The finances of the Social Security system and Medicare Part A (hospitalization coverage) are a mess. The trust funds backing up these two systems will be depleted in 2033 and 2024, respectively, according to a report issued last month. While these dates seem far in the future, the problem is like a snow ball rolling down hill. The longer Congress waits to fix the problem, the more drastic the measures required to fix it. Congress knows this, too. At the end of this year, after the elections, I reckon Congress will take a stab at fixing the problem by combining the following solutions: (1) pushing back the age for retirement benefits of today’s youth, (2) raising the highest income tax rate (currently 35% but keep in mind the highest rate equaled 92% in 1953 and the lowest equaled 28% in 1989); (3) raise Medicare tax rate from .7% on each the employer and the employee which will fix Medicare.
This week
Laurie will be joined by guest host Attorney Judith Harris who has over 25
years of experience in the areas of taxation, wills, trusts and estate
administration. They will discuss the following subject matter:
“Estate Planning and the Future
of the Estate Tax”
Laurie and
Judith will take your calls on these subjects and other financial planning
topics at 610-758-8810. This show will be broadcast at the regular time.
WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and,
it is broadcast on FM 93.9 in the Easton/Phillipsburg area; and, it is
broadcast on FM 93.7 in the Fogelsville/Macungie area – or listen to it online
from anywhere on the internet. For more information, including how to
listen to the show online, check the show’s website www.yourfinancialchoices.comand visit www.wdiy.org.
Each summer, Valley National employs at least one college student as an intern. This year, our intern is Samanthia “Sam” Hirsch. Sam is an accounting and finance major and will be a Senior in the fall at Saint Francis University (of Loretto) which is located midway between Johnstown and Altoona. She was an intern in the Johnstown office last summer. This year, in our Bethlehem main office, Sam will assist in accounting, analysis, and other administrative efforts.
Last week was another week of mixed economic reports – with more NEGATIVE developments than POSITIVE developments.
Below is a succinct list of last week’s events:
Positives:
1) Average duration of unemployment while still high, falls to 1 yr low.
2) Initial Jobless Claims end 3 week run above 380k and total 14k less than expected at 365k.
3) Institute of Supply Management manufacturing index surprises to upside, especially in light of regional weakness, at 54.8 vs 53.4 in March and estimate of 53. Best since June ’11.
4) Vehicle sales hang in above 14million for 4th straight month.
5) Q1 Home Ownership rate falls to 65.4%, back to the 57 year average, things normalizing, renting helps create more dynamic, mobile, flexible economy.
6) Royal Bank of Australia cuts rates an unexpected 50bps. Having conducted one of the most stable monetary policies (kept rates above rate of inflation) over the past 30 yrs, they have room to maneuver.
7) Spanish and Italian bond yields fall.
Negatives:
1) April Payrolls rise only 115k, 130k of which from the private sector. Participation rate falls to lowest since 1981, household survey declines as does size of labor force, average hourly earnings flat month over month and up just 1.8% year over year, still below the rate of inflation.
2) Institute Supply Management services in April falls to lowest since Dec at 53.5 vs 56 in March.
3) Retail comps in April miss expectations (could this be a weather give back?) .
4) Spain’s economy as expected officially back in recession.
5) German unemployment unexpectedly rises in April.
6) Euro zone manufacturing and services composite index revised to 6 month low.
7) United Kingdom manufacturing and services indices also fall to multi month low.
8) Euro zone Consumer Price Index up 2.6% year over year vs 2.7% in March, above estimate of 2.5% and higher than 2% European Central Bank target rate for 17 straight mo’s.
9) Spanish and Italian stocks trade lower again.
10) China’s Purchasing Managers Index services component falls to 3 month low and while mfr’g Purchasing Management Index up at best since Mar ’11, was slightly softer than expected.
Just like that, the “risk-on” trade was off last week, and stock prices fell more than 2%. Sentiment was decidedly more downbeat than might be expected in a week that saw the Dow industrials briefly touch their highest point since late 2007.
In a stark reversal of the previous week’s festivities, big stocks outperformed small-caps, as investors fled risk. Concern about continued mixed U.S. economic news—particularly Friday’s jobs data—gained the upper hand. Worry about the Sunday, May 6, elections in France and Greece also had some investors on edge.
The Dow closed Friday at 13,038.27, down 1.4%, or 190 points, for the week. On Tuesday, the index had reached 13,279.32, its high since Dec. 10, 2007. The Nasdaq gave up 113 points, or 3.7%, to 2956.34. The Russell 2000 small-cap index slid 4%, to 791.84.
Investors are worried that the deteriorating trend in economic data portends a sustained slowdown, says Steve Einhorn, vice chairman at Omega Advisors. For the most part, the market had been resilient until Friday, when it was “unable to swallow” the jobs numbers, he adds.
The Labor Department said April payrolls rose 115,000, some 45,000 fewer than expected. April was the third consecutive tepid month. Though the unemployment rate dropped to 8.1% from 8.2%, it was due partly to people dropping out of the workforce.
It’s no coincidence that the rally that began Oct. 4 has been confined over the past two months to a tight S&P 500 index range of 1350 to 1400. It’s constrained on the one hand by that string of continually bland economic reports, particularly on jobs, but supported on the other by strong corporate profits.
Einhorn argues the market is wrongly interpreting the data as a sustained slowdown. Instead, he says, the less strong numbers are a consolidation after much higher-than-expected improvements last winter, caused in part by much warmer weather.
Even so, investors don’t like the idea of consolidation as much as they do expansion. Steadily improving jobs data would be a recipe for the resumption of stock gains.
The European elections seem far away, yet they can still cause market mayhem. Jeffery Saut, chief investment strategist for Raymond James, says that if Sunday’s votes and others that follow in June give markets the idea that agreed-to sovereign-debt deals might be watered down, then it could be a long hot summer.
Longer term, stock investment continues to be warped by the Fed’s low interest-rate policies. Nicolas Colas of ConvergEx points out in a recent report that a $1 million investment in three-month Treasuries returns just $200 (Source: Barrons Online).
Last week, U.S. Stocks and Foreign Stocks decreased and Bonds
increased. During the last 12 months, BONDS outperformed STOCKS.
Returns
through 5-4-2012
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds-
BarCap Aggregate Index
.3
1.7
7.5
7.0
6.4
5.7
US
Stocks-Standard & Poor’s 500
-2.4
9.6
3.8
17.3
.3
4.5
Foreign
Stocks- MS EAFE Developed Countries
-2.5
5.1
-16.7
7.0
-8.0
2.4
Source: Morningstar
Workstation. Past performance is no guarantee of future results. Indices
are unmanaged and cannot be invested into directly. Three, five and ten
year returns are annualized excluding dividends.
It was a tough loss yesterday in the “Battle of Pennsylvania” when the Philadelphia Flyers eliminated the Pittsburgh Penguins in National Hockey League playoffs. I think the Penguins have an outstanding team with plenty of talent. But, the Flyers have had great success against them. We need to attribute a great deal of their success to Philadelphia’s coach and General Manager. I wish the best to the Flyers and I hope they carry the Stanley Cup back to Pennsylvania!
Last week was a good week for economic reports as POSITIVE developments
exceeded NEGATIVE developments
Below is a succinct list of last week’s
events:
Positives:
1) German business confidence index and investor economic confidence index showed improvement.
2) Spain sold 12 mo, 18 mo, 2 yr and 10 yr debt successfully, yields hold steady near highest since December.
3) UK retail sales and jobs data both better than expected.
4) US Retail Sales in March broad based and above estimates but core figure ex auto’s, gasoline and building materials were touch light.
5) Housing construction permits rise to most since Sept ’08 led by multi family housing.
6) Refinancing applications rise to 5 week high as mortgage rates drop near lows again.
7) Brazil and India both cut interest rates as focus more on growth than inflation.
8) Shanghai index closes at 5 week high on growing speculation of another Reserve Requirement Ratio cut.
9) Positive for Japanese exporters as yen weakens after Bank of Japan deputy Gov says they will print all the yen it takes to get to 1% inflation.
Negatives:
1) While Spanish yields flat on week, Credit Default Swap rate rises to record high, the Spanish IBEX stock index trades near lowest since Mar ’09, Italian 10 yr rises to just shy of highest since Feb, Italian and French Credit Default Swap at most expensive since Jan
2) Initial Jobless Claims again surprises to upside, 4 week average rises to most since Jan
3) Existing Home Sales, Starts and National Association of Home Builder’s builder survey all below expectations
4) Purchase applications fall to 6 week low
5) NY and Philly manufacturing surveys fall but components mixed
6) Industrial Production flat month over month
7) China says home prices fall in 37 cities in March, up from 27 in Feb
