The Senate Passes the Tax Bill. Should be Law By Friday.
This blog includes Expert Analysis on How Homeowners Will be Affected, Startling Statistics on the Benefits of the American Dream, and 6 Tips to Successful Home Ownership.
The Tax Cut and Jobs Act Passed the House Tuesday, with the Senate voting yes in the wee hours of Wednesday morning. It was a partisan vote, passed narrowly with a simple majority (a few votes actually) by Republicans. The House will have to revote on Wednesday, due to two provisions that had to be changed. The Tax Cut and Jobs Act Bill is expected to be signed into law this week.
Just hours before the House passed the Tax Cut and Jobs Act today, Paul Ryan tweeted, “This is going to make such a positive difference in the lives of everyday working Americans from all walks of life." Bernie Sanders suggested that a better name for the bill is, “Trillions 4 Billionaires.” And homeowners everywhere, particularly in the NorthEast, waited for the final markup of the reconciliation of the House and Senate bills to see whether the American Dream of homeownership was on the chopping block.
How Will the Tax Bill Affect Real Estate & Homeowners?
Dr. Lawrence Yun, the chief economist of The National Association of Realtors was quite clear about the impact the bill will have on real estate. In my interview of December 13, 2017, Dr. Yun stated:
In terms of homeownership, the Tax Bill will be negative. Homeowners who feel an extra financial burden might wish to sell. Buyers will want to scale down. They will want a smaller home and a lower price, so they can stay within the mortgage interest deduction and property tax deduction limits. The upper end market will become much softer, while some of the residents living in high property tax states like New Jersey, New York, Connecticut and Illinois, may want to move elsewhere, where there is a lower property tax.
If you live in Silicon Valley, Silicon Beach, Seattle, New York City or Denver, the $750,000 mortgage interest deduction cap will trim back some of the mortgage interest that you can deduct on your taxes. For a large number of people living in expensive cities, this tax credit has been a lifeline keeping them afloat. If you live in the Northeast, the $10,000 cap on your property tax deduction could be the straw that breaks the family’s budget. New Jersey is already the state with the most foreclosures, and the changes to the treatment of property taxes are likely to make the situation even more dire (source: ATTOMDATA.com).
On the other hand, there are a few changes in the bill to be grateful for. Elizabeth Mendenhall, the president of The National Association of Realtors, issued a statement on December 15, 2017, writing, “We are particularly pleased with the treatment of capital gains on the sale of a home and the preservation of deductions for second homes. We are also grateful that the positive changes for commercial real estate and real estate professionals from the Senate bill have survived.” However, she too was concerned that “the overall structure of this bill poses problems for homeowners and the broader housing market.”
Homeownership is one of the most important ways that Americans build wealth. In the 2016 Survey of Consumer Finances, conducted by the Federal Reserve Board, one of the most startling statistics was the difference in median net worth between homeowners and renters. Median inflation-adjusted net worth—the difference between families’ gross assets and their liabilities—was $231,400 for homeowners in 2016 vs. $5,200 for renters.
So, how do you ensure that you build wealth, in today’s world, where single-family homes are higher priced than they’ve ever been and the new tax code is limiting the amount of the costs that you can write off? Here are a few tips.
6 Tips for Achieving the $231,400 Homeowner Net Worth Or More (Vs. the $5,200 Renter Net Worth)
The new tax bill limits the deductions that homeowners can take, but it doesn’t eliminate them. Some homeowners are going to be gravely impacted by the caps in mortgage interest rates and property taxes. However, for most Americans, the changes in the Tax Bill are important to note, but minor in actual impact. Consider the many advantages of home ownership, and keep your own American Dream alive, with the sound tips listed directly above.
As Lawrence Yun told me last week, “Home ownership is the American Dream. Let’s ensure that home ownership incentives remain in place.”
Listen to my complete interview with Dr. Lawrence Yun, the chief economist of The National Association of Realtors at BlogTalkRadio.com/NataliePace.
Other Blogs of Interest:
Government Shutdown Has Been Avoided. For Two Weeks.
Warren Buffett is on the Sidelines. GE Investors Lose Half.
If you are interested in learning successful homeownership, investing, protecting your assets, saving thousands each year with smarter choices and other important life math, join me at my Valentine's Financial Empowerment Retreat in the beautiful beach town of Santa Monica, California. This could be the best gift that you give yourself this holiday season. Only 4 seats are still available. Call 310-430-2397 to learn more now! Click below to access testimonials and to discover the 15+ skills you will learn.
The Appropriations Bill that was passed last night by the Senate and the House, and signed by the President today, funds the U.S. government for two weeks, through December 22. All assumptions are that Congress will raise the debt limit again. That action should avert a credit downgrade for now. However, in a press release, Fitch Ratings notes that, while not raising the debt limit is the most significant short-term risk to the U.S. AAA Rating, “debt dynamics are also negative, which could put pressure on sovereign creditworthiness over the medium to long term.” (Translation: the astronomical U.S. debt could result in a credit downgrade soon, unless the debt limit shenanigans force a downgrade sooner.)
Headlines and the Administration are all pointing to stocks reaching all time highs, 4.1% unemployment and 3.3% GDP growth rate in the 3rd quarter as signs of a healthy economy. In fact, Fitch has raised GDP growth expectations for 2018 to 2.5%. However, touting those gains leaves out a lot of other relevant facts.
Investor sentiment is positive. Everyone is happy with the Wall Street gains. However, this reminds me of the focus groups studies in 2002 that confirmed everyone liked mini vans and Hummers. Once gas prices jumped, all of the sudden everyone loved fuel efficiency. Once a Wall Street correction begins, and corrections happen in relatively predictable patterns, sentiment is likely return to where it was when the Occupy Wall Street movement began, in the wake of the Great Recession.
If you are trading on headlines, you’ll always be late to the party and one of the worst casualties of the crash. Vision and foresight are valuable commodities.
If you would like to protect your assets now, to reduce debt, adopt a thrive budget, save thousands of dollars every year in your annual budget, live a richer life, and have more money for bucket list vacations, while providing far better for your future, then it is important to learn the ABC’s of Money that we all should’ve received in high school. Our team offers free blogs, free monthly teleconferences, free budgeting and investing web apps, three bestselling books, private prosperity coaching, a second opinion on your current budgeting and investing strategy, and a three day Investor Educational Retreat where you can learn and implement all of this wisdom here and now, before the next downturn.
Call 310.430.2397 to get answers to your money questions and to learn real solutions that will transform your life. Receive the best price for the Valentine’s Retreat in the beautiful beach town of Santa Monica, California when you register by Dec. 15, 2017 (during the Early Bird pricing period). Only a few seats remain available, so secure your place now, while you can.
Happy holy days.
From Black Friday through Cyber Monday, our team here at NataliePace.com is offering freebies, $2 stocking stuffers and much more.
Look below St. Nick for all of our special offers.
Call 310-430-2397 or email Heather @ NataliePace.com to learn more.
If you love sustainability, then you and your loved ones can enjoy two free mini ebooks, featuring the wisdom of green visionaries such as: The Dalai Lama, Elon Musk, HRH The Prince of Wales, The Earth Day Network, Deepak Chopra, Global Green and more. Simply go to EarthGratitude.org to download the Clean Earth, Clean Living and Future Earth ebooks, which you are welcome to print out and share freely. (The PDF version makes a great free holiday gift for a greenie!)
Receive 30% off and a free 50-minute private, prosperity coaching session with No. 1 stock picker Natalie Pace (value $300), when you register with a friend for the Valentine's Retreat in the beautiful beach town of Santa Monica, California now through Cyber Monday. (Each of you enjoy 30% off and receive a complimentary coaching session.) The Natalie Pace Investor Educational Retreats are the gift of a lifetime. The retreat pays for itself in just a few short months in budget savings alone (according to many attendees)!
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My Dear Friends and Family,
Through the years, we have been connecting on special holidays, sharing laughter, love, wisdom and inspiring thoughts. This Thanksgiving, as I honor and celebrate a beautiful young woman who transitioned to spirit before her time, and give thanks for the blessing she was to those who knew and loved her, I am reminded of just how precious each celebration that we have is. I am extremely grateful for the loving people who have hugged me in person or in prayer during this heartbreaking time. My own thoughts, prayers and wishes are with the parents of beautiful Ella Hughes.
There are two Go Fund Me campaigns that are active right now that are very close and personal to me. One is honoring someone I hold dear who was taken from her family a few days ago. Money won’t ease the pain of the loss. But it is helping this family to honor their daughter Ella Hughes with dignity. If you feel compelled to donate, please do and thank you. Prayers are welcome, too. If you click on the picture, it will take you to the campaign. You can also see these campaigns on my Facebook and Twitter pages.
My son Davis Lau has created a campaign to help an African father of limited means to create a special family memory by attending his daughter’s graduation in Canada.
You can help to create this memory for Jean and Jeanne Bosco, of the Democratic Republic of Congo, and you can also receive something great in the bargain. Davis Lau is a very gifted artist. He is offering a print of the portrait he created of Jean Bosco, and a commemorative t-shirt, with your donation of $40. Any amount is appreciated and will help. If you cannot donate money, then please consider sharing this campaign on Facebook to help others to be a part of Jean and Jeanne’s joy.
I am very grateful to you on this Thanksgiving. From the depths of my broken heart, I know that each of you are special to me in ways small and large and perhaps even unknown. I am in gratitude to you for your love, your support, your laughter and for caring about my life’s work, in all of the ways, large and small, that you have touched me over the years. May your meals, treats, games and laughter today fill your heart and spirit with the joy that only close loved ones can bring.
Warren Buffett has $100 Billion in cash on the sidelines. GE has lost more than $120 billion in market cap this year, and just slashed their dividend by half. The headlines are touting Wall Street gains and all-time highs, seducing Main Street investors to want to jump into the pool party. However, the smart money is not buying it.
Hear Warren Buffett explain why on Bloomberg, and why bonds are even less attractive than stocks.
Essentially, stocks are overpriced and bonds are far worse, which is why Buffett is keeping so much in cash, when he would prefer to invest at least $80 billion of the $100 billion he has sitting on the sidelines. As Warren Buffett noted in his Bloomberg interview of yesterday, “If you put $100,000 in a 10-year [Treasury] bond, you’re paying 45 times earnings.”
On Nov. 14, 2017, Buffett reduced his holdings in IBM by another 1/3, down to 37 million shares, with a market value of about $5.4 billion. He also sold shares in Wells Fargo, Charter Communications and Wabco Holdings (a car parts company, based in Brussels).
What Happened to General Electric?
GE’s share price has lost 43% in 2017. The dividend was slashed by half on Nov. 13, 2017, to 12 cents a share per quarter (from 24 cents). (Since 1940, the only other time that GE cut its dividend was in 2009, during the Great Recession.) Investors recently learned that GE has been using all of its profits to buy back its own stock and pay a high dividend for years, essentially propping up its own share price.
The reason that dividends are riskier than most investors realize is that when the company cuts the dividend, you don’t get advance warning. You lose the dividend income and a great deal of your principal in one fatal shot. Of course, at that disappointing moment, investors are tempted to cut their losses – selling low, the opposite of the age old Wall Street adage Buy low, Sell High.
GE is not the only company using buybacks and dividends to make the company attractive to investors. According to Howard Silverblatt, the senior index analyst for S&P Dow Indices, dividends set a record in the 3rd quarter of this year, at $105.4 billion, $12.31 per share, and are expected to beat that record again in the 4th quarter. Dividends shower investors with love, keeping them complacent and distracted from understanding the health of the investment. Corporate buybacks inflate the earnings per share, even if the earnings are weak, and make the stock price look cheaper. Financial engineering of this nature has fueled the 8-year bull market. GE is the first company (outside of the retail industry) to show vulnerability. However, it is unlikely to be the last.
Is Verizon Next?
As I pointed out in my book, The ABCs of Money, which was published in 2012, the higher the dividend the higher the risk.
Verizon is paying the highest dividend yield on Wall Street. So, what’s at stake? Verizon’s annual dividend payout for 2017 will be almost $12 billion. Last year’s annual income was $13.13 billion. Essentially, Verizon is doing what General Electric is getting criticized for doing – using all of the company profits to pay dividends.
While Verizon is rewarding investors, the company is shafting its staff and borrowing from Peter to pay Paul. Verizon is $18.3 billion underfunded on its Other Post Employment Benefits and $6.4 billion underfunded on its pensions (source: S&P Dow Indices 2016 Report on Corporate Pensions). AT&T is the most underfunded on OPEBs and pensions ($33.7 billion) in the S&P500, with Verizon on the second position.
Verizon’s long-term debt and liabilities are $226 billion, with a debt to equity ratio of 4.3. Some investors, perhaps without even knowing about it, just loaned Verizon $1.5 billion, which doesn’t have to be paid back for 30 years, and only pays 4.95% (less than the common stock dividend, which doesn’t require any time commitment). The problem with that is that with all of the debt, promises and liabilities that Verizon has, it is very possible that the company will need to restructure sometime over the next 30 years. 4.95% interest is a very low return for taking on the risk of a bond that is only one grade above junk (at BBB+).
I warned about AT&T, GE and Verizon in December of 2015 – two years ago. Bankers have been willing to loan cheap money (5%) to these heavily indebted companies. The companies themselves have rewarded investors with dividends and buybacks – pushing their stocks to all time highs. Investors were happy and complacent. Workers complaints didn’t make the headlines. Telecom employees were likely more worried about losing their job, and joining the burgeoning ranks of underemployed, who are trying to make ends meet with multiple jobs, than they were about losing their benefits.
Though stocks are high and Warren Buffett has a lot of cash on the sidelines, the right answer isn’t jumping all in or all out. Market timing doesn’t work because it is impossible to time the exact high and low. You’ll be early getting out and late jumping back in. My pie chart system is time-proven, easy and less time and money than most people spend.
Now is definitely the time to do a wisdom-based analysis of what you have in your retirement plans because the last two times that the U.S. economy went 8 years without a correction, most people lost more than half of their nest egg. Just asking your HR person or the broker-salesman will not necessarily get you safe before the next downturn. There is an inherent conflict of interest in the financial services industry, which means that you must be the boss of your money, know exactly what you own, and make sure that you are safe and diversified. Are you over-invested in risky, dividend-paying stocks? Have you been put into expensive, low-yielding, long-term bonds that could lose money or become illiquid?
You can read and implement the strategies in my three bestselling books. (Get links on the home page at NataliePace.com). You can call my office (at 310-430-2397) and schedule a second opinion of your current budgeting and investing plan. If you’d like to learn the ABCs of Money that we all should have received in high school now, before the next downturn, register for my Valentine’s Retreat in the beautiful beach town of Santa Monica, California. Only 5 seats remain available. You get the best price when you register with a friend by December 15, 2017. Call 310-430-2397 to learn more now.
Please note: NataliePace.com does not act or operate like a broker. We report on financial news, and are one of the most trusted independently owned and operated financial news corporations in North America. This article is intended to educate and inform individual investors, and, thus, to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned in this article are not intended to be buy or sell recommendations.
ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies.Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.
Information has been obtained from sources believed to be reliable however NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.
FAANG. Facebook, Amazon, Apple, Netflix and Google.
The companies are hot, and their stock is on fire. Since March of 2009 (the bottom of the market), FAANG stocks have lead the NASDAQ Composite Index to double the Dow Jones Industrial Average in returns. FYI: Technology was so hot in the wake of the Recession, that I listed it as a hot slice on my nest egg pie charts. Australia, gold and technology all more than doubled. (Even clean energy had a great run in 2010.)
The question now is: “Will you will be toasty with holiday returns, or burned by buying high?”
All of the FAANG companies have impressive sales growth year over year. This compares to many of the Dow Jones Industrial Average components have flat or lower sales. Facebook, Netflix and Amazon all boast sales growth of 30-47% year over year. Google is close with 23.7% growth, and Apple is still posting 12% growth (after a down year). By comparison, BUMPP stocks (Boeing, United Technologies, Merck, Pfizer and Procter and Gamble) sales are by and large flat year over year.
Net profit margins lean toward FAANG, as well. While Boeing, United Technologies and Merck range between 7-9% net profit, Facebook’s profit margin is 41.69%. Apple and Google are in the 20% range, while Amazon eeks out 1.19% and Netflix profits at 4.04%.
If we skip over the Pacific pond to China, Alibaba’s revenue growth is an eye-popping 61%! The sales growth range of the Chinese ABCWW stocks is 28.70-72.50% (Alibaba, Baidu, CTrip, Wuba & Weibo)! The profit margins are just as impressive with Baidu, Alibaba and Weibo at 23%, 27% and 31%, respectively.
Clearly technology is hot, China is hotter, and old school pharma and defense are a bit blasé.
But here is where we need to apply the price test. By every measure, FAANG stocks are high (as are BUMP and ABCWW). How high? Earlier this year, Robert Shiller, Nobel Prize winning economist and Yale professor of economics, wrote, “The only time in history going back to 1881 when [price earnings ratios] have been higher are, A: 1929 and B: 2000. We are at a high level, and its concerning. People should be cautious now.” Amazon's price-to-earnings ratio is 286. Netflix is 192. Facebook and Google are both 34.
If you think about it for a moment, should a company like Amazon, with $2 billion in net income, be worth over half a trillion dollars? By comparison, Wal-Mart makes $13.64 billion, and has half the market value as Amazon. Google has $20 billion in net income, with a Wall Street valuation of $720 billion.
The age old adage is: “Buy, low sell high,” not “Buy high, sell higher.” Anytime we buy high, we risk getting burned, whether it is stocks, real estate, classic cars, gold or Bitcoin.
At the same time, if you try market timing, and jump all in or all out, then you are more likely to lose than to win. There is a lot of manipulation going on, so it is very difficult to predict the exact point of correction. (The current bull run is fueled largely by companies borrowing money very cheaply and buying back their own stock. While this makes the markets go higher, buybacks and running prices into the astrosphere don’t make for a healthy economy – great products do.) Most people who try market timing jump out at the bottom, selling low, and jump in at the top, buying high – the exact opposite of what you know, on paper, to do. This is because they are using emotions, not a sound, time-proven strategy.
That’s why my time-proven, trademarked, easy-as-a-pie-chart nest egg strategies work so well. Instead of market timing, you just underweight or overweight based upon market conditions. You’re never all in or all out, but you keep enough safe to limit your losses in corrections, and enough at risk to ensure that you’re benefiting from bull runs. (Those people, like Nilo Bolden, who used this system earned gains in the Great Recession and have outperformed the bull market in between.) Annual rebalancing is also key, which turns out to be a great system for buying low and selling high… If you'd like to try the free web app for my pie charts, go to NataliePace.com. The link is on the home page. The pie charts will make more sense if you know my system, which is outlined in my 3 bestselling books (links are available on the home page at NataliePace.com) and in my 3-day, life-transforming, investor educational retreats.
So, can the stock market keep going up up up? History tells us, “No.” Headlines and politicians tell us, “Yes.”
I did a little homework and discovered that the first admission that we were in a deep, horrible downturn during the Great Recession occurred in October of 2008 – when the stock market had already lost over 8000 points. In other works, if you wait for the headlines and politicians, you’re going to be too late to protect yourself. Having more FAANG and Chinese ABCWW in your nest egg, getting diversified, and keeping enough safe, while underweighting BUMPP is a good idea. However, it is just as important to know how much to keep safe, and what safe is in a Debt World.
At the Investor educational Retreats, you learn how to identify hot trends, how to avoid the loser funds, lean into the hotter industries and add sizzling slices for top-notch performance. And once you do that, it’s time to look at the biggest piece of the pie for anyone over 40 – the safe side. There again are some very hot prospects. We’ve even identified thousands of dollars that the average family can save with smarter energy, budgeting and investing choices, with some of the safest hard assets there are available today. Since there is too much paper floating around in the developed world (with massive debt), getting safe requires getting creative. If you simply choose what the broker-salesman offers (more paper, like bonds, private equity REITs, etc., annuities and life insurance), it is very likely that you are vulnerable to more capital loss than you are aware, and not getting properly paid for the risk.
If you’re interested in learning this easy system from me, join me at the Valentine’s Retreat in the beautiful beach town of Santa Monica, California. Click to read testimonials and discover the 15+ things you’ll learn. Only 5 seats remain available. Get the best price when you register with a friend by Dec. 15, 2017.
Will The Santa Rally Extend All the Way Through to the Spring Rally?
On Oct. 27, 2017, the Bureau of Economic Analysis reported GDP growth that frankly shocked the experts. The New York Feds were predicting 1.6% GDP growth. The advance report came in at 3.0%. That was essentially a green light for the Santa Rally. (The report will be revised again on Nov. 29th and Dec. 21st, 2017, at which point it could come in higher or lower, based on more complete data.)
Are There Any Red (Warning) or Yellow (Caution) Lights on the Santa Rally?
There are definitely red and yellow lights on the economy. One has a deadline smack in the middle, on Dec. 9, 2017 (the Debt Ceiling crisis re-emerges). However, if an economy crashes in the woods and no one reports on it, then it doesn’t really happen until it makes headlines. (That’s really been the story of the past three years, when financial engineering has fueled the rise in real estate and equity assets.) The Cliff Notes on when headlines will start appearing is probably not until January or February of 2018. Below are the reasons why.
Retail Bankruptcies: The Canary in the Coal Mine
There have been 19 high-profile retail bankruptcies this year already, with Toys R Us being the most recent. This is a hint that the heavily indebted American consumer, which accounts for 70% of GDP growth, is overburdened. In fact, U.S. consumer debt is back to an all-time high, at $12.84 trillion. There is only so long that consumers can borrow at credit card usury interest rates to buy things before the credit defaults start happening again. In fact, credit card defaults have climbed for the 3rd straight quarter – something that hasn’t happened since 2009.
Retail bankruptcies also hit banks and bond investors very hard. Before the Great Recession, the mortgage bank bankruptcies of early 2007 were the omens of harsh times to come. They were background noise, just as the retail bankruptcies are today, while stocks continued to rise. The politicians stuck to the sound byte that the mortgage bank bankruptcies were limited in scope and wouldn’t affect the larger economy.
The retail bankruptcies aren’t even included in the current political debate, and when they are, they are pushed under the carpet with the phrase, “The Amazon Effect.” There is an outdated brick-and-mortar issue. However there is also a dramatic drop-off in spending on retail, particularly by Millennials, who prefer experiences and adventures over things. Once the retail bankruptcy fallout starts spreading into the earnings of mall REITs and banks that could start making headlines in the months ahead.
The Debt Ceiling Will Be Hit (Again) on Dec. 8, 2017
The current U.S. public debt is $20.5 trillion. The current total U.S. debt and loans are $66.7 trillion. These numbers have become so astronomical that it is almost beyond comprehension. However, the easiest way to understand them is to know that the Federal Reserve decided to print money and keep interest rates low, which always creates bubbles. Consumers aren’t benefiting from the low interest rates, unless you’re purchasing a home at an all-time high (something that will come back to bite you big time when prices correct). Companies and countries are benefiting from low interest rates, in that the cost of borrowing is almost free, until credit risk becomes more apparent, at which time interest rates will jump and the problems that have been kicked down the road become exponentially more expensive. That is the specter that is looming behind the ongoing Debt Ceiling crisis.
The two credit agencies that still maintain the U.S. with a AAA rating, namely Fitch Ratings and Moody’s Investor Services, have both indicated that the U.S. debt level is inconsistent with the AAA rating. In August, both agencies warned that if the U.S. didn’t raise the Debt Ceiling in time, they would review and possibly downgrade the U.S. credit. The last minute 3-month extension deal that the White House struck with the Democrats postponed the reviews. However, on September 11, 2017, Moody’s warned, “Even if the three-month suspension is approved by lawmakers, the risk of an economically disruptive stalemate over the debt ceiling in early 2018 remains.” Neither agency has a review of the U.S. rating on calendar at this time. However, both will be forced to address the issue when they believe that the U.S. is running dangerously close to the point of not being able to fund our bills. That is predicted to occur in February of 2018. (If Treasury Secretary Mnuchin has borrowed enough to get us through to April, when tax receipts pour in, the next Debt Ceiling crisus this could be postponed to late summer or early fall.)
Where are the Bubbles?
Real estate and stock prices are back to all-time highs – so high in fact that two top economists have issued warnings.
“The American Dream of home ownership remains elusive, as the third quarter figure shows little change in the overall rate. The reason is simple. There is just not enough supply of homes to fully satisfy the desire to own. The lack of inventory has pushed up home prices by 48% from the low point in 2011, while wage growth over the same period has been only 15%,” Lawrence Yun, the chief economist of the National Association of Realtors, in a statement on October 31, 2017.
“The only time in history going back to 1881 when [stock market prices] have been higher are, A: 1929 and B: 2000. We are at a high level, and its concerning. People should be cautious now.” Robert Shiller, Nobel Prize winning economist and Yale professor of economics
Bitcoin and crypto-currency have had astronomical gains this year, with traders and novices pouring in, in droves.
Is the Economy Really Growing & Healthy?
So, what about the 3% GDP report? The 4th quarter GDP report estimates are coming in even higher – at 3.2-4.6%! The advance 4th quarter GDP report comes in at the end of January. If the projected numbers hold true, then the wind should be at the back of the stock market through the Spring Rally (assuming there is no Debt Ceiling crisis). The big issues between now and then are thes issue of the debt ceiling, and any credit implications that might have and the impact of the hurricanes. For example, if imports rise, then the GDP reports will be revised downward. (This morning’s International Trade Report reflected a rise in imports.)
What is Hot?
What is Hot?
Right now, everything, except gold and clean energy, are hot, hot, hot! The problem is that they might be too hot to touch without getting severely burned. If you are in the money, then it could definitely pay to wait until early January to do your annual rebalancing. If the Debt Ceiling crisis will be pushed out beyond April and the GDP reports remain strong, then you should be good through the end of April before Wall Street shows any sign of a correction. There are a lot of ifs in those sentences. I will keep you posted as developments occur.
If you’re tempted to jump into stocks or crypto-currency at current prices, do a forensic analysis to make sure that you are not buying at the top. (The adage is buy low, sell high; not buy high, hoping to sell higher.)
So, the economic correction deck is stacked and ready to tip. However, the likelihood that it tips before the end of the year is now low… mostly because none of the above issues are in the political or mainstream media dialog.
Other Blogs of Interest.
Financial Engineering. How Corporate Buybacks are Keeping Stocks Artificially High.
If you want to get safe, hot, protect your assets and save thousands each year with smarter energy, budgeting and investing choices, then join me for my Valentine's Retreat in the beautiful beach town of Santa Monica, California. Register by Sunday, Nov. 5, 2017, and receive the lowest price and a complimentary private, prosperity coaching session valued at $300! This is a boardroom retreat, taught hands-on for 3 full days by me. Call 310-430-2397 to learn more now!
Last Wednesday night, Republicans stripped the American consumer of the right to sue banks or form class action lawsuits. This means that those people who suffered at the hands of Wells Fargo and had fake accounts set up cannot form a class action lawsuit against the bank for damages. It is also a problem for the 5.4 million Americans who are still severely underwater on their homes and the consumers who are carrying massive credit card, student loans and other forms of high-interest debt. But there are other changes to the fine print of what banks and can or cannot do that has placed your cash seriously at risk.
9 “Safe” Investments that are Riskier Than You Realize
1. FDIC-Insured Cash
2. Certificates of Deposit.
3. Predatory Lending.
4. Credit Cards.
5. Money Market Funds.
6. Life Insurance.
7. Long-term Health Care Insurance.
9. The Value of the Dollar.
1. FDIC-Insured Cash
Banks are finding creative ways to earn more on your money, and to slide out from the FDIC insurance, often without you realizing it (unless you are reading all of the fine print). Here are just a few:
* Changing the fees on your savings and checking, after you open the account.
* Offering products that are not FDIC-insured.
* Charging you to transfer money between accounts, charging egregious overdraft charges and usury interest rates that can equate to almost 30%.
2. Certificates of Deposit that are Not FDIC-Insured.
Certificates of Deposit are not all FDIC-insured, particularly any higher-yielding CD, which has a risk of going down in value. Here again, you must read the fine print, and not just rely upon what the salesman (bank “specialist”) is telling you. Remember that bank specialists were pressured to set up fake bank accounts at Wells Fargo. All banks now teach tellers and others who work for them to cross sell other bank products. Few of these salesmen are properly trained on all of the fine print. If you don’t read all of the fine print, now that banks cannot be sued, you really don’t have any remedy. Arbitration almost always falls on the side of the bank, since arbitration must consider the fine print, even if you didn’t read it, understand it or if it was presented differently to you by the bank representative (something that is difficult to prove).
3. Predatory Lending.
Consumer debt is higher than it has ever been, at $12.84 trillion. 5.4 million homeowners are still severely underwater on their home loans. Credit card delinquencies are as high as they were in 2009, during the Great Recession. College graduates are living with their parents, while paying off student loan debt and looking for better-paying work. While heavily indebted corporations in the U.S. can borrow at 5% or less and banks are borrowing at 1%, students and consumers are paying 7-28% interest on their debt.
4. Credit Cards.
Credit cards are marketed as a great way to launch a new business. No experienced entrepreneur launches a business on 28% interest. Credit cards are also peddled to college students, who have never had to balance a budget. Far too many Americans are using credit cards to make ends meet.
5. Money Market Funds.
The new tools – fees and gates –give fund boards the ability to impose liquidity fees or to suspend redemptions temporarily, also known as “gate,” if a money market fund’s level of weekly liquid assets falls below a certain threshold. In other words, you could be denied access or charged fees to the money you have in a money market fund, in the event that the bank that issued the fund is in trouble.
6. Life Insurance.
One of the biggest issues with life insurance is that there is no real backstop if the insurance company goes out of business. This is the reason that AIG was the first bailout in the Great Recession – because over 50 million annuities and life insurance policies would have been worth next to nothing.
Additionally, the only way that you make out with life insurance is if the worst thing happens fast, which statistically is very small. If you took the money you put into life insurance and instead funded your own retirement account, that money would be yours to keep forever. If you invested 10% of your annual income into a tax-protected retirement account, and that made a 10% return (what stocks and bonds have done over the past 30 years), you’d have more money in the account than you earn annually in 7 years, and in 25 years, your money will make more than you do.
Buying life insurance is like paying rent. If you miss a payment, you get booted out. The longer you hold life insurance, the more expensive it becomes and the lower the payout will be. People always say that they can catch up and reactivate a lapsed life insurance policy. However, they are overlooking that the fact that when you are retired, you have less income, and fewer resources to do that, or that when you reactivate a policy, it is on different terms.
7. Long-term Health Care Insurance.
Health savings accounts are far better than long-term health care insurance, particularly for healthy people, because the money you deposit into this tax-protected retirement account is yours to keep and the “premiums” will not rise exponentially as you age and/or face an illness. HSAs are not “use it or lose it.” They build up each year, offer massive savings on health premiums (with your higher deductible plan), and even give you a tax credit. Learn more about HSAs at IRS.gov. One more important consideration: Health is the best health insurance.
Annuities are immediately worth less at the point of purchase. This is called a “surrender fee.” They act like a pension – becoming worthless to your heirs once you annuitize the payments. They are not FDIC-insured, and have no backstop if the insurance company goes bankrupt. Some can lose money, either based on market performance or with hidden fees and penalties.
9. The Value of the Dollar.
The value of the dollar in purchasing power has weakened with regard to most of the asset classes (severely), and against the Chinese Renminbi, and is vulnerable to a credit downgrade from Fitch Ratings and Moody’s. (The U.S. was downgraded by Standard & Poor’s on August 5, 2011.) The U.S. stock market is at an all-time high (making stocks overvalued), and U.S. real estate is again higher than ever.
The first step in getting your liquid assets safe is to make sure that you keep a percentage equal to your age (at least) in FDIC-insured cash. In my nest-egg-pie-charts, I am overweighting an additional 20% safe.
The second step is to start reducing as many big-ticket bills as you can. There are many ways that you can keep more of your hard-earned money without any change in lifestyle (offering the best Return on Investment available). The average American spends over $7,000 annually on car transportation (including insurance, gasoline and the car payment itself). Most Americans are spending at least $5,000 annually on utilities and gasoline, $3,000 (or more) on health insurance and more than ½ of their paycheck on housing and student loan debt. Over 5.1 million homeowners are still underwater on their mortgage. If you are getting your debt reduction, budgeting and investing strategy from the banks and insurance companies, then chances are that you are being sold into products that make them rich – many times at your own expense.
Once you get safe and adopt a Thrive Budget and stop making the billionaire corporations rich at your own expense, you can start considering safe, income-producing hard assets that you purchase for a good price. Every single word in that sentence counts, particularly since stocks and real estate are higher than ever today. Think 20 years out and include the generation before and behind you.
For additional ideas on these solutions, read my books, listen to the teleconference on this topic, attend a retreat and/or purchase a private, prosperity coaching session. Call 310-430-2397, or email info @ NataliePace.com to learn more.
At my most recent retreat and Master Class, we identified a lot of hot stocks. Let me clarify that, however. Initially, the attendees wanted to toss the hot ones out because they were priced too high. In truth, a hot stock is a hot stock, just like ripe fruit is yummy and delicious. It's not the price that makes the fruit delicious, though you'll consider price before you buy. Likewise, great companies are hot stocks even if the price is high. Rather than toss them into the loser pile, put them on a stock shopping list. That way if prices drop dramatically, you know which companies you’re interested in buying first.
As a reminder, the 3-ingredient recipe for cooking up profits is:
You have to take each ingredient in order. If you don’t know enough about the company, it is impossible to pick the leader. The price doesn’t tell you whether or not the company is any good. It can only help you to determine whether or not it is a good value. In general, in the 9th year of a bull market, it’s going to be very hard to buy low and sell high because most stocks are high. (There are a few exceptions.) The best you can hope for is to buy high and sell higher – a risky venture and not the time-proven adage!
Impatient investors often think that prices will never come back into a buying range. Experienced investors are keenly aware that stocks have been on a rollercoaster this millennium, with corrections of 55% in the Dow Jones Industrial Average during the Great Recession (2008) and 78% in the NASDAQ Composite Index in the Dot Com Recession (2000). You don’t always have to wait for a market correction to get a great price, however. Sometimes, there is a rapid fall off the cliff in the price that happens overnight. The Ethereum Flash Crash of June 21, 2017 is a great example (crypto currency). The price dropped from $318 to 10 cents in a matter of minutes. One smart investor with a limit buy order bought at 10 cents and saw his prescience reward him before the setting of the sun. A sundry of stop loss investors would have lost their shorts, if the GDAX hadn't made a one-time exception to ignore the orders. Today, Ethereum is back at $283.75.
So, what are some of those hot stocks?
There was an artificial intelligence company, a marquise clean energy company, a company that targets the law enforcement community and a Chinese company. I could give you a fish in a private, prosperity coaching session (offer up the names of these companies). Or I can teach you how to fish, which will sustain you now and for the rest of your life, at my Investor Educational Retreat. Call 310-430-2397 if you are interested in either of these opportunities.
What’s the Secret To Profiting on a Hot Stock?
When you buy a hot stock, it doesn’t feel like a hot stock at all. Nobody likes buying low. In fact, it feels lonely because no one else is interested at all. People assume there is something inherently wrong with the company when the price is low. You might feel as though you’re walking into a burning building, with the coals still smoldering, saying “I see potential,” when just moments before others were racing out yelling, “Fire!” You have to understand why the company is going to be hot, and why you are seeing this before everyone else is.
If you wait for the headline, then the price is going to be high. That is why my Stock Report Cards and Four Questions work so well. You are able to peer into the crystal ball, understanding exactly why the company is going to explode on the marketplace like a rocket, and buy the company’s stock while it is still trading for a great price. These tools can also forewarn you about stocks that everyone thinks are hot, but are poised to sink like a rock in share price. One example of this was my warning on the Snap Inc. IPO. Click to read that warning blog from February of this year.
Since my warning, the Snap share price has dropped by almost half.
Don’t Confuse a Bull Market With Wisdom
Late into a bull market, I always get calls from people bragging about how much money that they have made. Sadly, because Wall Street has been such a rollercoaster since 2000, very shortly thereafter, I’m often receiving an SOS call. The truth is that most people shouldn’t be trading. You should be invested however, and here is the reason why. If you just save your money, you might have thousands at the end of four decades. If you invest that money, you’ll become a millionaire.
Investing with a smart system means getting enough safe, diversifying, adding in the hots, avoiding the bailouts, knowing what safe is, and rebalancing annually. This might sound complicated. But it is easy as a pie chart. I teach this at the Investor Educational Retreats, too.
This is the 9th year of the current bull market, so wake up and make sure that you are protected, diversified, safe and hot, and that you know what is safe in a world where bonds and money market funds are vulnerable. Do not just have blind faith in a financial professional. In a downturn, if you lose more than half of what you’ve got, your money is gone and it can take a decade or more to make up the losses. (It took NASDAQ 15 years to return to the highs set in 2000.)
Are You Tempted to Buy High?
The last two recessions were so deep and devastating that most investors were too gun shy to buy anything at the bottom, when everything was on sale. Those same investors who sold low to stop the pain and losses at the bottom of the market are now tempted to jump back in, even though, as we enter the 9th year of the bull market, we may be primed for another correction. That is the problem with market timing. More often than not, you're selling low and buying high. Wisdom and a solid, time-proven system allow you to profit and earn money while you sleep, while protecting what you have from recessions and losses. My easy-as-a-pie chart nest egg strategy earned gains in the last two recessions and outperformed the bull markets in between. (Click to watch Nilo Bolden's video testimonial.)
This economy is far more fragile than it was in 2000 or 2008. Home prices are higher than they’ve ever been, as is debt (personal, corporate, public, municipal, financial industry), stock prices and much more.
Whether you have made a killing in stocks this year, were burned by buying gold high when that asset was on a tear in 2011, are buried in debt or struggling to get ahead, there are easy, time-proven solutions that are available, which can put you on a better track to a more prosperous today and tomorrow. You can live a richer life, save thousands each year, have fun and profit (safely) on hot stocks, protect what you have, reduce your debt and even have more money for bucket list vacations. Now is the time to get money-smart, no matter what this year has been like for you! The sooner you learn and adopt the secrets of the wealthy (which is not the mainstream money group think), the faster your life transforms. Wisdom is the cure.
Call 310-430-2397 to learn more.
Ever wonder who is picking up the tab every time the U.S. borrows more money to pay its bills? How is it that we can magically raise the debt ceiling and, poof!, instantly more money appears? Who would loan money to a country that has doubled its public debt load over the past decade? (And did the same thing the decade prior to that.)
Errr. For the most part, we do. If your 401K, IRA or savings account is invested in a Treasury bill mutual fund, ETF or money market account, you own part of the U.S. debt. The Treasury has also borrowed from “the trusts for Federal Social Security, Federal Employees, Hospital and Supplemental Medical Insurance (Medicare), Disability and Unemployment, and several other smaller trusts” (according to the World Fact Book). About 31% of the debt is owned by foreigners, with China and Japan holding about $1.1 trillion each, followed by a lot of European nations, a few Middle Eastern nations, Russia and others.
Japan and China have actually reduced the amount of our debt that they hold over the last year. Saudi Arabia and Russia have both increased their holdings. Click to see the Major Foreign Holders of U.S. Treasury Securities.
Get more information on how social security accounts for 28% of the public debt and is the fastest growing (cash-negative) burden on our economy, in my Social Security Blog.
Is Debt Ever Good?
Borrowing from Peter to pay Paul only has a happy ending when the borrowing is done to fund something that creates great value. When an excellent student borrows money to become a doctor, engineer, computer scientist, CFO (or another career with excellent earning potential), then the loan has a greater chance of being paid back. When a corporation borrows money to build factories to make products that the consumers of the world love, as Apple and Tesla have done, then the loans have a greater chance of being paid back.
America has long been the world’s reserve currency, with a legacy of inventing the products that the world loves. That plays in our favor. What plays against us is that the money being borrowed today is largely funding war, health care and social security, which account for almost 70% of the annual federal budget (source: Politifact).
While a country must defend itself and keep its citizens healthy and happy, we must also create the products, goods and services that the world needs and is hungry for to create a better tomorrow for the planet and all of us. In fact, the period of greatest expansion in U.S. history, under President Clinton, occurred during a relatively peaceful time for our nation. Our collective investments in the 1990s focused on developing the Internet and the smart phone, which put the U.S. at the forefront of innovation yet again. Anticipating the products of tomorrow is what kept America the strongest economy from the 1940s until 2000... A few years ago, China surpassed the U.S. in term of GDP purchasing power parity. As we slip into 3rd position on the global scale, behind China and The European Union, it's important to empower entrepreneurs, invest in Research & Development, educate our Millennials, get healthy, roll up our sleeves and work, and not just become a nation of war, borrowing and social security.
Should You Be Loaning the U.S. Money?
There are certainly safer investments that you should be considering. (I do not recommend just “cashing out” now without a plan, or dumping everything into Bitcoin, gold or real estate). I spend one full day on “What is Safe?” at my Investor Educational Retreats. I also offer a second opinion on your current budgeting and investing strategy. You can read my books and blogs and listen in on my free teleconferences. (I answer questions in the second half of my monthly teleconferences.)
Wisdom is the first step. Right action is also key. Quick fixes, lofty promises, free seminars and get-rich-quick schemes are more often scams and money pits. The solutions are not hard, but they do require accurate information and an effort on your part to learn and transform your own life.
When someone says, "Let me do it for you," prepare to be oppressed. When someone says, "Let me teach you how," prepare to fly. Again, be very wary of anyone who says they can fix this for you, and all you have to do is to write a check and trust them. There are very few people who have the results track record to warrant your trust and blind faith. Most “fixes” are actually commission-based products, and most of the experts offering those fixes are salesmen, who are schooled in sales-speak, not economics.
*This blog was updated on Oct. 10, 2017.
Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Gratitude Game, The ABCs of Money and Put Your Money Where Your Heart Is. She blogs on Huffington Post and Medium, and is a frequent guest contributor to national news shows and magazines. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.