Archives for November 1, 2018

GE stock dips into single-digit territory as fear of the unknown trumps hope

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One analyst says there is too much uncertainty to buy the stock, another says things are so bad they have to get better

Shares of General Electric Co. fell for a sixth straight session Wednesday, hitting single-digit territory in intraday trade, as fear of the unknown appeared to overshadow hopes that things have gotten so bad they have to get better.

The stock GE, -0.79% tumbled as much as 3.7% to an intraday low of $9.80 early in the session, before paring losses to be down 0.8% in afternoon trade, and to be on track for the lowest close since March 31, 2009. The stock has tumbled 20% during its losing streak, highlighted by the 8.8% plunge on Tuesday in the wake of disappointing earnings, a dividend cut and the disclosure of expanded accounting probes by regulators.

Analyst Nicole DeBlase at Deutsche Bank reiterated the hold rating she’s had on GE since July 11, when she upgraded it from sell, but cut her price target to a new low of $11 from $13.

She said while many were waiting for “kitchen sink” 2018 guidance in GE’s quarterly report and post-earnings conference call, especially since the earnings release was delayed a week and there’s only two months left in the year, investors were left with “more questions than answers.”

Rather than provide a range of expectations for free cash flow or adjusted earnings per share, Chief Financial Officer Jamie Miller only said GE will “significantly miss” its targets. DeBlase said the dividend cut was in line with expectations, but the trajectory of GE’s struggling power business remains a “black box.”

In other words, “we do not see enough upside to recommend the stock,” she said, as near-term risks currently outweigh the potential longer-term reward.

But being bullish or bearish is in the eye of the beholder, as that uncertainty is one reason Steven Winoker at UBS turned bullish on GE: “We think peak uncertainty has been reached and expect forward corporate event catalysts and portfolio moves to improve visibility and to strengthen the balance sheet,” he wrote in a note to clients.

Winoker raised his rating to buy, after being at neutral for about a year, while keeping his stock price target at $13.

The primary reason for the upgrade, Winoker said, is the belief—or is it hope?—that new Chief Executive Lawrence Culp can lead a turnaround in the business: “Let’s be clear. Larry is key to our upgrade.”

He also said with the stock falling so far, the reward-versus-risk profile had turned favorable, with downside risk in the stock to $8, or about 21% below current levels, and upside potential to $17, or about 68% above current levels.

Meanwhile, Moody’s Investors Service downgraded GE’s long-term credit rating by two notches to Baa1, which is just three notches above “junk” territory, from A2, and cut the short-term rating to P-2 from P-1, as the weaker-than-expected performance of GE Power can just be blamed on a drop in demand and heightened competition, but also on GE’s “misjudgment of financial prospects and operations missteps.”

The credit downgrade comes about a month after S&P Global Ratings also cut GE’s credit by two notches to three notches above junk.

GE’s stock has tumbled 26% over the past three months, while the Dow Jones Industrial Average DJIA, +0.97% has slipped 0.6% and the S&P 500 index SPX, +1.09% has lost 3.2%.

Dollar logging best month since May as euro tumbles 2.5% in October

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Major currency pairs saw trading stabilize early Wednesday, as investors waded through economic data from the eurozone, China, and the U.S.

The data calendar included eurozone consumer price inflation, which met expectations with a 2.2% increase on the year, and China’s October manufacturing purchasing managers index, which slowed to 50.2, versus 50.6 expected. A PMI above 50 indicates growth, and the October read indicated that growth in activity is nearly flat.

“Chinese markets performed well overnight while the yuan continued to flirt with the seven handle against the dollar. This is seen by many as being a psychologically important level for the currencies, a break of which could propel it much further, potentially causing further tensions between the two countries,” wrote Craig Erlam, senior market analyst at Oanda, in a note.

The U.S. dollar was slightly stronger versus China’s yuan, buying 6.9758 yuan USDCNY, -0.3569% in Beijing, and 6.9775 yuan USDCNH, -0.2982% in the offshore market.

The euro EURUSD, +0.3890% edged was down at $1.1315 versus $1.1347 late Tuesday. For the month, the shared currency is down 2.5%.

In the U.S., traders focused on private-sector payrolls, which came in at 227,000, more than expected. The September read had meanwhile been reduced to 218,000 from 230,000.

The ICE U.S. Dollar Index DXY, -0.30% was last little changed at 97.134. On the last trading day of October, the gauge is looking at a 2.1% monthly gain, its best performance since May, according to FactSet.

Meanwhile in the U.K., the British pound GBPUSD, +0.8068% shot higher after a letter by chief Brexit negotiator Dominic Raab was published in which he said he expected to reach a deal with the European Union by Nov. 21. Sterling last bought $1.2766, up from $1.2707 late Tuesday in New York. For the month, the pair, also known as cable, was down 2%.

Elsewhere, the Bank of Japan left its monetary policy unchanged late Tuesday but scaled back the number of days on which it will buy shorter dated bonds while increasing the amount it can buy. The BOJ is widely considered the most dovish among developed world central banks, and with Japanese inflation running solidly below the 2% annual target, its easy-monetary-policy approach isn’t expected to change soon.

Versus the U.S. dollar, the Japanese yen USDJPY, -0.15% was slightly stronger on Wednesday, with one buck buying ¥113.03, down from ¥113.12 late Tuesday in New York. On the month the dollar slipped 0.6% versus the Japanese currency, which tends to benefit from the risk-off market sentiment that was present for much of October on the back of volatile stock market performances.

Why You Haven’t Saved Enough for Retirement: 5 Excuses Financial Planners Hear

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WHILE EVERYONE KNOWS it’s important to save for retirement, not everyone heeds that well-worn advice. Data suggests that many Americans have saved little or nothing for their golden years.

In fact, Northwestern Mutual’s 2018 Planning & Progress Study, which surveyed 2,003 adults, found that 21 percent of Americans have saved nothing for retirement, and one-third of adults have less than $5,000 saved for retirement. Fortunately, the news isn’t all bleak: 25 percent of participants reported having $200,000 or more saved, according to the survey.

Why aren’t more Americans looking to pad their retirement funds and improve their long-term financial situation? Here are the top excuses financial planners hear – and how to take action and set yourself up for long-lasting success, freedom and comfort in retirement.

Excuse No. 1: ‘I’m waiting for things to get better.’ Michael Tanney, co-founder and managing director of Wanderlust Wealth Management, a New York City-based investment advisory firm, says that he often listens to this excuse from clients, along with, “I’ll invest my money after (insert any excuse).”

The long list of justifications people make for neglecting to save for retirement are understandable. People get overwhelmed with bills or financial stress and choose not to focus on long-term goals like saving for retirement or boosting their kids’ college funds until their money situation improves, or after a major life change like moving into a new home.

The problem with this thinking is when people “get caught in a compound lifestyle inflation situation,” Tanney says. “For every dollar more they earn, they spend the extra dollar on an increased lifestyle.” In other words, if you get a raise, and you don’t put some of that money toward retirement or general savings, you’ll never get ahead, he explains. While there’s nothing wrong with using some of that windfall to make your life more comfortable, “hopefully, you continue to make more, continue to live better and continue to put more away for your future self.”

Excuse No. 2: ‘I’m not sure what I should prioritize.’ According to Walker Hays, a chartered retirement plans specialist, certified plan fiduciary advisor and managing director at B. Riley Wealth Management in Memphis, Tennessee, people often feel torn about how to prioritize important financial decisions. People tend to debate whether it’s most advantageous to pay down student loan debt, establish an emergency savings account, eliminate credit card debt, save enough for their kids’ college fund or pad their retirement savings first.

“The easiest decision or reaction is to just do nothing, since retirement seems to be the furthest off in time,” Hays says. It’s a real dilemma because arguably those goals are all important. But as Hays puts it, “Saving any small amount is better than doing nothing. If we can get someone to start at 1 percent, we may encourage them to increase their contribution annually when they see us,” he says.

Excuse No. 3: ‘I have too much debt.’ Drowning in debt is a genuine problem for some people, who “get to where they can barely, or can’t, pay the minimum payments on their debt payments, much less have any money to put into savings,” says Beverly Miller, a money coach in Pittsburgh.

But she points out that people put themselves in these messes because of their lackluster spending habits. “Many start out saddled with huge student loans, then buy a new car, or two, and a house and in no time are in deep trouble,” she says.

The solution for not allowing your present debt situation to deter your long-term savings strategy is simple: Trim your budget so that you spend less and put away money you earn into a retirement account. “No matter the income level, most people live way beyond their means,” she says.

Excuse No. 4: ‘I don’t need to save or save much. I’m going to work until I die.’ David Zavarelli, a certified financial planner with LPL Financial, a financial services company in Danbury, Connecticut, says he hears this excuse often.

“While people will indeed work and live longer in the future, we often see people laid off or downsized when they work in their later years. They are more expensive than a young person. Sometimes people are just too unhealthy to work in their late years.”

In other words, this mindset isn’t a smart rationale for holding off on putting money away for retirement. And if something does happen, such as your health failing, or you simply decide you want to work less or not at all, you may have to dial back your lifestyle, which can be tough for a lot of people, Zavarelli says. “What is far more common is people maintaining their lifestyle in retirement and in the early years they sometimes spend more than they did when they were working,” he says.

Excuse No. 5: ‘I’ll get around to it. I have plenty of time.’ Even if you have many years left before retirement, you’re losing money by delaying putting aside money annually for your golden years. Timothy Wiedman, a retired professor who taught classes in personal finance and retirement planning at Doane University in Crete, Nebraska, and is based in Ionia, Michigan, is sympathetic. He says he didn’t understand the importance of compound interest at a young age. He offers this example to show how losing time can mean a lot of lost money: “If a 23-year-old (who is) fresh out of college puts $3,000 per year into a Roth IRA that earns a 7.8 percent average annual return, forty-four years later at retirement, that $132,000 of invested funds – $3,000 per year times 44 years – will have grown to $1,009,275.”

Conversely, starting the same Roth IRA 20 years later and investing $132,000 for the next 24 years (if you put in $5,500 every year), with a 7.8 percent average return, you would earn $357,167, he explains. “The delayed start will have cost that investor more than $652,000.”

Zavarelli has seen clients squander time and money, and it isn’t pleasant to picture their future. He says he once worked with a married couple that made $650,000 per year. “They were in their mid-forties and had a total of $90,000 saved for retirement,” he says, noting that the couple simply didn’t feel any urgency to save more. On the bright side, “They did have a huge and beautiful house, the nicest cars, great clothes and jewelry,” he says. But he fears that couple will have a problem someday, if they want their retirement to match the lifestyle they led when they were working.

“There are some who simply lack the cash flow to save, but what’s surprising is how many people who make well over $100,000 (and) aren’t saving anything,” he says.

3 Important IRA Moves to Make This Year

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If you’re saving in an IRA, you’re already doing your part to secure a financially sound retirement. And if you’re retired with an IRA, you no doubt know what a critical role that account plays in helping you manage your finances. That said, there are steps you can take to help ensure that your IRA serves you well both at present as well as in the future. Here are three to focus on.

1. Max out

The more you’re able to contribute to your IRA, the more money you stand to retire with. But maxing out your IRA can also have a huge impact on your present-day finances, provided you’re saving in a traditional account as opposed to a Roth. That’s because traditional IRA contributions can be deducted from your taxes so that you’re paying the IRS less money any time you fund your account.

Currently, the maximum annual contribution for an IRA is $5,500 if you’re under 50, or $6,500 if you’re 50 or older. So what does that mean for your taxes? Let’s assume you’re 40 and hit the $5,500 max. If your effective tax rate is 25%, you’ll shave $1,375 off of your 2018 tax bill by diverting as much money as possible to a traditional IRA. And that’s not a bad deal.

Furthermore, maxing out your IRA on a yearly basis could work wonders for your nest egg over time. Let’s assume that the annual contribution limits won’t change over the next 30 years (an unlikely scenario, but let’s run with it). If you’re 40 and contribute $3,600 annually to your IRA between now and age 70, you’ll wind up with $340,000, assuming your investments generate an average annual 7% return during that time. However, if you max out at $5,500 for the next 10 years, and then at $6,500 for the following 20, you’ll retire with over $560,000. Talk about a game-changer. And that’s precisely why it pays to max out your IRA this year — to get the ball rolling on a very wise habit.

2. Take advantage of catch-up contributions

The average IRA balance reached $106,000 earlier this year, according to Fidelity Investments. Now, if you’re 35 with that amount of cash socked away, you’re in pretty good shape. But if you’re 55, you have some catching up to do — in which case it pays to take advantage of that $1,000 catch-up contribution.

Let’s assume you’re 55 with $106,000 in savings and your goal is to retire at 70. Let’s also assume that you’re currently saving $5,500 a year. If you continue on that road for 15 more years, your IRA balance will grow to about $431,000, assuming the average annual 7% return we implemented above. But if you increase your yearly contributions to $6,500, you’ll retire with closer to $456,000. And make no mistake about it: That extra $25,000 will come in quite handy when you’re older and limited to a fixed income.

3. Take your RMD

Unless you have a Roth account, the money in your IRA can’t just sit there forever. Rather, you’re forced to take required minimum distributions, or RMDs, every year beginning the year after you turn 70 1/2.

Your yearly RMD will be a function of your account balance coupled with your life expectancy, and unfortunately, once you withdraw funds from your traditional IRA, you’ll be on the hook for taxes on whatever sum you remove. Failing to take that RMD, however, comes with an even worse consequence — a 50% penalty on the amount you neglect to remove. This means that if you’re looking at an RMD of $8,000 and you don’t take it in time, you’ll lose $4,000 off the bat. Ouch.

That’s why you must make sure to take your RMD before you run out of time. You have until Dec. 31 of this year to complete your 2018 RMD, so if you’re worried you’ll get busy around the holidays and forget, withdraw those funds now.

Your IRA can help your finances immensely both now and in the future. And if you’re smart about managing it, it’ll do just that.

Should Workers Be Paid for Time Spent Commuting?

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Commuting to work has generally been considered a necessary evil. You have to get to the office somehow, and time spent in your car, on the train, taking the bus, or using whatever transportation you use has long been something workers have had to put up with.

The average worker spends 26 minutes commuting according to a recent Washington Post article. That’s time that people may spend working — especially workers using public transportation — but it’s not time workers get paid for. That’s something that a new study of 5,000 British commuters suggests may be a mistake.

“According to this new research, when Wi-Fi is available to commuters who are traveling by bus or train, these employees use their devices to accomplish work tasks and prepare for their work day,” said Employco USA President Rob Wilson in a press release. “As a Chicagoan, I have seen this firsthand, as many hard-working individuals taking the El, the Metra or the bus often log-in and start accomplishing work tasks before they even set foot in the office.”

Many people work while commuting even though they are not paid for the time.

What is work?

While many companies allow employees to work from home, most do not consider time spent commuting work hours, even if the time is spent working. That’s not in line with how many employees treat their time commuting according to the study.

“If travel time were to count as work time, there would be many social and economic impacts, as well as implications for the rail industry,” said Juliet Jain, one of the professors who conducted the study. “It may ease commuter pressure on peak hours and allow for more comfort and flexibility around working times. However, it may also demand more surveillance and accountability for productivity.”

Basically, if people are working, the time spent doing so should count as work even if it’s during a commute. That would require a pretty major shift in thinking for American businesses, but it might help lessen a pain point that has been costing businesses workers.

Nearly a quarter of American workers (23%) have left a job because of a commute according to a survey from global staffing firm Robert Half. The problem is worst in Chicago, Miami, New York, and San Francisco — major cities where public transportation is an option.

What can be done?

In a market where leverage has shifted from employers to employees, companies should consider measuring time spent working rather than time spent sitting at a desk. It’s really a question of valuing productivity over the traditional time clock mentality.

People don’t like commuting largely because it feels like wasted time. If a company can turn that time into hours that count, workers likely won’t feel that way. Happy workers will be less likely to leave their jobs, and that’s something that has become very important during the current period of low unemployment.

Surprise! Debit Cards Have Fees

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Most consumers know that credit cards can come with fees other than interest charges applied to balances. Annual fees, late payment fees, balance transfer fees, cash advance fees, foreign transaction fees … the list goes on.

Did you know that debit cards could have fees as well? If not, don’t feel bad. In a recent survey by Lexington Law, over one-third of Americans (37%) were unaware that debit cards may charge fees.

Debit card fees may include PIN charges (fees for using your PIN in a debit transaction), processing fees for using out-of-network ATMs, international fees for using your debit card outside the U.S., and overdraft fees for a debit transaction without sufficient funds in your account.

The good news: banks must disclose these fees upfront in the terms and conditions of your debit card account. The bad news: most people don’t read the terms and conditions.

Overdraft/insufficient funds fees are the most common fees charged to debit cardholders – making up about three-quarters of all checking account fees at an average cost of $250 per year, according to a 2014 report by the Consumer Financial Protection Bureau (CFPB).

Overdraft fees are often triggered by small debit card purchases (a median $24 according to CFPB data). Some people who incur overdraft fees don’t learn from their mistakes, as only 8% of bank customer’s account for 75% of overdraft fees.

People may not realize that debit card transactions are limited by what’s in the corresponding checking and savings account. Perhaps they forget that debit card transactions are immediate. Maybe they have overdraft protection and don’t realize there are charges involved. Whatever the reason, the Lexington Law survey suggests that consumers don’t understand exactly how debit cards work – and may not be paying attention if they do.

The Lexington Law survey uncovered other misconceptions about debit cards and how they differ from credit cards. Half of Americans believe that debit card transactions affect their credit score. Since you aren’t borrowing money with debit cards – you’re paying with funds from your checking or savings account – there’s no credit involved at all and no effect on your score. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.

Confusion may stem from many card readers offering a “Debit” or “Credit” option when processing your debit card. You aren’t borrowing money in either case. The funds still come from your account. All that choice does is affect how the charge is processed.

Choosing debit routes your payment through an electronic funds network and the withdrawal is quickly reflected in your account balance. Choosing credit routes the payment through the credit card networks, adding another processing step and increasing the time it takes for withdrawal from your account.

There is one exception to the borrowing rule with debit cards. If you authorize overdraft protection, your debit card won’t be rejected if you spend more than you have in the account. The bank is temporarily lending you money to cover the difference (along with possibly charging overdraft fees).

If you do overdraw in that case, you’ve agreed to let your debit card access a line of credit – and this activity can slightly alter your credit score. However, most survey respondents probably didn’t know that when they assumed debit cards affect credit scores – they were likely thinking of typical debit card transactions.

Know the difference between debit and credit cards to avoid financial pitfalls and unwanted fees – for example, the timing of withdrawals and charges, and how they affect your cash flow. Why give a bank or a credit card company any extra money in unnecessary fees?