the 2020 Nevada Democratic Caucuses by a wide margin, most Americans fail to appreciate that Senator and Presidential candidate Bernie Sanders (I-VT) is not a liberal Democrat or a registered member of the Democratic Party. He is a registered Independent and an unapologetic self-professed Democratic Socialist.

    However, as a Senator, he caucuses and aligns himself with the Democrat minority on the floor of the U.S. Senate. And, in the 2020 Presidential primaries, he campaigns and runs as a Democrat in his grassroots attempt to win the party’s nomination.

    Additionally, billionaire Democratic Presidential candidate Mike Bloomberg, during a debate stage attack, stated that Senator Bernie Sanders is, “the best known Socialist in America”, and is a multi-millionaire who owns three houses (one in Washington, D.C. and two in Vermont).

    According to Roger Altman, Evercore Founder and Senior Chairman, he conveyed on CNBC recently conveyed that under Bernie’s proposed socialist policies:

    1. If you have an employer provided health insurance plan, you’ll lose it.
    2. If you want to decriminalize the southern border, so if individuals are crossing the border illegally, they’ll get the equivalent of a traffic ticket.
    3. If you believe like Bernie that everyone in prison should have the right to vote, then he is your man.
    4. In the important battleground state of Florida, the philosophy of socialism carries very negative connotations and distasteful visceral reminders to many in the Cuban-American, Venezuelan, and Puerto Rican communities within the state.

    Only something like ten percent of Americans believe in those Sanders positions. Maybe magic will happen. Record of prediction is unblemished with success.

    “Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.” Winston Churchill

    World history demonstrates that global Democratic Socialists in the Western Hemisphere have often abandoned the “Democratic” part of their byline and replaced it with authoritarian actions like in Venezuela and Nicaragua. Although, this is believed highly unlikely with the many safeguards guaranteed in the U.S. Constitution.

    If elected, Americans should not be surprised when a potentially future President Sanders attempts to steer the country down the path of the failed programs and policies common within socialism. But, socialism has been successful in bringing “shared economic misery” to the citizens of countries like Cube, Venezuela and the former Soviet Union and East Germany.

    References:

    1. https://www.nytimes.com/interactive/2020/us/elections/bernie-sanders.html
    2. Roger Altman, Evercore Founder and Senior Chairman, CNBC Squawk on the Street

    Schwab Sector Views: New Sector Ratings for the New Year | Charles Schwab

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    By Schwab Center for Financial Research

    Macro environment:  Rising stocks and Treasury yields, fading U.S. dollar

    We [Charles Schwab] continue to see a gap between the health of the manufacturing sector and that of the services sector and consumers. Despite recent U.S.-China trade war de-escalation, manufacturing activity remains under strain from ongoing tariffs, new tariff threats and still-elevated trade policy uncertainty, combined with slow global growth. On the other hand, the services sector continues to thrive amid strong consumer confidence and consumption, in large part due to a strong job market. 

    While economic momentum overall has slowed, we do see signs of stabilization in both the United States and abroad. Accommodative monetary (central bank) and fiscal (tax cuts and government spending) policies have provided a strong tailwind for the global economy.

    The signing of a “phase-one” trade deal between the U.S. and China, combined with congressional passage of the new U.S.-Mexico-Canada (USMCA) trade pact, have eased some trade uncertainty. Amid this apparent global economic revitalization and shrinking trade risk, Treasury bond yields have risen, the value of U.S. dollar has declined and U.S. stocks have advanced to record highs.

    However, geopolitical risks—while reduced somewhat—remain elevated, and equity valuations are high. Given this combination, we think bouts of increased volatility and more frequent pullbacks are possible. This doesn’t necessarily mean the rally won’t keep going—it’s likely the strong momentum in stocks may continue until there is a catalyst sufficient to deflate the current extremely bullish investor sentiment—but the risks need to be considered.

    — Read on www.schwab.com/resource-center/insights/content/sector-views

    Schwab Sector Views: New Sector Ratings for the New Year | Charles Schwab

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    Macro environment:  Rising stocks and Treasury yields, fading U.S. dollar

    We continue to see a gap between the health of the manufacturing sector and that of the services sector and consumers. Despite recent U.S.-China trade war de-escalation, manufacturing activity remains under strain from ongoing tariffs, new tariff threats and still-elevated trade policy uncertainty, combined with slow global growth. On the other hand, the services sector continues to thrive amid strong consumer confidence and consumption, in large part due to a strong job market. 

    While economic momentum overall has slowed, we do see signs of stabilization in both the United States and abroad. Accommodative monetary (central bank) and fiscal (tax cuts and government spending) policies have provided a strong tailwind for the global economy. The signing of a “phase-one” trade deal between the U.S. and China, combined with congressional passage of the new U.S.-Mexico-Canada (USMCA) trade pact, have eased some trade uncertainty. Amid this apparent global economic revitalization and shrinking trade risk, Treasury bond yields have risen, the value of U.S. dollar has declined and U.S. stocks have advanced to record highs.

    However, geopolitical risks—while reduced somewhat—remain elevated, and equity valuations are high. Given this combination, we think bouts of increased volatility and more frequent pullbacks are possible. This doesn’t necessarily mean the rally won’t keep going—it’s likely the strong momentum in stocks may continue until there is a catalyst sufficient to deflate the current extremely bullish investor sentiment—but the risks need to be considered.
    — Read on www.schwab.com/resource-center/insights/content/sector-views

    Uncertain Financial Markets

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    “Don’t gamble. Take all your savings and buy some good stock and hold it till it goes up; then sell it. If it don’t go up, don’t buy it.” Will Rogers

    Since the financial crisis of 2008-2009, the U.S. stock market has been on a long-term uptrend. In the crisis’ aftermath, a nearly 11-year bull rally emerged from its ruins becoming the longest-ever uptrend in Wall Street history.

    And, the American economy is equally robust as consumer spending remains strong and as the unemployment rate (3.5%) remains at the lowest in 50 years. Despite low employment, Federal Fund interest rates still sit near historical lows and the 10-year Treasury yields only 1.8%.

    Financial Crisis

    Bringing back painful financial memories for investors, the financial crisis of 2008-2009 wreaked havoc on the stock market. During the crisis, the S&P 500 index (SPX) lost 38.5% of its value in 2008, making it the worst year since the nadir of the Great Recession in 1931.

    Today, many economists and financial industry pundits conclude that global economies will face an increasingly uncertain and potentially volatile future. Those future concerns range a gambit of political, geopolitical, economic and socio-political issues.

    The uncertainties and concerns include the upcoming U.S. presidential elections, potential turmoil in the Middle East, growing fear regarding cross border spread of the Novel Corona virus, and the growth concerns regarding the economies of the rest of the world economies.

    Investing in an Uncertain Environment

    “Never under estimate the man who over estimates himself…he may not be wrong all the time.” Charlie Munger

    When it comes to investing in an uncertain environment, it is difficult to know what actions to take. But, nobody knows with certainty what is going to happen next in the markets or can predict the direction with certainty of the global economy. Despite the many self proclaimed stock picking experts who promote their ability to forecast the markets and abilities to select the next Amazon-like stock, it important to always remember that no one knows what will happen in or can accurately forecast the future.

    Recently, Charlie Munger, Vice Chairman of Berkshire Hathaway, shared his thoughts about investing in general and regarding Elon Musk and Tesla, specifically. He commented that Elon is “peculiar and he may overestimate himself, but he may not be wrong all the time…”.

    Additionally, Munger commented that he “…would never buy it [Tesla stock], and [he] would never sell it short.” Prudent investors would be wise to heed Munger’s advice and be concerned not only about potential rewards but, more importantly, also concerned about potential risks investing in hot, high flying stocks.

    In Munger’s view, there exist too much “wretched excess” in the market and investors are taking on too much unnecessary risk. He worries that that there are dark clouds looming on the horizon. And, he believes markets and investors are ill-prepared to weather the coming market “trouble”.

    References:

    1. https://www.marketwatch.com/story/wretched-excess-means-theres-lots-of-troubles-coming-warns-berkshire-hathaways-charlie-munger-2020-02-12

    Jobs, Coronavirus, and the Budget | First Trust Economics Blog

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    Brian S. Wesbury, Chief Economist

    Date: 2/10/2020

    In January, US payrolls expanded by 225,000, not only beating the consensus forecast, but also forecasts from every single economics group.  Since January 2019 (12 months ago), both payrolls and civilian employment – an alternative measure of jobs that includes small-business start-ups – are up 2.1 million.  The labor force – those who are either working or looking for work – is up 1.5 million, while the jobless rate fell to 3.6% from the 4.0%.

    The labor force participation rate (the share of adults who are either working or looking for work) increased to 63.4% in January, the highest reading since early 2013.  Participation among “prime-age” adults (25 to 54) hit 83.1%, the highest since the Lehman Brothers bankruptcy in 2008.   

    Meanwhile initial claims for unemployment insurance hit 202,000 in the last week of January, and initial claims as a percent of all jobs are at the lowest level ever.  In other words, the job market and the economy look strong.

    Only a few months ago, some analysts were saying that the inversion of the yield curve – with short-term interest rates above long-term rates – was signaling the front edge of a US recession.  Now a recession seems nowhere in sight.

    Lately, financial markets have become very jumpy on any news – good or bad – regarding the coronavirus.  We aren’t immunologists (or doctors) and would never make light of a virus that has killed more than 900 and infected over 40,000, but data released by the World Health Organization (WHO) cautiously suggests a positive turning point has been reached.

    — Read on www.ftportfolios.com/retail/blogs/economics/index.aspx

    AT&T CEO Interview on CNBC Squawk Box

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    Friday morning from the AT&T Pebble Beach National Pro-Am, CNBC Squawk Box co-anchors Joe Kernen and Becky Quick interviewed AT&T CEO and Chairman, Randall Stephenson.

    In this far ranging early morning interview, Randall discussed the current and future outlook of the large cap communications and entertainment company he leads.  Effectively, he stated that he was very bullish on the projected economic output in 2020 for the company.

    He stressed that the top priority for the AT&T was to pay down the massive debt incurred from its acquisition of Time Warner.  He commented that the goal was to bring down debt to a ratio of 2.5X debt-to-EBITDA and this past year, they successfully paid off $30 billion in debt.  Additionally, Randall shared that AT&T realized a 45% total shareholder return in calendar year 2019.

    Media Business

    Overall, he commented that AT&T’s media business, renamed Warner Entertainment, is doing well.  In the short term, they expect to roll-out HBO Max in May 2020 which will feature Warner Bros. extensive inventory of content, including the TV series “Friends” and “The Big Bang Theory”. and content from Turner’s networks.

    Currently, premium HBO streaming has approximately 30 million subscribers.  Those subscribers will automatically convert to HBO Max once the it comes on-line. He expects that HBO Max will grow to 50 million subscribers.

    Financials

    Activist shareholder, Elliot Management, bought a large stake in AT&T back in September 2019 and criticized the management and board leadership, and the direction of the company.  Elliot Management in a letter wrote that AT&T’s stock could potentially surge to above $60 a share by 2021 if the company “increased strategic focus, improved operational efficiency” and “enhanced leadership and oversight.”

    Furthermore, Elliot Management questioned the company’s succession plan of tagging Warner Media’s CEO and AT&T COO, John Stankey, as CEO Randall Stephenson’s heir apparent.  They expressed concerns with Stankey’s decision making. his lack of experience operating and communications and entertainment company, and his ability to manage the conglomerate.

    Bottom line is AT&T’s financial future appears highly dependent on the success of HBO Max growing paid subscriptions, management paying down the high level of corporate debt on its balance sheet, and developing a coherent strategy that can effectively discover and employ the synergies of AT&T’s diverse assets and enterprises.

    Sources:  https://www.cnbc.com/2020/02/07/att-ceo-randall-stephenson-on-promise-to-remain-ceo-through-2020.html?&qsearchterm=randall%20stephenson

    Coronavirus is less deadly than SARS — but that also explains why it’s so contagious – MarketWatch

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    Two months into the epidemic, the coronavirus has not proven to be as deadly as the SARS virus. That, however, may also help explain why it’s spreading so quickly. It has an incubation period of up to two weeks, which enables the virus to spread through person-to-person contact.

    The coronavirus, a highly contagious, pneumonia-causing illness that infects the respiratory tract, is now responsible for 213 deaths in China as of late Thursday and 9,692 infections worldwide, according to Chinese officials and official figures from the World Health Organization.

    SARS, or severe acute respiratory syndrome, infected 8,096 people worldwide with approximately 774 official SARS-related deaths; most of those infections occured during a nine-month period from 2002 to 2003. Even with 43 new fatalities reported over 24 hours, the fatality rate remains steady.

    SARS had a fatality rate of 9.6% compared to the fatality rate of 2.2% for the coronavirus.

    SARS had a fatality rate of 9.6% compared to the fatality rate of 2% for the coronavirus. However, that death toll could rise as the weeks progress, and drug companies scramble to come up with a vaccine for the virus. Whether the fatality rate remains steady has yet to be determined.

    — Read on www.marketwatch.com/story/coronavirus-is-less-deadly-than-sars-but-that-may-explain-why-its-so-contagious-2020-01-30

    Buy the dip in stocks and then sell the rip higher – Bank of America

    That’s the strategy that strategists at Bank of America Securities appears to be espousing for investors, amid swings in U.S. stock benchmarks that have become increasingly gut-wrenching in the aftermath of a coronavirus outbreak in China that appears to be giving bullish investors at least a momentary pause after a record-setting rally.

    For the week, the S&P 500 index and Dow are on track for a more than 1% loss, and the Nasdaq is on pace for a 1.2% drop, after Chinese authorities on Thursday said that more than 7,700 people have been infected with the Asian influenza, with at least 170 dead. Moreover, the Centers for Disease Control and Prevention confirmed the first case of person-to-person spread of coronavirus in Illinois. There are now six confirmed cases of coronavirus in the U.S., two of which are in Illinois

    9 Nuggets Of Rock-Solid Advice For Retirement-Age Clients | Seeking Alpha

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    Summary

    Investing in retirement is not a static activity.

    It requires keeping up with and adapting to changes as we help our clients navigate the shifting investing landscape in the years ahead.

    There will surely be plenty of surprises. Why not help our clients proactively prepare for them?

    “If we collect a rock a year, by the time I’m ready to retire, we’ll have a lot of rocks.” – Michael Maslin, The New Yorker

    Collecting rocks is not a great retirement strategy. But planning years ahead of time is. We are fortunate to work with clients who have had the foresight and discipline to save early and accumulate sufficiently large nest eggs for retirement.

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    Stocks Have Outperform Other Asset Classes

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    For the next decade, which asset class among stocks, bonds, real estate, cash, gold/metals, or bitcoin/cryptocurrency, would be the best vehicle to invest money for the highest long-term total returns?

    Since 1890, the S&P 500 (or its predecessor indexes) has outpaced inflation at a 6.3% annualized rate (when including dividends). Long-term U.S. Treasury Bonds have produced an annualized inflation-adjusted total return of 2.7%. Finally, U.S. real estate has produced an annualized return above inflation of just 0.4%, as judged by the Case-Shiller U.S. National Home Price Index and the consumer-price index.

    Yet, the U.S. stock and bond markets are currently overvalued, and it is plausible that real estate will do better than either stocks and bonds over the next decade.

    According to almost all standard valuation metrics, U.S. equity stocks currently are somewhere between overvalued overvalued. Furthermore, you can only partially explain away this overvaluation because of low interest rates.

    Given stocks’ overvaluation, it’s entirely possible that stocks will over the next decade have the potential to fall short of their historical averages.

    To the contrary, real estate has been relatively undervalued and historically less volatile than the stock market—a lot less as measured by the standard deviation of annual returns.

    As a result, real estate has proven to be less riskier than equities. Yet, the misperception that real estate is riskier has been derived from the leverage typically used when purchasing real estate adds inherent risk to investing in real estate. Essentially, the risk for real estate comes from the leverage, not real estate inherently.

    If there is a major stock bear market in the next decade, real estate might be the better investment just because of it’s lower risk and relatively undervalued.

    Sources:

    1. https://www.marketwatch.com/story/the-single-best-investment-for-the-next-decade-2019-08-08
    2. https://www.marketwatch.com/story/stock-bulls-are-telling-themselves-a-lot-of-lies-about-this-market-2019-06-04