Mid - December Update

Equity Update – Domestic Stock Markets

The Dow pierced through 24,000 towards the end of November as optimism about tax reform passage intensified. A primary emphasis to reduce both corporate tax rates and small business rates accelerated equity prices higher as optimism grew with the realization of passage.

The relationship between corporate taxes and equity valuations have been signed with the anticipation of a lower corporate rate, which has been elevating stocks ever since the election. The reduction in the corporate rate from 35% to 20% is expected to benefit certain companies more than others as tax rates vary among sectors.

Further, public companies are at their most profitable on record as earnings have increased nearly 19% in the past year. While the economic news is good, please bear in mind that corrections – and bear markets – are normal and natural and will occur without warning. Investing is a long-term endeavor.

Sources: Dow Jones, S&P, Bloomberg


Social Security Payments Increasing By 2% – Retirement Planning

Social Security recipients are due to receive the largest increase in benefits in six years. But for many recipients, the increase in payments will go towards higher Medicare costs. The Social Security Administration announced a 2% increase in benefit payments effective in late December 2017 for disability beneficiaries and in January 2018 for retired beneficiaries. The 2% increase is the largest increase since a 3.6% increase in 2012. However, many are concerned that the 2% increase may not cover expenses that are rising at a faster rate, including other essential items such as food and housing. And in a ” catch -22″ scenario, the latest increase also affects the premiums for Medicare Part B, which covers doctor visits and outpatient care. Medicare premiums are expected to increase at the beginning of the year, minimizing net increases in Social Security payments.

The establishment of Social Security occurred on August 14, 1935, when President Roosevelt signed the Social Security Act into law. Since then, Social Security has provided millions of Americans with benefit payments. The payments are subject to automatic increases based on inflation, also known as cost-of-living adjustments or COLAs which have been in effect since 1975. Over the years, recipients have received varying increases depending on the inflation rate. With low current inflation levels, increases in benefit payments have been subdued relative to years with higher inflation. The COLA adjustment for 2018 is 2.0%, a steep increase from the 2017 adjustment of only 0.3%.

As of October 2017, over 66.7 million Americans currently receive Social Security benefit payments, with 46.3 million aged 65 or older. The Social Security Administration estimates that Americans will receive over $931 billion in Social Security benefit payments in 2017. In many ways, social security is an IDEAL retirement income vehicle: Very few investments offer predictable income, inflation increases and death benefits. But is it enough?

Mid - December Update

Bitcoin HysteriaDigital Currency Overview

Euphoria has sweep Bitcoin to unreal levels over the past few weeks. Bitcoin, one of many digital currencies, shot past 11,000 in the final week of November after eclipsing 10,000 just hours prior. Last week, the price of Bitcoin broke 19,000 making traders and speculators giddy. The cumulative value of all cryptocurrencies throughout the world is estimated to be more than $300 billion, an enormous increase from the $18 billion at the beginning of the year.

The commodity futures trading commission granted the Chicago Board Options Exchange (CBOE) to issue Bitcoin futures which will allow traders to bet on the price of the digital currency via a trusted exchange. Traders will be allowed to bet on the appreciation of the cryptocurrency or the demise of it by buying and selling the futures.

What took the equity markets decades to establish, the cryptocurrencies market is trying to build in mere months. Bitcoins emerged in 2008 designed by a programmer or group of programmers under the name of Nakamoto, whose real identity remains unknown. New Bitcoins can only be created by solving complex math problems embedded in the currency keeping total growth limited. Bitcoin currently accounts for roughly 55% the total digital currency market, down from 87% of the total market at the beginning of the year. Hence, Bitcoin has incredibly fast-growing competition. Bitcoin is currently one of over 1000 other digital currencies in the marketplace. Other popular cryptocurrencies include Ethereum, Ripple, Litecoin, NEM, Dash, and IOTA, to name just a few.

Digital currencies are being examined as a store of value and a method of making monetary payments. Gold, an accepted store of value, and currencies issued by countries have been established internationally for centuries and are and now challenged by the cryptocurrency concept.Part of the surge is based on speculation that perhaps one day the digital money will eventually become a legitimate global currency. The problem for Bitcoin, however, is that it’s on a collision course with the Sovereign States. Bitcoin was founded on a libertarian ethos, and its believers completely resist licensing and registration. Take that to it’s logical extreme and it entails the elimination of Central banks. The actual volume of Bitcoin transactions has been next to nothing, hence governments are snoozing. If Bitcoin ever grows to critical mass politicians would wake up – and modern states are not quick to concede the power of the purse.

For these reasons and more, one can compare Bitcoin to the tulip craze in Holland of 1637, a speculative bubble. At the first serious (and likely coordinated) move by governments to regulate or bank the digital currency, the bubble will almost certainly burst and speculators move onto the next lunacy.  There is nothing wrong with speculation, as long as it is not confused with investing.

There is a silver lining in all of this:  Bitcoin has attracted attention to the underlying platform called blockchain. This technology could revolutionize future transactions of many kinds, providing secure execution of “Smart contracts” as well as fast, efficient claims processing that eliminates the expensive middleman. Eventually, those platforms should stabilize, but it probably takes a lot longer than Bitcoin Mania suggests!