Personal Economics 101

Two recent articles I've come across explain the phenomenon of inflation very well. Or pick up a book if you want more depth. Money Mischief would be a place to start.  Milton Friedman’s priceless lessons on inflation Inflation – it’s on everyone’s mind. Everyone is talking about how inflation is the highest it has been in forty years. With the slowing economy, what was said to be a “transitory” phase has turned into “stagflation.” Some are blaming the government. The government is blaming the war. Republicans are blaming the Democrats, and the left is blaming greedy corporations. As the blame game and alarm rage, it remains a fact that most of us don’t know what inflation is. Few know what causes it. Fewer know how it can be curbed. Under the circumstances, it pays to listen to the respected American economist Milton Friedman as he deconstructs this “alarming” phenomenon. The Nobel Laureate, speaking at the University of San Diego and the San Diego Chamber of Commerce in 1978, bu...

Why Some Rate Quotes Are So Different And Why "Points" Are On The Rise It was yet another tough week for the mortgage market with rates rising to their highest levels since 2009, but how high have they actually risen? Energy up nearly 50% YTD as crude oil climbs to $110 per barrel WTI crude futures ( CL1:COM ) jumped 4.9% for the week to $109.77/bbl, July Brent futures ( CO1:COM ) also added 4.9% to $112.39/bbl, and gasoline futures ( UGA ) in New York settled at a record high $3.76/gal, three weeks before the start of the U.S. summer driving season. Losing the People? Then Change the Rules Court-packing—the attempt to enlarge the size of the Supreme Court for short-term political purposes—used to be a dirty word in the history of American jurisprudence. The Disinformation Governance Machine Right out of 1984. Homeland Security Secretary Alejandro Mayorkas announced on April 27 the creation of the “Disinformation Governance Board.” The Nation's Top Scientists Lied Scott ...

 

Fed chair Jerome Powell was appeared before Congress yesterday to give his semi-annual monetary policy report. In no uncertain terms, he backed a rate hike at the Fed's upcoming meeting on March 15-16. Specifically, Powell said he was "inclined to propose and support a 25 basis-point rate hike"-- the kind of plain-speak you rarely hear from Fed chairs, ever, about future tightening plans. Goldman Sachs reiterated their call for seven hikes -- one per meeting -- this year soon after Powell's remarks. The market isn't fully pricing that in yet. Of course everybody is extremely nervous about how poorly events could play out in Ukraine, or even closer to home, based on Russia's continued military action. But as Powell himself noted, we have no idea how those events will play out. What we do know is the impact they already having -- an impact that is undoing the Fed's efforts to tighten and lessen inflationary pressures in the U.S. economy. How so?  (1) Interes...

 

The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting, making no change to the Fed funds rate, as was widely expected. However, it hinted at the possibility of its first rate hike since 2018 being around the corner, saying, "With inflation well above 2% and a strong labor market, the committee expects it will soon be appropriate to raise the target range for the federal funds."  As well, in its statement of "Decisions Regarding Monetary Policy Implementation," the Committee said it expects its balance sheet reduction "will commence after the process of increasing the target range for the federal funds rate has begun." Schwab's Chief Fixed Income Strategist, Kathy Jones notes in her latest article, The Fed's Policy Tightening Plan: A One-Two Punch, how beginning quantitative tightening soon after rate hikes is a big departure from the Federal Reserve's past policy. The FOMC also said it will continue to taper its...

Treasuries are mixed after seeing some pressure yesterday as the Federal Reserve expectedly announced that it will speed up the tapering of its monthly asset purchases. The yield on the 2-year note is declining 6 basis points to 0.61%, and the yield on the 10-year note is decreasing 3 bps to 1.43%, while the 30-year bond rate is ticking 1 basis point higher to 1.87%. Many stocks are up today as well.  Why? First of all, the market loves certainty. Knowing what to expect on the macroeconomic level next year goes a long way for investors that are closely watching their portfolios, as well as an assurance from the Fed that it is taking inflation seriously. Powell also balanced his rates outlook with a strong dose of optimism about demand and income, and confirmed that "we're making rapid progress toward maximum employment." Weekly initial jobless claims came in at a level of 206,000 for the week ended December 11, versus the Bloomberg consensus estimate of 200,000 and compar...

This is a question I get asked a lot on Quora. "What are the best ways to get out of debt?" Here's my most recent answer: You really must to want to be debt-free. There is no other way. It’s a process, of both knowledge of personal finance, and modifying your financial behavior. But it is something you can achieve, if you create a plan and follow the steps of sound financial planning. I’m going to tell you up front that it will take quit a bit of work and effort on your part, depending on how much debt you have, and what you are willing to do. We had a saying in the military about what needed to be done do accomplish our mission: “Whatever is necessary.” This will be the same kind of thing. So you have to develop the same mindset. Be hungry. Personal finance is 20 percent knowledge, and 80 percent behavior. When I started I had more than $50,000 in credit card debt, had two mortgages (one on a rental house that was actually costing me more than I made in rents), and a cou...

I often have a conversation with someone about safety vs. the return on bank accounts and investments. Regardless of your returns, inflation will eat away at these, either reducing your return, or reducing the balance of your investments.  Currently, as I write this, inflation is about 5% or 6%, depending on what source you read. Some say this is a transitory type inflation, and as soon as supply-demand imbalances work themselves out, inflation will go down to "normal," or 2% or less. Others say this inflation will last longer.  Regardless of what the outcome will be -- and no one can accurately predict that -- you need to be aware of what inflation can do to cash or investments. Consider that most quality bond funds pay about 2-3%, high yield bond funds are around 5-6%, and other investments, such as AT%T, will pay a 7% dividend (as least for now). And add in that most banks offer less than 1% -- as low as .05% -- interest, you need to pay attention.  This chart will sho...

by Dan Mitchell International Liberty I sometimes try to go easy on the IRS. After all, our wretched tax system is largely the fault of politicians , who have spent the past 108 years creating a punitive and corrupt set of tax laws. There is plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to be weaponized by the Obama White House , using its power to persecute and harass organizations associated with the "Tea Party." That grotesque abuse of power largely was designed to weaken opposition to Obama's statist agenda and make it easier for him to win re-election. Now there's a new IRS scandal. In hopes of advancing President Biden's class-warfare agenda, the bureaucrats have leaked confidential taxpayer information to ProPublica, a left-wing website. ProPublica has obtained a vast trove of Internal Revenue Service data on the tax returns of thousands of the nation’s wealthiest people, covering more than 15 years. ...ProPublica un...

The Consumer Price Index (CPI) rose 0.8% month-over-month (m/m) in April, above the Bloomberg consensus estimate of a 0.2% gain, and compared to March's unrevised 0.6% increase. The core rate, which strips out food and energy, increased 0.9% m/m, north of expectations to match March's unadjusted 0.3% increase. Y/Y, prices were 4.2% higher (see chart below) for the headline rate, exceeding forecasts projecting a 3.6% increase and north of March's unadjusted 2.6% rise. The core rate was up 3.0% y/y, north of projections of a 2.3% rise and March's unrevised 1.6% increase. The report showed that prices for used cars and trucks rose 10.0% m/m, posting the largest one-month increase since the series began in 1953, and accounting for over a third of the seasonally adjusted all items increase. Food prices increased in April as prices for food at home and food away both increased, while energy prices decreased slightly. Core consumer prices registered the largest monthly increas...

Producer prices surge  The Producer Price Index (PPI) for final demand jumped 1.0% in March, the second most since December 2009, and double the consensus of 0.5%. Nearly 60% of the increase was attributed to a 1.7% surge in the goods PPI, the most on record, led by energy.  The services PPI advanced 0.7%, its third consecutive gain, led by machinery and vehicle wholesale margins. PPI for final demand ex-energy and food was up 0.7%, also the second most on record, and exceeding the consensus of 0.2%.  On a year-to-year basis, the PPI for final demand increased 4.2%, the fastest pace since September 2011, while core PPI was up 3.1%, a record jump. Both goods and services producer prices surged from a year ago. The broad-based increase reflects rising demand amid ongoing supply chain challenges that are creating shortages and bottlenecks. Indeed, intermediate prices soared across the production flow, suggesting a significant buildup in pipeline pressures. Some of these pres...

Yellen calls the regulators (Seeking Alpha) Although the "meme stock" trade continues to unwind , discussions over market volatility continue to ensue. Treasury Secretary Janet Yellen has called a meeting with the SEC, the Federal Reserve Board, the Federal Reserve Bank of New York and the Commodity Futures Trading Commission to address the recent market frenzy involving GameStop (NYSE: GME ) and Robinhood. This comes after the SEC said it was investigating "manipulative trading activity," as well as actions taken to "unduly inhibit the ability to trade certain securities." Fine print: Yellen has requested an ethics waiver to hold the meeting after receiving more than $700,000 in speaking fees from Citadel Advisors, the financial empire run by Ken Griffin. Griffin also runs a hedge fund and controls Citadel Securities, a market maker that executes trades for Robinhood. What could happen? Likely nothing, but if the SEC were to act, it could pursue a seri...

The new covid-19 relief package contains approximately $900 billion of programs for individuals and businesses. It includes renewal of many programs created in the CARES Act, including the Paycheck Protection Program, the Employee Retention Tax Credit, direct payments to individuals, unemployment insurance expansion, and more. Read the full story  here . 

Investors hear this: If the Senate falls to Democrat control, along with the House and the presidency, we could well see the END OF THE BULL MARKET in stocks and to a lesser extent in bonds. Higher taxes, especially on corporations, are bearish. Ditto for doubling the capital gains rate as Biden proposes. That’s a bold prediction, I admit. But let’s be clear, this bull market in stocks – which began in March 2009 – is very long in the tooth by historical standards. In fact, it has been the longest and strongest in history. And we all know it will end at some point. With literally EVERYTHING on the line in these two Georgia Senate races, we are about to see a political spectacle as never before. George Soros and other billionaire Democrat donors are basically writing blank checks to their Senate candidates. I just hope big GOP donors realize what they’re facing and will be ready to pony-up as well. The bottom line is, Senator Perdue should win his race, thus maintaining Republican contr...

Right now, people are feeling like there is a lot of pressure to buy a home. After all, mortgage rates have been insanely low. So, for many who have been saving up to buy their first home, now feels like a good time. But, while the nationwide real estate market is booming, you probably aren’t looking for an average home just anywhere. And local markets can see vastly different stories playing out that you don’t hear about when you’re taking a look at the real estate market as a whole. So, how can you look at specific data that applies to your specific situation and still make an informed decision? While there are benefits to buying, let's look at some top reasons not to buy a house. First, the original article where this material came from stated that you shouldn't buy if you're nearing retirement. I couldn't disagree more. If the other criteria, such as income, debt, etc., are in line, buying can be a good choice, as it tends to lock in your housing costs. This has be...

While the continued drop in the official unemployment rate and the record boom in new jobs in June look promising, it’s important to remember they’re just a snapshot of what the economy looked like in mid-June. And a lot has changed since then with COVID-19 infections spiking again in several states. That could have a seismic impact on several important sectors of the economy just ahead. To understand why the number of permanent job losses continues to increase, we need to go back to a Labor Department (DOL) issue when the DOL admitted it did not count millions of Americans who had been furloughed as being unemployed. Instead it classified them as “employed but not at work.” The DOL just assumed all or most of those workers would be returning to their jobs as soon as the COVID-19 pandemic was under control. Yet as we all know, many of those former jobs are never coming back, and not counting them as unemployed was a “misclassification error,” the Labor Department admitted. While the DO...

If you mean do I pay extra toward my principle, then yes. While many financial advisors — and many “armchair” internet “experts” — will tell you not to do this, because you can get a better return in the market, that’s not always the best case. That you have to figure out yourself. Here’s a couple of reasons to starting paying down your mortgage: You don’t have enough equity (the difference between what you owe, and the home’s value). If you don’t have at least 20%, pay it down. You’re getting closer to retirement, you’re debt free, and you’re saving at least 10 percent toward retirement. Use the extra funds to pay it down. If you hit retirement with a home free and clear, you’re going to be glad you did. Having no mortgage, especially if you’re already retired, gives you the option of using the equity in your home for retirement funds, such as a reverse mortgage. I wouldn’t recommend this for everyone, but it is an option. (Having a sufficient retirement account and income is the best...

There is nothing that will derail your goals of becoming financially independent, or financially solvent, or debt-free, or on track for a great retirement, than not having an emergency fund.  As the name suggests, an emergency fund is a stash of money set aside to cover living expenses in case of an emergency like a job loss, unexpected medical need or last-minute car repair. But how much money you should have in that fund depends on your income and your financial obligations, especially basics such as rent, utilities and food. Your emergency fund should be used only as a last resort for real emergencies, once other strategies such as reducing your expenses have been exhausted. Making that commitment will mean you'll have access to this money when you truly need it, something you'll be grateful for. Your emergency fund should be separate from your regular checking and savings accounts, and it should be filled with money only for emergencies. It's best to put your emergency ...

On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act , Public Law 116-136. The CARES Act protects borrowers with Federally-backed mortgage loans who are experiencing financial hardship due to the COVID-19 national emergency. The CARES Act provides multiple protections on your VA-guaranteed loan if you experience financial hardship directly or indirectly caused by the COVID-19 emergency, regardless of your loan’s default status. These protections include: A defined forbearance period of up to 180 days, with the possibility for extending it for another 180 days A foreclosure and eviction moratorium for 60 days starting March 18, 2020 Instructions on how mortgage servicers are to report to the credit agencies. For example, borrowers who have requested the COVID-19 Forbearance option are not considered to be delinquent for purposes of credit reporting. A forbearance is a defined time period of one month or longer during which your mortgag...