By Edward Leone Jr. CFP RFC DMD MBA
Contact Information: edleonedds@gmail.com 303-478-6793
These are very challenging times for many of us regarding what is the status of our economy and what are wise actions for investing and saving. Although the equity markets are still rising and in record territory, retail sales, wholesale sales, exports, durable goods and factory orders are dropping perhaps due to the strength of the U S dollar against other foreign currencies along with a scarcity of discretionary dollars which consumers can spend. Consumer activity after all represents 70% of economic activity. Car sales have seen zero growth since autumn of last year. Due to these observations, it appears to me that the Federal Reserve Bank’s monetary policy strategy will not change by very much in the near future. There may be a very mild increase in interest rates to come our way soon, but nothing drastic given the conditions in the economy and the employment situation.This creates a big problem for the Fed if the economy slides instead of continuing at its snail paced recovery due to the fact that interest rates cannot go lower than they are now. The Fed would have no monetary policy options. The only remedies available would involve fiscal issues which the Congress and the Executive have ignored up to now. It is my suspicion that the continued growth in equity markets is due to the fact that many corporations are buying back stock either with profit dollars or with borrowed dollars because of low-interest rates. This action creates higher earnings per stock share and higher dividend yields since there are less quantities of stock out there.
Much of the monetary activity we have experienced since 2008, has been designed to save the banking system by building reserves on their balance sheets to mitigate their business mistakes involving poor loan qualities, derivative activity and the engagement of credit default swaps along with CDOs with faulty credit ratings. This has increased the size of the Fed’s balance sheet and increased Federal debt. Many global central banks are now engaged in the same monetary strategies due to a concern over strength of foreign economies. Is it possible to avoid an event where the pooh hits the fan? We all know that China, Japan and Europe are facing such challenges.
For those in retirement or in the red zone and planning on entering that status soon, there are some new concerns over the potential to run out of money. Certainly the issue addressed above need to be assimilated into a successful retirement strategy. A new number from studies conducted for the Journal of Financial Planning tell us that a couple with average income will spend $395,000 on health care in retirement. The average price of a hip replacement is $40,300. Given my career exposures I have some thoughts on how to reduce these costs which I will share in future blogs.
One industry which in my view is suffering in performance to consumers and credibility of its products is the insurance industry. I am not talking about traditional whole life and term life products, but the invention of a variety of insurance “investment products” with suspicious illustrations on investment return and premium structure. I also have concern over the ability of some companies to maintain commitments on these type products. Watch out and seek expert help in making decisions on what is appropriate for you. Use a Certified Financial Planner and their working team to get where you need to go on so many wealth building issues.
For The Record:
DJIA 18,010.68
NASDAQ 5,070.03
S&P 500 2,107.39
Suggested Reading: “Fundamentals of Personal Financial Planning” By Jeff Mershon
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