Archives for May 27, 2019

Weekly Market Review: May 26, 2019

by

Stock Markets

The fact that US stocks finished the week lower seems to weigh on concerns that U.S. trade tensions with China are expected to be prolonged. The broad sentiment across economic reports suggest that global growth is showing signs of slowing. Lower oil prices pushed energy stocks down, but utilities came back to lead advancing sectors. This is a “normal” seasonal shift since it’s common for sector leadership to alternate from over time. For investors, this reinforces why it’s important to ensuring your portfolio is diversified across different sectors with variations in risk.

U.S Economy

The US economic figures are continuing strong; perhaps the strongest we have seen to date. A snapshot of the key figures tells the story pretty well. The US is about to tally the longest economic expansion yet. Based on current figures, the streak of positive U.S. GDP growth will pass the 1990s expansion to become the longest on record in June. As for unemployment, the country is at a 50-year low. At 3.6%, the unemployment rate has fallen from 10% a decade ago to its lowest level since the late 1960s. The US markets are on their second-best all-time bull market. In the current run, the market has gained more than 400% from its lows in 2009. The only previous bull market to overtake this stretch was the 1987-2000 run that was both the longest and strongest.

Actions by The Fed

The US Fed continues to help moderate the markets as it has for nearly a decade. Despite tariff war worries, geopolitical issues and global uncertainties, the Fed has stayed steady. What was a late-2018 sell-off then became a strong 2019 rally thanks mostly to the Fed’s pivot to a more friendly position on interest rates. The release of the Fed’s recent meeting minutes last week proved that the U.S. central bank is holding off on additional rate hikes for the immediate future. Since the economy is growing modestly with low inflation, the Fed’s policy makes sense. But because the market that has gotten used to the Fed’s defensive position, any policy shift viewed as a negative could be a potential market risk. Investors then are eyeing allocation to some bonds as a good defense. 

Metals and Mining

It wasn’t a great week for gold bugs, as the gold market has essentially given up all its earlier gains and is preparing to end the session at a near a two-week low. The week started out positive week for gold as investors moved into safe-haven assets likely due to the across-the-board 2% drop in equities. But that was short lived with gold prices looking to end the week down nearly 1% since last Friday. June gold futures last traded at 1275.90 an ounce. Certainly, some bears are pushing the renewed bearish sentiment for the precious metal expecting that the momentum of strong equities could push prices to a new low for the year in the near-term. Platinum made small gains on Friday after reaching its lowest level since February 15 and palladium made the most gains on Friday, ticking up over 1 percent and once again entering into US$1,300 per ounce territory.

Energy and Oil

Natural gas has been inching higher as above normal temperatures are coming into view. Ending the week, crude oil settled 11 cents lower at $62.76 as OPEC considered easing production cuts amid escalating Middle East tensions. Equity markets finished the session on a down note as investors were reluctant to push stocks higher with uncertainty surrounding trade negotiations. Analysts believe natural gas will likely remain locked in a narrow trading pattern as strong production and mild temperatures chip away at the global storage deficit.

World Markets

Trade worries are certainly front and center for global markets. Negotiations have stalled and the threats of additional retaliatory tariffs between the US and China are in play again. Last week’s U.S. manufacturing and durable goods orders indicate that activity slowed recently. This has again increased fears that trade turmoil is beginning to show up in the entire economy. When U.S.-China trade tensions escalated in 2018, markets absorbed sharp sell-offs and enjoyed serious rallies. The same has occurred as of late, possibly linked to some positive signs on broader trade with the U.S. dropping retaliatory tariffs with Canada and delaying auto tariffs with the EU. Manufacturing and trade are important, but they are not the central driver of U. GDP. That number is driven by consumer spending. As an important side note, the British pound fell against the U.S. dollar but rebounded slightly after embattled UK Prime Minister Theresa May announced that she would resign on June 7 given her inability to get her Brexit deal approved by the British Parliament.

The Week Ahead

The coming week will be shortened by the Memorial Day holiday in the US. Look for second-quarter gross domestic product (GDP) which is slated for Thursday, and both consumer spending data and the University of Michigan Consumer Sentiment Index will be released on Friday.

Key Topics to Watch

  • US – China Trade
  • 2nd Quarter GDP
  • Consumer Spending Data
  • Consumer Sentiment Index

Markets Index Wrap Up

Microsoft AI creates realistic speech with little training

by

It works in part like the human brain.

Text-to-speech conversion is becoming increasingly clever, but there’s a problem: it can still take plenty of training time and resources to produce natural-sounding output. Microsoft and Chinese researchers might have a more effective way. They’ve crafted a text-to-speech AI that can generate realistic speech using just 200 voice samples (about 20 minutes’ worth) and matching transcriptions.

The system relies in part on Transformers, or deep neural networks that roughly emulate neurons in the brain. Transformers weigh every input and output on the fly like synaptic links, helping them process even lengthy sequences very efficiently — say, a complex sentence. Combine that with a noise-removing encoder component and the AI can do a lot with relatively little.

The results aren’t perfect with a slight robotic sound, but they’re highly accurate with a word intelligibility of 99.84 percent. More importantly, this could make text to speech more accessible. You wouldn’t need to spend much effort to get realistic voices, putting it within reach of small companies and even amateurs. This also bodes well for the future. Researchers hope to train on unmatched data, so it might require even less work to create realistic dialogue.

The Surprising Reason Younger Workers Aren’t Saving for Retirement

by

Setting funds aside for retirement isn’t a directive aimed solely at older workers. Quite the contrary: Younger workers are also advised to contribute steadily to their IRAs or 401(k)s to give their money the maximum time to grow.

Unfortunately, younger adults have a knack for making excuses as to why they’re not saving. Some blame their student loan payments, and the fact that they monopolize too much of their income. Others blame stagnant wages coupled with rising living costs. But these days, a growing number of young adults are neglecting their nest eggs for a different reason: They’re convinced the planet is doomed.

Is climate change to blame for absent savings?

An estimated two-thirds of millennials have no money set aside for retirement. But for some, that lack of savings is intentional. Those who fear the planet is in trouble may be more prone to neglect their savings due to serious doubts about their ability to physically thrive in the future.

Not convinced? Consider this: An estimated 72% of millennials say that their emotional well-being is impacted by the scary direction climate change is taking, according to a 2018 report from the American Psychological Association. Meanwhile, only 57% of adults over 45 suffer from similar anxiety.

Of course, there’s no telling what climate change will ultimately have in store for millennials, or our planet, over the course of the next century. But one thing is for sure: If younger workers don’t start saving, they won’t have much to look forward to in retirement, regardless of how well the planet is faring at that point.

Let’s not give up on the future

Though climate change is a scary notion, retiring without savings to pay the bills is an equally frightening prospect, especially since Social Security can’t sustain seniors by itself. Fortunately, if there’s one thing millennials have going for them, it’s time, which means that those starting out with absolutely nothing in the way of savings still have ample opportunity to catch up.

Check out the following table. It illustrates how a series of modest retirement plan contributions can really add up over time when invested efficiently:

Monthly Retirement Plan ContributionTotal Accumulated Over 40 Years at a 7% Average Annual Return
$200$479,000
$300$719,000
$400$958,000
$500$1.2 million
$600$1.43 million

Now, the 7% average yearly return used above is a reasonable assumption for savers with a stock-heavy portfolio, since it’s a couple of percentage points below the market’s average. Anyone with a 40-year savings window should feel reasonably comfortable loading up on stocks and using them to generate wealth.

Of course, it’s hard to push oneself to save when thoughts of the future are overwhelmingly bleak. But rather than give up hope, millennials should instead aim to strike a reasonable balance between enjoying life today and securing a solid income stream for their golden years. If lawmakers crack down, changes ensue, and our planet thrives despite all dire predictions stating otherwise, today’s younger workers are going to have a major money problem on their hands when they make it to old age and realize they still have several decades to go.

Do This to Unlock Career Opportunities

by

Opportunity isn’t always linear.

Sure, sometimes you move up or advance your career based on working hard, waiting patiently, and being the next person in line. In many cases, however, the best chances and opportunities come to people who put themselves in a position to succeed.

That means doing one simple thing: saying “yes” as often as you can. Be generous when it comes to helping out, sharing your knowledge, and helping others succeed.

Being open and saying yes can lead to opportunity. Image source: Getty Images.

What does saying “yes” mean?

It’s important to not get walked on but also to be agreeable and excited. That means saying yes to working on new projects, sitting in on a meeting where your knowledge might add something even when it’s not exactly your job, and generally being open to helping.

Doing this isn’t about any short-term gain. You may not get paid extra for your time, and in many cases, your help won’t result in any direct benefit to you. That’s not the point. It’s not a quid pro quo situation; it’s about building a reputation as being someone who works to help others succeed.

You want your company to think of you as a go-to person — someone who has helped so many people that your name can’t be ignored. There’s no exact way to do that, though; it’s mostly about being sincerely and enthusiastically helpful.

Build a reputation as being someone who’s always down for an adventure. That might mean hashing out a new project or volunteering for something nobody else wants to do. You’re not trying to be a doormat, but you will be lending a hand where needed and being a team player as often as possible.

Saying yes opens doors. It exposes you to areas outside your job description. You might get to meet new people, work on new ideas, or build up personal equity with people across the company.

It’s an attitude

You never know what experience will lead to something new. Once, I did consulting on a digital book project for a friend of a friend, which led to me spending a year as the executive director of a group of rock band summer camps.

That path clearly was not linear, and that has happened to me a lot in my career. I tend to approach things with the attitude of “How would I feel if I asked someone to do this?” If my answer is “I’d really like their help or involvement,” I almost always say yes.

Think of every action you undertake as building goodwill and filling a reserve. You may never need all that goodwill to pay off, but it’s there — an asset that you earned.

The payout may not be direct, but just having people think well of you is a reward of sorts. Once they do, however — and you can’t fake this; it only works if you’re truly sincere — chances are opportunities will develop. By being open, helpful, and agreeable, you make yourself someone people want to work with. That’s a huge payoff even if it’s just in exposure to different opportunities and a chance to have closer work relationships.

If you say no enough, people stop asking. Say yes and you never know where it will take you.

Social Security and Medicare: Follow the cash to see how healthy they are

by

At last! A cause for celebration. Feel free to dance in the streets. April 22 was a great day for people hoping to live beyond 2034. The Social Security Trustees 2019 report told us that the program would remain solvent through 2035.

That’s an entire additional year!

Glass-half-full types such as Nancy Altman, president of Social Security Works writing for Forbes, reported this with joy.

Glass-half-empty observers reported the dim side. After 2035, they assured us, benefits would need to be cut by about 20 percent.

Either way, half-full or half-empty, there is no need for concern if you are 85 today.

For the rest of us, the prospects are less exciting. That’s a whole lot of people. More important, the difficulty with paying full benefits is going to be a problem long before 2035.

I have a suggestion. Don’t pay attention to the Social Security Trustees reports. Their reports, while valuable, are based on trust fund accounting.

The real action, as always, is in the day-to-day, year-to-year cash. Follow the money. Fortunately, as I’ve reported before, there is a way to do exactly that. It’s easy to find.

It’s in the Medicare Trustees report. More precisely, read Appendix F, “Medicare and Social Security Trust Funds and the Federal Budget.”

The trustees added this appendix to the fiscal 2003 report, and they’ve done it every year since. They compare how things look from a trust fund and federal budget perspective.

And guess what?

The federal budget perspective is very different from the trust fund perspective. The difference is that the federal budget perspective reflects actual cash flows. And that just happens to be how bills are paid.

How we got here

In 2003, Social Security had a $72 billion cash surplus for federal budget accounting. This was the difference between dollars in and dollars out. The trust fund reported a still-higher number, $155.5 billion. The $72 billion cash surplus nearly covered the entire cost of Medicare. So the net cost of Social Security and Medicare was a piddling $18.5 billion. Every other part of government, meanwhile, lost a whopping $356.3 billion.

Basically, the surplus in Social Security employment tax collections covered virtually the entire Medicare spending that Congress was committed to pay out of general revenue. Members of both parties loved it.

In fiscal 2018, Social Security showed a tiny $4.7 billion surplus in trust accounting. But the federal budget cash accounting was a cash loss of $79.2 billion. It was a continuation of the losses that began in 2010. Now, even the Social Security Trustees report foresees unending deficits beginning in 2020 as the $2.9 trillion of U.S. Treasury securities in the trust fund is spent down.

But there’s a problem with spending down that trust fund. It isn’t cash stuffed in a drawer. To raise the cash to pay the bills, Treasury securities will be redeemed. The usual way to do this is for the Treasury to borrow money in the open market. Basically, the entire $2.9 trillion trust fund is new borrowing that the Treasury will have to do between now and 2035.

Every year going forward, the cash cost of Social Security and Medicare is going to increase. Worse, the deficit for operating all other government hit a low in 2015. Then it was only $83.9 billion. That compares with a $354.5 combined cost of Social Security and Medicare in that year. Today, the deficit for all other government is rising steadily.

How steadily? The net deficit of all other government in 2018 was $405 billion, nearly five times what it was only three years earlier.

Combined, the two deficits brought the total government deficit to $779.1 billion, the highest figure since 2012.

What happens now?

So here we are, living in the best of all possible worlds. Anyone who can fog a mirror is employed. Pay is rising. Capital gains are bursting. Real estate is soaring. Even with the entire economy on hyperdrive, our government still runs a $780 billion deficit. What happens when less-happy days arrive?

Let’s hope it won’t be anything like the financial crisis of 2008-09. Back then, we went from a Social Security and Medicare cash accounting surplus of $80.1 billion to only $19.4 billion. And the deficit of all other government soared from only $67.3 billion to a staggering $1,214.7 billion between 2007 and 2009.

Following the money tells us that something will happen before 2035.

Is there a solution? You bet.

Will we get that solution? Not until both of our political parties pay attention.

Here’s how much a financial advisor costs

by

A financial advisor can help you manage your spending, savings, and investments more effectively, but of course, they’ll charge you for it.

And it could be worth the cost if you want to create a comprehensive budget or savings strategy, or if you’re too overwhelmed or confused by your money to plan for retirement or invest in the stock market. You probably don’t need a financial advisor if you want to know where to save money or invest a few thousand dollars (a robo-advisor may do the job just as well).

Financial advisor is a catch-all term that usually includes financial planners and investment advisors. It’s imperative to look for financial advisors who follow the fiduciary rule, meaning they operate in their clients’ best interest, and are fee-only. This means client fees are their only compensation and they don’t earn commission when you invest in certain funds or buy financial products (that would be a fee-based financial advisor).

Fee-only financial advisors typically charge clients in one of three ways, according to SmartAsset:

  1. If a financial advisor is managing your investments, they’ll charge a percentage of assets under management, or an AUM fee, usually between 1% and 2% of your investment portfolio.
  2. If you’re visiting with the advisor once or twice to create a financial plan or get advice, you may pay an hourly fee, usually between $100 and $300.
  3. If you’re looking for access to an advisor on a rolling basis — i.e. you want help implementing and maintaining your financial plan — you may pay a fixed fee, usually between $1,000 and $3,000.

You can call a financial planning or investment advisory firm directly to ask about their rates. For investment advisory firms with more than $25 million in assets under management, you can find exact fees in Part II of Form ADV— a document filed with the Securities and Exchange Commission detailing the firm’s operations. Some firms will link to the form on their website, but it’s also available through a search tool on the SEC’s Investment Advisor Public Disclosure website.

If you’re mainly looking for help managing your investments, a robo-advisor is often a cheaper alternative for small balances. Robo-advisors like Wealthfront, Betterment, and Ellevest set up and automatically rebalance an investment portfolio for you based on your goals and risk tolerance, and the annual management fee is just 0.25% of your account balance.

Some robo-advisors provide access to human investment advisors or financial planners for an extra fee. Robo-advisors can be a valuable tool for the average person with a long-term outlook who truly wants to “set and forget” their investments.