We Can Empower Girls to Make Good Financial Decisions for Years to Come

Young men and women are faced with the challenge of not being financial literate. It is more prominent for women who according to the U.S. Bureau of Labor Statistics, make 78 cents for every dollar earned by their male counterparts and who traditionally spend 10 years out of the workforce to raise children or provide care for older family.  

Young women are coming out of college and joining the workforce with large amounts of debt. They are then posed with the option of joining their new employer’s healthcare program or staying on their parents plan if this is an option for them. It goes even further when the young woman is then asked about starting their 401k plan. These young women are overwhelmed because they are not completely financially literate and are suffering from information overload. This raises the questions at what age should women achieve financial literacy and when does it occur. 

It is never too late to learn the basics; it is important for young adults to understand budgeting and consumer debt. It is never to earlier to start teaching children financial education. When it comes to a long-term decision it is important encourage people to find a trusted advisor. 

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Social Security is Here for You

The Social Security Star: Social Security is Here for You

Social Security turns 84 this year. With more than eight decades of service, we’ve provided benefits to one of the most diverse populations in history. Regardless of background, we cover retirees, wounded warriors, chronically ill children, and people who have lost loved ones. Knowing that we cover so many different people, we’ve created People Like Me webpages that speak to specific audiences. Sharing these pages could make a positive impact on someone’s life. Here are a few that might speak to you.

Do you know someone who needs to start saving for retirement? No matter where they are in their careers, Social Security can help. It’s never too late to start planning. We offer two pages, one for people early in their career at www.socialsecurity.gov/people/earlycareer and one for people who have been working for a while, www.socialsecurity.gov/people/midcareer.

Social Security plays an important role in providing economic security for women. Nearly 55 percent of the people receiving Social Security benefits are women. Women face greater economic challenges in retirement. First, women tend to live longer than men do, so they are more likely to exhaust their retirement savings. A woman who is 65 years old today can expect to live, on average, until about 87, while a 65-year-old man can expect to live, on average, until about 84. Second, women often have lower lifetime earnings than men, which usually means they receive lower benefits. And, third, women may reach retirement with smaller pensions and other assets than men. Share this page with someone who needs this information and may need help planning.

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To read more from the Social Security Star click here or click on the image below.

The Fed & Interest Rates: Like Taking Candy from a Baby?

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When you get an email regarding interest rates, I know that most non-financial people switch off and hit delete.  But STOP!  Bear with me, I think this brief 5-minute read will help give you a better grasp of why this stuff matters to you. Let’s break this down simply:

Being a father of two kids under the age of 3 makes me wonder who ever came up with the idea that taking candy from a baby was an easy task?  Maybe my kids are the exception, but taking candy from my 2-year-old is not an activity that my wife or I enjoy.  Being a parent however, means that sometimes you need to take action to protect your kids from what they think they want.  In thinking about the Fed and the likelihood that they will cut rates this week, it makes me wonder whether they would have the fortitude to take the candy away in future?

 First, when we speak about the Fed, we are speaking about the Federal Reserve, or more specifically, the Federal Open Market Committee (FOMC). The FOMC is headed by a gentleman named Jerome (“Jay”) Powell, which is why you probably see his name in headlines. He is the one that does the major press conferences and is responsible for communicating what the Fed is thinking.

 The FOMC is in charge of setting the interest rate called the ‘Fed Funds Rate’. This is the target rate at which banks lend money to other banks, therefore playing a major role in the ‘cost of money’ in an economy. (An interest rate can be seen simply as the cost of borrowing money).  When the Fed raises the Fed Funds Rate, generally it gets more expensive to borrow money, and when they lower rates, it gets cheaper. 

 So where are we now? Hasn’t the Fed been raising rates? Yes. During the midst of the 2008 financial crisis. The Fed dropped interest rates to almost zero. They did this thinking that if interest rates were very low, people would borrow more, spend more and therefore stimulate the economy.  Since 2015, the Fed has been steadily raising rates as the economy has gained strength in the aftermath of 2008. 

 I can already hear you asking: “if low rates stimulate the economy and often lead to economic growth, why wouldn’t you just have low rates all the time?”  Generally, if rates are too low for too long and an economy is doing very well, inflation starts to rise and can get out of control. In order to keep inflation under control, the Fed raises rates which restricts or slows down the economy.  It is a delicate balancing act of trying to keep interest rates in a sweet spot that allows for strong economic growth, low unemployment and inflation that is under control. 

 Here is where it gets interesting. The stock and bond market are now expecting the Fed to cut (lower) rates at least 2-3 times this year. That is a significant turnaround from 6 months ago when the market was expecting 2-3 rate hikes (increases) this year. I recently attended a panel discussion in NYC with a group of top stock and bond investment managers.  One of the bond experts that was on the panel said that in 35+ years in the business, he has never seen such a dramatic U-turn of expectations in a 6-month period. This is what we mean:

 Take a look at this chart from December 31st 2018 (the beginning of this year).  Don’t get caught up in the numbers, but note the red box on the far right highlighting 2 dotted lines.  The blue dotted lines indicate the path that the FOMC (Fed) expects interest rates to follow.  You can see that at the beginning of this year, the Fed was expecting to continue to increase interest rates (about 2-3 hikes this year).  The brown dotted line below shows the expectation of where the market (investors) believed the path of interest rates should be.  As you can see, investors were hoping that the Fed would stop raising rates this year, or at the very least, only raise once.  This divergence of opinion played a big role in the correction in the stock market late last year.

December 31st:

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Contrast that to how the outlook changed just 6-months later on June 30th

June 30th:

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As you can see, both the Fed and the market are now expecting dramatic cuts to the level of interest rates over the coming year.  This is where it all gets a little confusing.  This dramatic swing has occurred during a period of time when employment, economic and earnings numbers are all pretty much unchanged from 6 months ago.  The Fed has always prided itself on being ‘data dependent’.  This essentially means that they make their decisions solely based on data, not outside influence.  If they are truly data dependent, what are they seeing that has suddenly made them so skittish?  Do they really believe that businesses and consumers are holding off making investments because rates are just too high? (I personally don’t know of any client or relative that is holding off on buying a house because mortgage rates are too high).

 If not based on data, then why would the Fed be setting themselves up for potential cuts in the coming months?  We think it is because they don’t want to take the candy away from the toddler (the markets) and risk a tantrum.  The toddler has been promised candy, and they intend to collect it.  (On a side note, my daughter can’t ever remember where she left her shoes, but her memory is unrivaled when it comes to recalling promises of candy and treats).  The Fed has all but said that they are going to cut rates and the markets will react very negatively if this doesn’t happen.  In a sense, the Fed has backed itself into a corner that it can’t easily escape. 

 This Wednesday (July 31st), the Fed will make their announcement and it is all but a foregone conclusion that the Fed will cut rates by 0.25%.  Historically, when the Fed cuts once, they tend to cut about 3 times.  This means that come the next recession, they will have very little firepower to lower rates further.  Cutting rates at a time when the economy is generally doing well weakens their hand and reduces available tools when things do inevitably take a turn for the worse. 

 With a stock market that is priced in a way that suggests that there is no chance of taking the candy away, complacency remains investor’s biggest risk.

 Contrary to the old saying, it is never an easy task to take candy from a baby.  It remains to be seen whether the Fed will eventually take the short-term candy away for the longer-term health of the toddler, even at the risk of a tantrum. 

- Darren J. Leader, CFA

Director of Research & Financial Planning   

Brokerage and commission-based Securities offered through Purshe Kaplan Sterling Investments, Member FINRA/SIPC. Headquartered at 18 Corporate Woods Blvd., Albany, NY 12211.  Investment Advice offered through Simmons Capital Group, a registered investment advisor and a separate entity from PKS Investments.

Purshe Kaplan Sterling Investments and Simmons Capital Group are not affiliated companies.

Stocks Remain Resilient Despite Rising Volatility

Dear Friends,

Investors had to stomach a bout of turbulence in the second quarter as economic uncertainty increased compared to the first three months of 2019. Underlying fundamentals for the economy and the markets remain generally solid, and investors are now anticipating the first Fed rate cut in over a decade. An extended “truce” in the U.S.-China trade conflict— should further support the stock market. So, while we should prepare ourselves for more historically typical volatility, the outlook for markets remains generally positive as we begin the second half of the year.

In sharp contrast to the quiet, steady gains of the first quarter, stock market performance in the second quarter was one marked by extremes. April was a good month thanks to better-than-feared first quarter corporate earnings reports. Additionally, investors’ expectations for a 2019 Fed interest rate cut rose in April, which added fuel to the bullish fire. The S&P 500 ended April near new all-time highs.

Fears and volatility returned in the first week of May, however, as President Trump announced that he would be raising tariffs on $200 billion in Chinese goods from 10% to 25% following the collapse of U.S.-China trade negotiations. Furthermore, The President threatened to levy additional tariffs on the remaining $325 billion worth of Chinese products imported into the United States.

The news caught investors by surprise as reports previously implied a U.S.-China trade deal was close to being finalized. Stocks dropped sharply in reaction. Those of you who attended our webinar in early April would likely remember that one of our concerns were that investors were perhaps overly-confident about the prospect of a trade deal being reached, in spite of statements from trade officials that there was still much work to be done before either party would sign on the dotted line.

Further escalating the U.S.-China trade conflict was the decision by the Commerce Department to add the Chinese telecom company Huawei to its “Entity List,” which would effectively ban U.S. companies from doing business with the telecom giant. That development caused stocks to fall further.

The stock market was able to find support and rebound strongly in June. There was progress across the two main sources of volatility in the second quarter, trade and interest rate policy. First, at the June 19th meeting, the Federal Reserve reversed course from May and signaled an interest rate cut is likely in 2019, perhaps as early as July. Second, President Trump and Chinese President Xi Jinping agreed to meet at the recently held G20 meeting, and the result of the meeting was a trade “truce” of no new tariffs while trade negotiations resume.

Third Quarter Market Outlook

The markets were impressively resilient in the second quarter and registered gains despite deterioration in global economic activity and renewed uncertainty with U.S.-China trade. Our years of experience have taught us not to become complacent just because markets have been resilient. We think that’s again appropriate as we start the second half of the year.

As we start the third quarter, we face macroeconomic uncertainty on multiple fronts.

First, the U.S.-China trade situation remains delicate, and until there is clarity, that lack of clarity will act as a headwind on economic growth and likely create periods of turbulence.

Second, global economic growth metrics underwhelmed in the second quarter. The impact on global stocks was muted by rising expectations of more stimulus from global central banks, including the Fed.

Third, there remain several unsettled geopolitical situations that must be monitored, including Brexit (the deadline is October 31st), North Korea (relations are still unsettled despite the recent Trump/Kim meeting) and Iran (the chances of a U.S.-Iran military conflict are as high as they’ve been in years).

Finally, while the Federal Reserve has signaled it will begin to reduce interest rates in the coming months, the situation remains very fluid, and if the Fed does not meet market expectations by cutting rates, that will cause short-term volatility. In our opinion, the market’s expectations of the Fed and the potential for disappointment appear to be the biggest potential risk facing the current market.

It remains unclear how, or when, these events will be resolved, and what those implications will be for markets. Yet as 2019 has shown us so far, uncertainty is not, by itself, enough to offset the still-strong fundamentals in the U.S. economy and corporate America.

As always, please call with any questions or concerns or to set up a time to review your current allocation. Thank you for your continued confidence and trust.

Sincerely,

Don, Darren & Audra.

Beware of Telephone Impersonation Scams

Social Security and OIG Launch Campaign to Alert Public about Telephone Schemes

Please read the announcement below from the Social Security Administration (SSA) and its Office of the Inspector General (OIG) addressing a nationwide telephone impersonation scheme. 

About 2 weeks ago, I received a call from a man claiming to be a federal agent conducting an investigation involving my social security number. He gave his badge number and proceeded to ask me for information to “validate” my identity. When I declined, he proceeded to verbalize that he was providing my address to the local Sheriff with a warrant for my arrest if I refused to cooperate with his investigation. As a means to intimidate me and show he knew “things” about me, he gave my address and a few other details (which are actually public record details). I continued to decline and said I will address any questions the Sheriff has directly. He encouraged me to get a good attorney as I would be taking on the Federal government.

I am happy to report no harm came to me nor was I pursued by anyone. The SSA and OIG announcement confirms that federal organizations like Social Security, do not call consumers. And just because someone claims to be from somewhere, gives a badge number or knows general information about you, do not start giving details like your social security number, date of birth or other personal details. 

We have included the announcement from SSA and OIG below.

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The Social Security Administration (SSA) and its Office of the Inspector General (OIG) launched a joint Public Service Announcement (PSA) campaign addressing a nationwide telephone impersonation scheme.

Social Security and the OIG continue to receive reports from across the country about fraudulent phone calls from people falsely claiming to be Social Security employees. Calls can even “spoof” Social Security’s national customer service number as the incoming number on the caller ID. The new PSAs will air on TV and radio stations across the country to alert the public to remain vigilant against potential fraud.

“We urge you to always be cautious and to avoid providing sensitive information such as your Social Security number or bank account information to unknown people over the phone or Internet,” said Nancy A. Berryhill, Acting Commissioner of Social Security. “If you receive a call and are not expecting one, you must be extra careful – you can always get the caller’s information, hang up, and contact the official phone number of the business or agency the caller claims to represent. Do not reveal personal data to a stranger who calls you.”

Social Security employees do occasionally contact people--generally those who have ongoing business with the agency--by telephone for business purposes. However, Social Security employees will never threaten a person or promise a Social Security benefit approval, or increase, in exchange for information. In those cases, the call is fraudulent, and people should not engage with the caller. If a person receives these calls, he or she should report the information to the OIG Fraud Hotline at 1-800-269-0271 or online at https://oig.ssa.gov/report.

“These calls appear to be happening across the country, so we appreciate SSA’s partnership in this national public outreach effort,” said Gail S. Ennis, the Inspector General for the Social Security Administration. “Our message to the public is simply this: If you or someone you know receives a questionable call claiming to be from SSA or the OIG, just hang up.”

The new PSA addressing the telephone impersonation scheme is available online at www.youtube.com/socialsecurity and below: